Elecnet (Aust) Pty Ltd (As Trustee for the Electrical Industry Severance Scheme) v Commissioner of Taxation of the Commonwealth of Australia [2016] HCATrans 170 (28 July 2016)

Last Updated: 1 August 2016

[2016] HCATrans 170

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
Melbourne No M13 of 2016

B e t w e e n -

ELECNET (AUST) PTY LTD (AS TRUSTEE FOR THE ELECTRICAL INDUSTRY SEVERANCE SCHEME) (ACN 080 344 458)

Applicant

and

COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA

Respondent

Application for special leave to appeal

KIEFEL J
GORDON J

TRANSCRIPT OF PROCEEDINGS

FROM BRISBANE BY VIDEO LINK TO MELBOURNE

ON THURSDAY, 28 JULY 2016, AT 10.02 AM

Copyright in the High Court of Australia

MR A.H. SLATER, QC: If the Court pleases, I appear with my friend, MR B.L. JONES, for the applicant. (instructed by Mills Oakley)

MR S.J. SHARPLEY, QC: Your Honours, in Melbourne I appear for the respondent Commissioner with my learned friend, MR A.T. BROADFOOT. (instructed by Australian Taxation Office, Review and Dispute Resolution)

KIEFEL J: Yes, Mr Slater.

MR SLATER: Your Honours, this application raises two questions of public importance and general application, one wider than the other. We have identified them in Part 1 of our summary at page 74 of the application book. If I could deal first with the wider point - it is the approach to be taken to the construction of a statutory provision which uses as a criterion of liability a term which has only a descriptive and not a normative content. The term in this case is the expression “unit trust”.

I will come back to what has been said by this Court about its meaning, but the point that we take as one of general importance is not one which has been addressed in this or in any other ultimate Court of Appeal. There is ample authority on dealing with terms with an established normative meaning. Members of this Court have said it is most of the Court’s work. But this is not a case of the routine tension between text and context, which founds so many of the observations made in this Court.

There are many cases on construing terms with trade or with established commercial or technical meanings. The respondent, at paragraph 9 on page 138 of the application book, identifies one of them - the Herbert Adams Case. We have referred to others at paragraph 30 of our outline on page 81. But all of those are cases concern terms which have an established or identifiable meaning.

There are no cases, that we have been able to find, on construing terms which are merely descriptive, which have a core descriptive meaning and an uncertain penumbral meaning. The issue is only going to arise for debate in the penumbral cases and the question which is raised in this case and one which, in our submission, warrants the attention of the Court is how does one fix the boundaries of operation of the term where it is merely descriptive and does not have an established meaning?

GORDON J: I thought your complaint was really set out in paragraph 24 of your outline and that was that this really was a question of classic statutory construction. One looked at the text; one looked at context. Context includes, as we know from earlier authorities in this Court, that wider legal meaning – the wider commercial purpose, as well as the purpose provisions, the purpose aspects of it. Is that not encapsulated in what you are putting to us?

MR SLATER: That is what we are putting, yes, your Honour, but we say there is no authority which directs that that course should be taken.

GORDON J: CPT Custodian does not, as you suggest, in paragraph 24 of your outline.

MR SLATER: Yes, your Honour, it does say that. I suppose what I am saying is that that is not the course which the Full Court has taken in this case.

GORDON J: I accept that is your point. In effect, the thrust of your complaint is that it did not follow established processes of construction.

MR SLATER: Well, it goes a little wider than that, your Honour, because although CPT does say that, it was not dealing with a term which ad a merely descriptive content. There are observations in CPT Custodian about unit trusts, but the point at issue in CPT Custodian was the meaning of an estate vested in possession – I am sorry, I might have that language slightly wrong. It was an express statutory expression in the land tax legislation which did have a normative meaning.

The comments about unit trust were in response to an argument which was put that this was a unit trust in which there was a sole unit offer and therefore it met the statutory criteria. What the court said was that unit trust does not assist in the analysis because it has no settled meaning.

