Commissioner of Taxation of the Commonwealth of Australia v Shell Energy Holdings Australia Limited (Special leave decision)
Judges:
Gagelar J
Gordon J
Gleeson J
Court appealed from: Federal Court of Australia (Full Court)
Commissioner of Taxation of the Commonwealth of Australia
v. Shell Energy Holdings Australia Limited
[2022] FCAFC 2
2022 ATC 20-816
(2022) 396 ALR 565
(2022) 114 ATR 282
288 FCR 193
[2022] HCAtrans 151
Date of decision: 9 September 2022
Result: Application dismissed with costs
TRANSCRIPT OF PROCEEDINGS
AT CANBERRA AND BY VIDEO CONNECTION
Copyright in the High Court of Australia GAGELER J: In accordance with the protocol for remote hearings, I will announce the appearances of the parties. MR D.J. BATT, KC appears with MR M.P. COSTELLO for the applicant. (instructed by MinterEllison) MR J.O. HMELNITSKY, SC appears with MR D.P. HUME and MR A.C. ROE for the respondent. (instructed by Allens)
GAGELER J: Mr Batt.
MR BATT: Your Honours, our oral submissions will focus on the first proposed ground of appeal and we commence with the error it concerns. The decisions below rest and depend upon the proposition that, although the so-called statutory titles were not joint venture property, the joint venturers, by reason of their mutual undertakings, had proportional interests in those titles commensurate with the respective level of participation of the ventures in the venture as those levels stood from time to time.
GAGELER J: Was that in issue in the court below?
MR BATT: It was not, your Honour. We have, in our special leave application, squarely accepted that the point was not in issue below. We submit that special leave ought still go.
GAGELER J: That is the big problem for you, Mr Batt.
MR BATT: It is. Of course, your Honour, I am sorry, I did not mean to cut you off. We point your Honours to these considerations in aid of the submission that despite that circumstance, special leave ought to be granted.
First the issue we seek to raise before this Court on appeal to it is a purely legal one. It is not the case, and it is not suggested, that the respondent has been denied the chance to adduce any relevant evidence. Next, the point is squarely raised in the reasoning of the decisions below at trial, as followed on appeal. Indeed, both decisions depend upon the point. Thirdly, your Honours, the issue we seek to agitate is of great significance, both as to the proper disposition of this matter and, in turn, its very significant effect for the revenue and as a matter of law generally. Next, your Honours, we do - - -
GORDON J: Mr Batt, though, can I just ask you about the second basis where you say it is the central pivotal underpinning of the decisions below. If you go to application book 18, paragraphs 39 and 40, it is clear that not only did you frame the inquiry completely different to that which you now put it, but you did not contend any other characterisation of the nature of the asset was open, and, as I understand it, the second argument, "use", depends upon the nature of the asset. So, the whole foundation for the case in the way in which "use" is put depends upon this characterisation question which you - and, as I understand, Shell - framed any inquiry on.
MR BATT: Your Honour, may I say, first, we quite accept that the second ground as to . . . . . follows from how the interest is characterised. As to how the matter was put below, we do squarely accept, your Honour, that the argument we now seek to put was not put below. I ought, though, to say that the nature of Shell's supposed interest was a subject of dispute before his Honour the trial judge and was the subject of analysis and decision by him. May I point your Honours to paragraph 85 of his Honour's reasons at AB 30 - bottom of page 30 of the application book - where your Honours will see in the last sentence a recitation of what it was, centrally, that the Commissioner put in that respect below.
Having made those remarks, your Honour Justice Gordon, we do not cavil with the proposition that we do seek now to put a point not raised below. That is not in contest - - -
GAGELER J: Mr Batt, Justice Gordon's point really goes further than that; it is not just that it is a new point, it is that it is a point that contradicts the basis upon which you put the case at first instance and on appeal.
MR BATT: Your Honour, we accept that. What we say is that the very first analytical consideration, is in this matter, was there a depreciating asset which could have been the subject of deduction under section 40-80. If there was not, nothing else arises for consideration. The point that we seek to put before this Court cuts in at that very first juncture. If your Honours entertain this application and are with us, that is the end of the proceeding. If your Honours entertain the application, hear an appeal, and reject our first point, well, then the reverse is the case.
So, it is a dispositive point for the analytical consideration that this proceeding threw up and on the basis of which both his Honour Justice Colvin and the Full Court decided it. It is the bedrock premise that the matter does not get off the ground if there was not an asset to which section 40-80 could attach or by which it could be engaged. It is because of the fundamental nature of the argument that we seek, despite the undoubted significance of the matter that your Honours have immediately raised with me, that is why we press the application as we do.
GLEESON J: Mr Batt - - -
GAGELER J: When, you say - - -
GLEESON J: I am sorry, Justice Gageler.
GAGELER J: No, Justice Gleeson. Please.
