High Court of Australia Judgment Summary Notes

Spriggs v Commissioner of Taxation; Riddell v Commissioner of Taxation [2009] HCA 22 (18 June 2009)

The High Court has decided that two professional footballers, David Spriggs and Mark Riddell, who paid fees to managers to negotiate player contracts, sponsorships and other income earning activities on their behalf, may claim those fees as deductions on their income tax returns.   David Spriggs was selected in the Australian Football League (AFL) National Draft in November 1999. In January 2000 he signed a representation agreement with Connors Sports Management (CSM), which provided for a payment to CSM of 3 per cent of total gross earnings for the successful negotiation of an AFL Standard Playing Contract and 20 per cent of total gross earnings in respect of marketing and media activities. In December 2004 CSM negotiated an AFL Standard Playing Contract for Spriggs with the Sydney Swans which provided for a base payment of $70,000 for the 2005 AFL season. CSM issued Spriggs with a tax invoice for $2,100, which represented 3 per cent of the base payment, in respect of “management and promotional services by CSM for season 2004”. Spriggs claimed the amount as a deduction in his 2005 income tax return. The Commissioner of Taxation refused the claim and disallowed Spriggs’ objection to the Commissioner’s assessment.   Mark Riddell, a player in the National Rugby League (NRL) competition, agreed with SFX Sports Group (SFX) that, in exchange for the provision of certain services related to the management of Riddell’s affairs, he would pay to SFX 20 per cent of gross monies paid to him for sponsorship, media contracts, endorsements, advertising and promotional work, and 7 per cent of all monies he earned from his NRL Playing Contract. In June 2004 Riddell entered into an NRL Playing Contract with the Parramatta club which provided for an annual playing fee of $275,000 for each of the 2005—2007 seasons. In November 2004 SFX invoiced Riddell $19,250 for “2005 management fees”, which represented 7 per cent of Riddell’s playing fee for 2005. Riddell claimed the amount as a deduction on his 2005 income tax return, however, as with Spriggs, the Commissioner of Taxation refused the claim and disallowed Riddell’s objection to the Commissioner’s assessment.   Spriggs and Riddell each appealed to the Federal Court against the Commissioner’s decision. In each case the primary judge set aside the Commissioner’s decision and allowed the players to claim the deductions. On appeal the cases were heard together and the Full Court of the Federal Court unanimously upheld the Commissioner’s appeals. The High Court granted special leave to both Spriggs and Riddell to appeal the Full Court’s decision.   Section 8-1(1) of the Income Tax Assessment Act 1997 provides that a person may deduct from his/her assessable income losses or outgoings which are either incurred in gaining or producing assessable income, or necessarily incurred in carrying on a business for the purpose of gaining or producing assessable income. Pursuant to section 8-1(2) losses or outgoings of capital, or of a capital nature, may not be deducted from assessable income. The critical question the High Court had to determine was whether the management fees Spriggs and Riddell paid to CSM and SFX respectively were incurred in gaining or producing their assessable income.   The High Court considered that Spriggs and Riddell were each engaged in the business of commercially exploiting their sporting prowess and associated celebrity. These businesses encompassed contracts for employment with their respective playing clubs, and promotional activities on behalf of the AFL or the NRL, their respective clubs, and on their own behalf. Spriggs’ and Riddell’s promotional activities were inextricably linked to their employment as footballers.  Spriggs and Riddell conducted their businesses in a commercial fashion, manifested particularly by retaining managers whose duties went well beyond the negotiation of playing contracts. For these reasons the Court held that there was a sufficient connection between the fees charged by CSM and SFX and the gaining or producing of assessable income for the management fees to be deductible.   The High Court set aside the orders made by the Full Court of the Federal Court and substituted orders dismissing the Commissioner’s appeals to that Court.

