Advanced Holdings Pty Limited as Trustee for The Demian Trust v Commissioner of Taxation

BACKGROUND 2 The land known as the "Lewisham Properties" was developed and sold by a "joint venture". Lewisham Estates Pty Ltd (LEPL), as trustee of the Lewisham Estates Trust (LET), was at all relevant times the registered proprietor of the Lewisham Properties. The joint venture was established by a Joint Venture Agreement (JVA) between Abacus Funds Management Limited, as trustee of the Abacus Mortgage Fund and LEPL, as trustee of the LET. The JVA also established a separate joint venture between Abacus and Summer Hill Business Estate Pty Ltd personally and as trustee of the Camellia Estate Trust. Upon sale of the Lewisham Properties for a profit, proceeds of $49,065,000 were received in the 2013 financial year and proceeds of $1,610,000 in the 2014 financial year. The appeals concern the taxation implications of the proceeds received in the 2013 financial year only. 3 The development of the Lewisham Properties was undertaken initially by LEPL, without the involvement of a joint venture partner. Following the economic events widely known as the "Global Financial Crisis" (GFC), LEPL sought financial support from Abacus. At that time, Abacus was the main financier of LEPL and associated entities in the Demian Group in respect of a range of other activities beyond the sale of the Lewisham Properties. LEPL, at the time of the JVA with Abacus, was experiencing difficulties in raising further finance and was at risk of defaulting on its then current debt obligations. 4 On 31 March 2010, following the financial difficulties being sustained by the LET, LEPL (personally and as trustee), Summer Hill (personally and as trustee of the Camellia Estate Trust) and another entity entered into a facility agreement with Abacus for finance up to a $20 million limit (Abacus Facility). Abacus was relevantly granted mortgages in its favour over all except one of the Lewisham Properties. 5 The following day, on 1 April 2010, LEPL (personally and as trustee), Summer Hill (personally and as trustee) and Abacus, entered into a Call Option Agreement that effectively granted Abacus an option to acquire a 50% joint venture interest in the development of the Lewisham Properties (with the exception of 11/78 OCB Rd, defined below). The proper construction of the JVA (which appeared as a schedule to the Option Agreement) and the Option Agreement itself are at issue. 6 Abacus exercised the option under the Option Agreement on 24 June 2010 and the JVA commenced on or around 30 June 2010. A central question is whether the effect of the JVA was to confer a 50% beneficial interest in the Lewisham Properties on Abacus, with LEPL holding that interest as trustee. 7 The evidence revealed that the finance made available by Abacus through the JVA permitted the repayment of LEPL's then existing borrowings from the National Australia Bank Ltd (NAB), Perpetual Trustee Ltd and Capital Finance Ltd. One of the issues on appeal concerns the proper characterisation of certain payments made in relation to these borrowings in relation to their deductibility. 8 On 31 March 2010, when the mortgages securing the funds advanced under the Abacus Facility were registered, the borrowers also entered into a Payment Deed with Abacus, which relevantly bound LEPL to apply the proceeds of sale (or any other income) from the Lewisham Properties to the repayment of its debt under the Abacus Facility, as well as the debts of the other entities in the Demian Group owed to Abacus. The relevant part of the Payment Deed was set out at [71] of the primary judgment and referred to by her Honour as the "collateralization clause". 9 As indicated, the Lewisham Properties yielded considerable profit on their eventual sale. The details can be set out as follows: Property Dated Acquired Purchase Price Date Sold Sale Proceeds 72-90 Old Canterbury Road, 21/08/2003 $1,100,000 13/08/2012 $48,500,000 Lewisham (72-90 OCB Rd) 62 Old Canterbury Road, 24/06/2004 $510,000 Lewisham (62 OCB Rd) 11/78 Old Canterbury Road, 4/08/2005 $8,600,000 23/04/2013 $565,000 Lewisham, (11/78 OCB Rd) 8 William Street, Lewisham, 4/08/2005 $1 31/05/2016 $1,610,000 (8 William St)