We accept and we continue to say that the approach that we put forward is the approach which should be taken, but we also say that this judgment stands for a different idea and different approach. In our respectful submission, what this judgment says is wrong and should not be allowed to stand as authority at the intermediate level.

KIEFEL J: What is the approach that you say that the Full Court took in this case, which is different from how the question should be approached?

MR SLATER: What their Honours did in short summary was to say look at the idea of unit trust, discuss the way in which it has been mentioned in white papers and in academic literature, look at what was done in other jurisdictions in their legislation and arrive at a core concept of the unit trust which is functional, uses the metaphor of unit and is conceptual rather than delineative. If one comes to - - -

KIEFEL J: Do you say that is not a workable approach, it is not a practical approach?

MR SLATER: It is a workable approach in the simple case, your Honour. If one takes, for example, the Westfield Property Trust, it meets the core ideas. It is a listed trust – sorry, it is a trust, the interests in which are listed on the exchange. It uses the word “unit”. People invest in it – all these things that the Full Court talks about as being the core concept. That is not where the difficulty lies. The difficulty lies in cases which are not as simple as that.

The present case is not as simple as that. We say that the present case falls within the meaning of “unit trust” or should be taken to fall within the meaning of “unit trust” but towards the margin, not in the middle. What the court has done here is to say, “Well, here’s the core; these are the concepts which are involved in the core. Here’s the metaphor which should be used. Here’s the functional analysis which should be used”, but that does not assist another court in dealing with a case which is not in the centre of a discussion in coming to the conclusion whether or not the trust before it is a unit trust.

GORDON J: Is your complaint put another way by saying they started at the wrong point – that is they seem to have, as you say, identified what is the core and then shifted that into the legislation whereas if one started with the legislation and the words of the legislation and worked downwards and worked out by reference to the context and purpose of the provisions what the breadth was, if there was any breadth, of the concept – is that really your complaint?

MR SLATER: Yes, your Honour. I have not put it in quite as elegant terms, but that is what we say.

GORDON J: So it is not really trying to work out what the boundaries of it are at large, it is working out whether or not – and this is probably against you at one level – the facts of this scheme fall within text, context and purpose of the provisions.

MR SLATER: The way in which to work out the boundaries, if what we identify as the matter which is sufficiently important to warrant the attention of the Court, the application to this particular case is a different matter. We deal with this particular case by saying this is the way the Assessment Acts deal with trusts, these are the categories of trusts that the Assessment Act sets up and this is where we say the boundary lies between discretionary trusts at one end of the spectrum and fixed trusts at the other. We say we fall within the boundaries so fixed.

KIEFEL J: A matter that Justice Gordon has alluded to, which is against you on special leave, is of course that this Court receives many applications for special leave about what is the meaning of a “unit trust” and more often than not it comes down to the facts of the particular case. What is it that really sets this apart, putting the result reached by the court aside, what is it in the approach of the court which makes this a matter of general importance - I mean sufficient for you to be able to say that this decision should not stand?

MR SLATER: At one level it is that this decision, expressed as it is in terms of functional analysis and metaphors and core ideas, provides a foundation of confusion for future courts. The term “unit trust” is used about 600 times in the legislation. It arises in a whole range of contexts. If this description of the way in which one approaches it is left to stand the next case which comes before a trial court or an intermediate court, for example, involving a dealing between a beneficiary and a trustee or a dealing by a beneficiary with his interest in a trust fund, would have to begin with the analysis in this case because that is a standing Full Court decision. It is binding on judges at first instance. It is one which ought to be followed by intermediate courts and, in our submission - - -

KIEFEL J: There must be many other decision of the Full Court which are different from this. I mean, is there an inconsistency with other decisions?

