The Commissioner of Taxation of the Commonwealth of Australia v Graham Bargwanna & Melinda Bargwanna as Trustees of the Kalos Metron Charitable Trust

[2012] HCATrans 6

[2012] HCATrans 006

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Sydney  No S284 of 2011

B e t w e e n -

THE COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA

Appellant

and

GRAHAM BARGWANNA AND MELINDA BARGWANNA AS TRUSTEES OF THE KALOS METRON CHARITABLE TRUST

Respondent

FRENCH CJ
GUMMOW J
HAYNE J
HEYDON J
CRENNAN J

TRANSCRIPT OF PROCEEDINGS

AT CANBERRA ON WEDNESDAY, 1 FEBRUARY 2012, AT 10.17 AM

Copyright in the High Court of Australia

MR D.M.J. BENNETT, QC:   If the Court pleases, I appear with my learned friend, MS K.J. DEARDS, for the appellant.  (instructed by Maddocks Lawyers)

MR D.B. McGOVERN, SC:   May it please the Court, I appear with my learned friend, MR J. HOROWITZ, for the respondent.  (instructed by Charles Hockey Solicitor)

FRENCH CJ:   Yes, Mr Bennett.

MR BENNETT:   If the Court pleases.  Your Honours I propose first, after handing up the propositions, to take your Honours through the relevant provisions of the Act, then to deal sequentially with the two issues.  The first is the question of whether one looks as a whole at whether the fund has been applied for charitable purposes or whether one says:  has all of it been applied for charitable purposes?  The second issue is:  in the areas where breach of trust is relevant – and I will deal with that partially in the first section – does one look to knowledge that it is a breach or merely knowledge of the particular application?

Now, your Honours, the Act – it is the Income Tax Assessment Act 1997 and we are dealing with Division 50.  The general provision is section 50‑1, which provides that:

The total ordinary income and statutory income of the entities covered by the following tables is exempt from income tax.  In some cases, the exemption is subject to special conditions.

Then in 50‑5 part of the relevant list appears and item 1.5B is:

fund established in Australia for public charitable purposes by will or instrument of trust (and not covered by item 1.5 or 1.5A)

Now, the special conditions it says “see sections 50‑52 and 50‑60” and if your Honours go to 50‑60 your Honours will see there are four specific requirements and a general requirement in the preamble.  This case, of course, is concerned with the general requirement in the preamble:

A fund covered by item 1.5A or 1.5B is not exempt from income tax unless the fund is applied for the purposes for which it was established –

and then there are some specific rules.

GUMMOW J:   What is the temporal force of “is applied”?  Applied when?

MR BENNETT:   Your Honour, in our respectful submission it basically means at all times.

GUMMOW J:   Before the decision on the application?

MR BENNETT:   Before the decision on the application, yes.

GUMMOW J:   There is a provision for revocation, is there not, after grant of this endorsement?

MR BENNETT:   Yes, there is, your Honour – that is 50‑155, I am told:
.

The Commissioner may revoke the endorsement of an entity as exempt from income tax if:

(a)      the entity is not entitled –

or if he has requested information and it has not been given.  One does not get any great assistance in this case from the expressio unius maxim.  Of course we all know, to use the cliché, “It is a poor servant but a bad master”, but your Honours will see that we have the words “principally” and “solely” appearing at various times in item 50‑60 and, indeed, throughout Division 50 so we do not get a great deal of help as to whether it means principally or solely or anything else.  Our simple proposition, of course, is that the “fund is applied” means what it says, that all of it has to be applied.  Now, we acknowledge two exceptions ‑ ‑ ‑

GUMMOW J:   Just before you depart from that.  It says “is applied for the purposes for which it was established”.

MR BENNETT:   Yes.

GUMMOW J:   That would direct one back, would it, to 1.5B, established by “instrument of trust” in this case.

MR BENNETT:   Yes, “established in Australia for public charitable purposes”.

GUMMOW J:   Yes, by “instrument of trust”.

MR BENNETT:   Yes.

GUMMOW J:   Yes.  So, does the question of application involve some understanding of the charitable purposes identified in the particular instrument? 

MR BENNETT:   It may well do, your Honour.  That does not arise in this case specifically.  The way we put it is this.  There are two exceptions when one says it must all be applied.  The first is obvious.

GUMMOW J:   Well, what does “applied” mean?  That is what I am trying to get to.  Assume the trust permits the income to be added to capital but the capital is to be applied for charitable purpose from time to time.  You see what I mean?

MR BENNETT:   Yes, that comes within what I will be describing as the second exception.  The first exception is that mandated by the, what we say is a rule of law, a de minimis non curat lex, and clearly if there were a totally de minimis misapplication that would not affect it.  If, for example, the trustees kept office supplies and they took a postage stamp from the trust’s postage stamps and used it whenever there are letters it would be a misapplication but clearly de minimis.  So that is the first qualification.

I do not think I need to take your Honours to authorities establishing the de minimis rule and that it is a rule of law which can effectively override virtually any other principle of law.  The leading case is the decision of this Court in Williams v The Queen (1978) 140 CLR 591, your Honours need not go to it. That is a case where a person was in possession of a pipe which had some microscopic grains of marijuana in it and he is charged with possession of those grains.

Now, of course, if he had been charged with having smoked it and those grains were used as evidence that would probably have been all right.  But he was charged with possession of the grains in the pipe and this Court held unanimously that the principle, de minimis non curat lex, applied and microscopic contents like that did not amount to possession under the relevant statute.  In the same way here, if there were use of the postage stamp that would not constitute an application otherwise than for purposes. 

The second exception is the more important one.  This was in part in issue before the Tribunal but your Honours are not concerned with that.  The Commissioner accepts his failure on those issues.  The second exception is that if the trust spends money adjectivally on either preserving or augmenting the trust fund so as ultimately to have a larger fund available for the charitable purposes, that is an application indirectly but it is an application for charitable purposes.  So we accept that as the second exception.

It is analogous in some ways to the word “investment’s” gloss on the provisions that charitable purposes includes giving it to some entity which will apply it to charitable purposes.  It is an indirect application but nevertheless an application. 

Now, that exception, however, in our respectful submission, has a sub‑exception.  That sub‑exception is derived from the context and the meaning of the word “apply” in that context and it is that the expenditure for the purpose of preserving or augmenting the capital may not confer a benefit on the trustees.  Now, in that respect the concept of misapplication and the concept of breach of trust intersect, otherwise the concept of breach of trust is much wider than the concept of application for other than the relevant purposes.

For example, if the trust deed had a condition that any charity to which money was applied had to be approved by a particular person and that was not done before an application that would be a breach of trust.  It would still be an application for charitable purposes.  So, one can have a breach of trust which is not an application for non‑charitable purposes.  It is harder to think of an example the other way and we do not need to think of one. 