Pape v Commissioner of Taxation [2009] HCA 23 (7 July 2009)

On 3 April 2009 the High Court announced its answers to the questions raised in an application by Mr Bryan Pape for relief including declarations that the Tax Bonus for Working Australians Act (No 2) 2009 (Cth) was invalid and that the payment of the “tax bonus” to him under that Act was unlawful. The Court now publishes its reasons.   When Mr Pape filed his proceedings he was a taxpayer who was entitled to receive $250 under the Bonus Act. The parties agreed to submit four questions to the High Court for determination, by way of a special case under the Rules of the Court: 1. Does Mr Pape have standing to seek the relief claimed in his Writ of Summons and his Statement of Claim? 2. Is the Tax Bonus for Working Australians Act (No 2) 2009 (Cth) valid because it is supported by one or more expressed or implied heads of legislative power under the Commonwealth Constitution? 3. Is payment of the tax bonus to which Mr Pape is entitled under the Bonus Act supported by valid appropriation under sections 81 and 83 of the Constitution? 4. Who should pay the costs of the special case?   Question 1: The Commonwealth conceded that Mr Pape had standing to contend that the payment to him under the Bonus Act was unlawful, but submitted that he did not have sufficient special interest to argue the broader issue that the Bonus Act was invalid in its application to other persons. No member of the Court accepted this submission. A finding by the Court that the payment of the bonus to Mr Pape was unlawful because the Bonus Act was invalid would be binding in any subsequent disputes concerning the validity of the Bonus Act. All members of the Court determined that Mr Pape had standing to seek a declaration of invalidity.   Question 2:  The Court, by majority, held that the Bonus Act was a valid law of the Commonwealth Parliament, supported by s 51(xxxix) of the Constitution as being incidental to the exercise by the Commonwealth Government of its executive power under s 61 of the Constitution.   Question 3: Mr Pape argued that the money that was to be paid to taxpayers under the Bonus Act had not been appropriated from the Consolidated Revenue Fund by law, as required by s 83 of the Constitution. He also argued that, even if there had been an appropriation by law, it was not an appropriation “for the purposes of the Commonwealth”. Section 81 of the Constitution states: “All revenues or moneys raised or received by the Executive Government of the Commonwealth shall form one Consolidated Revenue Fund, to be appropriated for the purposes of the Commonwealth in the manner and subject to the charges and liabilities imposed by this Constitution.”   The Court held by majority that there was an appropriation by law. Section 16 of the Taxation Administration Act 1953 (Cth) appropriated the Consolidated Revenue Fund for the payment of certain amounts the Commissioner is required to pay under any “taxation law”. Section 3 of the Bonus Act had the effect of making the Bonus Act a “taxation law”. The Bonus Act increased the amount of money to be withdrawn from the Consolidated Revenue Fund under an existing appropriation. That was sufficient to meet the requirement of s 83.   The Court held that sections 81 and 83 do not themselves authorise any expenditure; rather they require that the spending of government funds be authorised by Parliament.   Question 4: In accordance with an agreement between the parties the Court made no order for costs.

Bakewell v The Queen [2009] HCA 24 (7 July 2009)

