The Commissioner of Taxation of the Commonwealth of Australia v Thomas; The Commissioner of Taxation of the Commonwealth of Australia v Martin Andrew Pty Ltd; The Commissioner of Taxation ofthe Commonwealth of...

[2017] HCATrans 206

[2017] HCATrans 206

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Brisbane  No B25 of 2017

B e t w e e n -

THE COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA

Applicant

and

MARTIN ANDREW THOMAS

Respondent

Office of the Registry
  Brisbane  No B26 of 2017

B e t w e e n -

THE COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA

Applicant

and

MARTIN ANDREW PTY LTD ACN 063 993 055

Respondent

Office of the Registry
  Brisbane  No B27 of 2017

B e t w e e n -

THE COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA

Applicant

and

THOMAS NOMINEES PTY LTD ACN 010 049 788

Respondent

Office of the Registry
  Brisbane  No B28 of 2017

B e t w e e n -

THE COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA

Applicant

and

MARTIN ANDREW THOMAS

Respondent

Applications for special leave to appeal

KIEFEL CJ
GAGELER J
KEANE J

TRANSCRIPT OF PROCEEDINGS

AT SYDNEY ON FRIDAY, 20 OCTOBER 2017, AT 9.30 AM

Copyright in the High Court of Australia

____________________

MR J.T. GLEESON, SC:   May it please the Court, in these four applications I appear for the applicant with MR J.A. WATSON and MS C.M. PIERCE.  (instructed by Australian Government Solicitor)

MR F.L. HARRISON, QC:   I appear in all four matters for the respondents with my learned friend, MR M.L. ROBERTSON, QC, if the Court pleases.  (instructed by Hopgood Ganim Lawyers)

KIEFEL CJ:   Yes, Mr Gleeson.

MR GLEESON:   Your Honours, to identify the question at its more general level first, before going to specifics, the question concerns how far this Court’s decision in Executor Trustee 62 CLR 545 is properly to be taken. Your Honours will see in the main book at pages 110 to 112 the primary judge discussed that decision and the essence of it was that a court of general jurisdiction, having made a declaration as to the proper construction of the trust deed as to the powers of the trustee, produced what might be called a taxable fact, which taxable fact was then taken into account in the later taxation proceedings and the tax law operated upon that fact. The fact, as your Honours see from the top of page 111, is that on the proper construction of the deed, it was in the discretion of the trustee rather than as a matter of right that rents and profits passed from the trustee to the beneficiaries.

The question in this case, as can be seen from page 114 in Justice Greenwood’s reasoning, which we submit is correct, is does Executor Trustee apply where something a little different is going on, namely the question posed to the court of general jurisdiction depends upon an anterior question whether a taxation statute permits a particular result to be achieved.  In this case, the anterior question was whether the Income Tax Assessment Act permitted franking credits to be treated as a separate species of income which could be allocated between the beneficiaries in different proportions to the allocations of the net income.

To the extent the question in the Queensland proceedings raised that anterior issue, Justice Greenwood, we submit, was correct in paragraph 445 to say that those proceedings went beyond merely the inter se domestic relationship and they centrally extended into a determination of the operation of the 1997 Income Tax Assessment Act, and for that reason they did not generate a mere taxable fact. 

If that reasoning is correct, we submit it is, there are two consequences.  The first is that the question, namely can franking credits be treated this way, could only be decided in proceedings involving the Commissioner as a party, and that did not happen.  Secondly, more specifically, because the taxpayers at the time had the benefit of deemed assessments favourable to them based on their returns, the question could only arise in later Part IVC proceedings if the Commissioner issued an amended assessment.  As such, the question would arise through the usual process of objection, review, decision and appeal, and it would arise consistent with the onus which is imposed under Part IVC. 

