Case M22

Judges: HP Stevens Ch

CF Fairleigh QC
JR Harrowell M

Court:
No. 1 Board of Review

Judgment date: 10 April 1980.

C.F. Fairleigh Q.C. (Member)

A proprietary company, incorporated in New South Wales on 17 August 1954, set out the following in its returns of income for the several years ended 30 June 1970, 1971, 1972 and 1975 respectively:

                                         Taxable income

           Sec. 80 losses as at          before recoupment       Sec. 80 losses

           preceding 1 July              of losses              carried forward

                    $                           $                       $

1970 .....      142,453                       13,250                129,203

1971 .....      129,203                       59,541                 69,662

1972 .....       72,911                       90,305                   -

           (including $3,249              (subject to sec. 160AC

           export promotion               claim $3,249, allowed

           expenditure)                   by Commissioner)

1975 .....        1,068                   (Loss $813)                 1,065

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2. In each instance the Commissioner adjusted the income as returned and notices of assessment of primary tax issued as follows:

                                  $

1970       Taxable income       13,250       Notice dated      5 October 1972

1971           
"
     
"
          59,541         
"
     
"
         
"
   
"
      
"


1972           
"
     
"
          90,305         
"
     
"
         21 June 1973

1975           
"
     
"
             855         
"
     
"
          3 June 1976

3. The Commissioner issued notices of assessments for additional tax (Div. 7) as follows:

                                   $

1970      Undistributed amount   2,121       Notice dated       5 October 1972

1971           
"
          
"
     19,341          
"
     
"
         
"
    
"
     
"


1972           
"
          
"
     30,583          
"
     
"
         8 August 1974

4. The taxpayer lodged a notice of objection against each assessment; the Commissioner decided to disallow the objection; his decisions were referred to this Board for review.

5. By tacit agreement all references have been heard together; of course, there has not been a consolidation and the parties are entitled to a separate decision on each reference as if heard separately.

6. At the outset of the hearing the taxpayer's counsel said that the reference for the 1975 year was no longer an issue. This is to be taken to mean (in the absence of an amended assessment, sec. 191) that the Commissioner's decision on the objection is to be upheld and the assessment is to be confirmed pursuant to sec. 190(b) and 195 of the Income Tax Assessment Act; a taxpayer cannot withdraw the reference nor abandon it after the Board has what may be called (to avoid circumlocution) jurisdiction.

7. The Chairman has set out his findings of fact and conclusions and these I adopt subject to such qualifications as appear herein. In general, there is no point in repeating the parol and documentary evidence. It is desirable to mention some subjects and give references to authorities which were raised by counsel during the progress of the hearing. My understanding of the case law on the present group of sections is set out in Board decisions ( Case H19,
76 ATC 143 ; Case K55,
78 ATC 532 ; Case K57,
78 ATC 551 ; Case L17,
79 ATC 88 ; Case L46,
79 ATC 292 ; Case L67,
79 ATC 519 , presently under appeal). To avoid repetition of what is there set out at length, I state that I adhere to the opinion which is expressed therein. I believe that support for that opinion can be found in
E.A. Greenwood (N.S.W.) Pty. Ltd. v. F.C. of T. 80 ATC 4039 .

8.(a) In a letter dated 17 October 1973 sent by the Commissioner to the taxpayer's agent it is said that at the time when the 1970 and 1971 assessments were made it was conceded for the purposes of sec. 80A(1) that certain named shareholders were the beneficial owners of the shares which were registered in their names; however after an examination had been made of the material available in the Commissioner's office it was decided that those shareholders had been involved in an arrangement of the kind referred to in sec. 80B(5)(b) and the Commissioner then exercised the discretion under sec. 80B(5) to treat the shares held by those shareholders as not having been beneficially owned by them at relevant times.
(b) This change of attitude by the Commissioner is something that may occur due to the exigencies of administration and is discussed in some detail in Case L67 at p. 536 et seq.

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(c)
- (i) In the letter of 17 October 1973 the Commissioner referred to the letter of those agents of 14 August 1973 requesting that a further period be determined for the purpose of making a sufficient distribution in relation to the 1972 year of income. The Commissioner pursuant to sec. 105AA(3) notified the agents that the request was refused.
- (ii) By letter of 10 April 1973 the Commissioner notified those agents that a similar request of 1 December 1972 in relation to the years ended 30 June 1970 and 1971 was refused.
- (iii) Only a passing mention was made of sec. 105AA until the address in reply of the taxpayer's counsel consequent upon the subject being raised by the Board during the final address of the Commissioner's counsel whereupon counsel for the taxpayer sought and obtained leave to consider whether they should forward to the Board written submissions on sec. 105AA; written submissions were not made.
- (iv) The limitations on the Board's powers where there is an objection to a Div. 7 assessment are discussed in Case K57 and in Case L57.
- (v) In the present circumstances the fate of the objections to assessments to primary tax will decide the fate of the objections to Div. 7 tax.

