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Federal Commissioner of Taxation v St Helens Farm (ACT) Pty Ltd [1981] HCA 4; (1981) 146 CLR 336 (10 February 1981)

CATCHWORDS

High Court - Precedent - Full Court - Decision of equally divided court - Judiciary Act 1903 (Cth), s. 23.

Courts - Appeals - Questions of valuation - Review of method of valuation - Error in principle - Gross error of fact.

HEARING

DECISION

2. The Federal Commissioner of Taxation (the appellant) has appealed in each case against his Honour's orders and the respondents have cross appealed to challenge the Court's decision in Ord Forrest. (at p348)

3. The cases in each instance involve the allotment and issue of shares in the respondent companies. The appellant claims the allotment and issue of the shares to be in each instance a disposition of property upon an inadequate consideration so as to attract gift duty imposed by the Gift Duty Act 1941 (Cth), as amended ("the Duty Act"): that is to say, that the allotment and issue was a disposition by the company of property to the allottee within the definition of the Assessment Act. His Honour in four of the five cases found the claimed inadequacy of consideration to be very considerably less than the inadequacy on which the appellant based his assessment. In the fifth case, the last in the list in the above heading, he found that there was no inadequacy. His Honour reduced the assessment in the first four cases and set aside the assessment in the fifth. The Commissioner seeks to restore his assessments in each case. (at p348)

4. Logically, one should first settle the question which the challenge to Ord Forrest by the cross appeals raises. For, if that case be overruled, no gift duty would be payable in any of the five cases. All involve the same basic question, whether there was in the respective case a disposition of property by the respective respondent to the person to whom an allotment of shares was made and, if so, was that disposition made by the respective respondent for an inadequate consideration passing from the allottee to the respective respondent. (at p348)

5. It is quite clear, in my opinion, and indeed settled doctrine in this Court that a case decided in this Court on an even division of opinion - as was Ord Forrest - does not constitute a binding precedent and that, notwithstanding it, the Court is at liberty, indeed, in my opinion, bound, to approach the question with which that case dealt, de novo, each Justice participating in the subsequent case to proceed upon his own view of the relevant law. My brother Aickin, in his reasons for judgment in these cases, which I have had the advantage of reading, refers to the authorities which establish this view. I therefore have no need to repeat them here. (at p349)

6. In the argument of the cross appeals, submissions were made which were not advanced in the argument of Ord Forrest and, generally, the possibilities of the construction of the Assessment Act, in particular s. 12 for which the appellant contends, were more fully explored. (at p349)

7. Having reconsidered the reasons for judgment expressed by my brothers Gibbs and Mason in Ord Forrest, particularly in the light of the reasons for judgment prepared by my brother Aickin in these cases and the additional submissions made in them, I feel fortified in the opinion I expressed in Ord Forrest. I adhere to it. I am quite satisfied that, upon its proper construction, the Assessment Act does not make the allotment and issue of a share in the capital of an incorporated company a disposition by that company of property to the allottee and, further, that the allotment money paid or payable by the allottee or in respect of the allotment and issue of the share does not constitute a consideration passing from the allotee to the company for the disposition of property by the company to the allottee; in other words, does not constitute a price. (at p349)

8. My brother Aickin, in arriving at this conclusion, has dealt most thoroughly and in depth with the difficulties which surround and attend a construction of the Assessment Act which, in effect, treats an allotment of shares as deemed to be a disposition of its property by the company to the allottee, involving both the company and the allottee in liability to gift duty. I agree entirely with my brother's analysis and with the critical significance of the illustrations he gives of the operation of the Assessment Act upon the construction which the statutory majority favoured in Ord Forrest [1974] HCA 57; (1974) 130 CLR 124 . (at p349)

9. Until allotment and issue, which includes the entry of the allottee's name on the share register in respect of the allotted share or shares, there is no property in the unissued shares; and, in particular, there is not then, or for that matter at any other time, any property or proprietorial right in or of the company in the unissued shares in its capital. The company has the capacity to allot and issue shares in the capital up to the amount of that capital, its nominal capital. But that capital is not property of the company. Indeed, when allotted and issued, the nominal amount of the issued share or shares constitutes in accounting terms a liability of the company. But, upon allotment and issue, the allottee has property in the shares allotted, the extent of that property being determined by the constitutional instruments of the company. But it is not property which comes to the allottee from, or by transfer from, the company. It is property which comes into existence by the allotment and issue or, more precisely, which is the consequence of such allotment and issue. The property consists of rights which may thereafter be exercised by virtue of the membership of the company thus gained and in accordance with its memorandum and Articles of Association. (at p350)

10. All this is trite law and fundamental to the concept of incorporation with nominal capital and with limited liability of the shareholders. (at p350)

11. The question is whether by including an allotment of shares in the particular examples of disposition in a definition clause, the legislature has taken the unprecedented and extraordinary step of deeming for the purposes of the Duty Act an allotment of shares to be a transfer by the company of its property to the allottee at a price which can be judged to be inadequate having regard to the value of the property transferred. (at p350)

12. The Assessment Act is enacted against the background of law as to shares in the capital of a company incorporated under the company law of the States. One could justifiably expect clear and unambiguous language to be employed if that law were to be overturned, even though for a limited purpose, and perhaps even more so in the case of a taxing Act. To deem the unissued shares to be the property of the company and allotment and issue to be a transfer of the company's property for a price or consideration paid to and received by it, a consideration related to the market value of the unissued shares, does such violence to accepted principle and is such a radical exercise as to call for the clearest and unambiguous expression of legislative intent. I have indicated that for the price or consideration to be inadequate, it must be weighed with the value of the property transferred, i.e., in the appellant's submission, the unissued shares. It seems unreal to conclude that all the unissued shares of a company are at any given time worth the then market value of issued shares. But that seems to me to be involved in the proposition that the allotment and issue may be found to be upon an inadequate consideration or price. (at p350)

13. There is, in my opinion, nothing in the language used by the legislature to compel the attribution to the legislature of an intention to effect such a drastic inroad into an accepted and well-entrenched legal structure, particularly having regard to the consequence of such an inroad. If any acceptable construction of the language of the legislation is at all available, quite clearly, in my opinion, it should be adopted. (at p350)

14. It would be difficult, indeed perhaps impossible, without statutory intervention to treat an allotment by direction of a person entitled to command or persuade or otherwise able to procure an allotment and issue of shares as a transfer of property of and by the directing party to the allottee. The inclusion of an allotment of shares in the definition of "disposition" is effective to make an allotment by direction, a transfer of property from that person to the allottee. The inclusion of "allotment" in the definition thus has a practical application and is effective to bring into duty a transaction savouring of a transfer of property but which otherwise might well fail to attract liability. There is thus available, as I thought in my reasons in Ord Forrest [1974] HCA 57; (1974) 130 CLR 124 and as my brother Aickin so cogently says, such a construction of the definitive and operative sections of the Act. To construe the definition as limited to such an occasion does no violence to the language employed and does give a substantial operation to the definition. To read the legislative language as deeming the company to have transferred its property to the allottee is, in my opinion, quite unnecessary in order to give a practical operation to the definition. On the other hand, it is, in my opinion, consonant with proper principle in statutory interpretation to construe the definition as not deeming that which has not the least resemblance to a transfer of property to be a transfer by the company to the allottee of its property upon a consideration of price capable of comparison with value. (at p351)

15. I agree entirely with my brother Aickin in thinking that the decision in Ord Forrest should be overruled and that in this case the cross appeals should all succeed resulting in the setting aside of all the assessments. (at p351)

16. Being of this opinion, it is strictly unnecessary for me to express a view as to the fate of the Commissioner's appeals. But, as others may differ, I should state my opinion as to the correctness of the judgment of the primary judge. (at p351)

17. In this connexion, I have had the advantage to considering the fully expressed reasons of my brother Aickin for supporting the views of Sheppard J., which my brother does with one exception to which I will presently refer. I fully agree with my brother's analysis of the facts of the various cases and with the legal propositions he propounds in relation to those facts. I agree that the primary judge's judgment in each of the cases ought not to be disturbed. He reached conclusions to which he was entitled to come. There are no valid reasons, in my opinion, for disturbing his findings or conclusions. If in the event the views expressed by the statutory majority in Ord Forrest are supported by the Court, I should then agree that the assessments as reduced by the Supreme Court should stand and the appellant's appeals be dismissed. (at p352)

18. The matter on which my brother Aickin did not accept the primary judge was the view expressed by him that the company's liability to gift duty consequent upon the allotment of the shares should not be included in the liabilities of the company when valuing the shares for the purpose of determining the adequacy of the allotment money treated as the price of shares paid to the company. (at p352)

19. I agree with my brother's conclusion differing from the primary judge and with my brother's use of the judgment of the Court in Robertson v. Federal Commissioner of Taxation [1952] HCA 71; (1952) 86 CLR 463 , and particularly of the reasons expressed by Kitto J. in that case. I agree that if allotment in the sense of allotment and issue of the theretofore unissued shares is to be regarded as a gift then made by the company, the company's liability for gift duty should be included in the liabilities of the company when determining the adequacy of the consideration or price paid for that transfer. To do so, to my mind, further highlights the difficulty of attributing to the legislature an intention to deem the allotment and issue of an unissued share as a transfer by the company of its property in return for a price measurable by the value of the shares so allotted and issued at or, as I would think, immediately before the time of the allotment and issue. (at p352)

20. In my opinion, the cross appeals should be allowed and all assessments set aside. The appeals should, in any case, be dismissed. (at p352)

GIBBS J. The facts and statutory provisions relevant to these five appeals are fully set out in the reasons for judgment of Aickin J. In each case the owner of property, often of substantial value, entered into a scheme which was designed to avoid death and estate duties without attracting gift duty. The scheme involved transactions which, briefly stated, were as follows. The owner sold his or her property to a private company and was allotted a number of ordinary shares in that company. Those shares were then converted into preference shares which carried the right to a preference dividend at a fixed rate and on winding up or reduction of capital to a return of capital and to payment of any arrears of dividend, but did not entitle the holders to participate otherwise in profits or assets. It will be convenient to describe the former owner of the property, who thus became the holder of preference shares, as "the owner". The company then allotted a small number of ordinary shares to persons ("the relatives") whom the owner wished to be the objects of his bounty, or to companies in trust for such persons. The allottee, in each case, paid par value plus a premium. These were the only shares which carried unrestricted rights to share in the assets of the company, so that if the company were wound up the persons whom the owner wished to benefit would, subject, in four of the cases, to the possibility about to be mentioned, be entitled to the whole of the property transferred by the owner to the company, less the amount of the face value of the owner's preference shares and of course the costs of realization. The total amount paid for these ordinary shares was very much less than the value of the company's assets. To take an example, in the case of St. Helens Farm (A.C.T.) Pty. Ltd. ("St. Helens Farm") shares were allotted to four persons (one being a company which received two shares in trust respectively for different classes of grandchildren) who paid a total of $500 for them, whereas shareholders' funds amounted to $1,206,314. So far, the scheme is no different from that considered in Ord Forrest Pty. Ltd. v. Federal Commissioner of Taxation [1974] HCA 57; (1974) 130 CLR 124 . However, in the case of the other four companies, there was a material modification to the Ord Forrest scheme. In those cases, unlike in the case of St. Helens Farm, the preference shares carried ordinary voting rights during the lifetime of the owner, and the articles empowered the shareholders during the life of the owner by special resolution to vary the rights conferred on the holders of any issued shares. In addition, the articles of Ceedon Pty. Ltd. ("Ceedon"), Lucinda Investments Pty. Ltd. ("Lucinda") and Q.A.W. Pty. Ltd. ("Q.A.W.") gave to the owner the powers of a governing director, and the articles of Lucinda gave to the owner power by notice in writing to elect to convert his preference shares into ordinary shares, but even without these provisions in any of these four cases the owner could, by reason of the size of his shareholding and the provisions enabling rights to be varied by special resolution, cause his preference shares to be converted into ordinary shares. If that were done the allottees of the ordinary shares would, on a winding up, be entitled only to a small share in the assets of the company. There was another departure from the Ord Forrest scheme in the cases of Ceedon and Gwynedd Pty. Ltd. ("Gwynedd"). In those cases the allottees entered into an agreement, called in argument the escalation agreement, by which each allottee agreed to pay an additional sum for the allotment of the shares in certain specified circumstances. In the case of Ceedon, the material words of the agreement were as follows:
"(The) Applicant . . . agrees with the Company that if, but for this Agreement, the allotment of the shares at a premium of $99.00 each would constitute a gift within the meaning of the Gift Duties Assessment Act 1941 (as amended) then the Applicant agrees to pay to the Company the quantum of the difference between the true value of the shares as calculated by the Deputy Commissioner of Taxation for the Commonwealth of Australia and the amount of the application moneys to be paid by the Applicant for the allotment of the shares as a debt due and payable by the Applicant to the Company on demand."
In the case of Gwynedd the escalation clause provided for the payment by each of the allottees of the allotment and premium moneys "or such if any greater sum as will constitute the consideration passing from" the allottee to the company "in respect of the said allotment fully adequate within the meaning of that expression as used in the definition of 'gift'" in s. 4 of the Gift Duty Assessment Act 1941 as amended ("the Act"). (at p354)

2. The questions that fall for decision are whether each allotment of the shares to the relatives and to the companies in trust for them was a gift within the meaning of the Act, and if so how the gifts should be valued. (at p354)

3. If the decision of this Court in Ord Forrest [1974] HCA 57; (1974) 130 CLR 124 is to be followed, it must be held that a gift was made in each case when the company allotted the shares to or in trust for the relatives, unless of course the consideration paid for the allotment was fully adequate. However, the companies, by their cross appeal, seek to persuade the Court to decline to follow Ord Forrest. It is convenient to consider immediately whether that decision should be followed, since if it is overruled the present case will be at an end. In Ord Forrest, the matter was heard at first instance by Stephen J., and, on appeal from his decision, by a Full Court consisting of four Justices, who were equally divided in opinion, with the result that the judgment of Stephen J. was affirmed. It was submitted that, in these circumstances, the case is not a binding authority. Of course, this Court is, in one sense, never bound by a previous decision of its own, since it has power to reconsider any earlier decision, although the power is not lightly exercised. However, speaking generally, when this Court is equally divided in opinion the judgment which it pronounces is not a precedent with authority in this Court; the question does not arise whether it is proper to reconsider such a decision, for it is not binding. There does not appear to be any decision of the question whether the same principle applies when the equally divided Court sat on appeal from a Justice of this Court, although in Tasmania v. Victoria [1935] HCA 4; [1935] HCA 4; (1935) 52 CLR 157 at p 184 , Dixon J. suggested that this was the case. With the greatest respect, I have always understood that the reason why a Court comprised of four Justices is as a matter of regular practice convened to hear appeals from a decision of a single Justice of this Court is that, if the Court on appeal is evenly divided, there will be a majority in favour of one view or another and that the decision will be a binding one. If this view is wrong, the practice should be changed. I would treat Ord Forrest as a binding authority and I see no reason to reconsider its correctness, particularly since the law has been changed and gift duty is no longer payable in respect of gifts made after a stipulated date. (at p355)

4. Lest it be thought that it is right to reconsider the correctness of Ord Forrest, I should say that having reconsidered the matter, I adhere to the conclusion which I reached in that case. The submission of Mr. Handley, who appeared for the companies, was that an allotment of shares in a company is a "disposition of property" within the definition of s. 4 of the Act only if the allotment is made by the direction of a third party, in which case the third party is the disponor for the purposes of the Act. Mr. Handley relied on the judgment of Barwick C.J. in Ord Forrest. The learned Chief Justice there expressed the view (1974) 130 CLR, at p 143 , that the lettered paragraphs of the definition of "disposition of property" contain a list of examples of particular kinds of alienation of property which is included to ensure that the nature of a transaction does not preclude its classification as a disposition to the extent that it involves the transfer or movement of property. In other words, the definition only includes an allotment of shares which in truth involves an alienation of property. With the greatest respect I cannot agree. The definition commences, using very wide words, to refer to any sort of alienation of property. It then goes on to include transactions which would not otherwise come within the introductory words. The plain object of the lettered paragraphs of the definition seems to me to be to embrace transactions which have the substantial effect of a gift, in that, without fully adequate consideration, one person gives a pecuniary benefit to another, but which would otherwise escape gift duty because no alienation of property is involved. It seems to me that par. (a) of the definition, which refers to "the allotment of shares in a company" is designed to catch just such a case as the present. (at p356)

5. Mr. Handley went on to advance an argument which was not put to the Court in Ord Forrest. He submitted that the word "allotment" in the definition of "disposition of property" cannot be used in the sense either of an offer of shares or of a contract arising from the acceptance of an application for shares, since of itself an allotment does not make the allottee a member of the company, and until the share is issued the share (the subject of the gift) has no existence as an article of property: In re V. G. M. Holdings (1942) Ch 235, at pp 240-241 . Therefore, it was said, "allotment" must mean "complete allotment", that is, an allotment followed by some act (usually registration) that completes the title of the allottee - in other words "issue". So far this argument may be accepted. Then Mr. Handley submitted that unless "allotment" in the definition were limited to an allotment by direction, difficulties and anomalies would arise, because in many cases (as in fact in some of the present cases) a complete allotment will be made after, and pursuant to, a binding contract of allotment, and in that case, he submitted, will be made for a fully adequate consideration, so that there will be no gift. His submission was based on such cases as Archibald Howie Pty. Ltd. v. Commissioner of Stamp Duties (N.S.W.) [1948] HCA 28; (1948) 77 CLR 143, at pp 152-153; 156-158 and Federal Commissioner of Taxation v. McPhail [1968] HCA 13; (1968) 117 CLR 111, at p 116 and was that a disposition made in discharge of a legally binding contract cannot be a gift, even if the contract was entered into for an inadequate consideration. It is unnecessary to consider to what extent this proposition might be correct for other purposes, because the matter is dealt with by s. 12 (1) of the Act, which provides that a disposition of property made in pursuance of a contract or agreement entered into without adequate consideration in money or money's worth shall, for the purposes of the Act, "be deemed to be a gift so soon and so far as the disposition has affected property or any of the property to which the contract or agreement relates". It was submitted on behalf of the companies, and accepted by the learned primary judge, that this section could have no application to a disposition of property constituted by an allotment of shares, because the property would not be in existence before the disposition took place. However, s. 12 (1) does not require that the property should be in existence before the disposition is made. An agreement to allot shares relates to the shares when they are issued and come into existence as choses in action. The allotment (that is, the complete allotment) of the shares affects, as well as creates, those choses in action - it affects them by giving the title in them to the allottee. There is thus no difficulty in applying s. 12 (1) to the case of an allotment; under s. 12, the allotment is deemed to be a gift as soon as it takes effect. The argument that the words of par. (a) of the definition of "disposition of property" should be given a restricted meaning for the reason suggested should be rejected. (at p357)

6. Mr. Handley then submitted that if an allotment of shares is to be treated as a gift by the company, the gift duty payable by the company, being a liability of the company, must enter into the value of the gift, and that this situation, which arises in no other class of case, is so anomalous as to lead to the conclusion that the definition of "disposition of property" only refers to an allotment when the donor is someone other than the company. Even if it were right, in valuing the shares the subject of the alleged gift, to have regard to the gift duty payable by the company, that would not mean that the Act cannot apply to such a case. It would not be anomalous to take gift duty into account in valuing a gift in one class of case only, if it was only in that class of case that the duty properly entered into the value of the gift. However, in my opinion, it is not right, when valuing a gift constituted by an allotment, to have regard to the gift duty payable. Mr. Handley sought to find an analogy in Robertson v. Federal Commissioner of Taxation [1952] HCA 71; (1952) 86 CLR 463 , a case in which the articles of association of a company provided that on the death of the deceased the shares would be divided into two classes, the incidents of which would have the result that the shares held by the deceased at his death would have a much lower value than the other shares. The Commissioner, in assessing the value for estate duty purposes of the shares held by the deceased, sought to apply s. 16A (1) of the Estate Duty Assessment Act 1941 (Cth), as amended. He failed, because at the date of the death there was nothing in the articles of association that rendered it necessary to apply that section. Kitto J. said (1952) 86 CLR, at p 486 , that "the estate must be valued at the death, but on the hypothesis that the deceased has died". Mr. Handley contended that those words could appropriately be adapted so that in the present case the shares should be valued at the time of the gift but on the hypothesis that the gift had taken place. However, an examination of the judgment of Kitto J. (1952) 86 CLR, at pp 485-486 shows that the opposite conclusion would be reached if his reasoning were applied to the present case. Kitto J. made it clear that he accepted that although the death and the passing of the property took place at one moment, the former in law preceded the latter; the application of the Estate Duty Assessment Act, he said, "is a consequence of, and therefore is logically to be treated as subsequent to, the death of the deceased. It is not until there is an estate of a deceased person that the Act speaks". It followed that when that Act required the shares to be valued there was nothing in the articles that called for the application of s. 16A (1). Similarly, in the present case, although the gift is to be valued at the time of its making (s. 18 (1) (b) of the Act) and the duty is also payable on the making of the gift (s. 25 (1) of the Act) the making of the gift must logically precede the liability to the duty. Therefore the duty payable in consequence of the gift, being a liability which logically arises after the gift is made, should not be taken into account in determining its value. (at p358)

7. Finally it is convenient to mention the argument submitted in Ord Forrest, and repeated before us, that the amount payable by the allottee to the company as the consideration for the allotment is an asset of the company to which regard must be had in valuing the gift, and that it would never be possible to arrive at a price that would represent the full value for the shares, since every increase in the premium payable for the shares would increase their value, and to pay full value it would be necessary to pay an infinitely large sum. The suggestion that the word "allotment" in par. (a) of the definition should therefore be given a restricted meaning which would avoid such a result was rejected in Ord Forrest (1974) 130 CLR, at pp 154,158 . The suggested impossibility ever to pay a fully adequate consideration only arises if the shares are valued on a liquidation or net assets basis, but if the shares have a market value, or if their value can be determined on some other basis (for example on the basis of maintainable earnings), that value will not necessarily be materially affected by the amount paid as the consideration, which may be so comparatively small that it will not affect the market value or the capacity of the company to earn at a particular rate. In some cases at least it is clearly possible to say whether, and to what extent, the consideration for the allotment was inadequate. In the present case the learned primary judge did not value the shares on a liquidation or assets basis, and the amount paid for the consideration was comparatively small, and it was not shown that the value of any of the shares would be materially altered if the consideration payable for the allotment were treated as an asset of the company at the time of the gift. (at p359)

8. The learned primary judge accepted the argument that the escalation clauses were void, both because the calculation would produce infinity for the reasons just mentioned, and because, in the case of Ceedon, the Commissioner was not bound to make the valuation. However, he held that the clauses were severable and did not affect either the contracts of allotment or the allotments themselves. Before us, Mr. Handley accepted that the clauses were void but disputed that they were severable. He said however that he had no interest in pursuing this matter if the Commissioner's appeals on value failed - in the case of Gwynedd the learned primary judge found no gift because the consideration for the shares was not less than their true value, and in the case of Ceedon the amount of duty payable was small. Since, for reasons which I shall give, I consider that the Commissioner's appeals should fail, I need not discuss this matter further. However, I do not wish it to be thought that I agree with the conclusions of the learned primary judge on these matters; I regard both questions as open ones. (at p359)

9. For these reasons, I consider that Ord Forrest was correctly decided, and that the cross appeals by the companies should be dismissed. (at p359)

10. The question which is crucial in the appeals by the Commissioner in all cases except that of St. Helens Farm is whether in computing the value of the shares an allowance should be made for the possibility that the owner might, by exercising his powers under the articles of association, convert his preference shares into ordinary shares. Section 18 (1) (a) of the Act provides that for the purpose of computing the value of a gift "no allowance should be made in respect of any contingency affecting the interests of the donees or any of them". The possibility that the owner might use his powers in this way is a "contingency", but the question is whether it is a contingency which affects the interests of the donees. On behalf of the Commissioner it was submitted that "interest" is a word of wide and uncertain meaning and that it can include something that can be described as an interest in a popular or commercial sense even if it is not a legal or equitable interest. Speaking generally, this submission is no doubt correct: see for the example Craig v. Federal Commissioner of Taxation [1945] HCA 1; (1945) 70 CLR 441, at p 446 . But of course the meaning of "interest" in a particular statutory provision depends on the context. I adhere to the view which I expressed in Bray v. Federal Commissioner of Taxation (No. 2) [1971] HCA 8; (1971) 123 CLR 348, at p 357 that the phrase "the interests of the donees" in s. 18 (1) (a) must refer to their interests in the property the subject of the gift. The paragraph could not sensibly refer to any other interest, for it is dealing with the valuation of the gift, i.e. with the valuation of the interest in property acquired by the donee under the gift less the consideration. In each of the present cases the subject of the gift was the ordinary shares, and the interest of each of the allottees in those shares was that of an ordinary shareholder. Plainly that interest would not be affected if the owner exercised his power under the articles of association to convert his preference shares to ordinary shares. If that occurred, the allottees would not be deprived of the interest in the shares which they had acquired as a result of the allotment, and each share would carry the same rights as before, although those rights would be less valuable than before, because there would be new ordinary shareholders with competing rights. In other words, notwithstanding the occurrence of the contingency, the interests of the allottees would be the same, but the value of their interests would be less. (at p360)