So that is the question, your Honours.  Where we submit the error occurred in the Full Court can be seen in particular at page 247 in the top paragraph, where Justice Pagone, after discussing Executor Trustee, drew a distinction.  His distinction was that the Commissioner was not bound by the construction of the Tax Act adopted by Justice Applegarth in the Queensland proceedings, that is not bound by the key element upon which those orders depended, but could be bound by a subsequent order determining rights between trustee and beneficiary.  The effect of that is that Executor Trustee is extended so that the later court is bound by an order even if it is based upon a wrong construction of the Tax Act. 

Now, in the present case, it is now apparent that both Justice Greenwood and the Full Court would have concluded that Justice Applegarth misunderstood the Tax Act, and we can see that in Justice Pagone’s reasoning, particularly at page 235, paragraph 16 over to page 236.

KIEFEL CJ:   There was no contradictor before Justice Applegarth, was there?

MR GLEESON:   There was no contradictor, no.  So, your Honours, what we submit has gone wrong in the process is this.  The Queensland proceedings started off as judicial advice, well and good.  There was no contradictor.  Justice Applegarth was given one argument, namely you can treat these franking credits as property, as income, and you can distribute them in whatever proportions you like differently to the net income.  I might just show what the taxpayer sought to do. 

Your Honours will see from page 240 of the main book, if we just take the 2006 year, the argument to which Justice Applegarth was persuaded was that if we look at the franking credits, the bulk of those 2.4 million can be allocated to Mr Thomas, whereas a much smaller amount is allocated to the company, but conversely, the bulk of the net income is allocated to the company and not to Martin Thomas. 

The purpose of this was to try and get the franking credits into the hands of the individual.  He was in a loss‑making position so he would claim back cash payments from the Commonwealth.  That was one purpose.  The other purpose was to try and get the bulk of the net income into the hands of the company rather than the individual.

KIEFEL CJ:   You say you cannot treat the income and the franking credits differentially.

MR GLEESON:   You cannot treat them differentially.  So where the proceedings miscarried, with respect, for Justice Applegarth was that, having heard only one side, he came to what now would seem to be the wrong construction of what was available under the Act and yet, even though at both levels the Full Federal Court has said you just cannot do that under the Tax Act, we have a decision saying that the court under Part IVC must adopt an order which is based on an incorrect legal premise.

Your Honours, the orders are at page 245.  That is Justice Applegarth’s order, and this was another respect in which the proceedings went wrong, because these orders are not merely directions which would protect a trustee, but they are expressed as declarations and ‑ ‑ ‑

KIEFEL CJ:   You say they go further than is necessary.

MR GLEESON:   They go further, yes.  As your Honours can see from paragraph 1(a), the premise of the orders, consistent with what Justice Applegarth was convinced of, is that franking credits confer a financial advantage which falls to be dealt with by the trustee of the trust, i.e. can be dealt with in whichever proportion the trustee considers correct.  If that premise is correct, then order 1(b) follows, and even order 1(b) gives the game away a little bit because it says:

on the proper construction of the trust deed . . . and of the resolutions . . . those resolutions were effective to –

do certain things.  Now, that is effective not just under the deed but effective because the Tax Act permitted that result to occur as per 1(a).  Then what your Honours will see in (b)(i), (ii), (iii), (iv) is (b)(i), (ii) and (iii) deal with the franking credits, and that says that resolution 2 is effective in its terms to distribute them in those proportions and the proportions match the tax returns at 240.  Order 1(b)(iii), which is the only one Justice Pagone has treated as binding, cannot be sensibly understood other than as the consequence of everything that went before.  Then 1(b)(iv), which his Honour has apparently ignored, completes the picture and says:

distribute all the distributable income of the Trust . . . in accordance with those resolutions.

That is to give effect to resolution 1 in terms and say that the distributable income has been distributed as per the table at page 240.  So, when one puts (iii) and (iv) together, the orders of Justice Applegarth, consistent with his reasoning, give effect to this differential course of streaming.  Justice Pagone has held that order 1(b)(iii) can be taken on its own as binding the subsequent tax court.  It can be looked at irrespective of 1(a), which is erroneous in his view, and apparently can be looked at irrespective of 1(b)(iv).