9.(a) The group of relevant sections does not contain, nor has the group at any time contained, whether expressly or by implication, any restraint on the disposal of shares merely because a company is in liquidation.
(b) Nonetheless, the expressions which are commonly used, e.g. ``sale of the structure of the company'', ``sale of tax losses'', etc., are indicative of a basal problem, viz. the liquidator as such has no power to sell the shares; and he has no authority, stemming from the office of liquidator, to procure meetings of directors or of shareholders with a view to the passing of resolutions, and whether or not the liquidator obtains proxies for that purpose.
(c) Counsel for the taxpayer spoke of the company in liquidation as being ``dead'' in one sense; and said that, colloquially speaking, ``the company has an asset called tax losses''.
(d) As far back as 5 July 1966 at a meeting of creditors (with major current shareholders present as well as the proprietor of the company which ultimately purchased the 55% shareholding) the liquidator is shown by the minutes to have made reference to the ``eventual sale of tax losses'' and to having ``explained that in due course tax losses would be determined and offered for sale on the open market'' and the liquidator asked ``whether everybody was satisfied to proceed along the lines indicated and received unanimous approval from the committee''. It is to be noted that no offer had been received for the purchase of the business as a going concern and only a conditional offer had been received for the purchase of some plant; the freehold as well as other plant was held without any offer to purchase being available; and the liquidator expressed his appreciation for the help of the directors ``in the realization of the assets'' and said that the result could not have been achieved without their assistance. In the absence of an explanation from the liquidator or the directors the implication is that the directors (including continuing shareholders) were assisting in the sale of tax losses.

10. Aickin J. said in
F.C. of T. v. Students World (Aust.) Pty. Ltd. 78 ATC 4040 at p. 4053; (1978) 52 A.L.J.R. 298 at pp. 306-307 ; that the relevant purpose cannot be inferred from the mere fact of a sale which left 40% of the holding with the shareholder who had held such shares in the year of loss. As to the foundation for any inference see
Caswell v. Powell Duffryn Associated Collieries Ltd. (1940) A.C. 152 at p. 169 per Lord Wright; and when the facts are known one does not surmise as to possibilities, see the cases collected in Case K66,
78 ATC 642 at p. 662.

11. For present purposes it can be accepted that a taxpayer succeeds if the material events are restricted to (1) the appointment of a liquidator of a company

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which has available tax losses; (ii) a scheme of arrangement, innocuous in itself, approved by the Supreme Court; (iii) the knowledge of existing shareholders howsoever acquired that (a) a purchaser intends to buy no more than 60% of issued shares, (b) that purchaser has the purpose of utilizing the tax losses, and (c) that purpose will be frustrated if the existing shareholders (or a sufficient number of them) fail to retain 40% of the issued shares for a considerable period of time, or if there is any arrangement made with the continuing shareholders that they are to retain 40% of the issued shares for any period of time; and finally (iv) the sale by the existing shareholders to that purchaser of 60% of the issued shares.