11. The question then is whether, in these circumstances, the contingency can be said to be one "affecting the interests of the donees". In ordinary language a contingency does not affect the interest of a particular person in property simply because it affects the value of that interest. For example, the contingency that the price of gold may fall may well affect the value of shares in a gold mining company, but it will not affect the interest of a shareholder in that company. Similarly it has been held that a proposed issue of new capital does not "affect" the rights of existing shareholders although it may affect the enjoyment of those rights: White v. Bristol Aeroplane Co. Ltd. (1953) Ch 65 ; In re John Smith's Tadcaster Brewery Co. Ltd. (1953) Ch 308 . There is no justification for giving to the words of s. 18 (1) (a) an extended meaning which would have the effect of artificially increasing the value of the interest on which gift duty may be exigible. It is not necessary to depart from the ordinary meaning of the words of the paragraph in order to render it operative. Its provisions clearly apply so that in valuing a gift it is necessary to ignore the possibility that the interest of the donees would be divested on the happening of a condition subsequent, or by the exercise of a power to which the interest was subject, such as a power of revocation or a power of appointment. The words of the paragraph, if given their ordinary meaning, indicate that its provisions can only apply if the interest itself is affected by the contingency. The contingency postulated in the present case does not affect the interests of the allottees; its effect is on the value of the shares, not on the interests of the allottees in the shares. (at p361)

12. Counsel for the Commissioner sought to bring the case within s. 18 (1) (a) by arguing that the allottees have an interest in the assets of the companies, and that that interest is affected by the contingency that the preference shares may be converted to ordinary shares. It was submitted that it is natural to say that shareholders have an interest in the assets of the companies in which they hold shares, and that this usage is supported by the words of Dixon J. in Archibald Howie Pty. Ltd. v. Commissioner of Stamp Duties (N.S.W.) (1947) 77 CLR, at p 154 . In that case Dixon J., speaking of a distribution in specie made by a company on a reduction of capital, said: "But that means that the shareholder in satisfaction of his proportionate 'interest' in the assets, an interest consisting of a congeries of rights in personam, takes an aliquot part of the assets." These words indicate that Dixon J. regarded it as an extended use of the term to say that shareholder has an "interest" in the assets and make it clear that such an "interest" consists in rights in personam and not in rights to the assets themselves. An interest of that kind is the same as the shareholder's interest in the share and in equally unaffected by the contingency now under consideration. (at p361)

13. For these reasons I have reached the conclusion that the learned primary judge was right in refusing to apply the provisions of s. 18 (1) (a) in making his valuation of the shares. It should perhaps be observed that the refusal to apply s. 18 (1) (a) does not have the result that duty properly payable on the gift is avoided. A true valuation of a gift consisting of an allotment of shares must take into account the contingency that the powers under the articles of association of the company in which the shares are held might be exercised with the result that the shares the subject of the gift would become of little value. Whether or not this conclusion means that death or estate duty can be sucessfully avoided by an arrangement of this kind is not a question that falls for consideration in the present case. However, it cannot be said that gift duty is avoided if the shares the subject of the gift are given their true value. (at p361)

14. The second question of principle that arises is whether it was proper to apply the provisions of s. 18 (2) (c) and to adopt as the value of the shares such sum as the holder thereof would receive in the event of the company being voluntarily wound up on the date when the allotment was made. Provisions similar to s. 18 (2) (c) have been considered in many cases. The Commissioner is not entitled to adopt a liquidation value simply because its adoption would benefit the revenue (Jekyll v. Commissioner of Stamp Duties (Q.) [1962] HCA 9; (1962) 106 CLR 353, at p 365 ); he should choose the method which in his opinion is most calculated to place a fair value on the shares: Federal Commissioner of Taxation v. Sagar [1946] HCA 6; (1946) 71 CLR 421, at p 428 ; Gregory v. Federal Commissioner of Taxation [1971] HCA 2; (1971) 123 CLR 547, at p 569 . Moreover, by s. 18 (3) of the Act, the court hearing the appeal from the Commissioner is entitled to substitute its own opinion for, and to use its own discretion in lieu of, the opinion or discretion of the Commissioner. The court is not limited to considering whether the Commissioner erred in the exercise of his discretion but may consider whether the discretion was soundly exercised, and if it forms the opinion that the value of the shares arrived at by applying s. 18 (2) (c) is not a satisfactory value, it will not allow the Commissioner's application of the provision to stand: see such cases as Jekyll v. Commissioner of Stamp Duties (Q.) (1962) 106 CLR, at p 363 , and Commissioner of Taxes (Tas.) v. Perpetual Trustees Executors and Agency Co. of Tasmania Ltd. [1969] HCA 9; (1969) 118 CLR 325, at pp 328-329 . Once it has been decided that s. 18 (1) (a) has no application, it is clear that it will not be appropriate to apply s. 18 (2) (c) and to value on a liquidation basis the shares in the four companies other than St. Helens Farm. The possibility that the preference shares may be converted to ordinary shares has such a depreciating effect on the value of the ordinary shares the subject of the gift that a fair value would not be placed on the shares by applying s. 18 (2) (c). In argument there was some discussion of the question whether the powers given by the articles could be exercised once the company had been put into liquidation, but in my opinion that question does not arise for consideration. Section 18 (2) (c) contemplates a hypothetical winding up which took place at the date of the gift, and not an actual liquidation. The power to convert the preference shares to ordinary shares had not in fact been exercised by the date of the gift, and on the hypothesis that a liquidation occurred on that date the existence of the power would have to be ignored. But the possibility that the power might be exercised has such a depreciating effect on the shares that a fair value would not be reached by applying a liquidation basis. (at p362)

15. In the case of St. Helens Farm the holder of the preference shares had not power to convert them to ordinary shares. However, for other reasons it is inappropriate to apply s. 18 (2) (c). There were five separate gifts and it was conceded that each gift (constituted by the allotment to a shareholder) should be valued separately. None of the individual allottees had the power, acting alone, to bring about a liquidation. It cannot be assumed that the allottees would use their combined power to achieve that result; they were different persons with interests which were not necessarily the same. The cse is not one in which the donee had it in his power to bring about a liquidation. Moreover, although the yield from the assets was extremely low, there was no intention of selling the assets. The learned primary judge correctly pointed out that the application of s. 18 (2) (c) would bring about a situation in which the interest of each of the minority shareholders would be regarded as being worth precisely the same as a proportionate part of the interest of the company in its assets as at the date of the allotment. In view of the circumstances that the allottees had no power individually to bring about a liquidation and did not intend to do so, and in view of the further circumstance that the shares in the Broken Hill Proprietary Co. Ltd. that formed the most valuable asset of St. Helens Farm were being traded at an exceptionally high price on the date of the allotment, I consider that the learned primary judge was justified in concluding that the application of s. 18 (2) (c) was not calculated to produce a fair valuation of the shares. (at p363)

16. Finally, it was submitted on behalf of the Commissioner that the learned primary judge should have adopted the evidence of one of the valuers called in support of his case, Mr. Robinson, who valued the shares on the basis of a valuation of the assets of the company less a discount of 20 per cent. This, it was submitted, produced a fair and realistic valuation. However, the learned primary judge, who carefully considered the evidence of the various valuers who gave evidence, rejected this method of valuation. He said that it was not strongly supported by the evidence and was not adopted in any of the cases to which he was referred. He preferred the approaches of valuers who valued on an earnings basis. His Honour committed no error in principle in taking this course. It was submitted in support of the respondent's cross appeal that in the case of St. Helens Farm the learned primary judge was not justified in adopting a lower rate of capitalization that was adopted by any of the valuers. The learned primary judge adopted a capitalization rate of 4 per cent whereas none of the valuers suggested a rate of lower than 5 per cent. However the low earning rate in fact produced by the assets supported this approach. The principles on which the appellate court will interfere with the decision of a primary judge on a question of valuation were stated by Dixon J. in The Commonwealth v. Reeve [1949] HCA 22; ; (1949) 78 CLR 410, at p 423 , in a passage recently cited in this Court in Emerald Quarry Industries Pty. Ltd. v. Commissioner of Highways [1979] HCA 17; (1979) 142 CLR 351, at pp 355, 374 . It has not been shown that the learned primary judge committed any error of principle that affected his valuation of the shares, or that the values he reached in these difficult cases were wholly erroneous. (at p364)

17. For these reasons, I would in each case dismiss both the appeal and the cross appeal. (at p364)

STEPHEN J. These appeals and cross appeals concern five schemes by means of each of which it was sought, with the aid of an interposed corporate structure, to confer inter vivos benefits upon certain donees without attracting liability to Commonwealth gift duty. Because gifts made since 1st July 1979 are no longer liable to gift duty the questions which these cases raise are unlikely to be of any direct relevance for the future. Their solution is therefore no longer a matter of any general importance but will of course affect those who participated in these five schemes and others similarly situated. (at p364)

2. The facts appear in full in other judgments. One of the matters in issue is the correctness of the decision of this Court in Ord Forrest Pty Ltd v. Federal Commissioner of Taxation [1974] HCA 57; (1974) 130 CLR 124 . The scheme considered in that case has much in common with these five schemes and if that decision is not to be followed, the cross appeals by the five cross appellant companies will succeed. (at p364)

3. A preliminary point is whether the decision in Ord Forrest, in which two members of an evenly divided Court of four Justices upheld the decision which I gave at first instance, is to be treated as authoritative. This Court may of course overrule its past decisions, but there nevertheless exists a clear distinction between decisions which are precedents of authority and those which, although resulting in determinative decisions because of provisions of the Judiciary Act 1903, have no such precedential authority because they involved an even division of opinion on appeal. The practice of this Court in sitting with even numbers in appeals from a single Justice, although no doubt principally to be explained by considerations flowing from those provisions of the Judiciary Act, may be thought to lend some support to the view that, if evenly divided, the decision of those upholding the single Justice is to be regarded as authoritative. However, in Tasmania v. Victoria [1935] HCA 4; (1935) 52 CLR 157, at p 184 Dixon J. expressed the contrary view, which on balance I regard as preferable. I would accordingly treat Ord Forrest as not being a precedent of authority in the present appeals. (at p365)

4. The question then arises whether the view which prevailed in Ord Forrest should be overturned. For my part, I would follow it. I regard it as correctly stating the law and do so in reliance upon my own reasoning at first instance and that of Gibbs and Mason JJ. on appeal. I also agree with the additional reasoning of Gibbs J. appearing in his judgment in the present case, both as it concerns the submission founded upon Robertson v. Federal Commissioner of Taxation [1952] HCA 71; (1952) 86 CLR 463 and generally in relation to the decision in Ord Forrest. (at p365)

5. If Ord Forrest is to apply there remain the five appeals by the Commissioner which turn on questions concerning the valuation of the gifts in question. The learned primary judge resolved these questions substantially in favour of each of the five companies. They relate to s. 18 of the Act. (at p365)

6. Section 18 is concerned with the valuation of gifts. Both sub-s. (1) and sub-s. (2) prescribe certain rules for their valuation. The first question arises under s. 18 (1) (a), which reads:

"For the purpose of computing the value of a gift -
(a) no allowance shall be made in respect of any contingency affecting the

7. The relevant circumstances are described in detail in other judgments. It is enough to say that in broad terms each of those four schemes involved the contingency that the real benefactor in each case, holding only preference shares, might at some future time convert those shares into ordinary shares, thereby greatly diminishing the value of the ordinary shares allotted to the donees whom the scheme was designed to benefit. Does, then, s. 18 (1) (a) require that the effect of the existence of this contingency upon the value of ordinary shares when allotted to donees be ignored in the valuation process? (at p365)

8. Paragraph (a) is loosely drafted. It uses the words "contingency", "affecting", "interests" and "allowance", words of no single, invariable meaning but which depend upon context for their meaning in particular cases. The determining context in the present case is provided by the character of par. (a) as a rule of valuation for purposes of gift duty. (at p366)

9. Context requires that some limits be placed upon the meaning of "contingency" in par. (a). It cannot, I think, refer to any aspect of the subject matter of a gift which itself forms part of the description of what is given. Were this not so, a direction to disregard such a contingency, to make no "allowance" for it, would be a direction to deem the subject matter of a gift to be other than it in fact is rather than a rule for its valuation. For example, assume a gift to one if he survives another: the contingency, survival, does not merely affect an already defined interest but instead forms part of the definition of what is given. To ignore it robs the subject matter of the gift of its identity and confers upon it a new and quite different identity. To interpret par. (a) as intending, even for valuation purposes, to transform such a gift into an absolute gift, stripped of its contingent element, would be to treat it as much more than a rule of valuation. (at p366)

10. If contingencies which define what is given are not within the operation of par. (a), neither are those contingencies which are quite extrinsic to the gift itself, being features of the particular market by reference to which the value of what is given must be determined. To exclude such contingencies from consideration would in most cases make valuation impossible. For example, if a gift is of gold its value at the date of gift will depend upon the current state of the bullion market, which will be affected by a whole range of contingencies; sellers and buyers in that market will have made their appreciation of those contingencies and this will be reflected in the current price of gold. Likewise in the case of a non-fungible, say farming land; the current market will again reflect contingencies entirely extrinsic to the gift, such as the market's estimation of future trends in primary product prices. Market factors such as these are the very stuff of valuation, without which value is a concept without content. Paragraph (a), as a rule of valuation, is not to be understood as excluding such contingencies from the process of valuation. (at p366)

11. That par. (a) does not refer to, and hence does not require the exclusion of these two kinds of contingency from the process of valuation is confirmed by the use of the word "allowance". To have regard to either of them in the valuation process would not aptly be described as the making of an "allowance" in respect of them. "Allowance" suggests some adjustment made to an arrived at value to take account of an isolated element or circumstance, whereas the existence of contingencies of these kinds are central to the valuation process itself. Without reference to them, no proper value can be placed upon the true subject matter of the gift. Accordingly, to speak of making no "allowance" is language which is inappropriate to refer to the exclusion of these kinds of contingencies from the valuation process. (at p367)

12. If these limits to the meaning of "contingency" in par. (a) be accepted, no further narrowing of its meaning seems permissible. It will then describe a contingency the happening of which affects no more than a donee's enjoyment of what is given and the existence of such a contingency will presently affect the value of what is given. (at p367)

13. The use of "affecting" in par. (a) is entirely appropriate if it be used to describe the effect of the existence of such a contingency upon the value of a donee's interest in what he is given. As to "interests" in par. (a), its meaning has been described by Gibbs J. in Bray v. Federal Commissioner of Taxation [1971] HCA 8; (1971) 123 CLR 348, at p 357 as the interests of donees "in the property the subject of the gift", in this instance their interest in the ordinary shares. I would, with respect, accept that description and use it, together with my understanding of the meanings of "contingency" and "affecting", to express the operation of par. (a). Its operation is to require that in valuing gifts no allowance shall be made in respect of any contingency which is neither definitive of what is given nor, being extrinsic to the gift itself, pertains generally to the applicable market but is one which affects the value of the interests of donees in what is given. (at p367)

14. It was contended on behalf of the five companies that par. (a) did not operate in this way, that what it operated to exclude were only those contingencies which bore on the nature of the particular legal interests taken by donees; accordingly it did not exclude contingencies which only related to the enjoyment by a donee of his interest in what had been given to him. Decisions concerned with the variation of class rights were relied upon in support of this view. However, those decisions turn upon quite special considerations, in no way applicable to s. 18 (1) (a), as appears from their reasoning. The leading judgment in White v. Bristol Aeroplane Co. Ltd. (1953) 1 Ch 65 , that of Evershed M.R., illustrates this. In concluding that to affect in value the enjoyment of the rights of holders of existing preference shares was not to affect the rights or privileges attached to their shares, his Lordship relied exclusively upon the terms of certain of the company's articles of association (1953) 1 Ch, at pp 75-76 . The same may be said of his Lordship's judgment and that of Jenkins L.J. in In re John Smith's Tadcaster Brewery Co. Ltd. (1953) 1 Ch 308 . (at p368)

15. These decisions are in my view of no assistance in determining the meaning of s. 18 (1) (a), which is concerned with matters entirely foreign to their particular subject matter. They draw a distinction between that which varies the rights of classes of shareholders and that which merely affects the enjoyment of those rights. In these cases the distinction was critical because the latter, although depreciating the value of one class of shares, accorded with the company's articles of association and was irrelevant as any ground of complaint. But in s. 18 (1) (a) the focus of attention is entirely different; the value of gifts is in question and when shares are the subject matter of a gift that which affects their value is directly relevant. (at p368)

16. Despite their quite different concerns, something may be gained from one of the earlier decisions on the variation of class rights, Greenhalgh v. Arderne Cinemas Ltd. (1945) 2 All ER 719 . In that case Vaisey J. said (1945) 2 All ER, at p 723 that "if you have an equal number of preference and ordinary shares in a company, with equal voting rights, assuming each class to have one vote per share, you would not vary the rights of the preference shareholders by issuing additional ordinary shares; in substance you would materially affect those rights, but you would not vary them. In my judgment, that argument must prevail." In the context of the variation of class rights it was irrelevant that what had occurred "materially affected those rights" and in doing so materially diminished the value of shares conferring those rights. In the context of s. 18 (1) (a), concerned with the valuation of gifts made to donees, a contingency consisting of the possible conversion of preference shares to ordinary shares and which materially affects the rights of donees as existing ordinary shareholders is most pertinent. (at p368)

17. Such a contingency is neither extrinsic to the gift nor is it definitive of what is given; it affects the value of the interests of the donees in what is given. In my view it falls within s. 18 (1) (a) and accordingly no allowance is to be made in respect of it in computing the value of the gifts to the donees. (at p368)

18. The second question arising under s. 18, again a matter of valuation, concerns sub-s. (2) (c) and affects all five of the companies. Sheppard J. concluded in each case that that provision should not be applied in the valuation of the shares allotted to the donees. I agree with his conclusions and with the method of valuation which his Honour adopted and do so for the reasons discussed in detail in the judgment of Aickin J., with whose observations concerning s. 18 (2) (c) and s. 18 (3) I am generally in agreement. I likewise agree with the view expressed by Sheppard J. concerning the severability of the escalator agreements which were entered into in the cases of the Ceedon and Gwynedd companies. Again I do so for the reasons appearing in the judgment of Aickin J. (at p369)

19. It follows that I would allow the appeals, but only insofar as they relate to s. 18 (1) (a). I would dismiss the cross appeals. (at p369)

MASON J. Aickin J. has set out in his reasons for judgment the relevant materials relating to these five appeals. I propose to consider each appeal separately, commencing with St. Helens Farm (A.C.T.) Pty. Ltd. ("St. Helens Farm").

St. Helens Farm (A.C.T.) Pty. Ltd. (at p369)

2. The respondents by way of cross appeal raise questions which need to be disposed of at the outset. In particular they challege the correctness of the decision of this Court in Ord Forrest Pty. Ltd. v. Federal Commissioner of Taxation [1974] HCA 57; (1974) 130 CLR 124 . If this challenge can be sustained, the transactions in question involve no element of gift. The consequence then would be that the questions of valuation sought to be raised by the Commissioner's appeals would not arise. (at p369)

3. According to Gorton v. Federal Commissioner of Taxation [1965] HCA 1; (1965) 113 CLR 604 no gift was made to the ordinary shareholders by Mrs. Palfrey man. According to Ord Forrest the company made a gift, within the meaning of the Gift Duty Assessment Act 1941, as amended ("the Act") to each of the ordinary shareholders. (at p369)

4. The Court being evenly divided on appeal, the decision of the primary judge (Stephen J.) prevailed in Ord Forrest. It was a binding decision; other courts were bound to follow it, as Sheppard J. did in these five appeals. The decision does not bind this Court. But this is not because the four members comprising the Court on appeal were evenly divided, but because this Court is not bound by its previous decisions, although it will ordinarily follow these decisions unless there is some special reason for entering upon a reconsideration. Generally speaking the fact that the Court is evenly divided on appeal from a single Justice of the Court is not in itself, in my opinion, a sufficient ground to warrant a reconsideration of the decision. To the extent to which Dixon J. expressed a contrary view in Tasmania v. Victoria [1935] HCA 4; (1935) 52 CLR 157, at p 184 I do not agree with it. The theory which lies behind the Court's practice of sitting a bench of four Justices on appeal from a single Justice of the Court is that in the ultimate analysis there will be a majority within the Court for the decision, should there be an equal division of opinion on appeal. (at p370)

5. It would be a difficult, if not an impossible task, to specify all the grounds which would justify the Court in concluding that a special case has been made out for reconsideration of an earlier decision. There are many factors to be taken into account, of which some only need be mentioned. One is the number of Justices who participated in the earlier decision. The Court will be much less disposed to review a majority decision of a court of five Justices than a majority decision of a court of three Justices. Exceptionally strong grounds will be required to sustain a review of a decision of seven Justices. Of course I am speaking in the context of statutory interpretation where Parliament can amend the law. The interpretation of the Constitution raises other considerations which may call for a more liberal approach. (at p370)

6. A second factor is the importance which the decision has for future cases. A third factor peculiar to the appeal from a single Justice of this Court is the extent to which the reasons of that Justice are indorsed by those Justices who uphold his decision on appeal. Clearly enough if there be a divergence in reasoning then there may be no majority for a particular point of view among the Justices who considered the question. (at p370)

7. Reflection on these elements as they arise in the present case has persuaded me they do not justify a review of Ord Forrest [1974] HCA 57; (1974) 130 CLR 124 . Effectively there was a majority of three of the five Justices who considered the case for the view which prevailed. Stephen J. at first instance, Gibbs J. and I agreed on the interpretation to be given to par. (a) of the statutory definition of "disposition of property" and the reasons given for that interpretation were similar, being subject to minor qualifications only. The question has no importance for the future because by reason of amendments to the Act there is no longer liability to gift duty on gifts made on and after 1st July 1979. (at p370)

8. In any event I consider that Ord Forrest was correct. The attack upon Ord Forrest centred around the statutory definition of "disposition of property" contained in s. 4, in particular par. (a) of the definition which includes "the allotment of shares in a company". The respondents' argument is that par. (a) refers to a completed allotment of shares in a company constituted by the entry of the allottee's name in the register of members when the allotment of shares otherwise constitutes a disposition of property as, for example, when shares in a company are allotted to a non-shareholder on the direction of a shareholder who would, but for the direction, be entitled to have the shares allotted to him. (at p371)

9. The respondents pointed out that in Ord Forrest the Court was not called upon to give a precise meaning to "a contract to allot shares", "an allotment of shares" or "an issue of shares". According to the respondents, par. (a) does not mean the making of an offer by a company of its shares for subscription or the acceptance by the company of an offer to take shares; nor does it mean a binding contract between a company and another person to issue and take shares in that company. (at p371)

10. The respondents do not dispute that in a particular context "allotment" may bear a meaning different from that for which they contend (see Nicol's Case (1885) 29 Ch D 421, at p 426 ; In re Scottish Petroleum Co. (1883) 23 Ch D 413, at p 430 ). But the respondents fail to acknowledge what in my opinion is well established, that "allotment" ordinarily signifies an appropriation to some person of a certain number of shares, but not necessarily of any specific shares (Halsbury's Laws of England, 4th ed., vol. 7, p. 202), usually pursuant to a binding contract, not necessarily an allotment constituted by entry on the register. The judgments of Latham C.J. and Dixon J. in Central Piggery Co. Ltd. v. McNicoll and Hurst [1949] HCA 19; [1949] HCA 19; (1949) 78 CLR 594 are instructive. There the statute provided that "no company . . . shall proceed to the issue to any of its employees (of) any shares in the company" without the consent of the court. It was held that as the shares were issued on communication to the employees of the acceptance of their applications, the company had infringed the prohibition. Latham C.J. observed (1949) 78 CLR, at p 597 that "an application for shares is an offer which may be accepted by allotment notified to the applicant". His Honour pointed out that "The issue of the shares is the act which ends the transaction and ends in the issue of the shares to a specific person, an employee" (1949) 78 CLR, at p 598 . Dixon J. said (1949) 78 CLR, at pp 599-600 :
"Speaking generally the word 'issue' used in relation to shares means, where an allotment has taken place, that the shareholder is put in control of the shares allotted. A step amounts to issuing shares if it involves the investing of the shareholder with complete control over the shares. In re Ambrose Lake Tin and Copper Co. (Clarke's Case) (1878) 8 Ch D 635 makes that quite clear. Cockburn L.C.J. said (1878) 8 Ch D, at p 638 : - 'inasmuch as the term "issue" is used, it must be taken as meaning something distinct from allotment, and as importing that some subsequent act has been done whereby the title of the allottee becomes complete, either by the holder of the shares receiving some certificate, or being placed on the register of shareholders, or by some other step by which the title derived from the allotment may be made entire and complete.'"
His Honour referred to Spitzel v. Chinese Corporation Ltd. (1899) 80 LT 347 , where Stirling J. spoke of "allotment" as "an appropriation by the directors . . . of shares to a particular person", and went on to say, "an allotment does not necessarily create the status of membership" (1899) 80 LT, at p 351 . (at p372)

