LEND LEASE CUSTODIAN PTY LTD v DFC of T

Judges:
Conti J

Court:
Federal Court

MEDIA NEUTRAL CITATION: [2006] FCA 1790

Judgment date: 21 December 2006

Conti J

Context to the fiscal issue the subject of dispute

1. In or about the month of May 1993, the applicant Lend Lease Custodian Pty Limited ("Custodian"), being at all material times a wholly owned subsidiary of Lend Lease Corporation Limited ("Lend Lease"), purchased approximately 172.6 million fully paid ordinary shares in the capital of Westpac Banking Corporation ("Westpac") at a cost of $3.53 per share. At that time and at all material times thereafter, the ordinary shares in the capital of Westpac were listed on the stock exchange conducted by Australian Stock Exchange Limited. Shortly thereafter, Custodian acquired a further 3 million fully paid ordinary shares in the capital of Westpac funded through Westpac's dividend reinvestment plan. By mid to late 1995, discussion was underway at Lend Lease executive and board levels to the effect that Custodian might "exit from that shareholding" over an extended period of time, the same having by then increased in value, though

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having remained in Custodian's ownership as a "passive" investment. The Lend Lease board decided by November 1995 to consider proposals for a staged realisation of Custodian's Westpac shareholding in order to protect the unrealised gain in value which by then was evident from the stock market price for Westpac shares, and to redeploy the capital profit anticipated to result from any such realisation. Accordingly Lend Lease developed by April 1996, at managerial and ultimately at board level, a scheme for the implementation of a staged profitable realisation of its Westpac shareholding, in the first place by the mechanism of a warrant granted over 100 million shares, out of that total holding of 172.6 million shares, in favour of County NatWest Securities Australia Limited ("County Natwest"), a major Australian merchant bank. That scheme of realisation to be undertaken comprised what was described by Lend Lease executives, for instance in a memorandum to the directors of 17 May 1996, as "a public bookbuild selling process", being "… a method of selling securities through a well-publicised competitive tender…", whereby "… we would invite separate bids for shares and warrants". It is apparent that such process of competitive bidding of investors, by way of individual participation in that so-called "public bookbuild", was conducted at arm's length between Lend Lease and County Natwest. County Natwest subsequently changed its name to Salomon Smith Barney Australia Securities Pty Limited, but the convenient course is to continue to use the abbreviation County Natwest.

2. Earlier on 28 March 1996, two of Lend Lease's executives made a report to the parent Lend Lease Board of Directors, headed "Advantages For Lend Lease", in relation to the structure of the transaction thus proposed to be implemented; part of that report is set out below:

"We will receive an estimated NPV of approximately $5.55 per share comprising $3.95 cash now and $1.60 estimated value of Westpac dividends over the next 5 years (assumes Westpac share price of $6.00).

The $3.95 initial payment (just under $700m in total) will be tax free as our indexed cost base will be approximately $4.00 per share after the inflation adjustment for the June quarter.

Receipt of $3.95 per share will entitle us to report abnormal profits of $75 million, (current book value of $3.52) in the June 1996 results. There is no tax expense relating to this profit.

We will be entitled to receive Westpac dividends until shares are transferred. Market expectations are for Westpac dividends of:

cents per share received by LLC $m

June 96 16 28

Dec 96 17 30

June 97 19 33

Dec 97 19 33

We have assumed dividend growth of 10% p.a. in subsequent years, supported by Westpac's current low payout ratio. We expect all dividends to be fully franked.

…

Risks

Tax: The Australian Taxation Office (ATO) could attempt to assess us for Capital Gains Tax on the current market value of the shares ($6) rather than the sale price under the forward sale agreement ($4.00). They could also disallow rebates on future dividends from Westpac. Greenwoods & Freehills advice is that the ATO would have no justification in law to do this and this will be confirmed with counsel.

Westpac Dividends: More than 30% of the value of the transactions depends on Westpac's dividend payments over the next 5 years. If Westpac does not meet our dividend expectations we will lose value. We will also lose value (not quantified in our calculations) if Westpac reduces its franking.

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…

Takeover of Westpac: …

The commercial effect of the transaction is that we are selling our Westpac holding at the current market price…."

The reference to "NPV" was to so-called net present value. It will be seen that Lend Lease acknowledged thereby that any immediate realisation of 100 million out of Custodian's total holding of 172.6 million Westpac shares meant that there was an apparency of market risk in relation to the price, which it might derive from the realisation of the remaining 72.6 million Westpac shares to be retained by Custodian during the ensuing five year period.

3. That report was attached to a covering senior Lend Lease executive's report also bearing date 28 March 1996, and which comprised the following:

"Attached is a paper setting out the basis of a proposal from County NatWest to allow the Group to secure the existing capital value of its investment in Westpac whilst retaining the right to future dividends for the next 5 years.

The effects of the proposal can best be summarised as follows:

1. Market value of current asset @ $6 $1,050

2. Value if sell today @ $6

Market discount 50

CGT 110 890

3. Value of "County Deal"

Proceeds 700

p.v. of dividends and option 270 970

The explanation to our shareholders and the market is as follows:

1. Lend Lease has secured the major part of the gain from the restructuring of Westpac and now believes it is appropriate to lock in that value.

2. The arrangements with County have allowed Lend Lease to take back its original capital of $625 million plus an abnormal gain of $75 million. This capital will be invested to generate further shareholder value. Lend Lease has already taken significant initiatives in this regard such as its property investments in Asia and Bluewater where, because of the nature of these projects, profits will not start to flow for 3 to 5 years.

3. At the same time Lend Lease would disclose the provisioning it proposes to make against property revaluations.

4. The shareholders will participate in the major part of the increase in value of the Westpac shares through fully franked dividends over the following 5 years prior to the emergence of profits on investments currently being undertaken.

5. In the event of a takeover of Westpac in the meantime, Lend Lease would receive the balance of the discounted value of the dividends less any tax payable.

We are seeking the Board's approval to proceed to obtain the approval of the RBA and to allow County to test market support. Accordingly, the Board's approval is sought at this stage to the arrangements in principle to authorise County together with Management to make the appropriate approaches to the Authorities and Westpac on a confidential basis. County's firm commitment to the arrangements will not be given prior to all approvals being obtained and the setting of the final pricing."

The references above to RBA were to the Reserve Bank of Australia, and to County of course to County Natwest, and to p.v. to present value.

4. A report was subsequently provided to Lend Lease on 9 April 1996 by KPMG Chartered Accountants, which discussed and made recommendations concerning the accounting issues which arose in relation to the County Natwest "forward sale" proposal, if it was to be implemented. Under the heading "[t]he accounting issues to be resolved", the following appeared in that KPMG report (the references to LLC in reports and communications which are subsequently extracted were to Lend Lease generally -

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though in context in most instances to Custodian in particular - and the references therein to WBC were of course to Westpac):

The basis of sale of the LLC shares in WBC requires three alternative methods of accounting to be considered:

(a) immediately recognise a profit of 50 cents per share ($4.00 sum certain less cost of $3.50 per share) on the sale of the WBC shares, the sale proceeds to eliminate the LLC investment asset in WBC, and to recognise as income in future years, the dividends as and when received from WBC;

(b) no profit to be recognised on sale because of the uncertain amounts to be received in the 5 years in the form of WBC dividends, to continue to account for the WBC shares as an investment by LLC in the LLC balance sheet and to record the $4.00 received per share plus the WBC dividends as received as a payment received on a future sale (liability), possibly displayed as a deduction from the LLC investment in WBC in the LLC balance sheet, with the profit on sale being accounted for at the conclusion of the 5 years when the total sum certain is known for the sale of the WBC shares; and

(c) account for the forward sale agreement as a financial instrument and calculate a current fair value comprising the sum certain and discounted estimated future dividends. This would recognise the profit on sale immediately and amortise into future years income the discount applied."

5. After subsequently explaining that "[t]here is currently no Australian Accounting Standard which covers the above issues", and discussing the implications of the so-called "Statement of Accounting Concepts SAC4", the foregoing KPMG report of 9 April 1996 to Lend Lease articulated a recommendation in favour of the alternative the subject of par (b) above for the following reasons, which are further appropriate to reproduce below:

"…

We do not believe alternative (b) above is applicable in this case since LLC has by its agreement with County sold its beneficial interest in the WBC shares and hence to continue to record the investment in WBC as an asset of LLC would , in our opinion, not reflect the substance of the transaction.

In considering alternatives (a) and (c) we advise that, in our opinion, either method could be used. However, the difficulties in applying alternative (c) would include:

• the uncertainties in estimating the future dividend stream from WBC during the 5 years;

• the determination of an appropriate discount rate to apply to the estimated dividend stream to determine a present value. The discount rate would need to reflect alternative risk free investments (or cost of LLC capital), an allowance for commercial risk, and an allowance for the credit risk that WBC does not pay dividends during the 5 years at or above the estimated dividend stream, estimated at the beginning of year 1. SAC4 would place emphasis on the uncertainties of such estimates in determining the present value of the non current receivable asset; and

• each balance date during the period of 5 years, the estimates made in previous years would need to be adjusted to reflect the actual WBC dividends paid during the year (and received by LLC), resulting in the booking of adjustments in the LLC financial statements during those years.

Because of the uncertainties, we understand LLC would prefer to adopt alternative (a) above on the basis that the sums recorded in the LLC financial statements will be sums certain and will not require amendment in future years financial statements because the actual events were different to the estimates previously made. We would concur [with] this view.

By adopting alternative (a) above, LLC would no longer record the shares in WBC as an asset in the LLC balance sheet, and would at the time of sale record a profit on the sale of the WBC shares (being 50 cents per share less expenses of sale). In the subsequent 5 years, the WBC dividends received will be recorded as income in the

ATC 4047
LLC profit and loss statement, as such dividends are received or are receivable. We recommend that LLC record such income as "proceeds from sale of share" income since we believe the nature of such income is in the form of part deferred sale proceeds from the sale of the WBC shares. Since LLC would not be recording as an asset any investment in WBC, we would regard the recording of such income as "dividend" income to be confusing and misleading, since the term dividend implies the receipt of income from an ongoing owned investment asset. The profit arising from the sale will be disclosed in the operating profits note to the LLC financial statements pursuant to clause 9(1)(a)(iii) of Schedule 5 of the Corporations Law.

Since the transaction will need to be fully described in a note to the LLC financial statements during the 5 years, including the sale of the beneficial interest in the WBC shares while still remaining as a registered substantial shareholder in WBC as well be disclosed in the WBC annual reports during the 5 years, the note should also refer to the form of the LLC interest income including dividends from WBC to comply with clause 9(1)(a)(i) of Schedule 5 to the Corporations Law.

Such interest income would not be regarded as an "abnormal" item of income pursuant to Australian Accounting Standards AASB 1004 or AASB 1018 unless through a dramatic change in the size of the operations of LLC it became abnormal because of its size in relation to the consolidated profit of LLC."

6. The recommendation ultimately made by the Finance Director of Lend Lease, in his report bearing date 19 April 1996 to the board of directors of Lend Lease, was that "… Lend Lease dispose of its interest in Westpac through a fully underwritten sale agreement with County Natwest", because that arrangement would "accomplish the accounting and commercial objectives in exiting the investment which could not be achieved under the other available exit strategies". The criteria to be satisfied for those so-called exit strategies under consideration were stated in that report of 19 April 1996 as follows:

"• protect the capital value of our investment

• spread any profit over a number of accounting periods in accordance with the group's desire for sustainable profit growth

• participate in Westpac's expected growth in dividends which are now fully franked

• free up cash for alternate uses

The particular strategies considered to date have been-

i) retain the Westpac shares and hedge the shares with derivatives;

ii) issue a bond which mandatorily converts into the Westpac shares…;

iii) issue a warrant over the Westpac shares…; and

iv) sell the Westpac shares outright via a "trade" sale.

Because of the size of our share holding, alternatives (i) & (ii) would contain considerable execution risk in attempting to hedge or place the securities or require a foreign currency denomination. Both these alternatives would be difficult and more expensive and therefore less favourable.

Alternative iv), while protecting the capital value of our investment, foregoes any entitlement to future franked dividends and results in the accounting profit falling in a single period. It is therefore not a viable option.

Alternative iii) achieves all of the objectives with the least execution risk because it will be fully "underwritten".

…

Recommendation

Subject to final approval by a Committee of the Board:

• That the Board of Lend Lease Corporation Limited authorise the entering into of a sale agreement and mortgage document by Lend Lease Custodian P/L with the appropriate counterparty nominated by County Natwest.

• That the Board of Lend Lease Corporation Limited irrevocably authorise i) the redemption (by 31 December 1996) by Lend Lease Finance International Limited of the outstanding 43/4% Guaranteed Convertible Bonds and ii) the discharge of the indenture dated 15 June 1993 under which the 43/4% Guaranteed Convertible Bonds were issued

ATC 4048
and that John Astbury (or any other director) be authorised to execute any necessary documentation."

That recommendation was adopted by the board of directors of Lend Lease. I will hereafter refer to each of Lend Lease Corporation Limited and Lend Lease Custodian Pty Limited interchangeably, and irrespective of the context, as "Lend Lease", where as a practical matter so to do should not confuse the context.

7. At the meeting of the Lend Lease board of directors that took place on 7 June 1996, being nearly three years after Custodian's purchase of the subject Westpac shares, Lend Lease resolved to commit Custodian to an agreement for the sale of 100 million ordinary fully paid shares, out of the total parcel of 172.6 million held in Westpac, to County Natwest as purchaser. That agreement was described as a Forward Purchase Agreement ("FPA"), Custodian being recorded therein as vendor and County Natwest as purchaser. It was so described because the sale and purchase was not on the date of completion of the FPA, that is to say, on 30 April 2000, in the absence of an earlier date for completion being determined by Lend Lease, in which case there would be an adjustment made to the purchase price. Material terms of the FPA entered into on that day included the following:

"1.1 Definitions

…

Company means Westpac Banking Corporation…

…

Completion Date means 30 April 2000, unless it is adjusted under clause 5.1 or 5.2;

Early Completion Event means an event determined by [County Natwest] to be such under clause 5.1;

Early Exercise Event means any of the following events:

(a) the Company is delisted or the Shares are suspended from official quotation for 30 consecutive Business Days from the stock market of ASX;

(b)

(i) a Change in Control; or

(ii) a Scheme of Arrangement…

(c) if an Event of Default occurs under the FPA Mortgage…

…

Excessive Dividend means an amount of moneys equal to that portion of the aggregate value of any dividend, or any other distribution made by the Company or made pursuant to a scheme of arrangement under Part 5.1 of the Corporations Law effecting a distribution of distributable profits or reserves (other than a bonus issue as described in clause 7.4), whether in cash or in specie, relating to the Sale Shares, paid in respect of or, where the dividend is not stated to be paid in respect of a specific half year, paid in each half fiscal year of the Company from the date of this Agreement which is in excess of $0.70 multiplied by the number of Warrants issued in respect of or in (as the case requires) any such half fiscal year.

Final Instalment means an amount equal to 1 cent multiplied by the number of Warrants issued…

FPA Mortgage means the Equitable Mortgage Agreement entered into between the Vendor and Purchaser on or about the date of this Agreement.

…

Initial Instalment means $3.5225 multiplied by the number of Warrants issued, being the amount paid by the Purchaser on the Payment Date.

…

Payment Date means 18 June 1996 or another date agreed between the parties.

…

Purchase Price means the Initial instalment plus the Final Instalment subject to any adjustment under clauses 5, 6 or 7.

