CPH Property Pty Limited v Commissioner of Taxation S173/1999 [2000] HCATrans 271 (26 May 2000)

Office of the Registry

Sydney Nos S172 to S173 of 1999

B e t w e e n -

CPH PROPERTY PTY LIMITED

Applicant

and

COMMISSIONER OF TAXATION

Respondent

Applications for special leave to appeal

GAUDRON J

McHUGH J

KIRBY J

TRANSCRIPT OF PROCEEDINGS

AT SYDNEY ON FRIDAY, 26 MAY 2000, AT 10.32 AM

Copyright in the High Court of Australia

MR D.H. BLOOM, QC: In that matter, if your Honours please, I appear with MR R.F. EDMONDS, SC, MR M. RICHMOND and

MR A.J. PAYNE for the applicant. (instructed by Gilbert & Tobin)

MR B.J. SHAW, QC: If the court pleases, I appear with MR G.T. PAGONE, QC, MR G.J. DAVIES, QC, and MR M.K. MOSHINSKY for the respondent. (instructed by the Australian Government Solicitor)

MR BLOOM: Your Honours, until the decision of the Full Court in this matter, certain aspects of Part IVA were considered to be settled, largely by the decisions in Peabody and Spotless Services. Chief amongst those matters was the proposition that the existence or not of the necessary Part IVA purpose was to be ascertained having regard to the eight matters in section 177D(b) and only those matters.

Now, your Honours will have the judgments of the Full Federal Court in Peabody and of the High Court in Spotless. If I could ask your Honours, firstly, to look at the judgment of the Full Federal Court in Peabody, it was a judgment of Justice Hill, with Justices Ryan and Cooper concurring, and at page 542, which is page 18 of the documents that we have filed with the Court, at about two-thirds down the page:

It will be seen that the determination of what schemes fall within s 177D requires an objective conclusion to be drawn, having regard to the matters referred to in par (b) of the section, but no other matters. It is notable that the actual subjective purpose of any relevant person is not a matter to which regard may be had in drawing the conclusion.

Then, over the page, at about point 6 of the page, above the heading "The judgment appealed against":

In arriving at his conclusion, the Commissioner must have regard to each and every one of the matters referred to in s 177D(b). This does not mean that each of those matters must point to the necessary purpose referred to in s 177D. Some of the matters may point in one direction and others may point in another direction. It is the evaluation of these matters, alone or in combination, some for, some against, that s 177D requires in order to reach the conclusion to which s 177D refers.

Then in Spotless in this Court, if your Honours would turn firstly to page 7 of the documents that we filed, at the bottom of that page:

A person may enter into or carry out a scheme, within the meaning of Pt IVA, for the dominant purpose of enabling the relevant taxpayer to obtain a tax benefit where that dominant purpose is consistent with the pursuit of commercial gain in the course of carrying on a business.

Now, just pausing there, what the Court was saying and went on to say was that the existence of the commercial purpose will not matter if, having regard to the eight matters in section 177D(b), the conclusion as to dominant purpose of obtaining the tax benefit would be drawn. Likewise, the existence or otherwise - - -

GAUDRON J: It does not say that precisely, does it, though? The passage does not exactly say that?

MR BLOOM: I will go on to hopefully do better, but at this stage, if your Honour please, that it what we say underlay the decision in Spotless, it being decided that the transaction was consistent with commercial purpose, but consistency with commercial purpose obtained outside the eight matters was not enough to state it, that is the point. Then in the middle of 416, second full paragraph:

A taxpayer within the meaning of the Act may have a particular objective or requirement which is to be met or pursued by what, in general terms, would be called a transaction. The "shape" of that transaction need not necessarily take only one form. The adoption of one particular form over another may be influenced by revenue considerations and this, as the Supreme Court of the United States pointed out, is only to be expected. A particular course of action may be, to use a phrase found in the Full Court judgments, both "tax driven" and bear the character of a rational commercial decision. The presence of the latter characteristic does not determine the answer to the question whether, within the meaning of Pt IVA, a person entered into or carried out a "scheme" for the "dominant purpose" of enabling the taxpayer to obtain a "tax benefit".

That was the passage which, I think, makes the point I was making to your Honour.

GAUDRON J: Yes.