12.(a) It is apparent from Greenwood (supra) that the proscribed arrangement may arise from the silent acquiescence of the continuing shareholder when viewed in the light of other facts; although knowledge as aforesaid is not per se acquiescence. Such other facts may, in some instances, bring into operation general principles of law, e.g. in
Southern Foundries (1926) Ltd. v. Shirlaw (1940) A.C. 701 at p. 717 Lord Atkin said that the proposition in
Stirling v. Maitland 5 B. & S. 840 at p. 852 was well established law, viz.:
- " If a party enters into an arrangement which can only take effect by the continuance of an existing state of circumstances... there is an implied engagement on his part that he shall do nothing of his own motion to put an end to that state of circumstances, under which alone that arrangement can be operative. "
(b) (See further the authorities which are collected in Case K57; Case 77; also
Inwards and Others v. Baker (1965) 1 All E.R. 466 ;
E.R. Ives Investments Ltd. v. High (1967) 1 All E.R. 504 ;
Greenwood v. Bennett and Ors. (1972) 3 All E.R. 586 ;
Hussey v. Palmer (1972) 3 All E.R. 744 ;
Orakpo v. Manson Investments Ltd. & Ors. (1977) 3 All E.R. 1 at p. 7 ;
Re Vandervell's Trusts , White & Ors. v. Vandervell Trustees Ltd. (1974) 1 All E.R. 47 ;
Crabb v. Arun District Council (1975) 3 All E.R. 865 ;
Jones (A.E.) v. Jones (F.W.) (1977) 2 All E.R. 231 ; I. Congresso Del Partido (1978) 1 Q.B. 500 at p. 522 and generally Cheshire & Fifoot's Law of Contract Aust. ed. 1966 p. 360 et seq.; Halsbury's Laws of England 4th ed. vol. 9 Contract para. 351.)
(c) In Greenwood Lee J. has shown that in F.C. of T. v. Students World (Aust.) Pty. Ltd. 78 ATC 4040; (1978) 52 A.L.J.R. 298;
K. Porter & Co. Pty. Ltd. v. F.C. of T. 77 ATC 4472 ; (1977) 52 A.L.J.R. 41 ; and
F.C. of T. v. Cooper Brookes (Wollongong) Pty. Ltd. 79 ATC 4398 , the word ``arrangement'' in the section is sufficiently comprehensive to catch within its sweep a plan or understanding which is not enforceable at law. It may also include acts or transactions undertaken in execution of the plan or understanding.
(d) All the following statements by Lee J. are presently applicable, viz.: (i) whether an ``arrangement'' is or is not established will, if there is no evidence of an express arrangement (e.g. by document or admission) depend upon whether an inference as to an arrangement can be drawn from all the facts proved; (ii) the significance of arrangements between the liquidator and the directors as set in train designed to give the new shareholders the benefit of accumulated tax losses; (iii) the conclusion which is open being by the subsequent events fully confirmed; (iv) whether the continued holding of the shares was as a bona fide shareholder or a pseudo shareholder, a shareholder in name only; and, of course, the conduct of the shareholder in regard to the attendance at meetings can throw light on this position; (v) the inference that the continuing shareholders' interest in and connection with the taxpayer had to all intents and purposes ceased; (vi) positive evidence of the co-operation in steps taken by those representing the interest of the taxpayer and the purchaser designed to achieve for the taxpayer the full benefit from a tax point of view of the losses made in the earlier years; (vii) the probability that the continuing shareholders would have had knowledge of the significance of the losses in the hands of a ``purchaser'' and would have been aware of the necessity to retain the holding specified in sec. 80A, if the

ATC 148
purchaser was to receive the full value for the moneys which it was paying out for the losses. Even if that is not correct it would have been natural for the continuing shareholders to have co-operated to the full in ensuring that the sale went through in order that the creditors of the taxpayer could get the benefit that was available for the losses. It is highly probable that the purchaser would not have been interested in a purchase of the losses unless there was an indication in advance of a willingness in the continuing shareholders to do whatever was necessary to ensure that the tax advantage capable of being enjoyed in respect of the losses was in fact ultimately enjoyed by the taxpayer. The continuing shareholders' actions at every point were actions that needed to be taken if the taxpayer was to get the benefit of those losses; (viii) the inference is open that there was an arrangement entered into, that the continuing shareholders would at all times do whatever they were asked to do to preserve for the taxpayer and for the new shareholder the full advantage from a taxation point of view of the sale; the arrangement was on foot at least from the time when it was decided to have the scheme of arrangement approved by the Court and it continued for several years; (ix) it was an arrangement which ``depended for its operation'' on the continuing shareholders having the beneficial interest in the shares in the year of income; it ``related'' to those shares and it ``affected'' the beneficial interest in those shares; it was an agreement in which it was implicit that the continuing shareholders would at all times retain (approximately) two-fifths interest in the shares and would not sell those shares so as to have less than two-fifths of the total shares and it thus affected their ``right to sell''; (x) the very nature of the arrangement which is to be inferred from all the evidence itself points to the fact that at least one of the continuing shareholders' purposes was that of enabling the taxpayer to get the full benefit of the tax advantage involved in the losses; the purpose of the continuing shareholders and the arrangement itself are inextricably bound up with each other; (xi) that one could not infer the relevant purpose from the mere fact of a sale which left 40% of the holding with the shareholder who had held such shares in the year of a loss is a submission which disregards the entirety of the evidence and focuses only on one feature of it; in Students World the only ``arrangement'' with which the Court was concerned was one claimed to be contained in a document and there was an (inferred) express finding based on the sworn testimony given in the case that there was in fact no arrangement that the shareholder would not dispose of her residual shareholding or that she would not receive dividends on the retained shares.
(e) To all of this the taxpayer's counsel in effect replies that the taxpayer ``took a punt'' upon the requisite percentage of shares not being disposed of either voluntarily or involuntarily (by bankruptcy). That answer is inadequate as the Board is not presently concerned with a situation such as a liquidator fortuitously receiving from existing shareholders an offer to sell (or receiving from them the acceptance of an offer to buy) some of the issued shares. There is not in the instant case the mere fact of a sale of 55% (or thereabouts) of issued shares.