The High Court has determined that section 19 of the Sentencing (Crime of Murder) and Parole Reform Act 2003 (NT), relied on by the Director of Public Prosecutions for the Northern Territory (“the Director”) in an application to the Supreme Court of the Northern Territory to have Mr Bakewell’s non-parole period fixed at 25 years, does not apply to Mr Bakewell.   In 1989 Mr Bakewell was convicted on charges of aggravated unlawful entry, aggravated sexual assault, stealing, and murder. As the law then stood in the Northern Territory the only sentence that could be imposed for murder was imprisonment for life, with no minimum term able to be fixed. Mr Bakewell was sentenced to life imprisonment.   The Sentencing (Crime of Murder) and Parole Reform Act 2003 (NT) (“the 2003 Reform Act”) commenced in 2004. Section 18 of the 2003 Reform Act deemed Mr Bakewell’s sentence to include a 20 year non-parole period. Section 19 provided that the Supreme Court may, or in certain circumstances, must revoke the 20 year non-parole period and fix a longer period or no period on the application of the Director.   After the commencement of the 2003 Reform Act but before the Director had made an application Mr Bakewell was transferred to South Australia and has remained in custody in that State.   In 2007 the Director sought to have Mr Bakewell’s minimum term fixed at 25 years, pursuant to section 19 of the 2003 Reform Act. The primary judge allowed the Director’s application but the Court of Criminal Appeal of the Northern Territory overturned the decision. Following the appeal, an Act was passed (“the 2008 Amendment Act”) which amended the 2003 Reform Act.   The Director made a second application to fix Mr Bakewell’s non-parole period, relying on the 2008 Amendment Act. Mr Bakewell challenged the constitutional validity of section 19 of the 2003 Reform Act, as amended by the 2008 Amendment Act. A majority of the Full Court of the Supreme Court of the Northern Territory rejected his constitutional challenge. The High Court granted Mr Bakewell leave to appeal against the Full Court’s decision.   In a unanimous decision the High Court considered that, by the operation of prisoner transfer legislation applicable in the Northern Territory and South Australia at the time Mr Bakewell was transferred to South Australia, three outcomes resulted: the life sentence imposed on him in the Northern Territory ceased to have effect in the Territory; a life sentence was deemed to have been imposed on him by the Supreme Court of South Australia; and the 20 year non-parole period fixed under Northern Territory legislation was deemed to have been fixed by the Supreme Court of South Australia. From the date of Mr Bakewell’s transfer to South Australia the Supreme Court of the Northern Territory had no authority to revoke his 20 year non-parole period, or to fix a 25 year non-parole period.   The Court determined it was unnecessary to answer four of the five questions posed by the parties concerning the constitutional validity of the 2003 Reform Act as amended by the 2008 Amendment Act and other matters. The fifth question asked whether section 19 of the Reform Act, as amended, applied to Mr Bakewell. The Court determined that it did not.

Campbell v Backoffice Investments Pty Ltd [2009] HCA 25 (29 July 2009)

The High Court has allowed an appeal against an award of damages for misleading or deceptive conduct in connection with the sale of a share representing a half interest in Healthy Water Pty Ltd (the Company). The Court concluded that the evidence did not support the finding by the Court of Appeal of New South Wales that certain pleaded representations had been made or that the purchaser had relied upon misrepresentations about the financial affairs of the Company in making his decision to buy into it. The High Court upheld the Court of Appeal’s decision that the primary judge had erred in making an order for the vendor of the share to buy it back from the purchaser.

The vendor, Mr Douglas Campbell, established a business to sell and maintain water filtration systems. Eventually he incorporated the Company to carry on that business, and in 2004 he decided to undertake a capital restructure. Mr Timothy Weeks became interested in the business and in January 2005 Mr Weeks’ company, Backoffice Investments, entered into a share sale agreement (SSA) under which Backoffice purchased one of the two issued shares in the Company from Mr Campbell for $850,000. The relationship between Mr Campbell and Mr Weeks quickly broke down. By consent a provisional liquidator was appointed in April 2005 and on 31 May 2005 the provisional liquidator sold the Company’s assets to another company controlled by Mr Campbell for $196,815. That money was used to pay the Company’s liabilities and the provisional liquidator’s fees and expenses. The Company was left an empty shell and its shares were worthless.

On 1 April 2005 Mr Weeks filed a statement of claim against Mr Campbell and the Company alleging numerous causes of action including oppression pursuant to section 232 of the Corporations Act 2001 (Cth), for which he sought an order that Mr Campbell buy back the share; breach of warranties in the SSA, for which he sought damages; and a claim of misleading and deceptive conduct in breach of section 42 of the Fair Trading Act 1987 (NSW), for which he also sought damages.

The primary judge allowed Mr Weeks’ oppression claim and ordered Mr Campbell to buy back the Company share for $853,000. The claim for damages for misleading and deceptive conduct failed because the primary judge found that Mr Weeks had not relied on the alleged misrepresentations when he purchased the share in the Company. Her Honour found there had been breach of some of the warranties in the SSA but awarded no damages, given she had made the buy-back order.

By majority the New South Wales Court of Appeal allowed Mr Campbell’s appeal against the buy-back order. By a different majority the Court of Appeal found that Mr Campbell had made pre-contractual representations which were misleading and deceptive, and which had been relied on by Mr Weeks when entering into the SSA. The Court of Appeal ordered Mr Campbell to pay damages of $850,000 to Mr Weeks and Backoffice. Two of the judges of the Court of Appeal did not decide whether there had been a breach of any warranties and the third judge agreed with the primary judge’s conclusions concerning breach of warranties but held that only nominal damages were payable. The High Court granted special leave to appeal against the decision of the Court of Appeal.