MR BLOOM: At 417, the Court sets out, at the middle of the page, what it calls "The eight necessary criteria", and then the section is set out, including (b) and the eight matters there at page 9, over to page 10, and your Honours see at page 10 or page 418 of the report that it then says, "it would be concluded", that is the objective test.

Now, that same sort of provision, your Honours, appears in numerous other statutes. The sales tax legislation and its replacement, the GST legislation, the Fringe Benefits Tax legislation, the Financial Transactions Reporting Act, the Victorian Land Tax Act, and that is but a few of the statutes in which the same sort of device appears where, by reference to a number of specific matters, it would be concluded that the purpose of a person, et cetera.

Now, at the bottom of 421, this Court said, page 11:

The eight categories set out in par (b) of s 177D as matters to which regard is to be had "are posited as objective facts". That construction is supported by the employment in s 177D of the phrase "it would be concluded that...". This phrase also indicates that the conclusion reached, having regard to the matters in par (b), as to the dominant purpose of a person or one of the persons who entered into or carried out the scheme or any part thereof, is the conclusion of a reasonable person. In the present case, the question is whether, having regard, as objective facts, to the matters answering the description in par (b), a reasonable person would conclude that the taxpayers entered into or carried out the scheme for the dominant purpose of enabling the taxpayers to obtain a tax benefit in connection with the scheme.

Then your Honour Justice McHugh in a separate judgment at 425, in the middle of the page, said:

However, Part IVA does not authorise the Commissioner to make a determination under par (a) of s 177F(1) merely because a taxpayer has arranged its business or investments in a way that derives a tax benefit. More is required before the Commissioner of Taxation can lawfully make a determination under that paragraph. First, the scheme must be examined in the light of the eight matters set out in par (b) of s 177D. Second, that examination must give rise to the objective conclusion that the taxpayer or some other person entered into or carried out the scheme or a part of the scheme for the sole or dominant purpose of enabling the taxpayer or the taxpayer and some other person to obtain a tax benefit in connection with the scheme.

Now - - -

KIRBY J: What is the point of difference between his Honour, if any? Is there any point? I do not see a point of difference.

MR BLOOM: No, there is no point of difference in that.

KIRBY J: His Honour concurred in the orders, but added an expression of the same idea rather more briefly.

MR BLOOM: Yes. Precisely, your Honour, yes.

McHUGH J: I wanted to make it plain that these were a very unusual set of facts and merely because people shifted investments which gave them some tax advantage did not attract the operation of - - -

MR BLOOM: And no doubt, your Honour, even if they did so on advice, with respect.

McHUGH J: Yes.

MR BLOOM: Although your Honour does not say that. Now, your Honours also have, finally, a diagram of the scheme and that is the last page of the documents which we filed, and that shows in red the steps particularised as the scheme, that is CPH Property taking up shares in MLG and MLG taking up shares in CPIL(UK). The - - -

GAUDRON J: Was it all shares?

MR BLOOM: Those two were, your Honour. There was no step outside, no step that is not in red was part of the schemes particularised by the Commissioner.

GAUDRON J: No, what I was asking was, CPH did not lend money to MLG?

MR BLOOM: No, your Honour. It took up shares.

GAUDRON J: No, it took up shares.

MR BLOOM: Shares expected to be income producing.

McHUGH J: It was the acquisition of the redeemable preference shares in MLG and the acquisition by MLG of the redeemable preference shares in CPIL.

MR BLOOM: Yes, your Honour, that was the scheme, as particularised.

GAUDRON J: As distinct from going directly from CPH to CPIL?

MR BLOOM: Yes, and - - -

GAUDRON J: Yes. The interposition of MLG - - -

MR BLOOM: Yes, that was the scheme as particularised.

GAUDRON J: The interposition of MLG, on its face, achieved nothing, other than the tax benefit.

MR BLOOM: Well, your Honour, if your Honours grant special leave that is something we can argue about. At the moment we cannot, based on the findings of the Full Court.

GAUDRON J: Yes, yes.

MR BLOOM: Now, the point that I wish to make from this diagram, though, is this. The only parties particularised by our learned friends as those who entered into or carried out the scheme were those three companies in red, nobody else; and the only persons, in answer to our request that this be particularised, the only persons particularised as having the necessary purpose were the same three companies.

