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ATS Pacific

In tax circles at least, there has been some interest in the recently handed down decision of the Full Federal Court in ATS Pacific (ATS Pacific Pty Ltd v Commissioner of Taxation [2014] FCAFC 33).

There is an inherent competition between Parliament’s intention to tax and a person’s intention to avoid taxation. Of course in the majority of cases taxation is a straightforward affair; but in a revenue statute Parliament’s dilemma is to use a finite amount of words to cover an infinite variety of circumstances. In the GST context, the base of taxation is the concept of a ‘supply’. Thus a supply of a good would ordinarily attract GST, as will the supply of a service, as will the supply of intangible or real property. Yet equity and policy demand that revenue statutes create concessions and, in this respect, the GST is no exception. The more known GST exceptions include food, healthcare and education. Lesser known GST exceptions include the supply of things for consumption outside Australia (in s 38-190 of the A New Tax System (Goods and Services Tax) Act (GST Act)).

One area that has caused some difficulty has been inbound tourism from overseas. If a non-resident took a flight to Australia, then while in Australian they hit up a hotel or a pub, they would have to pay GST on the accommodation or food that is supplied to him or her. So much is uncontroversial.

Is it possible then, for the non-resident tourist to buy an all-inclusive holiday package while they are overseas and avoid having to pay GST by redeeming the pre-paid purchases (perhaps by way of a voucher) at the same hotel or pub once they are in Australia?

The facts

This was (almost) the business model ran by ATS Pacific. ATS was in the business of selling Australian holiday packages that was eventually consumed by non-resident tourists. Now, had ATS directly sold a holiday package to the non-resident tourist, then ATS would have been liable to charge GST on the holiday components of the package. Parliament foresaw this loophole and provided under s 38-190(2) that a supply of a thing to a non-resident would not be GST-free if it is the supply of a right or option to acquire something the supply of which would not be GST-free. In other words, if ATS sold the non-resident tourist vouchers to acquire a good or service that would not be GST-free in Australia, then that voucher itself would not be GST-free.

So what was ATS’ business model?

Cleverly, ATS did not supply anything to the non-resident tourist.

ATS purported to sell ‘arranging services’ to non-resident travel agents which avoided them selling rights to acquire something that would not be GST-free. In short, ATS sold arranging services to non-resident travel agents, who then on sold the holiday package to the non-resident tourists.

In more detail, a non-resident tourist would say to the non-resident travel agent ‘I would like to go to Sydney’. The non-resident travel agent would then say to ATS ‘I would like to buy a holiday package for my client to go to Sydney’.

ATS would then contact the Hilton and say, I would like to book accommodation for three days and three nights, redeemable by either myself or another person.

ATS would then contact Hertz rental cars and say, I would like to rent a car for three days and three nights, redeemable by either myself or another person.

ATS would then contact Tetsuyas and say, I would like to book an evening for two guests for the degustation menu, redeemable either by myself or another person.

ATS then gives the non-resident travel agent an email saying that everything is ready for the tourist. With this email was a code (something like JK93FF67).

Then when the non-resident tourist comes to Australia he or she would say to the Hilton concierge “JK93FF67” with a wink and a nod. Voila, the non-resident tourist would be given a ‘complimentary’ room for three days and three nights. The same would happen at Hertz and Tetsuyas.

The issues

How did this business model apparently avoid GST?

It was because when ATS made a booking with the Hilton, the Hilton, correctly so, charged ATS GST on the supply of the room. Similarly Hertz charged GST on the supply of the cars. However, because ATS acquired the products in the course of its business, it was entitled to GST input credits and so a refund on its GST (because GST is supposed to be a tax on consumption to be borne by the end user). In essence, ATS’ acquisition of the hotel accommodation, transport, and any other goods or service would be GST-free.

In the ordinary case, was ATS to sell the holiday package to the tourist directly, as identified above, ATS would have had to charge GST on its supply and so the ATO would eventually collect that 10 per cent GST on the initial supply by the Hilton or Hertz rental cars.

Instead however, ATS didn’t actually supply anything to the non-resident tourist did it?

All ATS supplied was a facility for the non-resident travel agent to make arrangements for a non-resident tourist to receive complimentary hotel rooms and car rentals upon his or her arrival to Australia. ATS contended that all it supplied was a single GST-free supply of booking or arranging services. This was, allegedly, made GST free by s 38-190(1) item 2 which provided that ‘a supply that is made to a non-resident who is not in Australia when the thing supplied is done’ is GST free. So the supply of ‘booking services’ was indeed made to the non-resident travel agent while the non-resident travel agent was not in Australia.

Of course ATS turned a profit from this – I use the word complimentary in jest. ATS would pay the Hilton and Hertz, say, $10,000. ATS would charge the non-resident travel agent $10,400, and the non-resident travel agent would charge the non-resident tourist $10,800; all in all a $200 saving because $1,000 GST would have been payable otherwise.

The ATO was understandably upset. The case therefore revolved around a simple question; what was the supply and how do we identify it?

The case on appeal

If nothing was indeed supplied to the end consumer, then the GST payable would ‘drop out’ and never be collected. The primary judge tacked this problem by implying a contractual term (using the jurisprudence in BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266) that ATS supplied the non-resident travel agent with a contractual right or promise that the Australian providers (the Hilton and Hertz) would provide the products to the non-resident tourist.