13. In the present case it was a requirement of the purchaser of shares that the share capital be reduced before a scheme of arrangement satisfactory to the purchaser could be brought about; and proxies were obtained from some of the existing shareholders so as to ensure an approval of a resolution for the reduction in capital. Thereupon the intention was for the liquidator to have the smaller shareholders transfer their shares so as to ``reduce the number of people for future involvement''. The liquidator made it known that he would call upon the directors (and thus call upon the continuing shareholders) to assist in every way in the realization of assets; and the ``sale of the structure of the company'' to enable the purchaser to make use of tax losses was regarded as being within the power and duty of the liquidation. An important part of the implementation of the scheme of arrangements was to ensure that the current

ATC 149

directors resign (or be soon replaced if they did not resign). For the scheme to be a success it required the co-operation of certain shareholders of sufficient number not only for the transfer of shares, but also for reduction of capital and retirement as directors.

14.(a) The officer of the liquidator did not seek or receive an undertaking in any form from the vendors of shares that any of them retain the balance of shares for any period of time.
(b) However the liquidator (or his officer) ``explained'' to the vendors that the purchaser required 60% (maximum) of shares so as to be able to utilize the losses. The consequence of the discussions was that the ``existing shareholders gave the liquidator the go-ahead''.

15. The share-vendors did not negotiate the sale of shares. The purchaser's accountant on the one hand and the liquidator's officer on the other hand negotiated the price to be paid per share or per dollar of ``tax losses''. Thus the liquidator and his officer were agents for the vendors in the sale of shares.

16. The attitude of the original shareholders was ``that they would do nothing to stand in the way (of the purchaser) making full use of (the) tax loss''; and on transfer of shares of the requisite number the continuing shareholders (leaving aside two recalcitrant shareholders who ignored a presented form of transfer of shares) would have no further interest in the taxpayer company. To attract a purchaser of shares (i.e. of tax losses) it was essential that the purchaser be satisfied that all (or most) directors would resign upon request to do so, that the capital be reduced and that there would be also co-operation to the extent of complying with a request to transfer no more than 60% of issued capital and not a great deal less; although a hazard thereupon arose as to what might later happen with the retained shares.

17. The reason for bringing about a reduction of capital was that ``It made it possible for (the liquidator) to be able to sell the shares to somebody... the company was unsaleable... unless the capital was reduced''. Proxies were obtained from some current shareholders so as to achieve the resolution for reduction of capital. The reduction of capital was a measure adopted ``to get a better base upon which to inject profits into the company from the purchaser's point of view that he did not have a large shareholders' issued capital situation to contend with''; ``to reduce the number of people for future involvement''. Furthermore: ``It could lead him into a situation that at some future date he might be able to allot further shares within the rights that were laid down in the articles of association to give him a greater control of the shares''; in effect ``to swamp the continuing shareholders'', although that did not occur in the instant case.

18. The notion of allotting shares to some only of a class of shareholders with the purpose of ``swamping'' is contrary to established principle (
Howard Smith Ltd. v. Ampol Petroleum Ltd. and Others (1974) 1 All E.R. 1126 ;
Harlowe's Nominees Pty. Ltd. v. Woodside (Lakes Entrance) Oil Co. N.L. and Another (1968) 42 A.L.J.R. 123 ;
Hogg v. Cramphorn Ltd. (1967) Ch. 254 ;
Ngurli v. McCann (1953) 90 C.L.R. 425 ;
Provident International Corporation v. International Leasing Corporation Ltd. (1969) 1 N.S.W.R. 24 ;
Mills v. Mills (1938) 60 C.L.R. 150 ;
Punt v. Symons & Co. Ltd. (1903) 2 Ch. 506 at p. 516 ;
Bamford v. Bamford (1968) 2 All E.R. 655 ; (1969) 1 All E.R. 969 ;
Clamp v. Fairway Investments Pty. Ltd. (S.C.N.S.W. 25 October 1973 Holland J.) cited in Australian Company Law 2nd ed. vol. 2, 123/19 ;
Kathleen Investments (Australia) Ltd. v. The Australian Atomic Energy Commission and Another (1976-1977) 139 C.L.R. 117 ).