11. The respondents then urged that to construe par. (a) as applying to an executory contract would be to create an anomaly because all the other transactions which are included in the statutory definition by the general words or by the words of extension are executed transactions under which property rights are finally created, transferred or destroyed. This submission ignores par. (f) of the statutory definition which includes within a "disposition of property" the class of transactions described there, a class which obviously embraces contracts not necessarily amounting to dispositions of property in the ordinary sense of that expression. As Gibbs J. observed in Ord Forrest (1974) 130 CLR, at p 148 , Williams J. held in Grimwade v. Federal Commissioner of Taxation [1949] HCA 9; [1949] HCA 9; (1949) 78 CLR 199, at p 208 that the purpose of pars. (a) to (f) was to comprehend transactions which might not otherwise be held to be dispositions of property and that each paragraph is self-contained or "complete in itself". (at p372)

12. True it is that some of the paragraphs are designed to extend to transactions which involve the creation or destruction of proprietary rights and interests in addition to the alienation of such rights and interests. But in my opinion this does not provide support for the respondents' argument. Once the shares are allotted, at least when allotment takes place pursuant to a binding contract, the allottee is entitled to have his name entered in the register of members in respect of the shares. A binding contract to allot shares creates a proprietary right in the form of a chose in action and a binding contract to allot shares in many instances is capable of specific performance, e.g. in a proprietary company. (at p373)

13. Underlying the respondents' argument is the assumption that if "the allotment of shares in a company" does not mean an allotment completed by registration, the expression must refer to an executory contract. I do not agree. An allotment may give effect to an antecedent contract; it may even constitute a contract; but it is not as such a contract executory or otherwise. (at p373)

14. The respondents rely heavily on s. 12 (1). It provides that a disposition of property in performance of a contract without adequate consideration in money or money's worth shall be deemed to be a gift so soon and so far as the disposition has "affected" the property or any of the property to which the contract relates. I assume, as the respondents argue, that in general it is the conveyance of Blackacre by the vendor pursuant to an antecedent contract of sale, not the contract itself, that constitutes the disposition of property for gift duty purposes. As will appear later, I do not accept that, as a consequence of this proposition, a conveyance is for full consideration in money or money's worth if some consideration, albeit inadequate, moves from the purchaser to the vendor under the contract. (at p373)

15. What is important for present purposes is that s. 12 is designed to fix the time when the gift is deemed to be made in a situation where there is a contract and a subsequent disposition of property. As this is the purpose of the section, I am unable to distil from it a general intention that an executory contract can never constitute a disposition of property. Indeed, the very presence of the section in the terms in which it is expressed lends force to the proposition that, in some circumstances, an executory contract may amount to a disposition of that kind. (at p373)

16. It is immaterial that s. 12 makes no provision for valuing shares before they come into existence. Given its purpose as I have stated it, one would not expect the section to contain such a provision. (at p373)

17. Section 18 (1) (b) provides that the property is to be valued "at the time of the making of the gift". The comment of Kitto J. in Robertson v. Federal Commissioner of Taxation [1952] HCA 71; (1952) 86 CLR 463, at p 486 that the shares must be valued at the time of the gift but on the hypothesis that the gift has taken place, made in relation to s. 16A (1) of the Estate Duty Assessment Act 1914, has equal application to s. 18 (1) (b). However, this does not produce a consequence favourable to the respondents' general argument for in the end it is possible to compute the value of the gift by reference to the value which the shares have when they come into existence. (at p374)

18. I agree that in valuing the shares on an assets or liquidation basis it is proper to include in the company's assets the consideration payable by the allottee (Ord Forrest (1974) 130 CLR, at p 158 ). But I do not agree with the respondents' submission that because the amount of the premium is infinitely variable it is impossible to arrive at the consideration which is fully adequate for the allotment of the shares. In every case it is a question of ascertaining the worth of the company's shares, calculating a premium which will reflect that worth and no more. No difficulty seems to arise in those cases in which shares are valued on a market or earnings basis, as here, because the amount of the premium payable will not significantly affect the value or, if it does, it should be capable of measurement, when we bear in mind that valuation in not an exact science, but an exercise in estimation. I certainly do not agree that the difficulty of calculation the worth of the shares is a reason for rejecting a literal interpretation of par. (a) of the statutory definition. (at p374)

19. I am prepared to assume that in a case in which the relevant disposition of property is an allotment the company's liability to gift duty will need to be taken into account in computing the value of the gift. I acknowledge that in other situations it is not necessary to take account of liability to gift duty. But I can see no reason why this circumstance indicates that par. (a) should be given a limited meaning. The need to take the liability to gift duty into consideration is due to the nature of the property which is the subject of the gift, a share in a company, the donor being the company. (at p374)

20. If it be assumed, contrary to my own view, that there is some difficulty in applying s. 12 to an allotment not constituted by registration, it does not require the conclusion that par. (a) only catches completed allotments by direction. The application of s. 12 to an allotment of shares is not essential to the allotment constituting a gift. As I have already pointed out, s. 12 has a particular and limited role. Because it has a particular and limited role it would be wrong to use it as a basis for reading a limitation to par. (a) of the definition which the paragraph does not express. (at p374)

21. There is the reference in par. (a) to the allotment of shares "in a company" rather than "by a company". In Ord Forrest this was rightly not thought to be of significance. The language in which the paragraph is expressed is wider than the expression "by a company". For this reason I would not infer that the language chosen reflects an intention that a par. (a) transaction is one in which the company is not an active participant. (at p375)

22. A general ground of criticism of the respondents' argument is that it concedes to par. (a) a minimal operation, an operation not remotely suggested by the actual language of the paragraph. By way of contrast it may be said that the application of the statutory definition to the facts of this case is an application which I should have thought that the Parliament rationally intended. (at p375)

23. For these reasons I would affirm the proposition established by Ord Forrest that par. (a) of the statutory definition of "disposition of property" is not to be read down so that it is confined to a completed allotment of shares by direction of a third party. This is to do no more than to give a literal interpretation to a revenue statute. (at p375)

24. The respondents next argue that if an allotment pursuant to a binding contract is a disposition of property it is necessarily made for full consideration in money or money's worth. In the case of St. Helens, this has relevance to the allotment to Mrs. Palfreyman who was present at the directors' meeting which resolved to allot the ordinary shares on 25th June 1968. As she had notice of the company's acceptance of the applications for subscription, a binding contract to actually allot preceded the allotment of shares to her. (at p375)

25. The argument rests on the proposition already mentioned that a disposition of property made in performance of a binding contract must be for fully adequate consideration, even if the executory contract was entered into for less than fully adequate consideration. There is a very clear distinction between the adequacy of consideration for the purposes of the law of contract and the adequacy of consideration for the purpose of revenue legislation such as the laws imposing stamp duty and gift duty. The distinction is partly brought out by the insistence in the statutory definition of "gift" in s. 4 on the absence of "fully adequate" "consideration in money or money's worth passing from the disponee to the disponor". The distinction has often been referred to. One instance was the observation of Dixon J. in Archibald Howie Pty. Ltd. v. Commissioner of Stamp Duties (N.S.W.) [1948] HCA 28; (1948) 77 CLR 143, at p 152 when his Honour, speaking of s. 66 of the Stamp Duties Act, 1920 (N.S.W.), as amended, said:
"In the context I think that the word 'consideration' should receive the wider meaning or operation that belongs to it in conveyancing rather than the more precise meaning of the law of simple contracts. The difference is perhaps not very material because the consideration must be in money or money's worth. But in the law of simple contracts it is involved with offer and acceptance: indeed properly understood it is perhaps merely a consequence or aspect of offer and acceptance. Under s. 66 the consideration is rather the money or value passing which moves the conveyance or transfer." (at p376)

26. Another instance is to be found in the judgment of Kitto J. in Davis Investments Pty. Ltd. v. Commissioner of Stamp Duties (N.S.W.) [1958] HCA 22; (1958) 100 CLR 392, at p 415 where his Honour, speaking of the same section, said that the consideration in question "is the money or money's worth really moving the conveyance". (at p376)

27. The statutory definition of "gift" looks to consideration in the same sense, so that it is to the amount paid or payable by the intending shareholder in consideration of the allotment that we must look in ascertaining whether there was a gift. The remarks of Dixon J. and Williams J. in Archibald Howie (1948) 77 CLR, at pp 152-153; 156-158 do not run counter to this view because in that case their Honours were considering the declaration of a dividend and a special resolution to return capital. What the shareholder received was in satisfaction of rights attached to his existing shares. In one sense the shareholder's rights had their source in contract but in another sense his property rights were of a different order from the purchaser's right to call for a transfer under a contract of sale. (at p376)

28. The respondents predict that, if the view which I favour prevails, horrendous consequences will follow and that an oppressive liability to gift duty will descent upon an unsuspecting citizenry. The force of this argument is somewhat diminished, to say the least of it, by the abolition of gift duty on gifts made on and after 1st July 1979. But in any event I am far from convinced that the examples offered by the respondents would lead to a liability for gift duty in the situations postulated. Some examples seem to be clear instances of payments or benefits received in satisfaction of rights of property. One example which presents a problem is the sale of property under a binding contract when the value of the property rises (or falls) between contract and conveyance. The question is whether gift duty is payable on the transfer if the change in the value exceeds $10,000. I see no occasion to answer this question but I make the comment that s. 12 (1) appears to proceed on the footing that gift duty would be payable on the transfer in such a case. The sub-section is, as I have pointed out, directed to a particular situation, but it is significant that Parliament provided in that situation for the very consequence that, according to the respondents, is so patently unacceptable that Parliament could not have intended it. (at p377)

29. I turn now to the Commissioner's appeal. He contends that the primary judge erred in applying s. 18 (2) (c) of the Act by reason of an incorrect interpretation which he placed upon this provision. (at p377)

30. The Commissioner's assessment to gift duty placed a value on each of the five ordinary shares in St. Helens of $330,529.60, resulting, according to the Commissioner, in a gift of $1,652,148 and giving rise to an assessment to gift duty of $460,949.29. This valuation of the shares was supported by resort to s. 18 (2) (c) and the winding-up basis evaluation which it authorized. An earnings basis produces a very much lower valuation basis. The reason for the difference lies in the high value of the assets of St. Helens Farm and in the very low income which they yield. (at p377)

31. The principal asset was the share in the Broken Hill Proprietary Company Ltd ("B.H.P.") which had a very low income yield in relation to their market value. On 25th June 1968 the shares reached a peak of $25 on the Stock Exchange and at this price they yielded .08 per cent. Their average yield between 1945 and 1968 was 3 per cent. (at p377)

32. The respondents' valuers approached the valuation upon the basis that each of the ordinary shareholders received one ordinary share. Each such shareholder had a minority interest and it was that interest that had to be valued. It was inappropriate to place on each ordinary share the value that would be placed on one-fifth of the company's shares in B.H.P. No single shareholder could wind up the company or bring about a distribution of the B.H.P. shares unless three of the other four shareholders joined with him to pass a special resolution for winding up. Although two shares were held by the one trustee company, the trusts affecting the two shares so held were different. It was therefore wrong to conclude that four shareholders would combine to wind up the company, and right to select earnings as a basis for valuation. Messrs. Bagnall and Goddard placed a value of $40,000 (approximately) on each of the ordinary shares. Mr. Young favoured a value of $30,000. Mr. Thompson-Laing, one of the Commissioner's valuers, agreed that $40,000 was approximately correct if an earnings basis was held to be appropriate. (at p377)

33. The Commissioner's valuers considered that an earnings basis was inappropriate because, to their way of thinking, it meant that a valuation of $200,000 only was to be placed on assets worth $1,200,000. This led them to favour a winding-up basis, which they sought to justify on the footing that St. Helens was a family company and that there was a possibility that the shareholders might combine and wind up the company so that its assets could be distributed or deployed to better advantage. They therefore applied s. 18 (2) (c). However, one of their number, Mr. Robinson, adopted a different approach. He conceded that it was wrong to value the shares by reference to the value of the company's assets. He took the value of those assets and discounted them by 20 per cent so as to make allowance for the slim prospects of each shareholder bringing about the realization of those assets. (at p378)

34. Sheppard J. rejected the approaches taken by the Commissioner's valuers. He refused to apply s. 18 (2) (c) because so to do would be to regard each ordinary shareholder as having an asset worth precisely the same as a proportionate part of the company's B.H.P. shares. Further, he found that it was not within the contemplation of anyone that the B.H.P. shares would be sold - they had initially been acquired by Mrs. Palfreyman as an investment and the company held them in that character. As it was intended to hold them indefinitely, the very low yield was not of much significance. His Honour then rejected Mr. Robinson's approach and adopted an earnings basis with a capitalization rate of 4 per cent yielding a valuation of $60,000 for each ordinary share. (at p378)

35. The Commissioner's attack on this valuation is based primarily on the submission that his Honour should have applied s. 18 (2) (c). Although it is normal to value on an earnings basis shares in an investment company which has a continuing business, there are exceptions to this rule. One such exception was recognized in the joint judgment of McTiernan, Williams and Webb JJ. (with whom Dixon and Fullagar JJ. agreed) in Commissioner of Stamp Duties (N.S.W.) v. Pearse [1951] HCA 43; (1951) 84 CLR 490, at p 520 , when their Honours said:
"To value shares in a company which is a going concern on the basis that the company is in voluntary liquidation at the date of death savours of unreality. The choice of such a mode is not calculated to produce a fair value. It is more likely to produce a false value. Scope for the use of the provision contained in s. 127 (1) (c) may be found in cases where a company's operations do not produce income which can be regarded as affording any measure of the value of the shares, as well may be the case with an assets company or a company whose earning capacity is restricted or diminishes temporarily or by accidental circumstances. Other special cases may be imagined."
Section 127 (1) (c) of the Stamp Duties Act, 1920 (N.S.W.), as amended, is the counterpart of s. 18 (2) (c). (at p378)

36. An example is provided by Jekyll v. Commissioner of Stamp Duties (Q.) [1962] HCA 9; (1962) 106 CLR 353 , where, owing to the difficulties of applying an earnings basis in a very complex situation, a valuation on an assets basis made by the primary judge was upheld. There the deceased held a large parcel of 154,574 1 pound fully paid 1 per cent first preference shares which entitled the holder to a preferential return of capital on a winding up. These shares carried 76 per cent of the voting power in the company during the deceased's lifetime, but no voting power at all on his death. There were three other issued shares, each fully paid to two ordinary shares and one second preference share, each of which carried one vote. There were restrictions on the transfer of shares by virtue of which the directors were first authorized to sell to a member at the auditor's valuation and ultimately had a discretion to approve or reject a transfer. The executors argued that a winding-up basis of valuation "cannot be sustained except in a case where a liquidation is likely or could be forced or secured" (1962) 106 CLR, at p 361 . It was, I think, accepted by the Court that a liquidation "could not be forced, is not in contemplation and would be an extreme and unlikely course" [1962] HCA 9; ; (1962) 106 CLR 353 . (at p379)

37. As I read the judgment of Dixon C.J. (with whom McTiernan J. concurred), he rejected the appellant's argument that the discretion to value on a winding-up basis could not be exercised except in a case where a liquidation is likely or could be forced or secured. After referring to the disadvantages to which the first preference shares were subject, disadvantages which would deter a potential purchaser from offering a price equal to the assets value of the shares, his Honour observed that the holder of the other three shares in the company had a strong interest in excluding strangers and preventing them acquiring the first preference shares which conferred an ultimate right to a proportionate share in the capital which largely reflected ownership of the family property. On a winding up the assets of the company have been insufficient to return more than 19/- in the pound on the first preference shares. Consequently, there was, as Dixon C.J. said, a strong reason for the ordinary shareholders seeking to acquire the first preference shares. It was this circumstance that made a winding-up basis a sound basis of valuation in what was described as a complex situation. (at p379)

38. The St. Helens Farm facts are significantly different. The ordinary shareholders do not have any strong reason for seeking to acquire the preference shares. The assets of St. Helens Farm are so very considerable in relation to its paid-up capital that the payment of the preference share capital ($12,002) would still leave the five ordinary shareholders participating in a distribution of well over $1,000,000. (at p380)

39. Even so, the Commissioner argued that St. Helens Farm was an "assets company" of the kind mentioned in Pearse [1951] HCA 43; (1951) 84 CLR 490 because the investments are not yielding a satisfactory return and because the value of the company's shares on an "earnings" basis was disproportionately low in relation to its assets - $300,000 on the primary judge's finding, whereas the net assets were worth well over $1,000,000. I have some difficulty in accepting the notion that the assets were not yielding a satisfactory return. After all, the return reflected in large measure the very low return attributable to the market valuation of the company's principal investment, its shares in B.H.P., an investment which had been made with knowledge of its low return. What can and should be said is that the investment in B.H.P. was yielding a lower return that usual because its market valuation had risen to a peak and that it therefore yielded such a low return that in ordinary circumstances shareholders would wish to sell at that valuation and re-invest the proceeds of sale in assets yielding a higher income return. (at p380)

40. Another "special case" of the kind mentioned in the joint judgment in Pearse is that of a sharp and unexplained or unexpected rise in the value of assets, unaccompanied by any prospect of a corresponding increase in the income which it yields. Such a situation may well lend itself to a liquidation or assets valuation. (at p380)

41. Sheppard J. answered this by finding (a) that it was not within the contemplation of anyone that the shares would be sold on that day or about that time; and (b) that to value the shares on an assets basis would be to bring about a situation in which each of the minority shareholders is to be regarded as having an asset worth precisely the same as a proportionate part of the company's assets. (at p380)

42. Finding (a) above is important. It provides a reason for not adopting the suggestion made in the joint judgment in Pearse that there may be scope for valuation on a winding-up basis when the "earning capacity is restricted". Quite obviously, when, as a result of developments previously unforeseen, the income-earning capacity of a company becomes restricted, then it will be to the interest of the shareholders to wind it up if it has valuable assets. Here, however, though the income yield was low, the income itself was not lower than that expected when the investment was initially made and there was no ground for thinking it would be restricted. The income yield had fallen only because the value of the shares had risen. Consequently, apart from the rise in the market price, there was no reason why the shareholders should depart from the initial intention that the B.H.P. shares were to be held as a long-term investment. (at p381)

43. It is somewhat ironical that an assets valuation is discarded and a much lower earnings valuation adopted because the shareholders are said to be unwilling to sell the B.H.P. shares or wind up so as to realize their high assets valuation and prefer to continue to hold their shares, low though the yield is. This leads me to think that, although the shareholders express their intention not to dispose of their shares or to wind up the company, allowance might well have been made for the possibility that they might pursue one of those courses at some time in the future because it has obvious financial advantages. (at p381)

44. Nevertheless, I am unwilling to disturb his Honour's finding on valuation. This Court has consistently applied the rule that on a question of valuation an appellate tribunal is not justified in substituting its own opinion for that of the court below unless it is satisfied that the court below acted on a wrong principle of law or that its valuation was entirely erroneous (The Commonwealth v. Milledge [1953] HCA 6; (1953) 90 CLR 157, at p 159 ; Commissioner of Succession Duties (S.A.) v. Executor Trustee and Agency Co. of South Australia Ltd. [1947] HCA 10; (1947) 74 CLR 358, at p 367 ; The Commonwealth v. Reeve [1949] HCA 22; (1949) 78 CLR 410 ). See also Emerald Quarry Industries Pty. Ltd. v. Commissioner of Highways [1979] HCA 17; (1979) 142 CLR 351, at pp 356, 374 . As with the assessment of damages, especially in personal injury cases, the valuation of property by a court has many of the characteristics of a discretionary judgment. Valuation is a matter of estimation, not of precise mathematical calculation. It certainly involves the making of a value judgment in the metaphorical as well as the literal sense. (at p381)

45. Sub-section 18 (3), does not displace the principle to which I have referred; it applies only to a court having original jurisdiction to determine the value of shares or stocks; it is designed to enable such a court to substitute its own opinion or discretion for that of the Commissioner, something it could not do without legislative authority. The sub-section has no application to this Court exercising appellate jurisdiction under s. 36 of the Act. (at p381)

46. Moreover, there are other grounds to sustain his Honour's conclusion. Each ordinary share was the subject of a separate gift. It is therefore necessary to value separately each ordinary share and in so doing to have regard to the restrictions on transfer contained in the articles and the indications that all the shareholders favoured a retention of the shares. When this is done and regard is had to the fact that the market value of the shares on the day in question was at an all-time high, I think that the primary judge was right to reject the case for a valuation on a winding-up basis. (at p382)

47. The Commissioner's alternative submission is that Mr. Robinson's valuation should be accepted, subject to an allowance for blockage and brokerage. He advocated an assets valuation, attributing $24 per share to the B.H.P. shares, with a discount of 20 per cent to allow for the unfavourable prospects of each of the ordinary shareholders securing a realization of capital. His approach was rightly criticized by the primary judge on three grounds: (a) that a much larger discount figure than 20 per cent was called for; (b) that his approach was unsupported by other expert evidence; and (c) that there was no discount for "blockage", reductions in market price attributable to the theoretical necessity to sell a large parcel of shares on one day. In addition to these criticisms there is the point that Mr. Robinson seems to have thought, for reasons not apparent to me, that he was required to value the shares on the footing that he was dealing with a hypothetical allotment. I therefore reject the Commissioner's submission that Mr. Robinson's valuation should be adopted. (at p382)

48. The Commissioner did not seek to argue that, if an earnings basis was accepted to be appropriate, the primary judge's valuation was erroneous. I am disposed to think that the primary judge was inclined to treat the assets basis and the earnings basis of valuation as offering two distinct alternatives. In truth, in arriving at a correct valuation the exercise is to be approached on the footing that a price is arrived at between the hypothetical vendor who is willing but not anxious to sell and the hypothetical purchaser who is willing but not anxious to buy. In executing this exercise the court is not bound to choose between the two alternatives and apply one wholly to the exclusion of the other. The court may, and should, in appropriate cases have regard not only to an earnings valuation but also to any further value which the shares may have by reason of there being some prospect that the assets value of the shares will be realized either on a sale or on a winding up. In a case such as the present allowance should be made for the possibility that a potential purchaser, especially an ordinary shareholder, would pay substantially more than the value to be justified exclusively on an earnings basis, by reason of the high assets backing of the shares. I doubt whether sufficient allowance was made by his Honour on this account but as this matter was not argued I need not explore the question. (at p382)

49. But I should make the comment that too much attention is given both by valuers and judges to what has been said by courts in other cases on matters of fact and discretionary judgment, not being matters of law. Essentially valuations are estimations involving findings of fact and discretionary judgment made on the evidence given in the individual case and by reference to the circumstances of that case. To apply slavishly the approach taken by a judge in another case, to apply the same discount or capitalization rate that he applied, as if that rate had the force of a general rule, is to attribute to them the force that should be confined to propositions of the law. (at p383)

50. There remains for consideration in the St. Helens Farm case the respondent's argument, already mentioned in another connexion, that the primary judge should have reduced the amount of his valuation by the amount of the gift duty payable by the company on each of the five shares. Gift duty is payable on the making of the gift (s. 25(1)) and is a joint and severable liability of the donor and the donee (s. 25(2)). The question raised in the respondent's submission could only arise in a case in which the disposition of property comprises an allotment by a company of its shares, as in Ord Forrest [1974] HCA 57; (1974) 130 CLR 124 where the point was not argued. It arises in this class of case because in ascertaining the value of the property given, the share, it may be necessary to look to the company's liabilities. Had the primary judge valued the shares in St. Helens Farm on an assets basis it would have been appropriate to take into consideration the liability of the company to gift duty. As the judge arrived at his valuation on an earnings basis, it is not a relevant consideration, though it is a factor which tends to counterbalance the additional price which a purchaser may have been prepared to pay because the assets had a high value. (at p383)

51. In the result I would accept the primary judge's valuation of each share in St. Helens Farm at $60,000 and I would dismiss the appeal and the cross appeal.