10 On 1 September 2012, following the first sale of the Lewisham Properties, LET paid the net proceeds of the sale, namely, $48,009,738.87 to Abacus which allocated those proceeds as follows: (a) first, $24,633,985.30 as repayment of the debt owing under the Abacus Facility as follows: (i) $18,861,669.52 as repayment of principal; and (ii) $5,772,315.78 as repayment of capitalised interest; (b) secondly, $2 million as payment to Abacus of an "option fee" which effectively cancelled Abacus' call option under the Option Agreement with respect to the Lewisham Properties; and (c) thirdly, $21,375,753.57 was applied by Abacus in discharge of debts owed to it by other entities in the Demian Group. 11 The sum of the amounts at subpars (b) and (c) above ($23,375,753.57) was the excess amount paid by LEPL to Abacus, in addition to the amounts it owed directly under the Abacus Facility. The LET claims $12,459,923 by way of deduction against its 2013 income for amounts paid to Abacus, which was 53.3% of the excess amount. It says that proportion of the excess amount is equal to the proportion of the principal drawn down by LEPL under the Abacus Facility that was used to discharge the original loans from NAB and Capital Finance which funded the original purchase of the Lewisham Properties. The appellants contend that to that extent, the excess amount was used to acquire trading stock and was therefore on revenue account. That characterisation is in dispute under ground 2 below. These amounts were disallowed by the Commissioner. That decision was upheld by the primary judge. 12 Finally, the Abacus Facility was variously amended over the succeeding years to relevantly introduce the payment to Abacus of a "risk fee", which subsequently became known as a "Monitoring Fee". By a deed of amendment executed on 3 May 2011, LEPL was required to pay a Monitoring Fee to Abacus of $1.5 million which was expressed to be in consideration for the management time expended by Abacus in dealing with the Demian Group. The LET similarly claims a deduction with respect to the Monitoring Fee which was rejected by the primary judge.

Corporate structures and issues 13 With that overview, it is necessary to understand the structures connecting the relevant entities. During the two income tax years originally in dispute, 2013 and 2014, the LET was a unit trust established by a deed dated 1 May 2003, namely, the LET Trust Deed. The LET Trust Deed was entered into between LEPL (as trustee) and Advanced Holdings Pty Ltd which held all the units on issue. The units were all held either by Advanced Holdings in its own right (on the Commissioner's case, which was held to be correct by the primary judge) or by Advanced Holdings as trustee of the Demian Trust (on the appellants' case). The taxable income generated by the LET from the Lewisham Properties was distributed to Advanced Holdings. An issue is whether Advanced Holdings received that income in its own right or as trustee of the Demian Trust. 14 The Demian Trust itself is a discretionary trust. It was established by deed dated 20 March 1998 (the Demian Trust Deed) between its settlor and Tramdell Pty Ltd. The Deed lists Mr Demian as the principal. On about 5 May 1998, Demian Holdings Pty Ltd replaced Tramdell as trustee of the Demian Trust. The appellants contend that Advanced Holdings replaced Demian Holdings as trustee of the Demian Trust either on 2 April 2003 or 13 November 2006. The primary judge rejected the appellants' contention as to the effect of the events said to have occurred on those dates, finding that Advanced Holdings was never validly appointed as trustee of the Demian Trust. That is a further issue pressed on the appeals. 15 Prior to 16 April 2007, the default beneficiaries of the Demian Trust were Mr Demian, Hoda Demian, Christopher Demian, Stephanie Demian, Jessica Demian, Eve Vono (nee Demian) and Brooke Demian. Those persons are designated in cl 1 and cl 3(c) of the schedule to the Demian Trust Deed. Since on or about that date, 16 April 2007: (a) the Demian Trust has been the unit holder of all the units on issue for the Riverlands Trust and the Camellia Estate Trust; and (b) pursuant to a deed of amendment entered into on 16 April 2007, known as the 2007 Deed of Amendment, the Default Beneficiaries of the Demian Trust were the Camellia Estate Trust, the Riverlands Trust, the Riverlands Estate Trust and the LET. 16 On 28 February 2019, the Demian Trust made a family trust election with effect from the 2007 income tax year, into which family group the Camellia Estate Trust, the Riverlands Trust, the Riverlands Estate Trust and the LET were admitted (also from the 2007 income tax year) by their respective interposed entity elections made on 5 May 2020.