19. The taxpayer's counsel has submitted that in the following passage the word ``kept'' is to be given the meaning of ``sold no more than 55%'' (approximately), rather than the meaning of ``retained 45%'' (approximately) for several years, viz.:

``... and did you know that you could not sell all of your shares if the arrangements in relation to the tax loss were to be successful? Yes.

And so was that the reason why you kept some of your shares? This would have been, yes. This would have been - this is conjecture - this would have been explained to me by (the liquidator).''

ATC 150

20. As is shown in para. 13 to 17 hereof (basically taken from pp. 27, 48, 64, 90-95, 101, 103, 104 and 109 of the transcript) the sense of the explanation of the liquidator and of his officer to the group of shareholders as at liquidation was the need for continuance for some years of a certain percentage of shareholding in the same hands for the purchaser to obtain the sought after advantage. All were aware that there could not be any express undertaking from the continuing shareholders that they would retain their residual shares; yet there was acquiescence by those shareholders in the direction of the liquidator that they should do all that was necessary to ensure the best sale of assets, including available tax losses; the offer to buy 55% (approximately) of issued shares was known by those continuing shareholders to be the foundation for the use of those tax losses by the purchaser, and the acceptance of that offer was on the same basis. As these circumstances take the matter outside the instance of a mere sale of 55% of issued shares (and of what is suggested in para. 11 hereof), it is of little significance if the word ``kept'' in the aforesaid passage is given the meaning for which the taxpayer contends ( Stirling v. Maitland supra ).

21. A failure to comply with the provisions of the Companies Act is not inevitably a matter of importance, cf. Dixon C.J. in
Davis Investments Pty. Ltd. v. Commr. of Stamp Duties (1957-1958) 100 C.L.R. 392 at p. 407 :

``Doubtless, it is not accomplished by a means provided by company law, but if there is no interest involved but that of the shareholder... no legal interest is invaded, and there is no one entitled to complain.''

Dixon J. as he then was took a similar stance in
Avon Downs Pty. Ltd. v. F.C. of T. (1949) 78 C.L.R. 353 at pp. 361-362; 9 A.T.D. 5 at p. 11 . As to informal resolutions see
H.L. Bolton (Engineering) Co. Ltd. v. T.J. Graham & Sons Ltd. (1957) 1 Q.B. 159 at pp. 171-173 . Ultra vires acts are a different subject; and as to an improper purpose of directors see
Re Co-op Development Funds (No. 3) (1977-1978) 3 A.C.L.R. 437 at p. 453 et seq.; and Kathleen Investments (Aust.) Pty. Ltd. v. The Australian Atomic Energy Commission (1976-1977) 139 C.L.R. 117 at pp. 132, 138, 147-150 and 157.

22. Informality in itself is of little consequence and e.g. in a record in the minute book ``moved'' may be read as ``resolved'' (
Wix Corporation New Zealand Ltd v. Commr. of I.R. (N.Z.) (1979) 4 NZTC 61, 499 ; 10 A.T.R. 358 ). Furthermore the doctrine of presumption of regularity is present, unless excluded by the circumstances.

23. By virtue of para. 21 and 22 hereof I do not draw any conclusion adverse to the taxpayer from what is set out in the second part of para. 15 of the Chairman's reasons (as to a form which has blanks at the time of signature) whether or not looked on as containing matters of individual significance or of significance cumulatively with all other relevant matters, or as a background to some other relevant matters; I do not regard changes in drafts of the deed as having the consequence of an order obtained from the Supreme Court under improper circumstances (although there may have been some irregularity which is not a matter for inquiry by a Board of Review and it could perhaps be now corrected by a nunc pro time order of the Supreme Court); nor do I regard the same as having the consequence of a material alteration to a deed or other document after signature by a party; so also, I do not draw any adverse conclusion from what is set out in para. 23 of the Chairman's reasons or in para. 24 thereof, or in para. 25 to 28 thereof; or as to the acquisition of the undertaking as mentioned in para. 25 and 29 thereof.