So the reason for the exception to the exception lies in the nature of the provision and its function and its context, and this appears to some extent from the explanatory memorandum which I will take your Honours to in a moment; it is referred to in one of the judgments below.

What Parliament was concerned about was this:  that on the one hand it wanted to provide for the encouragement of charitable donations and the deductibility of charitable donations and the freedom from taxation of charitable institutions but, on the other hand, it was conscious that a private charitable trust is something which is capable of abuse.

One can well imagine situations where trustees of a charitable trust find a way through the expenses of the trust of diverting funds to themselves and that, in my respectful submission, crosses the line between legitimate expenditure indirectly for the purposes of the trust on the one hand and an application for another purpose on the other.  It is a necessary gloss on the word “application” when one looks at the context in which the word “apply” is used.

HAYNE J:   This approach you would have us adopt of exception upon exception proceeds from, I think, an as yet unstated premise about what the words “the fund is applied” means.  What meaning do you ascribe to the words “the fund is applied for the purposes for which it was established”?

MR BENNETT:   The word “apply” can involve a range of activities.  The normal and the most common, of course, is payment.  One applies a fund by paying it to someone or something.  A secondary meaning of the word “apply” can arise where the capital is used in some way without being expended.  The clearest example is the example in this case where it is placed in an interest offset account and thereby is applied for a purpose which we would say falls within the exception to the exception.  So “apply” can have both applications, if your Honour will excuse the pun.

HAYNE J:   Which is apposite depends, does it not, immediately and ultimately on the terms of the trust?

MR BENNETT:   Yes.

HAYNE J:   Does one not have to begin with the terms of the trust that is at issue in order to understand the way in which the phrase “unless the fund is applied” is to be engaged?

MR BENNETT:   Yes.

HAYNE J:   For example, if the trust is a perpetual trust, preservation of capital will be important.

MR BENNETT:   Yes, we accept that, your Honour.

HAYNE J:   Do you not need to begin there?

GUMMOW J:   Do we not need to look at this trust?

MR BENNETT:   Your Honour, this trust has ‑ ‑ ‑

GUMMOW J:   Volume 2, page 459.

MR BENNETT:   Your Honour, we are conscious of the provision about the power to invest as if they were absolute owners, beneficially entitled and so on.

GUMMOW J:   Clause 4.

MR BENNETT:   Yes.  That would probably be read down to some extent.  That is really a clause designed to permit speculative investment or loans without security – matters of that sort.  It is not a clause which is appropriate to permit what would otherwise be impermissible self‑dealing by the trustees.

GUMMOW J:   Likewise, clause 6 would have to be reined in in some way, I suppose.

MR BENNETT:   Clause 6 is only concerned with liability of the trustee.  Again, it is for the purpose of permitting ‑ ‑ ‑

GUMMOW J:   It has two parts, does it not?

MR BENNETT:   Yes.  The first part is an absolute and uncontrolled discretion.  That is not in the area of discourse of self‑dealing.  That is in the area of discourse of speculative or risky investment.  Therefore, it does not assist in this case.

FRENCH CJ:   Sorry, can I just come back for a moment to (d)?  Clause 3 is the purpose clause which refers to:

such public charitable purposes as the Trustees shall from time to time determine.

MR BENNETT:   Yes.

FRENCH CJ:   That is exhaustive of, you would say, “the purposes for which it was established” within the meaning of section 50‑60?

MR BENNETT:   Yes, your Honour, as far as the ultimate purpose is concerned, yes.  That clause, again, does not on its own deal with the question of expenditure and application and so on.  That is dealt with partially by clauses 4 and 5.

FRENCH CJ:   Or their powers in aid of the purposes.

MR BENNETT:   Yes, yes.  Now, here of course we would say one is dealing with things which are neither de minimis, nor within the exception because of the exception to the exception.

GUMMOW J:   Nor, if it matters, I think you would say were they matters to be excused under section 85 of the Trustee Act?

MR BENNETT:   They may well be, your Honour, but that would be irrelevant to the present case because there could be a misapplication, which to the extent that it was a breach of trust, was excused under the Trustee Act.  But it would still be a failure to apply for charitable purposes.  So we would submit that neither section 85 nor the various exclusions in the deed have any effect on the result in this case.  The question is was the fund applied for charitable purposes and that involves the two questions:  (a) does it mean all the fund - and we say it does; and, secondly, is there an application for charitable purposes where it is spent or applied in a way which operates to the benefit of the trustees or their family?

GUMMOW J:   If there had been a misapplication in one year, but the trustees restore to the fund what they should not have taken out of it in the next year, and they seek exemption in the third year, the fact that there has been a restoration of the trust fund, you say, would not avail them ‑ ‑ ‑

MR BENNETT:   Your Honours do not need to answer ‑ ‑ ‑

GUMMOW J:   ‑ ‑ ‑ because of what had happened in year one?

MR BENNETT:   Yes.

GUMMOW J:   We have to construe the Act, though, Mr Bennett.

MR BENNETT:   Yes, I understand that, your Honour, but ‑ ‑ ‑

GUMMOW J:   Not dance on a pinhead.

MR BENNETT:   That is a difficult question on which one could go either way.  One could say that “is” has an element of contemporaneity and, to take an expression from another context, it depends on what the meaning of the word “is” is.  But, on the other hand, if there was once a serious misapplication, which might on one view involve almost the whole of the fund, one would not say this is a fund which is applied.  “Is”, in other words, covers a large area.  It may be where the single misapplication occurred in the distant past, one would say because of the de minimis approach, that the combination of time and amount involved has the effect that it does not prevent the fund being applied, but we would ‑ ‑ ‑

HAYNE J:   Why would one, or can one read 50‑60 as presently engaged in respect of the particular year of income?  No doubt in the endorsement provisions it may have other temporal connotations, but immediately why is 50‑60 not to be read as focusing on the year of income in question?

MR BENNETT:   Your Honour, because we are concerned with the nature of a fund and what is done with it and that, in our respectful submission, necessarily implies what is done with it over a period and we would submit a period greater than the particular year.

HAYNE J:   I can understand that in relation to endorsement but endorsement is picked up by 50‑52, is it not?  You have item 1.5B in 50‑5, “Special conditions” - 50‑52 and 50‑60; 50‑52 is the endorsement requirement; 50‑60, unless the fund is applied?

MR BENNETT:   Yes.  The references in (a), (b), (c) and (d) rather suggest that the preamble is talking about the period “since 1 July 1997” so it rather suggests that one is looking beyond the current tax year.