McHUGH J: What is the critical point, that the employees of Arthur Young, who did not carry out the scheme or enter into it are nevertheless taken into the account by the Full - -

MR BLOOM: Yes. It is this point of attribution, and what happens is that - and I can take your Honours through it, but just to quickly summarise it - what happens is that the Full Court accept that his Honour Justice Hill, by mistake, thought that the unidentified person at Arthur Young's was a party and made the finding about a party as he had said he had to. They then accepted a clever argument by my learned friend in reply in the Federal Court to the effect that, well, he could do this without going outside his particulars. You simply took the purpose of the non-party and attribute it to a party. They found the purpose of each of the three parties in red by attribution of the purpose of the non-party. They did not find it in any other way, and in particular, and this is our point - - -

GAUDRON J: How was one going - we are talking with corporate entities.

MR BLOOM: Yes.

GAUDRON J: How is one going to find their purpose?

MR BLOOM: But this is not a Tesco point, with respect, your Honour. This is not an attribution of the acts of a servant to a company.

GAUDRON J: What is your tax adviser, if he is not in that area, your servant or agent?

MR BLOOM: Your Honour, he may be a servant or agent, but section 177D permits one to do one thing only which is to find purpose by reference to the eight matters mentioned in it.

GAUDRON J: Yes, and in this case we are looking at the purpose of CPH.

MR BLOOM: For example.

GAUDRON J: Well, for the purposes of this application.

MR BLOOM: No.

GAUDRON J: No?

MR BLOOM: No, purposes of CPH, MLG or CPIL(UK).

GAUDRON J: Yes.

MR BLOOM: Any party who entered into or carried out the scheme. But the court did not do that. They went to a ninth matter, which is not in section 177D(b). They found the purpose of a person who was not a party and then attributed that purpose to a party, and we say, with respect - and it is a very important matter, because in every case involving tax there is going to be advice.

GAUDRON J: CPH must have had a purpose in doing this. We do not assume that he did it just for the sake of filling in time.

MR BLOOM: Are we talking objectively or subjectively, with respect, your Honour?

GAUDRON J: Objectively. CPH did not do this just for the sake of sitting down one day and saying, "Oh, I have an hour or so here, I will do something". It did it for a purpose, did it not?

MR BLOOM: Mr Cherry said that the purpose had nothing to do with 79D because he had advice to say that 79D did not apply, based on the same principle that the trial judge upheld but was reversed on, the zero amount point. The reasons given for it were quite different, but the point is this, your Honour: under 177D what must be ascertained having regard to the statutory construct is the purpose of a person who entered into or carried out the scheme and it must be ascertained by reference to those eight matters in 177D. If you cannot ascertain it in that way and come up with the necessary purpose, you cannot ascertain it, with respect, in any other way, attribution or otherwise.

McHUGH J: Yes, your argument is it is those eight matters which provide the blinkers, in effect, in identifying the objective purpose of the participants in - - -

MR BLOOM: For the same reason that in Spotless the scheme which outside the eight matters was perfectly commercial was, nonetheless, when the eight matters were examined, found to give rise to the objective impugned purpose.

GAUDRON J: Yes, but, for example, why does "person" have to be anything other than the company in abstract?

MR BLOOM: It is the company.

GAUDRON J: Yes.

MR BLOOM: Yes.

GAUDRON J: We do not have to look to the individuals.

MR BLOOM: No.

GAUDRON J: So, in a sense, we are in the field of attribution, are we not?

MR BLOOM: No, because the matters you look to under - - -

GAUDRON J: Yes, if we look at the form and substance of the scheme, the resulting relation to the operation of this Act, any change in the financial position of CPH, any change in the financial position of the other companies, any other consequence for CPH, then - - -

MR BLOOM: Where does attribution come in, with respect, your Honour? But if you look at those eight matters and you do not come up with the right conclusion, how can you then supplant what the test is under the statute and attribute that purpose by reference to somebody else who is not a party?

McHUGH J: Your critical point is, is it not, as I understand it, that people at Arthur Young are not people whose state of mind can be attributed to CPH or any of the people in this scheme?

MR BLOOM: Yes, two points: first of all, they are not the people who, under the test.....Nattrass-type of situation would normally have their purpose attributed to the company; but, secondly, what section 177D does is to direct the Commissioner and the court in his place, in this instance, to look at the eight matters, only those eight matters, and to form the view based on those eight matters. Now, when you do not do that - - -

KIRBY J: It is curious that Parliament limited it to the eight.