Your Honours, the other matters I want to mention at least in‑chief are only these.  The broader significance of the question should be tolerably obvious that there is a course of action that is now being pursued to our knowledge in at least three other cases around the country where, in effect, taxpayers say an issue which centrally depends upon the Income Tax Act we will seek to have joined or raised in some form of proceedings in a court of general jurisdiction and we will try and get a favourable determination which will then circumvent the Part IVC process.  That, we submit, is wrong and it is a serious matter and it should be stopped.

The other matter I want to deal with, your Honours, is the 2009 year.  If your Honours go to pages 248 to 250, commencing at paragraph 28, his Honour, having reached the view he did on 2008, says, well, for 2009 I have got a separate issue because Justice Applegarth’s orders did not directly address that issue.  The respondents say, well, here is a good notice of contention point that renders the leave application futile because for 2009 we have independent reasoning from Justice Pagone which reaches the same result as Justice Applegarth.

There are three problems with that, your Honours.  The first is that all through these paragraphs, Justice Applegarth remains alive.  His Honour, with respect, is trying to find a way of reasoning which gets to the same result as order 1(b)(iii) but without the errors of Justice Applegarth.  So what has not happened for the 2009 year is simply to clear away the errors of Justice Applegarth and just apply the Tax Act and get to the right result.

The second thing your Honours will see is – and it commences in paragraph 28 but it is evident in paragraph 29, under the guise of trying to find a construction of the resolutions which could support paragraph 1(b)(iii), Justice Pagone has in fact looked at evidence of subjective intent to try and work out what the drafters thought they were doing.  Now, that appears to be something that might be done under rectification but it is not construction of a trust deed that is going on. 

The final problem your Honours will see in paragraph 29 and the first sentence says his Honour is doing this “with reluctance”.  The second and third sentences seem to confirm that this is a construction conclusion but it depends upon subjective matters, which is the rectification point, but the critical point is when his Honour says:

The terms of the two resolutions taken together only make sense if construed as conferring upon Mr Thomas, as a share of the trust’s net income . . . so much of the trust’s net income for that year as would see him receive the benefit of franking credits in the amount stated in the franking credit distribution resolution –

The next bit is what gives it away:

notwithstanding that the amount of income purportedly distributed to him in the 2009 year was $16,000 and [the company] $157,143.

So what his Honour has there done is seek to reach a construction which gives effect to resolution 2 in terms but does not give effect to resolution 1.  So that the net income is not distributed as per the resolution but is distributed in some manner which has been reverse engineered so as to achieve the consistency in proportions that the Tax Act requires.

His Honour acknowledges it fits uneasily with the words but is consistent with the intention.  So the result of that is not only is this a subjective exercise going on, but it does not achieve consistency with Justice Applegarth’s orders at page 245 – sorry ‑ ‑ ‑

KIEFEL CJ:   Yes, 245.

MR GLEESON:   Yes, it produces a different result particularly to order 1(b)(iv).  So, for those reasons, we would submit that if leave were granted, the reasoning given in respect to 2009 would not sustain Justice Pagone’s conclusion for that year, nor would it provide an independent reason for the earlier years. 

The other reason given by the court is Justice Perram’s relatively brief reasons at page 228.  He considered at paragraph 3 that Cameron v Cole and Kable (No 2) resolved the matter.  They do not because it is not a question of the Queensland Supreme Court orders being valid and binding until set aside.  It is a question of what effect do they have upon the Commissioner who was not a party to the proceedings in which they were granted in circumstances where Part IVC has not been properly activated.

Your Honours, the final matter I wanted to mention was we have four applications not one.  The reason for that we have sought to explain in reply which is that Justice Pagone’s conclusion meant that all four of the proceedings terminated at that point and it would be our intent that if leave were granted and the appeal succeeded on the points I have discussed this morning, then the four matters would resume the life they otherwise had.  Clearly that would involve a remitter for the penalty proceedings.  It would involve a remitter for B27.  Whether B25 and B26 can be fully resolved in this Court or involve any aspect of remitter could be adequately determined on an appeal.

