Case: BHP Billiton Petroleum (Bass Strait) Pty Ltd v Commissioner of Taxation [2002] FCAFC 433 ; (2002) 126 FCR 119
Outcome: cited
accounting treatment which Woodside Energy adopted and Professor Walker's evidence were said to provide useful assistance in confirming the existence of the necessary connection between the sale of petroleum and the payment of hedge expenses, although of course the accounting treatment would not be determinative of the issue. BHP Billiton Petroleum (Bass Strait) Pty Ltd v Commissioner of Taxation [2002] FCAFC 433 ; (2002) 126 FCR 119 was cited in which Hill and Heerey JJ said (at [68]): '... it is clear even in the context of s 51(1) where a jurisprudential analysis prevails over a commercial view, that accounting and business practice will not always be irrelevant and may indeed provide useful assistance to the Court: Coles Myer Finance Ltd v Commissioner of Taxation (Cth) [1993] HCA 29 ; (1993) 176 CLR 640 at 666...' Reliance was also placed on Commissioner of Taxation v Citibank Ltd (1993) 44 FCR 434 at 443-445 in which a Full Court held that accounting evidence is often relevant and indeed highly significant in resolving issues which arise under the Income Tax Assessment Act. See also Hooker Rex Pty Limited v Federal Commissioner of Taxation (1998) 79 ALR 181 at 189. In the ultimate issue question, Woodside Energy pointed to the abolition of the ultimate issue inadmissibility rule of common law by s 80 of the Evidence Act 1995 (Cth). Against that background the evidence which it is sought to elicit from Professor Garnaut does not go to the meaning of any particular word or words in the PRRTA Act. The term 'economic rent' appears nowhere in the Act, nor does the term 'resources rent tax' save for the title to the Act. In particular, the Act does not contain any explicitly economic terms whose application to a particular case would be assisted by economic evidence. By explicitly economic terms, I mean words such as 'market' and 'competition' which appear in Pt IV of the Trade Practices Act 1974 (Cth). In proceedings under Pt IV of that Act the evidence of economists may be relied upon to aid in the identification of the relevant 'market' and judgments about the effects, historic or predictive, of particular conduct on competition in a market. 53 Re Michael concerned the application of statutory and Gas Access Code provisions to the determination of an access tariff for a gas pipeline. Parker J (Malcolm CJ and Anderson J agreeing) referred to some of the terms of the relevant Act and the Code as being 'in common use in that field of economics which is concerned with competition policy, or more particularly with the regulation of essential infrastructure' (at [107]). His Honour observed that these words or phrases conveyed a meaning to those familiar with the field of economics differing from that which the words themselves would suggest in ordinary everyday usage. He said (at [107]): 'As the subject matter is by nature conceptual there is no uniform, accepted and certain meaning, but there is a principle or theory, the essential tenets of which are widely understood, though there need not be uniform acceptance of them. In my view, expert evidence may relevantly and usefully inform the court as to this specialised usage, of which the court would otherwise be unaware, so that the court can determine whether the Act and Code is using particular words or phrases in their ordinary everyday usage, or in the specialised usage among those versed in this field of economics.' Importantly his Honour continued (at [107]): 'Further, the expert evidence provides an appreciation of the nature and objectives of competition policy in the field of economics, and, in particular, of the regulation of essential infrastructure, so that the policy and objectives of the Act can be discerned with a greater and more reliable appreciation of the possibilities. In addition, the potential relevance of some concepts and provisions in the Act and Code can be more readily understood.' In Visa , Tamberlin J observed in relation to Re Michael and other cases involving admissibility of expert economic evidence (at [665]): 'The emphasis in these cases is on informing and assisting the court with a view to illuminating an understanding of the terms used in relation to the issues raised.' His Honour also agreed with Lindgren J in Allstate Life Insurance Co v Australia and New Zealand Banking Group Ltd (No 6) (1996) 64 FCR 79, that, generally, it is not for an expert to give evidence as to the application of a legislative provision, as opposed to furnishing evidence from the viewpoint of an economist with respect to what factors can or should be taken into consideration or ignored. It is also appropriate