MR SLATER: There are no other decisions of the Full Court which deal with this question. There is no authority - - -

KIEFEL J: Many Full Court decisions dealing with unit trusts as a matter of statutory construction.

MR SLATER: Not with the boundaries of unit trusts – not with what comprises a unit trust. There are many cases in which one of the parties is the trustee in the trust or one of the trust funds involved is referred to as a unit trust, but there are no decisions in which the reach of “unit trust” – the reach of the term – is examined in the way that it had to be examined in this case.

If I could remind your Honours, in this case there was only one question to be argued by reason of an order made by Justice Davies at first instance. The only question before the court was whether this trust was a unit trust. So it was a very narrow issue and, correspondingly, it is a very narrow issue that comes to this Court. It is one which is determined on well-established facts, non-controversial facts so that it is a case in which the Court can properly address that without having to delve into factual issues.

But, in answer to your Honour’s question, apart from some observations in a Tribunal case, which is referred to by the majority and was referred to by Justice Davies at first instance, there is no authority directly on the meaning of the term “unit trust”. So this decision of the Full Court is it and, in our submission, this decision is a bad foundation for the development of the law.

We have set out in our written outline the way in which we say the meaning of “unit trust” should be approached and in very brief summary we say the Act uses the term “trust” many, many times. I think we counted – there were 6,000 times when the word appears. It defines a class of trust. It is called “fixed trusts”. It defines or refers to another class called “discretionary trusts”.

In between there is a range and we would submit that that intermediate range is what is meant by “unit trust”. It is a trust in which the beneficiaries have an interest which does not rest solely on the discretion of an appointor, the trustee or someone else, but which is not fixed and indefeasible. It is measurable, determinative. It may be subject to contingencies. It may be mutable, but it is a measurable interest and that, in our submission, is the meaning which should be ascribed to “unit trust” in the legislation.

Your Honours, I had intended to take your Honours to some passages in which the Full Court set out what we say is the substance of their reasoning. Are your Honours assisted by my doing that? I will not take the Court’s time if you are not.

KIEFEL J: I think we understand their reasoning. Thank you, Mr Slater.

MR SLATER: The only other point I would make, your Honours, is that there is, in the reasoning of the court, an element of confusion between two related concepts or two related questions. One is the question whether the interest of a beneficiary is a unit and the other is the question whether the trust is a unit trust. In this case it is the latter rather than the former, which is the point in issue. We have developed our reasons for saying that in our written outline.

GORDON J: Is that right in relation to paragraph 4 of your draft notice of appeal?

MR SLATER: Yes, it is, your Honour, because we say when one comes to the particular issue which has to be dealt with in this Court, which is not the broader issue that I have defined as the one which warrants the attention of the Court, but in a particular issue then in construing the expression “unit

trust” in Division 6C, which, just to remind your Honours, is a provision which imposes a tax on the trustee - it does not tax the unitholder - - -

GORDON J: It treats it as if it is a corporation.

MR SLATER: It treats it largely as if it were a corporation, yes. So it is a provision concerned with the tax liability of the trustee. We say that the definition of “unit,” which is used in Division 6C, bears upon the interpretation of “unit trust” in the context of that division. So in answer to your Honour’s question we say – perhaps I should put it this way – we submit that what we have put there is consistent with the submission I have been advancing to your Honours. Your Honours, we do submit that this is an appropriate vehicle for consideration of the issue. It is clear, it is confined, it raises squarely the point and in our submission it is an important point and one which should be dealt with by this Court. If your Honours please.

KIEFEL J: Yes, thank you. Yes, Mr Sharpley.