…

Sale Shares means the number of Shares equal to the number of Warrants issued subject to any adjustment under clause 7 and including any additional or substituted securities as contemplated by clause 7.

…

Shares means fully paid ordinary shares in [Westpac].

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Warrants means the warrants relating to Shares offered by [County Natwest] pursuant to an offering circular dated 4 June 1996 lodged with and approved by ASX.

…

3. SALE AND PURCHASE

3.1 Sale Shares

On the Completion Date [defined as 30 April 2000 and later amended to 17 January 2000], the Vendor shall sell and the Purchaser shall purchase the Sale Shares…

3.2 Purchase Price

The Purchase Price for the Sale Shares will be payable by the Purchaser by an Initial Instalment on [18 June 1996] and a Final Instalment… on the Completion Date, subject to adjustment under clauses 5, 6 and 7.

3.3 No transfer of Beneficial Interest in Sale Shares

The parties agree and acknowledge that this Agreement, the payment of the Initial Instalment and the satisfaction of the conditions under clause 2 shall not transfer the beneficial interest in the Sale Shares to the Purchaser. The parties agree and acknowledge that:

(a) the beneficial interest in the Sale Shares shall transfer to the Purchaser or its nominee or nominees only upon Completion; and

(b) the Vendor shall retain all rights attaching to the Sale Shares (including the right to vote) pending Completion to exercise as it sees fit, subject to the provisions of clause 7.

…

4. PAYMENT OF INITIAL INSTALMENT

On the Payment Date, the Purchaser shall pay the Initial Instalment, plus one day's interest on that amount…

5. ADJUSTMENT OF COMPLETION DATE

5.1 Early Completion Event

Following an Early Exercise Event, the Purchaser may, at its discretion, within 10 Business Days of that Early Exercise Event give a notice to the Vendor stating that an Early Completion Event has occurred and nominate a Business Day not less than 1 or greater than 35 Business Days after the date of that notice as the Completion Date.

5.2 Year 1999 Dividend

On the announcement by the Company of the Year 1999 Dividend, if the books closing date for that dividend is:

(a) on or before 30 April 2000, the Completion Date shall be 30 April 2000;

(b) after 30 April 2000 and on or before 31 July 2000, the Purchaser must give a notice to the Vendor within 5 Business Days of the announcement nominating a Business Day that is on or after the books closing date and on or before 31 July 2000 as the Completion Date; and

(c) after 31 July 2000, the Completion Date shall be 31 July 2000.

5.3 Adjustment to Purchase Price following an Early Completion Event

If a notice has been given by the Purchaser under clause 5.1 then on the Completion Date the Purchaser shall pay to the Vendor… an Early Completion Amount calculated as follows…

6. COMPLETION

6.1 Delivery of the Sale Shares

On Completion… the Vendor shall deliver the full legal and beneficial interest in the Sale Shares to the Purchaser free and clear of any Security Interest, other than under the FPA Mortgage or any Collateral Security.

…

6.3 Payment of Final Instalment

On the Completion Date, the Purchaser, in satisfaction of its obligation to pay the Purchase Price, shall pay to the Vendor or as directed by the Vendor the Final Instalment….

…

7. ADJUSTMENTS TO NUMBER OF SHARES AND PURCHASE PRICE

7.1 Automatic Variation

Where an event specified in clauses 7.2 to 7.9 occurs in respect of the Sale Shares before Completion then…

ATC 4050
(a) the description of the securities included in the Sale Shares to be delivered by the Vendor to the Purchaser on Completion is automatically and immediately varied in accordance with clause 7 and Schedule 1;

(b) the Purchase Price shall be reduced by an amount equal to the amount of any monies payable to the Vendor by the Company in respect of securities as a result of that event except where the operation of clauses 7.2 to 7.9 would, but for this sub-paragraph, reduce the Purchase Price below $10,000 in which case:

(i) the Purchase Price shall be $10,000;…

7.2 Reconstructions of Capital

…

7.3 Cash Return of Capital

…

7.4 Bonus Issues

…

7.5 Rights Issues - Fully Paid

…

7.6 Rights Issues - Partly Paid Securities

…

7.7 Scheme of Arrangement Where The Consideration Includes Approved Bank Stock

…

7.8 Takeovers Where The Consideration Includes Approved Bank Stock

…

7.9 Excessive Dividends

If an Excessive Dividend is declared and paid or distributed:

(a) the cash component of the Excessive Dividend is a Cash Payment;

(b) the Purchase Price shall be reduced in accordance with clause 7.1(b) by an amount equal to the cash component of the Excessive Dividend, which amount shall be paid by the Vendor to the Purchaser's Account; and

(c) securities of the same kind, number and nature as the securities constituting the Excessive Dividend shall become part of the Sale Shares."

Clause 5.3 stipulated for an adjustment to the purchase price, following an "Early Completion Event", by the formula there set out.

8. County Natwest acquired the subject Westpac shares to be funded by the invocation and co-ordination of bidders for participation in what was described in financial market terms as a public "bookbuild" fundraising mechanism, whereby prospective investors competitively bid for participation in the acquisition of parcels of Custodian's 100 million Westpac shares by way of implementation of the so-called "bookbuild" process. The sale price for the subject Westpac shares approximated $3.52 per share, payable (as already indicated) on 18 June 1996, which date was defined by the FPA as the "Payment Date" (ante). However as already further indicated, Custodian was to continue to receive (and did continue to receive) Westpac dividends payable in respect of the Sale Shares from the time of entry into the FPA on 18 June 1996 until completion of the FPA, which was not scheduled by the FPA to occur until nearly four years later on 30 April 2000 (ante), subject however to any bringing forward of that date pursuant to the operation of clauses 5.1 or 5.2 (ante). As a leading Australian bank, Westpac had a dividend history of significance, and Lend Lease reasonably anticipated that the status quo of its substantial and profitable banking operations would continue for the foreseeable future.

9. The definition of "Sale Shares" appearing in the FPA has been already set out. Important to the preservation of the status quo relevantly of the "Sale Shares" during the period of time from entry into the FPA on 7 June 1996 until the "Completion Date" nearly four years thenceforth on 30 April 2000 (though later, as above indicated, brought forward to 17 January 2000), were the provisions of clause 7 of the FPA, the headings to which I have recorded above. Additional protection of the status quo was made by the Clause 7.9 provisions as to "Excessive Dividends", the comprehensive definition whereof has been already reproduced.

10. I have already set out the definition of "Warrants" appearing in the FPA. Those

ATC 4051

instruments came on offer by County Natwest at or about the time of execution of the FPA, as the definition thereof indicates. Moreover the following further instruments were executed on or about 7 June 1996:

(i) an Equitable Mortgage Agreement between Custodian and County Natwest by which Custodian granted to County Natwest an equitable mortgage over inter alia the "Sale Shares" to secure the performance of its obligations under the FPA;
(ii) a Power of Attorney from Custodian to authorised officers of County Natwest expressed to be in furtherance of that equitable mortgage; and
(iii) a so-called Sponsorship Agreement between Custodian and County Natwest, whereby a so-called "Sponsored Client" of County Natwest in its capacity as so-called "Sponsoring Broker" was provided with so-called "transfer and settlement services" in relation to so-called "Sponsored Holding(s)".

11. On or about 7 June 1996 Lend Lease made the following announcements to the Australian Stock Exchange and to the Media:

"Lend Lease Corporation today confirmed that they have successfully completed the disposal of interests in 100 million Westpac shares pursuant to the recently announced global warrant offer.

The 100 million warrants will be issued by County Natwest to successful bidders at a price of $3.65 per warrant. The successful bidders will be notified of final allocations of warrants and shares later today.

Trading of the warrants on the Australian Stock Exchange is expected to commence on Tuesday 18 June [1996].

…

Lend Lease Corporation Limited advised that its Westpac warrant offer has been fully subscribed at $3.65 per warrant for 100 million warrants.

Commenting on the offer, Lend Lease Managing Director David Higgins said he is pleased with the outcome as it strengthens the group's focus on its core businesses and achieves full flexibility in following through on investment opportunities.

'This is a very good result for Lend Lease shareholders - we are releasing $365 million in capital while at the same time enjoying a "free carry" from the fully franked dividend stream on the warranted shares…'.

'Moreover, we still hold approximately 65 million Westpac shares - a $350 million holding - which allows us to participate in any upside from the Wallis Inquiry'."

The process by which the foregoing disposal relating to the major part of the Custodian shareholding in Westpac (ie 100 million out of 172.6 million shares in number) was thus put in place under the control and direction of County Natwest as merchant banker and so-called sponsoring broker, and as I have already explained in these reasons, took the form of a competitive "bookbuild" process, being competitive because prospective investors would be required to bid for participation in the "bookbuild".

12. The internal Lend Lease reports demonstrate that Lend Lease (and its wholly owned subsidiary Custodian) viewed the subject transactions as productive and financially viable. Custodian would thereby remain the beneficial owner of the shares until completion of the FPA initially scheduled to occur nearly four years later on 30 April 2000, and would receive in the meantime for its own benefit the periodic dividends likely to be declared by Westpac in respect of the subject 100 million Westpac shares held by Custodian. Lend Lease emphasised that the likelihood of derivation of Westpac dividends during that period of time, given Westpac's status as a leading Australian bank, and the likely scale thereof, was inferentially taken into account in the structural formation of the scope of the FPA. It was entirely unsurprising, so Lend Lease emphasised, that the FPA contained provisions designed to protect both parties thereto against unforeseen but nevertheless possible events which might otherwise alter the original substratum of the FPA, being the events the subject of subject matters addressed. It was common ground in the present proceedings that the FPA and the ancillary documents reflected in effect a transaction negotiated and put in place at arm's length, though Lend Lease asserted that so much was

ATC 4052

not acknowledged by the Commissioner until the final hearing of the proceedings was underway.

13. Subsequently on 18 June 1996, being the "Payment Date" defined in the FPA, Custodian executed a so-called Voting Deed Poll in favour of each of two nominees of County Natwest, and at the same time County Natwest paid to Custodian the amount of $352,297,356, representing the initial but dominant segment of the price for the sale by Custodian of the subject Westpac shares to County Natwest and an interest adjustment provided for in clause 4 of the FPA amounting to $72,356. Thus the so-called bookbuild selling process was commercially successful in implementation, so it may be reasonably inferred.

14. On or about 17 January 2000, the FPA was amended by deed made between County Natwest (by then called Salomon Smith Barney Australia Securities Pty Limited as I have earlier foreshadowed but to whom I will continue to refer to as County Natwest for convenience) and Custodian whereby the "Completion Date" stipulated in clause 5.2(b) of the FPA was brought forward from 30 April 2000 to 17 January 2000, in consideration of the payment by County Natwest to Custodian of $250,000. That payment reflected the significance of the timely orientated structure of the transaction the subject of the FPA and the accompanying instruments. At the same time County Natwest paid to Custodian the so-called final instalment of $1,000,000 (being the only instalment of the purchase money apart from the initial instalment of $352,297,356) payable under the terms of the FPA, in addition to that sum of $250,000, and Custodian thereupon transferred the "Sale Shares" to County Natwest, that taking place also on 17 January 2000. Incidentally, the expenses incurred by Custodian in relation to its disposal of the Sale Shares amounted to $1,041,401, comprising $479,646 for so-called "legal and other", $529,838 for stamp duty and $31,917 for solicitors' fees and disbursements.

15. Westpac paid dividends to Custodian in respect of the "Sale Shares", during the operation of the FPA, each dividend being fully franked except for the concluding [unfranked] dividend paid in January 2000 of $24,000,000, at the following times and in the following amounts, all of which were declared by Custodian to the Australian Taxation Office as assessable income, albeit rebateable, in the taxation returns of Custodian:

Declared	Paid	Per share	Amount returned by Lend Lease
June 1996	July 1996	16 cents	$16 million
December 1996	January 1997	17 cents	$17 million
June 1997	July 1997	19 cents	$19 million
December 1997	January 1998	20 cents	$20 million
June 1998	July 1998	21 cents	$21 million
December 1998	January 1999	22 cents	$22 million
June 1999	July 1999	23 cents	$23 million
December 1999	January 2000	24 cents	$24 million
Total dividends returned		$162 million

16. In its taxation accounts for the year of income ended 30 June 1996, that being of course the fiscal year during which the FPA was entered into relating of course to the subject Westpac shares, and moreover consistently with the respective fiscal positions adopted by the parties, Custodian returned as a capital loss the sum of $744,045, calculated as appears below in the first column of the figures prepared by the solicitors for Lend Lease, but the Commissioner ultimately determined, at least by the time of filing of the Commissioner's Amended Statement of Facts, Issues and Contentions on 29 August 2005, that Custodian should be assessable conversely for that fiscal year upon a capital gain of $110,645,599, as appears at the foot of the third column below:

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Consideration in respect of disposal	Lend Lease's position	Commissioner's position
Initial instalment (June 1996)	$352,297,356	$352,297,356
Final instalment (Jan 2000)	$1,000,000	$1,000,000
Additional "non-cash consideration" on disposal		$144,236,243
Total consideration on disposal	$353,297,356	$497,533,599
Less -
Reduced cost base (approximate total purchase price)	($353,000,000)
Indexed cost base		($386,888,000)
Selling expenses	($1,041,401)
Capital loss (as asserted and returned by Lend Lease)	($744,045)
Capital gain		$110,645,599

17. It appears that the assessment to capital gains tax of the foregoing controversial capital gain of $110,645,599 was communicated to Custodian by the time the Commissioner's said Amended Statement of Facts, Issues and Contentions was filed on 29 August 2005. The following explanation of the Commissioner accompanied that calculation:

"the [additional] non-cash consideration… in and under the forward purchase agreement pursuant to which LLC remained entitled to retain beneficial ownership of the shares until the Completion Date and to receive any dividend paid by Westpac in or in respect of each half fiscal year of Westpac up to $0.70 per share until the Completion Date."

In that context, the Commissioner acknowledged that an earlier quantification of the controversial gain had been marginally overstated. The Commissioner further assessed Custodian to additional tax, being in the nature of a penalty, amounting to $9,958,103,91. It appears that previously by letter dated 3 September 2004, the Commissioner had assessed the above so-called "[a]dditional non-cash consideration" on disposal of $144,236,243 as a capital gain, and had imposed on Custodian a "shortfall" penalty equal to 25% of the controversial capital gains tax as so assessed. The earlier exaction of a larger penalty upon the footing of tax avoidance was apparently later withdrawn by the Commissioner (post).

Principal issues arising on the appeal

18. Having maintained until this point of my reasons the differing functions or involvements of Lend lease Corporation Limited and its subsidiary Custodian, the latter being of course the applicant in the proceedings, it becomes convenient hereafter to refer generally to both companies as Lend Lease, unless the context otherwise requires. The principal issue arising on the appeal concerns of course the operation of the capital gains tax provisions of Part IIIA of the Income Tax Assessment Act 1936 (Cth) ("the Tax Act") in relation to the transaction undertaken by Lend Lease involving the disposition of its subject shareholding in Westpac pursuant to the FPA entered into between Lend Lease and County Natwest, said by the Commissioner to have been effected on 7 June 1996, and may be stated as follows:

(i) did Lend Lease derive a net taxable capital gain on its disposal in favour of County Natwest of the subject shares held by it in Westpac, based upon or referrable to the so-called "[a]dditional non-cash consideration" of $144,236,243 appearing in [16] above, as so contended by the Commissioner, being a capital gain which quantified in the net taxable sum of $110,645,599 further there appearing; or
(ii) did Lend Lease sustain conversely a "capital loss" in the sum of $744,045 appearing also in [16] above, as contended conversely by Lend Lease?