Ceedon Pty. Ltd. (at p383)

52. The principal difference between this case and that of St. Helens Farm is that there was a power in the company to re-convert the preference shares held by Mr. Donald to ordinary shares. Since Mr. Donald during his lifetime retained control of voting rights, he could effectively control the meeting at which any proposal to re-convert the shares was made. Because the shares were under the control of the directors he could, by reason of his position as governing director, prevent the issue of any further shares. (at p384)

53. Another difference is that in this case there was an escalation clause. A third difference is that all six ordinary shares were taken up by one person, Nodeec Pty. Ltd. with the result that the property which was the subject of the disposition included all six shares. (at p384)

54. Many of the issues sought to be raised in this case have been concluded by my judgment in the St. Helens Farm case. His Honour found the value of the six ordinary shares in the company to be worth $5,000. In arriving at this valuation he applied the principles which he had applied in the case of St. Helens Farm. (at p384)

55. In this Court the respondents do not argue that by reason of the existence of the escalation clause there was no gift by Ceedon to the ordinary shareholders because on its true interpretation the escalation clause required the payment of a fully adequate consideration in money for the shares to be allotted. The respondents accept that the escalation clause is void but submit that it was not, as Sheppard J. found, severable. The respondents were content to defeat, if they could, the Commissioner's appeal and to accept an assessment to duty in accordance with the judgment of Sheppard J. They offered no explanation of their attitude. (at p384)

56. Sheppard J. held that the escalation clause was void either because it was uncertain or because it involved the parties in agreeing to what was an impossibility. He took the view that the Deputy Commissioner of Taxation "is a statutory, office-holder designated in his official capacity who not only refuses to do what is asked of him but has, so it appears to me, no power to do so". His Honour had earlier said: "The parties have selected the Deputy Commissioner of Taxation as the person who is to determine the difference between what is described as the true value of the shares and the amount of the application moneys to be paid by Nodeec Pty. Ltd." (at p384)

57. This last comment seems to reflect a misunderstanding of the effect of the deed. As I read it, it was "the true value of the shares" which the Deputy Commissioner was to calculate under the deed, not the difference between that value and the amount of the application moneys. However, in view of the respondents' attitude and the absence of argument on the question, I need not explore it further. I shall assume that the escalation clause in inoperative. On that assumption Gibbs and Aickin JJ. have demonstrated that, if invalid, it is clearly severable. I do not wish to add to what they have said. (at p384)

58. The Commissioner submitted that the possibility of Mr. Donald exercising his power to re-convert his shares to ordinary shares was a contingency for the purposes of s. 18 (1) (a), relying on the remarks of McTiernan J. in Gorton (1965) 113 CLR, at p 615 in preference to the decision of Gibbs J. in Bray v. Federal Commissioner of Taxation (No. 2) [1971] HCA 8; (1971) 123 CLR 348 . (at p385)

59. The essential question, as it seems to me, is whether the expression "any contingency affecting the interests of the donees" is confined to a contingency which affects the existence or nature of the proprietary interests or whether it extends to a contingency which affects the value of the proprietary interests of the donees. In this context "contingency" means "an event conceived of as a possible occurrence in the future". And the expression "the interests of the donees" means "the proprietary interests of the donees" or their interests in property. The statutory definitions of "disposition of property" (pars. (c) and (d)), "donee" and "interest in property" all suggest that "interests" bears this meaning. (at p385)

60. If our inquiry were confined to the mere words of par. (a) of s. 18 (1) it might be said that the word "affecting" was equivocal and that, by reason of its being equivocal, it should be strictly construed so as to signify an event which, if it occurs, will divest or alter the proprietary rights or interests of the donees. Viewed in this light, the event in question, which is the possible exercise by Mr. Donald of the power to re-convert his preference shares into ordinary shares, though it would diminish the value of the existing ordinary shares would not affect the interests of the donees because it would not alter their proprietary interests. The rights attaching to the existing ordinary shares would remain unaltered. On this argument the exercise of the power would "affect" Mr. Donald's preference shares and in consequence affect the value of the existing ordinary shares, but the exercise of the power would not of itself touch those shares or relate to them. (at p385)

61. However, this approach turns a blind eye to the opening words of s. 18 (1) and to the purpose which it so clearly expresses. The purpose which par. (a) is designed to serve is that "of computing the value of the gift". By way of fulfilling this purpose par. (a) facilitates the computation of the value of interest in property which the donee obtains. In this setting par. (a) is to be read as referring to any contingency which affects the value of that interest, whether it divests or alters that interest or not. If Parliament intended that contingencies which affect the actual existence of the donee's interest are to be ignored in computing value - and this is conceded - it is rational to suppose that Parliament intended that contingencies which merely affect the value of the interest are also to be ignored. So understood, the word "affecting" has a meaning similar to "affecting" in the expression "injuriously affecting"; it denotes contingencies which, if they occur, will affect the enjoyment, and consequently, the value, of the donee's estate or interest in property, though they may not affect the existence of that estate or interest or alter the rights which attach to it. (at p386)

62. The decisions of the Court of Appeal in White v. Bristol Aeroplane Co. Ltd. (1953) 1 Ch 65 and In re John Smith's Tadcaster Brewery Co. Ltd. (1953) 1 Ch 308 provide no support at all to the respondents. They are plainly to be distinguished. There it was held that the new issue of stock with voting rights did not "affect" the voting rights of existing preference stockholders, notwithstanding that it affected the enjoy ment of those voting rights. But in each of these cases the word "affect" appeared in a traditional modification of rights article which when read with other provisions in the articles demonstrated that "affect" meant affect by way of destroying or altering rights attaching to shares, as distinct from affecting the enjoyment or value of those rights. No such context exists here; instead, the context is that of valuation. (at p386)

63. In the result I would allow the appeal, dismiss the cross appeal and remit the matter to the Supreme Court.

Gwynedd Pty. Ltd. (at p386)

64. The escalation clause here was expressed in different terms. It required the allottees to pay the allotment and premium "or such if any greater sum as will constitute the consideration" passing from the allottee to the company in respect of the allotment "fully adequate within the meaning of that expression as used in" the statutory definition of "gift" in s. 4 of the Act. (at p386)

65. However, for the reasons stated in the previous appeal, on the assumption that the clause is invalid, I conclude that it is severable. Likewise, for the reasons stated in the appeal, I consider that the primary judge should have applied s. 18 (1) (a). (at p386)

66. I would allow the appeal, dismiss the cross appeal and remit the matter to the Supreme Court.

Lucinda Investments Pty. Ltd. (at p386)

67. For the reasons which I have expressed in the Ceedon appeal the primary judge should have applied s. 18 (1) (a) and ignored the contingency that Mr. Field might reconvert his cumulative preference shares into ordinary shares. Accordingly, I would allow the appeal, dismiss the cross appeal and remit the matter to the Supreme Court.

Q.A.W. Pty. Ltd. (at p387)

68. Again s. 18 (1) (a) should have been applied so as to ignore the contingency that Mr. Wright might, during his lifetime, reconvert his cumulative preference shares into ordinary shares. I would allow the appeal, dismiss the cross appeal and remit the matter to the Supreme Court. (at p387)

MURPHY J. Ord Forrest Pty. Ltd. v. Federal Commission of Taxation [1974] HCA 57; (1974) 130 CLR 124 was a decision by an evenly divided court dismissing an appeal from Stephen J. Such a decision is referred to as a statutory majority, a consequence of the directions in the Judiciary Act 1903, as amended, s. 23. Those directions are of questionable validity. If Parliament can direct that on an even division a certain judgment follows, for example that in certain cases, the opinion of the Chief Justice or if he is absent, the opinion of the Senior Justice present, shall prevail, presumably it can direct that in those or other cases the opinion of the junior or some other Justice shall prevail, and of course it can change the directions from time to time. If Parliament can direct that a Full Court consisting of less than all the Justices shall not give a decision on a question affecting the constitutional powers of the Commonwealth, unless at least three Justices concur in the decision, (see s. 23 (1)), presumably it can direct that the decision shall not be given unless it is unanimous. If Parliament can give such directions, why can it not direct that no decision shall be given which invalidates an Act (or on a question affecting the validity of an Act) or which challenges the validity of any governmental action, or which is adverse to the Government, unless the decision is unanimous. Section 79 of the Constitution states that "The federal jurisdiction of any court may be exercised by such number of judges as the Parliament prescribes". Assuming this is intended to apply to the High Court, it does not authorize directions on how the individual opinions or votes of justices should be transformed into judgments of the Court, which seems to be well within the sphere of the judicial branch. The validity of these provisions has not been raised, perhaps because the main provision that an appeal fails if it does not attract a majority conforms to a widespread convention (see Dixon J. in Tasmania v. Victoria [1935] HCA 4; (1935) 52 CLR 157, at pp 183-184 ). The provision about equal division in the original jurisdiction does not. It is very disturbing that an Act or State Act should be held invalid on an even division of this Court (see Logan Downs Pty. Ltd. v. Queensland [1977] HCA 3; ; (1977) 137 CLR 59 (at p388)

2. I will state my conclusions briefly. Ord Forrest should be followed because it is correct. I agree with Stephen J. on the meaning and application of s. 18 (1) (a) of the Gift Duty Assessment Act 1941. (at p388)

3. In my opinion, this was an appropriate case for the use of s. 18 (2) (c). Once, it was almost an axiom that the whole was equal to the sum of its parts. In valuing company shares, it is evident that the whole of the shares may be worth more than the sum of the value of the individual shares. Some disparity is normal, but here the disparity between the value of the whole and the value of the sum of the individual shares as valued by the Court below is extraordinary. The respondents claim that the assets basis is inappropriate. Valuation on an earnings basis is so low that it is illusory. The companies as receptacles for the gifts resemble magicians' jugs into which great amounts of water can be poured without overflowing. The result is so bizarre that it warrants a departure from the approach of the trial judge. In these circumstances it is proper, as the Commissioner contends, to regard resort to s. 18 (2) (c) as "necessary". The word is not to be construed as meaning "absolutely necessary". In the context of this Act, the word is not used in a strict sense. In s. 51 "necessarily incurred" is not used in a strict sense. (at p388)

4. The appeals should be allowed. The cross appeals should be dismissed. (at p388)

AICKIN J. These five appeals and cross appeals were heard together. Each is an appeal from a decision of Sheppard J. in the Supreme Court of New South Wales (1979) 46 FLR 217; 9 ATR 672; 79 ATC 4, 161 . The proceedings before him were challenges to assessments of gift duty made by the Commissioner of Taxation under the Gift Duty Assessment Act 1941 ("the Act"), as amended. The Commissioner issued notices of assessment in respect of gift duty to each of the companies and each company objected to such assessments. The Commissioner disallowed each objection and each company then requested the Commissioner to treat its objection as an appeal and to forward it to the High Court. Each matter was listed in the High Court for hearing but was remitted to the Supreme Court of New South Wales pursuant to the provisions of s. 44 of the Judiciary Act 1903. The appeals were heard together by Sheppard J. who allowed each appeal and upheld each objection, some in part and some wholly. From those decisions the Commissioner appealed to this Court pursuant to s. 36 of the Act and each company cross-appealed in various respects, details of which will require examination later in these reasons. (at p389)

2. Before Sheppard J. the facts were substantially agreed between the parties and the only oral evidence was that of valuation of the alleged gifts. We were informed that these cases were "test cases" in the sense that it was said that there were a great many objections lodged with the Commissioner against assessments to gift duty in respect of gifts by companies based on the decision of this Court in Ord Forrest Pty. Ltd. v. Federal Commissioner of Taxation [1974] HCA 57; (1974) 130 CLR 124 . In that case there had been no challenge to the quantification of the alleged gift but in the present cases there is a challenge to the valuation placed by the Commissioner on the shares the subject matter of the gift as well as a challenge to the correctness of the decision in Ord Forrest. Although the facts in each of the five cases differ, they fall into two principal categories, the first of which is the appeal by St. Helens Farm (A.C.T.) Pty. Ltd (St. Helens Farm) and the second comprises the remaining four appeals. In St. Helens Farm the articles of association of the company contained no provision which permitted the holder of the ordinary shares, who had procured or approved their conversion into preference shares prior to the issue of ordinary shares to the donees of the alleged gift, to reconvert the preference shares into ordinary shares or otherwise affect the value of the shares the subject of the alleged gift. In each of the other appeals there was such a provision. However differenct questions as to the proper mode of valuation arose in each of the other appeals though the differences were not always significant in the result.

St. Helens Farm (A.C.T.) Pty. Ltd. (at p389)

3. It will be convenient to begin with St. Helens Farm and I take the following statement of the material facts from the judgment of Sheppard J. as follows (1979) 46 FLR, at pp 221-223; 9 ATR, at pp 678-680; 79 A.T.C., at pp. 4,166-4,167. .
"St. Helens was incorporated on 9th February 1968, under the laws of the Australian Capital Territory. In had a capital of $10,000 divided into 10,000 shares of $1 each. On 12th February, 1968, one Ellen Federay Palfreyman became the holder of one share in the capital of the company by transfer to her from one of the subscribers to the memorandum of association. The other subscriber's share was transferred to Faris Addison Palfreyman. He held his share upon trust for Mrs. Palfreyman.
At the meeting of the company's directors held on 2nd March 1968, it was resolved to borrow from Mrs. Palfreyman the sum of $80,000. Such loan was to be repayable on demand and to be without interest. Immediately after the meeting Mrs. Palfreyman delivered her cheque for $80,000 to the company. Her loan account was credited with that sum.
At a further meeting of directors held on 5th March 1968, it was decided to borrow from Mrs. Palfreyman the further sum of $270,000 on similar terms and conditions to those upon which the sum of $80,000 had been borrowed. The amount was paid by Mrs. Palfreyman to the company. Also at the meeting of directors held on 5th March 1968, it was resolved to purchase from Mrs. Palfreyman 138,000 one percent non-cumulative preference shares in the capital of an associated company, St. Helens Estates Pty. Ltd., for the price of $270,107. Completion of the purchase took place immediately following the meeting by the company handing to Mrs Palfreyman its cheque in the sum of $270,107 and by Mrs. Palfreyman handing to the company a transfer in respect of the shares together with the relevant share certificates.
A further meeting of the directors of the company was held on 15th March 1968. At that meeting the company resolved to borrow from Mrs. Palfreyman the further sum of $1,244,000 also to be repaid on demand and without interest. Immediately after the meeting Mrs. Palfreyman delivered to the company her cheque in the sum of $1,244,000 and her current account with the company was credited accordingly.
At the same meeting the company resolved to purchase from Mrs. Palfreyman 67,409 ordinary shares in the capital of The Broken Hill Proprietary Company Ltd. for the price of $1,193,139.30. Completion of the transaction took place immediately following the meeting. The company delivered its cheque to Mrs. Palfreyman in the required sum and Mrs Palfreyman delivered to the company a transfer of the shares together with the share certificates.
On 24th June 1968, at 11.30 a.m. an extraordinary general meeting of the members of the company was held. It was there resolved that the capital of the company be increased to $20,000 by the creation of 10,000 new shares of $1 each. At a directors' meeting held at 2.25 p.m. the following day, it was reported that Mrs. Palfreyman had called for payment to her of the sum of $1,200,000, portion of the loan moneys placed in her name with the company. A cheque for that amount was drawn in her favour. It was then resolved that 12,000 ordinary shares of $1 each in the capital of the company be allotted to Mrs. Palfreyman at a premium of $99 per share. She was entered in the Register of Members as the holder of such shares as from 25th June 1968. She paid for the shares by delivering to the company a cheque in the sum of $1,200,000.
At 2.35 p.m. on 25th June 1968, a further extraordinary general meeting of the members of the company was convened. All members of the company were present and agreed to waive the notice of the meeting to which they were entitled. At that meeting it was unanimously resolved that each of the 12,002 shares already issued in the capital of the company be converted into preference shares of $1 each. The rights, privileges and conditions attaching to the shares were to be as follows:
'(a) the said shares shall not confer any right to vote at any general meeting of the company. The holders thereof shall be entitled to notice of and to attend any general meeting of the company.
(b) the said shares shall carry the right to a fixed preference dividend at the rate of 4% per annum on the capital paid up thereon respectively but not including any premium in respect thereof.
(c) the said shares shall rank in a winding up and on a reduction of capital both as regards capital and dividend up to the commencement of the winding up in priority to all other shares in the capital of the company.
(d) the said shares shall not carry the right to any further participation in the profits or assets of the company or in any amount paid by way of premium upon any shares subscribed for in the company'.
At the meeting it was resolved that the articles of association be altered by deleting the existing article 3 and substituting the following article therefor:
'3. (i) That the capital of the company is the sum of twenty thousand dollars ($20,000) divided into eighteen thousand (18,000) preference shares of one dollar ($1) each and two thousand (2,000) ordinary shares of one dollar ($1) each.
(ii) Notwithstanding anything in these Articles contained the preference shares shall confer upon the holders thereof the following rights and privileges and shall be subject to the following conditions that is to say: -

. . . '
There then followed paragraphs in identical terms to those just set out.
At 2.40 p.m. on 25th June 1968 a further meeting a directors of the

4. It will be observed that after the 12,002 issued ordinary shares had been converted into preference shares they carried no vote at a general meeting and that the holder of each share was on a winding up entitled only to $1. (at p392)

5. It was submitted before Sheppard J. that the decision of this Court in Ord Forrest [1974] HCA 57; (1974) 130 CLR 124 should not be followed but Sheppard J. rightly said that that was not a submission which he could entertain. The matters with which he dealt concerned only the value of the gift which the Commissioner contended had been made when the shares were allotted to the ordinary shareholders. These matters arose from a number of provisions in the Act which it is desirable to set out in full:

"4.(1) In this Act, unless the contrary intention appears -
'disposition of property' means any conveyance, transfer, assignment,

(a) the allotment of shares in a company;
(b) the creation of a trust in property;
(c) the grant or cration of any lease, mortgage, charge, servitude,

. . .
'gift' means any disposition of property which is made otherwise than by

. . .
'interest in property' means any estate, interest, right or power

. . .
'property' includes real property and personal property and every interest

. . .
18. (1) For the purpose of computing the value of a gift -
(a) no allowance shall be made in respect of any contingency affecting the

. . .
(c) Where a gift includes any shares or stock in any company the shares or

6. The contention which arose in the case of St. Helens Farm was whether it was appropriate to apply s. 18(2) (c). By reason of s.18 (3) it was a matter for the trial judge to consider whether he should form the opinion that it was necessary for the provision to apply for the purpose of computing the value of the gifts. Sheppard J. concluded that it was not necessary for the provision to apply and that it should not apply. He had before him valuations made by five valuers, two called on behalf of the Commissioner and three called on behalf of the taxpayer companies. It is convenient to note that in the case of St. Helens Farm one of the Commissioner's valuers (Mr. Thompson-Laing) adopted the liquidation method of valuation in accordance with s. 18 (2) (c), which was the method used by the Commissioner in making each of the assessments. That valuer however arrived at a figure differing slightly from that adopted by the Commissioner. He also said in his valuation that a buyer of all the ordinary shares would be prepared to purchase at the same figure. He further said that, if contrary to his view, it were necessary to value a minority holding of ordinary shares (i.e. one share) the valuation should be made on a capitalisation of maintainable dividends. For that purpose he used a capitalisation rate of 6 per cent and valued each share at $40,023, whereas by the use of s. 18 (2) (c) he valued each share at $286,334. (at p394)

7. The second valuer called by the Commissioner (Mr. Robinson) first valued on a discounted assets-backing basis. He said that he had discounted the value of the assets of St. Helen Farm on the basis that the market discounts the asset-backing of investment companies, and because it is an unlisted company. He used a discount of 20 per cent and arrived at a figure of $257,922 per share. However the evidence showed that the average market discount below the assets-backing value in the case of listed investment companies holding shares in listed companies was 26 per cent. He also valued the shares on the basis that s. 18 (2) (c) applied and arrived at a figure of $306,332 per share, being $24,000 lower than the Commissioner's figure. He made no valuation on an earnings basis. (at p394)

8. Sheppard J. made a careful review of the various cases in which sections similar to this have been dealt with in the courts. He referred to two cases in which this Court has had regard to and applied such sections, namely Jekyll v. Commissioner of Stamp Duties (Q.) [1962] HCA 9; (1962) 106 CLR 353 and Gregory v. Federal Commissioner of Taxation [1971] HCA 2; (1971) 123 CLR 547 . Gregory's Case concerned share holdings in two different private companies. In one, the deceased had held all but 2,400 of 39,165 issued shares, and in the other, he held 13,280 out of a total of 898,440 shares. In relation to the first company, Gibbs J. thought it appropriate to apply the provisions of the Act because the deceased was in a position to procure the winding-up of the company without having to rely upon support from any other shareholder and the purchaser of his shares would have taken that into account. In respect of the other company, Gibbs J. regarded it as inappropriate to apply the equivalent provisions and said that a purchaser of so small a holding would have recognized that it was unlikely that the position of the company would change from one which held a very substantial holding in a public company and was likely to continue to do so without regard to considerations which would influence the conduct of an investment company. (at p395)

9. Sheppard J. expressed his conclusion in relation to this aspect of the case as follows (1979) 46 FLR, at pp 231-232; 9 ATR, at pp 685-686; 79 ATC, at p 4172. :
"I think that in the present case one has to bear very much in mind that the substantial asset of the company was shares in a well-known company listed on the stock exchange. To my mind the case has similarities not only to Crane but also to Gregory in so far as that case dealt with a minority shareholding in a private company, the main asset of which was also shares in a listed company. The same considerations moved Mr. Bagnall, Mr. Goddard and Mr. Young in relation to the evidence which they gave in the present case. In my opinion, to apply s. 18 (2) (c) to the case would bring about a situation, as I have earlier said, in which each of the minority shareholders was to be regarded as having an asset worth precisely the same as a proportionate part of the shareholding of the company in The Broken Hill Proprietary Company Ltd.
It is true that by reason of the very high price at which B.H.P. shares were being traded on the day in question the yield was extremely low, but it was not within the contemplation of anyone that the shares would be sold on that day or about that time. The shares had been held firstly by Mrs. Palfreyman and then by the company as an investment. The shares would in the course of the years at times be at a peak and at others in a trough. But the intention was to continue to hold them; value on a given day was not of great consequence; cf. Gregory (1971) 123 CLR, at p 573 . The fact that the yield was extremely low is not therefore to the point.
The considerations I have mentioned lead me to the conclusion that this is not a case for the application of s. 18 (2) (c) of the Act." (at p396)

10. Sheppard J. proceeded upon the basis, which was indeed common ground between the parties, that there were five individual allotments of shares, each of one share, and that each gift must be looked at separately, though it would follow that the result of valuing one such share would necessarily fix the value of each of the other four. It was therefore necessary to proceed upon the basis that each donee held only a minority interest in the company and could not procure its winding-up without the concurrence of the holders of three other shares because without such concurrence no special resolution could be passed. (at p396)

11. Although such a circumstance cannot be conclusive that the winding-up basis of valuation is not an appropriate and proper approach, it is a powerful factor tending against the adoption of that method of valuation. Where no individual shareholder can procure liquidation and where there is no likelihood of the holders of four out of the give shares joining together in the foreseeable future to wind up the company it can seldom be appropriate to use s. 18 (2) (c). (at p396)

12. It was because of this factor that the companies' valuers regarded an earnings basis as the appropriate mode of valuation. Valuations made upon that basis by the various valuers did not differ greatly. The three valuers called on behalf of St. Helens Farm gave figures of $30,000, $40,600 and $42,820 per share and, as I have said, one valuer called by the Commissioner arrived at $40,023 per share on this basis. (at p396)

13. There are some cases in which it has been held that a suitable method of valuation is to use s. 18 (2) (c) or equivalent provisions in other taxing Acts but it is only in what may be described as special circumstances that this has been done. The proper approach is set out in the following passage from the joint judgment of McTiernan, Williams and Webb JJ. in Commissioner of Stamp Duties (N.S.W.) v. Pearse [1951] HCA 43; (1951) 84 CLR 490, at p 520 :
"To value shares in a company which is a going concern on the basis that the company is in voluntary liquidation at the date of death savours of unreality. The choice of such a mode is not calculated to produce a fair value. It is more likely to produce a false value. Scope for the use of the provision contained in s. 127 (1) (c) may be found in cases where a company's operations do not produce income which can be regarded as affording any measure of the value of the shares, as well may be the case with an assets company or a company whose earning capacity is restricted or diminishes temporarily or by accidental circumstances. Other special cases may be imagined."
Although Dixon J. and Fullagar J. dissented in that case on another question, they agreed with the joint judgment on the matter dealt with in the passage quoted (1951) 84 CLR, at pp 506, 523 . The decision of Gibbs J. in Gregory's Case [1971] HCA 2; [1971] HCA 2; (1971) 123 CLR 547 provides examples of a case where the use of such a section is appropriate and of a case where it in inappropriate although there is no rigid rule that the method cannot be used except in cases where the holder of the shares is himself in a position to force a winding-up as Jekyll v. Commissioner of Stamp Duties (Q.) [1962] HCA 9; (1962) 106 CLR 353 demonstrates. There the winding-up basis was adopted because of the difficulty of assessing any value that could be justified on any other footing. (at p397)

14. The Commissioner's appeal in St. Helens Farm raised no question other than whether Sheppard J. erred in not applying s. 18 (2) (c) or a discounted assets-backing basis. In considering appeals from a trial judge on matters of valuation an appellate court is faced with a somewhat special task as the decisions of this Court demonstrate. (at p397)

15. The task of a trial judge is to approach a question of valuation in accordance with established principles and to endeavour to arrive at a fair and just figure, bearing in mind that valuation by expert witnesses is not an exact science and that the task involves in most cases a consideration of differing expert opinions. In the end his conclusion is not merely a judgment as to the value of the relevant property but is in the nature of a "value judgment". It is not a judicial discretion in the technical sense of that term but the boundary line between the formation of a value judgment and the exercise of a discretion is neither clear nor precise. It is no doubt for this reason that Dixon J. (as he then was) said in the well-known passage in his judgment in The Commonwealth v. Reeve [1949] HCA 22; [1949] HCA 22; (1979) 78 CLR 410, at p 423 that: "For the estimation of a money sum is usually so much a result of judgment and sound discretion and so little the product of analytical reasoning, that, were it otherwise, every appeal would mean an assessment of compensation de novo, without any assignment of error in the reasoning or conclusions of the court appealed from." (at p398)