This being the case, the primary judge held at [139] that it amounted to ‘a supply under an agreement with a non-resident [the travel agent] in circumstances where the supply is provided, or the agreement requires it be provided to another entity [the tourist] in Australia’ and so was not GST-free under s 38-190(3).

The first question is the characterisation of the supply.

Edmonds J wrote the leading judgment, with whom Pagone J concurred and Davies J agreed. In his Honour’s judgment, his Honour eschewed strictly legal analysis of the rights supplied by whom and to whom. His Honour said at [33]:

I do not think it is desirable, in the interests of certainty of application of a revenue statute, for the characterisation of a supply made by performance of an executory contract, to depend upon whether or not a term can be implied into the contract, unless it is absolutely essential to give business efficacy to the contract. In this day and age, revenue statutes are inherently complex, and the GST Act is certainly no exception. The concept of a “supply”, as defined in s 9-10 of the GST Act, is fundamental to the operation of that Act and has greatly contributed to that uncertainty… Resort to jurisprudence in contract law to imply a term into a contract does not contribute to an aspirational hope, let alone a confident expectation, of certainty of application going forward.

At [39], Edmonds J continued:

In determining the character of a supply – what was really supplied? – pursuant to performance of an executory contract, a court is not to be “handcuffed” by the terms embodied in the four corners of the contract, the more so if those terms and conditions do not represent all the terms and conditions of the contract; or where the contract is but one link in a chain of contracts, the performance of each being related to, if not dependent on, performance of the immediately preceding contract; or where, by reference to the factual matrix of the entirety of the arrangements, the commercial or practical reality points to the conferral or provision of a supply which goes beyond the conclusion that might otherwise be drawn from a confined analysis of the terms and conditions of one contract in that chain.

If the reader can follow the pro-numerals, at [40] Edmonds J explains:

Undoubtedly, where the supply is made pursuant to the performance of a stand-alone executory contract between B and C which is totally unrelated to any other contract either B or C has entered into, an analysis of the terms and conditions of that contract will shed considerable light on the character of the supply made between B and C. Where, however, the supply is made pursuant to the performance of an executory contract between B and C which is related to a contract between A and B; to a contract between C and D; and to the consumption by D of what A provided B, it could not, at least in my view, be seriously denied that in determining the character of the supply from B to C one could not have regard to matters standing outside the contract between B and C, in particular, to the terms of the contract between A and B, between C and D and to the consumption by D of the contractual promise from A to B in determining the characterisation of the supply from B to C.

In other words, if ATS enters into a contract with a non-resident travel agent with the intention of benefiting the non-resident tourist, that benefit to the non-resident tourist is relevant to characterising the supply by ATS.

Edmonds J concluded on the characterisation issue:

[I]t was open to [the primary judge] to find that the supply made by ATS to the [non-resident travel agents] was to be properly characterised as a promise by ATS that ATS would ensure that when the [non-resident tourists] came to Australia they would be provided with the Products the [non-resident tourists] had paid for, and that there was no error on the part of [the primary judge] in so finding.

The second question was whether any of the GST exceptions in s 38-190(1) applied to the case at hand.

It was almost incontrovertible that the accommodation supplied was not GST-free because of a blanket rule that the exceptions in s 38-190(1) do not apply to supplies of real property; so much followed from the decision in Saga Holidays Ltd v Commissioner of Taxation (2006) 156 FCR 256.

Insofar as the goods and services component is concerned, Edmonds J found that s 38-190(2) applied and at [58] reasoned:

[It] is whether ATS’ supply to the NR Travel Agents characterised as the supply of a promise that it (ATS) would ensure that the Australian Providers would provide the goods and services components of the Products to the NR Tourists when they came to Australia, carries with it a right to acquire those goods or services. In my opinion, having regard to the characterisation of the supply made by ATS to the NR Travel Agents and the articulation of the promise constituting that supply, it did carry a right to acquire those goods or services, albeit a right exercisable by or for the benefit of the NR Tourists. It follows, in my view, that insofar as the non-accommodation components are concerned, the exclusion in s 38-190(2) is triggered with respect to ATS’ supply of the promise, as articulated by the primary judge, to the NR Travel Agents, and such supplies are not GST-free.

The consequence was that none of the supplies made by ATS to the non-resident travel agents were GST free.

Further, while the primary judge found that the margin charged by ATS (in our example above, being $400) was GST-free, because it was, in her Honour’s opinion, consideration received for a booking or arranging service, the Full Federal Court disagreed. In short, because ATS chose to structure their business as the provision of a comprehensive package, they were liable to pay GST even on their margin. The margin could not be dissected and removed from the acquisition of the hotel room, car, or meal by ATS for the non-resident tourist.


ATS Pacific is a good case because it illustrates the creative energies exhibited by taxpayers and their advisors in attempts to minimise tax liabilities.

It is important in the revenue context of course because it eschews a strictly legalistic approach to the supply and acquisition of rights in the GST context. Rightly so I think, if the GST is to be a fair tax and serve its policy purpose of taxing consumption in Australia.