Those respective contentions articulated by the parties tended to focus predominantly on the first issue, though to my understanding, any failure of the Commissioner upon the first issue would translate to success on the second issue in favour of Lend Lease as well.

19. The Commissioner identified that so-called "[a]dditional non-cash consideration" of $144,236,243 as forming the basis for calculation of the controversial net taxable capital gain of $110,645,599 (both figures of course appearing in [16] above), being a gain said to have been constituted by the enforceable contractual right of Lend Lease as vendor conferred by the FPA, as against County Natwest as purchaser, to retain beneficial

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ownership of the "Sale Shares" until the time stipulated for completion of the FPA by way of conveyance of legal title to the Sale Shares in Westpac. That time was of course 30 April 2000 (though subsequently brought forward to 17 January 2000 as I have also earlier recorded), which time did not crystallise of course until not long short of four years after the execution of the FPA on 7 June 1996, and that right encompassed in the meantime the entitlement to any dividends declared and paid by Westpac in respect of each half fiscal year appertaining to the "Sale Shares", which of course Lend Lease was to continue to hold until completion of the FPA. That enforceable right and entitlement was said by the Commissioner to have become vested in Lend Lease, for capital gains tax purposes, at the time when it entered into the FPA on 7 June 1996, being a right or entitlement falling within the scope of operation of s 160ZD(1)(c) of the Tax Act and in the light of the s 160A(1) definition of "any form of property" (infra).

20. The Commissioner contended further that Lend Lease's ongoing right to share to the foregoing extent in the Westpac dividends declared and paid in respect of the "Sale Shares" between the formation of the FPA on 7 June 1996 and the "Completion Date" the subject of the FPA (being as already mentioned brought forward to 17 January 2000), as to which see again the above extracted clauses 5.1 and/or 5.2, and constituting as that right allegedly did the so-called "[a]dditional non-cash consideration on disposal" appearing in [16] above, comprised "property other than money" within the scope of operation of s 160ZD(1)(c). The Commissioner contended consequentially that Lend Lease acquired that so-called property under the auspices of the FPA, being property for capital gains tax purposes which the Commissioner valued in the sum of $144,236,243 as further appearing in [16] above. Assuming the correctness of the Commissioner's fiscal impost levied adversely to Lend Lease in respect of the consequential amount of $110,645,599 thereafter also appearing in [16] above (which of course Lend Lease disputed), there was no apparent dispute on Lend Lease's part as to the mathematical quantification of such impost. That sometimes designated "right to share" in ongoing Westpac dividends up to the "Completion Date", said by the Commissioner to be so conferred upon Lend Lease by the operation of the FPA, was identified by the Commissioner as created by clause 3.3(b) of the FPA in particular. I was referred by the Commissioner in that context moreover to the s 160A definition of "Assets To Which Part [IIIA] Applies", which commences with the broad description "any form of property…", and thereafter specifies "a chose in action" and "any other right", "whether legal or equitable and whether or not a form of property".

21. Incidentally clause 7 of the FPA, to which the operation of clause 3.3(b) of the FPA was rendered subject, stipulated for variation of "the description of the securities included in the Sale Shares to be delivered by the Vendor to the Purchaser on Completion… automatically and immediately…", in any of the so-called "Adjustments" events enumerated in that clause 7 (see again [9] above) and for variation of the quantification of the purchase price payable for the "Sale Shares" accordingly.

22. The evolving course of the present fiscal dispute between Lend Lease and the Commissioner commenced with Lend Lease's objection to assessment lodged with the Commissioner on 23 January 2003, followed by the Commissioner's notice of decision thereon communicated to Lend Lease on 8 April 2004. That notice of decision was accompanied by the Commissioner's reasons for decision, which sought to make comprehensive explanations as to the operation of Part IIIA of the Tax Act adversely to Lend Lease, and in particular of s 160ZD(1)(c). As already mentioned, a further case was propounded by the Commissioner upon the basis of the income tax scheme benefit provisions of Part IVA of the Tax Act, in relation to which additional tax was imposed by the Commissioner referrable to ss 226G and 226K of Part VII of the Tax Act headed "Penalty Tax", but in the events which happened, the subject assessment process, to an original extent based upon Part IVA of the Tax Act, was not pursued by the Commissioner.

23. On 1 June 2004 Lend Lease filed in the Federal Court an application by way of appeal against the Commissioner's said objection decision of 8 April 2004. As I have already recorded, it was ultimately on 29 August 2005 that the Commissioner filed an Amended

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Statement of Facts, Issues and Contentions, in the course of which the Commissioner asserted that Lend Lease had derived the controversial capital gain of $110,645,599 appearing as the concluding figure in [16] above and made up as follows, based on the following figures propounded by the Commissioner as there further recorded:

Total consideration on disposala	$497,533,599
Less indexed cost base	$386,888,000
Capital gain	$110,645,599

The provisions of Part IIIA of the Tax Act concerning capital gains and losses in force at the material times to the extent invoked or otherwise cited by the parties

24. It is next appropriate to set out the relevant provisions of Part IIIA of the Tax Act, being relevant in the sense that one or both of the parties made reference thereto in the course of submissions. As foreshadowed, the issue arising for consideration is confined to the assessability or otherwise to capital gains tax of the foregoing amount $110,645,599, quantified by the Commissioner of course as a capital gain derived by Lend Lease. A convenient starting point is s 160Z(1), which stipulates, in relation to the determination of the assessable amount of capital gains generally, as follows:

"160Z(1) [Amount of capital gain] Subject to this Part, where an asset other than a personal-use asset has been disposed of during the year of income:

(a) if the consideration in respect of the disposal exceeds the indexed cost base to the taxpayer in respect of the asset - a capital gain equal to the excess shall be deemed for the purposes of this Part to have accrued to the taxpayer during the year of income;"

The above expression "asset", is used throughout Part IIIA, and is defined, as previously observed, by s 160A(1) to mean "any form of property", and to include "a chose in action" and "any other right…whether legal or equitable and whether or not a form of property".

25. Section 160ZA(4) of the Tax Act, appearing under the section heading "Reductions Of Capital Gains Where Amount Otherwise Assessable", and under the section subheading "Where amount otherwise assessable", stipulates to the extent identified or addressed by the parties as follows:

"Where:

(a) but for this subsection a capital gain (in this subsection called the "notional capital gain") would be deemed for the purposes of this Part to have accrued to a taxpayer during the year of income in respect of the disposal of an asset; and

(b) as a result of the disposal of the asset an amount or amounts (in this subsection called the "included amount" or the "included amounts") has or have been, or will be, included in the assessable income of the taxpayer in respect of any year of income under a provision of this Act other than this Part…

the following paragraphs have effect:

(c) if the notional capital gain exceeds the included amount or the sum of the included amounts - the amount of the capital gain that is deemed for the purposes of this Part to have accrued to the taxpayer during the year of income in respect of the disposal of the asset is an amount equal to the excess;

(d) if the notional capital gain does not exceed the included amount or the sum of the included amounts - no capital gain is deemed for the purposes of this Part to have accrued to the taxpayer during the year of income in respect of the disposal of the asset."

26. Section 160ZD of the Tax Act is headed "Consideration In Respect of Disposal". The text of subsections 160ZD(1) and (2) is reproduced below, to the extent relevant or potentially so, inclusive of their respective subheadings:

"160ZD(1) [Amount of consideration] Subject to this Part, for the purposes of this Part, the consideration in respect of a disposal of an asset is:

(a) if the taxpayer has received or is entitled to receive an amount or amounts

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of money as a result of or in respect of the disposal - that amount or the sum of those amounts;

(b) if the taxpayer has received or is entitled to receive property other than money as a result of or in respect of the disposal - the market value of that property at the time of the disposal; or

(c) if the taxpayer has received or is entitled to receive both an amount or amounts of money and property other than money as a result of or in respect of the disposal - the sum of that amount or those amounts and the market value of that property at the time of disposal."

"160ZD(2) [No consideration, inadequate or excessive consideration]… if a taxpayer has disposed of an asset and:

(a) there is no consideration in respect of the disposal;

(b) the whole or a part of the consideration received by the taxpayer in respect of the disposal cannot be valued; or

(c) the amount that would, but for this paragraph, be taken to be the consideration received by the taxpayer in respect of the disposal is greater or less than the market value of the asset at the time of the disposal and, in the case where the asset was disposed of to another person, the taxpayer and that other person were not dealing with each other at arm's length in connection with the disposal;

the taxpayer shall be deemed to have received as consideration in respect of the disposal an amount equal to the market value of the asset at the time of the disposal."

As I have foreshadowed, the Commissioner's case related principally to the operation of s 160ZD(1)(c), which the Commissioner described as addressing the (controversial) "non-cash consideration" and (non-controversial) "cash consideration" respectively the subject of the FPA, the former notion of consideration reflecting the controversial amount of $144,236,243 and the latter notion reflecting the non-controversial two cash sums appearing sequentially in [16] above and aggregating the non-controversial amount of $353,297,356. That former amount constitutes of course the value of the so-called "[a]dditional non-cash consideration" postulated by the Commissioner by reference to Lend Lease remaining entitled to retain the beneficial ownership of the subject 100 million Westpac shares from the time of entry into the FPA on 18 June 1996 until completion of the FPA on 30 April 2000.

27. Section 160ZH of the Tax Act is headed "Cost Base, Indexed Cost Base And Reduced Cost Base", subsection (4) thereof inclusive of its subheading, reading as follows:

"160ZH(4) [Consideration for acquisition] Subject to the following provisions of this section, for the purposes of this Part, the consideration in respect of the acquisition of an asset is:

(a) if the taxpayer has paid or is required to pay an amount or amounts of money in respect of the acquisition - that amount or the sum of those amounts;

(b) if the taxpayer has given or is required to give property other than money in respect of the acquisition - the market value of that property at the time of the acquisition; or

(c) if the taxpayer has given or is required to give both an amount or amounts of money and property other than money in respect of the acquisition - the sum of that amount or those amounts and the market value of that property at the time of the acquisition."

Reliance was placed by the Commissioner upon par (c) above.

28. Section 160ZO of the Tax Act is headed "Treatment Of Net Capital Gains And Net Capital Losses", and subsections (1) and (2) thereof, inclusive of their subheadings, read as follows:

"160ZO(1) [Assessable income to include net capital gain] Where a capital gain accrued to a taxpayer in respect of the year of income, the assessable income of the taxpayer of the year of income includes that net capital gain.

160ZO(2) [Net capital loss taken into account] A net capital loss that was incurred by a taxpayer in respect of a year of income

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shall be taken into account in accordance with Section 160ZC but is not otherwise allowable to the taxpayer as a deduction under this Act in respect of any year of income."

Section 160ZC referred to in s 160ZO(2) above provides comprehensively for calculation of a "net capital gain" and a "net capital loss".

29. Next referred to by the Commissioner in the course of submissions was the operation of s 160K(3), which contains the following interpretative provision (s 160K being headed "Other Interpretative Provisions"):

"[Entitlement to receive money or property] A reference in this Part to a person being entitled to receive money or property other than money includes a reference to a person being entitled to receive money or property other than money either immediately or at a future date and, in the case of money, either in a lump sum or by instalments."

The above statutory notion of "property other than money" appears in s 160ZD(1)(c) and s 160ZH(4)(c) which have been already extracted, the Commissioner seeking to apply that statutory notion in support of the controversial capital gain of $110,645,599 brought to tax by the Commissioner (see again [16] above). However the Commissioner did not appear to develop any such proposition independently of or additional to the controversial operation of s 160ZD(1)(c).

30. The parties made reference in the course of submissions also to subss 16OU(2), (3) and (4), which stipulate as follows (s 160U being headed "Time of Disposal And Acquisition"):

"160U(2) [Later subsections take precedence to earlier subsections] If the time of acquisition or disposal as ascertained under a subsection of this section is different from the time of acquisition or disposal as ascertained under a subsequent subsection of this section, the time of acquisition or disposal shall be taken to have been the time of acquisition or disposal as ascertained under that subsequent subsection.

160U(3) [Acquisition or disposal under contract] Where the asset was acquired or disposed of under a contract, the time of acquisition or disposal shall be taken to have been the time of making of the contract.

160U(4) [Acquisition or disposal not under contract] Where the asset was acquired or disposed of otherwise than under a contract, the time of acquisition or disposal shall be taken to have been the time when the change in ownership of the asset that constituted or gave rise to the acquisition or disposal occurred."

It appears to have been common ground between the parties that as at the date when the FPA was entered into (7 June 1996), s 160U(3) so operated as to treat that day as the time of disposal of the "Sale Shares" the subject of the FPA.

31. The Commissioner put in place an additional fiscal assessment pursuant to s 226G of the Tax Act "by way of penalty", upon the basis that Lend Lease failed "to take reasonable care to comply with this [Tax] Act…". Accordingly Lend Lease was made liable to pay additional tax equal to 25% of the alleged income tax shortfall, that liability amounting to $9,958,103.91. In the events which happened, the so-called protective or adjustment provisions of clause 7 of the FPA (summarised in [9] above) were not activated. Had that not been the case, as Lend Lease pointed out, the operation of s 160ZD in relation to Lend Lease, and of s 160ZH in relation to County Natwest, would have been different in the concluding transactional events which ultimately happened, being events in particular by way of ultimate completion of the FPA as an executory contract in January 2000. However as I have just observed, no such triggering or activation of those protective or adjustment provisions crystallised.

Submissions of Lend Lease in disputation of the adverse assessment of income tax

32. Given the subsequent emphasis placed by senior counsel for Lend Lease on what had earlier been the subject of the opening submission of senior counsel for the Commissioner presented to the Court on 27 July 2006, it is appropriate to record the essence of the theme of that opening submission of the Commissioner appearing in the transcript of that first day's hearing of the appeal, since so much assists to throw light upon the extent to which there is common ground between the parties, whilst also to expose the thrust of the Commissioner's case:

ATC 4058
"… We agree there is a simple point that lies at the heart of this case. What occurred in this transaction was that a public company sold in an arms length transaction shares that were trading on the market for about $5.39 for a purchase price as defined of $3.52 plus an extra cent per share in 4 years time.

Now there may have been good reasons why the shares would not be sold on market or be sold in some other way. An inquiry into that is not part of the Commissioner's case and never has been. But what is clear beyond question is that the consideration which moved this disposal included an element other than the $3.53 in total approximately that has been described by my friend as the totality of the consideration. No public company in an arms length transaction would sell on that basis.

The other element of the transaction, the other element of consideration which moved the transaction is easily identified. Although this was a share sale transaction the sale was not to occur immediately nor even at a time in the near future to allow formalities to be completed as in a property settlement. The sale was not to be completed for a further 4 years…

But both the contractual terms and the commercial documents show that the applicant bargained for and obtained the right to retain the beneficial ownership of the shares until completion and to receive subject to a formula in the forward purchase agreement such dividends as Westpac paid in the meantime. It's not to the point that the applicant was already the beneficial owner of the shares. What it obtained under the forward purchase agreement was the right to remain as the beneficial owner for a period of 4 years of the shares that it was by that very agreement selling.

In the apportionment of rights in respect of the Westpac shares which the forward purchase agreement effected the right to obtain beneficial ownership and to receive any dividends in the agreed range was central to the mechanisms by which the applicant received the equivalent of the market value of the shares. Now your Honour, we don't put this as any form of economic equivalence or anything of that kind, we never have, but when the question is asked, what was the consideration in respect of the disposal the answer cannot be, the consideration was $3.52 for a share that was worth $5.40. And the rights are plainly identifiable in the agreement and I'll take your Honour to it.