GAGELER J:   Mr Gleeson, there is this 78B notice, there is stuff about the Constitution in your submissions. What would happen to all of that on an appeal?

MR GLEESON:   Your Honour, the point was put succinctly and on an appeal it is not an independent point, it is another way of viewing the same point which is can a result be achieved consistent with Chapter III that a decision on the proper construction of a federal law can be reached in a matter which does not involve the relevant Commonwealth official, namely the Commissioner, and yet is somehow achieved through a different set of proceedings which the Commissioner is then bound to accept, and we submit that cannot be achieved consistent with Chapter III.

The result is that either what occurred in Queensland was simply an ineffective attempt to exercise something which could only be done in federal jurisdiction and/or when the Full Federal Court felt they were bound not to decide this matter upon the merits of the Income Tax Assessment Act that was a failure to fully exercise the federal jurisdiction conferred on that court.

KIEFEL CJ:   So is this an argument you intend to pursue or is it not necessary to your – as an alternative?

MR GLEESON:   Your Honour, we intend to pursue it in the way I have mentioned.  We can succeed in the case without reference to it.

KIEFEL CJ:   But you will run it as an alternative argument.

MR GLEESON:   If we are permitted to we will, your Honour, yes.

GAGELER J:   Well, it is not separately identified as a ground of appeal, I think.

MR GLEESON:   No.  Your Honours, it may fall into that category where it is simply understanding the primary point as to what Executor Trustee can and cannot do in that slightly broader context.  There is no independent force to it.  Thank you.  May it please the Court.

KIEFEL CJ:   Yes, Mr Harrison.

MR HARRISON:   If the Court pleases.  In my submission, in fact with a closer look at the judgment of Justice Pagone, I will show to the Court that this particular case does not extend the boundaries of Executor Trustee.  But to get to that point, your Honours, the application book – my learned friend has included in the application book a number of sections but not what in my submission are the relevant sections that it is necessary to go to to understand why this was a matter of construction and of the resolution and not of the relevant income tax legislation.

KIEFEL CJ:   What does that mean, that the Commissioner is not bound by what Justice Applegarth said?

MR HARRISON:   He is bound when one has regard to the concessions that he made as to the fact that this could have been achieved, which I will refer to your Honour, by appropriate resolutions.  The only thing that Justice Pagone, or the Full Court, decided was as to the effect of the resolution it being accepted – as to the construction of the resolution, it being accepted that a properly drafted resolution could have achieved the results which were intended to be received and, to revert to another point, despite Justice Pagone’s reference to the subjective intention, in the end the last passage that my learned friend referred to was a matter of construction of the resolution itself. 

But where the difference arises is that the resolution was drafted on the basis that one could by resolution deal separately with the franking credits, whereas what the legislation required was that by such resolutions one deal with the franked dividends and the legislation gives effect to a dealing by resolution, in our submission, with franked dividends.

So the error with the drafting of the resolution was in its attempting to deal separately with the franked resolutions but it was interpreted as in fact having the effect of doing something that was permitted by the legislation dealing with the franked distributions.  Why I say that requires us to start with – sorry, I said before that the legislation appended does not include some relevant sections but they are included in the appendix to Justice Greenwood’s judgment and the first of the two sections that I am concerned with is section 207‑35 that starts on page 153, and if I could run quickly through it to get to the section that I am concerned with, it starts in subsection 1:

If:

(a)a franked distribution is made –

that is a franked distribution by a company:

in an income year to an entity that is a partnership or the trustee of a trust –

I will jump to (3):

Despite any provisions in Divisions 5 and 6 of Part III . . . 

(a)a franked distribution is made, or flows indirectly, to a partnership or the trustee of a trust in an income year, and

(b)the assessable income of the partnership or trust for that year includes . . . (the franking credit amount) . . . 