MR BLOOM: Yes, your Honour.

KIRBY J: It did not add "or any other related matter", it could have been done.

MR BLOOM: Exactly, your Honour. Now, in the GST provision there is now a paragraph that says, for instance, "any other relevant circumstances".

GAUDRON J: But why could it not be reasonably concluded - - -

MR BLOOM: Having regard to the eight matters, your Honour?

GAUDRON J: - - -having regard to (b) (i), (ii), (iii), (iv), (v), (vi), (vii) and (viii), ignoring anything else, that the purpose of CPH was to avoid, in short, the interest quarantining provisions.

MR BLOOM: But the court never performed that task. They just did not do it, and had they, we would be in trouble. But they did not do it - - -

GAUDRON J: So the court did not - - -

MR BLOOM: - - - they said, "in this case we can get around the need to do it simply by attributing", and, your Honours, we say - - -

GAUDRON J: Yes. Well, that being so, what you have to do, really, the problem you face is whether, really, it can be said there are sufficient prospects of success of your appeal when the matter could come out of (b)(i) to (viii).

MR BLOOM: Well, your Honour, I can only say, with respect, that the inability of the trial judge to find the purpose on a party, applying the matters, and the inability of three judges below to find it, applying the eight matters, is a good start, with respect. They had to do it by attribution, it was the only way they could get there.

GAUDRON J: I do not see why.

MR BLOOM: Your Honour, that is a matter, really, with respect, that I need to persuade you if the matter goes further.

GAUDRON J: Yes.

MR BLOOM: With respect, I will be able to do so. None of the judges below was able to form the view based upon the eight matters in relation to a party, and the Full Court only got there by an impermissible step, we say, taking into account a ninth matter, or if you have it another way, not taking into account the eight matters, to find the purpose of a non-party and attribute it to a party. That, with respect, is a special leave question. Not only are we talking here about the general anti-avoidance provision which applies to all taxpayers potentially, but it is a provision which, as I have indicated to your Honours, is in a large number of other statutes, that same sort of device.

GAUDRON J: Now - - -

MR BLOOM: An attribution, for instance, in the Financial Reporting Transactions Act could have very, very serious consequences for people who are alleged to have committed offences under that statute. If your Honours please, those are our submissions.

GAUDRON J: Yes, thank you.

MR SHAW: I will ask Mr Pagone to reply, if the Court pleases.

GAUDRON J: Yes, thank you, Mr Shaw.

MR PAGONE: If the Court pleases, in our respectful submission, when one looks at what the Full Federal Court did, one does not see the Full Federal Court doing what my learned friend says it did. The court was very concerned and knew that it was confined to the eight matters they are found in 177D and it is perfectly plain when one looks at the judgment itself that that is what they were concerned about.

GAUDRON J: The major point at all stages seems to have been the quarantining provisions.

MR PAGONE: Yes, your Honour, yes. So far as the scheme is concerned, that is true.

GAUDRON J: Yes, yes.

MR PAGONE: My learned friend's point seems to be one, namely whether the fact that the Ernst & Young people were somehow or other significant means that there is a ninth factor being taken into account. What we say about that, your Honours, is that that is simply not what the Full Federal Court did. If one turns, for example, to page 120, perhaps starting at 118 of the appeal book, the Full Federal Court having considered the other matters in relation to Part IVA, it then turns to the question of "purpose of enabling the relevant taxpayer to obtain a tax benefit". It sets out some passages from Spotless which had been put by our learned friend very carefully and properly. At 119 your Honours will see the same references. In response to the argument that one needs to look at the eight factors, they start at the bottom of 119:

In approaching the application s 177D(b) under the heading "The Section 177D Conclusion", his Honour went directly to the question of dominant purpose and dealt with it holistically without adverting expressly to each of the eight matters that must be considered in reaching a conclusion on purpose. The section requires the decision-maker, be it the Commissioner or the Court, to have regard to each of these matters.

They were plainly aware of what they had to do and they then proceed to do just that. At page 120 of the appeal book your Honours will see at paragraph 94, line 20, that they refer to the submission, that it was:

"the only matters to be taken into account".

Your Honours will see that at line 96. At 95, the Full Court says:

In this case, his Honour did in our opinion have regard to the various matters mandated by par 177D(b).