The right to retain that beneficial ownership and receive any dividends within the range was as enforceable as any other right under the contract. It was plainly a chose in action; it was assignable with consent…[i]t had all the characteristics of property… ."

In distilling the contrast to which attention was drawn above between the two amounts of $3.52 and $5.40 (each of course per share), it is to be kept in mind that the sum of $3.52 per Westpac share was paid upfront (as it were), and that Lend Lease retained entitlement to all dividends declared and paid in respect of the "Sale Shares" between 18 June 1996 and the amended completion date of the FPA on 17 January 2000.

(i) Consideration in respect of the disposal

33. The principal case of Lend Lease was in outline that the total consideration received by Lend Lease in return for the disposition of its Westpac shareholding to County Natwest constituted in substance and reality the documented contractual sale price of approximately $3.53 per share, and thus aggregating the two instalment amounts totalling $353,297,356 which I have identified in [16] above as outlaid in cash principally in June 1996 and to a relatively minor extent in January 2000, and further that there was never furnished by County Natwest, nor otherwise constituted at any material time according to law, fiscal or otherwise, the so-called "[a]dditional non-cash consideration" assessed by the Commissioner by way of purportedly imputed value in the sum of $144,236,243 appearing in the second column of figures also reproduced in [16] above, whether "as a result of or in respect of the disposal" of an asset within s 160ZD(1)(c) or otherwise. Lend Lease submitted that any such so-called "additional non-cash consideration" would need to have constituted "property other than money" within the s 160ZD(1)(c) preceding expression (which additionally appears of course in s

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160ZD(1)(b)), as well as in 160K(3) and 160ZH(4)), since such consideration did not consist of cash paid by County Natwest to Lend Lease, and moreover that the notion of beneficial ownership of property according to law implies nothing more significant in relation to an asset than ownership per se.

34. As I have earlier mentioned, the Commissioner described that so-called "[a]dditional non-cash consideration" as constituted by Lend Lease remaining entitled, under and by virtue of the FPA, which was entered into of course on 7 June 1996, "to retain beneficial ownership of the [Westpac] shares until the "Completion Date" and to receive any dividend owed by Westpac in or in respect of each half fiscal year of Westpac up to $0.70 per share until the "Completion Date". Also as I have already indicated, the expression "Completion Date" was defined by FPA as 30 April 2000. That asserted entitlement to retain beneficial ownership was characterised or particularised by the Commissioner as a valuable enforceable contractual right to remain in possession of the Westpac shares and to enjoy the benefits of beneficial ownership of those shares until the completion date, being a right said to have been "vested in [Lend Lease] when it entered into the [FPA]". Since however those "benefits of beneficial ownership until the Completion Date" included of course the receipt of any dividends paid by Westpac in respect of the Westpac shares, Lend Lease rejoined that any such outcome to the Commissioner's case "would result effectively in double taxation of the same gain". The rejoinder of Lend Lease was that there does not exist in law, or for that matter in commerce, any such notion of non-monetary property as the Commissioner sought to impute as comprising the "consideration in respect of [the] disposal", within the scope in particular of s 160ZD(1). That was said to be because the meaning of beneficial ownership according to the general law denotes no more than ownership, and because there is no separate beneficial ownership involved when the property of a legal owner is not subjected to a trust in favour of another person.

35. Lend Lease drew attention in that context to principles of law and equity concerning the nature and extent of proprietary interests created upon entry into contracts for the sale and purchase of both realty and personalty in the nature of shares in companies. The focus is here of course upon personalty by way of shares in Westpac. The subject Lend Lease shareholdings held in Westpac were of course listed on the Australian Stock Exchange, along with those held by other shareholders. It was emphasised by Lend Lease that the Commissioner's notion of "additional non-cash consideration" (see again [16] above) must constitute "property other than money" within the scope of operation of s 160ZD(1) if it is to fall within that subsection's reference to "consideration in respect of a disposal of an asset", and additionally must be property which Lend Lease "has received or is entitled to receive" as further stipulated by that subsection, being requirements neither of which on Lend Lease's case were duly satisfied.

36. In drawing attention to the implications of beneficial ownership of property of the foregoing kinds, Lend Lease drew attention to the reasons for judgment of the High Court in
DKLR Holding Co (No 2) Pty Limited v The Commissioner of Stamp Duties (New South Wales) (1982) 149 CLR 431, where there fell for consideration in the context of the Stamp Duties Act 1920 (NSW) the statutory notion of Declaration of Trust defined in the Second Schedule thereto, being "… any instrument declaring that any property vested or to be vested in the person executing the same is or shall be held in trust for the person or persons mentioned therein…". That stamp duties legislation defined "property" as comprising both realty and personalty, and here of course the property involved, being the substantial shareholding of Lend Lease in Westpac, was in the nature of personalty. What was emphasised in the course of the majority judgments in DKLR was the precept that where property is beneficially held by an owner of the legal estate, there are no separate rights of ownership existing and divisible into legal and beneficial ownership. As explained by Gibbs CJ at 442-443, Aickin J at 463 and Brennan J at 473-474, a person cannot be a trustee for himself, and where for instance a person holds the legal estate beneficially, there are no separate legal and equitable estates thereby constituted or otherwise subsisting. What is constituted therefore in that circumstance is

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simply ownership in the sense of the entirety of an estate or interest.

37. Moreover in relation to the vendor and purchaser relationship between Lend Lease and County Natwest the subject of the FPA, I was further referred by Lend Lease to
Kern Corporation Ltd v Walter Reid Trading Pty Ltd (1987) 163 CLR 164, where Deane J observed at 192:

"… it is both inaccurate and misleading to speak of the unpaid vendor under an uncompleted contract as a trustee for the purchaser… There is authority for the view that, after completion has actually taken place, some of the equitable rights of the purchaser, which (in their entirety) then constitute beneficial ownership, relate back to the date of the contract. But there is no relation back of beneficial ownership in the sense that the vendor is retrospectively deprived of his beneficial right, pending payment of the full purchase price, to the possession, use, rents and profits of the land. Regardless of whether his rights be viewed in the perspective of foresight (ie before completion) or hindsight (i.e. after completion), the ordinary unpaid vendor of land is not a trustee of the land for the purchaser".

Kern was an insurance case involving the operation of real property legislation and the entitlement of a "person interested" in realty improvements, in the capacity as purchaser under an uncompleted contract to purchase, in circumstances where those improvements were destroyed by an insured event prior to completion of that contract, to have the proceeds of insurance outlaid in rebuilding the same. The issue which arose in particular in Kern related primarily to the notion of insurable interest, and whether a purchaser could require the vendor's insurer to rebuild or reinstate; in the joint reasons of Wilson and Dawson JJ at 180, it was observed that "… a purchaser under an enforceable contract for the sale of land is bound to complete, irrespective of the destruction of the improvements on the land in the meantime and that from the time the contract is made the purchaser has an equitable estate in the land…". That authority was said to serve as confirmation that proprietary rights crystallise normally in favour of a purchaser on entry into a contract to purchase personalty in the nature of proprietary interests, such as shares in corporations, as well as in the case of entry into a contract to purchase realty, but that the existence of an equitable interest in favour of a purchaser pursuant to an executory contract is not equivalent to beneficial ownership or ownership in equity. More recently in
Tanwar Enterprises Pty Ltd v Cauchi (2003) 217 CLR 315 at 332-333, to which Lend Lease drew further attention for completeness, it was explained in the joint reasons for judgment of Gleeson CJ, McHugh, Gummow, Hayne and Heydon JJ at [53] that the interest of a purchaser under a contract for the purchase of realty is commensurate with the availability of the remedy of specific performance in favour of that purchaser, and may become "… the very question in issue where there has been a termination by the vendor for failure to complete as required by the essential stipulation".

38. In that context of uncontroversial authority, Lend Lease emphasised that no beneficial ownership in the Westpac shares was created or otherwise independently subsisted in favour of County Natwest at any time from and after the formation of the FPA on 7 June 1996 and prior to the completion of the FPA on the amended date of 17 January 2000, and that Lend Lease remained the owner of the Westpac shares until that latter date both in law and in equity, in the former case because its name remained on the register of Westpac as the holder of the shares of course until the "Completion Date". Until that time, so the submission continued, Lend Lease remained the owner "at law and for all purposes", and held the Westpac shares on its own account and for its own benefit, and moreover no trust relationship was created in respect of the shares, expressly or by implication, in favour of County Natwest at any time prior to completion of the FPA, consistently with the explicit operation of clause 3.3 of the FPA, the text whereof is later extracted in these reasons. Put another way, Lend Lease pointed out that there was "no separate beneficial interest" otherwise subsisting in the Westpac shares arising out of the FPA and prior to completion thereof, the FPA having specifically excluded the existence of any "beneficial interest in the Sale Shares" as thereby transferred to the purchaser in

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advance of the completion date of the FPA. County Natwest would have been entitled in principle to specific performance of the FPA, but so much had no bearing upon the operation of clause 3.3 in accordance with its terms.

39. Moving then to the Commissioner's postulation of the controversial notion of "additional non-cash consideration" appearing in the table reproduced in [16] above, as reflective the right of Lend Lease, as against County Natwest, to remain in possession of the Westpac shares, and to enjoy the notion of "beneficial interest in the Sale Shares" prior to completion of the FPA scheduled for 30 April 2000 (that is of course nearly four years after the FPA was entered into on 7 June 1996), Lend Lease submitted that such postulation of beneficial interest served inherently "to reveal the fundamental fallacy in [the Commissioner's] argument". Any such "right as against County Natwest" did not exist, so the Lend Lease contentions continued, at any time from 18 June 1996, when the FPA was entered into and the sum of $352,297,356 was paid by County Natwest to Lend Lease by way of "Initial Instalment", to January 2000, when the "Final Instalment" of $1 million became payable and was paid, and thereafter until the "Completion Date" of 30 April 2000, and was characterised by Lend Lease as an embellishment of the Commissioner's case attended with the misconceived adjectives of valuable and contractual. Lend Lease asserted moreover that the Commissioner's further notion of Lend Lease "remaining in possession" of the subject Westpac shares was "fundamentally mistaken" according to principles of the general law. I was referred in that latter context to
Sydney Futures Exchange Limited v Australian Stock Exchange Limited and Another (1995) 13 ACLC 369; (1995) 56 FCR 236 at 256, where Lockhart J spoke of shares as constituting "choses in action, not choses in possession", in the context that "[t]he buyer of shares does not obtain legal title to the shares until the buyer's name is entered in the share register, but in the meantime the buyer may acquire equitable interests in shares, enforceable by specific performance…".

40. Lend Lease therefore invoked the principle that since the FPA constituted a contract for the future sale of the Westpac shares, whereby until the effectuation of that sale, ownership would remain with Lend Lease and not pass to County Natwest, there was not acquired by Natwest any beneficial interest in the Westpac shares prior to completion of the FPA as scheduled to occur on the "Completion Date" stipulated by the FPA for 30 April 2000, subject to the proviso of that contractual definition namely "unless it is adjusted under clause 5.1 or 5.2". I was referred by Lend Lease to
Associated Alloys Pty Ltd v ACN 001 452 106 Pty Limited (in liquidation) (2000) 202 CLR 588 at [36]-[37], where recognition was afforded by the majority judgment of the High Court (Gaudron, McHugh, Gummow and Hayne JJ) to the principle that effect should be given to any expression of intention of the parties to a contract for the sale of goods (being there fabricated steel) concerning the retention of ownership in favour of the seller until the goods were fully paid for by the buyer. Put therefore in summary as to the operation relevantly of the subject contractual documentation, Lend Lease asserted that beneficial ownership of the subject Westpac shares was not acquired by County Natwest until the time of completion of the FPA on 30 April 2000, or on any subsequently varied "Completion Date" put in place, nor was there constituted a right of any other proprietary kind in relation to its disposal of its Westpac shares in favour of County Natwest until completion of the FPA. Upon the footing therefore of what I have summarised to date, Lend Lease submitted that there was no value in the nature of so-called putative property of any kind which could have been rightly included until 30 April 2000 (or any subsequently varied contractual date) for the purpose of determination of any capital gain or loss made or sustained by Lend Lease pursuant to Part IIIA of the Tax Act.

41. Lend Lease submitted moreover that the construction of s 160ZD(1) of the Tax Act, by reference to the juridical basis upon which it framed its case, accorded also with "business commonsense", and further that "the consideration in respect of the disposal" of the Westpac shares, pursuant to the operation of subss 160ZD(1) and (2), constituted no more than the purchase price expressed to be payable by County Natwest as purchaser of those shares pursuant to the FPA. The Court was referred in that context generally to the following passage

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in the speech of Lord Wilberforce in
Aberdeen Construction Group Ltd v Inland Revenue Commissioners [1978] AC 885 at 892-3:

"The capital gains tax is of comparatively recent origin. The legislation imposing it, mainly the Finance Act 1965, is necessarily complicated, and the detailed provisions, as they affect this or any other case, must of course be looked at with care. But a guiding principle must underlie any interpretation of the Act, namely that its purpose is to tax capital gains and to make allowance for capital losses, each of which ought to be arrived at upon normal business principles. No doubt anomalies may occur, but in straight-forward situations, such as this, the courts should hesitate before accepting results which are paradoxical and contrary to business sense. To paraphrase a famous cliché, the capital gains tax is a tax upon gains: It is not a tax upon arithmetical differences."

I would have difficulty nevertheless in describing the present situation as "straight forward". The essence of that aspect of his Lordship's speech in Aberdeen Construction, incidentally, was cited with approval in
Commissioner of Taxation v Orica Ltd 98 ATC 4494; (1998) 194 CLR 500 at 545 [118] (Gummow J).

42. Lend Lease's case was therefore that there never existed in law, or even in commerce for that matter, any "property other than money" constituting "consideration in respect of the disposal of an asset" at any time prior to completion of the FPA and accordingly that the s 160ZD(1) notion of "received… or entitled to receive…money… [or] property other than money" was not satisfied in the present circumstances.

43. It was pointed out by Lend Lease moreover that the notion of "receive" appearing in s 160ZD(1) should be accorded its ordinary meaning, for instance as contained in the Macquarie Dictionary (Revised Third Edition), that meaning being "to take into one's hand or one's possession (something offered or delivered)". A similar meaning was said to have been accorded in a social security context in
Jazazievska v Secretary, Department of Family and Community Services (2002) 65 ALD 424 at 435 [39] (Cooper J), in the context of an attempted recovery of an overpayment of social security payments, where the statutory notion under scrutiny included the words "received in good faith". Lend Lease contended that "[f]or a taxpayer to have "received" money or property for the purposes of s 160ZD(1), [the taxpayer] must have acquired possession of that money from… someone else", and Lend Lease cited the following passage from the speech of Lord Lindley in
Gresham Life Assurance Society Ltd v Bishop [1902] AC 287 at 296:

"But to constitute a receipt of anything there must be a person to receive and a person from whom he receives, and something received by the former from the latter, and in this case that something must be a sum of money."

In the present context, that "someone else" from whom the asserted "[a]dditional non-cash consideration" was received would need to have been County Natwest or Westpac; in either case there is inherent difficulty which the Commissioner was required to address.