The various assessments 17 Perhaps for historical context only, there were various assessments issued by the Commissioner in respect of the relevant distributions by the Demian Trust. These were replaced by amended assessments and further amended assessments, which ultimately gave rise to the proceedings before the primary judge. Demian Holdings resolved (purportedly as trustee of the Demian Trust, but on the view advanced by the appellants it had already been replaced by Advanced Holdings in that role) to distribute the Demian Trust income for the year ended 30 June 2013 to various beneficiaries of the Demian Trust as follows: (a) Tramdell as to 50%; (b) Charles Apartments Pty Ltd as to 10%; (c) Ramsey Gardens Pty Ltd as to 25%; and (d) Merchant Project Marketing Pty Ltd as to 15%. 18 Advanced Holdings did not, prior to 1 July 2014, resolve to appoint any income of the Demian Trust for the year ending 30 June 2013 with the result that the income was taken to have been distributed to the Default Beneficiaries. The Commissioner issued assessments and amended assessments consistent with this distribution, but in due course, both the Commissioner and the taxpayers agreed that the resolution of Demian Holdings was of no effect. Based on an alternative and then further alternative theory of assessments, the Commissioner: (a) issued the assessments and amended assessments seeking to tax, for the same income, the Demian Trust and the earlier default beneficiaries as if the 2007 Deed of Amendment was not effective; and (b) later issued the assessments and amended assessments which sought to tax, for the 2014 income, Advanced Holdings (including further overlap with the 2013 year), the Demian Trust and Bankstown Developments Pty Ltd. The alternative assessment regime, where one of the three tranches only could be correct, led to the Commissioner paying the costs of the proceedings where those challenges were raised by the beneficiaries. This was addressed in the primary judge's reasons on costs: Advanced Holdings Pty Limited as trustee for The Demian Trust v Commissioner of Taxation (No 2) [2020] FCA 1663 (at [6]). 19 Objections were lodged by the appellants between 28 November 2017 and 21 February 2018, which resulted in the Commissioner's decisions on the objections being issued between 4 May 2018 and 8 May 2018 with consequential notices of assessment being issued from 2 May 2018 to 17 May 2018. The objections were allowed in minor ways and certain penalties were remitted. From 16 October 2018 to 21 December 2018, the Demian Trust and Bankstown Developments lodged further objections, resulting in further objection decisions being made by the Commissioner from 14 February 2019 to 17 May 2019 and consequential notices of assessment being issued to those entities on 23 May 2019. 20 By the time the matter came to hearing before the primary judge, the Commissioner had conceded matters relevant to the 2014 income tax year, leaving only the 2013 income tax year to resolve and limited penalty issues for the 2011 and 2012 income tax years.

ISSUES SUMMARY 21 In summary then, the central issues in dispute on the appeal from the primary judgment are the following: (a) whether the JVA conferred on Abacus a one-half beneficial interest in the Lewisham Properties (and if so, what tax implications would follow) (ground 1); (b) whether, on 2 April 2003, Advanced Holdings replaced Demian Holdings as trustee of the Demian Trust (ground 3) and, if that did not occur, whether Advanced Holdings held units in the LET on express trust for the Demian Trust (ground 4). Alternatively, did Advanced Holdings replace Demian Holdings as trustee of the Demian Trust on 13 November 2006 (ground 5); (c) if the first contention in relation to the 2003 replacement in (b) is upheld (such that the Demian Trust received the LET income for 2013), was it the Default Beneficiaries and not the earlier default beneficiaries, nor Advanced Holdings as trustee that is liable to be assessed; and (d) were various funds deductible: the LET used borrowed funds to purchase real estate, which it says was its trading stock. These funds were not used, it says, in its enterprise generally (ground 2). A related question is whether the Monitoring Fee was a deductible expense of the LET, in the year it was incurred (ground 6). 22 In relation to penalties (being the subject of the appeal from the AAT decision), the appellants contend that: (a) the LET for the 2011 and 2012 years, and Advanced Holdings (assuming it held the LET units in its own capacity) for the 2013 year, acted reasonably such that no penalties would be imposed because they declared income to the Commissioner consistent with one of a number of alternative hypostulates; and (b) if the Demian Trust, rather than Advanced Holdings in its own right, held the units in the LET in 2013, then the fact of a third party (the LET, Advanced Holdings and the Demian Trust) taking steps inconsistent with the earlier default beneficiaries being aware of their receipt of assessable income, should not make the beneficiaries liable to penalty, because they have acted reasonably based on the state of their knowledge and circumstances. 23 Generally speaking, in relation to penalties, the appellants argue that in all circumstances, proper advisors were engaged and relied upon.

