Federal Commissioner of Taxation v. St. Helens Farm (A.C.T.) Pty. Limited.
Judges:Barwick CJ
Gibbs J
Stephen J
Mason J
Murphy J
Aickin J
Wilson J
Court:
Full High Court
Barwick C.J.
The Court heard these appeals and cross-appeals together. All the cases were heard and decided in the Supreme Court of New South Wales by
Sheppard
J. at a time when his Honour was a judge of that court. The respondents in each case challenged assessments made by the appellant under the
Gift Duty Assessment Act
1941 as amended (Cth.) (the Assessment Act) and were successful in every case in reducing the amount of the respective assessment. In one case, that of Q.A.W. Pty. Limited, the reduction was to nil and the assessment was set aside. In their defences they raised a challenge to the propriety of this Court's decision in
Ord Forrest Pty. Ltd.
v.
F.C. of T.
74 ATC 4034
;
(1973-74) 130 C.L.R. 124
(Ord Forrest):
but
Sheppard
J. treated himself as bound by that decision and applied it in his decision of the cases.
The Federal Commissioner of Taxation (the appellant) has appealed in each case against his Honour's orders and the respondents have cross-appealed to challenge the Court's decision in Ord Forrest .
The cases in each instance involve the allotment and issue of shares in the respondent companies. The appellant claims the allotment and issue of the shares to be in each instance a disposition of property upon an inadequate consideration so as to attract gift duty imposed by the Gift Duty Act 1941 as amended (Cth.) (the Duty Act); that is to say, that the allotment and issue was a disposition by the company of property to the allottee within the definition of the Assessment Act. His Honour in four of the five cases found the claimed inadequacy of consideration to be very considerably less
ATC 4042
than the inadequacy on which the appellant based his assessment. In the fifth case, the last in the list in the above heading, he found that there was no inadequacy. His Honour reduced the assessment in the first four cases and set aside the assessment in the fifth. The Commissioner seeks to restore his assessments in each case.Logically, one should first settle the question which the challenge to Ord Forrest by the cross-appeals raises. For, if that case be overruled, no gift duty would be payable in any of the five cases. All involve the same basic question, whether there was in the respective respondent to the person to whom an allotment of shares was made and, if so, was that disposition made by the respective respondent for an inadequate consideration passing from the allottee to the respective respondent.
It is quite clear, in my opinion, and indeed settled doctrine in this Court that a case decided in this Court on an even division of opinion - as was Ord Forrest - does not constitute a binding precedent and that, notwithstanding it, the Court is at liberty, indeed, in my opinion, bound, to approach the question with which that case dealt, de novo, each Justice participating in the subsequent case to proceed upon his own view of the relevant law. My brother Aickin, in his reasons for judgment in these cases, which I have had the advantage of reading, refers to the authorities which establish this view. I therefore have no need to repeat them here.
In the argument of the cross-appeals, submissions were made which were not advanced in the argument of Ord Forrest and, generally, the possibility of the construction of the Assessment Act, in particular sec. 12 for which the appellant contends, were more fully explored.
Having reconsidered the reasons for judgment expressed by my brothers Gibbs and Mason in Ord Forrest, particularly in the light of the reasons for judgment prepared by my brother Aickin in these cases and the additional submissions made in them, I feel fortified in the opinion I expressed in Ord Forrest. I adhere to it. I am quite satisfied that, upon its proper construction, the Assessment Act does not make the allotment and issue of a share in the capital of an incorporated company a disposition by that company of property to the allottee and, further, that the allotment money paid or payable by the allottee or in respect of the allotment and issue of the share does not constitute a consideration passing from the allottee to the company for the disposition of property by the company to the allottee; in other words, does not constitute a price.
My brother Aickin, in arriving at this conclusion, has dealt most thoroughly and in depth with the difficulties which surround and attend a construction of the Assessment Act which, in effect, treats an allotment of shares as deemed to be a disposition of its property by the company to the allottee, involving both the company and the allottee in liability to gift duty. I agree entirely with my brother's analysis and with the critical significance of the illustrations he gives of the operation of the Assessment Act upon the construction which the statutory majority favoured in Ord Forrest .
Until allotment and issue, which includes the entry of the allottee's name on the share register in respect of the allotted share or shares, there is no property in the unissued shares; and, in particular, there is not then, or for that matter at any other time, any property or proprietorial right in or of the company in the unissued shares in its capital. The company has the capacity to allot and issue shares in the capital up to the amount of that capital, its nominal capital. But that capital is not property of the company. Indeed, when allotted and issued, the nominal amount of the issued share or shares constitutes in accounting terms a liability of the company. But it is not property which comes to the allottee from, or by transfer from, the company. It is property which comes into existence by the allotment and issue or, more precisely, which is the consequence of such allotment and issue. The property consists of rights which may thereafter be exercised by virtue of the membership of the company thus gained and in accordance with its Memorandum and Articles of Association.
