Hepples v Federal Commission of Taxation (No 2) [1992] HCA 3; (1992) 173 CLR 492 (12 February 1992)

HIGH COURT OF AUSTRALIA

HEPPLES v. FEDERAL COMMISSION OF TAXATION [1992] HCA 3; (1992) 173 CLR 492
F.C. 92/003

Income Tax (Cth) - High Court

High Court of Australia
Mason C.J.(1), Brennan(2), Deane(3), Dawson(4), Toohey(5), Gaudron(7) and McHugh(6) JJ.

CATCHWORDS

Income Tax (Cth) - Capital gains - Disposal of assets - Deemed disposal - Disposal of asset that did not exist before disposal but was created by disposal - Receipt of money by reason of act or transaction in relation to asset - Agreement between former employee and employer - Secrecy and restraint on competition - Whether disposal of asset - Whether act or transaction in relation to asset - Consideration for agreement - Whether capital gain - Income Tax Assessment Act 1936 (Cth), ss. 160M(1), (5)(c), (6), (7), 160ZO(1).

High Court - Practice - Appeal from judgment deciding issue of law arising in proceedings pending in another tribunal - Majority in favour of dismissing appeal but for different reasons - Different majority rejecting each reason - Form of order.

HEARING

1991, February 28; October 1; December 12;
1992, February 12. 12:2:1992

DECISION

MASON C.J., BRENNAN, DEANE, DAWSON, TOOHEY, GAUDRON AND McHUGH JJ. What order should this Court make when a majority would dismiss the appeal but for discrepant reasons and each of those reasons is rejected by a majority differently constituted? The question arises in an appeal from a judgment which is intended to determine an issue of law arising in proceedings pending in the Administrative Appeals Tribunal; it does not arise in an appeal from a final judgment which concludes the rights of the parties or in an appeal which, if successful, would conclude the rights of the parties. An appeal in proceedings of the latter kind has traditionally been determined according to the opinion of a majority as to the order which gives effect to the legal rights of the parties irrespective of the steps by which each of the Justices in the majority reaches the conclusion: see, for example, the orders made in Penfolds Wines Pty. Ltd. v. Elliott [1946] HCA 46; (1946) 74 CLR 204. See also the notes in (1949) 23 Australian Law Journal 355 and (1950) 66 Law Quarterly Review 298, and in The Commonwealth v. Verwayen (1990) 170 CLR 394. But when an issue of law is determined for the purposes of proceedings pending in a court or tribunal, an order on appeal must declare the majority opinion as to the issue of law, irrespective of any conclusion as to the ultimate rights of the parties to which the reasons of the respective Justices would lead. The present appeal falls into this category.

2. In proceedings between the parties in the Administrative Appeals Tribunal the then President of the Tribunal, Hartigan J., referred a question to the Federal Court for decision pursuant to s.45 of the Administrative Appeals Tribunal Act 1975 (Cth). That section reads as follows:
" (1) The Tribunal may, of its own motion or at the request
of a party, refer a question of law arising in a proceeding
before the Tribunal to the Federal Court of Australia for
decision but:
(a) in the case of a proceeding before the Tribunal
constituted by 2 or more members at which a
presidential member presides - a question shall
not be so referred without the concurrence of that
presidential member; or
(b) in the case of a proceeding before the Tribunal at
which a presidential member does not preside - a
question shall not be so referred without the
concurrence of the President.
(2) The Federal Court of Australia has jurisdiction to
hear and determine a question of law referred to it under
this section and that jurisdiction shall be exercised by
that Court constituted as a Full Court.
(3) Where a question of law arising in any proceeding has
been referred to the Federal Court of Australia under this
section, the Tribunal shall not, in that proceeding:
(a) give a decision to which the question is relevant
while the reference is pending; or
(b) proceed in a manner, or make a decision, that is
inconsistent with the opinion of the Federal Court of
Australia on the question."
questions of law the determination of which is binding on the Tribunal in deciding the proceedings pending before it.

