Commissioner of Taxation v Murray Leisure Group Pty Limited S163/1999 [2000] HCATrans 265 (26 May 2000)

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry

Sydney No S162 of 1999

B e t w e e n -

COMMISSIONER OF TAXATION

Applicant

and

CONSOLIDATED PRESS HOLDINGS LIMITED

Respondent

Office of the Registry

Sydney No S163 of 1999

B e t w e e n -

COMMISSIONER OF TAXATION

Applicant

and

MURRAY LEISURE GROUP PTY LIMITED

Respondent

Applications for special leave to appeal

GAUDRON J

McHUGH J

KIRBY J

TRANSCRIPT OF PROCEEDINGS

AT SYDNEY ON FRIDAY, 26 MAY 2000, AT 9.49 AM

Copyright in the High Court of Australia

_________________

MR B.J. SHAW, QC: If the Court pleases, I appear in these matters with my learned friends, MR G.T. PAGONE, QC, MR G.J. DAVIES, QC and MR M.K. MOSHINSKY, for the Commissioner. (instructed by the Australian Government Solicitor)

GAUDRON J: It is a lot of people for a special leave application, Mr Shaw. Well, it is the same on both sides.

McHUGH J: It is a just a question of fact case.

KIRBY J: It must be an important case.

MR D.H. BLOOM, QC: Your Honour, I only appear with my learned friends, MR R.F. EDMONDS, SC, MR A.J. PAYNE and MR M. RICHMOND, in order to match the numbers on the other side. (instructed by Gilbert & Tobin)

GAUDRON J: Now, there are two separate matters in this, are there not? No, I am sorry, we have only called one.

MR SHAW: I think, your Honour, to speak in a general kind of a way, the numbers are partly explained by the fact that this is not the only matter which involves these parties or associated parties.

GAUDRON J: Well, that is right.

MR SHAW: And there are three matters, one relating to dividend strip, one relating to Part IVA and section 79D, and one relating to Part X. This is the dividend strip matter.

GAUDRON J: Yes, thank you.

MR SHAW: If the Court pleases, there are two substantial sets of matters which arise here. One relates to the interpretation of section 177E and, more particularly, to the proper interpretation of the unexplained term "dividend stripping scheme". That is a matter with which this Court has not previously dealt.

GAUDRON J: Well, the obstacle in your path on that issue really seems to be the question of the Commissioner's notice and the factual substratum, does it not?

MR SHAW: Not in relation to the question about what is the meaning of "dividend strip".

GAUDRON J: No. Yes, but - - -

MR SHAW: But in relation to the case in general, yes.

GAUDRON J: Yes.

MR SHAW: Yes, is the answer to that, but I have to get, as it were, a special leave question and it is submitted it is perfectly clear there is one.

GAUDRON J: Well, it would be helpful if you dealt with those factual obstacles that are there.

MR SHAW: If I may. The first point is that this matter - this factual matter, if one could call it that - was not dealt with by the Full Court because in the way in which they decided the matter it was unnecessary for them to consider it. It was dealt with at first instance by the trial judge, Justice Hill. He deals with it at pages 44 to 46 of the application book and the obstacle, if I could call it that, appears at page 45 in the determination where the determination refers to the "the net assets", that is at line 6, "the net assets of the two companies" and then they are set out and his Honour took the view that that reference to "net assets" and the pooling, as he called it, of the two companies meant that the officer determining the matter had not considered the relevant question.

The basic underlying facts appear to a certain extent at page 41 and it is to be remember that in the determination that appears the names of the two UK companies have been reversed, but it appears at page 41 at line - it is called 5 but it is 2 on the page:

As at 30 June 1989 CPIHL(UK) had.....accumulated profits of -

$86-odd million and it goes on to say at line 10 that:

at the same date CPIL(UK) had accumulated losses of -

$US69 million. It then goes on to say that:

In the period from 1 July 1989 to 31 December 1989 -

that company which had the accumulated losses:

had derived an operating profit after tax in the sum of US$65,147,000 which, while available to be used as the source of a company law dividend could, if not paid out as a dividend, be used to replace lost share capital. Since, ultimately, the directors of CPIL(UK) purported to pay a dividend of $US100,000,000 it may be assumed that to that extent, at least, a fund of profits was available, albeit for the current year, out of which a dividend could have been paid.