All this is trite law and fundamental to the concept of incorporation with nominal capital and with limited liability of the shareholders.
ATC 4043
The question is whether by including an allotment of shares in the particular examples of disposition in a definition clause, the legislature has taken the unprecedented and extraordinary step of deeming for the purposes of the Duty Act an allotment of shares to be a transfer by the company of its property to the allottee at a price which can be judged to be inadequate having regard to the value of the property transferred.
The Assessment Act is enacted against the background of law as to shares in the capital of a company incorporated under the company law of the States. One could justifiably expect clear and unambiguous language to be employed if that law were to be overturned, even though for a limited purpose, and perhaps even more so in the case of a taxing Act. To deem the unissued shares to be the property of the company and allotment and issue to be a transfer of the company's property for a price or consideration paid to and received by it, a consideration related to the market value of the unissued shares, does such violence to accepted principle and is such a radical exercise as to call for the clearest and unambiguous expression of legislative intent. I have indicated that for the price or consideration to be inadequate, it must be weighed with the value of the property transferred, i.e. in the appellant's sub-mission, the unissued shares. It seems unreal to conclude that all the unissued shares of a company are at any given time worth the then market value of issued shares. But that seems to me to be involved in the proposition that the allotment and issue may be found to be upon an inadequate consideration or price.
There is, in my opinion, nothing in the language used by the legislature to compel the attribution to the legislature of an intention to effect such a drastic inroad into an accepted and well-entrenched legal structure, particularly having regard to the consequence of such an inroad. If any acceptable construction of the language of the legislation is at all available, quite clearly, in my opinion, it should be adopted.
It would be difficult, indeed perhaps impossible, without statutory intervention to treat an allotment by direction of a person entitled to command or persuade or otherwise able to procure an allotment and issue of shares as a transfer of property of and by the directing party to the allottee. The inclusion of an allotment of shares in the definition of ``disposition'' is effective to make an allotment by direction, a transfer of property from that person to the allottee. The inclusion of ``allotment'' in the definition thus has a practical application and is effective to bring into duty a transaction savouring of a transfer of property but which otherwise might well fail to attract liability. There is thus available, as I thought in my reasons in Ord Forrest and as my brother Aickin so cogently says, such a construction of the definitive and operative sections of the Act. To construe the definition as limited to such an occasion does no violence to the language employed and does give a substantial operation to the definition. To read the legislative language as deeming the company to have transferred its property to the allottee is, in my opinion, quite unnecessary in order to give a practical operation to the definition. On the other hand, it is, in my opinion, consonant with proper principle in statutory interpretation to construe the definition as not deeming that which has not the least resemblance to a transfer of property to be a transfer by the company to the allottee of its property upon a consideration of price capable of comparison with value.
I agree entirely with my brother Aickin in thinking that the decision in Ord Forrest should be overruled and that in this case the cross-appeals should all succeed resulting in the setting aside of all the assessments.
Being of this opinion, it is strictly unnecessary for me to express a view as to the fate of the Commissioner's appeals. But, as others may differ, I should state my opinion as to the correctness of the judgment of the primary judge.
In this connection, I have had the advantage of considering the fully expressed reasons of my brother Aickin for supporting the views of Sheppard J., which my brother does with one exception to which I will presently refer. I fully agree with my brother's analysis of the facts of the various cases and with the legal propositions he propounds in relation to those facts. I agree
ATC 4044
that the primary judge's judgment in each of the cases ought not to be disturbed. He reached conclusions to which he was entitled to come. There are no valid reasons, in my opinion, for disturbing his findings or conclusions. If in the event the views expressed by the statutory majority in Ord Forrest are supported by the Court, I should then agree that the assessments as reduced by the Supreme Court should stand and the appellant's appeals be dismissed.The matter on which my brother Aickin did not accept the primary judge was the view expressed by him that the company's liability to gift duty consequent upon the allotment of the shares should not be included in the liabilities of the company when valuing the shares for the purpose of determining the adequacy of the allotment money treated as the price of shares paid to the company.
I agree with my brother's conclusion differing from the primary judge and with my brother's use of the judgment of the Court in
Robertson
&
Ors.
v.
F.C. of T.
(1952) 86 C.L.R. 463
, and particularly of the reasons expressed by Sir Frank
Kitto
in that case. I agree that if allotment in the sense of allotment and issue of the theretofore unissued shares is to be regarded as a gift then made by the company the company's liability for gift duty should be included in the liabilities of the company when determining the adequacy of the consideration or price paid for that transfer. To do so, to my mind, further highlights the difficulty of attributing to the legislature an intention to deem the allotment and issue of an unissued share as a transfer by the company of its property in return for a price measurable by the value of the shares so allotted and issued at or, as I would think, immediately before the time of the allotment and issue.
In my opinion, the cross-appeals should be allowed and all assessments set aside. The appeals should, in any case, be dismissed.
This information is provided by CCH Australia Limited Link opens in new window. View the disclaimer and notice of copyright.