HAYNE J:   Yes.

GUMMOW J:   Now, suppose an exemption is granted halfway through an income tax year, what happens?  How does this system then work for the exemption?  It does not seem to contemplate ‑ ‑ ‑

MR BENNETT:   If the exemption is granted it is granted, your Honour.

GUMMOW J:   With effect for the whole of the year?

MR BENNETT:   It would be for the whole of the year, yes.

FRENCH CJ:   In this case there was an application for endorsement going back to 2000, was there not, which was made in – was it 2003?

MR BENNETT:   Yes, I think that is so, your Honour.  I will have that turned up, if your Honour wishes.  The first error in the judgment of the Full Court appears at paragraphs 59 to 63 in the Full Court’s reasons which start at 1281 of volume 3 of the appeal book.  They refer, at about line 25, to the relevant provision unless the fund is applied for the purposes which is established.  They then go to the decision of this Court in Word and they quote a passage in Word at line 38: 

Whether an entity is a “charitable institution” depends in part on its purposes and in part on its activities so far as they carry out those purposes; if its activities involve ceasing to apply its assets to the purposes for which it was established, it ceases to be a charitable institution.

This Court made the very simple point that the reason why the words “applied for purposes for which it was established” were needed in the 50‑60 and not in 50‑50, is that in 50‑50, it was talking about a charitable institution and if it satisfied the meaning of “charitable institution”, then its assets were applied for charitable purposes.  But in relation to the trust funds to which 50‑60 applied, they needed to express it.

Now, that statement is, we would submit, quite clearly correct but it does not involve the proposition which the Full Court seems to draw from it.  What they draw from that in 63, on the next page, is this:

We do not understand the High Court to have said that any breach of trust will necessarily lead to that outcome.  The words “acting in breach of trust and not applying the assets to the relevant trust or fund purposes” convey an element of continuity. 

The question there – just interrupting – is whether it is continuity of the negative or continuity of the positive -

The expression will not generally be apposite to describe a discrete breach of trust, at least if it involves only part of the relevant assets.

Except, of course, a discrete breach of trust or discrete misapplication, might negate continuity -

The trustee must be mis‑applying the fund as a whole.  Use of the continuous present tense and reference to the assets of the fund or trust suggest something more than one misapplication of a part thereof. 

Well, we submit, that is a non sequitur -

We are inclined to the view that s 50‑60 should be similarly understood.  It is the fund in question which must be applied for relevant charitable purposes. 

Yes, and an element of continuity, yes -

Misapplication of part of it on one occasion may not necessarily lead to the conclusion that the fund as a whole is being (or has been) misapplied.

That last sentence may be true in some situations, but it, of course, may not necessarily lead to the conclusion and so on.  But we would submit that unless it is within the exceptions, it does take away the continuity and the continuity is a positive continuity – I am sorry, is a negative continuity, not a positive continuity.  But, certainly, one cannot get to the proposition which their Honours derive from the passage in Word.

There was also a problem that the Full Court seems to leave the precise test it is laying down as covered with some uncertainty.  In paragraph 69 they say:

Whilst it is true that s 50-60 does not speak of “substantial” application of a fund to its charitable purposes, it also does not speak of misapplication of part of a fund.  The relevant words are “the fund is applied”.  The relevant question seems to be whether, having regard to the whole administration of the relevant fund, it is to be concluded that it “is applied” to the relevant charitable purpose.  The question is not limited by concepts of substantiality.  Nor does it address individual misapplications of parts of the fund.

That seems to involve a little bit of contradiction.  On the one hand, one would have thought that when they are referring to the whole administration of the relevant fund, one has the impression that that is the very thing they are talking about, that it is substantially applied.  Then they say it is not limited by concepts of substantiality. 

So it is very difficult to work out exactly what they are concerned with.  Also, as we point out in paragraphs 43 and 44 of our submissions, it is very difficult to see how their tests would apply in other situations involving a single misapplication. 

CRENNAN J:   Well, it is very easy to conjure up examples of single misapplications which will amount to the fund not being applied for the charitable purposes. 

MR BENNETT:   Yes.  The simplest is the misapplication of the whole of the fund in one fell swoop.  So the issue is not whether it is done once or not, and recognising the de minimis exception, the issue is whether it is done at all, otherwise one just does not have the continuity. 

Now, I have accepted that breach of trust on its own is not the test.  It is simply whether it is applied for the purpose.  But in relation to the exception to the exception one gets into a different area, and there the Full Court seems to have drawn a distinction between entering into a transaction knowing that it is a breach of trust and otherwise.  We would submit that cannot be the test on any view of it.  That is not the test for a breach of trust and it is not the test for a misapplication. 

Certainly there must be conscious action by the trustees, but the question is not whether they knew that what they were doing amounted to a breach of trust or, indeed, amounted to a misapplication.  If they were to give the whole of the fund to a body that was not within the meaning of the words “charitable institution” but which they thought was sufficiently charitable, that would not prevent it being a misapplication. 

It is not whether the trustees know that it is a breach.  It is whether they know what they are doing.  One can understand if, for example, they wanted to give money to a particular charity and they deposited it into the charity’s bank account but misplaced a number in depositing it into the bank account so it went somewhere else, that might well be an inadvertent misapplication, but that is not what we are talking about here.

FRENCH CJ:   What is the content of the concept of application?  I mean, this is a statutory formula which goes back a long, long way.

MR BENNETT:   Yes.

FRENCH CJ:   If you use money from the fund and pay it into, say, an interest bearing term deposit of some kind so that it can earn income, only that is not an application in the sense that is meant in this statutory formula ‑ ‑ ‑

MR BENNETT:   Well, that is within my second exception.

FRENCH CJ:   I am just looking at the concept of application and I do not know that one needs to characterise it in terms of exceptions.  Then there is the question of characterisation of a particular use, whether it is a use which is an application or is an interim step for the benefit ultimately of some charitable purpose.  An argument about, in this case, the offset interest account, is that an – what do you need to find in order to find an application of the fund?

MR BENNETT:   Well, your Honour, the ‑ ‑ ‑

FRENCH CJ:   Putting to one side for a moment the question of whole and part and de minimis and so forth.

MR BENNETT:   Basically, two things:  either a payment or a use of the fund of the type involved here, placing it in an interest offset account, making it available as security for someone else’s debt would be another example of an application even though one did not expend a penny.  If the fund held real estate, mortgaging it might be an application.

FRENCH CJ:   Is there any issue in this case that a payment into the offset interest account was an application of at least moneys in the fund in the sense contemplated in the provision?

MR BENNETT:   Not on our side, your Honour.  I do not know if my learned friend would put that argument.  I do not understand that argument.