MR SHARPLEY: If the Court pleases. The applicant propounds two special leave questions that it says identifies both an error below on the part of the Full Court and a question suitable for grant of special leave. The first question that is posited is: how should the court construe a provision in which the legislature has used a descriptive term as the criterion for its operation? In this particular case, some 11 years ago this Court said exactly how the court should approach the question of what “unit trust” means and that is the passage in CPT that my learned friend has already been taken to. Paragraph 15 of that judgment:

However, “unit trust”, like “discretionary trust”, in the absence of an applicable statutory definition, does not have a constant, fixed normative meaning -

So the direction of this Court was that it is futile to look for fixed normative meanings, that is a meaning which my learned friend urges this Court to find which is not descriptive, that is drawn by an analysis of unit trusts in the wild, so to speak, but rather which defines not only the concepts, not only defines the descriptive nature but also defines the exact penumbra of the concept of unit trust, such that one would be able to say in the 600-odd cases where the expression appears that this is or is not a unit trust because it either is just in or just outside the penumbra.

GORDON J: But is that not what the Full Court, in effect, did by default? It starts with this inquiry into what is or what is not a unit trust.

MR SHARPLEY: Yes.

GORDON J: It does not start at the right point, does it?

MR SHARPLEY: An artefact of how the case was argued before the judge below was that the taxpayer placed their eggs in the 102M basket. Essentially, they argued that anything that falls – an interest that falls within the definition of 102M is an interest that defines a unit trust. That was largely accepted by her Honour. That argument was rejected in the Full Court for separate reasons, but Justices Pagone and Edelman did start their examination by consideration of the statutory context and the relevance of 102M. They found it was a necessary but, in effect, not sufficient condition for something to constitute a unit trust.

Then, adhering to this Court’s injunction that “unit trust” is a descriptive term, they embarked on what we would say is an entirely conventional analysis of what “unit trust” means in the content of Division 6C. As we noted below the applicants below were not urging the court to find a general or exhaustive definition of “unit trust”; they were expressly confining their case to whether this particular scheme was a unit trust within the meaning of Division 6C.

We say there is nothing incorrect in terms of the standard approach to statutory interpretation in what the Full Court did. They looked at the genesis of the legislation, they looked at the relevant intrinsic material and they looked at the guidance that could be found in that intrinsic material as to what the drafters were contemplating. The drafters were certainly not contemplating that “unit trust” was a term without meaning. The drafters do not define it but they assume that, as a descriptive term, its meaning could be identified as necessary by an identification of those trusts which are considered unit trusts in commercial use, which is the standard approach to descriptive trusts.

They also mentioned where necessary – for example, at paragraph 28 of the judgment they noted the High Court’s decision in Charles’ Case, which again was not an attempt to exhaustively define “unit trust”. It was an example of a unit trust. That has been the general thrust of cases that have dealt with “unit trust”. Attempts to exhaustively define a descriptive term to fix the exact outer penumbra of it are not usually embarked on, and wisely, by the courts because the question before the Court is not to define the exact penumbra of a descriptive term, a meaning that may change over time, it is rather in this case is the trust in question - - -

KIEFEL J: But I suppose, Mr Sharpley, the question is: is that, however, what the Full Court embarked upon here?

MR SHARPLEY: Well, we say they did, your Honour. We say that, looking at the intrinsic material, looking at authorities, they recognised, as the drafters of the legislation had assumed, that the term “unit trust” has a content, it has a meaning, and they then set out to identify what are the aspects of that meaning. Now, they did not need to define the exact boundary because what they identified as the sufficient, critical or core criteria of a unit trust, the items but for which a thing could not be a unit trust, were lacking in this case.

In this particular case the presence of the three discretions on the trustee as to the distribution of capital meant that this could not be a unit trust. There is simply nothing akin, functionally, descriptively, metaphorically to a unit as an appropriate description to the capital entitlement being held by the workers. There were those three discretions which effectively gave the trustee the power to define workers as active or inactive according to criteria which were not before the court – and that is an artefact of this being a private binding ruling case – because of the power of the trustee to adjust the balance of any worker’s account and because of the power to pay out an amount - a return of capital that is less than the amount standing in the balance.