And then his Honour goes on to refer to a further operating profit earned by CPIHL in the period from 1 July 1989 to 30 December 1989 of an additional $17 million. So that it is perfectly clear, it is submitted, that - - -

GAUDRON J: Well, if you were successful on the legal point, could this matter be determined by this Court or would it have to be remitted to the Federal Court?

MR SHAW: Well, there would be two courses. One is it could be remitted to the Federal Court, which would have some obvious advantages. The other is it could be determined by this Court and, in our submission, when one looks at the matter it is perfectly clear that the reference to "the net assets" is simply a slip and it is perfectly clear, it is submitted, that there were profits and that the Commissioner was perfectly correct in thinking that there were profits and - - -

GAUDRON J: And let us assume that you were wrong on that point but you were right on the legal point, is the worst that would happen that the matter would go back to the Commissioner for a further assessment?

MR SHAW: If we were right on the legal point - - -

GAUDRON J: Yes.

MR SHAW: - - - and wrong about - - -

GAUDRON J: The Commissioner's assessment, the way in which the Commissioner - - -

MR SHAW: Yes, your Honour, all that would happen then is that the assessments which have been made on the basis of the determination would be set aside and the matter would go back to the Commissioner and he might or might not, depending on the time limitations, be able to make a further determination. I think he might not be able to, but I am not sure about that, but, yes, it would go back. But it is submitted that the evidence is perfectly clear that there were profits, so that the Commissioner has determined that there were profits out of which the distribution was made. There were profits. It is suggested that the Commissioner made an error in the way he made the determination because - - -

GAUDRON J: Well, the error would seem to be, if there is one, in saying that the net assets are the profits - - -

MR SHAW: Yes.

GAUDRON J: - - - unless "net" has some particular meaning.

MR SHAW: Well, unless it is just a slip for a reference to profits and that is what, it is submitted, it is, when one comes to look at the whole thing, but then there would be two questions, your Honour. One is whether the Commissioner had just made a slip so that one understood what he said, even though he used the wrong words, and in that case there would not be anything wrong with the determination.

GAUDRON J: Well, what do you say the slip is? It should be, what, the net - - -

MR SHAW: It should be profits.

GAUDRON J: The net profits?

MR SHAW: When he has referred to net profits, he should have referred to - - -

GAUDRON J: When he has referred to net assets?

MR SHAW: Net assets, I am sorry, he should have referred to profits, but there would then be two questions - I am sorry. There would be two questions. One is whether he just made a slip, which one reads beneficially so that there is nothing wrong with the determination. If one could not do that, there would be a question whether, in accordance with the decision in Kolotex, the true position being shown before the Court, the Court should make its own determination of that matter and Kolotex suggests that it should, so that that is certainly what they did in that case.

GAUDRON J: That has raised some eyebrows at the other end of the Bar table, Mr Shaw.

MR SHAW: I do not think so, your Honour. I think if your Honour had been closely observing, your Honour would have seen that the eyebrows have been up the whole time. So that, your Honour, there is a problem about the determination. I concede that. There are two ways of dealing with it. One is to say it is a slip. One can understand what he meant when one looks at the true underlying facts which were shown in the evidence and it is clear that they were referring to profits and there was enough profit and it was clear that the determination is correct, although the wrong words have been used. The other way of doing it is to say, well, the determination has not proceeded on a proper basis but with the facts being shown to be what they are, the Court should say, "Well, there were profits."

McHUGH J: But he had to do more than that, did he not? He not only had to identify what profits existed in each company, but he also had to identify how much of the relevant disposal was represented by those profits.

MR SHAW: Yes, he did, yes, your Honour.