GLEESON J: Mr Batt, does not the Commissioner need to explain why it is changing its position?
MR BATT: He has not sought to do so, your Honour. I can - I was not involved below. I can only say to your Honours that, having been briefed as were, we have identified this as the true point in the matter. We have not sought to pursue the grounds raised and rejected by the Full Court, on the basis that they are not proper and deserving of application before your Honours, but we have identified this as the seminal issue that the case raises.
GORDON J: Can I raise one other matter in that context, which probably leads on from what Justice Gleeson just asked you. Do we even know who are the registered holders of these statutory titles? I mean, because of the way the case was framed at first instance and on appeal, there are a whole range of other facts that would have ordinarily been investigated and for which there would be findings about.
MR BATT: Your Honour, with respect, I do not consider it is the case that there is any material that was not before the court that would be relevant - or before the courts below that would be relevant if this argument is raised. It is established in the materials that the effect of the transaction as to who the venturers were was, in effect, to remove Chevron from the picture. There were a number of venturers including Shell. All of them, before the transaction, were registered owners of the relevant titles and the effect of the transaction was, in effect, to sub out Chevron, and all of the others to remain as they were.
Shell then asserted that - and in terms using the phrase "equitable" - that equitable interests arose to the remaining participants, including Shell, in increased proportions in the titles by reason of that transaction, and put that proposition solely on the basis that the general mutual undertakings of the joint venture agreement operated to give rise to the venturers the holding of proportional interests in the titles, commensurate with whatever participating interests they had in the venture from time to time.
The gravamen of our submission, your Honours, is that that is erroneous. There is a slide - or a conflation from rights concerning property to rights in property. There is an elision of two conceptually fundamentally different concepts. So the outcome of that submission, if accepted, is that when the transaction occurred there was simply no change to the interests to which Shell could relevantly point which could be characterised as a depreciating asset for the purposes of section 40-80. Your Honours will have in mind that under the definition of "mining, quarrying or prospecting right" in section 995-1 of the Act, which is made use of for the purposes of the operative provisions, what is required is either an authority to explore for petroleum, relevantly stated, or an interest in such a right.
Now, here Shell and all the other pre-existing venturers, from before the transaction in question and at all relevant times, had the right to prospect and explore. They had the subparagraph (a) interest. Shell was therefore forced to rely on subparagraph (c) of the definition and assert that, by reason of the transaction, Shell acquired a greater interest in that right. Perhaps, when one stands back, a difficult proposition in the context of statutory authorities of which Shell was already one indivisible registered owner.
All that was pointed to below - to seek to engage section 40-80 for a deduction of in excess of $2.2 billion - was a notion that the general joint venture arrangements had the effect of vesting in Shell a proportional interest in these statutory authorities and permissions in whatever proportion it held an economic interest in the venture. In our submission, that is fundamentally unsound, and were that submission to be accepted, the deduction would be necessarily be denied and nothing would arise for consideration.
Now, your Honours, it is clear in our respectful submission from the reasons of Justice Colvin at trial - particularly, if I can refer your Honours briefly to paragraphs 25 and 38, and surrounding paragraphs which your Honours will find commencing out at page 15 of the application book for paragraph 25 and thereafter. It is clear from his Honour's reasons that it was only the mutual undertakings of the joint venture arrangements upon which - consistently the argument put to him by Shell - his Honour relied for the conclusion that interest in the statutory titles arose. Your Honours will, of course, have to mind, too, that the statutory titles were not joint venture property. As the reasons record, joint venture property expressly excluded the titles. So although joint venture property was, by the terms of the contracts, impressed with equitable tendencies in common, the statutory titles were no part of the operation of that provision.
That is what led, your Honours - in our respectful submission - Shell to contend that it was the general undertakings in the joint venture contract that somehow gave rise to property rights in the titles, separately from in some parallel universe from the registered ownership that all of the venturers have. So your Honours will see - - -
GORDON J: I do not know if that actually helps you, does it, Mr Batt, in this sense that, even if you read Mr Merralls' learned article, it all turns on the terms of the joint venture agreements, and turns on the specific facts because, as he expresses even in his opinion, it may, not must. There is no assessment here in the reasons for decision, is it, of the particular terms here that which would be relevant to that inquiry?
MR BATT: Well, your Honour, can I answer that in two stages. As to the first part of your Honour's question, it is, of course, put against us - it is sought to be submitted that this case just turns on its facts, so there is nothing further.
Now, of course, your Honour, just as with partnership cases, the terms of the partnership agreement will be relevant. The terms of the joint venture agreement here we could not say are irrelevant - the same as the case in a matter concerning a company constitution - but they are really, in our respectful submission, relevant in the sense of being the background against which the issue arises.