My learned junior reminds me that it was common ground that this was not a unit trust as to income. We are talking of a unit trust as to capital. The conclusion of the Full Court was that, regardless of the application of 102M – and they found it was relevant as part of the context – this simply could not be a unit trust. It simply lacked the core concept of what a unit trust is.

My learned friend urges upon a court a process by which you can only identify whether legal structure X falls within definition Y by knowing the exact boundaries of legal definition Y. The penumbra, as he talks about – I think he is suggesting this is a case more towards the penumbra of the definition. We do not say that. We do not think that is the only logical way you can proceed. You can also decide that legal structure X does not fall within definition Y if definition Y requires certain characteristics and this structure does not have them.

That is how the court reasoned. They identified enough of the core concept of a unit trust by reference to a standard process of statutory interpretation to identify those aspects that a unit trust must have as a descriptive term and this trust simply did not have them. Arguments about interpretation of particular clauses are not special leave points.

There was a thorough analysis of the particular terms and the discretions which appear on the face and the most that could be said to those discretions which appear on the face was that the trustee was bound to exercise them in good faith, which we accept. But that does not mean that there was anything akin to a unit being held and hence there was no unit, no unitholder, no unit trust. Now, in a context where this Court has said this term is not normative, it is descriptive, the only approach a court can take to identify descriptive terms is to see how they are actually used.

GORDON J: But that is not what the Full Court did here. If you are right, what they had to do was to look to the terms and deal with them in the classic way. What they did was they went on an exploration of what they describe as functional basis and metaphor involved in and break it down into three elements. Is it truly the Commissioner’s position that you expect that process to be undertaken each and every time this question has arisen?

MR SHARPLEY: No, but in terms of “functional” we understand the Full Court to mean function as in how a thing works, not what it is called. “Metaphorical” is a reference to the historical genesis of unit trusts as a reaction to legislation in the 19th century which was discouraging investment in shares. That is what they are referring to. They have been criticised for saying “functional” or “metaphorical”. We say they are just focusing on the core aspects of what a unit trust is understood to be.

We would say that this particular trust, which is a trust that provides benefits on severance of employees or upon their death or retirement, is not the sort of trust which persons of commerce would consider to be a unit trust. It is not surprising that an analysis of what constitutes a unit trust finds that this trust lacks certain aspects.

Could I just comment, your Honour, on the question that the taxpayer posits their own definition of what a unit trust is and embarks on what we say the Full Court said in CPT you should not do, which is to try to find a fixed normative meaning. That is paragraph 10 of the reply, which is at page 195 of the application book.

The taxpayers’ submissions were full of complaints as to the process but bereft of actually putting forward what they say a unit trust actually is. Now, clear the question is what is a unit trust for the purposes of Division 6C? They say “unit trust”:

denotes those trust estates entitlements under which –

presumably, they are:

neither “vested and indefeasible” –

So that would be a reference to fixed trusts. Their suggested definition of the penumbra of the definition is well, we exclude every trust that has vested and indefeasible interests – a fixed trust. For our part, we can see no reason why a unit trust could not be a fixed trust:

nor wholly dependent on the trustee’s favourable exercise of a power of appointment –

Presumably that is entitled to exclude what might loosely be called pure discretionary trusts where all of the powers of appointment are entirely discretionary. It goes on:

but are stipulated and ascertainable under the terms of the instrument –

So it is an express trust:

and in the events which have occurred -

So it cannot be a fixed trust and we do not see why that limitation exists at all. I mean, why cannot a unit trust be a fixed trust? And:

capable of delineation in numerical or proportional terms which can be called “units”.