FRENCH CJ:   It is said to be to the ultimate benefit of the fund in the sense that the Bargwannas assumed some obligations.

MR BENNETT:   Well, my understanding of my friend’s case on that is not that it is not an application for that reason but that it is not an application because it is simply for the benefit of the fund.

FRENCH CJ:   It is an application but for the benefit of the ‑ ‑ ‑

MR BENNETT:   I do not understand my friend to take the point that it is not an application but for that, but if I am wrong, I am wrong, but that is certainly my understanding of his position.

The explanatory memorandum, which I wanted to refer to earlier – the relevant part is set out in the judgment of this Court in Word 236 CLR 204 in paragraph 63 on page 233. Your Honours will see the general explanation for the amendments to the…..was:

The measures will address avoidance arrangements which take advantage of the tax exempt status of charitable trusts and close off the possibility of certain organisations which also currently enjoy an income tax exemption from being used for tax avoidance purposes.

Then there is reference to foreign things which are not relevant.  So all we get from that is this:  that in looking at the word “application” one must bear in mind the two purposes – first, the desire to benefit charity and, secondly, the desire to prevent avoidance by the use of private charitable trusts.  For that reason, once one accepts that the word “application” must have an exception in relation to expenses for the purpose of preserving or augmenting the fund, there must be an exception to the exception along the lines that I have indicated.

The nature of the type of body we are concerned with is that if the trustees apply the money by investing with themselves or lending it to themselves or otherwise using it in a way that gives themselves some benefit, then the nature of the structure is such that that is an application.  One has applied part of it for their benefit and part of it for the charitable purposes.

GUMMOW J:   Mr Bennett, could I just understand the chronology a little more carefully.  At page 1165 in volume 3, which is the reasons in the Administrative Appeals Tribunal, it said that the application was made in November 2004, exemption with effect from 1 July 2000.  The Commissioner refused and on 9 September 2005 disallowed the objection.  Then if one goes to 1214, the Tribunal set aside that decision of the Commissioner, disallowing the objection, and determined that there was an entitlement to endorsement as at 9 September 2005, which is the date of the disallowance.  Then it says:

and is to be endorsed as so exempt, with effect from 1 July 2000.

The acts of misapplication to which you refer occurred after 1 July 2000, did they not?  It has been over a couple of years.

MR BENNETT:   Yes, they did.

GUMMOW J:   You would say that meant that the decision of the Tribunal was wrong because it could never have been exempt with effect from 1 July 2000 having regard to what had happened since.

MR BENNETT:   Yes.

GUMMOW J:   As I understand it, your opponent wants a reinstatement.  As a substantial order he wants reinstatement of the position he held in the AAT.

MR BENNETT:   Yes, he seeks that by way of cross‑appeal.  I am not quite sure of the status of the cross‑appeal.  We refer in our submissions to the fact that no argument has been put in support of the cross‑appeal, and no submissions in reply were put to that proposition, so we rather treat the cross‑appeal as being abandoned.  But there is a question as to whether it would be ‑ ‑ ‑

GUMMOW J:   It would need leave, would it not?

MR BENNETT:   It would need leave.

FRENCH CJ:   Yes, subject to special leave.

MR BENNETT:   It would need special leave.  Now, in Mahony v Commissioner of Taxation ‑ ‑ ‑

HAYNE J:   To return to this question of chronology, if we go to 1214 of the appeal book at paragraph 121 of the AAT decision it seems that the decision is that in part, at least, because the trust had immaterial income before June 2003, it is desirable to date it back.  I am not quite sure how that works. 

MR BENNETT:   It is not clear to me why its income is the most important factor.  It is its assets, one would have thought, and the application of its assets.  Yes, the application form appears in volume 1 of 3 of the appeal books at the very beginning and your Honours see question 33 on page 8 is:

From what date do you want to be endorsed as an income tax exempt charity?

The answer is 1 July 2000.  The person filling in the form is given strong hint by the wording of the question. 

The decision in Mahony v Commissioner of Taxation (1967) 41 ALJR 232 and that concerned the old section 23(j)(i) which exempted from tax the:

Income of provident, benefit or superannuation fund established for benefit of employees -

provided that the fund is being:

“Applied” for the purpose for which it was established –

which of course is the predecessor of the – the Full Court – if one can just keep that case open for a moment ‑ ‑ ‑

FRENCH CJ:   What did you want to take us to Mahony for?

MR BENNETT:   Only to show that the Full Court seems to have misapplied it.  The passage in the Full Court decision – I am sorry about this, I have just lost the reference. 

FRENCH CJ:   I see you refer to Mahony in paragraph 6 of your outline.

MR BENNETT:   Yes, your Honour.  No, it is a different of aspect of Mahony I was seeking to refer to. The passage I wanted to refer to is not in the Full Court, it is in the Tribunal. If your Honours go to paragraph 64 of the decision of the Tribunal at page 1192 - no, I am sorry, that is not it. What I wanted to refer to was page 1208 – I apologise to your Honours – at page 1208 your Honours will see the Tribunal make the point that:

the interest offset transaction was in the nature of an ordinary commercial investment for the benefit of the trust fund itself.  It is, in my opinion, in a similar category to the loan transactions commented upon approvingly by Taylor J in Driclad –

Now, that is a statement, of course, which denies the force of the exception to the exception.  But what is interesting about it is that that part of the decision of Justice Taylor did not survive in the Full Court.  If your Honours go to 121 CLR, your Honours will see – Justice Taylor at page 61, having referred to loans to the employer companies by the trustees, at the bottom of the page says this:

Nor, in my view, does the evidence indicate that the fund was, as is suggested, being used for the benefit of the contributing companies or, that during the relevant periods, it was not being applied for which it was established.  The investments in question were within the investment powers of the trustees and, to my mind, it was immaterial whether the funds were invested in this or some other manner.

Now, when the matter was dealt with on appeal – if your Honours go to the judgment of Chief Justice Barwick and Justice Kitto at page 67, they say at about point 7 of the page:

If, therefore, it were the case the payments were simply made to the trustees of a fund, and, that the fund had been established from which such benefits are to be provided and for another purpose as well, e.g., to return to the company as loans payments made by the company to trustees, we ourselves would think that the income of the fund would not be within s. 23(j) –

So that rather suggests that the example given by his Honour at first instance does not meet with her Honour’s approval.  The appeal was allowed but it is not a simple result because Justice Taylor found that in relation to what he called the “A funds” they were deductible.  In relation to the “B funds” they were not and the Full Court held that both were all right.  But we are not concerned with that detail of the Driclad Case. 

