Case: Cassegrain v Cassegrain [1998] FCA 811
Outcome: referred to
It remains to refer to another proceeding between the members of the Cassegrain family, resulting in a judgment delivered by Davies J on 15 July 1998, Cassegrain v Cassegrain [1998] FCA 811. His Honour declared that the actions of Claude Cassegrain in treating the $4.25 million loan account with GCC as his own entitlement to be drawn down at his will, in drawing upon it as he saw fit, and in causing the passing of a resolution of directors allowing for the payment of retrospective interest thereon, were actions which were oppressive of and unfairly prejudicial to the members of GCC. 49 In the course of his reasons, Davies J referred to the Apportionment Agreement. He found that both Gerard and Claude Cassegrain had a keen eye to the reduction of tax. His Honour noted that Gerard probably looked upon the split between GCC and Claude Cassegrain as a tax reduction device, and that since the rate of capital gains tax was 30 percent or thereabouts, the apportionment, if effective, would save GCC almost $1.5 million in tax. 50 His Honour rejected the evidence of Claude Cassegrain that he could not recall discussing any issue of capital gains tax with his father or with Claude Griffith, the accountant. His Honour was satisfied that the apportionment was agreed to with a view to reducing the capital gains tax otherwise payable on the whole $9.5 million. His Honour was satisfied that Gerard Cassegrain and Claude Cassegrain did not, at the time, regard the sum of $4.25 million as Claude's money. His Honour was satisfied that the sum of $9.5 million was paid to GCC and received by it in settlement of its claim against CSIRO, and that no attempt was ever made to arrive at a genuine estimate of a sum for any personal claim by Claude Cassegrain, including any claim falling within the terms of s 160ZB(1) of the Act . 51 After his father's death, Claude Cassegrain drew down on the funds of GCC on the basis that it owed him the $4.25 million. As well, he alleged that he and his father had agreed that GCC would pay him interest on that sum. Since Davies J rejected Claude Cassegrain's claim that the sum of $4.25 million was his own money, it followed that GCC did not owe him that amount. His Honour concluded that by purporting to draw down and to charge GCC interest on it, Claude Cassegrain acted in a manner oppressive of, and unfairly prejudicial to, the other members of GCC. 52 Section 160AX of the Act identifies the object of Part IIIA as being "to provide for net capital gains to be included in assessable income". The section refers to s 160ZO which provides in subs (1) that where a net capital gain accrues to a taxpayer in respect of a year of income, the taxpayer's assessable income of that year includes that net capital gain. Under s 160ZC, capital gains accrued during the year and capital losses incurred during the year are netted in order to arrive at the net capital gain that is included in the taxpayer's assessable income under s 160ZO. 53 Section 160A(a) provides that, unless a contrary intention appears, in Part IIIA the word "asset" means, relevantly, any form of property, and includes a chose in action and any other right, whether legal or equitable, and whether or not a form of property. 67 As what it described as "an alternative ground" for its decision, the Tribunal considered that the Apportionment Agreement was a sham. It is not clear why the Tribunal described this as an alternative ground, because the first ground, the resulting trust ground, did not depend on the effectiveness of the Apportionment Agreement. For the finding of "sham", the Tribunal relied on the findings made by Davies J in the Cassegrain v Cassegrain oppression suit. The Tribunal noted that that case had run for 12 days, and that his Honour had had the advantage of hearing witnesses including Patrick Cassegrain, a co-signatory with his father to the letter of 6 July 1993 to Mr Garrett. 68 After referring to the parties' submissions and to certain authorities relating to "sham", the Tribunal made a series of findings to the following effect: &#8226; the Apportionment Agreement was not intended to confer on Claude Cassegrain beneficial entitlement to the sum of $4.25 million; rather, the intention was to maximise the after tax amount of the Settlement Sum (the Tribunal referred, in particular, to GCC's delicate position with the Bank, of which Gerard and Claude Cassegrain were conscious; to the threat of receivership; and to Claude Cassegrain's evidence that he went into the mediation with the intention of being able to pay the Bank around $15 million); &#8226; in about early 1993, Claude Griffith informed Claude Cassegrain of the tax consequences of GCC's receiving $15 million, and that money received in respect of personal injury was exempt from capital gains tax (a reference to s 160ZB(1) discussed at [58] above); &#8226; Gerard and Claude Cassegrain intended to reduce the level of tax so that as much money as possible would be available to be paid to the Bank; &#8226; the apportionment was not intended by Gerard and Claude Cassegrain to have legal effect, and the increase by $4.25 million in the balance of Claude Cassegrain's loan account with GCC was, likewise not intended by them to have legal effect; &#8226; Claude Cassegrain had told Mr Griffith that the amount (the $4.25 million) was not his, but was the family's money, and that he was holding it for the family because it was better from a tax point of view