16. Section 18 (3) gives to a board or to a court (i.e. to the two tribunals to which a challenge to an assessment may go) power to substitute its own opinion, or substitute its own discretion for that of the Commissioner under sub-s. (2). That power however is not given to this Court on an appeal from a court of first instance (which would include a Supreme Court on appeal from a Board of Review which is a re-hearing de novo.). This was common ground between the parties. The task of an appellate court under this legislation is to consider whether the trial judge has made some error in principle or some gross error of fact, and not to substitute its own collective opinion or discretion, or that of a majority, for the trial judge's opinion or discretion. (at p398)

17. The process of valuation in accordance with ordinary principles may produce different results from different judges approaching the task in accordance with proper principles and making no errors of law. There is thus invariably a range of figures, any one of which may quite well satisfy a particular judge that it is as close to true value as it is possible for him to attain. (at p398)

18. The fact that the process may be difficult and involve the balancing of a variety of conflicting considerations does not mean however that wherever such a difficulty arises it is "necessary" to resort to the artificial process prescribed by s. 18 (2) (c). The opening words of sub-s. (2) of s. 18 govern each of the three paragraphs and it is the opening words which appear to me to indicate the manner in which the power or discretion given should be exercised. Those words are "where the Commissioner (or the Judge) is of opinion that it is necessary that the following provisions should apply" and if that condition is satisfied, then the provisions become applicable. The present case does not require a decision as to whether there is a separate question in relation to each of the three paragraphs. (at p398)

19. The proper operation of s. 18 (2) (c) must take account of the fact that the opening words of sub-s. (2) express the preliminary condition that the Commissioner is of opinion that it is necessary that the provisions of pars. (2) (b) and (c) should apply. There is then added in par. (c) the words "the Commissioner may, in his discretion, notwithstanding anything contained in the last two preceding paragraphs (adopt the winding-up basis)". Thus it appears to be a two-stage process, namely, the Commissioner having first concluded that it is "necessary" that the provisions should apply, nonetheless retains a discretion as to whether or not par. (c) shall in fact be applied. It appears to me that the purpose of the sub-section is to be ascertained by giving due attention to the use of the word "necessary". The proper operation of the sub-section is to give the Commissioner this discretion in cases where the application of the ordinary principles of valuation does not enable a conclusion to be arrived at which satisfies the mind of the Commissioner or the Judge, as the case may be, that it is as close as he can come to a true and fair value. It is in effect to be a "last resort" available to the Commissioner or the Judge when all else fails to produce a rational conclusion. It is not a mechanical solution for application in difficult cases; it is in my opinion to be applied only where other endeavours to provide a true and fair valuation fail. The additional discretion given to the Commissioner and the court by par. (c) appears to me to be designed to ensure that it is not to be used to produce an unjust solution, and to require a re-examination on ordinary principles of valuation if the result of the winding-up process appears to produce an unjust result. The case of a person holding a substantial majority of the shares in a proprietary company, the assets of which are listed shares, has sometimes been regarded as an example of a case where it is "necessary" to adopt a hypothetical winding-up basis of valuation, but that cannot always be so because in the general run of such cases, ordinary principles of valuation would produce a realistic figure. The hypothetical willing but not anxious purchaser of a majority of the shares in such a company would after completion of his purchase be in as good a position as the former owner of the shares to procure the winding-up of the company and obtain access to the underlying assets if he did not regard the yield as appropriate. Such a hypothetical purchaser would of course impose a discount against the risk that the underlying assets would diminish in value during the period of delay which would be necessary before the winding-up could be completed. It would be also necessary for the hypothetical purchaser to bear in mind in particular two possibilities, the first being opposition from the remaining shareholders including the possibility of attempted reliance on the "oppression" provisions of the Companies Acts and Ordinances, and the second the delays made necessary by the operation of s. 215 of the Income Tax Assessment Act 1936 (Cth). That section prevents any distribution by a liquidator without the consent of the Commissioner. Moreover the hypothetical purchaser would have regard to any tax which would be payable upon the distribution of any retained profits. (at p399)

20. In Commissioner of Taxes (Tas.) v. Perpetual Trustees Executors and Agency Co. of Tasmania Ltd. [1969] HCA 9; (1969) 118 CLR 325 this Court considered s. 16A of the Deceased Persons' Estate Duties Act 1931 (Tas.) which contained a provision embodying all the words in s. 18 (2) (c) but with the addition of the following phrase "notwithstanding that no such winding up is intended or contemplated". That case did not raise any question of whether the winding-up basis of valuation should have been adopted but only a question of whether the amount at which the Commissioner had arrived should be reduced by reason of the fact that part of it represented undistributed profits of the company. Such profits would have been included in any distribution by the liquidator and would have been assessable income in the hands of the shareholders by reason of s. 44 (1) (a) and s. 47 (1) of the Income Tax Assessment Act. It was contended that the value adopted by the Commissioner should be reduced by the amount of income tax which the executors would have to pay on receipt of the distribution. This argument was rejected on the ground that the section was concerned only with the amount which would be received, and not with its character as capital or income. The joint judgment of the Court (Barwick C.J., McTiernan, Kitto, Menzies and Windeyer JJ.) also contained the following observations (1969) 118 CLR, at pp 329-330 :
"The value of those shares is 'such sum as the holder thereof would receive in the event of the company being voluntarily wound up on the death of the deceased person', that is to say if the distribution to shareholders on the winding up took place on that day. This provision" (s. 16A (1) (c)) "is not in any way concerned with what happens to the shares in the course of the administration of the estate . . . It is concerned simply with the sum which the holder of the shares would receive from the liquidator upon a distribution in the hypothetical liquidation. In such a hypothetical liquidation, indeed, the hypothetical holder would, it seems, of necessity, be the personal representative of the deceased person whose estate included the shares. It is the personal representative that would hypothetically 'receive' a sum from the hypothetical liquidator. It is, we think, important to emphasize, as we have, that the section is not concerned with an actual liquidation and what would happen to sums received from the liquidator. It proceeds upon a limited hypothesis and it would, we think, be an error to attempt to apply it upon the footing that there had been an actual distribution and that income tax or any other liability has become payable by some person or other by reason of the distribution." (at p400)

21. That case does not appear to have been the subject of any subsequent reference and there is no reason why it should not apply to s. 18 (2) (c) of the Act. Its importance lies in its emphasis on the artificial character of that mode of valuation. The hypothetical winding-up is one which must be assumed to have begun and concluded within whatever part of the day remained after the death of the deceased, i.e. concluded to the point of the distribution of the balance of the proceeds of the sale of the company's assets and the satisfaction of its liabilities. The calculation of the figure must of necessity be made at a later date and probably with the benefit of hindsight. On that basis however it can bear no close resemblance to the value of what would later be received on an actual voluntary winding-up commenced by the passing of a special resolution on that day. In a real winding-up time would be occupied in realizing the assets, and the stock exchange proceeds of any shares held would be unlikely to be the same as on the date of the death or of the gift. Moreover any distribution to the contributories would require the consent of the Commissioner of Taxation. What would arise from the special resolution for a voluntary winding-up would be a right to a future distribution by the liquidator not before the time when the Commissioner consented to distribution. Its present value at the date of death would be capable of estimation from the nature of the company's assets and liabilities and with a knowledge of the Commissioner's practice under s. 215 of the Income Tax Assessment Act. It would however be likely to differ significantly from the result of a mere arithmetic exercise on the basis that all the assets were realized, all debts ascertained and discharged and the company completely would up on the day of the death or of the gift. (at p401)

22. The judgment of the Court in Commissioner of Taxes (Tas.) v. Perpetual Trustees and Agency Co. of Tasmania Ltd. does not refer expressly to the added words in the relevant sub-section. Taken literally those words would indicate that the draftsman regarded the sub-section as dealing with what would have been the result of a real winding-up commenced on the date of the death, rather than a hypothetical winding-up commenced and concluded on that date. Such a view however would be contrary to the observations which I have quoted above, and from which it must be concluded that the Court did not regard the additional words as adding anything to the effect of the preceding words. (at p401)

23. The kind of hypothetical winding-up required by s. 18 (2) (c) to be postulated by the Commissioner or the court will necessarily produce a figure different from an actual winding-up commenced on the date of the gift and will thus not be likely to coincide with or approximate the figure which a hypothetical willing but not anxious buyer would pay if buying for the purpose of winding-up a company to obtain access to its assets rather than holding the shares as an income-earning asset. (at p402)

24. These factors demonstrate that it can only be an unusual case in which it is "necessary" to use s. 18 (2) (c) to arrive at a true and fair figure for the value of shares. It is for that reason that I have described it as a "last resort". (at p402)

25. The present case is not one where an individual "donee" held sufficient shares to bring about a winding-up and that is a further powerful reason why it cannot be necessary to have resort to that method to arrive at a true and fair value. In the light of that consideration of the role of s. 18 (2) (c), I can see no sound reason for departing from the view expressed by Sheppard J. that this is not a case in which it is appropriate to apply that provision. He rightly concluded that to adopt such a valuation would be to proceed as if each of the individual shareholders had an asset which was the precise equivalent of one-fifth of the number of shares in The Broken Hill Proprietary Co. Ltd. (B.H.P.) which constituted the principal asset of St. Helens Farm, i.e. an asset capable of immediate realization by sale on the stock exchange. The asset in question (i.e. one ordinary share in St. Helens Farm) was however one which was not readily disposable and the disposition of which would require the approval of the directors of the company. (at p402)

26. St. Helens Farm was incorporated in the Australian Capital Territory where there is no stock exchange so that the company's share register being in the A.C.T., there was no room for the operation of s. 18 (2) (a). St. Helens Farm being a proprietary company, the right to transfer shares was necessarily subject to a restriction (s. 15 (1) (a) of the Companies Ordinance 1962 (A.C.T.)) and in fact by its articles the directors were authorized to refuse to register any transfer to a person of whom they did not approve. I respectfully agree with Sheppard J. that it would be artificial and unreal to value these shares on a liquidation basis because it would give to them a value which would be quite unreal and incapable of being realized in any manner available to an individual shareholder. (at p402)

27. It was argued for the Commissioner that this Court should substitute its own view of the proper value for that of Sheppard J. on the ground that there were matters of principle involved. It was said that the choice between a valuation on a winding-up basis and one in accordance with ordinary principles involved a matter of principle and it was therefore one in which this Court should interfere and substitute its own view for that of the trial judge. (at p402)

28. Counsel for the Commissioner argued that the application of ordinary principles involved difficulties but said that he did not wish the Court to make fresh calculations. In the end he acknowledged that the evidence would not enable him to support the original assessment of the Commissioner. When asked what was the matter of principle on which the trial judge had erred, he said that in all the circumstances upon which he had relied the proper method of valuation should have been under s. 18 (2) (c), and alternatively, if that were wrong, it should have been an assets-backing basis. The difficulty with that submission is however that it cannot be regarded as a matter of general principle but rather as a matter of an examination of particular circumstances in order to arrive at what is the most appropriate method of determining a true and fair valuation or as near thereto as the circumstances permit. It cannot be regarded as a matter of principle whether on particular facts a court should or should not value by reference to a notional liquidation under s. 18 (2) (c) or upon an earnings basis. (at p403)

29. Counsel for the Commissioner further submitted that Sheppard J. had said "he preferred Mr. Bagnall, in effect, right through", whereas the Commissioner submitted that Mr. Robinson's approach should be accepted right through. He said then that a recourse to s. 18 (2) (c) was not calculated to place a fair value on the shares and that Mr. Robinson's approach amounted to applying s. 18 (2) (c) with a discount. So stated, the question cannot be regarded as one of principle. I have examined in detail Sheppard J.'s reasons for rejecting the application of s. 18 (2) (c) in St. Helens Farm, notwithstanding that this is in my opinion not a case where his exercise of this quasi-discretionary function should be overturned. I am however satisfied that he was right to reject the Commissioner's contention. (at p403)

30. Sheppard J., having rejected the Commissioner's argument that s. 18 (2) (c) should be applied, then considered and rejected the alternative assets-backing basis of valuation adopted by Mr. Robinson which was to take the assets valuation less a discount of 20 per cent. In cross-examination Mr. Robinson was not prepared to agree to a discount greater than 25 per cent. Sheppard J. said that if he had thought that method appropriate he would have regarded a much larger discount as necessary because that discount was no more than that allowed by the market price of listed investment companies as against their assets-backing of shares in other listed companies and allowed nothing for the lack of an available market and restrictions on transfer. He concluded however that it was more appropriate to adopt an earnings basis notwithstanding the disparity between the value of the principal asset, namely the B.H.P. shares on the date of issue of the ordinary shares and the earnings value of the shares in St. Helens Farm. That disparity he regarded as perhaps exaggerated somewhat in view of the boom market and in fact on the particular day in question those shares reached their highest price on the Stock Exchange. The nature of the market may be illustrated by the fact that, between 15th March 1968 when Mrs. Palfreyman sold her B.H.P. shares to St. Helens Farm and 25th June 1968 when the five ordinary shares were issued, the market price rose by some 40 per cent, i.e. from $17.70 to $25 per share. He then considered whether the earnings approach should be based upon a substantially lower capitalization rate than those selected by the valuers. The lowest capitalization rate adopted by the company's valuers was 5 per cent, and one of the Commissioner's valuers, in considering an earnings basis, used the same figure. Sheppard J. said that he preferred the approaches of Mr. Bagnall (5 per cent) and Mr. Goddard (6 per cent) rather than that of Mr. Young who had arrived at the lowest figure using a capitalization rate of 10 per cent. Sheppard J. adopted a rate of 4 per cent rather than the rates selected by the two valuers with whose valuations he otherwise agreed. (at p404)

31. It was submitted in the cross appeal that he had given no reasons for adopting a lower capitalization rate and that his valuation should be reduced at least to the extent reflected by the use of a 5 per cent capitalization rate and that he was wrong in going outside the range of figures given by the valuers. It does not appear to me however that it is correct to say that he gave no reasons for that conclusion. His conclusion follows after his discussion of the apparent disparity between the value of the principal asset of the company, even if the market price on that day were abnormal, and the value of each ordinary share arrived at on an earnings basis. He posed the question whether the earnings approach should be adopted but with a lower capitalization rate in order to take into account that disparity. It appears to me that the choice of 4 per cent rather than 5 per cent reflected his view about that disparity. In my opinion that conclusion was open to him in the circumstances and involves no error of principle. It was a matter of judgment in the unusual circumstances and I can see no basis for interfering with it. (at p404)

32. If there be error in arriving at the capitalization rate, it cannot in the light of all the circumstances be regarded as a matter of principle and for reasons which I have already indicated this Court should not attempt to make its own valuation.

Ceedon Pty. Ltd. (at p404)

33. This company was incorporated in the A.C.T. on 23rd February 1972. By its articles of association, one Charles Archibald Donald was to be governing director of the company during his lifetime or until he became disqualified pursuant to the provisions of the articles of association. As governing director he was given authority to exercise all the powers, authorities and discretions of the directors generally in relation to the conduct of the company's business. The voting rights of the various classes of shares were dealt with in art. 58 which provided that on a poll during the lifetime of Mr. Donald, every member of the company (including the holders of the preference shares) was entitled to one vote for each share held but that after his death there was to be a sliding scale of voting rights, the details of which are not material. Article 7 included the following provision:
"(a) During the lifetime of Charles Archibald Donald and subject to the provisions (if any) in that behalf of the Memorandum of Association the shareholders may from time to time by Special Resolution vary the rights conferred on the holders of any of the issued shares and any issued shares may from time to time by Special Resolution be converted into shares with such preferred deferred or other special rights or such restrictions whether in regard to dividend voting or return of share capital as the Company may from time to time by Special Resolution determine. The power hereby conferred shall extend to the extinguishment removal or variation of any preferred deferred or other special rights or restrictions conferred or imposed pursuant to the provisions of this Article or Article 6."
It further provided that after the death of Mr. Donald the rights attaching to any class of shares, if the share capital were divided into different classes at that time, might be varied with the consent in writing of the holders of three-fourths of the issued shares of that class or by special resolution at a separate meeting of the holders of shares of that class. Mr. Donald was the governing director at all relevant times. It was agreed by the parties that at the time of the relevant transactions the life expectancy of a man of his age was shown in the tables as 14.94 years. (at p405)

34. On 19th April 1972, the directors of Ceedon set in motion a series of directors' meetings which followed a similar pattern and were, in all material respects, to the same effect as those already outlined in relation to St. Helens Farm. No useful purpose will be gained by again outlining the precise details of these meetings save to point out that the ordinary shares of $1 each taken up by Mr. Donald were issued and allotted to him at a premium of $99 and also that he had previously transferred assets to Ceedon for a total consideration of $273,376.14. (at p405)

35. In the course of the operation, all the issued ordinary shares of the company (of which Mr. Donald held 2,699 out of a total of 2,700 shares) were converted, pursuant to Art. 7, into cumulative preference shares with, so far as is here relevant, the following rights - (1) a fixed cumulative preference dividend of 6 per cent annum, the cumulative preference shares to rank both in regard to dividend and return of capital in priority to all other shares; (2) the right to receive notices of general meetings and to vote at such general meetings during the lifetime of Mr. Donald but from and after his death the right to vote only if the preference dividend should remain unpaid for six months and on resolutions affecting the rights or privileges attached to the shares; (3) the cumulative preference shares to receive on a winding-up an amount not exceeding the capital paid up on each share and all arrears of dividend whether or not earned or declared in priority to all other shares but not otherwise to participate in the company's profits or assets; (4) no other shares to be issued ranking prior to or pari passu with the cumulative preference shares without the consent of the holders of not less than three-fourths of the shares and no reduction of capital or alteration of the rights and privileges of preference shareholders without their consent. (at p406)

36. The directors at a meeting also held on 19th April 1972 immediately following the extraordinary general meeting at which the special resolution effecting the conversion of ordinary shares into cumulative preference shares was passed, allotted pursuant to an application for shares, six ordinary shares of $1 each at a premium of $99 to a company called Nodeec Pty. Ltd.(Nodeec). A cheque for $600 accompanied the application. Also tabled at the meeting was an agreement between Nodeec and Ceedon dated 19th April 1972 which recited the application for shares and then contained the following:
"AND WHEREAS the Applicant (Nodeec) is desirous of making provision for the payment of a greater sum by it for the allotment of the said shares in the event of the amount of the application moneys being inadequate
NOW THIS DEED WITNESSETH that the Applicant hereby agrees with the Company (Ceedon) that if, but for this Agreement, the allotment of the shares at a premium of $99.00 each would constitute a gift within the meaning of the Gift Duties Assessment Act 1941 (as amended) then the Applicant agrees to pay to the Company the quantum of the difference between the true value of the shares as calculated by the Deputy Commissioner of Taxation for the Commonwealth of Australia and the amount of the application moneys to be paid by the Applicant for the allotment of the shares as a debt due and payable by the Applicant to the Company on demand".
It was resolved that Ceedon should enter into the agreement referred to. (at p407)

37. Nodeec held the six shares in question upon trust pursuant to a number of declarations of trust by which each share was to be held upon discretionary trust in favour of one or more beneficiaries in the absolute discretion of Nodeec as trustee. (at p407)

38. As at 19th April 1972 the assets of Ceedon consisted substantially of the various assets transferred to it by Mr. Donald. When an unsecured loan of $3,576 to Mr. Donald is deducted, these assets amounted to $269,802. (at p407)

39. The critical difference between Ceedon and St. Helens Farm was, as Sheppard J. pointed out, that there was in Ceedon a power existing in the company to reconvert the preference shares held by Mr. Donald to ordinary shares. Since Mr. Donald was the governing director and the holder of 2,699 preference shares and had full voting rights in respect of those shares during his lifetime, he could convene and control an extraordinary general meeting for the purpose of passing a special resolution amending the articles so as to reconvert the preference shares to ordinary shares. Moreover as governing director he could control and indeed prevent the issue of any further shares. Sheppard J. rejected an argument that the powers conferred by art. 7 were invalid and in my opinion he was right to do so. He dealt also with a separate argument that the power given to Mr. Donald could not be exercised for his own benefit but only for the benefit of the company as a whole. I defer consideration of that point for the moment. (at p407)

40. There was a further distinction between St. Helens Farm and Ceedon, namely that the agreement of 19th April 1972 to which I have referred contained an "escalator clause". In addition, the six ordinary shares were issued to one person, Nodeec, which held them on six separate discretionary trusts, so that there is no real question of a minority interest amongst the ordinary shareholders. (at p407)

41. The most significant distinction between the two cases however is the provisions of the articles which enabled Mr. Donald to effect a reconversion of his shares into ordinary shares. That gave rise to the Commissioner's argument that those provisions or the possibility of their use constituted a "contingency affecting the interests of the donees or any of them" within the meaning of s. 18 (1) (a) of the Act. However, as Sheppard J. said, even if the capacity to reconvert were ignored Mr. Donald would still retain his voting rights during his lifetime and would control the company and its board of directors. (at p407)

42. The existence of the power to reconvert had a substantial influence upon the values placed on the shares in each of the companies other than St. Helens Farm because the valuers who were called by the companies regarded that power as requiring a substantial reduction in the value to be attributed to the ordinary shares as they would be seen through the eyes of a hypothetical willing but not anxious purchaser. There was no material difference between the relevant articles giving the power to reconvert in each company. (at p408)

43. Section 18 (1) (a) has not previously been considered by a Full Court and has no counterpart in the Estate Duty Assessment Act 1914 (Cth) nor in the legislation dealing with death duties in New South Wales. It has however been considered by members of this Court sitting in its original jurisdiction. (at p408)

44. The critical question is whether there was a contingency and if so whether it did affect the interests of the donees. It was not contested by counsel for Ceedon that there was a contingency, namely the possible exercise of the power to reconvert the preference shares into ordinary shares. However the contingency of which the section speaks is one "affecting the interests of the donees". It is clear that the possibility of the power to convert being exercised would affect the value of the shares and this was not in dispute. The word "donee" is defined in s. 4 (1) of the Act as meaning "any person who acquires any interest in property under a gift, and, where a gift is made to a trustee for the benefit of another person, includes both the trustee and beneficiary". Light is thrown on the proper meaning of s. 18 (1) (a) if one reads the definition of donee into the paragraph. So read it becomes: "any contingency affecting the interests of any person who acquires any interest in property under a gift". In my opinion the word "interest" should be given the same meaning as in the phrase from the definition of donee. The natural meaning of the words in par. (a) so read is that it is referring to interests in property. Moreover the phrase "interest in property" is defined in s. 4 (1) of the Act to mean "any estate, interest, right of power whatsoever, whether at law or in equity, in or over any property". There seems to me to be no basis for reading the expression as including the value of property. In my opinion par. (a) of s. 18 (1) on its proper construction applies to contingencies which affect the proprietary rights of the donee in the property given. In the present case it is clear that the proprietary rights of the ordinary shareholders would not be affected by the rights of the ordinary shareholders would not be affected by the exercise of the power to reconvert. It was argued for the Commissioner that the word "interest" was not confined to legal or equitable interests of a proprietary nature in the subject-matter of the gift and that it was used in the sense of a "commercial interest". It was said that the power to reconvert affected the commercial interest of the donee in that it would reduce the value of its commercial rights, its effect being not upon title but upon value. This argument was rejected by Sheppard J. He relied on the decision of Gibbs J. in Bray v. Federal Commissioner of Taxation (No. 2) [1971] HCA 8; (1971) 123 CLR 348 . That case concerned an agreement by which an amount of 88,000 pounds was lent to a company repayable on demand. A month later the parties entered into an agreement which provided that the amount should be repayable at the rate of 2,200 pound per annum without interest unless the lender gave ninety days' written notice that the amount should become repayable in full. The Commissioner relied on s. 18 (1) (a) and assessed gift duty on the basis that the value of the promise to repay at that rate per annum was only 22,350 pounds and assessed gift duty on the difference, i.e. 65,650 pounds. It was held by Gibbs J. that the taxpayer's appeal should succeed on the ground that s. 18 (1) (a) did not apply because the possibility that the lender might call for repayment of the total amount did not affect the interest of the donee within the meaning of the Act, but he held that there was a gift of the amount of 1,283 pounds, being interest for the ninety day period at 6 per cent. (at p409)