(ii) Any capital gain is offset by an equal capital loss

44. The next segment of submissions advanced by Lend Lease was summarised to the effect that in the present circumstances falling to be addressed, "[a]ny capital gain is offset by an equal capital loss". Lend Lease characterised the Commissioner's case as "self defeating", in that "it necessarily produces a concurrent capital loss in the same amount as the claimed capital gain". In elaboration of that contention, Lend Lease explained that if, contrary to its submissions I have already summarised, the s 160ZD(1) notion of "consideration" in respect of the disposal of the subject shares was to be taken to satisfy the further s 160ZD(1) notion of "property other than money" within pars (b) and (c) thereof of that subsection, what is to be brought to account in calculating any capital gain would be an amount equal to "the market value of that property at the time of the disposal". Here of course the Commissioner has attributed to the so-called "[a]dditional non-cash consideration" a market value of $144,236,243 (see again [16] above).

45. Lend Lease contended that if that postulation on its part was soundly conceived,

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what would logically follow were the propositions set out below:

(i) the supposed "property other than money", being that "additional non-cash consideration", would comprise an "asset" within the defined meaning set out in s 160A of Part IIIA of the Tax Act, which includes "any other right… whether legal or equitable and whether or not a form of property";
(ii) any such asset was necessarily acquired by Lend Lease for capital gains tax purposes under and at the time of formation of the FPA; in that regard, attention was drawn by Lend Lease to the s 160U(3) expression "[w]here the asset was acquired or disposed of under a contract, the time of acquisition… shall be taken to have been the time of the making of the contract";
(iii) the consideration provided by Lend Lease for the acquisition of (inter alia) that alleged asset comprised the "Sale Shares" as defined in the FPA (see [7] above);

(iv) the market value of the "Sale Shares" relied on by the Commissioner as having been received by Lend Lease within s 160ZD(1) rests on an equation of the value of those shares within an aggregate value of the "cash consideration of $353,297,356" and the "[a]dditional non-cash consideration" of $144,236,243 said by the Commissioner to have been furnished by County Natwest as at the time of formation of the FPA; attention was drawn to the circumstance that the Commissioner particularised that asserted market value in a letter to Lend Lease of 15 September 2004 in the following way:

"Market value	$539,000,000
Less "discount"	$ 40,425,000
	$498,425,000
less costs on sale	$ 1,041,401
	$497,533,599
Less consideration received	$353,297,356
	$144,236,243 "

(v) necessarily however both the market value of the "[a]dditional non-cash consideration" (so-called by the Commissioner as in [16]-[17] above) claimed by the Commissioner to have been received by Lend Lease, or to have been the entitlement of Lend Lease to receive, within s 160ZD(1)(c), together with the market value of the "property other than money" (the s 160ZD(1)(b) and (c) expression) given by Lend Lease as consideration in exchange "at the time of acquisition" for s 160ZH(4) purposes, was to be ascertained by the same calculation, that is, by deducting the monetary amounts from the value of the "Sale Shares"; thus the cost base to Lend Lease of the "property other than money", being the "[a]dditional non-cash consideration" postulated by the Commissioner, was the same amount as that taken into the calculation of the "consideration in respect of [the] disposal", the Commissioner's controversial figure remaining in that regard at $144,236,243;
(vi) so much was an asset within Part IIIA, which by the terms of the FPA, Lend Lease agreed to relinquish on completion of the FPA, and in consequence was deemed to be disposed of by Lend Lease at the time of formation of the FPA by the combined operation of ss 160M(3)(b) and 160U(3); I have of course earlier reproduced the text of s 160U(3), set out below is the text of s 160M(3)(b) (so far as is material):
"160M(3) … a change shall be taken to have occurred in the ownership of an asset by:
- …
- (b) in the case of an asset being a debt, a chose in action or any other right, or an interest or right in or over property - the cancellation, release, discharge, satisfaction, surrender, forfeiture, expiry or abandonment, at law or in equity, of the asset;"
(vii) no consideration was received by Lend Lease in respect of its disposal of any such "property other than money", being the "non-cash consideration" so-called by the Commissioner;
(viii) consequently, as a result of the disposal of what Lend Lease described as the "non-cash consideration" asset, Lend

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Lease was said to have incurred a capital loss of $144,236, 243 in the 1996 fiscal year, which offset the alleged capital gain.

46. Lend Lease asserted that the fallacy in the Commissioner's process of reasoning was to be further distilled from a consideration of the Commissioner's postulation of the further figures drawn from the letter of Lend Lease's solicitors of 15 September 2004 addressed to the Australian Government Solicitor, whereby Lend Lease's solicitors sought clarification of "the matters in dispute in the proceedings… in order that our client may properly understand the basis upon which the amended assessment for the year ended 30 June 1996 has been issued…", and which basis was subsequently confirmed in the letter of 10 December 2004 of the Australian Government Solicitor in response to that earlier Lend Lease letter:

Market value of the (Westpac) Sale Shares (discounted for blockage)	$498,425,000
	less costs of sale	$1,041,401
Value the Commissioner asserted to have been received by County Natwest	$497,533,599
Value the Commissioner contended to have been received by Lend Lease from County Natwest:	$497,533,599
	less cash consideration actually outlaid by County Natwest to Lend Lease (by way of "initial instalment of $352,297,356 plus "final instalment" of $1,000,000)	($353,297,356)
Commissioner's asserted market value of the "non-cash consideration":	$144,263,243

47. From the foregoing calculations it was said by Lend Lease to necessarily follow that the cost base to Lend Lease of the so-called "[a]dditional non-cash consideration" was the same amount, as arrived at pursuant to the formula set out below:

Cost base of so-called "non-cash consideration"
	Value given by County Natwest (as above):	$497,533,599
Allocated between:
• the part of the value exchanged for cash received:	($353,297,356)
• the part of value exchanged for, and so comprising the cost base of the "non-cash consideration" under s 160ZH(4)(b):	$144,263,243

Accordingly, so Lend Lease further contended to follow, there must have been sustained a capital loss by Lend Lease of that amount of $144,263,243, as appears below:

Calculation of capital loss:
Value received by Lend Lease with respect to the disposal of the "non-cash consideration":	Nil
Less cost base of "non-cash consideration":	($144,263,243)
Capital loss on disposal:	($144,263,243)

48. Lend Lease pointed out that if, as the Commissioner argued, the value of that which County Natwest provided to Lend Lease was greater than the cash sum actually paid by County Natwest (of course amounting to $353,297,356), and given that the difference in "value" was the so-called "non-cash consideration" asset, then inevitably the capital loss on disposal of the "property other than money" (of course the s 160ZD(1) expression) purportedly reflecting or representing that "non-cash consideration" would offset "completely (and by logical necessity) the capital gain" which, if the Commissioner's contention be correct, would have crystallised in the 1996 fiscal year as a consequence of the disposal of the "Sale Shares".

49. Lend Lease submitted therefore that the fallacy in the Commissioner's approach lay in the notion that there must be something derived by Lend Lease additionally to the cash received from County Natwest, because of a supposed disparity between the value of the consideration given by County Natwest, which the Commissioner equated to the value of the

ATC 4065

Westpac shares, and the cash paid to and received by Lend Lease upon its sale of the Westpac shares to County Natwest. That approach was described by Lend Lease as fallacious because there was no such disparity, either as a matter of commerce or as a matter of law, or as a matter of accounting principle. Moreover the evident commercial reality was said by Lend Lease to have been that Lend Lease agreed to receive "immediate cash in exchange for future transfer", to adopt the Lend Lease summary, and it was therefore said to be unsurprising that the so-called immediate cash was in a lesser amount than might have been received at a later date. As Lend Lease further pointed out, as a matter of principle evident from the operation of the Tax Act, income tax law is "not concerned with the value of amounts which might be paid at different times", which I think to be correct in terms of principle.

50. In the foregoing context, Lend Lease cited dicta of a Full Federal Court in
Burrill v Commissioner of Taxation 96 ATC 4629; (1996) 67 FCR 519 at 523 (Jenkinson, Olney and Sundberg JJ) that "[i]t is a fundamental principle of Australian income tax law that rights to receive money and obligations to pay money are taken into account in calculating income and outgoings, gains and losses, at their nominal value". Reliance was placed by the Full Federal Court in Burrill incidentally upon the following dicta of the High Court in
Federal Commissioner of Taxation v Myer Emporium Ltd 87 ATC 4363; (1987) 163 CLR 199 at 216-217 (Mason ACJ, Wilson, Brennan, Deane and Dawson JJ):

"The accounting basis which has been employed in calculating profits and losses for the purposes of the Act is historical cost… not economic equivalence… And so a taxpayer who lends money for a stipulated period at interest is treated as exchanging the money lent for a debt of the same amount, unless the loan is made at a discount or premium, in which case there may be a gain or loss on capital account… . In the ordinary case, the debt is brought to account in the same amount as the money lent. The amount of the debt is not reduced because the lender is kept out of the use and enjoyment of the money lent for the period of the loan."

It was contended by the Commissioner that the foregoing dicta "does not address the statutory requirements in s 160ZD(1)(c)". The difficulty for the Commissioner remains however in seeking to establish that the par (c) expression "an amount or amounts of money or property" accommodated the controversial notion of "[a]dditional non-cash consideration on disposal" appearing in [16] above.

(iii) Any capital gain is excluded by section 160ZA(4)

51. The next segment of submissions of Lend Lease related to the operation of s 160ZA(4) of the Tax Act, the text whereof has been earlier reproduced. It was said by Lend Lease that the Commissioner's case would bring to tax both the amount of the dividends received and returned by Lend Lease and a like amount as the value of the right to receive those dividends, that being described as a case contrary to the structure and policy of the Tax Act. It was further said by Lend Lease in response that the subsection operates to reduce any capital gain which would otherwise arise "in respect of the disposal of an asset", where "as a result of the disposal of the asset an amount or amounts… has or have been, or will be, included in the assessable income of the taxpayer in respect of any year of income under a provision of this Act other than this Part…", those italicised expressions appearing of course in the text of s 160ZA(4).

52. The further response of Lend Lease to what was propounded by the Commissioner concerning the value of the "right to share in Westpac dividends" was that the Commissioner thereby unjustifiably and impermissibly elevated "a supposed economic equivalence to the status of a contractual right capable of comprising consideration". Lend Lease cited in that regard
Commissioner of Taxation v Citylink Melbourne Ltd 2006 ATC 4404; (2006) 228 ALR 301, where at [95], Crennan J (with whose reasons Gleeson CJ and Gummow J agreed), observed as follows:

"… it was contended that the net present value of the liability to pay the concession fees should be used to calculate allowable deductions. The Commissioner applied for leave to amend the grounds of appeal to

ATC 4066
raise this point… Leave to amend was refused. Present value discounting of outgoings, payable in the future, is currently under consideration, together with other methods for assessment and deduction, spread over the life of certain financial arrangements (her Honour thereby referring to the Tax Laws Amendment (Taxation of Financial Arrangements) Bill 2006, exposure draft, December 2005). However, the accounting basis used to date in Australian tax law for the purposes of assessment and deductions has been historical cost accounting, rather than economic equivalents."

Citation was made by her Honour from both Burrill and Myer Emporium.

53. Lend Lease referred also in the present context to the implications relevantly of
Prime Wheat Association Ltd v Chief Commissioner of Stamp Duties 97 ATC 5015; (1997) 42 NSWLR 505 where at 511, Gleeson CJ rejected the characterisation of what is commonly described as a "mortgage back" transaction, put in place pursuant to a share sale agreement whereby ownership of the shares was to pass to the purchasers on completion of that agreement, but payment for the shares was to be made by an initial deposit, and thereafter by instalments over 20 years, and to be secured partly by the grant of a mortgage over those shares in favour of the vendor. Though in the minority in the outcome in the New South Wales Court of Appeal, his Honour observed (obiter) at 511 as follows:

"There is no doubt, in the present case, that the transaction in question was one under which the vendor of the shares provided financial accommodation to the purchasers, or that the instrument in question made provision for such financial accommodation. It does not follow, however, the form of financial accommodation agreed between the parties was by way of loan. To describe the transaction as being substantially one which involved a mortgage back to the vendor does not provide an answer to the critical questions in the case, and, as was submitted on behalf of the appellants, carries a risk of resolving the issue by reference to considerations of economic equivalence rather than by reference to an accurate characterisation of the instrument under consideration."

54. Given that contrary to Lend Lease's foregoing submissions, Lend Lease did derive for Part IIIA purposes the controversial "additional non-cash consideration" of $144,263,243 propounded by the Commissioner, and did so "in respect of the disposal of an asset" within the scope of operation of s 160ZA(4), as to which see paragraphs (a) (c) and (d) thereof, so much was asserted by the Commissioner to have comprised an entitlement in the nature of "a chose in action", and therefore an "asset" within the Part IIIA definition contained in s 160A, being a chose to retain beneficial ownership of the shares until the completion of the transaction of sale, and therefore to receive any dividend paid by Westpac prior to completion. Lend Lease contended nevertheless that the dividends, being a part or a so-called "manifestation" of the "non-cash consideration", were included in the assessable income of Lend Lease "as a result of the disposal" of the Sale Shares under the FPA having occurred within the purview of par (b) of s 160ZA(4). Lend Lease emphasised in that context that by virtue of par (d) of s 160ZA(4), "if the notional capital gain does not exceed the included amount or the sum of the included amounts - no capital gain is deemed for the purposes of this Part to have accrued to the taxpayer during the year of income in respect of the disposal of the asset", and further that since the dividends included in the assessable income of Lend Lease totalled $162 million, that figure exceeding the amount of the capital gain assessed by the Commissioner, it followed that by virtue of par (d) of s 160ZA(4), no capital gain could or should be taken to have accrued to Lend Lease by operation of law.

55. It was further pointed out by Lend Lease that the operation of s 160ZA(4) was consistent with the principle as well as the policy of the general fiscal law that a taxpayer should not be taxed twice in respect of the same profit or gain. That traditional precept was acknowledged in the Income Tax Assessment Amendment (Capital Gains) Bill 1986 at page 55, in relation to the then foreshadowed enactment of s 160ZA(4), in the following terms:

ATC 4067
"Broadly stated, where an amount of a capital gain that has accrued to a taxpayer in respect of the disposal of an asset and an amount included in respect of the disposal by virtue of the operation of another provision of the Principal Act (e.g. section 25) relate to the same profit or gain, sub-section 160ZA(4) operates to provide for the reduction of the capital gain. The capital gain is to be reduced by so much of the difference between the "notional" and "actual" amounts (referred to in paragraphs (4)(b) and (c)) as does not exceed the amount of the capital gain.

The "actual amount" is the amount that has been or will be included in the assessable income of the taxpayer otherwise than under Part IIIA in respect of any year of income as a result of the disposal of the asset. The "notional amount" is the amount that would have been so included in the assessable income if the consideration received in respect of the disposal had been reduced by an amount equal to the capital gain.

Sub-section 160ZA(4) will apply, for example, to a taxpayer who disposes of land and building where the profit on disposal is included under section 25 of the Principal Act. If the consideration in respect of the disposal were reduced by the amount of the capital gain (as required by paragraph (4)(c)), generally the amount that would be included in assessable income of the taxpayer under section 25 would also be reduced by the amount of the capital gain. Accordingly, the "notional amount" would be less than the "actual amount" by the amount of the capital gain, resulting in the capital gain being reduced to nil. Therefore, the same amount of profit is not taxed more than once."

That policy of the general fiscal law was said by Lend Lease to reflect the principle of interpretation adverse to any implication of double taxation, as enunciated by Dixon J (as he then was) in
Executor Trustee & Agency Co of South Australia Ltd v Federal Commissioner of Taxation (1932) 48 CLR 26 at 44, as follows:

"No interpretation of a taxing Act should be adopted which results in the imposition of double taxation unless the intention to do so is clear beyond any doubt."