THE PRIMARY JUDGMENT 24 In the primary judgment, her Honour held that the JVA did not confer on Abacus a one-half beneficial interest in the Lewisham Properties. Her Honour considered that, on its proper construction, the JVA did not evince an intention on the part of the joint venturers to establish a trust. 25 Secondly, her Honour held that the 2 April 2003 instrument was ineffective in changing the trustee of the Demian Trust because it failed to remove Demian Holdings prior to appointing Advanced Holdings, as required by cl 22 of the Demian Trust Deed. Further, the 13 November 2006 deed was ineffective because the evidence failed to establish that Demian Holdings had retired, or that Advanced Holdings was appointed as trustee of the Demian Trust. Finally, it was held that the LET units were not part of the corpus of the Demian Trust, nor were they held on the same terms as the Demian Trust by Advanced Holdings for the beneficiaries of that trust. The units were found simply to be held by Advanced Holdings in its own right. 26 Thirdly, her Honour held that if, contrary to the conclusion set out above, the LET units were part of the Demian Trust and Advanced Holdings did become the trustee, the 2007 Deed of Amendment was effective such that the Default Beneficiaries are the relevant beneficiaries. This does not arise for consideration in light of the conclusions reached on this appeal. 27 Fourthly, her Honour held that $12,459,92349 (53.3% of the excess amount) of borrowed funds was not deductible because it was being used in LEPL's enterprise generally. Similarly, the Monitoring Fee was not a deductible expense of the LET because it was a one-off expense for the maintenance of the capital structure. 28 In the AAT decision, it was held that penalties imposed on the LET for 2011 and 2012 and Advanced Holdings for 2013 as assessed by the Commissioner should be confirmed, but penalties on Mr Demian and Hoda Demian were not to be imposed unless the LET units were held in the Demian Trust. 29 For the reasons set out below, which also discuss the reasoning of the primary judge, the conclusions reached were correct. It is, therefore, unnecessary to consider the cross-appeals, which are contingent only on success in the appeals.

GROUNDS OF APPEAL 30 The grounds of appeal are relatively succinct considering the number of issues in dispute. They may be stated in full: Grounds of appeal [in NSD 1286 of 2020 from the primary judgment] 1. The Court: a. erred in construing the [JVA], entered into by [LEPL] as trustee of [the LET] and [Abacus] on or about 24 June 2010 ([JVA]), as not conferring on [Abacus] a 50% beneficial interest in the [Lewisham Properties]; b. when the Court should have held that: i. the [JVA] did convey to Abacus a 50% beneficial interest in the [Lewisham Properties] (and to that extent those properties were held on trust for Abacus); and ii. the taxable income derived in relation to the sale of the [Lewisham Properties] was derived as to half by [the LET] and as to the other half by Abacus. 2. The Court erred in denying the trustee of [the LET] tax deductions for borrowings because it was held to have failed to substantiate the use of borrowings was to fund the purchase of trading stock (being real estate), as opposed [sic] being borrowings used to enable that trustee to conduct its business enterprise. 3. The Court: a. erred in concluding the appointment of [Advanced Holdings] as trustee of the Demian Trust on 2 April 2003 was ineffective or invalid, construing the instrument of 2 April 2003 as ineffective to remove [Demian Holdings] and appoint [Advanced Holdings] as trustee of the Demian Trust; b. when the Court should have construed the instrument of 2 April 2003 as effective to appoint [Advanced Holdings] as trustee of the Demian Trust with the effect that [Advanced Holdings] held the units in [the LET] issued to it on the Demian Trust, and earned income as holder of those units as trustee of the Demian Trust. 4. In the alternative to Ground 3, the Court erred in concluding that [Advanced Holdings] did not hold the units in [the LET] on: a. express trust; or, in the alternative b. resulting trust, for the trustee, from time to time, of the Demian Trust as trustee of the Demian Trust or for the beneficiaries of that trust. 