to make the net (after tax) sum as large as possible; &#8226; on 3 February 1994, Claude Cassegrain wrote to the other members of the family advising that GCC had invested some $7.5 million in Cassiro, and that although it had failed, he did recover $6.8 million (which, he agreed in cross-examination, represented approximately the Settlement Sum less legal fees); &#8226; in his statement of 3 February 2004, Claude Cassegrain asserted that he could have had half of the issued shares in Cassiro allotted to himself rather than to GCC, and he regarded GCC's interest in Cassiro as "more or less as if it were held in trust" for him to do with as he wished; &#8226; there was no real relationship between the amounts agreed and any reasonable entitlements of GCC and Claude Cassegrain respectively, the evidence being that GCC had invested over $7 million in the joint venture, while CSIRO's solicitors considered that Claude Cassegrain would not receive more than $0.5 million in damages for defamation and for the other releases and warranties he was required to provide under the Deed (the evidence of Mr Rares SC, as his Honour then was, was that when the Deed was entered into in September 1993, the highest verdict recorded for defamation in New South Wales was $0.6 million, albeit a verdict that excluded a claim for economic loss which, in Mr Rares's opinion, Claude Cassegrain could have successfully made); &#8226; despite a book entry increasing GCC's indebtedness to Claude Cassegrain in his loan account with the company, that entry did not reflect the intention of Gerard and Claude Cassegrain, which was to treat the entire $9.5 million as GCC's money for immediate use in paying down GCC's debt to the Bank; &#8226; further support for the conclusion that the Apportionment Agreement was sham is found in the findings of Davies J in Cassegrain v Cassegrain referred to above. 69 The Tribunal then proceeded to consider the position that would have obtained if the Apportionment Agreement had not been a sham. The Tribunal said that it would have found that s 160M(6) of the Act , as amended by the Taxation Laws Amendment Act (No 4) 1992 (Cth), would have applied to the Apportionment Agreement itself. In summary, on the assumption that the Apportionment Agreement vested a beneficial entitlement to the sum of $4.25 million in Claude Cassegrain, the Tribunal's reasoning was that the effect of ss 160M(6), (6A) and (6B) was that GCC created a right that instanteously vested in Claude Cassegrain, that is to say, GCC created an asset that vested without consideration in Claude Cassegrain enforceable against GCC. According to the Tribunal, under the subsections mentioned, GCC would be deemed to have acquired the right immediately before the making of the Apportionment Agreement and to have disposed of it at the time of the making of that Agreement, the cost base of that asset being nil by reason of s 160M(6A)(c). (This approach to the matter leaves out of account the contractual undertakings given by GCC and Claude Cassegrain in the Deed, and treats the entire $9.5 million as payable for the releases and surrenders of existing potential causes of action, of which any of Claude Cassegrain are treated as being of no value.) 70 For all the above reasons, the Tribunal concluded that the objection decisions should be affirmed because GCC and CFE had not discharged the onus of proving that the amended assessments against them were excessive. 114 The applicants submit that the Tribunal did not apply the test of sham that it identified. The submission is that GCC and Claude Cassegrain must have intended the Apportionment Agreement to have legal effect, because Davies J found in Cassegrain v Cassegrain that Claude Cassegrain's conduct in relation to the recording of GCC as being indebted to him for $4.25 million was oppressive towards other shareholders. The contention is that conduct that is a sham cannot be at the same time oppressive and discriminatory. 115 I disagree. A director who steals from a company oppresses the other shareholders even though title to the thing stolen does not pass at law to the director. The notion of oppressive conduct is a wide one. To record GCC as being indebted to him for $4.25 million and to charge the company interest retrospectively on that sum, does not cease to be oppressive merely because shareholders can obtain a judicial determination that the underlying transaction was a sham, that the company did not become indebted for $4.25 million, and that there is no entitlement to interest. 116 There is no inconsistency between Davies J's declaration that Claude Cassegrain had acted in a manner oppressive and unfairly prejudicial to the members of GCC by treating the $4.25 million loan account with the company as his entitlement to be drawn down at his will, in drawing upon it as he saw fit, and in causing the passing of a resolution of the directors allowing for the payment of interest retrospectively on that sum, on the one hand, and the Tribunal's finding of sham, on the other hand. 117 I reject the applicants' further submission that a finding of sham in respect of the purported Apportionment Agreement also required a similar finding in respect of the Deed. 118 The applicants submit that the Tribunal erred in referring to the Apportionment Agreement as an agreement made by Claude Cassegrain and his father. However, it was made between them. Claude Cassegrain's mother, Fran&ccedil;oise Cassegrain, and GCC's solicitor, Andrew Walmsley, were onlookers.