56. Lend Lease submitted accordingly that the imposition of what it portrayed as the attempted "double taxation… of an asset" on the part of the Commissioner, implicitly by reference to Lend Lease's derivation of dividend income irrespective of its rebateable character, would be an "incongruous result", and "capricious" or "irrational", and further that where an interpretation of legislation is reasonably open which does not lead to any such result, and accords moreover with the evident purpose of the legislation, that interpretation should be preferred by the Court. Lend Lease cited in that regard
Cooper Brookes (Wollongong) Pty Ltd v Commissioner of Taxation 81 ATC 4292; (1981) 147 CLR 297 at 320, where in the joint judgment of Mason and Wilson JJ, the following appears:

"Generally speaking, mere inconvenience of result in itself is not a ground for departing from the natural and ordinary sense of the language read in its context. But there are cases in which inconvenience of result or improbability of result assists the court in concluding that an alternative construction which is reasonably open is to be preferred to the literal meaning because the alternative interpretation more closely conforms to the legislative intent discernible from other provisions in the statute."

The Commissioner's reasoning in support of the adverse assessment in dispute

57. I have earlier referred to the Commissioner's submissions under the heading "Issues arising on the appeal", but as I have sought to emphasise, only in outline, given the extent that the Commissioner's case in the course of presentation of submissions was reframed purportedly in reply. An emphasis of the Commissioner's case was that the s 160ZD(1) notion of "the consideration in respect of a disposal of an asset", by reason of the inclusion of those words "in respect of", draws "the widest possible connection between the terms of the disposal and the receipt of money or property". Attention was drawn by the Commissioner in that regard to
State Government Insurance Office (Qld) v Crittenden (1966) 117 CLR 412 at 416, where Taylor J referred to the expression "in respect of" appearing in legislation, though being "difficult of definition", as having nevertheless

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and by virtue of longstanding judicial precedent "the widest possible meaning of any expression intended to convey some connexion or relation between the two subject matters to which the words refer". The legislative context there addressed in Crittenden was that of personal injury insurance. More recently in
Moneywood Pty Limited v Salamon Nominees Pty Limited (2001) 202 CLR 351 at 380, Gummow J adopted that earlier dictum in Crittenden, the context in Moneywood also being other than that of revenue law. Moreover at 398 in Moneywood, Kirby J observed that "[t]he width of the words "in respect of" has been the subject of many juridical observations. There is no reason in the present context to cut down that width." The Commissioner's submissions thereafter focused with emphasis upon dicta of the majority judgment of Gummow, Kirby and Hayne JJ in
Chief Commissioner of State Revenue v Dick Smith Electronics Holdings Pty Ltd 2005 ATC 4052; (2005) 221 CLR 496, which involved a consideration of the meaning of "dutiable value" in relation to "dutiable property that is subject to a dutiable transaction" appearing in the stamp duty legislation of the State of New South Wales. Though the context in Dick Smith Electronics was that of revenue law, the issue there arose in a stamp duty and not an income tax context, involving the extent of stamp duty exigible upon agreements for the sale or transfer of shares the subject of issued capital in a company. The present circumstances relate of course to income tax assessable upon the monetary value of shares the subject of an agreement for sale or transfer of property, being of course shares in Westpac.

58. The circumstances in Dick Smith Electronics were that an agreement for the acquisition of the entire issued capital of a private company stipulated for a substantial purchase price for the shares less a so-called "dividend amount" equal to the target company's retained earnings up to a certain maximum sum, and for the vendors (being the existing shareholders) to cause the target company to declare dividends equal to those retained earnings in favour of those existing shareholders. The takeover agreement further stipulated that on completion thereof, the purchaser would both pay the purchase price to the vendor shareholders and provide the finance, by way of additional consideration on the takeover, to enable the target company to discharge the debts owing to the existing vendor shareholders arising out of the dividends thus declared but remaining unpaid. Thus immediately prior to completion of the takeover agreement, the target company declared but did not distribute in cash those substantial dividends, and thereby created a debt equal to the amount thereof due by the target company to the existing shareholders, that is of course, the vendors of the shares in the target company. At the time of completion of the takeover agreement, the purchaser paid to the vendors accordingly the purchase price for their shares, less the amount of the dividend declared and distributed in their favour, but nevertheless simultaneously lent to the target company the residue of the purchase price, which equalled the dividend required to be so declared. Thereafter the company, being thus funded for the intended purpose, satisfied in cash the dividend declared in favour of the vendor shareholders. The takeover agreement was assessed to stamp duty what was identified as the consideration for the shares.

59. It may be seen that the present circumstances differ from those in Dick Smith Electronics. Whereas as indicated above, the purchaser there was obliged to in effect fund the target company so that it could pay the dividend to the vendors, the amount whereof would reduce the stipulated purchase price, and the vendor was not required to complete other than upon the footing of performance of that obligation, and so that the vendor would receive the dividend as well as the sale price for the shares stipulated in the agreement for sale which became the subject of transfer. The majority concluded that the vendor was entitled to receive, and the purchaser obliged to procure, that the vendors did receive on completion, as part of the total sale consideration required to be furnished by the purchaser, payment by the target company of the outstanding dividends already due to the vendors though in their capacity as shareholders of the target company. The majority held that the dutiable consideration comprised the several promises on the part of the purchaser recorded in the takeover agreement, in consequence whereof the vendors received an agreed monetary amount, whereof part was by way of dividend

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from the target company pursuant to the takeover agreement.

60. After referring to the well known dictum of Dixon J (as he then was) in
Archibald Howie Pty Ltd v Commissioner of Stamp Duties (NSW) (1948) 77 CLR 143 at 152 as to the notion of the term consideration, being:

"… the word "consideration" should receive the wider meaning or operation that belongs to it in conveyancing rather than the more precise meaning of the law of simple contracts… the consideration is rather the money or value passing which moves the conveyance or transfer."

and also to what was said by Lord Wilberforce in another stamp duty context in
Shop and Store Developments Ltd v Commissioner of Inland Revenue [1967] 1 AC 472 at 503 as to the term "consideration", being:

"In the first place, the phrase "consideration for the transfer or conveyance" seems to me to refer clearly and naturally to that which passed to the transferor company "for" the transferred properties…."

the reasons of the majority judgment in Dick Smith Electronics, under the heading "The error of the Supreme Court", continued at 519-520 as follows:

"The result of this analysis is that the primary judge and the majority of the Court of Appeal erred in the approach that they respectively took to the application of the Act to the uncontested facts. Approached correctly, the case may be summed up as follows. The promises which the parties made and recorded in the Agreement can be sufficiently described as being: (1) the Vendors' promise to transfer the Shares to the Purchaser; (2) the Vendors' promise to procure the Company to declare as large a dividend as it could (up to a maximum of $27 million); (3) the Purchaser's promise to pay the Vendors $114,139,649 minus the Dividend Amount; and (4) the Purchaser's promise to "fund" the Company's payment of the dividend.

The consideration for each of those promises is to be found in the promises made by the opposite party. However, what for the purposes of s 21(1) of the [Duties] Act moved the transfers by the Vendors was performance of all of the various stipulations in the Agreement, not merely the promises which the Purchaser made. To put the same point in other words: why identify the consideration "for" the transfers as only what the Purchaser gives up? The Vendors transferred the Shares in return for receiving some $114 million, of which part was received from the Company because the parties had agreed that this should be so."

61. The Commissioner contended that "the same analysis applies here", though of course Dick Smith Electronics involved the issue as to the stamp duty exigible on the "dutiable value" of the totality of the shares in a private company incorporated in New South Wales the subject of sale by two equal offshore incorporated shareholders, whereas the present context involves the different revenue issue as to whether capital gains tax is exigible in relation to the capital gain controversially postulated by the Commissioner in respect of the disposal of a significant but apparently far from being a controlling parcel of shares in a public company (of course Westpac). The valuable consideration which was said by the Commissioner to have "moved" the disposal here of the subject parcel of Westpac shares from Lend Lease to County Natwest, as I have already foreshadowed, was "the money" (ie the two monetary instalments of purchase price payable at different times and totalling $353,297,356), and additionally the value of the so-called "contractual rights" to share in future dividends to be paid by Westpac in respect of that subject parcel, which the Commissioner characterised as "[a]dditional non-cash consideration" and asserted to have a value of $144,236,243 (ante). Those future dividends equalled what might be declared by Westpac during the period of time between entry into the FPA on 7 June 1996 and its completion. Thus it was the Commissioner's explanation that "[i]t is sufficient for the Commissioner's point that [Lend Lease's] contractual rights as a whole are assignable, subject to consent", in order for its Part IIIA case to qualify within the s 160ZD(1)(c) expression "property other than money as a result or in respect of the disposal". It was further said by the Commissioner that Lend Lease's contractual rights were capable in their nature of assumption by third parties and

ATC 4070

also of assignability, albeit that consent was required, and that prior to the FPA, Lease Lease "did not have the contractual rights under it", but by entering into the FPA, it "obtained or received those rights". Lend Lease rejoined to the effect that the Commissioner's characterisation of Lend Lease's contractual rights as a whole was different to that characterisation elsewhere given by the Commissioner as rights "to retain beneficial ownership", in either case "… until the Completion Date".

62. In support of the Commissioner's case in any event, the Commissioner submitted that the majority of the High Court found in Dick Smith Electronics that what was received by the vendors by virtue of the takeover agreement there involved included the substantial dividend to be paid to the vendors prior to completion, and that the vendors had bargained with the purchaser to achieve that result (pursuant of course to the takeover agreement), the "dividends" in that context having been declared and satisfied out of the fund comprising historically retained earnings of the target company. However as I have sought to point out, the circumstances relevantly involved in Dick Smith Electronics do not provide the extent of the analogy the commissioner sought to invoke. It was further emphasised by the Commissioner in any event that "[t]he amount of consideration which moved the sale was the receipt of the sum including the dividends and it did not matter that part was paid from the target company rather than the purchaser", and further therefore that "[t]he consideration for the transfers was not only what the purchaser gave up, but also what was agreed would be received by the vendors from the target" company. I have of course already made observations concerning what seem to me to have been features in Dick Smith Electronics distinguishable from the present case.

63. It was pointed out further by the Commissioner that "… even the minority judges in Dick Smith Electronics (Gleeson CJ and Callinan J) were prepared to accept that the promise to fund the dividend, as opposed to the performance of that promise, was a "non-monetary consideration for the agreement to transfer on sale". In that regard however Gleeson CJ and Callinan J observed (at 510) that while they were "… prepared to accept that the obligation accepted by [Dick Smith Electronics]", being the obligation of the purchaser to lend to that target company "an amount sufficient to put it in funds to pay the dividend", they decided nevertheless that "[w]e cannot accept that it is monetary consideration for the transfer on sale". Be that as it may, the findings made by the High Court majority in Dick Smith Electronics were described by the Commissioner to be consistent with the approach taken in
Colonial Mutual Life Assurance Society Ltd v Federal Commissioner of Taxation (1953) 89 CLR 428, where it was held that the payment of amounts equal to 90 per cent of all rents, as and when received by lessees of a city mixed development, constituted in reality outgoings of a capital nature, being part of the capital costs for the acquisition of an asset comprising that development, and were therefore not deductible. In other words the terminology adopted by contracting parties in their contract does not necessarily determine the character of a transaction the subject of that contract at least for revenue purposes, irrespective of the nature and extent of the divergence of views between the majority and minority of the High Court in Dick Smith Electronics. So much may be readily accepted but the issue remains as to whether the Commissioner thereby gains the assistance it seeks from Dick Smith Electronics.

64. It was said by the majority in Dick Smith Electronics in any event at 519 that "[i]t was only in return for that total sum (paid by the various steps and in the various forms required by the Agreement) that the Vendors were willing to transfer to the Purchaser the bundle of rights which their shareholding in the Company represented", and further that "… the amount of monetary consideration for the transactions of sale and transfer of the Shares… was to come as a dividend from the Company…". It was further said by the majority at 519 "[t]hat which passed to the Vendors "for" the transfers of the Shares was "consideration" which was "monetary" rather than "non-monetary" within the meaning of s 21(1) of the [Stamp Duties] Act", since "[t]he transaction was to be assessed to duty on the footing that it was performed… both sides addressed their arguments by reference to the implementation of the transaction [and] [t]he

ATC 4071

Commissioner correctly took the stance that the intended result of the transaction, seen as a whole, was the receipt by the Vendors of [that total sum]".

65. It was contended by the Commissioner that in the present case, "[t]he relevant connection between the right to receive a portion of future dividends and the disposal of the Westpac shares was demonstrated by the FPA itself", the Commissioner thereby drawing attention to clauses 3.1, 3.2, 3.3, 5.1 and 5.2 of the FPA, which have been already reproduced in these reasons, and also to clause 7.1(b), which the Commissioner described as having "provided for an automatic reduction in the Purchase Price of the shares in the circumstances specified in clause 7.9," whereby Westpac might declare a so-called "excessive dividend", as quantified by the Commissioner, "… in excess of 70c per share for any fiscal year". Purportedly upon the basis of the entitlements thus postulated by the Commissioner to be conferred by the FPA, the Commissioner submitted that Lend Lease "was entitled to dividend rights as a shareholder in Westpac until the Completion Date, subject to the limits imposed by the transaction documents", being limits described by the Commissioner as "significant" and referable to what the Commissioner described as "limited dividends", "no rights to capital in the shares", "sterilised voting", and "restriction on dealing in the shares without consent". There are I think at least conceptual difficulties with that analysis on the Commissioner's part, aside from the express terms of the FPA in any event. Be that as it may, the Commissioner categorised those rights to ongoing entitlement to dividends as "property" within ss 160ZD(1) and 160K(3) of the Tax Act.

66. Pointing out moreover that s 160ZD contains no definition of "property" (which is strictly correct, though s 160A defines "asset" as "any form of property" and lists a number of examples specifically), the Commissioner drew attention to what appeared in the joint judgment of Gaudron, McHugh, Kirby and Hayne JJ in Orica at 536-537:

"We have no doubt that the rights acquired by the taxpayer against MMBW under the Principal Assumption Agreement are an asset for the purposes of Pt IIIA. The contention, accepted by the majority of the Full Court, that the right acquired by the taxpayer "was merely a personal right… which was incapable of being assumed by a third party" must be rejected. The conclusion that the taxpayer's right against MMBW was only a right to compel MMBW to specifically perform its obligations appears to have been founded in the proposition, adopted by the primary judge, that "no conceivable assignee would have any interest in enforcing MMBW's obligation which was to discharge [the taxpayer's] obligation to the debenture holders". It may be doubted that enquiring whether there is any person who would have a commercial interest in taking an assignment will determine whether something is an item of property capable of assignment. The question is whether the rights are capable of assignment, not whether anyone is interested in taking an assignment."

I am unable to see how that passage is operable relevantly in relation to the present context.

67. In relation to the Commissioner's invocation of Orica in any event, it is perhaps material for present purposes to record the background circumstances there involved. A publicly listed company undertook to repay loan funds the subject of issued debentures when the same fell due after certain terms of years, and subsequently liability for that repayment was assumed by a third party. It was held by a majority of the High Court that the assumption party's promise to perform was not income, and it was further held by a reduced majority, more relevantly for present purposes, that the company's rights against the assumption party constituted an asset for capital gains tax purposes, and that accordingly the company's rights were partly discharged or satisfied, and hence were partly disposed of, on each occasion that the assumption party effected a reduction of the principal sum the subject of the debentures. Moreover to the extent that the amount of each payment exceeded that part of the cost of the rights attributable to the repayment, it was further held that a capital gain should be accordingly imputed to the company.

68.