McHUGH J: He did neither, did he?

MR SHAW: Well, your Honour, we say he did do both, but on his Honour's view, that is to say Justice Hill's view, he did not do either, but all I can say about it is, your Honour, the matter was fully argued before the Full Court. The Full Court simply did not address the matter. It obviously cannot have thought that we were so plainly wrong that they could say so without bothering to go into the matter and it simply just has not been decided. So that it is submitted that here we have an underlying question which, it is true, we have to succeed in relation to. This - - -

GAUDRON J: Now, do you put the weight of your argument on it being a dividend stripping scheme or on its being a scheme having the effect of a dividend stripping scheme?

MR SHAW: Your Honour, we would not wish to - - -

GAUDRON J: Abandon either?

MR SHAW: - - - abandon either.

GAUDRON J: Yes.

MR SHAW: No, but we would certainly say it was a dividend stripping scheme and his Honour at first instance said it was not a dividend stripping scheme but it had the effect - one of them, in relation to one of the companies, had the effect of a dividend stripping scheme because he took a different view about the requirement for purpose in relation to a scheme where one is speaking of the effect of a dividend stripping scheme and we would submit that, assuming that their Honours in the Full Court were not right about purpose, it is perfectly clear that it was a scheme with the effect of a dividend strip.

McHUGH J: Surely purpose is a relevant factor. I mean, schemes just do not occur in nature. They require human intervention, planning with an object, and you do not have a scheme without an object.

MR SHAW: No, you do not, but, your Honour, the - - -

McHUGH J: So when the statute says a scheme is dividend stripping, what can it mean other than some sort of plan which has as its object dividend stripping and on the facts it was found against you.

GAUDRON J: That you say has one of its objects.

McHUGH J: Yes.

MR SHAW: Well, we would say that it is enough that there be a purpose of stripping the dividends out of the company and that tax avoidance need not have anything to do with it but if tax avoidance is in some way necessary then the fact that that is a purpose is enough and what seems to have happened is dominant seems to have got in there in circumstances in which it is very difficult to see any justification in the words of the Act.

KIRBY J: I am still not clear of what the special leave point is, given that normally taxation matters, big and small, are concluded in the Federal Court. So what is the point that lifts this case up into this Court, apart from the amount involved I suppose?

MR SHAW: The thing that lifts the case up into this Court, your Honour, is that this is the first case in which this Court has had to consider the question of what is a dividend stripping scheme or a scheme with the effect of a dividend stripping scheme and that the significance and the meaning of that term is important in the relevant section, 177E, which is an important section in the anti-avoidance provisions, and it is also a concept which is used in a number of other sections in the Act, for example, section 36(9), section 46A, section 102 - I have forgotten what the numbers are but - - -

McHUGH J: But there is a court designed to deal with these problems, whether it is the first or last time this matter comes up and it is called the Full Court of the Federal Court and unless there is something very special about a tax case this Court will not entertain leave. I mean, why should the Commissioner get any greater advantage than a worker in a workers' compensation case? We rarely grant special leave in a workers' compensation or local government case because it concerns the construction of a statute. This Tax Act is amended two or three times a year. If you have a problem, you can get it amended.

KIRBY J: I suppose most Workers' Compensation Acts have been gone over and over and over again and this is a new provision.

McHUGH J: They are always amending it.

MR SHAW: Your Honour, it is true they are always amending it but this section has not been amended for a long while. It has been there since Part IVA was inserted a long while ago and it is a very significant section in the anti-avoidance sections.

McHUGH J: Yes, I know, but when you look at the facts of the case this is not - falls into the blatant artificial schemes that that part was directed at and the Full Court found there was a very good commercial reason for what happened here, as to what was the purpose. What is more, they are paying capital gains tax as well, many millions of dollars.