Schedule: s 38-190 of the GST Act

Supplies of things, other than goods or real property, for consumption outside Australia

(1)    The third column of this table sets out supplies that are GST-free (except to the extent that they are supplies of goods or *real property):

Supplies   of things, other than goods or real property, for consumption outside   Australia



These   supplies are GST-free (except to the extent that they are supplies of goods   or *real property)…


Supply   connected with property outside Australia

a   supply that is directly connected with goods or real property situated   outside Australia.


Supply   to *non-resident outside Australia

a   supply that is made to a *non-resident who is not in Australia when the thing   supplied is done, and:

(a)    the   supply is neither a supply of work physically performed on goods situated in   Australia when the work is done nor a supply directly connected with *real   property situated in Australia; or

(b)    the   *non-resident acquires the thing in *carrying on the non-resident’s   *enterprise, but is not *registered or *required to be registered.


Supplies   used or enjoyed outside Australia

a   supply:

(a)    that   is made to a *recipient who is not in Australia when the thing supplied is   done; and

(b)    the   effective use or enjoyment of which takes place outside Australia;

other   than a supply of work physically performed on goods situated in Australia   when the thing supplied is done, or a supply directly connected with *real   property situated in Australia.



a   supply that is made in relation to rights if:

(a)    the   rights are for use outside Australia; or

(b)    the   supply is to an entity that is not an *Australian resident and is outside   Australia when the thing supplied is done.


Export   of services used to repair etc. imported goods

a   supply that is constituted by the repair, renovation, modification or   treatment of goods from outside Australia whose destination is outside   Australia.

(2)    However, a supply covered by any of items 1 to 5 in the table in subsection (1) is not GST-free if it is the supply of a right or option to acquire something the supply of which would be *connected with Australia and would not be *GST-free.

(2A)    A supply covered by any of items 2 to 4 in the table in subsection (1) is not *GST-free if the acquisition of the supply relates (whether directly or indirectly, or wholly or partly) to the making of a supply of *real property situated in Australia that would be, wholly or partly, *input taxed under Subdivision 40-B or 40-C.

Note:    Subdivision 40-B deals with the supply of premises (including a berth at a marina) by way of lease, hire or licence. Subdivision 40-C deals with the sale of residential premises and the supply of residential premises by way of long term lease.

(3)    Without limiting subsection (2) or (2A), a supply covered by item 2 in that table is not GST-free if:

(a)    it is a supply under an agreement entered into, whether directly or indirectly, with a *non-resident; and

(b)    the supply is provided, or the agreement requires it to be provided, to another entity in Australia.

Filed under ats pacific gst gst act supply tourism australia tax taxation federal court full federal court law

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A Response to Edward

A friend of mine, Edward McMahon expressed some legal opinions the other day in relation to the case of Raue v Morris. They can be accessed here:

The opinions expressed by Edward, well-meaning as they may be, are infected with superficiality and do not express views that are capable of being supported by the authorities.

There are 3 fundamental errors, in addition to other sundry errors, in the opinion expressed. I would like to draw attention to those errors and invite correction.

Construction of the Constitution

The first error in Edward’s legal analysis is the opinion that ‘Those wishing to dismiss Tom must fulfill the conditions of 3.1.3 and 3.1.4 of the regulations’ is the only method by which a director can be dismissed from office.

As per the judgment of Bellew J, there are two methods by which a director can be removed from the Board. The first is through the mechanism of clause 7.5(a)(i) in conjunction with clause 9.2(f)(ii). As Bellew J observed in paragraphs 80-82:

Pursuant to the provisions of the Constitution:

(i) membership of the Union is a pre-requisite to holding office as a Director [clause 7.5(a)(i)];

(ii) the Constitution confers, upon the Board, the power to expel a member from membership of the Union if that member is, in the opinion of the Board, guilty of misconduct [clause 9.2(f)(ii)].

Importantly, clause 9.2(f)(E), by its terms, expressly contemplates that the power in clause 9.2(f)(ii) may be exercised in respect of a Director.

In my view, in light of these provisions, the Board has an express power to expel a person from membership of the Union on the grounds of misconduct. The effect of such a decision is that a person so expelled cannot, by virtue of clause 7.5(a)(i), hold office as a Director. In these circumstances I do not accept the submission that the Constitution does not contemplate the expulsion of a Director, or that the Board has no power under the Constitution to pass a motion for such expulsion.

This error meant that Edward’s analysis was confined to considering the requirements of cll 3.1.3 and 3.1.4 of the Constitution, and not on the less onerous grounds of removing a member from the Union, and thereby vacating the member’s office as director.

Breach of Fiduciary Duties

The paragraph that disposes of this argument is framed thusly:

Tom is accused of breaching a fiduciary duty. It is said that by leaking the information in question, Tom has jeopardized the board’s financial relationship with the university. This assertion firstly assumes that the USU receives SSAF monies from university management only so long as it behaves precisely as university management desires. This immediately undercuts any notion of student democracy within the USU. It further assumes that this role of the USU as an obedient child is somehow formalized in a financial arrangement between the bodies and that Tom has jeopordised it by leaking a few words from an unrelated report. Certainly Tom’s actions do not fit neatly into an established category of breach of fiduciary duty, and it takes a scheming mind indeed to advance the argument.