ATC 4072

It is appropriate to add for completeness that the following dictum of R D Nicholson J in
Integrated Insurance Planning Pty Ltd v Commissioner of Taxation (2004) ATC 4054 at [128] was said by the Commissioner to be to "like effect":

"An "asset" for the purposes of capital gains is defined in the relevant Act to mean "any form of property and includes… a chose in action… (and) any other right" (s 160A(a)). The rights which the applicants acquired as a consequence of the deeds were a chose in action and/or a right and hence an asset. The position referred to in TR 2001/9 and CGT Determination CGT 3 related only to a simple debt in which the taxpayer had no contractual right to a waiver upon achievement of the relevant contingent (sic). The present position is therefore different because the taxpayer's rights gave them a CGT asset (s 105-5(1)). They arose as the consequence of a CGT event D1."

I have difficulty in perceiving a viable basis for the Commissioner's invocation of Integrated Insurance in relation to circumstances such as here involved. The Commissioner's postulation of a so-called "right to share in Westpac dividends" would impermissibly elevate a situation of "a supposed economic equivalence to the status of a contractual right capable of comprising consideration", as I have already pointed out in my citation of dicta in Citylink Melbourne.

69. Whilst acknowledging that the rights conferred by the FPA on Lend Lease and County Natwest respectively were expressed to be "personal", the Commissioner contended further that those rights were assignable with prior consent, being somewhat of an imprecise assertion, given that clause 20 reads as follows:

"The rights and obligations of each party under this Agreement are personal. They cannot be assigned, charged or otherwise dealt with, and no party shall attempt or purport to do so, without the prior written consent of the other party."

Clause 20 is thus somewhat enigmatic in purport or effect (for what that may ultimately matter), since if rights are merely personal, they are normally incapable in law of assignment, and a novation agreement would be probably needed for entire efficacy. It may be further observed that the foregoing clause contained no qualification to the effect that such consent was not to be unreasonably withheld.

70. The Commissioner drew attention next to Lend Lease's contention that to the effect that nothing was "received" by Lend Lease pursuant to the FPA, other than the two cash instalments of purchase money of $352,297,356 and $1,000,000 identified in [16] above and which were respectively payable on 18 June 1996 and about three months prior to ultimate completion of the FPA on 17 January 2000 (see again clauses 3.1 and 3.2 of the FPA extracted in [7] above), with the consequence asserted by the Commissioner that Lend Lease "merely retained something it already had, namely its rights as a shareholder in Westpac - limited by the arrangements it had made with County Natwest". It may be observed incidentally that s 160ZD(1)(c) contains the expression "has received or is entitled to receive", and in that context the Commissioner submitted that to describe Lend Lease as having merely retained a right to receive dividends "was apt to mislead". Whilst acknowledging that Lend Lease held what was described as "a right" to receive dividends, both before and after entry into the FPA, as an ongoing shareholder of FPA until January 2000 subject always to the provisions of clause 7.9 as to "Excessive Dividends" and the consequential reduction in "Purchase Price" payable of course on the "Completion Date", the Commissioner sought to raise the qualification that "the FPA also provided for [Lend Lease] to be compensated for the sale of the Westpac shares by means which included an agreed period during which it was permitted to receive a defined share of dividends". Nevertheless the FPA stipulated that the sale was not to be completed until the expiration of that mutually agreed contractual period of close to four years, being the "Completion Date". In the meantime it was Lend Lease's entitlement as beneficial owner to receive all dividends on the shares the subject of that agreement which remained in force and effect (see again clause 3.3 of the FPA).

71. It was next submitted by the Commissioner that "[i]t is not necessary that the value in the consideration for the shares should flow directly from County Natwest as purchaser for reasons discussed… in Dick

ATC 4073
Smith [Electronics]", and I was referred to what the majority in Dick Smith Electronics was said by the Commissioner to have held, being that "… the dividends received by the vendor from the target company moved the transaction and constituted part of the consideration for the transaction". However a similar observation is not sufficiently apposite to the present circumstances. The subject dividends on the Westpac shares were to be and were in fact declared and paid by Westpac in the ordinary periodic course in relation to the entirety of its share capital listed for quotation on the Australian Stock Exchange, whereof only a relatively minor proportion were the subject of sale (ie from Lend Lease to County Natwest), and not for comparison as occurred in Dick Smith Electronics, by way of a single or isolated dividend distribution of accumulated retained earnings of the controlled subsidiary made in the context of and in order to facilitate the takeover, albeit also at arm's length, of the entirety of the issued capital of the offshore target company InterTAN Australia Ltd by way of takeover by Dick Smith Electronics Holdings Pty Ltd. The Commissioner contended nevertheless that s 160ZD(1) did not support "a restrictive interpretation" which "only picks up consideration which is received in a tangible or physical way", asserting in that regard that "[t]he words that govern the relationship between the consideration and the disposal are of the widest import", and were "not to be read down by a reference to any notion of tangibility", whatever might be effectively conveyed, if at all, by that non-statutory notion of "tangibility" so used by the Commissioner.

72. The Commissioner drew attention in any event to the way in which Lend Lease characterised the rights conferred in its favour by the FPA, and submitted that "[t]he dividends were commercially regarded as part of the consideration for the disposal of the shares", since "[t]he value of the dividend flow was clearly something which was in the mind of the Lend Lease Corporation Board in making its decision to authorise the transaction to proceed". The Commissioner next referred, inter alia, to reports of 28 March 1996 made to the Lend Lease Board meeting held on 29 March 1996 (see [2]-[3] above), which summarised "the effects of the proposal" submitted to the Lend Lease board by County Natwest in the context of the current market value of the Westpac shares, together with the realisable market value of the Lend Lease holding of Westpac shares if sold "today" after allowing for "market discount" (given the size of the subject parcel proposed to be acquired), and the implications of capital gains tax, and the value generally of the so-called "County Deal". That report suggested the provision of the following "explanation to our shareholders and the market" to include the facts that "Lend Lease has secured the major part of the gain from the restructuring of Westpac and now believes it is appropriate to lock in that value", pointing out thereby that "[t]he arrangements with County have allowed Lend Lease to take back its original capital of $625 million plus an abnormal gain of $75 million", and further that "[t]he shareholders will participate in the major part of the increase in value of the Westpac shares through fully franked dividends over the following 5 years prior to the emergence of profits on investments currently being undertaken." The inference is open to be drawn that the internal Lend Lease evaluations of the realisation proposal were commercially and not taxation driven, though understandably the Lend Lease decision-makers were concerned to receive expert advice as to any unfavourable taxation implications which might be involved. As I have elsewhere indicated, the Commissioner did not ultimately pursue any case based upon or referrable to the tax avoidance provisions of Part IVA of the Tax Act.

73. By way of elaboration of the Commissioner's submissions relating to the theme framed by the Commissioner as to "how did [Lend Lease] regard the rights", conferred in its favour by the FPA, it was pointed out that the Lend Lease internal documentation disclosed that Lend Lease "… was desirous of disposing of a significant proportion of its holding in Westpac", though "[o]bviously, it would not dispose of assets to an arms length party at less than market value, especially not for $3.52 in 1996 plus 1 [cent] in 2000 when the market price on the contract date was $5.39." However as I have earlier emphasised, Lend Lease remained entitled to receive the dividend income to be derived in the meantime on its ongoing holding of its Westpac portfolio. The Commissioner emphasised in that context

ATC 4074

that "[w]hen valuing a share, its value is the value in exchange and is ascertained by the reference to the sum obtainable upon sale", and that such "… sum represents the influence of two factors, namely, the amount of the accumulated funds or assets of the company and the expectation of future dividends annually or periodically distributed". I was referred by the Commissioner in that latter context to dicta of the High Court in
Commissioner of Taxation (NSW) v Stevenson (1937) 59 CLR 80, where the following appears in the joint judgment of Rich, Dixon and McTiernan JJ at 97:

"… A share in a company is a piece of property the alienation of which is subject to few or no restrictions. Its value is a value in exchange and is ascertained by reference to the sum obtainable upon sale. That sum represents the influence of two factors, namely, the amount of the accumulated funds or assets of the company and the expectation of future dividends annually or periodically distributed. …"

74. Purportedly upon that footing, the Commissioner acknowledged that "[a]s a commercial matter, the contractual right to retain ownership and dividends made up the shortfall between the money consideration and the market value", and that such contractual right hence purportedly "… reflected the value of expected future dividends over the following 4 years". The Commissioner observed that the financial accounts of Lend Lease showed that dividends were treated as being "proceeds of sale of Westpac shares when they were declared", the Commissioner referring in that regard to the consolidated statements for the year ended 31 December 1996. However a right to receive future income to be derived over an ensuing period of time does not necessarily translate to crystallisation of the derivation for capital gains tax purposes of the present day value of that future income. Normally contracts entered into for the sale of realty envisage a period of time to elapse between entry by the vendor and purchaser into a contract of sale and completion of that contract of sale, although the structure of the subject transaction may probably not be described as normal, given the size and potentially strategic proportion of the Westpac capital the subject thereof.

75. As at 7 June 1996, Lend Lease would have no likely basis for predicting with any precision the quantification of the dividend income it would or might well derive from its Westpac shareholding from that time until 31 July 2000, or earlier on 30 April 2000 (see again clause 5.2 of the FPA, and the terms of the so-called subsequent Amending Deed to the Forward Purchase Agreement bearing date 17 January 2000). Each of Lend Lease and County Natwest having been involved in decision-making with the evident benefit of experienced and qualified professional assistance, would not have obtained any significantly larger lump sum consideration, up front as it were in the context which occurred, than was furnished by County Natwest at arm's length, once account be taken as to Lend Lease's entitlement to continue to receive and retain Westpac dividends until the fiscal year 2000.

76. Upon the topic of the right of a taxpayer as to the benefit of offsetting of capital losses, the Commissioner submitted that it was incorrect of Lend Lease to characterise that right as one which Lend Lease agreed to relinquish on completion of the FPA, and further that what was constituted by the FPA in favour of Lend Lease was rather a right which was partly discharged each time a dividend was received, the Commissioner purportedly invoking in that regard the operation of s 160M(3)(b) of the Tax Act, which reads as follows:

"160M(3) … a change shall be taken to have occurred in the ownership of an asset by:

…

(b) in the case of an asset being a debt, a chose in action or any other right, or an interest or right in or over property - the cancellation, release, discharge, satisfaction, surrender, forfeiture, expiry or abandonment, at law or in equity, of the asset."

It was therefore submitted by the Commissioner that no capital loss arose from the partial discharge of the relevant rights, since the cost base of the part of each of the rights disposed of on each occasion was offset by the amount of the dividend received. All that was said to be consistent with the decision in
Commissioner of Taxation v Dulux Holdings Pty Ltd 2001 ATC 4658

ATC 4075

; (2001) 113 FCR 436, where a Full Federal Court (Beaumont, Lindgren and Kenny JJ) unanimously held that rights under an assumption agreement were discharged as each payment was made, leaving thereby no scope for s 160U(3) to operate. Contrary therefore to Lend Lease's submissions earlier recorded, so the Commissioner contended, "the right was not disposed of for no consideration", since each dividend was received in respect of the disposal of part of the right and was therefore disposed of for consideration. As I have foreshadowed, there is evident difficulty with the Commissioner's notion as to payment by a company of a dividend involving the disposition of a right, within the scope of operation of Part IIIA of the Tax Act, attributable to the declaration and payment of that dividend to the company's shareholders.

77. Upon the basis in any event that the disposal did not occur when the FPA was entered into, but as and when dividends were paid in subsequent fiscal years, the Commissioner drew attention to s 160U(4), the text of which I have earlier reproduced. I am unable to accept, conceptually or otherwise, that payment of dividends by a company, in circumstances for instance as here prevailing in the case of County Natwest, constituted a situation whereby an "… asset [which] was… disposed of otherwise than under a contract" within that subsection, that being a provision designed to address the subject of "Time Of Disposal And Acquisition", as the heading to s 160U duly indicates.

78. Specifically as to the s 160ZA(4) issue, the Commissioner submitted to be flawed an alternative proposition that the Lend Lease case, to the effect that the capital gain on disposal of the Westpac shares (postulated of course by the Commissioner) was to be disregarded, under what it described controversially as the "anti-overlap" provisions of that subsection, for the following reasons:

(i) it could not be said rightly that dividends would be included in assessable income "as a result of the disposal of the asset", here being of course the Westpac shares, because "inclusion in the taxable income resulted from the later circumstance that payments were in fact received from Westpac"; once received, so the submission continued, those payments were said by the Commissioner "properly to be characterised under the income tax provisions as assessable income"; however the dividends declared and paid by Westpac to Lend Lease at the material times were said by the Commissioner not to be included in Lend Lease's income "as a result of the disposal of the asset" within the meaning of s 160ZA(4);
(ii) "as at the date of disposal of the Westpac shares it could not have been said that any amount "will" be included in assessable income" of Lend Lease, since "[t]here is no certainty that dividends will be paid in the future depending, as dividends do, on availability of distributable profits and discretion of the Board of Directors", and moreover until a dividend is declared, any such declaration can only be "in the eye of the law a possibility only":
Norman v Federal Commissioner of Taxation (1963) 109 CLR 9 at 40 (Windeyer J).

79. The Commissioner criticised what was described by Lend Lease as "the transaction having constituted one of mere deferred delivery for a discounted purchase price", for the reason that the description was merely a "beguiling oversimplification", and as not in any event reflective of the case propounded by Lend Lease. As I have earlier outlined, the Lend Lease case was to the effect that the FPA, though entered into on 7 June 1996, constituted a contract for the sale of the Westpac shares whereby until completion thereof on 30 April 2000, ownership of the Westpac shares would remain with Lend Lease, and would therefore not pass to County Natwest, such that Natwest would not acquire any beneficial interest in the Westpac shares prior to completion of the FPA. Consequently the Commissioner's submissions in derogation of the case propounded by Lend Lease as one based simply on the notion of a "mere deferred delivery agreement" did not appear to advance the Commissioner's case relevantly or materially for present purposes.

80. The Commissioner emphasised in any event that it is the market value of the "property other than money" received as "the consideration in respect of a disposal of an asset" which falls to be addressed in order to

ATC 4076

calculate a capital gain, being a market value to be determined "at the time of disposal" (see again ss 160ZD(1)), that time being that of entry into the FPA. The Commissioner referred in that context also to s 160U(3) of the Tax Act.

81. The Commissioner sought to explain that its case did not involve an "attempt to bring the present value of future amounts into the tax net, but rather to give effect to the statutory provision, and bring the whole consideration on disposal into the capital gains calculation", and that it was sufficient for the Commissioner's case that Lend Lease's contractual rights "as a whole" are assignable, subject to consent, and that those contractual rights comprise "property other than money" within s 160ZD(1)(c). As to assignability of Lend Lease's contractual rights, the Commissioner pointed to clause 20 of the FPA headed "Assignment", the text of which clause I have earlier reproduced. However it may be observed that not every contractual right constitutes "any other form of property" within the s 160A description of "asset", which reads as follows:

"In this Part, unless the contrary intention appears, "asset" means any form of property and includes:

(a) any of the following:

(i) a option;

(ii) a debt;

(iii) a chose in action;

(iv) any other right;

whether legal or equitable and whether or not a form of property;

(aa) goodwill or any other form of incorporeal property;

(b) currency of a foreign country;

(c) …

(d) a taxpayer's interest in a partnership asset of a partnership in which the taxpayer is a partner; and

(e) so much of a taxpayer's interest in a partnership as is not covered by paragraph (d);

but does not include a motor vehicle of a kind covered by paragraph 82AF(2)(a) or an interest in such a motor vehicle."