(c)the distribution flows indirectly to an entity that is a partner in the partnership, or a beneficiary or that trustee of the trust –

which is what happened here:

(d)the entity has an amount of assessable income for that year . . . 

then, the entity’s assessable income for that year also includes so much of the franking credit amount as is equal to its share of the franking credit on the distribution.

Then the drafter gives an example of a trust in which beneficiary P is entitled to all the franked distributions and Q is entitled to all other income and proceeds to work that out.  Your Honours will see that the example accepts that one can deal separately with franked distributions.  It does not accept that one can deal separately with the actual franking credits.  Then if we go through to 207‑55 at page 156:

(1)The object of this section is to ensure that:

(a)the amount of a franked distribution made to a partnership or the trustee of a trust is allocated notionally –

and “notionally” is the word that applies to the allocation of the franked distribution.  It is a notional allocation, not an actual allocation:

(2)An entity’s share of a franked distribution is an amount notionally allocated to the entity as its share of the distribution, whether or not the entity actually receives any of that distribution.

Now, the problem that that creates for the reader is it is not said how one achieves this notional allocation.  The example given previously accepts that that can be achieved by the terms of the trust deed, and our argument was that if it could be achieved by the terms of the trust deed it can be achieved by the terms of a resolution made under the trust deed.

Now, if I could divert for just a moment, Justice Applegarth’s analysis, in our submission, has been misinterpreted in the sense that his Honour was first looking to see whether the trustee had power to effect such an allocation, and then he went on to consider the resolution.  But that is perhaps a side issue to be dealt with if necessary on another day.  If we go to see what was actually in dispute in the matter, if we go to the reasons of Justice Pagone at page 230 at about point 8, towards the end of paragraph 9:

The Commissioner did not contend that the beneficiaries could not have become entitled to claim the benefit of the –

He says “franked credits” but must mean franking credits –

as beneficiaries of a discretionary trust or that the beneficiaries could have been made entitled to receive the benefits as they claimed, but that they had not become entitled to the benefits they claimed pursuant to the terms of Div 207 in the circumstances which occurred -

those circumstances being the terms of the resolution which was passed.  We see that taken up again on page 240, about halfway down:

It may be accepted for present purposes that what was intended by these resolutions was to ensure that the benefit of the franking credits would be enjoyed by the specified beneficiaries of the discretionary trust.  It can also be accepted, as the Commissioner conceded in the appeal, and as was consistent with the Commissioner’s published rulings, that such an intention was one which could have been secured by properly framed resolutions.

If we again go across to his Honour’s analysis about halfway 243:

the two resolutions combined –

and I may pause there that this on the face of it, in my submission, is a construction of the resolutions and is not based on the subjective intentions:

show what their drafter intended:  namely, that one beneficiary . . . was to receive the benefit of the bulk of the franking credits (but only $21,600 of the net income of the trust fund) and that the other beneficiary –

and so on.  So the issue was whether there – there was not an issue of construction of the legislation.  The issue was simply whether the drafting of the resolution was sufficient to catch that legislation.

KIEFEL CJ:   Well, how did the orders end up in the terms that they did at page 245 then, which commences in 1(a) “on the proper construction of the Income Tax Assessment Act”?

MR HARRISON:   I am sorry, this is his Honour’s step to deciding the construction of the ‑ ‑ ‑

KIEFEL CJ:   I am sorry, I thought - I took you to say that there had never been in issue, including before Justice Applegarth, a question about the construction of the Income Tax Assessment Act.

MR HARRISON:   I am sorry, if I said that I did not mean to because ‑ ‑ ‑

KIEFEL CJ:   I misunderstood you.

MR HARRISON:   Yes, I was referring to the issue before the Full Court ‑ ‑ ‑

KIEFEL CJ:   Yes.