Aside from misunderstanding the principles of fiduciary law, this reasoning is shows glaring lapses of logic. To begin, the foundation for this alleged breach is that, as admitted, ‘by leaking the information in question, Tom has jeopardized the board’s financial relationship with the university’. Edward attempts to assail the argument put forward by proponents of Tom’s removal by arguing three propositions:

  1. This assertion firstly assumes that the USU receives SSAF monies from university management only so long as it behaves precisely as university management desires.
  2. This immediately undercuts any notion of student democracy within the USU.
  3. It further assumes that this role of the USU as an obedient child is somehow formalized in a financial arrangement between the bodies and that Tom has jeopordised it by leaking a few words from an unrelated report.

The first proposition is not contradicted by evidence supplied by Edward.

The second proposition about student democracy is completely irrelevant to fiduciary law, except insofar as disclosure and consent is concerned, which it is not in the present instance.

The third proposition is not contradicted by evidence supplied by Edward.

In criticising the reasoning in this paragraph, other than in respect of Edward’s second proposition, I does not deny the merits of the argument. I merely invite Edward to revise his reasons.

Edward continues to say that “Certainly Tom’s actions do not fit neatly into an established category of breach of fiduciary duty, and it takes a scheming mind indeed to advance the argument”. This approach is a clever revision of fiduciary law that is not supported by the authorities. It is unnecessary to fit a set of facts into an established category of breach. So much transpires from the leading judgment of Deane J in Chan v Zachariah (1984) 154 CLR 178 at 198-9:

The variations between more precise formulations of the principle governing the liability to account are largely the result of the fact that what is conveniently regarded as the one “fundamental rule” embodies two themes. The first is that which appropriates for the benefit of the person to whom the fiduciary duty is owed any benefit or gain obtained or received by the fiduciary in circumstances where there existed a conflict of personal interest and fiduciary duty or a significant possibility of such conflict: the objective is to preclude the fiduciary from being swayed by considerations of personal interest. The second is that which requires the fiduciary to account for any benefit or gain obtained or received by reason of or by use of his fiduciary position or of opportunity or knowledge resulting from it: the objective is to preclude the fiduciary from actually misusing his position for his personal advantage. Notwithstanding authoritative statements to the effect that the “use of fiduciary position” doctrine is but an illustration or part of a wider “conflict of interest and duty” doctrine… the two themes, while overlapping, are distinct.

What emerges from the quoted paragraph is that it is not necessary to find established categories of breach, for example, breach by misappropriation of funds, or breach by exploiting a corporate opportunity for personal gain. It is sufficient to show that the fiduciary acted in a manner where his or her personal interest conflicted with his or her fiduciary duty.

Improper Use of Information

Edward here conflates two concepts, impropriety and due care and diligence. As I understand Edward’s argument, he is advancing a positive case that a director’s duty of due care and diligence informs contours of impropriety. This novel approach is not supported by authority.

First, it is trite to observe that a director, or any person for that matter, may be under concurrent but separate duties and the duties do not all meld into one.

Let me illustrate this with an analogy: in one sense, everyone is under a duty of care with respect to liability in negligence. It is not an answer to a suit that I made improper use of information, that I was particularly careful when I was doing so.

Second, Edward makes the claim that ‘Tom’s duty of care and diligence demanded that USU members be informed of this collaboration, so that they could make an informed decision about their participation in this industrial action’. This claim is unsupported by authority.


What is right and what is legal may, at times, fail to coincide. What is just and what is fair may also at times fail to coincide. This is such a case.

Every member of the USU has consented to the rules of governance to which they subscribed upon becoming a member. Therefore one cannot complain of being treated unjustly if they are subject to the rules to which they have voluntarily subscribed.

Accepting that what is right and what is legal does not coincide, I have taken the view that morally speaking, Tom should not be removed for preferring the interests of the protestors over the interests of the USU.

It does engender mild irritation however when people advocate incorrect views of the law with such confidence. And so, while I would prefer not to be seen as advancing a case against Tom, I must correct what in my view is an manifestly unreasonable interpretation of the law.

Filed under raue v morris tom raue usu hannah morris equity fiduciary

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The Relationship Between Same Sex Marriage and Communism

Sometimes an answer is determined by the way the question is framed. The present case is an example of this principle.

As the High Court noted in paragraphs [3]-[5]:

As the title of the ACT Act indicates, its object is to provide for marriage equality for same sex couples, not for some form of legally recognised relationship which is relevantly different from the relationship of marriage which the federal laws provide for and recognise. The Marriage Act does not now provide for the formation or recognition of marriage between same sex couples. The Marriage Act provides that a marriage can be solemnised in Australia only between a man and a woman and that a union solemnised in a foreign country between a same sex couple must not be recognised as a marriage in Australia.

Those provisions of the ACT Act which provide for marriage under that Act are not capable of operating concurrently with the Marriage Act.

Because the ACT Act does not validly provide for the formation of same sex marriages, its provisions about the rights of parties to such marriages and the dissolution of such marriages cannot have separate operation and are also of no effect.