MR SHAW: Well, they are, your Honour, but not as much tax as would have been paid as if it had been a dividend and, your Honour, I do not know that the amount, although it is obviously significant - if it was a tiny amount obviously the Court would not be concerned. I do not know that the amount matters all that much, but what does matter is that one has here a section which uses a pre-existing concept; it is a significant and important section in the Act; it is a concept which is used in other sections of the Act and it is, therefore, a significant concept for the whole operation of the Act and sometimes, your Honour, this Court does think that a tax matter is sufficiently important to - - -

McHUGH J: I know. The Commissioner's win record in this Court in tax cases seems to me to be very good. His strike rate is very high.

MR SHAW: But the question is, your Honour, whether it raises a significant question about the Act and it is submitted that it does and important not just for 177E, for other sections as well, but, I mean, I cannot take it any further than that and I cannot take the factual matter any further than that either.

GAUDRON J: Yes, thank you, Mr Shaw.

MR SHAW: If the Court pleases.

GAUDRON J: Yes, Mr Bloom.

MR BLOOM: Your Honours, it is our submission essentially this is not a suitable vehicle for special leave and there are four reasons really. First and fundamentally, it is a case where the operation of the section depends upon a statutory precondition, namely the formation by the Commissioner of an opinion and that that opinion was not formed properly or at all. Secondly, the section is today of limited application - - -

GAUDRON J: I am sorry, the section is of?

MR BLOOM: Limited application and that is - - -

GAUDRON J: Why is that?

MR BLOOM: It is because there have been significant changes to the Act in the 20-odd years since it was introduced: first, capital gains tax; secondly, the abolition of Division 7 or undistributed profits tax, which was, of course, the reason why dividend stripping sprang into favour; and then the introduction of imputation, so that dividends now carry with them the benefit of the tax paid by the company. Now, those reasons perhaps explain why - - -

McHUGH J: Well, it depends where the profits are earned, does it not, in terms of imputation?

MR BLOOM: Yes, but if the company pays tax on its profits and then pays dividends from those profits, then the shareholder gets the benefit of the imputation of that tax paid, the rebate, but the point is, your Honours, in 20-odd years this is the only reported case in any court involving section 177E. Thirdly, we say the decision of the Full Court is not attended by sufficient doubt to justify a grant of special leave. Finally, as my learned friend I think conceded to your Honours, the applicant is really seeking leave to appeal against reasons and not orders because we are both in wholehearted agreement that the decision of the court on an appeal, if he is successful or if I am successful, must be the same, namely the objection decision must be set aside.

GAUDRON J: I do not think that is right. Is that right?

MR BLOOM: It is because there were two opinions formed at the same time on the same day, one concerned a dividend strip which your Honours may have seen a reference to in the books called Asiamet to do with another company and the Commissioner in the Full Court abandoned that, but the assessment was based upon both alleged dividend strips and so his assessment simply cannot stand for that reason.

Can I ask your Honours to look at section 177E because it sometimes helps in looking at the section to see just what the Commissioner is asking your Honours to do. It appears in various places but 31 to 32 of the application book in the judgment of the trial judge - - -

McHUGH J: What is it?

MR BLOOM: Page 31, if your Honour please. Your Honours see about line 36:

(1) Where -

(a) as a result of a scheme that is.....

by way of or in the nature of.....

(b) in the opinion of the Commissioner, the disposal of that property -

and that refers back to (1)(a) "any property of the company is disposed of":

in the opinion of the Commissioner, the disposal of that property represents, in whole or in part, a distribution.....of profits -

and it refers to accounting periods and:

(c) if, immediately before the scheme was entered into, the company had paid a dividend out of profits of an amount equal to the amount determined by the Commissioner to be the amount of profits the distribution of which is, in his opinion, represented by the disposal of the property -

So the opinion comes with (b) and (c) and it is an opinion about a particular disposal of property. Now, if your Honours look at subsection (2):

Without limiting the generality of sub-section (1), a reference in that sub-section to the disposal of property of a company shall be read as including a reference to -

(a) the payment of a dividend by the company;

Now, the Commissioner's delegate selected as the disposal of property the payment of a dividend by each of the companies said to have taken place on 8 May 1990 and, in fact, no dividend was paid on that day. This is not the issue that arises from this Court's decision in Brookton but it is an issue as to whether or not a dividend was, in fact, paid and in the Full Court my learned friend was forced to admit that none was and, indeed, he was asking that court, as he would be asking this Court, to form its opinion about a different disposal of property than the disposal of property about which the decision maker formed his opinion because that was not, as it turns out, a disposal of property.