In the pages that follow, your Honours, they take each of the factors one by one. They start off with 177D(b)(i), and your Honour will see reference to that expressly at line 41 on that page. They proceed to (ii) and your Honours will see express reference to the second line of page 121. They then deal with (iii), at line 26 on that page, and so on through each of the eight factors, until one gets to the end of that analysis at page 122, where they deal with the proposition that our learned friend is putting to the Court today, where the court said:

ACP submitted that, having regard to the eight matters in par 177D(b), it could not objectively be determined that the sole or dominant purpose of a person who entered into or carried out the scheme was to obtain a tax benefit. The parties who were alleged to have that purpose were identified by the Commissioner as CPIL(UK), MLG and ACP. The case below was conducted accordingly. ACP submitted that his Honour made no finding that any such party had the necessary sole or dominant purpose. Moreover, had he scrutinised the scheme in light of the eight matters referred to in par 177D(b), he would have been led, it was submitted, to the irresistible conclusion that no such person had that sole or dominant purpose. But as the Commissioner contended the scheme was entered into on the basis of advice received from Arthur Young. Mr Bourke gave evidence that on matters of this kind he relied on the advice of his tax advisers.

We interpose there, saying note the plural -

The commissioner submitted that in these circumstances the purpose or purposes of Arthur Young in recommending the scheme are to be attributed to those who entered into and carried it out on the basis of their advice.

KIRBY J: Just pausing there, is that not an important proposition?

MR PAGONE: Your Honour, it is a factual question.

KIRBY J: I mean, let it be correct. It is still of significance, is it not? It is a practical - and it may well be correct - but it is a very important proposition for the working of the Tax Act, it seems to me.

McHUGH J: Particularly when you go on two sentences down:

There would be few such arrangements which do not involve the obtaining of prior professional advice -

KIRBY J: How can a taxpayer protect itself from that, except by taking no tax advice, which is a very unrealistic proposition?

MR PAGONE: No, your Honour, it is to say only that when one looks at the eight matters, what one is allowed to do is to draw from facts that bear upon the eight matters and those facts may be found in all sorts of places, just as in Spotless one had regard to all of the facts that were relevant to each of the eight matters, some of them relating to the conduct of the advisers, some of them relating to the conduct of the solicitors, and so on. It is not a proposition that one has gone beyond the eight matters.

McHUGH J: But it is, is it not, at 123 line 14:

In the circumstances, the relevant purpose that has been found, albeit by reference to the purpose of the advisers to the Group.

So you attribute their purpose to the participants.

MR PAGONE: Your Honour, that does not make it outside the factors in 177D(b). If one goes back to 177D(b) and says, are we saying that one is adding an additional ground, or does one say this fact - - -

GAUDRON J: Confirms.

MR PAGONE: - - - confirms or fits within or is relied upon.

McHUGH J: If it confirms, you would not need it. So it has to do more than confirm.

MR PAGONE: No, your Honour, it may supply.

KIRBY J: You say you are merely answering the arguments that were put up.

It simply answers the description in the factors in s 177D(b). Section 177D(b) identifies eight categories and where one finds the facts relevant to those categories is not proscribed in any way at all.

GAUDRON J: What the Full Court is then doing is really answering the criticism of the reasoning process of the judge at first instance.

MR PAGONE: Absolutely, your Honour

GAUDRON J: Can you take us to his Honour's reasoning process.

MR PAGONE: Yes, your Honour. It appears, I suppose best, at page 30, I think, in the appeal book. It starts, I suppose, at page 29 where his Honour, under the heading of the section, 177D Conclusion, begins by referring to Spotless. Identifies there as being, at the bottom of the page, your Honours will see in the last paragraph, two purposes are identified. First of all, the planning of the deduction of s 79D and then the protection of the tax credit relief.

Then over the page, his Honour identifies the s 79D component, as it were, as being the operative matter because it was closer. Then what his Honour says at line 34 is:

With some doubt I am of the view that a conclusion would be drawn that the dominant purpose of some person who participated in the scheme, and in particular those (perhaps not Mr Cherry, but there were others) who advised the group at Arthur Young and later Ernst & Young, was to bring about the result that a deduction would be allowed to the Applicants which, but for the scheme, would have been disallowed to them because of the application of s 79D. I reach this conclusion because it seems to me that the interest deduction was more immediate than the adoption of a neutral structure for non interference with tax credits.

