FC of T v BHP Billiton Ltd

Judges:
Allsop CJ
Davies J
Thawley J

Court:
Full Federal Court of Australia

MEDIA NEUTRAL CITATION: [2019] FCAFC 4

Judgment date: 29 January 2019

---

Allsop CJ

1. I have had the advantage of reading the reasons to be published of Davies J and Thawley J. These reasons assume a familiarity with their Honours ' reasons.

2. I agree with the orders proposed by Thawley J. I use the abbreviations in the reasons of Thawley J.

3. The difference in view concerning, and in my respectful opinion, the answer to, the question of construction and interpretation involved lie in the contextual conceptualisation of the purpose of Part X and the place of associates and association in its operation. The point can be made by recognising, at the outset, that these two companies, Ltd and Plc, have the same persons as their directors, and the legal documents which the companies have entered into call for the two entities to operate as if the two were a single unified (economic) entity. Clauses 2(a), (b) and (c) of the Sharing Agreement reflect this. The reference in clause 2(b) to have regard to the interests of the shareholders of both companies is not a limited extension of the content of the fiduciary duty to the company. It underpins, within the framework of fiduciary responsibility to the particular company of which the person is a director, the obligation of the two companies, individually and collectively, to operate in all respects as one economic entity.

4. Thus, when each company is acting, and when the individuals who are the directors are acting, it and they are acting as, and for, one part of a unified entity in which it and they has and have a mutuality of interest with the other company and with themselves acting in their capacity as directors of it.

5. The question is whether s 318(2)(d)(i), as informed by s 318(6)(b), is satisfied or engaged between equals, acting in each other ' s mutual interests as one economic entity; or, whether the provisions are limited to circumstances where one entity has some degree of controlling influence over the other.

6. If the latter be the case, the provisions operate only in a unidirectional way, and one of the entities having a degree of influence over the other is sufficient for it to be able to be described as the controlling entity of the other, because the other has acted, does act or can be expected to act as set out in s 318(6)(b).

7. If the former, the provisions can operate in a multidirectional way, such that separate entities may at once be the primary entity sufficiently influenced by the other (controlling) entity, and the controlling entity sufficiently influencing the other (primary) entity.

8. There are aspects about the text, structure and purpose of Part X that point to both alternatives.

9. The associate provisions in s 318 are not for the purpose of ascribing an obligation to, or an office as, a director, as in the cognate provision of corporations legislation so heavily influential in the Tribunal ' s reasons. In that context, a unidirectional conception is not only understandable, but necessary: How influential was the shadow director on the members of the board such that it can be said that he or she was so influential as to be taken to be a member of the board himself or herself?

10. The associate provisions in s 318 take their place in a Part that is directed to the question of what amounts are to be included in a taxpayer ' s assessable income. The

---

ATC 21280

associate provisions take their place in this scheme by identifying relationships of sufficient proximity of association to subject an entity to tax by that association. Thus, the object of the Part (unlike the object of the shadow director provisions) is not one which, in its essence, requires limitation to a unidirectional element of influence, dominance, or control by one over the other.

11. As Thawley J points out, s 318(2) identifies a number of types of relationship that can satisfy the notion of requisite association. Paragraph 318(2)(a) fixes on partnership - a relationship of mutual interest and obligation towards a common commercial goal: the economic advancement of all, including the other(s) by the shared common venture of profit making. Paragraph (b) extends the association of the partner to the latter ' s spouse or child: once again to persons who one would take to be advantaged by the economic advantage of the partner. Paragraph (c) extends the association to trustees of a trust in which the primary entity has an interest. All these ((a), (b) and (c)) speak to relationships not of control or influence, but conformity or confluence, or reasonably expected conformity or confluence, of economic interest.

12. Paragraphs (d) and (e) are directed to influence and, to a degree, control. The words " controlling entity " and " controlled company " are used in the chapeaux to paragraphs (d) and (e), respectively. But that language is not used in a substantive way to say that control is required; in each case it is definitional where (d)(i)(A) or (i)(B) or (ii)(A) or (ii)(B) or (e)(i)(A) or (i)(B) or (i)(C) or (i)(D) or (ii)(A) or (ii)(B) or (ii)(C) is satisfied. For (d)(i) and (e)(i) this is informed by the interpretation of sufficient influence required by s 318(6)(b).

13. The terms of s 318(6)(b) raise a question at the outset: " sufficiently influenced " for what purpose or object? The meaning of " sufficient " is a quantity, extent or scope adequate to a certain purpose or object. The answer is in part given by the words of s 318(6)(b): " if the company, or its directors are accustomed or under an obligation (whether formal or informal), or might reasonably be expected, to act in accordance with the directions, instructions or wishes of the entity … " . These are factual enquiries about the past, present or future about acting in accordance with (that is, in harmonious correspondence, agreement or conformity with) directions, instructions or wishes. Directions or instructions involve some element of the imperative: saying what is to be done; wishes involve the subjunctive: saying what is desired. If the purpose or object of the enquiry is to answer a question as to whether A controls B or B is sufficiently malleable to do what A wants or whether B is independent of A, one is looking at a binary concept in a unidirectional way. If A controls or sufficiently influences B so as to amount to control, the relationship is to be seen as unidirectional, and B is not relevantly independent.

14. If the purpose or object of the enquiry is to understand whether the two have a relationship whereby it is appropriate to attribute the income of one to the other, the answer to that binary question as to whether A controls B or whether B is independent of A may not exhaust the field of relevant useful enquiry. If one can see from s 318(6)(b) a relevantly useful factual enquiry concerning circumstances short of control, but capable of being satisfied by the mutual recognition of two parties that they will act in conformity with the wishes of each other as they have done in the past, there is no reason why such acting in conformity must be unidirectional reflecting dominance or subservience. It may be in the mutual best interests of both to act in accordance with each other ' s wishes, as it was undoubtedly thought to be the case here. That such acting in accordance with the wishes of the other is understood to be in one ' s own interests, and is conduct freely undertaken, does not diminish the reality of the fact that each acts in accordance with the wishes of the other, for the mutually beneficial operation of a single economic entity, and in accordance with the underlying agreement of the parties.

15. If the purpose or object is assessing closeness of association in order to assess the appropriateness of attribution of income, s 318(6)(b) can be seen to be wide enough to include circumstances of mutually advantageous decision-making by parties as equals acting in accordance with the direction, instructions and wishes of each other for the common economic goal of operating a single

---

ATC 21281

economic entity. In my respectful view, there is no reason in the text, structure or purpose of Part X to limit the operation of ss 318(2)(d)(i) and (6)(b) to a unidirectional analysis of influence or control.

16. With this approach to the sections, I agree with the reasons of Thawley J.