45. Gibbs J. said (1971) 123 CLR, at pp 357-358 :
"I am prepared to assume that in an appropriate case the possibility that a demand or notice requiring payment will be given may properly be regarded as a contingency within s. 18 (1) (a) but in the present case the possibility that the deceased might give the notice under cl. 2 of the loan agreement was not a contingency which affected the interest of the company within the meaning of the sub-section. The phrase 'the interests of the donees' in s. 18 (1) (a) must refer to their interests in the property the subject of the gift. Whether in a case like the present the interest of the donee should be regarded as an interest in the entire sum lent, or as an interest in the amount by which the consideration is inadequate, it is impossible to say that any interest of the company would be affected by the giving of written notice under cl. 2 of the loan agreement. The company had received the amount of the loan and the giving of such notice would not divest it of its interest in the money which it had received or in any part of that money. On the other hand, whether or not the notice was given, the company was obliged to pay the debt in full and the giving of the written notice would affect only the time of repayment and not the existence of the obligation to repay. Section 18 (1) (a) has no application to the present case and did not require the promise contained in cl. 2 of the loan agreement to be disregarded or treated as worthless for the purpose of making a valuation of the consideration for the loan.
In advancing their submissions as to the effect of s. 18 (1) (a), counsel for the respondent relied on some remarks in Gorton v. Federal Commissioner of Taxation (1965) 113 CLR, at pp 615, 626 , the authority of which it was said was not affected by the fact that they appear in a judgment that was reversed and a dissenting judgment. Those judgments were concerned with the possibility that a shareholder might exercise her overwhelming voting power and convert her cumulative preference shares to ordinary shares and thus affect the amount which other shareholders would receive on a winding up. The circumstances of that case are quite unlike those of the present, and the passages to which counsel referred do not assist in determining the present question." (at p410)

46. I respectfully agree with the views there expressed, and regard them as going a substantial distance toward resolving this point. I should add that there is no basis on which one point in the judgment of a primary court should be regarded as authoritative where the judgment is reversed on other grounds. I am unable to agree with the observations of McTiernan J. in his judgment at first instance in Gorton's Case (1965) 113 CLR, at pp 614-615 which were relied on by the Commissioner in the present appeal. (at p410)

47. In the alternative it was argued that the term "interests" did not refer or was not confined to interests in property but included value of property. Reliance was placed on Way v. Commissioner of Stamp Duties (N.S.W.) [1949] HCA 37; (1949) 79 CLR 477 , a case concerning death duties on notional estate. The question there was whether a discretion conferred on the settlor under a deed of settlement exercised during his life was "an interest in or benefit out of or connected with (the trust funds), or the proceeds of sale thereof". In a joint judgment Dixon, McTiernan, Williams and Webb JJ. said (1949) 79 CLR, at pp 494-495 that the right which the settlor had was - "at most a right to have his real or personal property purchased with trust moneys or exchanged for trust property on terms advantageous to the trust and only when the settlor in the exercise of a fiduciary power thought it proper to direct the trustees to acquire his property on these terms. This is not an interest in or benefit out of or connected with the settled funds within the meaning of the paragraph. It is simply a power to alter the investment of the trust funds for the benefit of the trust. The power does not confer on the settlor any beneficial interest in or the right to receive any payment out of or connected with the income or corpus of the trust as it exists from time to time. To fall within the paragraph such an interest in or benefit out of or connected with the trust fund must confer on the settlor some legal or equitable right to obtain some benefit in money or money's worth for his own advantage out of or connected with the trust property." The statutory expression there dealt with was "an interest in or benefit out of or connected with (the trust funds), or the proceeds of sale thereof"; one would expect that expression to be wider than the word "interest" in the context of s. 18 (1) (a). The Court treated it as confined to a legal or equitable right to obtain a benefit in money or money's worth "out of or connected with the trust property". Even if such an expression could be transferred to s. 18 (1) (a), it would not assist the Commissioner because that provision speaks only of the interest of the person who acquires any interest in property under a gift. The statutory provision there in question dealt with an interest in or benefit out of or connected with the trust funds or the proceeds of sale thereof and it was held not to cover the provision in the settlement referred to in the passage quoted. The subsequent statement (1949) 79 CLR, at p 495 that "the interest or benefit must be such that the beneficiaries under the settlement would derive an advantage from the death of the settlor or some other person" does not warrant the conclusion sought to be drawn by counsel for the Commissioner. (at p411)

48. The Commissioner also relied on Craig v. Federal Commissioner of Taxation [1945] HCA 1; (1945) 70 CLR 441 , which a settlor had conveyed to trustees Treasury Loan Bonds on trust during the joint lives of himself and his wife to pay the income to his wife for her sole and separate use and after the death of either of them to pay the income to the survivor for life. The settlor was survived by his wife and on his death the Commissioner sought to include the bonds in the settlor's dutiable estate as being property "comprised in a settlement made by the deceased person under which he had any enterest of any kind for his life" within the meaning of s. 8 (4) (c) of the Estate Duty Assessment Act 1914. It was held that that provision was not limited to interests in possession or a vested interest but extended to contingent interests. There is a passage in the judgment of Latham C.J. (1945) 70 CLR, at p 446 upon which reliance was placed where he said that the word "interest" is frequently used in taxing Acts in a popular sense but he pointed out that other Acts cannot be relied upon in the construction of a particular Act where the context is different. However he concluded that the natural meaning of the expression "interest of any kind for his life" included a contingent interest for life. I do not regard that case as assisting the argument for the Commissioner in any way. The "interest" there referred to was an "interest under a settlement", i.e. an equitable interest in the trust property. The general observations warning against the use of decisions on other legislation to aid the construction of a different Act are well known. Here the warning may be heeded by confining one's attention to the words of s. 18 (1) (a) and of the definitions, which demonstrate that the word "interest" in that context means an interest in property. (at p412)

49. Accordingly those cases do not assist the Commissioner's argument. Moreover it is apparent from par. (f) of the definition of "disposition of property" that the draftsman had in mind the distinction between interests in property and effect on the value of property. (at p412)

50. It is now convenient to deal with the separate argument to which I adverted earlier. In Ceedon it was argued in relation to the operation of s. 18 (2) (c) that the power to call an extraordinary general meeting and cause a special resolution to be passed so as to reconvert the preference shares was one which could be exercised only for the benefit of the company as a whole and not merely for the benefit of one particular shareholder. Whatever the generality of that proposition may be it cannot be regarded as having an automatic operation. As Sheppard J. pointed out, no hypothetical purchaser, whether a member of the family or not, should be presumed to ignore the existence of the power upon the assumption that he would succeed in litigation designed to restrain or set aside its exercise. No sensible hypothetical purchaser would be likely to approach the matter otherwise than upon the basis that the power might be validly exercised and that any challenge to the exercise might involve expensive and unsuccessful litigation. Those considerations would exercise a powerful influence upon his decision as to what price he would be prepared to pay. In truth it seems to me that no comfort can be obtained from the possibility that it might be established that the power had been wrongly exercised. Moreover control of the company would still remain wholly in Mr. Donald's hands whatever might be the outcome of such litigation unless proceedings under s. 186 of the Companies Ordinance 1962 (A.C.T.) were launched and were successful. (at p412)

51. The next question which arose in the Ceedon case was the effect of the escalator clause quoted above. Sheppard J. held that this agreement involved an impossibility because under the Act the Commissioner would not proceed to issue an assessment unless he took the view that the consideration was inadequate. If however there were an obligation to pay the difference between the stated price and the true value there would be no gift and the Commissioner would not be authorized to determine any such value. Sheppard J. concluded that for that reason the agreement had from its inception been void and of no effect. He concluded that the only consideration moving from Nodeec was the $600 payable by way of application money and premium and that the escalation agreement was of no effect. It was submitted on behalf of Ceedon both before Sheppard J. and before this Court that that agreement was a fundamental part of the arrangement between the parties and that if it were impossible of performance the whole arrangement including the allotment failed whereas Sheppard J. held that the escalator provision in the agreement was severable. He concluded that in fact the shares were allotted for a consideration amounting to $600 and a promise impossible of performance. Accordingly he held that the agreement was impossible of performance because whatever amount of premium might be fixed there could never be full consideration after taking into account the value of the "surplus assets", i.e. after taking into account the amount of preference capital, because however large the premium might be it would never catch up with full value. This would be so because any increase in the premium would simply increase the assets of the company. That argument was considered briefly in Ord Forrest by Gibbs J. (1974) 130 CLR, at pp 153-154 and by Mason J. (1974) 130 CLR, at pp 157-158 . The observations made in that case do not deal with precisely this point but only with the general effect of the issue of shares at a premium and do not assist in the resolution of the present point. (at p413)

52. I am of opinion that Sheppard J. was right to treat his provision as severable. The parties plainly intended that shares should be issued and paid for. Failure of part of the provision as to price which was intended to eliminate any risk of gift duty does not in the very unusual circumstances of this case appear to be so fundamental as to render the balance of the agreement void though in normal commercial dealings it might do so. (at p413)

53. The next question in Ceedon was whether s. 18 (2) (c) should be applied. Sheppard J. concluded that the case was not appropriate for the application of s. 18 (2) (c). Sheppard J. took the view that the case was a much stronger one against the application of s. 18 (2) (c) than was St. Helens Farm. He pointed out that the average expectation of life of a man of Mr. Donald's age was approximately 15 years and that the value of $1 payable at the expiration of that period at a discount rate of 12 per cent was 18c. He agreed with submissions made on behalf of Ceedon that if the matter were approached by valuing the assets it would need to be discounted by 82 per cent to take into account the powers of Mr. Donald and that other discounts would need to be taken into account because of lack of negotiability on the shares. He added a further reason against the application of this provision, namely that art. 112 of the articles of association dealing with a winding-up provided that the liquidators with the sanction of a special resolution could make a division of the property otherwise than in accordance with the legal rights of the contributories in the winding-up so that Mr. Donald could, immediately prior to a voluntary winding-up, procure a special resolution directing the assets away from Nodeec to himself. He therefore concluded that the winding-up basis would lead to an unfair and unreal result and that the appropriate method would be an earnings basis. In this case he again preferred the valuation of Mr. Bagnall who took into account the possibility that the preference shares could be converted into ordinary shares and the effect of that on the period during which the ordinary shareholders could expect to receive substantial dividends. Mr. Bagnall had concluded that the uncertainties were such that the hypothetical willing but not anxious buyer would not be prepared to pay more than $5,000 for the shares. Mr. Goddard who adopted a somewhat similar approach arrived at a figure of $9,216, the primary difference in the reasoning being that Mr. Bagnall did not attribute the same effect to the possibility that the preference shares might be converted into ordinary shares. Sheppard J. preferred the reasoning and conclusion of Mr. Bagnall and accordingly valued the six shares at $5,000. (at p414)

54. Counsel for the Commissioner argued that once a winding-up begins there could be no alteration of the articles though he conceded that there was no direct authority for that proposition. He also contended that in the case of a hypothetical winding-up the possibility of there being a special resolution changing the rights of the preference shares into ordinary shares should be disregarded but if that mode of valuation is rejected or abandoned this point disappears. Primarily he relied on the valuation of Mr. Robinson but his valuation ignored the powers given by the articles to Mr. Donald. Sheppard J. rejected these arguments and regarded the existence of those powers as showing that the winding-up basis was not appropriate. He also said that the possibility of the preference shares being converted into ordinary shares would influence a hypothetical willing but not anxious purchaser. (at p414)

55. There is no basis for interfering with his conclusion on those points.

Gwynedd Pty. Ltd. Lucinda Investments Pty. Ltd., Q.A.W. Pty. Ltd. (at p415)

56. It is necessary to say something briefly about the position of these companies. Gwynedd Pty. Ltd. (Gwynedd) was incorporated in New South Wales. Its articles of association contained a variation provision not distinguishable from that in Ceedon's. This power was very generally expressed but was limited in duration to the lifetime of Isobel Rebecca Rawlings. The articles provided that if the share capital were divided into different classes of shares at the date of her death the rights attaching to any class might be varied by consent in writing of the holders of three-fourths of the issued shares or as the result of a resolution passed by a three-fourths majority at a separate meeting of the shareholders of that class. After her death there was a sliding scale of voting rights depending upon the number of shares held, reducing as the holding increased. (at p415)

57. After a series of directors' meetings of Gwynedd held on 18th November 1971, Mrs. Rawlings had effectively transferred to the company assets valued at $122,500 and became a registered holder of 6,849 ordinary $1 shares, 6,848 of which were issued at a premium of $19. The remaining subscriber's share was held in trust for her. (at p415)

58. The conversion of all issued ordinary shares into cumulative preference shares took place at an extraordinary general meeting also held on 18th November. The rights which were resolved to attach to those shares were substantially the same as those quoted above for the Ceedon shares. (at p415)

59. Later on that day, separate agreements were entered into (with the approval of the board of directors) between the company and Gilian Pty. Ltd., Camurra Pty. Ltd. and Mrs Rawlings respectively. Taking the agreement with Gilian Pty. Ltd. as an example, it provided that Gilian Pty. Ltd. would apply for five ordinary shares at $1 each to be allotted at a premium of $19 "or such if any greater sum as will constitute the consideration passing from the said Gilian Pty. Ltd. to the Company in respect of the said allotment fully adequate within the meaning of that expression as used in the definition of 'gift' in Section 4 of the Gift Duty Assessment Act 1941 (as amended)." The other agreements were in a similar form. The assets and liabilities of the company as at 18th November 1971 showed that the shareholders' funds totalled $136,962 after taking account of the balance owing to Mrs. Rawlings in her loan account. It was agreed between the parties that, at the date of the allotment of the shares, a woman of Mrs. Rawlings' age had a life expectancy of 10.3 years. (at p415)

60. The escalator clause in this case differed in form from that used in Ceedon and the company being incorporated in New South Wales was one to which the provisions of s. 18 (2) (a) were capable of being applied. There was no provision for a governing director to be appointed. However given the number of preference shares which Mrs. Rawlings held and to which were attached full voting rights she could always exercise ultimate control, notwithstanding that the issue of shares was under the control of the directors; without Mrs. Rawlings' consent no further preference shares carrying voting rights could be issued. I do not need to deal with the question of the stock exchange provisions as that was not pursued in this Court though I note that Sheppard J. formed the view that it was not appropriate to apply that provision. Sheppard J. took the view that in Gwynedd it would not lead to a fair valuation but rather would lead to an unfair and unreal valuation. (at p416)

61. In dealing with the escalator clause in these agreements Sheppard J. adopted the same view that he had taken in relation to Ceedon, regarding the relevant considerations as being precisely the same. Accordingly he treated the clause as inoperative but severable. He concluded that s. 18 (1) (a) did not apply, that s. 18 (2) (c) should not be applied. He rejected the argument that there was no gift because the issue of shares was made pursuant to a binding contract and that the gift duty payable in respect of the gift had to be taken into account in arriving at a valuation. In the result he adopted Mr. Bagnall's valuation which was that the shares were worth $20 per share, i.e. the face value plus the premium. He agreed with Mr. Bagnall that the company appeared to have been established as a repository for freehold property previously owned by Mrs. Rawling but that the ordinary shareholders might never realize or enjoy the potential value because Mrs. Rawlings had a power of converting her shares into ordinary shares and thus effectively "swamping" the holders of the ordinary shares held by persons other than hereself. He therefore concluded that there was no gift duty payable. He observed that in his view there would be no scope for the operation of the escalator clause even if valid and operative, because there was no inadequacy of consideration. (at p416)

62. Again I can see no sound reason for interfering with his rejection of s. 18 (2) (c) or the valuation which he adopted. (at p416)

63. The fourth company was Lucinda Investments Pty. Ltd. (Lucinda) which was incorporated in the Australian Capital Territory on 7th July 1964. The subscribers to the memorandum were five in number, Mr. T.A. Field held one share and those held by the other subscribers were held upon trust for him. Subsequently, two of the ordinary shares held upon trust for Mr. T.A. Field were transferred to him. (at p417)

64. The articles of association of Lucinda were altered to include a provision similar in effect to art. 7 of the articles of Ceedon. Moreover by a further amendment to the articles Mr. Field was made governing director during his life. (at p417)

65. In this case, at the completion of a procedure to the same effect as that outlined above for the other companies, Mr. Field was the registered holder of 14,500 cumulative preference shares which were entitled to a cumulative preference dividend at a rate of 6 per cent per annum or such other rate as may from time to time be determined by the directors. The remaining rights attached to these shares were, with one minor exception, in much the same terms as those previously described. That exception was that, in this case, the power of reconversion of the cumulative preference shares into ordinary shares could, at Mr. Field's election, be exercised by the delivery by him of a written notice to the registered office of Lucinda together with the certificate for such shares. From the date of delivery of the notice, the cumulative preference shares were stated to become ordinary shares and to rank pari passu with all other ordinary shares of the company and all rights or restrictions attached to preference shares were to cease. Thus no meeting of Lucinda was required in order to enable the reconversion of the preference shares held by Mr. Field. (at p417)

66. As part of the procedure three ordinary shares were allotted to a company called Springfield Pty. Ltd. (Springfield), at a premium of $98 per share (the same premium at which ordinary shares were allotted to Mr. Field prior to their conversion into cumulative preference shares). By a deed of trust dated 26th November 1969 Springfield, the registered holder of the shares, acknowledged that at all material times it had held those shares upon discretionary trusts for members of the Field family including Mr. Field himself. (at p417)

67. The assets of Lucinda as at 30th June 1969 prior to the issue of the three ordinary shares to Springfield amounted to $1,449,204 after allowing for the balance of Mr. Field's loan account which was then $22,766. It was agreed between the parties that at the date of the issue of ordinary shares to Springfield Mr. Field "had a life expectancy of almost 20 years". (at p417)

68. As the company was incorporated in the Australian Capital Territory no question of the application of s. 18 (2) (a) arose, nor was there any escalator agreement. (at p417)

69. The trial judge concluded for reasons which he had given in relation to other companies that s. 18 (1) (a) did not apply and that s. 18 (2) (c) should not be applied. He also rejected the argument that there was no gift because the issue of the shares was made pursuant to a binding contract and the submission that the gift duty payable should be taken into account in arriving at a valuation. Sheppard J. then concluded that he should adopt the approach of Mr. Bagnall and accepted the value arrived at by him. (at p418)

70. Sheppard J. (1979) 46 FLR, at pp 264-265; 9 ATR, at pp 709-710; 79 ATC, at pp 4,191-4,192. quoted pars. 8-14 in that valuation which may properly be regarded as his reasons for adopting Mr. Bagnall's valuation in this case as well as in the other cases where rights of reconversion existed. Those paragraphs were as follows:
"8. Although the whole of the issued ordinary capital of the Appellant comprised the ordinary shares being valued, nevertheless the interest was a minority so far as control is concerned as the preference shareholder enjoyed overwhelming voting rights (articles 4 and 74) and so far as equity is concerned as his shares could at any time until his death be converted into ordinary shares upon written notice being left at the registered office of the Appellant (article 4(v)). On the death of the original preference shareholder, the voting rights attached to the preference shares will lapse, except in certain restricted circumstances which have no bearing on this valuation. (article 4(ii)). Consequently, the ordinary shareholder will then control the Appellant and its ordinary shares will be worth generally the realisable value of the Appellant's assets less all liabilities, costs of liquidation and the nominal value of preference capital (article 4 (iii)).
9. Doubt has been expressed whether Article 4 (v) does in fact authorise the preference shareholder to exercise the power to re-convert his shares into ordinary shares. Whether or not the power can be exercised is critical in ascertaining the value of the ordinary shares. However, in the absence of a definitive opinion on the point, I believe that the reasonable investor would take the conservative view and assume that the preference shareholder's power of conversion was valid. Accordingly, I have adopted such assumption.
10. A minority interest in a company is normally valued with regard to the income that might be expected there-from The interest under examination differs from the usual minority interest in that it will ultimately become a controlling interest, if the preference shareholder does not elect to convert his investment into ordinary shares before his death. To what extent should this contingency affect the usual basis of valuing a minority interest, having regard to the very high value of the Appellant's net assets?
11. The Appellant does not appear to have been established for the purpose of providing income for the shareholders; out of assets amounting to approximately $1.5 Million transferred to the Appellant, only assets costing $56,871 were likely to be productive of income. The prime purpose of the Appellant appears rather to have been a repository for assets previously owned by the preference shareholder; on his death, the ordinary shares are evidently intended to be the mechanism whereby benefits will be conferred on certain individuals who might otherwise have received them under the terms of the preference shareholder's will. In the meantime his voting power enables the preference shareholder to retain indirect but effective control of his former assets, and just as he may at any time change the terms of his will, so he may divert those benefits away from the persons he had in mind in 1969 to others. He could for example achieve this by converting his preference shares into ordinary shares, liquidating the Appellant and re-possessing his former assets. These could then be transmitted by the more orthodox means of a Will.
12. The position of the ordinary shareholder as the holder of a minority interest is much weaker than is usually the case. It has the usual right to seek redress against repressive conduct by recourse to the courts; it could presumably seek an order requiring the directors to act in the interests of the Appellant as a whole by employing the assets for income producing purposes or even seek a winding up order on the grounds that the Appellant is not being properly conducted. One could not imagine behaviour more likely to cause a testator to drop a potential heir from his Will, or in the present case to cause the preference shareholder to convert his shares, thus removing from the ordinary shareholder the prospect of ultimately obtaining valuable assets from the Appellant. Effectively, therefore, the ordinary shareholder is unable to protect its rights except in a very limited sense during the lifetime of the preference shareholder.
13. I find it difficult to envisage circumstances in which a prospective bequest (without any rights in equity), made under the terms of a Will, could be said to have any value to the beneficiary while the testator lives. Similarly, although the ordinary shareholder holds rights of great potential value, that potential may never be realised because the preference shareholder may withhold it by converting his shares before he dies; accordingly it cannot be said to have any present significant value.
14. Having regard to the foregoing, I am of the opinion that the earnings basis of valuation of the ordinary shares should not be varied to take account of the assets held by the Appellant and not productive of income in 1969." (at p419)

71. Mr. Bagnall calculated that the ordinary shareholder in Lucinda might expect a dividend of some $2,720 per year. He capitalized that figure at a rate of 10.5 per cent and on that footing the ordinary shares had a value of $16,400. He also said that if the preference shares were converted into ordinary shares the value would be reduced to approximately $7 and reached the final conclusion that the shares should be valued at $3,000. Sheppard J. accepted the figure of $3,000 as the value of the shares. The reduction from the value based upon the earning rate, i.e. $16,400 to a figure of $3,000 was due to the ease with which the preference shares could be converted into ordinary shares and the effect of that upon a hypothetical purchaser, along with other factors which are common to proprietary companies such as the absence of a market and the requirement for approval by the directors of any transfer of the shares. (at p420)

72. In arriving at his valuation on an earnings basis, Mr. Bagnall concluded that it was not necessary to take into account assets of the company which were not productive of income in the year 1969 but par. 18 of his affidavit showed he took into account the income which might be expected to be derived from dividends on the listed shares held by Lucinda. Mr. Bagnall's reasons for arriving at the valuation of $3,000 which was accepted by Sheppard J. are set out in pars. 22 and 23 of his affidavit and it is helpful to set them out in full:
"22. Having regard to the foregoing, I think that a return of 10 1/2% would be appropriate. On this footing the ordinary shares would have a value of, say, $16,400 but if the preference shares were converted to ordinary shares, the value would be reduced to, say, $7.
23. In resolving which value to opt for within this range I am influenced by the following matters:
(a) The right of the preference shareholder to convert his shares throws doubt on the length of time the ordinary shareholder can expect to receive the higher level of income.
(b) If the higher valuation is adopted, the ordinary shareholder could expect to receive much the same return elsewhere on the amount of $16,400, without the risk of losing most of its investment if the preference shares are converted.
(c) The uncertainty of the period that might elapse before the preference shares are converted, if ever, is such that I do not think a subscriber or purchaser of the ordinary shares would pay a high price for them. However, it is not an unreasonable inference that the preference shareholder will not convert his shares in the short term; were it otherwise, he would scarcely have involved himself in a corporate structure of this kind. Possibly the ordinary shareholder could count on a period of five years before conversion of preference shares would take place.
(d) If the preference shares were converted, the ordinary shareholder could then exercise its rights and require the Appellant to be operated in the interests of all members; in practice, the ordinary shareholder would probably seek to be bought out by the erstwhile preference shareholder." (at p421)

73. The remaining company was Q.A.W. Pty Ltd. (Q.A.W.) which was incorporated on 14th April 1970 in New South Wales. The articles of association provided that a Mr. Wright should be governing director for life or until he became disqualified in accordance with the articles. As governing director he had all the powers and authorities of the directors who were bound to conform to his directions. The articles contained a voting scale somewhat similar to that which occurred in the articles of Gwynedd and Ceedon. Article 7 provided for the variation of rights conferred on the holders of any issued shares and for the conversion of shares into shares with preferred, deferred or other special rights, a provision which was to remain in force only during the lifetime of Mr. Wright. Mr. Wright had been one of the subscribers and the share held by the other subscriber was held upon trust for him. (at p421)

74. In this case, the issued ordinary shares, all but one of which were held by Mr. Wright, were converted by special resolution into cumulative preference shares carrying a 7 per cent per annum fixed cumulative preference dividend as well as the other rights similar to those mentioned above. Here a subsequent allotment of ten ordinary shares at the appropriate premium was made by Q.A.W. to a Mr. Quentin Alexander Wright. The shareholders' funds of Q.A.W. immediately prior to the issue of the ten ordinary shares amounted to $133,002. It was common ground that on 6th May Mr. Wright had "a life expectancy of a little more than 18 years". In the Q.A.W. Case also, Sheppard J. concluded that s. 18 (1) (a) did not apply and that s. 18 (2) (a) and s. 18 (2) (c), although capable of applying, should not be applied. He also proceeded on the basis that the gift duty payable by reason of the allotment should not be taken into account in valuing the shares. There was no escalator agreement and there was no prior binding contract relating to the issue of such shares. (at p421)