Now, what the Commissioner really seeks to have the Court do is to substitute its discretion for that of the decision maker; to, in effect, exercise the discretion which has been entrusted to him and the latest judgment of the Full Court on that - there is a subsequent judgment of your Honour the presiding Judge in a case whose name unfortunately I cannot pronounce - - -

GAUDRON J: Thiyagarajah

MR BLOOM: Thank you, your Honour, and I think your Honour dealt with Kolotex in that judgment as well, but in Guo - and your Honours should have a copy of that - - -

GAUDRON J: I think mine was a dissenting judgment though in Thiyagarajah.

MR BLOOM: I am sorry, your Honour?

GAUDRON J: I was in dissent in Thiyagarajah.

MR BLOOM: You were, but not on this point, as we would see it, your Honour. Your Honour was the only Judge to deal with the Kolotex issue and to point out that that case, like this, is the obverse of the Kolotex situation, but in Guo, if I could just ask your Honours to go to the judgment of Justice Kirby at 579 - I am sorry, in the judgment of the Full Court at 579 opposite your Honour Justice Kirby's name under the heading:

The Act provided (s 22AA) for determination by the Minister that a person was refugee, but this power was exercisable upon the Minister being satisfied that a person had that status or character. The rights of the appellants to the issue of visas, which the Full Court purported to declare with present effect, would only arise upon satisfaction of statutory conditions including the determination by the Minister under s 22AA -

In other words, that was a job for the Minister, not for the court in his place. Now, the reliance upon Kolotex which our learned friends place reliance upon is, in our respectful submission, misguided because in Kolotex the taxpayer was entitled to a deduction only if the Commissioner was satisfied as to a certain matter. The Commissioner was, in fact not satisfied, although it turned out for the wrong reasons. But by showing that to be the case, the taxpayer could not thereby show, as he needed to, that the assessment was excessive.

He could only do that by showing that the facts were such that the Commissioner had to be satisfied. That is the only way he could show the assessment to be excessive. Now, in that context and by agreement, as it turned out, of the parties two members of this Court took the - and we say somewhat unusual step of seeing whether the Commissioner had, on the facts before the court, to be satisfied and they decided that he did not have to be and, therefore, the assessment was not shown to be excessive.

This case, on the other hand, is one of those where the actual facts will prevail unless and until the Commissioner forms his opinion and in a case such as this a taxpayer who can show that the Commissioner did not form his opinion properly or at all has thereby shown the assessment to be excessive.

GAUDRON J: Well, is that the right test? I mean, I am not sure that you are not getting yourself into a very interesting area of the law that deserves a grant of special leave. Is that the right test in the taxation area? Is it the opinion that a taxationer could not reasonably have reached or what?

MR BLOOM: No. If the taxpayer shows that the opinion was not formed - - -

GAUDRON J: Not formed. I can understand that, but here we have a formed opinion of some sort.

MR BLOOM: Well, it is shown though that the formation of the opinion miscarried, the discretion was not properly exercised and liked Guo - - -

GAUDRON J: What does that mean in this area?

MR BLOOM: What that means is that the taxpayer has shown that the facts go along as if that opinion had not been formed at all.

KIRBY J: You say that (b) is the trigger to the operation and it requires the opinion of the Commissioner - - -

MR BLOOM: Precisely, your Honour.

KIRBY J: - - - to be formed of that property.

MR BLOOM: And if he does not form that opinion then the facts, as they were before he purported to do it, are the facts that will apply.