5. In the alternative to grounds 3 and 4, the Court erred in concluding: a. the retirement of [Demian Holdings] as trustee of the Demian Trust on 13 November 2006 was ineffective or invalid; and consequently the appointment of [Advanced Holdings] as trustee of the Demian Trust, with the intention that [Advanced Holdings] hold the units in [the LET] on the Demian Trust was ineffective or invalid. 6. The Court erred in: a. concluding the $1.5 million "Monitoring Fee" (formerly styled "Risk Fee") was not a deductible expense because it was not of a revenue character as it was not an ongoing expense when it was an ongoing expense, paid annually, for the lender's monitoring services; or, in the alternative b. if the conclusion in (a) is correct, failing to conclude that the $1.5 million "Monitoring Fee" (formerly styled "Risk Fee") was deductible over five years pursuant to s 25-25 of the Income Tax Assessment Act 1997 (Cth). Grounds of Appeal [in NSD 1293 of 2020 from the AAT decision] 1. The [AAT] erred in affirming the penalties assessment for the 2011 and 2012 years for Lewisham Trust when is [sic] should have set aside the penalties assessments on any one or more of the following basis: a. the trustee of [the LET] took reasonable care in making the relevant statements to the [Commissioner]; b. the trustee of [the LET] engaged a registered tax agent to whom all relevant taxation information was given in conducting its tax affairs; c. to the extent any penalty should be imposed, item 3 of the table in s 284-90(1) of Schedule 1 to the Taxation Administration Act 1953 (Cth) (the Schedule) was the appropriate basis for determining the base penalty amount; d. the 20% uplift under s 284-220 of the Schedule did not apply, including because the time of notification of a taxable amount to which penalties could apply for the 2012 year occurred at the same time as the notification for the 2011 year; and e. any remaining penalty ought to be remitted in whole or in part under s 298-20 of the Schedule. 2. The [AAT] erred in affirming the penalties assessment for the 2013 year for [Advanced Holdings] when it should have set aside the penalties assessment on any one or more of the following basis: a. Advanced Holdings took reasonable care in making the relevant statements to the [Commissioner]; b. Advanced Holdings engaged a registered tax agent to whom all relevant taxation information was given in conducting its tax affairs; c. to the extent any penalty should be imposed, item 3 of the table in s 284-90(1) of Schedule 1 to the Taxation Administration Act 1953 (Cth) (the Schedule) was the appropriate basis for determining the base penalty amount; d. further or in the alternative, to the extent any penalty should be imposed, item 2 of the table in s 284-90(1) of the Schedule was the appropriate basis for determining the base penalty amount; e. the 20% uplift under s 284-220 of the Schedule did not apply, including because Advanced Holdings did not prevent or obstruct the Commissioner from finding out about the shortfall amount, rather the amount was simply assessable to a different taxpayer; and f. any remaining penalty ought to be remitted in whole or in part under s 298-20 the Schedule.

Ground 1: Did the JVA create a trust in favour of Abacus? 31 The significance of ground 1 is that if Abacus was the beneficial owner of a 50% interest in the Lewisham Properties, then Abacus, not the LET, would be liable to tax on that half of the gain achieved by the sale. Abacus was not joined as a party, but would not be bound by the decision. The primary judge recognised that a common characteristic of joint ventures is that the participants may hold proprietary interests in the assets of the undertaking. Notwithstanding that, her Honour held that Abacus did not, on the proper construction of the JVA, have a 50% equitable interest in the Lewisham Properties. The appellants contend that on a proper construction of the JVA, the Lewisham Properties were held on trust for the joint venturers in equal shares.