So you have to have an interest that could be somewhat discretionary but not wholly discretionary, cannot be fixed and your entitlement can be called “units”, so presumably they do not have to be actually named units. But then:

Having regard to the definition of “unit” in s 102M, it is not necessary that the interest of the beneficiary be “unitised” -

So there must be something that could be called a unit – that is, there must be some unit-like nature to them, whatever they are, but they cannot be – it is not necessary for them to be unitised in the functional or ordinary sense. For the Commissioner’s part, we struggle to understand what exactly this definition is being put forward to and, more importantly, CPT has told us that whatever - - -

KIEFEL J: Mr Sharpley, could we just come back to the Full Court’s reasoning, rather than whether or not the reply is correct. We understand, of course, that the Commissioner considers that the result reached by the Full Court is correct. But can I ask you this? From the Commissioner’s point of view is the approach adopted by the Full Court a workable approach to be applied in other cases?

MR SHARPLEY: Yes, your Honour. That is the Commissioner’s position. The critical passage from the Commissioner’s point of view, which we quoted in our – page 142 of the appeal book – as your Honours will have recognised, there was a focus in this case on the role of 102M as a result of how the case was argued before the learned primary judge. There was a difference between one member of the court and Justices Pagone and Edelman, but the passage that we quote in 25 sets out the position:

“The defined concept of a ‘unit’ as a beneficial interest . . . should not overshadow the most fundamental question of whether a trust fulfils the functional description of a ‘unit trust’.”

KIEFEL J: What is the functional description?

MR SHARPLEY: The functional description – well, it was put in various terms by the Full Court. At paragraph 13 they identified that:

the Workers did not have units in any meaningful sense –

because the interests were not unitised. Now, in that respect as to what constitutes unitisation, what Justice Jessup said, at paragraph 6 - - -

KIEFEL J: I am more interested in what the majority said. I think that is where the application for special leave focuses.

MR SHARPLEY: Yes. As my learned junior points out, Justice Jessup was not dissenting.

KIEFEL J: I should have said joint judgment, but Justice Jessup’s approach is quite different.

MR SHARPLEY: Justice Jessup’s approach was different in that he rejected the relevance of 102M. In paragraph 6 he set out a concise definition of what a “unit trust” is by reference to concepts of units and unitisation and said, as had been conceded below, that if the units in this scheme did not fall within 102M it was agreed that this was not a unit trust within the meaning of Division 6C.

KIEFEL J: Let us return to what the joint judgment said was a functional description.

MR SHARPLEY: Yes. In paragraph13, it said:

The EISS was not a unit trust because the Workers did not have units in any meaningful sense.

Whatever the interests be, those interests are not unitised. We say that is correct. The dictionary definition of a “unit” as an irreducible minimum, as a measure – and we say that a functional analysis of a unit trust must focus on - the interests of the beneficiaries can be described as units or unitised. Later in that paragraph, the single most striking feature – and there is a reference - is that they helped through a metaphor of a unit which Parliament has treated as analogous to the way that shareholders hold shares.

What is analogous is that, assuming there is a single class of shares, a share is a measure of your interest in the company just as a unit is a measure of your interest in a unit trust. In this case there was simply nothing akin to a unit in the entitlements of the workers. Going over to paragraph 25, there is a reference to:

the concept of persons having a beneficial interest in the trust property and the functional notion of a unit involving participation in profits or income.

So the functional concept of a unit involves rights to participation in profits and income. Then in paragraph 53 it is said:

However, as we explained in the introduction to these reasons, in light of the way in which this case was argued it is undesirable to attempt to formulate a definition of unit trust which would necessarily apply to every case. It suffices to say that a unit trust should involve at least the concept of persons –

That is a minimum requirement:

who can be described functionally as unitholders, and who will usually be entitled to the beneficial interest in property or income of the trust.

Paragraph 78 - - -

GORDON J: You need to go earlier than that, do you not? We then have this discursive description from 71 onwards, with numerous references to what is the functional basis of a unit trust. Then we move in 78 to the metaphor of a unit, having a functional description as well as a metaphorical description – whatever that means.