24.(a) The evidence as to the sale of the undertaking as referred to in para. 30 and 31 of the Chairman's reasons is inconclusive as the purported sale is not supported by evidence of any resolutions formal or informal but only by accounting records (cf. the authorities which are collected in the article ``The Accountant As The Expert'' in vol. 8 Australian Tax Review 1979 p. 64).
(b) Such evidence as there is on that subject is indicative of an attitude of the major shareholder acting in disregard of the interests of minority shareholders to the point of considering them to be titular shareholders only; that is a fact after the event (cf. the authorities in Case K66 at p. 662 supra ) which is material to the question whether from the outset by tacit understanding of vendors and purchasers

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of shares the continuing shareholders were to be at all times only nominally shareholders so as to give a facade of ownership. I answer that question in the affirmative. This view of the matter is fortified by what is set out in para. 40 of the Chairman's reasons.

25. Halsbury 4th ed. vol. 7 p. 595 para. 1001 includes as examples of the ``just and equitable'' rule for the winding up of a company ( i ) where in the case of a private company one director treats its business as his own and does not carry on the business as that of the company; ( ii ) where the directors withhold information from shareholders in circumstances which give rise to suspicion that they were attempting to buy their shares at an undervalue.

26. I accept that all witnesses honoured their oath and I limit my comments thereon to what is set out in para. 27 and 28 hereof.

27.(a) I am not critical of the liquidator's officer relying on his own standard practice as to discussions with respect to the sale of loss companies (cf. Eichsteadt v. Lahrs (1960) Qd.R. 487; (1961) Qd.R. 457 (H.C.)). His recollection of what is likely to have been said to him as referred to in para. 41 to 44 of the Chairman's reasons is material to, though not determinative of an issue; and it has been given appropriate weight in arriving at findings of fact as expressed in para. 13 to 17 and 20 hereof. I am accepting that the liquidator's officer did have some form of standard practice in such matters and that he followed that practice in the instant case.
(b) That is not sufficient to allow his evidence to displace that of other witnesses who speak directly (of course, by recollection even reconstruction) as to events.

28. The cross-examination of the Commissioner's investigating officer did not impute lack of credibility; it was directed to much the same subject as is mentioned in para. 27(a) hereof, i.e. standard practice and possible departure from the same. His recorded note that one of two shareholders whom he interviewed regarded himself as having, in effect, ceased to be a shareholder years earlier is consonant with what is referred to in para. 24(b) hereof. Whilst broadly speaking I accept the evidence of this witness I also accept cross-examining counsel's point that the written statements obtained by the witness were only summaries.

29. A major defect in the taxpayer's case was the failure to have the liquidator as a witness (cf. para. 9(d) and 13 to 17 hereof) particularly as so many other witnesses had a poor memory of events.

30. The principle of
General Motors-Holdens Pty. Ltd. v. Bowling (1977) 51 A.L.J.R. 235 was applied in a sec. 26(a) case in
Macmine Pty. Ltd. v. F.C. of T. 79 ATC 4133 at p. 4157; (1979) 53 A.L.J.R. 362 at p. 379 :

``(the section) imposed the onus on the appellant of establishing affirmatively that it was not actuated by the reason alleged in the charge. The consequence was that the respondent, in order to succeed, was not bound to produce evidence that the appellant was actuated by that reason, a matter peculiarly within the knowledge of the appellant. The respondent was entitled to succeed if the evidence was consistent with the hypothesis that the appellant was so actuated and that hypothesis was not displaced by the appellant. To hold that, despite the subsection, there is some requirement that the prosecutor brings evidence of this fact is to make an implication which... is unwarranted and which is at variance with the plain purpose of the provision in throwing on to the defendant the onus of proving that which lies peculiarly within his own knowledge.''