GAUDRON J: Well, all he has to form the opinion of is under - which, are we talking (b) or (c) at the moment?

MR BLOOM: We are really talking (b).

GAUDRON J: (b).

MR BLOOM: That is the opinion.

KIRBY J: This is the counterpart. Presumably the opinion has been put in there in order to trigger the operation of this anti-tax avoidance device.

MR BLOOM: Yes, yes.

KIRBY J: But the price of that, you say, is that it has got to be an opinion on the correct factual substratum.

MR BLOOM: Precisely, your Honour.

GAUDRON J: Why? You see - - -

MR BLOOM: Because, your Honour, it is the old Avon Downs test of Sir Owen Dixon's.

GAUDRON J: Well, that is what I am asking you really.

MR BLOOM: Yes.

GAUDRON J: He has formed an opinion that the disposal of that property, which I take it is the declaration of the dividend and/or the going into voluntary liquidation is a matter - - -

MR BLOOM: No, no, no. He formed an opinion about the payment of a dividend which was never paid. That is what he formed an opinion about.

GAUDRON J: No, but he did not form that opinion. All he had to form an opinion was that it represents - not that it is - that it:

represents, in whole or in part, a distribution.....of profits of the company -

that is the (b) opinion. So when you say "if you can show the opinion is wrong", what I am really asking you is how would you show that that was wrong? What is the test for being wrong in the context of that sort of opinion?

MR BLOOM: Well, that the Commissioner got something wrong in the formation of that opinion, that he took into account irrelevant considerations or failed to take into account relevant considerations, the usual sorts of things. The trial judge here found that the Commissioner did not go about the task at all because he had to - and, indeed, there was a concession to that effect - he had to pool the profits of both companies together in order to find sufficient profits for what he talked about as the payment of a dividend, but, look, your Honours, he has made a mixed error of fact and law in his first approach to the payment of a dividend that was not paid.

GAUDRON J: So be it. So be it. Let us assume that.

MR BLOOM: That vitiates the opinion, your Honour. An example is the decision of Sir Ninian Stephen in Duggan and Ryall where he says that if the Commissioner selects facts which turn out to be wrong and he exercises his opinion based upon those facts then it is as if he took into account irrelevant considerations.

GAUDRON J: The facts are not seriously in dispute, are they?

MR BLOOM: Well, there was no payment of a dividend and what the Commissioner says is - - -

GAUDRON J: There was no payment to who?

MR BLOOM: To anybody. There was no payment of a dividend at all.

McHUGH J: There was a dividend declared but never paid.

MR BLOOM: The directors who had no power to do so purported to declare a dividend and, to use the words of Sir Anthony Mason which may be apposite in the Brookton Co-operative Case in this Court, they may have in error thereby found salvation, but there was no payment of any dividend, indeed, no dividend was declared, but the point is no dividend was paid. The Commissioner has selected something which was not a disposal and he has then based his opinion upon that.

GAUDRON J: But it does not have to be a disposal, does it?

MR BLOOM: Yes, your Honour, (1)(a).

GAUDRON J: That is why it says "which represents".

MR BLOOM: No, (1)(a), your Honour.

GAUDRON J: (1)(a).

MR BLOOM: That is a condition. That is a factual and/or legal precondition:

Where -

(a) as a result of a scheme.....

any property of the company is disposed of;

GAUDRON J: Well, the companies did, in fact, go into liquidation.

MR BLOOM: They did.

GAUDRON J: So their property was disposed of.

MR BLOOM: Well, your Honour, if I may just complicate matters a little more - I am sorry, your Honour.

McHUGH J: There was an in specie distribution of assets as well, I think.

MR BLOOM: Well, can I complicate things just a little more. These were United Kingdom companies and the law in the United Kingdom is that once the companies go into liquidation they cease to be the owners of their property, unlike the position in Australia, but these were English companies and the law applicable to them is, therefore, English law. So your Honours would have to decide that question as well.

GAUDRON J: This sounds more interesting by the moment.