Joint venture agreements - the law, of course, establishes joint venture phenomena are not capable of any single definition, but they do have, your Honours, common attributes and common features. Here your Honours have a joint venture, as is the norm with participating interests ascribed to the particular venturers, and, in our submission, nothing does turn at the factual level on the detail of this matter. Rather, what your Honours see in the trial judgment as followed on appeal is the adoption of a very general approach, not based on any consideration of the definition of "mining, quarrying or prospecting right" or the term "interests" in that definition, but his Honour Justice Colvin rather adopts the most general of approaches and simply says where you have a joint venture:
with specified participating interests, the dealing between the venturers will give rise to an interest in the authority to explore -
Your Honours see that in terms of application book 15, paragraph 25, point 5 of the paragraph, beginning:
If a joint venture is formed -
Your Honours see it through - if I may take you forward to application book 18, paragraph 38, a paragraph with some eight lines. We take no exception with anything in the first six lines, but we draw your Honours' attention then to the last two and a bit lines, where his Honour says:
Those rights -
That is, the joint venture rights:
which might be described as proportionate participating interests in the joint venture, became the source of proportional interests of each of the venturers in the Statutory Titles.
Now, if your Honours were to - and time does not permit me to do it, but if your Honours were also to have regard to the paragraphs of his Honour's reasons at application book 29 to 30, particularly paragraphs 82 to 84, your Honours will see the same very general - we do not mean disrespect - but very broad-brush approach.
His Honour does not have regard to the definition of "interests" in section 995-1. His Honour does not cite authority. His Honour does not pick up your Honour Justice Gordon's question, fastened upon any particular aspect of the joint venture arrangements, other than that there were specified participating interests - which is the norm. His Honour simply - without meaning to be pejorative - slides from the joint venture contractual arrangements to the existence of property rights in the property the subject of the joint venture. In our submission, that is an impermissible and erroneous conflation. It elides the joint venture interests with the interests that here had arisen to the participants under the statutory permissions, and it is of such generality that it stands to be applied in the context of other joint venture arrangements outside of the petroleum field, and outside the mining, quarrying, prospecting provisions of the Income Taxation Assessment Act.
Your Honours, may I, having said that at this submission, even if - and we say this ought not be done - but even if this Court were to characterise this proceeding as limited in its relevance and ambit and its signification to either the mining, quarrying, prospecting provisions of that Act, or, more narrowly, those provisions so far as interacting with the offshore petroleum regimes, even then, your Honours, we say that what has been done here - the finding of proportional interest in the property concerned with which the joint venture was concerned - is of so much significance that it ought be the subject of a grant of special leave so that the approach can be considered carefully and, we say, rejected. What should have been held, in our respectful submission, is that by the transaction in question, Shell did acquire an enhanced interest in the joint venture itself, but acquired no further interest in the statutory titles of which it was, of course, already a registered holder.
Now, your Honours, that is the gravamen of the submission that we seek to put on appeal to this Court. We submit that on account of the broad ambit of the argument and, indeed, as a separate and further consideration,
the significance of the mining, quarrying, prospecting rights provisions of the Income Tax Assessment Act and the breadth of their operation, that the matters, despite the issue about which your Honours first asked me, eminently suitable for a grant of leave, it stands that broad application in relation to the proper understanding of joint venture agreements and the interests that they create.
We submit it sits discordantly with decided authority in other areas, which although not identical are sufficiently analogous to inform the assessment, particularly the partnership context and the decision of this Court in Rojoda. We point, although not as our primary consideration, to the effect of this case alone on the public revenue, and we submit for all those reasons the matter raises questions of general importance, both by their wide application and their very nature and ought be the grant of leave.
Your Honours, as to the second ground, we adopt our written submissions. We respectfully submit that the issue of first use is, of itself, one of importance on which the Full Court, which did deal with the issue, erred. We submit further that if leave were granted on ground 1, then ground 2, which would add little by way of content to the appeal, ought also be the subject of a grant of leave.
If your Honours please, those are our submissions in support of the application, subject to any matters by way of reply.
GAGELER J: Thank you, Mr Batt. The Court will at this stage retire to consider the course it will take.
AT 11.48 AM SHORT ADJOURNMENT
UPON RESUMING AT 11.55 AM :
GAGELER J: In University of Wollongong v Metwally (No 2) (1985) 59 ALJR 481 at 482-483, this Court stated unanimously that, except in the most exceptional circumstances, it would be contrary to all principle to allow a party, after a case had been decided against that party, to raise a new argument which - whether deliberately or by inadvertence - the party failed to put during the hearing when there was opportunity to do so. That salutary statement of principle is applicable here.
Without adequate explanation, the Commissioner of Taxation seeks to raise on appeal to this Court an argument wholly at odds with the manner in which issue was joined in the Federal Court. The procedural history makes this a distinctly inappropriate vehicle for this Court to be called upon to consider the question of public importance said by the Commissioner to be raised by that new argument. The application is dismissed with costs.
The Court will now adjourn until 12.30 pm.
AT 11.56 AM THE MATTER WAS CONCLUDED