HAYNE J:   But does not the passage that you have taken us to in the joint reasons on Driclad turn upon the hypothesis that there was an obligation to lend back.  If we go over to 68 - I may well be misreading it - but it would seem, perhaps from what is said at 68, that in circumstances where the loan back to the employer is not obliged by the deed, but permitted, it is still a 23(j) fund, or am I misunderstanding it - I may well be - because the upshot of the case seems to be, whereas Justice Taylor found the assessment excessive as to part, on appeal the Full Court enlarged the taxpayers’ success by saying excessive as to both A and B.

MR BENNETT:   Yes.  That was the result in the case, your Honour, yes.  But what the case is used by the Tribunal to say is to take that single passage from the judgment of Justice Taylor and say he approved of a concept of that type of a loan being made by the trust to the trustees – or in that case to the company – and my point simply was that that is at least qualified by the passage at page 67 in the judgment of the Chief Justice and Justice Kitto.  The ratio seems to be that it was not the purpose for which the fund was established.  They say at the bottom of 67, the very last sentence:

So, for instance, if a deed were to contain a clause requiring the trustees to lend to taxpayers the payments . . . at favourable rates of interests, we would think that much could be said against treating such a deed as constituting a fund falling within either s. 23(j) -

They then say that here it was:

lent to the taxpayers . . . but, although the deed permits this, it does not require it -

That seems to be looking solely at the question of establishment of the fund and not at all at the question of application.  So it does not seem to be considering application in dealing with it at that stage.  It is interesting to note that in the concurring judgment of Justices McTiernan and Menzies, on page 69, they commence by saying:

In this case it makes no difference whatever to the parties whether the appeals of the companies are allowed or dismissed.  It is with the reasons for judgment that the appellants are concerned.

Therefore, they do not dissent from the orders.  It is not quite clear why it makes no difference at all to the parties but, anyhow, we are not concerned with that.

FRENCH CJ:   Now, I think at paragraph 50 of your written submissions you take us to what looks like the next proposition by reference to what Justices Taylor and Windeyer said in Mahony, and that is that a fund is not being applied if it is not being applied in accordance with the rules of the trust, and that you rely upon for the submission at 50 that “a misapplication of a fund”. I presume you are incorporating in the concept of misapplication application other than according to the rules of the trust, of the provisions of the trust deed.

MR BENNETT:   Yes, your Honour.

FRENCH CJ:   Any application excluding de minimis, which is not in accordance with the trust deed, takes you out of ‑ ‑ ‑

MR BENNETT:   Yes, and, your Honour, the simple question is that is the continuity that you have to have the continuity, the positive continuity or the negative continuity, and we submit the continuity is broken if there is an application other than for the authorised purposes. 

Now, I do not think I need to say much about the other aspects of the case.  It is hard to see why one would ever want to – one would ever be concerned with whether there was knowledge of a breach of trust, knowledge that something was a breach of trust, as opposed to knowledge of the specific acts and specific things being done.  The only way it could possibly be important is in an application for the removal of trustees but we are not in that area of discourse here at all.

The question is has there been a misapplication or has there not?  One does not answer that question by saying the trustees did not know it was a breach of trust.  The relevant knowledge must relate to what the application is and in the case of the exception to the exception that the application is in part for their benefit.

GUMMOW J:   Now, Mr Bennett, am I right in thinking that between 2002 and 2007 over that period the trust moneys were mixed in Mr Craik’s trust account?

MR BENNETT:   Yes, and he ran a trust account in a way which if he had been a solicitor would have had very different consequences.  The phrase “trust account” was used but, yes, the asset of the trust, of the fund in that trust account, was sometimes negative.  The fund was sometimes insufficient.

GUMMOW J:   It was mixed, in any event.

MR BENNETT:   It was a mixed fund, yes.

GUMMOW J:   Throughout the whole of this period, going up and down and ‑ ‑ ‑

MR BENNETT:   Yes, and what was said was, “That is the way I defray the cost of keeping the money for you, I do that for my clients and it is ‑ ‑ ‑

FRENCH CJ:   The defraying was on the basis that he put the money into his own trust account without paying any interest.

MR BENNETT:   Yes.

FRENCH CJ:   Any interest he kept for himself, as it were.

MR BENNETT:   Yes.  The question is not – it is not relevant whether the trustees knew the detail of what he was doing.  What is relevant is that the trustees simply delegated to him the whole of the management of that – the whole of the decision making in relation to that part of the fund.  One can understand that in the circumstances of the relationships in this case where he is the father of one of the trustees and a principal donor to the charity and so on.

FRENCH CJ:   But in relation to that mixed funds point you rely upon the incidence of the debit balances and the fact that the trust fund earned no interest, on the basis that he said the application was usual practice in respect of client funds?

MR BENNETT:   Yes.

GUMMOW J:   But they should not have been mixed, in any event, full stop.

MR BENNETT:   Of course they should not have, yes.

GUMMOW J:   Unless there was some provision for this to happen in the trust deed, which brings us back to the trust deed, I suppose.  Would this sort of activity be excused by the trustee?

MR BENNETT:   No, your Honour, probably not.  As I say had he been a solicitor and not an accountant he would have been in serious trouble.

HEYDON J:   Did the trustees or the trust know that Mr Craik was intermingling funds in this fashion?

MR BENNETT:   No, the evidence does not suggest that they knew that detail until later when they ‑ ‑ ‑

HEYDON J:   There is some suggestion that giving the money to Mr Craik and him not paying interest because of his services in administering that money and the money of other people, it was a sort of commercial investment justifiable under the investment clause of the trust deed.  How is that argument put by the respondent?

MR BENNETT:   Your Honour, as I understand it, it is put in much the same way that the argument in relation to the interest setoff account is put, that it is ultimately for the benefit of the trust and we are trying to build up the trust and the fact that ‑ ‑ ‑

HEYDON J:   Why is it ultimately for the benefit of the trust?  I mean it is only for the benefit of the trust if the money is earning more than the inflation rate. 

MR BENNETT:   Your Honour, I think the way it is put is this.  Any expenses the trustees incur for the purpose of preserving or augmenting the trust fund is not an application.  If something goes wrong that is just part of the risks of any business, rather as if the trust lends money to someone and the person goes bankrupt.

HEYDON J:   If you lend money to Westpac and unfortunately it goes into liquidation that is a problem.

MR BENNETT:   That is the sort of example they would use.

HEYDON J:   But if you lend it to your father‑in‑law, where is the advantage going to come from?  How can it be defended as an “investment”?

MR BENNETT:   Well, your Honour, in my respectful submission, it cannot be.  It is within my exception to the exception, which I find the better way of putting it. 

HEYDON J:   What worries me is that the AAT delivered lengthy reasons for judgment and Justice Edmonds disagreed with the principal themes in those reasons.  To what extent do we have to get into the matter, as it were, transaction by transaction?