3. The question referred by Hartigan J. read as follows:

"Was there, in consequence of the facts recited (in the case
which his Honour stated), included in the assessable income
of the Applicant for the year of income ended 30 June
1986 -
(a) an amount of $40,000; or
(b) some other amount, and if so, what amount,
pursuant to sub-section 160ZO(1) of the Income Tax
Assessment Act, 1936?"

A Full Court of the Federal Court by majority (Lockhart and Gummow JJ., Hill J. dissenting) answered the question raised by par.(a) "Yes" (1990) 22 FCR 1 at p 40.

4. The question referred by Hartigan J. has been found by this Court to contain more than one point of law. To determine whether the $40,000 mentioned in the question was properly included in the appellant's assessable income pursuant to s.160ZO of the Income Tax Assessment Act 1936 (Cth), it is necessary to determine whether there was a "disposal" of an asset under s.160M of that Act. The answer to that question in turn depends on whether the relevant transaction amounted to a "disposal" within the meaning of that term in s.160M(6) or within the different meaning of that term in s.160M(7). If the question referred is construed as impliedly asking two questions, namely: (1) whether there was a disposal within s.160M(6); and (2) whether there was a disposal within s.160M(7), it can be answered. A majority of this Court would answer those questions in the negative, in the terms provisionally proposed by the Chief Justice when the reasons for judgment were published [1991] HCA 39; (1991) 65 ALJR 650, at p 651; [1991] HCA 39; 102 ALR 497, at p 500. But if the question referred is construed literally, it purports to refer as a single question of law the question: was there a disposal within s.160M(6) or s.160M(7)? That single question is not the question which the Tribunal should ask itself in determining the proceedings before it, for it conflates alternative bases of assessability. It should ask itself the two questions earlier stated seriatim.

5. In other words, the question referred contains not a single discrete question of law but (at least) two questions of law. If the question referred is answered according to its terms, the answer would preclude the Tribunal from determining as discrete questions the application of s.160M(6) and the application of s.160M(7) to the transaction, although the two sub-sections provide distinct and alternative grounds for holding a transaction to be a "disposal". The question referred, if literally construed, is ill-posed. It should not be answered according to its terms. Indeed, to answer it according to its terms would require the aggregation of what are minority opinions on the two questions of law involved to make a majority opinion as to assessability. It would work a miscarriage of justice to answer the question referred according to its terms for the answer would bind the Tribunal, by force of s.45(3) of its Act, to hold that there was a disposal when majorities of this Court have declared that there was no disposal within s.160M(6) and no disposal within s.160M(7). In future cases, though the facts be indistinguishable, the Tribunal would be constrained to hold that there was no disposal.

6. It is of little practical consequence whether the formal order of this Court merely sets aside the order of the Federal Court and refuses to answer the ill-posed question or whether the order provisionally proposed be confirmed. The course of proceedings presents no impediment to treating the question referred as seeking answers to the discrete questions of law arising in the proceedings pending in the Tribunal: to treat the question in that way does not raise any issue of law that the parties have not already addressed. So treating the question referred, the order provisionally proposed will furnish the Tribunal with the answers to the questions which the Tribunal should ask itself in determining the assessability of the $40,000. The order provisionally proposed is preferable and should be confirmed.

7. The order for costs in favour of the appellant should include the costs incurred in argument on the form of this Court's order.

ORDER

Appeal allowed with costs, including the costs incurred in argument on the form of order.

Set aside the order of the Full Court of the Federal Court dated 28 June 1990 except in so far as that order relates to question (B) in the special case referred.

In lieu of an answer to question (A) in the special case referred to the Federal Court, declare that the sum of $40,000 paid to the appellant pursuant to the terms of the Restrictive Covenant Deed made on or about 27 June 1986 between the appellant and Hunter Douglas Limited:

(i) does not form part of the assessable income for the
appellant for the year ended 30 June 1986 by reason
of the provisions of s. 160M(6) of the Income Tax
Assessment Act 1936 (Cth); and
(ii) does not form part of the assessable income for the
appellant for the year ended 30 June 1986 by reason
of the provisions of s. 160M(7) of the Income Tax
Assessment Act 1936 (Cth).