82. The Commissioner further submitted that "[t]he parties have clearly intended [Lend Lease's contractual rights] to be assignable, in the light of clause 20 of the FPA (ante). Moreover I was referred by the Commissioner to clause 22 of the FPA, headed "No Merger", which stipulates as follows:

"The rights and obligations of the parties will not merge on completion of any transaction under the [FPA]. They will survive the execution and delivery of any assignment or other document entered into for the purpose of implementing any transaction."

In that context it was said by the Commissioner that labelling the contractual rights and obligations of each party as "personal" did not conclude the issue, and that whether contractual rights "are truly to be seen as "personal" is a question of construction in all the circumstances", citing in that regard well-known authority. I was also referred to the observations of Gummow J (as a member of a Full Federal Court) in
Hepples v Federal Commissioner of Taxation 90 ATC 4497; (1990) 22 FCR 1. In relation to the operation of the statutory definition of asset, his Honour observed (at 27):

"In my view, rights which are not proprietary in character… whether because they are personal rights or because they are "rights" merely in some popular sense, are not "assets" within the meaning of s 160A of the Act."

It was submitted that the foregoing position so adopted by the Commissioner was "… not at odds with the observations" of his Honour.

83. The Commissioner next drew attention to the circumstance that before entering into the FPA with County Natwest (as so-called "Purchaser"), Lend Lease "did not have the contractual rights under it", but "[b]y entering [into] the FPA it obtained or received those rights". Lend Lease's "central submission", so described by the Commissioner, and said to have been advanced by Lend Lease for the first time orally in reply, was as follows (transcript p.140):

"When the applicant disposed of the shares the rights that [counsel for the Commissioner] claims, as [additional] consideration, evaporated. They merged in the transfer. They were spent. The applicant

ATC 4077
didn't have those rights following the transfer. They were consideration for the transfer, they were terms of the contract for the transfer. It's very easy when talking about consideration, to slide between consideration in the contractual sense, being the mutual exchange of promises, and consideration in the conveyancing sense.

The High Court pointed that out on a number of occasions, in Archibald Howie, more recently in Dick Smith. We are concerned with consideration which moves the contract and which one is left with, after the transfer. Not with the mutual promises which comprise contractual consideration. The consideration which the applicant was left with, after the transfer, what it got in exchange for what it gave, was the $3.53. It wasn't the additional promises that my friend relies upon."

The Commissioner sought to emphasise in the above context that contractual rights have value, and in their nature are capable of assignment, and repeated its reliance on Dick Smith Electronics essentially to the extent I have earlier summarised; the Commissioner asserted moreover that what County Natwest did was "agree to compensate [Lend Lease] for the loss of dividends in circumstances such as any delisting of Westpac [from the Australian Stock Exchange]", being a circumstance falling within the scope of the FPA definition of "Early Exercise Event" (ante), and hence within the scope of operation of clause 5.1 of the FPA (ante).

84. The Commissioner therefore submitted that Lend Lease "got something more than cash here", and that "[t]his was not a mere case of future delivery, it was a carefully constructed transaction, designed to secure to [Lend Lease], through its contractual rights, both immediate cash and a flow of income neither of which, if [Lend Lease] be correct, would lead to the payment of tax". The Commissioner further submitted that the Westpac dividends were not "really the additional consideration", but "[t]he contractual rights of [Lend Lease] were", and further that "[t]he dividends were an important by-product over which the parties bargained, and agreed a sharing formula and compensation mechanism".

Conclusions

85. The complexity of the structure of the FPA, and of its operation in the events which subsequently happened, have rendered it necessary or appropriate for me to record in detail the respective submissions of the parties, both of which were assembled thoughtfully as well as comprehensively. As will have been appreciated from what I have discussed and recorded, I am of the opinion that the case of Lend Lease in denial of the viability of the assessment of the Commissioner to capital gains tax pursuant to Part IIIA of the Tax Act, and to s 160ZD(1)(c) in particular, and hence adversely to the Commissioner, should succeed and therefore be upheld in Lend Lease's favour.

86. In making and seeking to uphold the Commissioner's assessment decision under present review, the Commissioner adopted the position that property which the Commissioner described as "[a]dditional non-cash consideration on disposal", said to be in the sum of $144,236,243 in value and to result in a capital gain by Lend Lease of $110,645,599 derived in respect of the year of income ended 30 June 1996, was allegedly constituted by Lend Lease's derivation of what the Commissioner described as "the right to retain the Sale Shares from the date of contract until the date of delivery", or "the right under the agreement pursuant to which Lend Lease remained entitled to retain beneficial ownership of the shares until the completion date" (see again [16] above). So much was said by the Commissioner to involve in either case a right of retention of what the Commissioner further described as the "beneficial ownership of the shares until the Completion date and [of the] dividends paid by Westpac in respect of the Sale Shares in or in respect of each half fiscal year of Westpac up to $0.70 per share until the Completion Date". It will be recalled that the Completion Date was originally stipulated by the FPA to mean "30 April 2000, unless it is adjusted under clauses 5.1 and 5.2", such date having been subsequently brought forward to 17 January 2000 by the mutual agreement of Lend Lease and County Natwest.

87. Earlier in the Commissioner's formal "Reasons For Decision", the following basis for assessment of capital gains tax adversely to Lend Lease was framed as follows:

ATC 4078
"Pursuant to the terms of the contract, in addition to receiving the cash component of $3.53 per share, [Lend Lease] also received the right to retain the Sales Shares from the date of contract until the date of delivery. The Commissioner regards the right to retain as [being] a valuable asset as, during that period, the vendor, and not the purchaser will be entitled to continue to receive dividends paid by Westpac in respect of the Sale Shares."

Ultimately as Lend Lease pointed out, the Commissioner acknowledged that there was not brought into existence, nor could there be imputed, any such right of retention in respect of the "Sale Shares". Rather as I have already indicated, the Commissioner propounded the controversial notion of a right, described by Lend Lease in submission to be "a new right" constituted by that so-called "[a]dditional non-cash consideration on disposal", and to which the Commissioner attributed that value of $144,236,243. It was asserted by the Commissioner in that regard that Lend Lease stood to receive under the FPA a right to share in the subject Westpac dividends between the time Lend Lease committed to the FPA on 7 June 2000 and the contractual time for completion thereof, which latter time subsequently was brought forward from 30 April 2000 to 17 January 2000 in the circumstances outlined in [14] above.

88. In my opinion, reliance on that postulated right of Lend Lease to share in dividends, in support the Commissioner's assessment of capital gains tax presently contested, was misconceived by the Commissioner as satisfying the description of "property other than money" within the scope of the capital gains tax provisions of s 160ZD(1)(c) of Part IIIA of the Tax Act. As Lend Lease rightly submitted, the Commissioner thereby elevated, without justification according to law, whether by a process involving economic equivalence or otherwise, the status of a contractual right which was misconceived as constituting "property other than money". The Commissioner's endeavour so to do impermissibly ran counter to the trend of authority which I have recorded earlier in these reasons. There was no right to share in Westpac dividends conferred upon Lend Lease, expressly or by implication, by the terms of the FPA or otherwise by the general law, such as to constitute an "asset" of the nature identified by the Commissioner as a capital gain taxable under Part IIIA of the Tax Act.

89. As I have pointed out, the FPA was so structured that dividends on the Westpac shares the subject of sale would continue to be the entitlement of Lend Lease until the "Completion Date" (which was brought forward to 17 January 2000 from 30 April 2000 as I have earlier recorded. In the events which happened, dividends continued to be regularly paid by Westpac to Lend Lease in the normal course until the "Completion Date", as envisaged at the time of formation of the FPA and by the terms thereof, the same being within the range then reasonably as anticipated by Lend Lease, and those dividends thus attributable to Lend Lease's shareholding in Westpac were of course duly received for its own benefit. In that regard, none of those dividends crossed the "excessive" threshold to which I have made reference in [9] above, and consequently no adjustment was required by the terms of the "Excessive Dividends" provisions of the FPA. Such dividends as became payable in respect of the Westpac shares so held by Lend Lease until the "Completion Date" (as varied) were thus wholly accrued in favour of Lend Lease as beneficial owner of those Westpac shares.

90. The case of Lend Lease was not adversely affected by the scope of operation of s 160ZA(4), which stipulates for reduction in the quantification of a capital gain where an amount has been received which is otherwise assessable as income. The fact that assessable income may well have been rebateable, such as would seemingly, or at least largely, have been the case in relation to the dividends declared and paid by Westpac to Lend Lease after the formation of the FPA and prior to completion thereof, did not alter the operation otherwise of that subsection, and the contrary was not suggested by the Commissioner. At the time of entry into the FPA by Lend Lease and County Natwest as the contracting parties thereto, it would have been readily apparent that future Westpac dividends would be "included in the assessable income" of Lend Lease within the

ATC 4079

terms of s 160ZA(4), which outcome would not have been material to the scope of operation otherwise of s 160ZA(4) in any event. The fact that assessable income may be rebateable to a taxpayer does not alter its character as "assessable income" in the first place, and hence for the purpose inter alia of s 160ZA(4).

91. In reaching the foregoing conclusions in favour of Lend Lease, I am satisfied that operation should be accorded to the explicit provisions of the FPA, and clause 3.3 in particular, to the effect that "the beneficial interest in the Sale Shares" was mutually intended by Lend Lease and County Natwest to remain vested in Lend Lease until completion of the FPA, and with it "all rights attaching to the Shares" (to repeat the clause 3.3 expression). That circumstance tends to rationalise why the purchase price was set at a level significantly below the market price prevailing at the time the FPA was entered into on 7 June 1996. The fact is that what "made the transaction work" was the expectation at that time of a predicable flow of Westpac dividends to be derived by Lend Lease over what would be thenceforth until completion in the order of nearly four ensuing years, together with the share acquisition price paid substantially in advance at a level commensurate with the market value of Westpac shares at the time of coming into effect of the FPA. Consistently with that pricing structure undertaken by Lend Lease in favour of County Natwest was the payment of $250,000 put in place in favour of Lend Lease in return for the "Completion Date" being later brought forward from 30 April 2000 to 17 January 2000, as I recorded in [14] above.

92. Inconsistently therefore with that pricing structure put in place by Lend Lease and County Natwest was the Commissioner's purported postulation of the so-called "[a]dditional non-cash consideration", having a supposed valuation assessed by the Commissioner at $144,236,243 attributed adversely to Lend Lease. That is because the structure of the FPA evinced the mutual intention of the contracting parties that in the context of Lend Lease accepting an upfront sale price in cash of $352,297,356, together with the subsequent final payment price in cash of $1,000,000, County Natwest agreed that Lend Lease should be entitled in the meantime to receive all dividends which might become payable in respect of Westpac shares during the period of time exceeding three years between the so-called "Payment Date" of and the "Completion Date", which crystallised more than three years later in the year 2000. As appears in [15] above, dividends of $162 million were derived by Lend Lease on the subject Westpac shareholding in the events which happened, consistently with what the Lend Lease decision-makers anticipated, and being broadly in line with what County Natwest correspondingly anticipated as well. Moreover for the Commissioner to endeavour to attribute that quantification of supposed "additional non-cash consideration", as being the subject of derivation on the part of Lend Lease, was in my opinion indefensible as a matter as well of commercial reality. Lend Lease demonstrated so much from the calculation exercises formulated and rationalised earlier in [45]-[48] of these reasons, in the context of the Lend Lease segment "[a]ny capital gain is offset by an equal capital loss".

93. Of course, the dividends which continued to be received by Lend Lease, and which amounted to $162 million as detailed in [15] above, were wholly rebateable for income tax purposes, and it was that mutually conceived arrangement which commercially justified Lend Lease's entitlement in accepting in advance, commencing from the Payment Date of 18 June 1996, that extent of tax sheltered dividend income. I have earlier recorded that the Commissioner ultimately acknowledged an absence of any taxation avoidance scheme within the scope of operation of Part IVA of the Tax Act referrable to that rebateable dividend retention arrangement.

94. What the Commissioner sought nevertheless to rationalise as "a simple point", by way of exposition of the thrust of the Commissioner's case as set out in [32] above, was misconceived for reasons I have outlined at the conclusion of that exposition. Those reasons may be broadly summarised upon the footing of the operation of clause 3.3 of the FPA that no beneficial interest in the "Sale Shares" was to pass "pending Completion", and the provisions as to "Adjustment Of Completion Date" the subject of clause 7. In that regard, the evidence

ATC 4080

established that the negotiations for and the operation of the FPA occurred entirely at arm's length; so much was objectively apparent at least from the nature and scope of the deliberations of Lend Lease's executives extracted in temporal sequence from [2] to [6] above. What I have further set out at [40] and [72] above, concerning the operation of the transactions the subject of the FPA, serves to reinforce the commercial objectives of Lend Lease by way of implementation of the FPA according to its provisions. Those provisions reflect the respective advantages designed by the FPA to balance the respective interests of Lend Lease and County Natwest, in the latter case for the benefit of the so-called "public bookbuild" process referred to at the commencement of these reasons.

95. It follows in my opinion that the Commissioner's principal case based purportedly upon the operation of s 160ZD(1), and in particular the statutory notion of "property other than money", should be rejected.

96. Nor in my opinion is there validity or substance in the Commissioner's case referrable to the operation of s 160ZA(4) which I have earlier summarised at [78] above. In short, Westpac's dividends relevantly derived and aggregated at [15] above were "… included in the assessable income of [Lend Lease] in the relevant years of income there particularised", albeit that the same were rebateable pursuant to the further operation of the Tax Act. There is no substance in the Commissioner's endeavour to circumvent the implications of rebateable income under the Tax Act constituting income in any event, and to do so for instance by what Lend Lease characterised as constituting an elevation of "a supposed economic equivalence to the status of a contractual right capable of comprising consideration", as I have recorded in [52]-[56] above.

97. There remains for resolution the Commissioner's alternative case to the effect upon the basis that no capital loss arose from the partial discharge of the relevant rights. As I have foreshadowed in [76] above, I am unable to accept the proposition that the payment of a dividend may constitute the disposition of a right in the nature of property for capital gains tax purposes.

98. The application for review by way of appeal from the Commissioner's assessment decision the subject of the proceedings must therefore be upheld, with the usual consequences as to costs. The first question appearing in [18] above must be answered in the negative and the second question there appearing correspondingly in the affirmative.

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LEND LEASE CUSTODIAN PTY LTD v DFC of T

(i) Consideration in respect of the disposal

(ii) Any capital gain is offset by an equal capital loss

(iii) Any capital gain is excluded by section 160ZA(4)

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	cents per share	received by LLC $m
June 96	16	28
Dec 96	17	30
June 97	19	33
Dec 97	19	33

Risks
Tax:	The Australian Taxation Office (ATO) could attempt to assess us for Capital Gains Tax on the current market value of the shares ($6) rather than the sale price under the forward sale agreement ($4.00). They could also disallow rebates on future dividends from Westpac. Greenwoods & Freehills advice is that the ATO would have no justification in law to do this and this will be confirmed with counsel.
Westpac Dividends:	More than 30% of the value of the transactions depends on Westpac's dividend payments over the next 5 years. If Westpac does not meet our dividend expectations we will lose value. We will also lose value (not quantified in our calculations) if Westpac reduces its franking. ATC 4045
…
Takeover of Westpac:	…
	The commercial effect of the transaction is that we are selling our Westpac holding at the current market price…."

1.	Market value of current asset @ $6		$1,050
2.	Value if sell today @ $6
		Market discount	50
		CGT	110	890
3.	Value of "County Deal"
		Proceeds	700
		p.v. of dividends and option	270	970