The JVA 32 The JVA is a document comprising 18 substantive pages, prepared by commercial solicitors. It is somewhat unusual in that it actually establishes two separate joint ventures. The first, between LEPL (both personally and as trustee) and Abacus, and the second, between Summer Hill (both personally and as trustee) and Abacus. Only the joint venture established between LEPL and Abacus is relevant to the appeals. There are extensive definitions in cl 1.1, some of which are touched upon below. Clause 1.2 sets out various rules for interpreting the document. The remainder of cl 1 has not given rise to comment in the litigation. The appellants accept, as they must, that the JVA makes no express reference to the creation of a trust. Instead, they point to various clauses which they say contain various indicia of a trust and further that a number of clauses would be rendered otiose if the JVA does not create a trust in favour of Abacus. Upon these two propositions, the appellants say first, that it is open to construe the JVA in a manner that establishes a trust, and second, a construction that is open and does not render any of the clauses otiose should be preferred to any that do. A summary of the relevant clauses follows. They are also produced further below where necessary. 33 Clause 4.1 expressly precludes the parties being in a partnership, which is the premise upon which the parties have proceeded in the litigation and which premise has been accepted by the Court, regardless of possible alternative constructions. 34 Clause 5 is significant. It describes the way in which the interests of the joint venturers are held in the joint venture assets as tenants in common except for the Lewisham Properties, which are held for the joint venture by one of the joint venturers, unless otherwise agreed. The joint venturers are also to share all losses, expenses and outgoings and all capital and profits in agreed proportions. 35 Clause 6 is also important to the appellants' argument and has been described as a "waterfall" clause. It sets out the distribution of any proceeds upon sale of any joint venture assets. 36 Clause 11 deals with encumbrances and is referred to in further detail below. 37 Clause 12 deals with the sale of the joint venture interest by a joint venturer. 38 Clause 13, which is examined further below, deals with applications under s 66G of the Conveyancing Act 1919 (NSW). 39 Clause 16 deals with an option by Abacus to purchase the Lewisham Properties. It is addressed further below. 40 Although some imperfections in the JVA were contended for by the appellants, it is nonetheless a reasonably sophisticated commercial document prepared by a substantial firm of solicitors, setting out a complex structure of contractual arrangements, as the reference to specific clauses below will reveal. Despite this, it says nothing anywhere to the clear effect of the contention which underlies the first ground of appeal. 41 The appellants contend that the fact that the JVA does not expressly declare a trust is not determinative of the issue. Rather, it merely calls for the enquiry as to the objective intention disclosed by the language used. The primary judge accepted as much when her Honour said (at [23]): The [appellants] contended that this agreement operated to create a 50% equitable interest in Abacus in the Lewisham Properties, and accordingly the [LET] only beneficially derived 50% of the proceeds of the sale, with the other 50% being beneficially derived by Abacus. Whether such an interest was created depends on whether an intention to create that interest was explicitly or impliedly expressed in the [JVA], as an express trust does not exist unless the parties so intended: Korda v Australian Executor Trustees (SA) Limited [2015] HCA 6; 255 CLR 62 at 69 [3], 73 [11] per French CJ, 100 [109] per Gageler J, 123 [204]-[205], 124 [208] per Keane J. Absent an explicit declaration of such an intention, the Court must determine from a construction of the agreement whether such an intention should be inferred. Importantly, such an intention cannot be imputed simply from the label "joint venture". As the authorities show, there is no settled common law meaning of "joint venture" and joint ventures can take many forms, with different legal arrangements as between the parties: Gibson Motor Sport Merchandise Pty Ltd & Ors v Forbes & Ors [2005] FCA 749 (Gibson Motor Sport Merchandise) at [76]-[81]; Commissioner of Taxation v BHP Billiton Ltd [2019] FCAFC 4; 263 FCR 334 at 359 [100] per Thawley J. Recognisable and common characteristics of joint ventures include participants holding proprietary interests in the assets of the joint undertaking - often, but not necessarily, as tenants-in-common - but the holding of such interests is not a necessary legal incident of a joint venture: Gibson Motor Sport Merchandise at [80]. Nor can an intention to create a trust be imputed simply from the fact that the parties have agreed to engage in a joint undertaking for mutual commercial gain. In each case, it will depend on the particular contract between the parties. (Emphasis in the original.) 