to note his Honour's prudential observation, with which I agree, that (at [669]): 'In ruling on the admissibility of the expert evidence at an early stage of the hearing, I was conscious that there can be substantial difficulties particularly in relation to issues of relevance and appreciating the overall context against which to properly or fully consider admissibility. The general approach which I took was to err on the side of admitting evidence which was on or close to the borderline, on the basis that such evidence, if admitted, could be evaluated as to substance and weight in final submissions.' Professor Garnaut's evidence assumes that the Act is intended to tax economic rent as he explains that term. The company relies upon various extrinsic materials antedating the passage of the Act as indicative of that purpose. Assuming that purpose is made out, then Professor Garnaut offers what amounts to the inference that the overall objective of the Act is to generate revenue 'without distorting business decisions on the amount or composition of investment or production'. This identified purpose is relied upon to assist the Court to decide in the first place, whether the contentious hedging losses were 'expenses payable by [Woodside Energy] in relation to the sale' of petroleum within the meaning of s 24(a) of the PRRTA Act. Assuming that the hedging losses are properly to be called 'expenses' the question reduces to whether they are expenses 'in relation to' the sale. The words 'in relation to' and similar terms like 'in respect of' or 'in connection with' or just 'in' have been considered in many cases and many contexts. They denote a necessary connection between two subject matters which may be activities, events, persons or things. The nature and closeness or remoteness of the connection depends upon context. In Workers' Compensation Board (Qld) v Technical Products Proprietary Limited [1988] HCA 49 ; (1988) 165 CLR 642, the term 'in respect of' was said to have a wide meaning. It '... gathers meaning from the context in which it appears and it is that context which will determine the matters to which it extends' (at 653-654 per Deane, Dawson and Toohey JJ). The words 'in relation to' have been described as a 'prepositional phrase' which is 'indefinite' and which, 'subject to any contrary indication derived from its context or drafting history ... requires no more than a relationship whether direct or indirect between two subject matters' O'Grady v North Queensland Company Limited [1990] HCA 16 ; (1990) 169 CLR 356 at 376 (McHugh J). The term is indefinite and will not generally apply to any relationship no matter how remote. The extent of the relationship required will depend upon the context in which the words are used Australian Competition and Consumer Commission v Maritime Union of Australia [2001] FCA 1549 ; (2001) 114 FCR 472 at 482 (Hill J) and authorities there cited. Two things may stand 'in relation to each other' in a variety of ways. The relationship may be spatial, temporal or causal. It may be a relationship of similarity or difference. Relationships between things in the law do not simply exist to await discovery. They are defined by the common law or by legislation and their authoritative interpreters. The criteria by which a statutory test of 'relationship' is to be applied will have to be relevant to and serve the purposes of the statute. The relationship between claimed expenses and the sale of petroleum products in s 24(a) of the PRRTA Act cannot be the subject of a bright line definition covering all cases but it must lie within the bounds of relevance to the statutory purpose. If that purpose can be explained or elucidated by reference to a recognised economic mechanism to which the Act is intended to give effect, then expert evidence about the operating principles of that mechanism can be received. Such evidence may not be material directly concerned with interpretation of provisions of the Act as is extrinsic material received pursuant to s 15AB of the Acts Interpretation Act . Nor can it justify any application of the Act beyond the bounds set by its language. But it may help to identify the purpose of the statute and thus inform the application of ambulatory terms in it such as 'in relation to' in s 24(a). The preceding observations do not import any concluded view about whether the assumption on which Professor Garnaut will base his evidence is made out. That will require a closer consideration of the terms of the Act and the extrinsic materials relevant to its interpretation. It is better done in the context of all the evidence, including the extrinsic materials relied upon. I am not prepared to rule Professor Garnaut's evidence inadmissible. I take it as evidence