Key to that conclusion was the reasoning in paragraph [57]:

The Marriage Act regulates the creation and recognition of the legal status of marriage throughout Australia. The Act’s definition of marriage sets the bounds of that legal status within the topic of juristic classification with which the Act deals. Read as a whole, the Marriage Act, at least in the form in which it now stands, makes the provisions which it does about marriage as a comprehensive and exhaustive statement of the law with respect to the creation and recognition of the legal status of marriage. Why otherwise was the Marriage Act amended, as it was in 2004, by introducing a definition of marriage in the form which now appears, except for the purpose of demonstrating that the federal law on marriage was to be complete and exhaustive?

Am I the only one who thinks that the 2004 amendment was ineffectual to its purpose?

There is a subtle distinction between the Federal Parliament’s power to legislate with respect to marriage and its power to define marriage.

Let me frame my concern in this way: is the power of the Federal Parliament to legislate on a subject matter that currently exists, it being same sex marriage as a concept distinct from opposite sex marriage, or is it to legislate with respect to defining marriage so as to exclude from the definition of marriage the union of two men or two women? In other words, what is the power of the Federal Parliament to define the subject matter on which it is given legislative power by s 51?

It looked as if the High Court took the view that the Federal Parliament does have the power to define marriage. Indeed in paragraph [9], the judgment reads ‘By contrast, if the federal Parliament can make a national law providing for same sex marriage, and has provided that the only form of marriage shall be between a man and a woman, the two laws cannot operate concurrently’.

The amendment inserted the words ‘marriage means the union of a man and a woman to the exclusion of all others, voluntarily entered into for life’. It was not an amendment to say that all social arrangements other than those provided for under the Marriage Act between a man and a woman are void (or words of similar effect). The words, as I understand them, clearly purport to define the subject matter of s 51(xxi).

If the proper inquiry was whether or not the 2004 amendments were even effective to do what they purported to do. If the proper enquiry was made, I do not think that the High Court could have come as easily as they did to the same conclusion in paragraph [59] that ‘these particular provisions of the Marriage Act, read in the context of the whole Act, necessarily contain the implicit negative proposition that the kind of marriage provided for by the Act is the only kind of marriage that may be formed or recognised in Australia’.

Of course I do not profess to be a constitutional scholar and I am wary of trying to fit in Communist Party case style arguments where they do not belong. Nonetheless, it was an issue that I believe warranted some discussion. It is now perhaps a moot point but I hope that if an exam question is going to be set on similar factual circumstances, someone else could have a crack at it. 

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This is a good one

So it looks like even some of the best judges fail to understand the nature of tax effective transactions. 

All the while the Chief Justice is saying, guys, we’re getting off topic. Focus!

Poor Mr Dhanji, being taken in two different directions by the bench…

Milne v The Queen [2013] HCATrans 279 (8 November 2013)

HAYNE J: Before we dive into the statute can I just understand the transaction better than I do?


HAYNE J: The taxpayer owns shares. The taxpayer swaps share with an offshore entity. Swapped shares swapped out go into offshore entity. What then happens, offshore entity realises the shares?

MR DHANJI: No, can I go back a step?


MR DHANJI: The taxpayer owns shares. Shares are transferred to offshore entity, whilst within the offshore entity those shares are exchanged for other shares. The exchange for other shares - - -

HAYNE J: Within the offshore entity?

MR DHANJI: Within the offshore entity but that was for capital gains tax purposes a disposal of the shares. Effectively, they were sold and what was - - -


FRENCH CJ: That was the relevant disposition.

MR DHANJI: That was the relevant disposition. If I can just perhaps go back a step, in terms of this case, there are these curious Dutch Stichtings and these particular structures - - -

FRENCH CJ: We do not need to get into the detail of it.

MR DHANJI: But none of that matters - - -

FRENCH CJ: The essential question is whether the concealment of the disposition, or the asserted concealment of the disposition can constitute an intended use of the property – a use of the property for – in relation to an intended offence.

MR DHANJI: Intended offence?



FRENCH CJ: The intended offence being the nondisclosure of the capital gain.

MR DHANJI: That is right, your Honour, but more particularly whether that disposal was a disposal that could be termed a disposal with an intention that there would be the future use of the shares…

Your Honours no doubt appreciate that the applicant was charged under section 400.3… So when one goes to the provision what is required is that there be a - pursuant to (1)(a) - dealing with the “money or other property”. That was the shares. There is no issue that was able to be or had the capacity to be a relevant dealing.

HAYNE J: The dealing was the swap out?

MR DHANJI: The dealing was the swap out.


MR DHANJI: No, the dealing was the swap. So they were transferred into the overseas company.

HAYNE J: The transfer out.

MR DHANJI: No, not the transfer out, the exchange for the other shares. So, in other words, when they were sold, to put it in very simple terms, it was when they were sold.

HAYNE J: I am sorry to be so slow, but the taxpayer was alleged to deal with shares and the dealing asserted was the transfer to the offshore entity or the dealing by the offshore entity constituting a swap?

MR DHANJI: The second.

HAYNE J: Well, how was the taxpayer dealing with it at that point?

MR DHANJI: I appreciate that that was the company’s – that was the company’s dealing, or indeed the offshore company’s dealing.