75. In the case of Q.A.W., as in the other cases, Sheppard J. again preferred the evidence of Mr. Bagnall who valued each of the ordinary shares at $20. The consequence of that valuation was that there was no gift duty payable. Mr. Bagnall reached his valuation by substantially the mode of reasoning which he used in the case of Lucinda, namely by reliance on the power of the preference shareholder to convert the shares into ordinary shares and the effect of that situation upon the approach which would be adopted by the hypothetical purchaser. (at p421)

76. Sheppard J. concluded his reasons for judgment by saying (1979) 46 FLR, at pp 269-270; 9 ATR, at p 713; 79 ATC, at pp 4,194-4,195. :
"Each scheme was predicated upon a situation under which control, but not ownership, remained with the 'donor' during his or her life. Thus the 'donor' in each case set out to achieve, by the vesting of his or her property in a company, the same result as could have been achieved by testamentary disposition. If there were a change of mind, voting control and the power to effect reconversion were available to restore control to the 'donor' either for the purpose of retaining it until his death or directing his bounty to other beneficiaries. The fact that those very powers may have been included in some schemes only for the purpose of achieving a situation in which the value of the ordinary shares would be kept low is not to the point.
Once those matters are understood, it follows that the placing of a comparatively low value on the ordinary shares in companies with such valuable assets is the only possible result in an exercise which the High Court has repeatedly emphasised involves the determination of the fair and real value of the property in question. It is true that s. 18 (2) (c) of the Act enables there to be applied in some cases a winding-up or assets-backing basis of valuation, but it will only be appropriate to apply such a basis if in truth its application will lead to a fair and real result. As I have said, when dealing with some of the cases, its application in them would, in my opinion, lead to a result which is neither." (at p422)

77. I have already dealt, in what I have said about St. Helens Farm, with the proper approach to s. 18 (2) (c) and in the case of each of the other four companies the same reasons appear to me to apply. I can see no ground upon which a winding-up basis could be regarded as "necessary" in order to arrive at a true and fair value of shares in any of the four other cases, any more than I can see such a necessity in St. Helens Farm. I am satisfied that the fact that a company has no income-earning assets but does have assets of substantial value is not of itself a reason why a winding-up basis should be regarded as necessary. The dominant feature of each of the companies other than St. Helens Farm is that the ordinary shareholders lack the characteristic which such shareholders usually have, namely ultimate control of the company's affairs by reason of the power to remove and appoint directors, and entitlement on a winding-up to the balance of the assets of the company after allowance for debts and the costs of liquidation and the nominal value of preference shares, without the risk of being "flooded" at any time chosen by the governing director by the conversion of a large number of preference shares into ordinary shares. No doubt they have in the case of each of these companies an expectation that if all goes well their shares will ultimately have those characteristics, but to value them upon the basis that the event upon which the achievement of that result depends has already happened is to depart from reality. It is of course true that the event is certain to happen but the time at which it will is uncertain and the probability that it will happen within a short time is low. In the case of a gift the subject matter of which is neither money nor some item of property for which there is a ready market and a readily ascertainable market price, the process of valuation cannot be expected to be easy. The basic principle by which that fair value is to be ascertained is by reference to a hypothetical market in accordance with principles which were established in Australia in Spencer v. The Commonwealth [1907] HCA 82; (1907) 5 CLR 418 , namely that the price which would be arrived at between a willing but not anxious vendor and a willing but not anxious purchaser, a method which was by no means new at that time. There are of course minor qualifications to deal with particular situations one of which is the well-known distinction between the approach in cases of compulsory acquisition and that in the case of the position of taxation by reference to value though it is probably no more than a slight difference. (at p423)

78. There is one further point which should be mentioned because of its possible application in other cases and that is an argument which was put to Sheppard J. in relation to the application of s. 18 (2) (c). It was said that if that method, or any assets-backing method, of valuation were used it would be necessary that account should be taken of the liability of the company for gift duty on a gift in accordance with the decision in Ord Forrest [1974] HCA 57; (1974) 130 CLR 124 . The Act provides in s. 25 (1) that gift duty becomes due and payable on the making of the gift and the effect of s. 25 (2) is that, in the absence of agreement to the contrary, there is an obligation as between donor and donee that each shall contribute one-half of the gift duty. The argument was that, in order to value the gift made by the company by reason of the "allotment of shares", account must be taken not only of the company's assets but also of its liabilities, including the liability to pay one-half of the gift duty. Thus the value of the gift would be reduced accordingly. Although it was not necessary for Sheppard J. to consider this argument because he rejected the contention that s. 18 (2) (c) should apply and also rejected a modified assets-backing basis, he did deal with it. I am however unable to accept his view on this point and, although it makes no difference to the result of these appeals, I think it desirable to express my own view since the point may arise in other cases. Sheppard J.'s view was that the gift was constituted by the "allotment" and not by the "issue" of the shares because the Act in defining disposition of property includes therein "the allotment of shares in a company". (at p424)

79. The words "allotment" and "issue" though used in relation to incorporated companies for more than a hundred years are not technical terms with precise meanings. Their application in particular circumstances often depends on the context. Their meaning was considered in In re Florence Land and Public Works Co. (Nicol's Case) (1885) 29 Ch D 421 . In that case at first instance Chitty J. said (1885) 29 Ch D, at p 426 :
"What is termed 'allotment' is generally neither more nor less than the acceptance by the company of the offer to take shares. To take the common case, the offer is to take a certain number of shares, or such a less number of shares as may be allotted. That offer is accepted by the allotment either of the total number mentioned in the offer or a less number, to be taken by the person who made the offer. This constitutes a binding contract to take that number according to the offer and acceptance. To my mind there is no magic whatever in the term 'allotment' as used in these circumstances. It is said that the allotment is an appropriation of a specific number of shares. It is an appropriation, not of specific shares, but of a certain number of shares. It does not, however, make the person who has thus agreed to take the shares a member from that moment; all that it does is simply this - it constitutes a binding contract under which the company is bound to make a complete allotment of the specified number of shares, and under which the person who has made the offer and is now bound by the acceptance is bound to take that particular number of shares. In most cases the act of placing the person who has agreed to become a member on the register is a mere matter of form, and may be described as a mere ministerial act; but it appears to me that in point of law all that is done by the process I have just indicated, and all that was done in this case, was to make a complete and binding contract."
His Lordship then quoted from Baggallay L.J. in In re Scottish Petroleum Co. (1883) 23 Ch D 413, at p 430 and continued by saying (1885) 29 Ch D, at pp 426-427 :
"There Lord Justice Baggallay used the term 'allotment' in what appears to me to be the proper sense of the term. It is only as constituting one of the steps which go to form a complete contract. There have been other cases in which the term has been used by Judges, but I am satisfied that all they meant was that there had been, in the particular case before them, complete allotment; that is, that the name of the person who had 'agreed to become a member,' to use the language of the 23rd section of the Act, had been entered upon the register." (at p425)

80. On appeal to the Court of Appeal Bowen L.J. said (1889) 29 Ch D, at pp 443-444 :
"It is said that he became a member by signing the list of subscribers, and by the act of the directors in sending him a letter of allotment. In considering a question of contract, as well with regard to shares as anything else, we must be careful not to adopt as a necessary legal definition the general business meaning of a term which in ninety-nine cases out of a hundred may be the proper meaning, and in the hundredth may not be applicable. Much litigation in company law has been caused by assuming that popular business terms always involve the same rights and liabilities. We must not treat business terms as if they were legal definitions in this way. We must not assume that all letters of allotment have the same effect. Taking the letter of allotment in the present case, I am by no means satisfied that it appropriated any shares to any subscriber of the subscription contract till something else had been done by him. But even assuming that it did, and that we have here a complete contract to take shares, followed by an appropriation of shares to him, still there was no entry on the register. Was the relation between the subscriber and the company still contractual. Was it still in fieri? or had he become a member of the corporation? According to the 23rd section of the Companies Act I think he had not become a corporate member." (at p425)

81. These terms and the cases dealing with them were later discussed by Dixon J. in Central Piggery Co. Ltd. v. McNicoll and Hurst [1949] HCA 19; (1949) 78 CLR 594 which concerned the word "issue". There the question was whether a company had contravened an Act which provided that no company "shall proceed to the issue to any of its employees any shares in the company" without the consent of the Industrial Court. Dixon J. said (1949) 78 CLR, at pp 599-600 :
"It thus becomes necessary to decide what the word 'issue' means. It is a word which in other departments of the law has a definite meaning, but not in this. In Levy v. Abercorris Slate and Slab Co. (1887) 37 Ch D 260, at p 264 , Chitty J., in considering the nature of a debenture, said: 'It must be "issued", but "issued" is not a technical term, it is a mercantile term well understood; "issue" here means the delivery over by the company to the person who has the charge.' In Koffyfontein Mines Ltd. v. Mosely (1911) AC 409 the House of Lords affirmed the decision of the Court of Appeal sub. nom. Mosely v. Koffyfontein Mines Ltd. (1911) AC 1 Ch 73 . Fletcher Moulton L.J. (1911) 1 Ch, at pp 82-83 deals with the creation of shares as distinct from the issue of shares. Farwell L.J. (1911) 1 Ch, at p 84 points out that 'the words "creation," "issue" and "allotment" are used with three different meanings familiar to business people as well as to lawyers.' His Lordship says: 'There are three steps with regard to new capital; first it is created; till it is created the capital does not exist at all. When it is created it may remain unissued for years . . . When it is issued it may be issued on such terms as appear for the moment expedient. Next comes allotment. To take the words of Stirling J. in Spitzel v. Chinese Corporation (1899) 80 LT 347, at p 351 he says: "What is an allotment of shares? Broadly speaking, it is an appropriation by the directors or the managing body of the company of shares to a particular person."' Speaking generally the word 'issue' used in relation to shares means, where an allotment has taken place, that the shareholder is put in control of the shares allotted. A step amounts to issuing shares if it involves the investing of the shareholder with complete control over the shares. In re Ambrose Lake Tin and Copper Co. (Clarke's Case) (1878) 8 Ch D 635 makes that quite clear. Cockburn L.C.J. said (1878) 8 Ch D, at p 638 : 'inasmuch as the term "issue" is used, it must be taken as meaning something distinct from allotment, and as importing that some subsequent act has been done whereby the title of the allottee becomes complete, either by the holder of the shares receiving some certificate, or being placed on the register of shareholders, or by some other step by which the title derived from the allotment may be made entire and complete.' Cotton L.J. (1878) 8 Ch D, at p 641 speaks of the steps by which the allottee becomes complete master of the shares. Thesiger L.J. (1878) 8 Ch D, at p 642 says that: 'there is no magic to be attributed either to an allotment or to the issue of certificates, but'in each case the Court must look at all the circumstances of the case, and see whether practically and substantially there has been an issue of shares at a time when there was not a contract registered.'" (at p426)

82. The lack of precision in the use of these terms is well illustrated by the fact that Farwell L.J. states the order of events as creation, issue and allotment, whereas Dixon J. says issue "generally speaking" means putting the shareholder in control of the shares after allotment, a view shared by all members of the Court of Appeal in the last of the cases referred to by Dixon J. in the passage I have quoted. (at p426)

83. It must be remembered that no person is a "member" of a company (i.e. the holder of shares therein) unless and until his name is entered in its share register - see per Bowen L.J. in Nicol's Case (1885) 29 Ch D, at p 444 in the passage quoted above. That may not be conclusive for the register may be rectified, but it is essential as appears from s. 16 (5) of the Companies Ordinance 1962 (A.C.T.), a provision found in the Companies Acts of all the States and having its origin in the Companies Act 1862 (U.K.). That however is a step which may in some cases occur before allotment is complete by, e.g. communication to an applicant for shares of acceptance of his offer by "allotment" of shares to him, as was the case in Central Piggery Co. Ltd. v. McNicoll [1949] HCA 19; [1949] HCA 19; (1949) 78 CLR 594 . (at p427)

84. The process of allotment and issue, in the sense indicated by Dixon J. "speaking generally", involves the creation of property, a process the completion of which requires an entry in the share register of the company concerned. "Unissued shares" do not constitute individual items of property but indicate merely the number of shares which a company may issue without increasing its nominal capital in accordance with the Companies Acts or Ordinances. It is thus only upon issue, as distinct from allotment, that individual shares come into existence as separate items of property, a process which logically must include entry in the share register for without such entry there will not have been, to use the words of Dixon J., "the investing of the shareholder with complete control over the shares" (1949) 78 CLR, at pp 599-600 . The quotation from Cockburn L.C.J. indicates that "allotment" in the sense in which he uses it does not give to the allottee a complete title, though in some circumstances it may give him an enforceable contractual right to have title to shares "completed". (at p427)

85. In what sense then are the words "allotment of shares in a company" used in par. (a) of the definition of "disposition of property" in s. 4 of the Act? The meaning of that expression, whether used in relation to existing items of property, or shares newly created, must be ascertained in light of the provisions of the Act and in particular of ss. 12 and 25. Section 12 (1) provides that "a disposition of property made or taking effect in pursuance of or in performance or satisfaction of . . . of a contract or agreement . . ." without adequate consideration shall be "deemed to be a gift so soon and so far as the disposition has affected the property or any of the property to which the contract or agreement relates". It is not necessary for this purpose to determine whether the gifts in the present cases were made or took effect pursuant to a contract. That sub-section however is of importance because it shows that to be a gift the "disposition" must affect the property in question, which of necessity requires that the property must exist prior to, or come into existence "simultaneously" with, the disposition. Section 25 (1) provides that gift duty shall be due and payable on the making of the gift and sub-s. (3) provides that gift duty shall constitute a "first charge on all property . . . comprised in the gift". That provision again necessarily requires that the property must exist either prior to or simultaneously with the disposition. Neither of these provisions could operate if the property were not in existence at the time of the making of the gift, however near to creation it might be. (at p428)

86. In my opinion therefore the term "allotment" in the definition must be given the meaning which was suggested in argument by counsel for the companies as "complete allotment", an expression derived from Chitty J. Thus allotment and issue (including entry in the share register) constitute the process of creating the share, which must be complete before the property can be the subject of the "disposition", notwithstanding that the incidence of gift duty is thus expressed to arise at the same time as the coming into existence of the property the subject of the gift. (at p428)

87. This problem does not appear to have arisen before in relation to gift duty but problems in relation to death duties provide a useful analogy. In Robertson v. Federal Commissioner of Taxation [1952] HCA 71; (1952) 86 CLR 463 the Court had to consider s. 16A (1) of the Estate Duty Assessment Act 1914 which is the provision of that Act which corresponds with s. 18 (2) of the Act. The particular provision in question was par. (a) of that sub-section dealing with the ascertainment of the value of shares upon the assumption that the memorandum and articles of association of the relevant company satisfied the requirements of the stock exchange. The deceased had held shares in a company one of the articles of association of which provided in substance that until the death of the deceased all the shares should be divided into two classes, the rights attached to one of which would have precluded the listing of the company's shares by the Stock Exchange of Melbourne during the deceased's lifetime, but that would not have been so as from and after his death. It was held by the Court that the shares must be valued as at the time of death, taking into account the fact of death, and that on and from the death of the deceased the memorandum and articles did satisfy the stock exchange requirements so that no basis for the application of s. 16A (1) (a) existed. (at p429)

88. In that case Kitto J. expressed the view that it was correct for the Commissioner of Taxation to insist that the conversion of the deceased's shares into the second of the two classes of shares provided for in the articles of association should be considered as if it were an event subsequent to the death since death was a condition precedent to conversion. In support of this view, he referred to In re Augusta Magan (1922) 2 IR 208 . That case dealt with a similar question whether certain property was on the death of Magan, "settled property" and could, therefore, be aggregated with her individual property for duty purposes. The Court there held that the property, though it was settled until Magan's death, was not settled when it passed from her on her death. Palles C.B. (1922) 2 IR, at pp 211-212 observed that the instant of death so far as it was the end of the testatrix's life must precede in contemplation of law the same instant so far as it was the time at which the estate passed upon her death and therefore on the termination of her life and before the passing of the estate upon her death, the possibility of her having issue who would take under her will ceased. (at p429)

89. Kitto J., applying by analogy the principle stated above, then said (1952) 86 CLR, at pp 486-487 :
"The answer, I think, is that the very method of reasoning which Magan's Case supports requires the conclusion that the application of the Estate Duty Assessment Act itself to the particular case is a consequence of, and therefore is logically to be treated as subsequent to, the death of the deceased. It is not until there is an estate of a deceased person that the Act speaks. It follows that in the present case the estate must be valued as at the death, but on the hypothesis that the deceased has died. In valuing the shares on that hypothesis there cannot be a necessity to apply s. 16A (1) (a) in order notionally to alter the articles in relation to art. 6, for it is involved in the hypothesis itself that art. 6 no longer presents any obstacle to listing. At no time while art. 6 prevented listing did the Act require the shares to be valued. It was only when they had acquired the character of assets of a deceased person's estate that it became necessary to value them. As such, they were shares in a company whose articles no longer contained anything, so far as art. 6 was concerned, which precluded listing". (at p429)

90. Although the Act defines the gift as being effected by "the allotment of shares", it means as I have said "allotment and issue" by the creation and vesting of the share in the allottee. Although in one sense the complete allotment occurs simultaneously with the liability for gift duty, the valuation of the gift cannot be made prior to the creation of the subject matter and must take into account the liability which that creation of the property imposes upon the company itself. The matter was not discussed in Ord Forrest [1974] HCA 57; (1974) 130 CLR 124 and so far as I have been able to ascertain has not been discussed elsewhere. I am however satisfied that the reasoning of Kitto J. in Robertson's Case is equally applicable in the present case and avoids the artificial conception that the property has to be valued before it has come into existence. To adapt the words of Kitto J. it is only when the shares have come into existence by reason of the "allotment and issue" that it becomes necessary to value them for the purposes of gift duty and at that point of time liability for gift duty has also come into existence. It is for those reasons that I am unable to agree with the views of Sheppard J. on this point. (at p430)

91. There remains for consideration the argument put on behalf of St. Helens Farm and other companies that we should not follow the decision in Ord Forrest. It was said that the decision was not binding as it was that of an equally divided Court. The case was heard at first instance in this Court by Stephen J. who found in favour of the Commissioner. On appeal it was heard by a Court comprising Barwick C.J., McTiernan, Gibbs and Mason JJ. Gibbs and Mason JJ. were in favour of upholding the decision of Stephen J. and Barwick C.J. and McTiernan J. were of the contrary opinion. It is well settled that a decision of an equally divided Full Court is not a binding authority in subsequent cases in this Court. See Tasmania v. Victoria per Rich J. [1935] HCA 4; [1935] HCA 4; (1935) 52 CLR 157, at p 173 , and per Dixon J. (1935) 52 CLR, at pp 183-185 ; Western Australia v. Hamersley Iron Pty. Ltd. (No. 2) per Kitto J. [1969] HCA 54; (1969) 120 CLR 74, at p 82 and per Menzies J. (1969) 120 CLR, at p 85 and Milne v. Federal Commissioner of Taxation [1976] HCA 2; (1976) 133 CLR 526, at p 533 per Barwick C.J. (at p430)

92. There have from time to time been occasions where an appeal from a decision of a single Justice of this Court sitting in its original jurisdiction has been upheld by an equally divided Full Court, an example being Armco (Australia) Pty. Ltd. v. Federal Commissioner of Taxation [1948] HCA 49; (1948) 76 CLR 584 and Ord Forrest is of course another. However most cases of equal division appear to have arisen on demurrers or appeals from State courts. (at p430)

93. The operation of s. 23 of the Judiciary Act 1903 which deals with most, but not all, cases of equal division in the Full Court was explained by Dixon J. in Tasmania v. Victoria where, after referring to the various solutions to the problems of equal division in other courts, he said (1935) 52 CLR, at pp 184-185 :
"In this Court expedient to be adopted in such a case for pronouncing upon the rights of the litigants has been prescribed by s. 23 (2) (a) and (b) of the Judiciary Act 1903-1933 as follows: 'If the Court is equally divided in opinion - (a) in the case where a decision of a Justice of the High Court (whether acting as a Justice of the High Court or in some other capacity), or of a Supreme Court of a State or a Judge thereof, is called in question by appeal or otherwise, the decision appealed from shall be affirmed; and (b) in any other case, the opinion of the Chief Justice, or if he is absent the opinion of the Senior Justice present, shall prevail.' But whether under this provision, the judgment of a Supreme Court, or of a Judge of this Court, is left unreversed or unimpaired, or in matters where no such judgment is called in question, the judgment of the Chief Justice or the Senior puisne Justice present prevails, the decision so arrived at does not, in my opinion, become a precedent which in this Court has authority. Courts other than the House of Lords do not regard a decision which they pronounce as a result of an equal division of opinion as binding authorities. In The Vera Cruz (No. 2) (1884) 9 PD, at p 98 Brett M.R. referred to - 'the question whether any Court is bound by a decision of its own, which decision was grounded on the fact that the members of the Court present were equally divided,' and said: 'It was the custom for each of the Courts in Westminister Hall to hold itself bound by a previous decision of itself or of a Court of co-ordinate jurisdiction. But there is no statute or common law rule by which one Court is bound to abide by the decision of another of equal rank, it does so simply from what may be called the comity amoung judges. In the same way there is no common law or statutory rule to oblige a Court to bow to its own decisions, it does so again on the grounds of judicial comity. But when a Court is equally divided this comity does not exist, for there is no authority of the Court as such, and those who follow must choose one of the two adverse opinions. And if the books are examined I have no doubt it would be found, if authority there be, that when a Court is equally divided, if the case comes before it again, it will exercise an independent opinion and abide by one of the two views. The case may be different as regards the House of Lords, since it is the ultimate court of appeal, for if it is otherwise there exists an uncertainty as to the law.' This doctrine was repeated in Hobson v. Sir W.C. Leng & Co. (1914) 3 KB 1245, at p 1248 , and is followed by the Supreme Court of Canada (Stanstead Election Case (1891) 20 Can SCR 12 ). The House of Lords, as is well known, adopted an opposite rule (Beamish v. Beamish [1861] EngR 475; (1861) 9 HLC 274 (11 ER 735) ; London Street Tramways Co. v. London County Council [1898] UKHL 1; (1898) AC 375 ; Inland Revenue Commissioners v. Walker (1915) AC 509 ). But this appears to be a consequence of the special view which the House took of the conclusiveness and finality of its rulings (see Pollock, First Book of Jurisprudence, 6th ed. (1929) c. VI., pp. 334-341).
For these reasons I am at liberty to act upon my own view of the matter unfettered by the decision pronounced in Ex parte Nelson (No. 1) (1928) 42 CLR 209 ." (at p432)

94. I respectfully agree with that passage which draws no distinction between appeals coming from Supreme Courts of the States (and one may now add from federal courts) and those coming from a single Justice of this Court. (at p432)

95. The ultimate court of appeal in Australia for all federal and many State matters is the Full Court of the High Court of Australia, and it is only unanimous or majority decisions of the Full Court which have binding authority. There are practical as well as theoretical reasons why this should be so. It frequently happens that, when a case is argued at first instance and then subsequently on appeal, the argument presented for one or indeed both parties is not the same when the matter comes on appeal. In such a case it is a matter of speculation whether if the five Justices had sat together and heard the same argument their opinions would have been the same as those which they reached after hearing different argument at different times. (at p432)

96. In these circumstances I am therefore unable to regard the decision in Ord Forrest [1974] HCA 57; (1974) 130 CLR 124 as binding. I use the expression "binding", though noting that this Court regards itself as entitled to overrule its earlier decisions in what may conveniently, but imprecisely, be described as special circumstances. The same question having arisen in the present case it is properly to be considered de novo. (at p432)

97. Since the decision in Ord Forrest in 1974, the Parliament has passed further legislation with respect to gift duty but not by way of altering the provisions which were construed in Ord Forrest. The Gift Duty Amendment Act 1978 has amended the Gift Duty Act 1941 by providing that it does not apply to gifts made on or after 1st July 1979. Once the taxing Act ceases to apply there is no scope for the operation of the assessment Act. This is by no means an approval of the decision and shows no more than that the Parliament did not take the opportunity to amend the Act when dealing with the general subject matter of gift duty. The fact that gift duty is no longer exacted cannot be relevant to the consideration of the question whether the Court should now arrive at a different conclusion. (at p433)

98. On the matters with which I have so far dealt the result is that the appeals by the Commissioner should be dismissed. The cross-appeals raise only the question whether there was in the relevant cases a gift at all. This question does not arise in the case of Gwynedd and Q.A.W. where Sheppard J. held that the value of the shares in question did not exceed the sum of the par value and the premium. (at p433)

99. In the other three cases there was a difference between the value ascertained by Sheppard J. and the amount paid. (at p433)