MR BLOOM: If your Honour will give me an undertaking that if I bring cases to you that are interesting I will get special leave, I would be happy to sit down.

KIRBY J: It does generally help.

MR BLOOM: Well, all I can say is this, your Honours. The Commissioner comes to you and says, "Well, I mucked up the disposition. You please select a different disposition - - -"

GAUDRON J: No, he has not said that.

MR BLOOM: He will. He has to. He has to. Yes, and he did say it in the Full Court. He said to the Full Court, "It does not matter. We can rely upon the distribution in liquidation." So he - - -

GAUDRON J: Well, I am just looking at the terms of the section.

MR BLOOM: Yes, your Honour.

GAUDRON J: That certainly is a construction that seems to me to be open. You look to see the objective facts under (1)(a) and it does not matter what the Commissioner thought were the objective facts if it turns - the objective facts are the preconditions, not what the Commissioner thinks, and then if the Commissioner has formed an opinion - - -

MR BLOOM: About "the disposal of that property". Now, what he has done is formed the opinion about something which was not a disposal of property. That is the first problem, but the second thing is, as his Honour the trial judge found, he also pooled profits and never turned his mind to the individual companies to see whether, even assuming a dividend had been paid, that being a distribution of property was then capable of being represented by the profits of a particular company and he deals with this at pages 44 and following. He says under the heading "The Commissioner's Opinion" at the middle of page 44:

It is clear from the language of s 177E(1)(b) that for s 177E to operate so as to deem the scheme to be one to which Part IVA applies the Commissioner must form an opinion that the disposal represents a distribution of profits, although the relevant profits may be of the accounting period in which the disposal occurred, or of any earlier or later accounting period. The opinion is relevant, as well, to the operation of para (c), which makes it clear that the Commissioner must determine a figure to be the amount of profits represented by the disposal.

And then they set out the relevant part of the determination report and his Honour says at 45, line 45 on page 45:

Neither case on any view of the matter permits a conclusion to be reached that the word "profits" equates to net assets. One thing that is not capable of being a profit is paid up capital.

Apart from it being conceded that the Commissioner had the names of the United Kingdom companies reversed, so that the figures shown, for example, as the net assets of CPIL(UK) are, it would seem, the net assets of CPIHL(UK) and vice versa, it is now also conceded that CPIL(UK) did not on any view of the matter have profits sufficient to support treating any disposal of assets as representing a distribution of profits. The Commissioner was only able to get to the result he did by pooling the assets of the two companies - - -

GAUDRON J: Yes, but surely that does not matter. If it had any profits, could not the opinion be formed under (b)?

KIRBY J: You latch onto "the" and "that" in the section.

MR BLOOM: Yes, and if it had any profits, that was for the Commissioner to focus on each individual company in the proper performance of his task - - -

GAUDRON J: Well, I am really looking at two points here.

MR BLOOM: Yes, your Honour.

GAUDRON J: One is whether it is right, whether the opinion process is so hopelessly flawed that it is bound to fail.

MR BLOOM: Well, his Honour certainly thought so.

GAUDRON J: And, second, there is - yes, his Honour did.

MR BLOOM: And held so.

GAUDRON J: Yes. The Full Court, however, did not deal with it.

MR BLOOM: No.

GAUDRON J: The second question is be it assumed that it is fundamentally flawed and must fail, the next question really is, is it too late for the Commissioner to undertake the exercise of doing it properly?

MR BLOOM: Not for the Commissioner. If the matter goes back to him, he can do whatever within the Act he has power to do, but the courts cannot do it, that is our point.

GAUDRON J: You need not trouble me about Kolotex.

MR BLOOM: I am sorry. My real point, and I am sorry if I have not made it clear to this point, your Honours, is that he cannot ask this Court to do it. He must ask this Court to do it and for that reason special leave should not be granted.

GAUDRON J: He must ask?

MR BLOOM: Yes.

GAUDRON J: Or he could ask?