GAUDRON J: So, if you relate that to the section - - -

MR PAGONE: Your Honour, it is best to relate that with what the Full Court - - -

GAUDRON J: One of the persons who carried out a part in the scheme to be found in Ernst & Young or its predecessor, but an unspecified person - - -

MR PAGONE: But acting as, or acting as agents of.

GAUDRON J: Well, it does not have to be anyway, does it?

MR PAGONE: No, your Honour, it probably does not.

GAUDRON J: All one has to be is a person who carried out part of the scheme. But can it be said that the tax advisers carried out part of the scheme? That is the problem, is it not?

KIRBY J: Is that not an important question, if they simply are giving advice?

MR PAGONE: If I can ask your Honours to turn to page 93 where s 177D(b) is set out, these are the eight factors that are mandated and they are all in general terms. The manner in which the scheme was entered into or carried out. No restriction at what you can look at.

GAUDRON J: Yes, but really the question is, there has to be somebody who carried out part of the scheme. For present purposes, given what is said to be the scheme, it has to be CPH. You have to be looking at CPH; CPH carried it out. Ernst & Young did not. CPH did. It bought the redeemable preference shares, so on and so forth.

MR PAGONE: But, your Honour, accepting CPH as the relevant one for the purposes of argument, one can say: can it be its purpose and can we see its purpose by the - - -

GAUDRON J: What the actual finding was, some person who participated in this scheme - so there is that finding - and then it says "and in particular those". The question is, is that "and in particular those" et cetera down to "Young" extraneous? If his Honour had left the conclusion "some person who participated in this scheme", it would have been unobjectionable, surely.

MR PAGONE: What the Full Court said about his Honour's reasoning is that he dealt with holistically, compendiously. They then went through and looked at each of the eight factors one by one - - -

GAUDRON J: Yes, but they were doing that to say that his Honour's approach was correct.

MR PAGONE: That is so, your Honour.

GAUDRON J: And they did not themselves decide whether it would be concluded da-da-da-da-da for the purposes of the provision. The question that emerges is whether the section permitted the trial judge to conclude - well, the question is there was some ambiguity in what the trial judge concluded, namely whether the "some person" who participated in the scheme was actually somebody who carried out part of the scheme.

MR PAGONE: Your Honour, there is no ambiguity that he is addressing the ultimate question of s 177D(b), and he is saying, "Well, all other things having been considered and my adopting a different view about s 79B", the fact is the relevant conclusion would be reached. He says that "in particular that could be supported by reference to the fact about the group of advisers at Arthur Young". The question is, your Honour, how does that fact come in?

GAUDRON J: It does not say it can be supported by. That is the problem. What his Honour does say is "some person who participated in the scheme" - at that point unidentified - "and in particular those who advised". But the test is not "some person who participated in the scheme" - I mean certainly one can say the Ernst & Young people participated in the scheme; that is not the test. It has to be a person who entered into it or carried it out, and from your point of view, that has to be CPH. Once you look at entering into and carrying out the scheme, on this scheme as it is identified, it has to be CPH.

MR PAGONE: Yes, your Honour, and Ernst & Young were not acting there as principals of their own. Any role they had was in furtherance of CPH's activities.

McHUGH J: Yes, but on what legal principle can you attribute their actions to CPH? They were not their agent, they were not the dominant mind of the company.

MR PAGONE: They were tax advisers. They were put forward by our learned friends as part of the evidence in support of their case, and all one says about it is, your Honour, that one is permitted under s 177D(b) to look at categories. What our learned friends have done is to latch upon a fact and to have said that that fact is being used as a separate category. All we say is that point was argued by the Full Federal Court and the Full Federal Court said, "No, that is not what happened". So if the primary judge went wrong, the Full Federal Court has now corrected it.

GAUDRON J: No, it has not. That is the trouble. When you look at what the Full Federal Court has done, it has simply said the trial judge did not make an error. The Full Federal Court did not then go on and say for itself, "Would it be concluded that a person who entered into the scheme or carried out the scheme, or part of it".