MR BENNETT:   Your Honours probably do not.  It is really a matter, we would submit, of just disagreeing with the two errors which we identify in the Full Court’s judgment.  If it then goes back to the Tribunal that is no problem as long as it goes back with the correct direction.  The problem is Justice Edmonds and the Full Court differed as to what the law was which the Tribunal should then apply.  That was the basis on which we got special leave, that the law has to be defined so that the Tribunal can get it right.  Everyone seems to have a different view so far as to what rules should be applied.

GUMMOW J:   I think you say that having regard to the matters we have been discussing as breaches over this period that it would not be appropriate to endorse any exemption with effect from 1 July 2000 to give that endorsement as at 9 September 2005, having regard to what by 2005 is a situation as to maladministration.

MR BENNETT:   That would be a much simpler way of dealing with it, your Honour, and we would seek that.  Your Honour, those are our submissions, if the Court pleases.  I should perhaps say one thing which probably ‑ ‑ ‑

GUMMOW J:   Why would we have to send it back if that was the ‑ ‑ ‑

MR BENNETT:   Well, your Honours would not. 

GUMMOW J:   A sufficiently clear result.

MR BENNETT:   That is my preferred course, your Honour.  Can I just say one other thing?  A lot of my friend’s submissions complain that we are challenging findings of fact of the Tribunal.  I will not go through with them one by one but every single proposition that he says is a finding of fact by the Tribunal by which we are bound is, in fact, a conclusion of law or

mixed conclusion of fact in law.  None of them are findings of fact under any fair definition of those words.  If the Court pleases. 

FRENCH CJ:   Thank you, Mr Bennett.  Yes, Mr McGovern.

MR McGOVERN:   May it please your Honours.  Your Honours will have our propositions of oral argument and our starting point is to ‑ ‑ ‑

GUMMOW J:   They seem to be unsigned.

MR McGOVERN:   I cannot quite do anything about that just at the moment, your Honour, but if I can proceed to just basically deal briefly with an overview of the facts and then I wanted to take your Honours to the evidence that is distilled in the reasons of the AAT and the findings of the AAT to support the proposition that in relation to the three impugned transactions there was no misapplication of the funds of the fund and in various ways they were proper applications or alternatively not applications that could be treated as being the responsibility of the applicants as they then were. 

Then I wanted to take your Honours to the issue of the construction of the provision which really lies at the heart of the case in terms of the dispute between the parties because the way that we construe section 50-60 and the condition that “unless the fund is applied for the purposes for which it was established” we want to develop an argument along the lines of saying that the fund is treated for the purposes of the provision as an entity and is, although it is the sum of its parts, so to speak, treated by the provisions as a discrete or separate entity.

In one way of construing the provision it is necessary to look at the particular applications that have been undertaken over the period of years leading up to the point wherever the decision‑maker makes his decision or the Tribunal standing in the shoes of the Commissioner makes the decision to then characterise the fund and in particular to characterise the applications of the fund as to whether it can then be said that the fund as a whole has been applied for the requisite purposes as opposed to the whole of the fund being applied for the requisite purposes, which in a nutshell is the way in which our learned friends seem to construe the applicable test for the application of the section.

We want to develop an argument along the lines of saying that if one looks at the text, the context and the statutory purpose, together with an analysis of the relevant cases that have considered the analogous predecessor provision, one does not approach the matter on the basis of looking at it on a transaction by transaction basis in the sense that one particular transaction would necessarily resolve the matter one way or the other. 

In other words, it is possible, depending upon the factual circumstances of any particular case, that if there was a misapplication – and that is a contested issue – one would need to construe all of the applications over the requisite period to see whether or not the essential character of the applications of the fund for charitable purposes are in any way impacted upon adversely by the particular misapplication.  If one can say it is the fund as a whole that is applied then the test can be satisfied.

If I could just very briefly go to the relevant factual background.  Your Honours know that between the period 1997, when the trust was established, up until 2007 there were about $293,000 of distributions that were made.  There was contest in the AAT as to whether or not the accumulation of the fund was for charitable purposes.  That was resolved in favour of the then applicants and no challenge has been brought to that decision in relation to application thereafter.

The fund itself was the subject of an initial contribution of $10,000 by Mrs Bargwanna, followed by a gift of $160,000 that was made by Mr Craik, and then Mr Bargwanna extended an interest free amount of $135,000 by way of severance payment to the trust so that the trust could use it interest free for a period of time.

In relation to the particular impugned transactions, if one looked at the debit balances contention, the evidence showed that there was a calculation that the loss in question over a period of four years was a loss of $1,000.  Mr Craik, the accountant, made a payment to the trust by way of compensation for that loss, although there was, it is admitted, some dispute between the applicants and the Commissioner as to whether or not that $1,000 was a comprehensive satisfaction or making up of the loss.  But nonetheless there was the offer by Mr Craik to make up that loss.

In relation to the interest offset account, the trust’s funds in the interest offset account were always less than the amount held in the account until January 2006 when, by reason of a transfer out of the account, the trust moneys were depleted by $4,848.75.  The way in which the interest offset account operated – if I can briefly discuss that – was that there was an initial contribution of $210,000 into that account.  From time to time the trustees were paid back, or had transferred back out of that account, amounts so that the amount of the trust moneys that was in the interest offset account progressively reduced. 

FRENCH CJ:   Is this initially the amount of a debt owed by the Bargwannas to the bank in relation to the acquisition of a house?

MR McGOVERN:   Yes.  There was an acquisition of a house property from Mrs Craik ‑ ‑ ‑

FRENCH CJ:   Yes.

MR McGOVERN:   ‑ ‑ ‑ the mother‑in‑law.  There was a borrowing of $210,000 from the National Australia Bank.  In a separate account, the $210,000 from the trust was deposited and as the time elapsed the $210,000 was reduced so the trust’s money was paid back to the trust’s sub‑account from time to time until January 2006 when there was a cheque that was written by Mr Bargwanna for house repairs on the basis of instructions from Mr Craik that he was able to do that.

The effect of doing that was to then cause the amount that was in the interest offset account, which was the trust’s money, to then be depleted by the $4,800.  I have brought that to your Honours’ attention because there was a controversy as to exactly what the amount in question was and the $4,848 was a deficiency or in the interest offset account until June 2007 and it was in June 2007 that the accountant, Mr Craik, not only compensated the fund for the loss of interest on the overdrawn amount, but also for interest on interest and that was a sum of $6706.22.