MR DHANJI: The Crown case was that the applicant was in effect complicit in some - - -

HAYNE J: But he transferred shares into an offshore entity so that the offshore entity could subsequently engage in a transaction which would see a swap which was a CGT event which would never quite happen to meet the return.

MR DHANJI: No, your Honour, because - - -


MR DHANJI: No, because it was not the Crown case that the transfer into the offshore entity was the dealing. The dealing was clearly, on the Crown case, the disposal of shares.

FRENCH CJ: Can I just try and – in this little journey of exploration – formulate my understanding of what the question is and is it – tell me whether this is correct – whether the concealment by use of certain offshore corporate structures and a share swap transaction of the disposal of shares owned by the company controlled by the applicant, whether that concealment constituted the applicant’s intended use of the shares as an instrument of crime, the crime being that of obtaining a gain by subsequently failing to disclose the capital gain derived from the disposal.

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Anonymous asked: Describe your ideal sugar daddy

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The Public Service Association v Director of Public Employment

The Public Service Association v Director of Public Employment


The Industrial Relations Commission of NSW (Commission) is established by the Industrial Relations Act 1996 (NSW) (IR Act). The Commission has the power to make an award in accordance with the IR Act setting fair and reasonable conditions of employment for employees.[1] In March 2011 the Public Service Association (PSA), a trade union, filed an application in the Commission seeking two new awards. With these claims, the PSA adduced evidence of inflation, changes in the cost of living etc. While the two matters were being attended to, the IR Act was amended to insert s 146C. Section 146C requires the Commission when making or varying any award or order, to give effect to any policy on public sector employee conditions that is declared by the regulations to be an aspect of government policy to which the Commission must give effect. The requirement in s 146C takes precedence to the more general duty to make fair awards.[2] The IR Act also provides for a general regulation making power in the Governor. The Governor would be able to make policy, and that policy would be given explicit force by s 146C.

Under the IR Act, there are two types of Commission members, “Presidential” and non-Presidential. Of the former, they may include the President, a Vice-President, and any number of Deputy Presidents. Importantly, Presidential Members may be appointed as a “Member of the Commission in Court Session”. If so appointed, they are “judicial members” of the Commission and they constitute the what is known as the Industrial Court. The NSW Constitution provides that there are three superior courts of record. These are the Supreme Court, the Land and Environment Court, and the Industrial Court.

The PSA challenged the validity of s 146C of the IR Act. The PSA argued that s 146C imposes on the judicial members of the Commission to give effect to government policy while they are not sitting as the Industrial Court. In this way, it is argued, the judicial integrity of the Industrial Court is undermined because the judicial officers of the Court are also involved in implementing executive policy.

Constitutional Context

All scholars of Federal Constitutional Law are familiar with the Boilermaker doctrine. Basically, the text and structure of the Federal Constitution is such that the judicial power of the Commonwealth is vested exclusively in what are called Chapter III courts. These courts are defined by s 72 of the Constitution and include the High Court, the various Federal Courts, and a State court invested with Commonwealth jurisdiction. As French CJ said, “The doctrine of the separation of judicial from executive and legislative powers, which is derived from the text and structure of the Commonwealth Constitution, has the consequence that a body like the Commission, combining non-judicial and judicial functions, could not be established by a law of the Commonwealth.”[3]

However, the Commission is a body established by a State Parliament. Save for the Kable principle, State judicial power is not so exclusively confined. Thus French CJ set out the constitutional context and said that the legislative history of the Industrial Relations Acts since Federation reflect:

The constitutional authority of the State legislature in structuring the regulatory and judicial institutions of the State unconstrained by the doctrine of separation of executive and judicial powers applicable to federal courts. There are, however… limits upon the powers of State legislatures to make laws imposing on State courts functions which are incompatible with their institutional integrity as courts. A State legislature cannot subject State courts to direction by the executive government of the State, nor enlist a court of the State to implement decisions of the executive in a way that is incompatible with the court’s institutional integrity. Nor can it confer upon a judge of a State court a non-judicial function which is substantially incompatible with the functions of the court of which the judge is a member.[4]

These can be taken to be a comprehensive summary of the principles of State Constitutional law since Kable v Director of Public Prosecutions as applied and interpreted since 1996.


The appeal was dismissed and it was held that s 146C was not unconstitutional. Notwithstanding the French CJ gave the leading judgment. The appeal was disposed of by answering two questions;

1.       What is the proper construction of the word “policy” as it is used in s 146C?[5]

2.       What is the constitutional character of a regulation made under s 407 with its effect amplified by s 146C?[6]

The first question was resolved by construing the word policy to not mean policy which is ambulatory. As an example from the case law, the word policy as it is used in the IR Act would not encompass the type of policy subject to litigation in Green v Daniels.[7] Thus, “policy” as used in s 146C “does not extend to a direction as to the outcome of a particular matter before the Commission which leaves the Commission with nothing to do but to translate the direction into its order.”[8] French CJ continued however and said “the term does, however, encompass principles of the kind embodied in the Regulation.”[9] The consequence appears to be that where the government has announced a policy in the same manner as that in Green v Daniels, s 146C does not mandate the Commission to inflexibly apply that policy. When that policy is made the subject of a regulation, then s 146C would apply. Furthermore, the Chief Justice held that s 146C does not extend “to a regulation incorporating by reference a policy which consists simply of a direction about the outcome of a particular case before the Commission.”[10]