MR PAGONE: Your Honour, with respect, we would say the Full Federal Court did do that because it was conscious that it could only have a look at the eight factors. All that it was doing at the end was saying that his Honour did not get it wrong for the reason that had been advanced below and which is being advanced to the Court today. So that if there was error, it has been explained. Now, the Full Federal Court may conceivably be in error in explaining his Honour, but in so far as they have explained his Honour, there is no continuing error that will affect anybody else. It is to say no more than that the actions and activities of a particular person may be regarded as being irrelevant to the conclusion about, for example, CPH. At absolute worst, it gets to the proposition that the relevant purpose may be found by reference to the purpose of the advisers. That is not to say, your Honours, that there is an additional factor. That is to say that the factor is satisfied by this fact.

McHUGH J: Well, no, it is introducing an irrelevant factor. It does not matter whether it is an additional factor or not. It is introducing essentially, arguably an irrelevant fact.

MR PAGONE: Your Honour, only if the facts will support the conclusion that on a case-by-case basis facts of that kind will, on a different case, be justified in respect of - - -

McHUGH J: Look at the sentence on page 123, line 9:

There would be few such arrangements which do not involve the obtaining of prior professional advice and the objective purposes associated with the implementation of that advice can properly be attributed to those who implement it.

That is a very large proposition, but it does not seem to me at the moment to have much basis in the section.

MR PAGONE: That is a proposition, though, of fact. It is a proposition that on any case will either support it or not support it by the facts. Whether the purposes of the adviser can be attributed to the purposes of the relevant taxpayer will always necessarily depend upon the facts as they arise. In some cases, plainly, the adviser- or the purposes of the adviser and the actions of the adviser - will not be capable of being attributed to the - - -

McHUGH J: Well, I do not read it that way at the moment. It seems to me it is laying down a proposition that if the adviser has the purpose, that is sufficient. You can attribute it, whether the adviser has entered into or carried out the scheme or any part of it.

GAUDRON J: It seems to me you might well be able to use the adviser's purpose to confirm a purpose deduced from the eight factors, but this does not seem to be what has happened.

MR PAGONE: Can I simply refer your Honours again to - perhaps I did it a bit too quickly - the bottom of page 122 in part of the recitation of the eight factors, at the very bottom of the page, the second last line:

But as the Commissioner contended the scheme was entered into on the basis of advice received from Arthur Young.

KIRBY J: Yes, you read us this. It is what then follows that - - -

McHUGH J: I would have no problem if this was a very fact specific case. There are obviously many occasions on which a tax adviser's purpose would be able to be attributed to somebody in the scheme. But there seems to be laid down a very general proposition in this case and, in addition, I am not sure that the facts justify its application in any event.

MR PAGONE: Your Honour, with respect, we would say that what the Full Court said, in different words, was precisely the proposition that your Honour just put to me in the first part of your Honour's sentence. Secondly, that the court bent over backwards to indicate that it has to be limited to the eight points because that was the point below. What the Full Court did was to say, "It is true that his Honour dealt with as a sort of an omelette, all jumbled up together, but when we unscramble it we can identify everything as fitting within the sections".

Furthermore, let us deal with this very point that my learned friend was concerned about, namely the attribution, and they say that it is perfectly okay on these facts. It is a clear case, we would say, where the Full Court was at pains to say, "We know there are eight factors, we know there are only eight factors, yes there are only eight factors". But this particular bit of evidence is relevant to the eight factors. Your Honours, I see that the time is about to come to an end. I have no further submissions on that point.

GAUDRON J: Mr Bloom, you have addressed us only in your application about s 177D(b).

MR BLOOM: Yes, your Honour.

GAUDRON J: If leave were granted, would that be the only issue in the appeal?

MR BLOOM: Well, your Honour, the very short issues involving s 79D, the zero amount, particularly after the decision of the Court in Ryan, and foreign source are matters we would like to litigate before the Court, but it is a matter for your Honours as to whether special leave is confined.

GAUDRON J: Mr Bloom, there will be a grant of leave if this case. It will not be confined.

KIRBY J: Would those two matters be over in two days if they were listed consecutively?

MR BLOOM: Yes, your Honour.

KIRBY J: Do you agree with that, Mr Shaw?

GAUDRON J: One and a half, surely?

MR SHAW: I think they probably would, your Honour, yes.

GAUDRON J: The Court will adjourn briefly to reconstitute.

AT 11.11 AM THE MATTER WAS CONCLUDED