MR HARRISON:   ‑ ‑ ‑ where the Commissioner conceded that there had been the effect of the resolutions – I am sorry, conceded that the resolutions could have been drafted so as to achieve the result that the Full Court ultimately held that they did achieve.  So, on that basis, in our submission, your Honours, the matter does come back to being a matter of construction of the resolutions because there was no issue in the court below as to the meaning of the section, nor was there any issue that the way to achieve the notional streaming, as it is called, was by resolution and not by some other means.  So, in our submission, unless ‑ ‑ ‑

KEANE J:   So do you accept that the notion of franking credits has no existence outside the four corners of the Tax Act?

MR HARRISON:   I do accept that, yes.

KEANE J:   And that they cannot be dealt with or disposed of otherwise than in conformity with what the Tax Act recognises.

MR HARRISON:   Well, I would say they cannot be dealt with separately anyway, the franked distributions have to be dealt with.

KEANE J:   But so far as the Executor Trustee Case is concerned, and insofar as it represents or stands for the proposition that tax legislation takes transactions with property under the general law as it finds them, it then has nothing to say to this case.  So you do not need to rely on it.

MR HARRISON:   I do not need to rely on it in order to succeed because the Commissioner did not – sorry.  I do need to rely on it to the extent that the Commissioner is seeking to say that the Full Court was wrong – I am sorry, Justice Applegarth was wrong in concluding that the resolutions were effective to achieve the non‑contentious result or the result that could be achieved non‑contentiously under the income tax laws.  I am not sure that I have answered your Honour’s question there.

KEANE J:   Well, no, I am not sure either.

MR HARRISON:   So it would be different if the Commissioner had been contending in the Full Court that it was not possible to achieve the result subjectively desired by the taxpayers, but because that was not in contention the only issue was the proper construction of the resolution made as against the accepted background facts of the law.  So, if the Commissioner’s argument is to be understood as saying no, those resolutions did not have that effect, it being assumed that the law is as we concede it is, then one would be relying on Executor Trustee.

KEANE J:   Why can the Commissioner not say those resolutions have no effect on the Commissioner as a matter of the proper construction of the Income Tax Assessment Act, given paragraph 1(a) of Justice Applegarth’s order at 245?

MR HARRISON:   I am sorry, I do not follow your Honour’s ‑ ‑ ‑

KEANE J:   Which is the fons et origo.  The fons et origo - the problem is that Justice Applegarth has declared that on the proper construction of the Income Tax Assessment Act franking credits confer a financial advantage which falls to be dealt with by the trustee of the trust.  Now, I thought you were accepting that that is not right.  I thought you accept that franking credits on the true construction and operation of the Act only exist and can only be dealt with in accordance with the exigencies of the Tax Act.

MR HARRISON:   In my submission, your Honour is reading too much into that declaration.  I am sorry, your Honour?

KIEFEL CJ:   Please continue.

MR HARRISON:   At that point, Justice Applegarth is considering whether the trustee had the requisite power to pass the resolutions.

KEANE J:   It does not look like it.

KIEFEL CJ:   Does it not go a bit further than that?  Is not the question to which it is addressed concerned whether the trustee has the ability at law under the Income Tax Assessment Act to confer that advantage?

MR HARRISON:   I would submit not but that is not essential to the argument.  It is a finding that is unnecessary to the declarations that matter to us and to which we are seeking to apply Executor Trustee.  We do not mind if the Commissioner says that is – or we do not rely on that in our interpretation of the resolutions and in saying that the Commissioner is bound by the interpretation that Justice Applegarth adopted and which was subsequently endorsed for the 2009 year.

GAGELER J:   Does the declaration have any utility other than to be deployed in Part IVC proceedings?

MR HARRISON:   It has a utility because if the position were to the contrary, then one would have proceeded with the rectification application.  It was because of that declaration it was unnecessary to rectify it and it would have been a proper matter, in my submission, to rectify in a State court.

KIEFEL CJ:   Was that by way of saying that what that achieves is it declares that it is effective?  You do not need to rectify the resolution to have the result under the Income Tax Assessment Act because that says it is effective for its purposes.

MR HARRISON:   That is so, your Honour.

KIEFEL CJ:   It is rather drawing in aid the Income Tax Assessment Act, is it not? 