100. The argument presented on behalf of the three cross-appellants covered in part the same ground as the argument before the Full Court in Ord Forrest, there being no report of the argument before Stephen J. at first instance, but in addition raised what appear to me to be new points not argued in Ord Forrest or covered by the reasons in the various judgments. The argument that the payment of the par value was always "fully adequate" consideration, which was rejected in Ord Forrest by all members of the Court, was not relied upon. (at p433)

101. I am in agreement with the reasons and the conclusions of the Chief Justice in Ord Forrest but in the circumstances it is desirable that I should express my own reasons for that concurrence and that I should deal with the new arguments which were put to the Court. (at p433)

102. The language of the relevant provisions of the Act presents a number of problems. In particular the question of what is meant by par. (a) of the definition of "disposition of property" which must be read with the definition of "gift". The relevant definitions are those of "disposition of property", "gift", "interest in property" and "property" which I have already set out above. (at p433)

103. It is necessary to set out the material parts of s. 12 which are as follows:
"(1) A disposition of property made or taking effect in pursuance of or in performance or satisfaction, whether wholly or in part, of a contract or agreement entered into (whether before or after the commencement of this Act and whether with or without an instrument in writing) without adequate consideration in money or money's worth, shall, for the purposes of this Act, be deemed to be a gift so soon and so far as the disposition has affected the property or any of the property to which the contract or agreement relates.
(2) For the purposes of this Act, a gift shall be deemed to be made after the commencement of this Act when the disposition of property comprises in the gift is made or takes effect after the commencement of this Act, notwithstanding that a contract or agreement or instrument of title which relates to the property or any part thereof was made or executed before the commencement of this Act." (at p434)

104. I have already said that I regard the expression "allotment of shares" as meaning the "complete allotment". It is a process by which a new item of property is created, i.e. the shares so "allotted and issued" and entered in the register. Unissued shares of a company are not existing property of the company which it may dispose of by allotting and issuing shares or at all: see In re V.G.M. Holdings Ltd. (1942) Ch 235, at pp 240-241 . Unissued shares represent no more than the extent of the capacity of the company to allot and issue new shares without first having to increase its nominal capital pursuant to the Companies Act. A "complete allotment" involves the creation of a particular form of chose in action, involving rights and obligations defined by the memorandum and articles of association and by the Companies Act itself. There being thus no transfer or disposition of property within the ordinary sense of either of those terms, it is no doubt clear that some special provision would be needed if a complete allotment of shares were to be brought in any way within the ambit of the legislation. (at p434)

105. I am unable to agree with the suggestion that each of the particular items in pars. (a) to (f) of the definition is mutually exclusive and that each of them represents something not falling within the opening words of the definition of disposition of property, though no doubt par. (f) is properly to be regarded as self-contained. For example par. (e) relating to the exercise of a general power of appointment would in most, if not all, cases involve the creation of a trust but in the end nothing seems to turn upon the view that these paragraphs may all be regarded as mutually exclusive. (at p434)

106. The next feature of the definitions which is of importance for present purposes is the requirement derived from the definition of gift that it embraces dispositions of property "without consideration in money or money's worth passing from the disponee to the disponor, or with such consideration so passing if the consideration is not . . . fully adequate". The Act is thus dealing with a very limited kind of consideration, which differs from the sense in which the word is used in relation to simple contracts and from the sense in which it is used in relation to conveyancing. The distinction between the latter two kinds of consideration is discussed in and well illustrated by the decision of this Court in Archibald Howie Pty. Ltd. v. Commissioner of Stamp Duties (N.S.W.) [1948] HCA 28; [1948] HCA 28; (1948) 77 CLR 143 (Archibald Howie). That case concerned s. 66 of the Stamp Duties Act 1920-1940 (N.S.W.) which dealt (inter alia) with conveyances either without consideration in money or money's worth or upon a bona fide consideration in money or money's worth of less than the unencumbered value of the property. The company, pursuant to a resolution for reduction of capital duly confirmed by the court, had returned capital to the holders of paid-up shares in the company to the extent of 19/6d. for each 1 pound share by distributing in specie paid-up shares in other companies on the basis of their value in the company's books. The actual value of the shares so distributed was greater than the value appearing in the books. It was held by this Court that the transfers were made upon a bona fide consideration in money or money's worth of not less than the unencumbered value of the property conveyed and therefore were not within either of those categories. (at p435)

107. Dixon J. said (1948) 77 CLR at p 152 :
"In the context I think that the word 'consideration' should receive the wider meaning or operation that belongs to it in conveyancing rather than the more precise meaning of the law of simple contracts. The difference is perhaps not very material because the consideration must be in money or money's worth. But in the law of simple contracts it is involved with offer and acceptance: indeed properly understood it is perhaps merely a consequence or aspect of offer and acceptance. Under s. 66 the consideration is rather the money or value passing which moves the conveyance or transfer." (at p435)

108. On the same page he said:
"The reduction involving the payment off of part of the paid up share capital must therefore be considered an effectuation of a provision of the contract of membership. The allotment of the share and the payment up of the liability thereon conferred upon the holder for the time being of the share a right to have the assets of the company used and applied in the various ways in which the articles expressly or impliedly require or authorize and this is one of them. It is an effectuation or realization of the rights obtained by the acquisition of the share in the same way as is the distribution of a dividend. The consideration given is the payment up of the share capital in satisfaction of the liability for the amount of the share incurred on allotment." (at p435)

109. He also said (1948) 77 CLR, at pp 153-154 :
"The direct allocation of assets for distribution in reduction of the amount of the shares is doubtless within the provision. But that means that the shareholder in satisfaction of his proportionate 'interest' in the assets, an interest consisting of a congeries of rights in personam, takes an aliquot part of the assets. There is an equivalence not only from a logical but from a realistic point of view. The reduction in both the amount and value of the share affords an adequate consideration in money and in money's worth." (at p436)

110. Williams J. dealt with the matter in somewhat the same terms (1948) 77 CLR, at pp 156-159 . Rich J. agreed with the judgments of both Dixon J. and Williams J. (at p436)

111. Thus consideration in that sense may include no more than the discharge of an obligation. Thus a payment made in discharge of an obligation under a contract for the purchase of goods which have already been delivered is made for full consideration because what it does is to discharge an existing obligation. The sense in which the term "consideration" is used in the case of simple contracts is that the promise must do or suffer or promise to do or suffer something but there is no requirement that such consideration shall move from promisor to promisee or vice versa. A simple contract may thus oblige A to transfer goods to B in consideration of a promise by B to make a payment to C. Moreover the common law was not concerned with the "adequacy" of consideration so long as it was real and not illusory and again in the case of consideration in the conveyancing context there was no requirement as to "adequacy". It may be noted that the Stamp Duties Act which was dealt with in Archibald Howie did have such a requirement, but did not have any requirement that consideration should pass from transferee to transferor. (at p436)

112. The definition of gift in the Act requires that there should not merely be a disposition of property but that it should be made "without consideration in money or money's worth passing from the disponee to the disponor" or that the consideration so passing was not fully adequate. That which constitutes good consideration either in the conveyancing or in the simple contract sense may therefore not be sufficient to take a disposition of property outside the ambit of the definition of gift. The importance of this lies in the curious consequences which appear to me to flow in the case of the complete allotment of shares. (at p436)

113. In Ord Forrest [1974] HCA 57; (1974) 130 CLR 124 it was argued that the expression "allotment of shares in a company" did not mean that the allotment of shares by a company to a person who became a shareholder was deemed to be a disposition of property by the company. It was said that it meant an allotment of shares, at the direction of a person entitled to have the shares allotted to him, to the person so nominated, the amount due in respect of such shares being paid by the person giving the direction. This argument was rejected. (at p437)

114. Such a nomination would involve no transfer of property to the allottee by the person entitled to have the shares completely allotted to him, unless there was a contract by which the right against the company was transferred to the nominee. That the former transaction would not involve any transfer of property is plain enough from the nature of a complete allotment of shares and it was in fact so held in In re Pool Shipping Co. Ltd. (1920) 1 Ch 251 . It was there held that letters of renunciation in respect of bonus shares in favour of a nominee and acceptance by that nominee did not constitute a "transfer of shares". The directors had refused to issue the new shares to the nominees on the ground that it involved a transfer which they were entitled under the articles of association in their discretion to refuse to register. It was held that there was no transfer and that the directors could not refuse to complete the allotment by issuing shares to the nominee. The case would of course have had obvious consequences for stamp duty purposes. (at p437)

115. It was argued in Ord Forrest that anomalous consequences would follow from treating par. (a) of the definition as covering an allotment of shares at an under-value because of the effects it would produce upon the issue of bonus shares by public companies and the making of further issues to shareholders at par or at a premium lower than the market premium. This was dealt with by Gibbs J. where he said (1974) 130 CLR, at p 150 : "I would agree that it would be a striking departure from existing notions if, for example, a bonus issue of shares in a public company were held to be a gift."

116. And he then said:
"Where a company makes a bonus issue, or a new issue at a price below the real value of the shares, to persons who are already shareholders, there will ordinarily be no want of full consideration. In such a case, speaking generally (for of course there may be special circumstances that make a difference), the making of the new issue of shares is no more than 'a fulfilment or satisfaction of the rights of the shareholder as such' (Davis Investments Pty. Ltd. v. Commissioner of Stamp Duties (N.S.W.) [1958] HCA 22; (1958) 100 CLR 392, at p 409 ), and the payment up of the share capital when the original shareholding was allotted provided the consideration for the acquisition of the rights which the shares conveyed, and therefore for any subsequent distribution of capital or profits in satisfaction pro tanto of those rights." (at p437)

117. His Honour then referred to the judgments in Archibald Howie [1948] HCA 28; (1948) 77 CLR 143 and said (1974) 130 CLR, at p 151 :
"Of course, what has just been said is only applicable where the issue is made to existing shareholders, and would not apply, for example, where a company issued shares to its employees, or placed shares with particular buyers, not already members of the company, at a price less than their full value." (at p438)

118. Gibbs J. however did not advert to the difference between the kind of consideration involved in Archibald Howie and that which is required by the Act. It is undoubtedly true that full consideration in the conveyancing sense would be given in the case both of a bonus issue and of a new issue at par or at a premium. In the latter case there would ordinarily be a separate market value for the "rights". In the former case it does not appear to me that it is possible to say that consideration moves from the shareholder to the company. It might be possible to say in the case of an original shareholder that his subscription for shares and payment of the par value or other issue price was consideration moving from him to the company in respect of all rights which might thereafter emerge from the company whether by way of dividend, return of capital, bonus shares or new issues at par or above par. It is difficult to see how the original consideration on the initial issue for shares could constitute fully adequate consideration passing from the subscriber to the company and also be fully adequate consideration passing from the shareholder to the company on a bonus issue many years later. Any diminution in value of the old shares could scarcely be said to pass from subscriber to company. Moreover whatever may be said of an original shareholder cannot be said of transferees from him. Nothing would pass from them to the company. Such subsequent shareholders would however be entitled to the bonus shares and to take up the new shares, or sell the rights thereto. (at p438)

119. A transferee from one of the original shareholders becomes entitled to all the rights and interests to which that shareholder was entitled or would have become entitled if he had continued as a shareholder, but the consideration for which the new shareholder acquired the shares passed from him to the old shareholder and not to the company. It does not seem to me that in such a case Archibald Howie can be used for the purpose of demonstrating that full consideration in respect of the bonus share or the shares issued at a figure less than their market value had passed from the shareholder to the company. It is worth considering also the situation where a shareholder (whether original or otherwise) disposes of his entitlement to new issue shares by "selling his rights" to a stranger and receiving for those rights the current market price. In such a case the purchaser of the rights becomes entitled on application to the company and payment of the issue price to have the relevant number of shares allotted to him and entered in the register in his name. This is a commonplace transaction in the case of listed public companies. In that case shares are issued by the company to the purchaser of the rights at a price below the market value of those shares. The consideration passing from the purchaser of the rights to the company would be only the figure at which they were offered by the company to existing shareholders. The new shareholder would have paid separately for the rights of the existing shareholder and would pay to the company only the favourable price available to existing shareholders. Archibald Howie does not assist in such a situation to demonstrate that the complete allotment of the shares to a stranger by the company was made for fully adequate consideration passing from the allottee to the company. It would follow from Ord Forrest that a stranger who purchased rights on the open market and paid the existing shareholder for those rights and then applied for the shares would receive a "gift" from the company for an amount equal at least to that which he had paid for the rights. Such a gift might be of a larger value if at the time of the complete allotment of the shares the price of the rights had increased on the open market. Such a new shareholder would incur liability for gift duty, as would the company itself, each being obliged to indemnify the other to the extent of one-half of the gift duty. (at p439)

120. In Ord Forrest Mason J. also dealt with this argument by reliance upon Archibald Howie. He said (1974) 130 CLR, at pp 155-156 that the issue of bonus shares or of shares having a value greater than the consideration payable for them to shareholders in proportion to their existing holdings was "in a very real sense a satisfaction of their existing rights". I would respectfully agree with that proposition, but it does not follow that the shareholder gives fully adequate consideration which passes from him to the company, nor that the purchaser of such rights who applies for the shares can be said to provide fully adequate consideration which passes from him to the company. With respect I agree with Mason J. when he said that "(t)he company receives full consideration in the form of the amount payable by the allottee and in the satisfaction of the rights of the existing shareholder". (1974) 130 CLR, at p 157 However such full consideration does not flow from the allottee to the company; only part of it does. That observation is true in the conveyancing sense of consideration but that does not satisfy the requirements of the Act. (at p440)

121. For those reasons I am satisfied that the anomalies which were relied upon in argument in Ord Forrest and in the present case do exist and that they are of a sufficiently serious character to call in question the interpretation of the statutory provisions which brings about those consequences. It is not a legislative intention which one would expect to find unless expressed in clear language and, if an alternative interpretation of the language is available which appears more rational and just, it is to be preferred, even if its consequence is that the entitlement of the revenue is less than that for which the Commissioner contends. (at p440)

122. A further argument was based upon an analysis of the transaction involved in the acceptance by the company of an offer to take shares, or the acceptance by an offeree of the company's offer to allot shares and the subsequent performance by both parties of their obligations under such a contract, i.e. the complete allotment by the company involving the entry of the applicant in the share register in respect of the shares the subject of the contract, and the payment by the allottee of the amount due to the company in respect of the complete allotment. (at p440)

123. I agree with the submission that the scheme of the Act is not to tax executory contracts for the disposition of property at an under-value but only to tax the disposition itself. This general scheme is confirmed by the terms of s. 12. Sub-section (1) provides that where a disposition of property takes effect pursuant to a contract entered into without adequate consideration in money or money's worth it is to be deemed to be a gift "so soon and so far as the disposition has affected the property to which the contract relates". That recognizes that the executory contract is not a disposition of property and that in the case of a contract at an under-value there is no gift until the disposition of property occurs. Sub-section (2) is concerned only to ensure that sub-s. (1) is not so read as to exclude dispositions of property taking effect after the commencement of the Act but pursuant to contracts made before the commencement of the Act. This section emphasizes that it is the "disposition" and not the executory contract which comprises the gift and that the performance of such a contract constitutes a gift notwithstanding that there may have been an enforceable legal obligation to transfer the property in existence prior to the coming into operation of the Act, or that the inadequate consideration had already passed to the disponor. (at p440)

124. The question then arises as to how s. 12 (1) can operate when shares are allotted to the person who has subscribed for them. Section 12 (1) assumes the existence of property which is the subject of a contract. A contract for the allotment of shares does not relate to or affect any property because unissued shares are not property. There cannot therefore be any scope for the operation of s. 12 (1) in such a case. (at p441)

125. It was argued that par. (a) of the definition of disposition of property will only work where there is an allotment to a nominee, and that in such a case the company is not the disponor. It was said that this view serves a rational purpose in completing the scheme. In the case of an issue of shares by direction the disponor is the person giving the direction to the company. By so doing he effectively transfers to the allottee (the donee) his rights as against the company under its articles to receive the shares by their complete allotment. If full consideration does not pass from the allottee to the directing party there will be a gift within the meaning of the Act. By its creation of the new shares on complete allotment the company transfers nothing. On the basis of Ord Forrest [1973] HCA 9; (1974) [1974] HCA 57; 130 CLR 124 there would be two gifts, one by the directing party, and the other by the company. (at p441)

126. It was submitted that the executory contract may be at an under-value but that the conveyance of property in one case or its creation in the other is for full value because it is in satisfaction of the obligation to convey or create. (at p441)

127. There are other anomalies involved in the definition of disposition of property which must qualify its operation. An example is the expression "delivery" of property. I do not think that the definition could be read so as to deem all deliveries without consideration to be gifts; consider for example the delivery of a chattel to a gratuitous bailee, whether for storage or use. Such deliveries do not "dispose of" goods and certainly would not fall within the expression "other alienation of property". That expression must qualify all the words which precede it in the opening part of the definition so that only such deliveries as constitute an alienation of property will be caught by the definition. (at p441)

128. The problem presented by a contract for the sale of land for full consideration which is followed by the transfer at a time when the value of the land has risen in the meantime discloses another anomaly. The same difficulty arises where the benefit of a contract of sale is assigned by the purchaser to an assignee who then becomes entitled to have the conveyance executed in his favour. On settlement the property passes from the vendor to the assignee but no consideration or only part consideration will flow from the transferee of Blackacre to the vendor, depending on whether the original purchaser had paid the whole or part of the price prior to the assignment of the chose in action. Another example is the assignment of a debt arising from the supply of goods and payment made by the buyer to the assignee of the book debt. No consideration moves from the assignee of the book debt to the buyer. All these situations are of course covered by considerations adverted to in Archibald Howie [1948] HCA 28; (1948) 77 CLR 143 but which do not apply to "gifts" as defined in the Act. (at p442)

129. In Ord Forrest the judgments in favour of the Commissioner made no distinction between allotment, complete allotment or a binding contract to allot. Indeed, in some instances the words "allotment" and "issue" appear to be used without drawing any distinction between them. (at p442)

130. In Grant v. Federal Commissioner of Taxation [1976] HCA 64; (1976) 135 CLR 632 , shares were issued at par but were then worth less than par value and that was held to constitute a gift to the company. There the Court did advert to the distinction between allotment and a binding promise to allot. That distinction was also expressly referred to in Commonwealth Homes and Investment Co. Ltd. v. Smith [1937] HCA 73; (1937) 59 CLR 443, at pp 453-454 by Latham C.J. where the passage from the judgment of Chitty J. in Nicol's Case (1885) 29 Ch D 413 to which I have referred above was quoted. Dixon J. also referred to this point. He said (1937) 59 CLR, at p 461 :
"In the formation of a contract of membership it may be the acceptance of the offer constituted by the application or the making or authorization of an offer or counter-offer accepted by the subsequent assent of the allottee. But it is also the appropriation of a given number of shares to the allottee. Shares are personal property. Allotment, entry in the share register and the sealing and delivery of share certificates are matters of fact which constitute the issue of shares, considered as a form of property. The assent, whether prior or subsequent, of the shareholder, however evidenced, is enough for the purposes of forming the 'agreement' which is necessary to membership."
This case was not referred to in Ord Forrest. The same distinction appears from the judgment of Dixon J. in Central Piggery Co. Ltd. v. McNicoll [1949] HCA 19; (1949) 78 CLR 594 in the quotations which he makes from Fletcher Moulton L.J. in Mosely v. Koffyfontein Mines Ltd. (1911) 1 Ch 73 and from Cockburn L.C.J. in In re Ambrose Lake Tin and Copper Co. (1878) 8 Ch D, at pp 638, 641-642 . (at p443)

131. It was also submitted that an executory contract was not included in any part of the definition of disposition of property. Executory contracts, generally speaking, and perhaps always, create property in the sense that they create choses in action. When a complete allotment is made in discharge of an obligation there is necessarily full consideration because it is in satisfaction and discharge of the existing obligation and is the counterpart of the right of the subscriber to compel the company to make the complete allotment. Conversely there is the right of the company to compel the subscriber to pay. Such consideration could properly be regarded as passing from company to allottee and vice versa. (at p443)

132. All these considerations point to the conclusion that the definition applies only to allotments by direction. If such a direction were given without consideration ordinary principles of equity would produce a resulting trust in favour of the shareholder giving the direction unless there were a presumption of advancement or evidence of an intention that the nominee should take the beneficial interest. Without some express statutory provision allotments by direction would not be dispositions of property at all because the shares allotted by direction do not exist as items of property until created by the company in the making of the complete allotment. However the direction plus the presumed or actual intention to make a gift would cause both the beneficial and the legal title in the newly created shares to arise at the same moment in favour of the allottee. There would be no moment of time when the beneficial interest in the shares was in the directing party and there would be no gift of money to the nominee and no gift of shares by the company. (at p443)

133. The situation thus described is comparable to that dealt with by this Court in Commissioner for Probate Duties (Vict.) v. Mitchell [1960] HCA 54; (1960) 105 CLR 126 . That case dealt with the incidence of probate duty on the proceeds of insurance policies within the terms of the Married Women's Property Act 1928 (Vict.) and the provisions of the Life Insurance Act 1945 (Cth) which in substance replaced it. Fullagar J. said (1960) 105 CLR, at p 140 :
"The chose in action created by the policy was, no doubt, 'property', but the bringing into existence of that chose in action did not, in my opinion, amount to or involve any alienation of property within any reasonable meaning of that expression. It is clear, I think, that every one of the transactions mentioned in par. (a) of the definition denotes an act done by the deceased in his lifetime. In and about the issuing of the policy there was no conveyance or transfer or assignment or delivery of anything by him. He created no power of appointment. 'Payment' I take to mean payment of money to or in trust for a donee. There was no such payment by the deceased. He paid a premium on the issue of the policy, and he paid many subsequent premiums. But Sarah Grinblat took no interest of any sort or kind in any premium paid. It seems to me to be out of the question to suggest that the payment of the premium was a 'disposition of property'. If it were, what ought to be brought into charge would be not the amount assured plus bonuses but the total sum of premiums paid. It may be said that the transaction involved a 'creation of a trust' or of an 'interest in property' - expressions which occur in the parenthesis in the definition. But the definition does not take into its scope creations of trusts or creations of interests in property. It takes in alienations of property by way of creations of trusts or of interests in property. There was no alienation of property by the deceased."
Another anomaly involved in the view that the company is the donor in the case of an allotment is that the gift and the gift duty both enter into the computation of the value of the shares, at least in a case where there is no market value as in the case of shares listed on a stock exchange. The amount payable upon allotment, or prior to complete allotment, will to some extent increase the assets of the company and therefore the total value of those assets, but one-half of the amount of the gift duty will be payable by the company because s. 35 places the liability for payment of duty both upon the donor and the donee with the result that each must contribute half the amount. No doubt the company and the allottee might agree as to who should bear that burden, but that too might involve a gift. This is not an impossible calculation but it is a somewhat odd result and adds to the anomalies. (at p444)

134. Again in the case of a bill of exchange which is presented on maturity by the ultimate holder after having passed through many hands a situation is created in which full consideration is provided to the acceptor for the payment of the amount due on the bill by the discharge of the obligation on the bill though nothing moves from the holder in due course to the acceptor other than the delivery of the bill which discharges the acceptor's liability. (at p444)

135. In the result therefore I am of opinion that the decision in Ord Forrest was not in accordance with principle and involved a misconstruction of the Act. With due respect to those who have thought otherwise I am unable to accept the decision as correct. (at p444)

136. Accordingly I am of opinion that the cross appeals by the taxpayer companies St. Helens Farm (A.C.T.) Pty. Ltd., Ceedon Pty. Ltd. and Lucinda Investments Pty. Ltd. should be allowed. I have already indicated that the appeals by the Commissioner in the cases of each of the five companies should be dismissed. We were informed by counsel that it had been agreed that there should be no order as to costs. (at p445)

WILSON J. In these appeals, save with respect to the matter I am about to mention, I agree generally with the reasons for judgment which have been prepared by Mason J. The reservation concerns the authority of the decision of this Court in Ord Forrest Pty. Ltd. v. Federal Commissioner of Taxation [1974] HCA 57; (1974) 130 CLR 124 , a case in which the four members who constituted the Full Court were equally divided in opinion. Although I agree with the decision, I consider that it ought not be regarded as a binding decision for the reasons developed in his judgment by Aickin J. (at p445)

2. I would therefore allow the appeals of the Commissioner, so far as they relate to s. 18 (1) (a), and dismiss the cross appeals. (at p445)

ORDER

Appeal dismissed.

Cross appeal dismissed.

No order as to costs.

Appeal allowed in part.

Cross appeal dismissed.

Remit the matter to the Supreme Court of New South Wales to proceed in accordance with the judgment of this Court.

No order as to costs.

Appeal allowed in part.

Cross appeal dismissed.

Remit the matter to the Supreme Court of New South Wales to proceed in accordance with the judgment of this Court.

No order as to costs.

Appeal allowed in part.

Cross appeal dismissed.

Remit the matter to the Supreme Court of New South Wales to proceed in accordance with the judgment of this Court.

No order as to costs.

Appeal allowed in part.

Cross appeal dismissed.

Remit the matter to the Supreme Court of new South Wales to proceed in accordance with the judgment of this Court.

No order as to costs.