rather than as submission in that it purports to demonstrate that the economic mechanism to which the PRRTA Act is said to give effect would treat hedging losses as expenses in the way for which Woodside Energy contends. If some of his evidence trespasses into argument, I will simply treat it as such. I do not regard him as offering evidence on the ultimate issue even if that were a difficulty. Rather, it proposes that a certain treatment of hedging losses would advance the purpose of the statute viewed in the light of the economic theory which underpins it. I will therefore admit the evidence proposed to be called from Professor Garnaut. Ultimately, this is a decision about relevance. It may be that in the light of further evidence and argument his evidence will be shown to be based upon a false assumption. If that is so, then it may be that it will be rejected as irrelevant. I am not prepared to find, on the materials presently before me, that the assumption upon which he advances his evidence has been falsified. It seems to me to be at least arguably relevant and so will be admitted. The admissibility of the evidence of Professor Walker It is well established that evidence of accounting practice may be admitted in revenue cases so that the Court has the opportunity to characterise such things as receipts and payments for the purposes of the relevant statute by reference to accounting and commercial realities. That is not to say that such evidence can displace the words of the statute. Nor does it involve the expert witness in interpreting the statute. But where, as in this case, there are terms used of indefinite import such as 'in relation to', 'incurred ... in relation to' and 'made ... in carrying on ... operations', then such evidence may properly inform their application having regard to the purpose of the statute and the context in which the provision appears. In Rowe and Son Pty Ltd v Commissioner of Taxation [1970] HCA 57 ; (1971) 124 CLR 421, Gibbs J referred to expert evidence that it was unusual to bring into the accounts of a trader, making sales on terms only, the payments received or receivable in the year in question and that to do so would not record the true position of the trading. In connection with such evidence generally he said (at 452): 'When the [ITAA] gives no directions on the point, the question when income is earned, and the method of accounting to be adopted for the purpose of ascertaining the income, depend upon business conceptions and the principles and practices of accountancy ...'. In BHP Billiton Professor Walker gave evidence as to the proper accounting treatment to be adopted in the accounts of a corporation such as BHP Billiton. The passage from the judgment of Gibbs J quoted above was quoted in the joint judgment of Hill and Heerey JJ at 134. In Ogilvy Mather Pty Ltd v Federal Commissioner of Taxation (1990) 95 ALR 663, Hill J, in the Full Court, referred to expert evidence which had been adduced from a professor of accounting and said (at 703): 'Accounting evidence cannot be substituted for the test laid down by s 51(1): FCT v James Flood Pty Ltd [1953] HCA 65 ; (1953) 88 CLR 492 at 506-7. Nevertheless, as the Full Court of this court pointed out in Hooker Rex Pty Ltd v FCT 88 ATC 4392 at 4399: "... the tendency of judicial decision has been to place increasing reliance upon the concepts of business and the principles and practices of commercial accountancy, not only in the ascertainment of income, but also in the ascertainment of expenditure: DCT (SA) v Executor Trustee and Agency Co of South Australia Ltd [1938] HCA 69 ; (1938) 63 CLR 108 at 153; FCT v Australian Guarantee Corp Ltd (1984) 54 ALR 209; 84 ATC 4642'.' Applying the prudential approach adopted by Tamberlin J in the Visa case, to which I referred earlier, I am of the opinion that Professor Walker's evidence should be admitted as arguably relevant to the application of the terms to which I have referred and the proper characterisation of the hedging losses in the context of the provisions to which I have referred. Conclusion For the preceding reasons, the evidence of Professors Garnaut and Walker will be admitted at the hearing. I certify that the preceding sixty-four (64) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice French. Associate: Dated: 4 October 2006 Counsel for the Applicant: Mr J De Wijn QC and Mr A Broadfoot Solicitor for the Applicant: Allens Arthur Robinson Counsel for the Respondent: Ms M Gordon SC and Mr SH Steward Solicitor for the Respondent: Australian Government Solicitor Date of Hearing: 19 September 2006 Date of Judgment: 4 October 2006 AustLII: Copyright Policy | Disclaimers | Privacy Policy | Feedback URL: http://www.austlii.edu.au/au/cases/cth/FCA/2006/1303.html