Similarly the majority of Hayne, Crennan, Kiefel and Bell JJ said:

Those requirements (described in s 146C(1)(a) and cl 4 of the Regulation as “government policy”) are fixed by law, for they take effect only when fixed by regulation. The fixing of those requirements, by regulation, is an exercise of legislative power

As to the second question, the Chief Justice answered:

A regulation of the kind referred to in s 146C declares a policy in the sense explained above and attaches legal consequences to it, including the Commission’s duty to give effect to it. The policy becomes part of the body of law which the Commission is required to apply in the proceedings before it.[11]

In short, the combined effect of ss 146C and 407 is as follows:

The application by the Commission of a regulation of the kind contemplated by s 146C does not involve the Commission in giving effect to an executive direction. It is simply required to apply the law as set out in the IR Act and the relevant regulation, which incorporates by reference the principles set out in a policy declared by the regulation. Such a policy could be embodied in the text of the regulation itself without any need to separately identify it as a “policy”.[12]

Notwithstanding the cogency of the construction given by the Chief Justice, we might still resist the Chief Justice’s construction. This is because the construction apparently makes s 146C redundant because the policy becomes part of the body of law by reason of s 407 and effect must be given to it regardless of s 146C. Wherefore is there a need for s 146C? The answer lies in the subordinate role of delegated legislation. The effect of s 146C is then to elevate any regulations made under s 407 to override s 10 and other sections of the principal Act (the IR Act), essentially by piggybacking the Regulations on the primacy of s 146C. In conclusion then, s 146C simply requires the Commission to give primacy to policy that is the subject matter of the Regulations validly made under s 407. The judicial members of the Commission are asked to apply the law and to do so does not impugn their institutional integrity.


Given that the case was disposed of by way of statutory construction the case does not provide much by way of State constitutional jurisprudence. Kable was referred to by the Chief Justice and the majority but only Heydon J commented on it (below). Let us first comment on Heydon J’s separate judgment before turning to the merits of the PSA’s submissions.

Heydon J of course again gave a separate, though concurring, judgment. There are two things to take away from his judgment. First, Heydon J makes Kable the focal point of his judgment. Unfortunately his reductio ad absurdum does little more than show his dissatisfaction for Kable in less than ambiguous terms. His Honour remarked;

The Kable statements cannot possibly be applied to invalidate regulations merely on the ground that the courts are obliged to apply them. If they did, there would be a fatal flaw at their heart. That flaw is that the enactment of a s 146C(1)(a) regulation as part of an Act of Parliament would be equally vulnerable to invalidity on Kable grounds. Vulnerability of that kind would destroy the legislation-making power of the States. [13]

After giving a brief civics lesson on how policy is drafted into a Bill and the process by which a Bill becomes an Act of Parliament, he then said:

Once that “policy” is reflected in statutes and regulations, it is binding as a matter of law. The judicial branch of government declares and enforces the law. In that sense, the judiciary gives effect to government policy dictated by the Executive. If the Kable statements invalidate legislation giving effect to government policy on that ground alone, they are wrong for that reason. They do not. Whether the Kable statements are wrong for other reasons need not be investigated in this appeal. [Emphasis added] That is because the statements will not bear the weight which the appellant places on them.[14]

Thus in less than ambiguous terms, Heydon J continues his crusade against the Kable doctrine.

The second thing to take from his Honour is the beauty of his prose. Ever since the publication of court reports, the judicial officers of this country and elsewhere have recognised that they are the authors of literature. In that vein phrases such as “The customer pays his money and gets a ticket. He cannot refuse it. He cannot get his money back. He may protest to the machine, even swear at it. But it will remain unmoved” have been quoted time and time again by impressionable law students. And so his Honour writes:

In 1996, Kable v Director of Public Prosecutions (NSW) cut into that concept of the Australian federation by reducing the legislative freedom of the States… The Kable statements have received a remarkably chilly reception from some academic lawyers – a class usually keen to salute and foster modernity in constitutional law. They have been questioned by experienced constitutional law practitioners. But sections of the Bar have been more enthusiastic. If a modern equivalent to Pope Leo X were alive and well and practising law in Australia today, he might say: “We have been given Kable’s case; now let us enjoy it.”… A harsher critic still might reflect on Tom Lehrer’s dictum that when his erstwhile faculty colleague at Harvard, Professor Henry Kissinger, received the Nobel Peace Prize, political satire became obsolete. That critic might conclude that legal satire became obsolete when Kable’s case referred to the need to keep State courts as fit receptacles for the exercise of the judicial power of the Commonwealth, untainted by powers repugnant to or incompatible with that exercise, as if those State courts were inferior institutions, uncouth, uncultured and coarse, needing always to be scrutinised to prevent pollution of the snow-white purity of federal jurisdiction… The solemn and impressive trappings attending the appeal suggested a “great” constitutional case resting on a contest between evenly balanced arguments of a fundamental kind. But the appeal must be dismissed as hopeless. If there had been sufficient force in the appellant’s arguments to justify allowing the appeal, it would have cast grave doubt on the correctness of the Kable statements. It may sometimes be wrong to blame the parents for the sins of their children. But that so much time, money and effort could be wasted on an empty point suggests difficulties and flaws in the statements from which the point is derived.