If your Honours briefly go to the AAT reasons in volume 3, your Honours will see at page  1206 at the top of that page there is a table and your Honours will pick up that figure of $4,849 which is described as “bank shortfall” as at 30 June 2006.  Then further down there is a figure of $40,954 which was actually a debit by Mr Craik to his own personal account, but that is an account of he and his wife and that is explained by the Tribunal at paragraph 98.

It describes the way in which the offset account operated and it explains that by January the actual balance of the interest offset account was only $147,151 but the reduced outstanding balance – that is the trust’s money that was in the interest offset account – was $152,000.  So that gives rise to the shortfall of $4,849.  But then at paragraph 100 the Tribunal indicates and finds that:

On 24 September 2007 the accountant paid a further $6,706.22 into the trust bank account as compensation –

The compensation that was made was in fact a compensation in addition to the $40,000 so it was a compensation by way of a compensation for loss of interest on interest.  In relation to the impugned transactions, if one looked at the overall circumstances of the trust at the time that it was considered by the Tribunal, any deficiency in relation to the debit balances have been made up as best could be calculated by Mr Craik, and in relation to the other deficiency it had been made up to the extent not only of the deficiency in the capital but also an interest on interest.

In our respectful submission, in relation to the question of the crediting of the interest, it should also be kept in mind that the crediting of the interest to the sub‑account of the trust was actually undertaken year by year by the accountant and it was not just a book entry, it was an entry that was made pursuant to the agreement between the parties in relation to the payment of interest and the trust had the benefit of interest that was credited from time to time because in effect some of its expenditure from that account in effect drew on the resources of other clients’ moneys within the sub‑account.

If I could just take your Honours to the appeal book at volume 2, page 724, your Honours will see something of the flavour of the operation of the account which your Honours will see at 724 is the Kalos Metron sub‑account, and the way in which the sub‑account operated you will see there are various credits for “WESTPAC FIRSTS – INTEREST”.

GUMMOW J:   This description, “trust account”, trust account of what trust activity?

MR McGOVERN:   It is “David Craik & Co. Trust Account”, your Honour, and it is a sub‑account within his account.

GUMMOW J:   A trust account he is required to keep as part of his activities as a real estate agent, or accountant, or what?

MR McGOVERN:   Not as a real estate agent, your Honour.

GUMMOW J:   Or what?

MR McGOVERN:   As an accountant.  The evidence in this regard was ‑ ‑ ‑

GUMMOW J:   What is the statutory basis that requires this of accountants?

MR McGOVERN:   It was not in contest in the ‑ ‑ ‑

GUMMOW J:   I do not care whether it was in contest or not, I just want to know what the fact is.

MR McGOVERN:   The fact appears to be that it is a mixed account, but as a chartered ‑ ‑ ‑

GUMMOW J:   What I want to know is does the relevant New South Wales law regulating accountants and the maintenance of trust accounts permit mixing?

MR McGOVERN:   Yes, your Honour.

GUMMOW J:   I need to know what the law is.  I am not going to take your word for it.

MR McGOVERN:   I am sorry, your Honour?

GUMMOW J:   I need to know what the law is.

MR McGOVERN:   Your Honour, we will double‑check that point.  If your Honours look at the transcript, or I will give your Honours a reference to the transcript at appeal book volume 1, page 66, line 39, this is the cross‑examination of Mr Craik.  It was put to him as to his understanding and it was said:

if I can describe it in that way – is in fact permitted by the Institute of Chartered Accountants unless a particular client requests that his trust funds not be intermingled with others?---That is correct.

Well, that is correct.  So that was the evidence in the case and the parties proceeded to ‑ ‑ ‑

FRENCH CJ:   So do not know whether it is a professional conduct rule or a requirement of the institute, or whether it is a statutory requirement or whether the rule of the institute is backed by a statute?

HEYDON J:   Or whether it is an erroneous understanding.

MR McGOVERN:   Your Honours, we would have to check that because, firstly, it was never raised as a point.  I appreciate that it is a relevant matter to consider in the present circumstances, but the evidence that was given was on the basis of a suggestion by the Commissioner’s counsel that that was a permissible matter.  So subject to further checking in relation to that issue ‑ ‑ ‑

GUMMOW J:   We do not want people coming back here in a year’s time in some other case saying, “Look what you said in this case” when it was said on the basis that you put forward.

MR McGOVERN:   No, I appreciate that, your Honour.  If I could proceed on that shaky understanding at the moment, but we will clarify the position.  Your Honours, just looking at page 724, the point to just observe on the basis that there was permitted mixing of the affairs of various clients provided there were appropriate sub‑accounts that were maintained, is to just look at that page to show the extent of the activity that was undertaken by Mr Craik at the direction, on behalf of the trust in relation to various investment activities.  It was, in fact, the Tribunal’s finding at paragraph 93 of its reasons that there was not, in effect, an impermissible sub‑delegation.  At paragraph 93 on page 1203 there is some discussion about the basis upon which the trust account and the activities were undertaken.  It was not a case of complete abrogation or any abrogation of decision‑making on the part of the trustees, or an impermissible sub‑delegation by the trustees.

CRENNAN J:   Leaving aside Mr Craik’s position, are you submitting that the trust deed allowed the mixing to occur?

MR McGOVERN:   Well, under clause 4 of the trust deed, your Honour, yes, and in the light of ‑ ‑ ‑

GUMMOW J:   Clause 4?

MR McGOVERN:   Clause 4 was a comprehensive power to invest including:

upon such personal credit with or without security as the Trustees shall in their absolute discretion think fit to the intent that the Trustees shall have the same powers in all respects as if they were the absolute owners beneficially entitled.

We would submit that the trustees were entitled to utilise the services of the accountant pursuant to their entitlement under the trust deed.

HEYDON J:   I do not understand this at a basic level.  The money could have been spent in a given year by directing it to a charity in Bangladesh or any charity that is a public charity.  Let us assume that it could be accumulated, as it were, to grow so that in future years it could be given to some charity.  What advantage was – no doubt in the hands of Mr Craik – let us also assume that in the hands of Mr Craik the money was safe.

MR McGOVERN:   Yes.

HEYDON J:   But trustees have to do more than that.  What advantage from year to year was it thought was going to be gained by giving it to Mr Craik to be intermingled with the other funds, with the other assets?  How would the trust asset be larger at the end of the year than it was at the beginning, particularly since Mr Craik was entitled to keep all the interest?

MR McGOVERN:   Well, the dispute in relation to entitlement to keep the interest revolves around the question of whether or not he was entitled to retain that as a fair compensation for his agreement to manage the trust account and the various investments on behalf of the trust. 

HEYDON J:   The average beneficiary in what might be called a large trust arrangement would not be happy at the thought that all the income that was earned was to be spent to a third party as compensation for that third party’s maintenance of the fund.  The idea of investment involves an increase in value, an attempt to lay out assets with a view to improving their value.  How were the trust assets here being improved in value?