MR SHARPLEY: The metaphor referred to is the analogy with shares in a company. That is the metaphor that is being referred to, we believe. The functional description is a reference to how the particular trust works. How are the interests of the beneficiaries – what is the nature of the interest each beneficiary holds? Are they anything akin to what could be described functionally – that is, functioning as a unit, that is, an interest in a trust that is measured by your holding of a particular number of an irreducible parcel of rights, which can be called units. I note the time, your Honour. If I could just refer to one last passage, paragraph 78:

The metaphor supplies an image of the trust assets being divided into units which are owned by beneficiaries.

In conclusion, we say the Full Court correctly did not embark on a penumbral analysis to define exhaustively exactly what this Court had said should not be attempted in CPT. They adopted a conventional analysis. They identified at least some characteristics of a unit trust that a trust would have to hold to be a unit trust and they said, on the facts, this scheme fell well short of it because of the breadth of discretions given to the workers – sorry, to the - - -

KIEFEL J: Can I just ask you this before you sit down, Mr Sharpley? Could the Full Court have got to their conclusion by a much shorter route?

MR SHARPLEY: The Full Court could have followed the approach that Justice Jessup adopted. Your Honours will see in paragraph 6 of the judgment:

It is uncontroversial that the Electrical Industry Severance Scheme does not entail such a trust.

As I said, this is an artefact of how the case was argued before Justice Davies. In Justice Davies, the taxpayer’s case essentially was if the interests of the beneficiaries fall within 102M, that is the answer.

KIEFEL J: I did not mean to give you a second wind.

MR SHARPLEY: Justice Jessup’s approach is to accept the Commissioner’s submission that 102M is irrelevant and then, having received a concession during the hearing from taxpayer’s counsel that that was determinative of the case, he determined the case on that basis.

KIEFEL J: Do you say that Justice Jessup followed the Commissioner’s argument?

MR SHARPLEY: Yes.

KIEFEL J: If you had to say which of the approaches, since they are so divergent, is the one for which the Commissioner contends, would it be Justice Jessup’s approach or that of the joint judgment?

MR SHARPLEY: Your Honour, we do not actually think there is that much divergence. The divergence is on the relevance of 102M. Justice Jessup accepted the Commissioner’s submission that 102M was irrelevant. Then in paragraph 6, having reached that conclusion, he endorsed what Justice Logan had said in BERT and found that, on analysis, there was nothing – he says, “Central to that meaning” and he sets out in five or six paragraphs what he considers to be a “unit trust” and the Commissioner considers that to be correct.

So having resolved the first question in favour of the Commissioner and having identified a core concept of a unit trust, endorsing what was said in BERT, he reached the conclusion that the appeal should be allowed. The majority did not accept the Commissioner’s submission that 102M was irrelevant. Rather, their view was that it was neither necessary nor sufficient to determine whether the trust was a unit trust.

But, in any event, they decided the case without having to decide whether the interests of these beneficiaries fell within 102M or not simply because the width of the discretions given to the trustee meant that the interests of the beneficiaries could not be, in any sense, described as units or akin to units. So, in practice, there was not that great a divergence as may appear from, with respect, the length of the written reasons.

KIEFEL J: Thank you, Mr Sharpley. Is there anything in reply, Mr Slater?

MR SLATER: Your Honour, I have four points. As a result of my friend’s extra two minutes, I now have five points. The first point is my friend said in his argument it is futile to look for a fixed normative meaning. Your Honours, unit trust is used as a criterion of liability, here liability to tax as a company. It cannot be futile to look for the meaning of that term. The difference between normative and descriptive meanings was referred to by this Court in Buckle’s Case where the Court said, speaking of discretionary trusts, the expression:

“discretionary trust” is not a component of the doctrinal divisions -

They instance as doctrinal divisions the difference between express, implied, resulting or constructive trusts, between inter vivos and testamentary trusts, between purpose and non-purpose trusts. What they said was descriptive discretionary trusts is not such a distinction.