If we are to find the constitutional significance of this case we must now critically analyse the merit of the PSA’s submissions. French CJ recounted:

As an element of its incompatibility argument the PSA pointed out that seven of the eight Presidential Members of the Commission had also been appointed as judicial members. A member of the Commission could, on the one day, hear proceedings (other than in Court Session) in which the Commission would be required to give effect to a government policy declared by regulation and on the same day, in the same courtroom with the same staff, sit as the Industrial Court to determine judicial proceedings involving the Government as a party. The PSA submitted that an intelligent observer would find no basis upon which to distinguish between the two proceedings, or to have confidence that the member of the Commission would, as required, give effect to government policy when sitting other than in Court Session but bring an impartial and independent mind to bear when sitting as a member of the Industrial Court.[15]

Recalling now the line of cases from Kable up to Wainohu v NSW and the received cases from Federal jurisdiction (Wilson v Minister for Aboriginal and Torres Strait Islander Affairs[16] and Grollo Palmer[17]),repugnancy could arise by the conferral of non-judicial functions upon a State judicial officer in persona designata. Incompatibility is likely to arise if the exercise of those functions could diminish public confidence in the judicial officers concerned or the judiciary generally.[18]

Let us then advance a version of the facts most favourable to the appellants. There are seven Presidential Members of the Commission. These seven are also judicial members of the Commission. They therefore hold judicial office in a superior court of record. They therefore hold two offices, one as judicial officers, and one as members of the executive. Turning this around the question could be asked, ought the judicial officers be invested with the power to make awards upon which they may later adjudicate? It should not make any difference whether judicial office is precedent or subsequent to executive office. The judicial officers in their non-judicial capacity are asked to implement policy. The policy is found in the Regulations. In their non-judicial capacity, they are being asked to interpret the Regulation and identify the policy therein. Should there be a dispute, in their judicial capacity they are asked to judicially interpret the Regulation and identify government policy. Upon identifying the appropriate government policy, they are called upon to adjudicate on whether the makers of the award interpreted the Regulations correctly. Any semblance of judicial independence from the executive is lost. This was, admittedly, not the version of facts accepted by the High Court. This version of the facts and its conclusion is sufficiently proximate to the disposition of the case to warrant explicit consideration. The High Court’s failure to consider more deeply this line of argument casts a shadow on the breadth and limits of the Kable principle.


In the end the case is quite unremarkable. The majority and the Chief Justice affirmed Kable but did not apply it or comment on it any further. Heydon J as usual continued his crusade against Kable. The case was disposed of narrowly by way of statutory construction. In the paragraph above I showed how the High Court could have dealt with the PSA’s submissions more directly, even if in the alternative. The case could have explored other high constitutional issues as well. After all, the Chief Justice did find it necessary to engage us in a history of the Industrial Court and industrial relations law in NSW. A curious student might then ask, although the Industrial Court might be invested with Federal jurisdiction, how might judges of the Industrial Court differ from judges of the Supreme Court in our system of an integrated Australian judiciary? This is especially after the comments made in Kirk v Industrial Relations Commission that “There is but one common law of Australia”[19] and that the Constitution requires that “there be a body fitting the description “the Supreme Court of a State”, [with] the constitutional corollary that “it is beyond the legislative power of a State so to alter the constitution or character of its Supreme Court that it ceases to meet the constitutional description”.[20] Only one lone reference was made to Kirk by the majority for the proposition that the separation of powers does not apply to the States. It is not a grave uncertainty, but until another test case comes along we will remain in suspense as to the shape of our one common law of Australia.

[1] Industrial Relations Act s 10.

[2] Industrial Relations Act s 146C(7).

[3] [14].

[4] [35].

[5] [38].

[6] [38].

[7] (1997) 51 ALJR 463.

[8] [40].

[9] [40].

[10] [41].

[11] [43].

[12] [45].

[13] [68].

[14] [69].

[15] [46].

[16] (1996) 189 CLR 1

[17] (1995) 184 CLR 348

[18] Wilson v Minister for Aboriginal and Torres Strait Islander Affairs (1996) 189 CLR 1.

[19] Kirk v Industrial Relations Commission of New South Wales (2010) 239 CLR 531 [99].

[20] Kirk v Industrial Relations Commission of New South Wales (2010) 239 CLR 531 [96].

Filed under high court kable public law constitutional nsw constitution

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Rob's Story Blog: A Long Overdue Update


I know it’s been a long time since I’ve posted, but I’ve been pretty busy. I’ve had some personal/work changes and things are getting a lot better there.

I haven’t totally neglected my writing, though. I am currently working on a book that I am hoping to have published.

I’m also wrapping up a…

Omg do i read this correctly, a sequel to the timber pack chronicles!?!?! Reserve me a bottle of pinot noir, a comfy sofa and a box of tissues pls…

(Source: robcub32)