MR McGOVERN:   Well, perhaps the best example is just to focus briefly on what appears at page 724 of the appeal book and to see that within the trust ledger there are a host of different elements that are associated with the maintenance and the general management of the investments of the trust starting with, for example, the “Westpac Firsts”.  The next line which is PAEA consulting fees, that was the consultancy fees from Mr Craik providing his services pro bono to the trust which in turn then entered into a contract with the airline company to receive payments, in this instance $9,166 per month that was being paid into the account. 

He was making arrangements – that is Mr Craik – for the payment out of the account of money to the Commissioner, receiving other dividends, Telstra, making loans on behalf of the trust, again, picking up management fees.  When I say picking them up, receiving and reporting the management fees that were payable to the trust from time to time which all derived from his pro bono services to the trust.

One sees, going through the various loans of this particular page of the general ledger, enormous numbers of transactions and dividend recording, loans being paid, distributions being made to Help International, various other distributions and gifts being made and so on.

So this was a process of managing the affairs of the trust and the finding of the Tribunal was that the moneys were being held in the trust account and the management activities were being undertaken and that was occurring for the general benefit and to increase the value of the trust.

HEYDON J:   Does this tell us that the value of the trust at the start of the financial year was $21,000‑odd and at the end of the year it was 181,000?  Is that what it is purporting to say, that year in question being from 1 July 2003 to 30 June 2004.

MR McGOVERN:   Well, not all of the trust’s moneys were of course held within the trust account of the accountant.  There was a separate interest bearing deposit which held some of the trust’s money and there were the various share interests.  Your Honours, the essential complaint in relation to the ‑ ‑ ‑

GUMMOW J:   Just before you leave clause 4, you rely on the width of clause 4.  There are perhaps two things to bear in mind about that though.  The first is illustrated by a judgment of Justice Hely in Cachia v Westpac 170 ALR 65 at 82 to 83 which would suggest that the width of that statement in clause 4 nevertheless is not to be treated as altering the fundamental nature of a trust for charitable purposes. If that is wrong and it has effect according to its terms you are in difficulties because you cannot then say you have a trust of the relevant nature established as required by the item in the Tax Act. In a way you are between the devil and the deep blue sea. Those who draft trust deeds and put clauses like clause 4 in should think ahead a bit.

MR McGOVERN:   Well, your Honours, we will have to look at that just over the luncheon ‑ ‑ ‑

GUMMOW J:   Yes, that is why I mentioned it before lunch.

MR McGOVERN:   Of course, it just is the case that it was never in contest that this was a trust that was established for public charitable purposes, but I heed your Honour’s earlier admonition in that regard and we will come back to that.

GUMMOW J:   I do not think it helps particularly either to start talking about entities in this particular case given that the Tax Act is talking about a trust established by an instrument.

MR McGOVERN:   I appreciate the force of what your Honour is putting to me, but the way in which the draftsman has dealt with the matter is to establish a sort of construct because the construct is to treat the fund as an entity, appreciating that it is a trust holding for public charitable purposes, nevertheless a key instruction, we would submit, to the way in which one looks at ‑ ‑ ‑

GUMMOW J:   I know the draftsman on the one hand had the Tax Act structure in the sections dealing with trusts, but on the other hand the mechanism that was being used was a trust established by an instrument or by a will.

MR McGOVERN:   Yes, and there is a tension between those two positions undoubtedly, but when one is looking to achieve an understanding of what the condition requires the central issue is whether – and if so to what extent there can be individual applications which are misapplications and therefore deny charitable status.  So the very limited circumstances that are identified by our learned friends as applicable, we submit is not conformable to the way in which the courts have approached the matter in previous cases and it is not the way ‑ ‑ ‑

In the 2007 financial year it is difficult to summarise the nature and effect of the debit balances.  There are comparatively minor debit balances in several accounts that appear to relate to the trustees.  But these debit balances are less than the amount of substantial credit balances in another trust ledger account in the trustees name.  The trust ledger account in the name of the accountant’s wife was in debit for the whole 12 months – except for the opening and closing balances – and the debit incrementally increased to about $721,787.  But for almost the whole of this time there was a credit balance in the DB company account of at least about $350,000.  The debit balance in the accountant’s wife’s ledger account was eliminated at the end of June 2007 by a series of entries.

So, we are talking about some substantial amounts here.  Then, penultimately, my friend referred to Word to the passage cited at page 1281 of the appeal book.  Your Honours, all I need to say and it is really little more than I said in‑chief, there is simply no way one can get from that passage distinguishing between an institution and the fund and the necessity as a result for 50‑60.  There is no way one can get from that passage the proposition that the words “is applied” are to be given the meaning the Full Court gives it.  One just cannot read that into the passage however one twists it, and I leave the matter there.

Finally, there was a reference to Repatriation Commission v Kohn.  As your Honour the Chief Justice pointed out, the case does not help anyone very much.

GUMMOW J:   I doubt if we are going to be much assisted by that.

MR BENNETT:   It is as interesting as the marijuana case.  What is significant about it from my point of view is the penultimate paragraph on page 526 where Justice Hill says:

Since I am of the view that Mr Kohn was not, on the proper interpretation of the expression, rendering continuous full‑time service outside Australia, it is unnecessary to consider a further submission that the six hours spent outside Australia should be

treated as de minimus and be accordingly ignored.  However, I should say that on the facts of the present case there was much to be said for this submission.

We respectfully endorse that proposition.

In relation to the cross‑appeal really nothing has been said which would justify special leave to cross‑appeal.  Your Honours will observe that the orders of Justice Edmonds at page 1245 ‑ ‑ ‑

GUMMOW J:   If you are right the cross‑appeal would not arise.

MR BENNETT:   It would not arise, your Honour, no.  I refer to it simply for this because of a half‑concession I may have made by implication to your Honour in‑chief that there was something new in my seeking that the order of this Court should have the result that the application to the AAT be dismissed.  Your Honours will see that the orders of Justice Edmonds were that the application to the AAT be dismissed – though the decision would be reaffirmed – and we have simply sought that the appeal from his Honour’s order be dismissed.  So, in effect, that is the primary relief that we seek.

The reference to sending it back was merely a fallback, which does not really arise, and as your Honour Justice Gummow correctly puts to me, really the cross‑appeal does not arise.  Unless there is some specific matter, those are my submissions in reply.

FRENCH CJ:   Thank you, Mr Bennett.  The Court will reserve its decision.  The Court adjourns until 10.15 tomorrow morning.

AT 3.51 PM THE MATTER WAS ADJOURNED