MR BLOOM: He does ask and he relies upon Kolotex. He says, "Please select a different disposal of property and, please, your Honours, now that I can show you there really were profits, you form the view and you make the decision - - -"

GAUDRON J: Is it your submission that if the matter stands, however, that the Commissioner can make a fresh assessment on the basis that there is a dividend stripping scheme? It is not, is it? You say if this decision stands, there is no dividend stripping scheme.

MR BLOOM: Well, he cannot ask this Court for an advisory opinion on that, in our submission. What he - - -

GAUDRON J: Well, we are just checking whether that is.

MR BLOOM: No, but - - -

GAUDRON J: But it is not advisory, is it, if, on the basis of the decision of the Full Federal Court stands, the Commissioner cannot go through the exercise of forming an opinion and issuing an assessment on the basis that there was a dividend stripping scheme.

MR BLOOM: But that is as it should be, with respect. The Full Federal Court has so decided and - - -

GAUDRON J: That is right, so it is not - it is not an advisory opinion. There is a real controversy between the parties.

MR BLOOM: Well, subject to this fact, that if we accept that the Court cannot make the decision which has been entrusted to the Commissioner, then all the Court can do is give an opinion about how section 177E works and send it back to the Commissioner to reassess.

GAUDRON J: No. We can give a decision setting aside - - -

KIRBY J: We can set aside the Full Court; we can set aside Justice Hill, but you say that still leaves the Commissioner's determination under the section.

McHUGH J: We do not have to deal with the question of his opinion. We can deal with the scheme point and send it back to the Full Court to deal with it because they did not deal with that issue.

MR BLOOM: Yes, your Honours could, but it is still a case where the opinion has been found by the trial judge to have miscarried and that is where the matter stands, with respect, and it is quite right.

GAUDRON J: But the Commissioner - yes, but - - -

MR BLOOM: It is quite right and a concession to that effect was made, a concession that the profits had to be pooled because the Commissioner in his Asiamet dividend strip decided that $33 million went out of a fund of 130 and then decided that there was still sufficient to pay the dividends that he then said were paid under the scheme which has not been abandoned and it could only be by pooling the profits of the two companies that he could do that and he did it and a document was handed up before his Honour Justice Hill in which that concession was made. I see that that is my time, if your Honours please.

GAUDRON J: Yes. Yes, Mr Shaw.

MR SHAW: If the Court pleases, first of all, it is submitted that if the matter were to go back to the Commissioner on the basis of the - with the Full Court decision standing, that the Commissioner could not do anything because he would be bound by what the Full Court had said was a dividend stripping scheme.

Secondly, it is submitted that my learned friend is not right in relation to whether or not there was a dividend. If one looks at page 12 of the appeal book at line 40 one sees that there were resolutions by the directors to pay dividends. If one looks at page 14 at about line 46, one sees that the dividends were satisfied by distributions in specie, as your Honour Justice McHugh suggested, and if one looks at page 43 one sees that his Honour the trial judge dealt with the matter about whether or not a valid dividend was paid and he says at page 44 it does not matter, at line 10, that:

the resolution was valid, then the actions which occurred subsequently involved a payment of a dividend -

and then at about line 11:

If, on the other hand, the resolution was, as the Applicants submit invalid, then the distribution of assets were distributions by the company in liquidation. In either case the result of the scheme in respect of CPIHL(UK) was dividend stripping.

So it is clear, it is submitted, that there was a declaration of a dividend or something happened which amounted to a disposal of profits and his Honour thought it did not matter and it is true that his Honour said there was a concession about CPIL(UK) but we did not think we had made that concession and we argued in the Full Court that we had not, but the Full Court never dealt with the matter. So that it is submitted that in order that the matter may be properly dealt with it is important that the Full Court decision be either decided to be right or wrong, otherwise it must stand and the Commissioner cannot do anything. If the Court pleases.

GAUDRON J: There will be a grant of special leave in this matter.

MR SHAW: If the Court pleases.

AT 10.32 AM THE MATTER WAS CONCLUDED