31. A similar principle is applicable for the present group of sections (
Sutton v. F.C. of T. (1959) 100 C.L.R. 518 at p. 523; 11 A.T.D. 499 at p. 502 ). The standard of proof is merely the civil standard of probability, i.e. that it is more likely than not that the assessment is excessive (ibid.; see also
Danmark Pty. Ltd. v. F.C. of T. ; Forestwood Pty. Ltd. v. F.C. of T. (1944) 7 A.T.D. 333 at pp. 336-337 ; and generally as to the consequences of failure to call a material witness see Jones v. Dunkel (1959) 101 C.L.R. 298 at p. 321 as applied by Gibbs J. in
Jacob v. F.C. of T. 71 ATC 4192 at p. 4194; (1971) 45 A.L.J.R. 568 at p. 570 ;
R. v. Burdett (1820) 106 E.R. 873 ; (1814-1823) All E.R. 80

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per Abbott C.J.; Wigmore on Evidence 3rd ed. vol. 2 sec. 285, p. 162). On a taxation reference if it appears that a taxpayer has withheld a material witness or otherwise has not exposed all the material facts, then (consequent upon sec. 190(b)) the position is not reached where as in
Martin v. F.C. of T. (1953) 90 C.L.R. 470 at p. 495 it is simply a matter of looking to the right conclusion to be drawn from the whole of the evidence, as occurs in ordinary civil actions (cf. Barwick C.J. in
Gauci v. F.C. of T. 75 ATC 4257 at p. 4259; (1975) 135 C.L.R. 81 at p. 86 , viz. ``The actual facts - apart from... were fully exposed'').

32.(a) A document tendered by the Commissioner's counsel as an exhibit was obtained by him from the file of documents of the solicitor for the taxpayer produced pursuant to the Chairman's reg. 39(2)(b) notice in writing; so also with the original of that document obtained from the file of documents of the liquidator. In each instance counsel for the taxpayer objected to the document being made an exhibit on the ground of legal professional privilege. In the course of their respective arguments as to admissibility it was submitted that the document (original and copy) came into existence after the date of liquidation and before the execution of the deed which bears the date 13 March 1970, and that the document contains legal advice
(b) Counsel for the taxpayer introduced into evidence the recollection of witnesses as to what was told to them by eminent counsel at a conference to advise on the then proposed purchase of the subject shares so as to obtain the benefit of tax losses. In effect it was said in evidence that eminent counsel advised that there would be no infringement of sec. 80B(5) provided no disturbance was made to the beneficial shareholding of the continuing shareholders; it was mentioned that if the continuing shareholders became bankrupt the beneficial ownership would change and the losses would not be available; that it was always available to them to transfer their shares, in particular to members of the family. Eminent counsel pointed out that there should be no arrangement of any sort at all and it would be preferable for no contact to be made with those people at any time, especially by the accountant or by the proprietor of the accountant's client company.
(c) During the course of counsel's final address a discussion took place with the Chairman as to the extent of legal professional privilege concerning documents before the Board and prepared with a view to legal advice as mentioned in subpara. (a) hereof. Counsel claimed privilege for documents with respect to advice being sought by the liquidator of the taxpayer company and said that ``any document passing from (the solicitors) to the liquidator of that company giving legal advice is a privileged document''. Counsel said that ``privilege is not confined to documents brought into existence for the purpose of or in connection with litigation''; and ``this case is one where advice about tax loss companies is of its very nature advice preparatory to the very litigation we are embarked on, because if I say to my solicitor, I want legal advice on whether I can enter into a certain transaction which will reduce my income tax and then subsequently I do, and there is litigation with the Commissioner, that is precisely the litigation which is contemplated by the request for that advice... there is no doubt that from the evidence which has been given that all the parties were entering into that transaction with one eye on the possibility of this very litigation''.
(d) There is no authority for the proposition that a party is able to select for admission a portion of legal advice and of instructions for legal advice which support the party's cause, and where another portion of legal advice and of instructions for legal advice on the same general subject are detrimental to the party's cause, then sustain an objection to the admission of the latter.
(e) In
Waugh v. British Railways Board (1979) 2 All E.R. 1169 ; 3 W.L.R. 150 each of their Lordships discussed the question as to the extent of legal professional privilege and it here suffices to set out passages from the speech of Lord Wilberforce:

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``The two dominant authorities at the present time are Birmingham and Midland Motor Co. Ltd. v. London and North Eastern Railway Co. [(1913) 3 K.B. 850] and
Ogden v. London Electric Railway Co. [ (1933) 49 T.L.R. 542 , (1933) All E.R. 896 ] , both decisions of the Court of Appeal. These cases were taken by the majority of the Court of Appeal in the present case to require the granting of privilege in cases where one purpose of preparing the document(s) in question was to enable the board's case to be prepared whether or not they were to be used for another substantial purpose. Whether in fact they compel such a conclusion may be doubtful, in particular I do not understand the Birmingham case [ supra ] to be one of dual purposes at all; but it is enough that they have been taken so to require. What is clear is that, though loyally followed, they do not now enjoy rational acceptance. In
Longthorn v. British Transport Commission [ (1959) 2 All E.R. 32 ; (1959) 1 W.L.R. 530 ] the manner in which Diplock J. managed to escape from them, and the tenor of his judgment, shows him to have been unenthusiastic as to their merits; and in
Alfred Crompton Amusement Machines Ltd. v. Customs and Excise Commrs. (No. 2) [ (1973) 2 All E.R. 1169 , (1974) A.C. 405 ] Lord Cross of Chelsea pointedly left their correctness open, while Lord Kilbrandon stated that he found the judgment of Scrutton L.J. in Ogden's case [ supra ] `hard to accept'. Only Viscount Dilhorne (dissenting) felt able to follow them in holding it to be enough if one purpose is the use by solicitors when litigation is anticipated.

The whole question came to be considered by the High Court of Australian in 1976 (
Grant v. Downs [ (1976) 135 C.L.R. 674 ] ). This case involved reports which had `as one of the material purposes for their preparation' submission to legal advisers in the event of litigation. It was held that privilege could not be claimed. In the joint judgment of Stephen, Mason and Murphy JJ., in which the English cases I have mentioned were discussed and analysed, it was held that `legal professional privilege' must be confined to documents brought into existence for the sole purpose of submission to legal advisers for advice or use in legal proceedings. Jacobs J. put the test in the form of a question: `Does the purpose - in the sense of intention, the intended use - of supplying the material to the legal adviser account for the existence of the material?' Barwick C.J. stated it in terms of `dominant' purpose. This is closely in line with the opinion of Lord Denning M.R. in the present case that the privilege extends only to material prepared ` wholly or mainly for the purpose of preparing [the board's] case'. The High Court and Lord Denning M.R. agree in refusing to follow the Birmingham case [ supra ] and Ogden's case [ supra ], as generally understood.

My Lords, for the reasons I have given, when discussing the case in principle, I too would refuse to follow those cases. It appears to me that unless the purpose of submission to the legal adviser in view of litigation is at least the dominant purpose for which the relevant document was prepared, the reasons which require privilege to be extended to it cannot apply. On the other hand to hold that the purpose, as above, must be the sole purpose, would, apart from difficulties of proof, in my opinion, be too strict a requirement, and would confine the privilege too narrowly: as to this I agree with Barwick C.J., and in substance with Lord Denning M.R.''

(f) Both the majority viewpoint ( Stephen, Mason, Jacobs and Murphy JJ.) and the minority viewpoint ( Barwick C.J.) in Grant v. Downs indicate that the documents tendered as above were correctly admitted as exhibits because the dominant purpose at the material time was to obtain legal advice as to the mode of purchasing a parcel of shares and taking an assignment of debts. (See further 54 A.L.J. 93 and National

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Employers' Mutual General Insurance Association Ltd. v. Waind (1979) 53 A.L.J.R. 355 .)
(g) There was not at the material time (as referred to in (f) hereof) litigation in reasonable prospect, in the appropriate sense; although there was some possibility of litigation if a series of events took place: more particularly, the aforesaid purchase, the making of profits by the company, the lodgment of a return of income off-setting profits against past losses, the issue of a notice of assessment which disallowed the set-off, an objection thereto, the disallowance of the objection, and a request to forward the reference to a Board or a request to treat the objection as an appeal and forward it to a Court. The earliest point of time at which I would consider litigation to be in prospect would be the lodgment of the returns of income; and from a more strict point of view the receipt of the notice of assessment is the earliest date when litigation is in prospect.

33. The conclusions which I reach from the above findings of fact, more particularly those in para. 9(d), 13 to 17, 20, 24(b), 27(b) and 29 hereof are that:

(a) it is probable that there was in existence at all material times the sec. 80B(5) proscribed purpose and proscribed arrangement (tacit, yet distinctly to be implied by all interested parties, and their respective privies, especially the continuing shareholders, the liquidator and the proprietor and advisers of the purchaser of shares) with regard to the beneficial interest of the continuing shareholders in the retained shares and prohibiting any sale or other disposal of the retained shares for some period of years, and limiting the beneficial interest of the continuing shareholders in the retained shares in the meantime;
(b) the taxpayer has failed to discharge the onus of proof on the usual civil standard.

34. I would uphold the aforesaid decisions of the Commissioner and I would confirm the assessments of primary tax as in para. 2 hereof, and the assessments of Div. 7 tax as in para. 3 hereof.

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