All members of the High Court held that the Court of Appeal had been correct to set aside the primary judge’s buy-back order. However, their Honours considered that the evidence did not support a finding that certain pleaded representations were actually made, or that Mr Weeks and Backoffice would not have purchased a share in the Company had he been aware of the falsity of certain statements made by Mr Campbell concerning the Company’s financial performance. The Court noted that live issues concerning breach of contractual warranties had not been determined by the Court of Appeal. The High Court ordered that the order made by the Court of Appeal setting aside the primary judge’s buy-back order should stand, the orders entering judgment for Backoffice for $850,000 for reliance on misleading and deceptive conduct should be set aside, and issues concerning breach of contractual warranties, and any potential damages arising therefrom, should be remitted to the Court of Appeal.

Vale v Sutherland [2009] HCA 26 (29 July 2009)

The High Court has handed down a decision about notices which the Official Receiver may issue under the Bankruptcy Act to recover money or property received by a third party through a void transaction with a bankrupt.  Significantly, the Court held that in general any dispute between parties about the value of property that is the subject of such a notice should be determined in proceedings to recover the debt rather than in a proceeding to set the notice aside.

On 23 April 1999 Mr Vale became the sole proprietor of seven parcels of land (“the property”) after his wife transferred her half share in the property to him for $2.00. Mr and Mrs Vale obtained two separate valuations of the property prior to the transfer. The first valuation dated 28 September 1998 valued the property in a range between $520,000 and $540,000 and contained a disclaimer that it was “an opinion of a reasonable asking price only and not to be taken as a sworn valuation”. The second valuation dated 31 March 1999 was undertaken by a registered valuer. It valued the property at $416,700 and contained no disclaimer.

Mrs Vale committed an act of bankruptcy on 26 February 2001. A sequestration order was made against Mrs Vale in April 2001 and a Trustee was appointed to manage her estate on behalf of her creditors. In May 2002, relying on the fact that the transfer of the property to Mr Vale was void against the Trustee because it had occurred within 5 years of the commencement of Mrs Vale’s bankruptcy and Mr Vale had paid less than market value for the property, the Official Receiver, on application by the Trustee, issued a notice to Mr Vale, pursuant to section 139ZQ of the Bankruptcy Act.  The notice required him to pay $270,000 to the Trustee, being one half of the highest assessed value of the property.

Eventually the Trustee sought to recover judgment against Mr Vale for $270,000 in the Federal Magistrates Court. Mr Vale disputed the validity of the notice, arguing that it did not comply with section 139ZQ. The Federal Magistrate agreed, set aside the notice and refused the Trustee’s claim. By majority, the Full Court of the Federal Court allowed the Trustee’s appeal. The High Court granted special leave to appeal the Full Court’s decision.

At hearing both parties agreed that the transfer of Mrs Vale’s share of the property to Mr Vale was void as against the Trustee. However the parties disagreed on the value of Mrs Vale’s share and thus the amount Mr Vale had to pay to the Trustee in respect of that share.

All members of the High Court accepted the Trustee’s submissions that the section 139ZQ notice was not invalid for having arguably misstated the value of the property and the amount Mr Vale owed to the Trustee. Any disagreement between the parties about the value of the property referred to in the notice should be determined in proceedings to recover the debt, rather than in an argument about the validity of the notice. The Court referred the parties to the definition of “value” in section 139K of the Bankruptcy Act to establish that the relevant “value of the property received” in respect of a notice issued under section 139ZQ was the value of the property at the date the notice was given. The parties themselves eventually agreed before the High Court that the best evidence about the value of the property at the date the notice was given was the valuation of the registered valuer dated 31 March 1999, of $416,700.

The High Court ordered that judgment be entered for the Trustee in the amount of $208,350 (one half of $416,700) and that all question concerning the award of interest on that sum be remitted to the Federal Magistrates Court for determination. The Trustee agreed to pay Mr Vale’s costs of the appeal to the High Court.