In CPT they adopted that language and took it on to deal with the question of unit trust. What the Court was dealing with there was whether the sole beneficiary for the time being was entitled for an estate of freehold in possession. It was that statutory expression which they considered, not the expression “unit trust”. It cannot be futile to look for the meaning of the term “unit trust” when it is used as a criterion of liability. That is the very thing the Court is here to do, is to work out what the meaning is.

The second point: our friends said that a court does not exhaustively define the boundaries of terms. We agree with that. But we say that what in this case the Court should do is to adopt the methodology, which Justice Gordon picked me up on, from paragraph 24 of our outline, that methodology referred to in CPT, and apply it in this case. We respectfully say that that is not what the Full Court did.

The third point my friend relied upon is to say that the Full Court identified enough core concepts to be able to say that this trust did not have them. The difficulty with that is that when one looks at the Full Court judgment one sees that the various things that they refer to as core concepts, in almost every case they say are not core concepts. So if I take your Honours to paragraph 61 on page 53 they refer to:

focus upon a “unit” as including a core concept of persons entitled to a beneficial interest . . . Although this “core concept” is an important matter to be considered in the assessment of whether a trust is a unit trust, it is not determinative –

Then they go on to seize upon this notion of functional description. Then at paragraph 71, on page 55, they talk about units and unitholders:

A core concept . . . will be whether persons have a beneficial interest . . . which can be functionally characterised as units.

But then in the next paragraph they go on to say:

although the core concept . . . is a useful guide to the existence of a unit trust, it is necessary to understand that concept in light of the functional basis –

It is a useful guide. It is not a determinative thing. Then paragraph 89:

a unit trust could exist even in the absence of this core concept.

I should say, your Honours, that the print in the application book is the print that was handed down by the court on the day judgment was given. It is not the version which is on the Australian Legal Information Institute. The paragraph under the heading “A ‘unit trust’ and a ‘beneficial interest’” was accidentally unnumbered in the original version. So the numbers are thrown out. Your Honours will find that some of the numbers are wrong.

In the paragraph that my friend placed reliance upon, paragraph 94, their Honours say:

it is neither necessary nor appropriate to attempt a conclusive definition . . . to be construed in light of a functional and descriptive understanding –

They refer to the functional nature. At the end, they say:

the core concept of whether persons have (i) a beneficial interest . . . which is (ii) capable of being functionally described as involving units. But even the absence of –

having a beneficial interest:

will not necessarily be determinative.

There is nothing in their Honours’ judgment which sets a guideline, an authoritative determination of what it is that one takes into account to decide whether something is a unit trust, other than literary or economic language, such as metaphorical or functional. That is the language of economics and literature. It is not the language of law.

Finally, your Honours, as to Justice Jessup, we respectfully submit that his Honour’s reasoning is to some extent circular. It works on the premise that, in order to be a unit trust, it must be a prescribed unit trust. But in order to be a prescribed unit trust it must be a unit trust. That, in our respectful submission, does not advance the analysis very far. If your Honours please.

KIEFEL J: The Court will adjourn for a short period to consider its position.

AT 10:49 AM SHORT ADJOURNMENT

UPON RESUMING AT 10:51 AM:

KIEFEL J: There will be grant of special leave in this matter. It would conclude easily within a day, I would imagine, Mr Slater.

MR SLATER: I should think so, yes, your Honour.

MR SHARPLEY: Yes, your Honour.

KIEFEL J: Yes, thank you, Mr Sharpley. I think you may have heard me mention earlier than your instructing solicitor should obtain a copy of the directions for the filing of submissions in this matter because the timetable has been altered somewhat, so if they could please approach the Deputy Registrar, Mr Adam Griffin, and obtain a copy.

MR SLATER: Is there a copy in the Court, your Honour.

KIEFEL J: Yes, Mr Griffin is here. In Melbourne, you will have to contact Mr Griffin yourself. Thank you.

AT 10.52 AM THE MATTER WAS CONCLUDED