MR HARRISON:   I am sorry?

KIEFEL CJ:   That is drawing upon the Income Tax Assessment Act.

MR HARRISON:   Well, it is necessary to draw on it because one must interpret the resolution having regard to the background of the general law including the Income Tax Assessment Act.  One may, for example, have to regard - in another context the State court may have to interpret say the Trade Marks Act in determining a matter such as this.  But it is a necessary part of rectification for the judge to work out whether the resolution achieved its desired result and, with respect, if the State court could not order rectification, then there is no forum that is available to it because in the Part IVC proceedings there would not be the necessary parties. 

So it is an absolutely appropriate matter to go to the State court, as the court having general supervision of trustees, to seek rectification.  Otherwise, one would be saying where a matter of the income tax laws is involved one simply cannot rectify in the same way as one can, for example, in the case of other actions intended to have revenue consequences, for example, under the Duties Act where it is a common practice to rectify actions that have been taken.  Those are our submissions on that issue.

We have made a number of other points as to why this is not an appropriate matter to be granted special leave which I will not repeat.  In relation to the other three matters, in my submission, there is no utility in giving special leave – or no utility or it is not appropriate to give special leave in relation to them.  The case of Martin Andrew Pty Ltd, it is not suggested that it would receive any increased assessment as the result of any determination by the Court. 

The matter of the liability of the trustee does not arise and the matter of the penalty is something that also, in my submission, would not be affected by a change in the result in the main proceeding, in the Martin Thomas proceeding.  In case your Honours are contemplating granting special leave, I should mention one further matter as this will arise in the course of any appeal in relation to the 2009 year.  That matter was run but Justice Pagone overlooked the fact that the distribution resolutions in that year were made after 30 June and therefore were not a matter that was relevant to the determination of that issue.

KIEFEL CJ:   So if leave were granted you would be putting on a notice of contention, would you?

MR HARRISON:   Yes, your Honour.

KIEFEL CJ:   Yes.  I see that the light is on.

MR HARRISON:   Thank you, your Honour.

KIEFEL CJ:   Thank you, Mr Harrison.  Mr Gleeson?

MR GLEESON:   Your Honour, the only matters are based upon what Mr Harrison has just said, it seems clear that firstly Justice Applegarth was persuaded by Mr Harrison to a wrong construction of the Income Tax Act.  That now seems to be agreed.  Secondly, the reason Justice Applegarth did not reach rectification was that he was persuaded to that wrong construction of the Tax Act.  Thirdly, to the extent the declarations mean what Mr Harrison said they do, namely a State court has said we do not need rectification to achieve our desired result under the Tax Act, that is clearly pronouncing upon the Tax Act.

Once the matter has come to the Federal Court, it now seems clear the orders did have a fatal flaw in paragraph 1(a) which determined everything that followed.  Justice Pagone did rely upon those orders.  It is not possible to separate them out.  Finally, as to the so‑called concession by the Commissioner, the concession was that resolutions which properly respect the proportionality required by the Income Tax Assessment Act could achieve a result whereby the franking credits are divided in different fashions between beneficiaries.  That was the concession, and the Commissioner’s position is these resolutions did not achieve that result.  So, for that reason, if those matters were accepted, the Commissioner would succeed on the appeal.  May it please the Court.

KIEFEL CJ:   There will be grants of leave in each of these matters.  What time estimate would you have, Mr Gleeson?

MR GLEESON:   Your Honour, I think a day; Mr Harrison would suggest a day and a half.  We are hopeful that the ancillary issues will not take up much time with the Court.  We are also hopeful your Honours could receive one set of submissions, at least in the main matter, and any submissions in the other matters could be reduced to a single short document.

KIEFEL CJ:   Yes, I see.  Could the parties please ensure that their instructing solicitors obtain a list of the directions from the Deputy Registrar.

MR GLEESON:   May it please the Court.

KIEFEL CJ:   Yes, thank you.

AT 10.11 AM THE MATTERS WERE CONCLUDED