42 Despite this recognition by the primary judge, the appellants say her Honour then moved away from this foundational point in her reasoning. 43 It may be accepted that the starting point of the proper analysis is to ascertain the objective intention of the parties: Byrnes v Kendle [2011] HCA 26; (2011) 243 CLR 253 (at [17]-[18], [53]-[59] and [65]) and Korda v Australian Executor Trustees (SA) Ltd [2015] HCA 6; (2015) 255 CLR 62 (at [3], [7]-[11] and [107]-[109]). The appellants contend that the objective intention is to be ascertained by reference to the JVA, the Option Agreement (the JVA being, as noted, a schedule to the Option Agreement and being entered into on exercise of that option) and the objectively ascertained purpose of the JVA. It is accepted that the JVA and the Option Agreement do not contain a statement that the Lewisham Properties are "held on trust" by LEPL for the joint venturers. Nonetheless, the appellants contend that the effect of the language used in the JVA is to create an express trust. Clause 2.1 of the JVA provides as follows: 2.1 Property 1 Joint Venture Abacus and [LEPL] form and agree to engage in an unincorporated joint venture for the purposes of holding, developing, managing and dealing with Property in furtherance of the Project in respect of Property 1 [being the Lewisham Properties] on and subject to the terms and conditions set out in this document. (Emphasis added.) 44 Clause 5 of the JVA is in these terms: 5 INTERESTS OF JOINT VENTURERS Subject to his document, the Joint Venturers: (a) hold their own respective interests in the Joint Venture; (b) own the Joint Venture Assets as tenants in common, except for the Property, which is held for the Joint Venture by one of the Joint Venturers unless otherwise agreed; (c) will share all losses, expenses and outgoings of the Joint Venture; and (d) share all capital and profits of the Joint Venture, in the Agreed Proportions. (Emphasis added.) 45 The appellants argue that "holding" and "is held for" where those terms appear in cl 2.1 and cl 5 in reference to the Lewisham Properties denote that a beneficial interest was vested in Abacus. The appellants argue that if, as the primary judge concluded, the JVA only created contractual rights conferred on Abacus, there would be nothing for LEPL to hold for the joint venturers as, on that hypothesis, those rights were in personam rights of Abacus and nothing was held for Abacus. 46 On this topic, her Honour said at [33]: Clause 2.1 of the [JVA] must also be read in conjunction with cl 5 of that agreement, which defines the "interests of the joint venture". When read together as a whole, the provisions do not evince an intention for Abacus to hold a 50% equitable interest in the Lewisham Properties. First, there is no explicit provision to that effect to be drawn from the language of "holding" and "is held for". Secondly, read in context, the language of "holding" and "is held for" does not convey the imputation contended by the [appellants]. Significantly, the intention of the joint venturers as expressed in cl 5(b) was for the parties to own the joint venture assets as tenants in common "except for" the Lewisham Properties. With respect to those properties, there was to be no joint ownership but, rather, the agreement and contractual obligation was for those properties to be held "for the joint venture", or as the Commissioner put it, to be "devoted to" the purpose of the joint venture, that is, the development and realisation of those properties as a joint commercial undertaking with the view to sharing the proceeds as provided for in cl 6 of the [JVA]. Contrary to the [appellants'] submission, the expressions "hold" and "holding" would not be otiose if Abacus did not have a proprietary interest in the Lewisham Properties. The parties to the [JVA] could agree, as they did by cl 6, to share the losses, expenses and outgoings of the joint venture without the transfer of an equitable interest in the Lewisham Properties to Abacus. 47 Clause 2.1, also expresses language in terms of "dealing" with the Lewisham Properties. The appellants argue that the sense of that language is consistent with the creation of a trust. Clause 5(b) of the JVA is to the effect that the Lewisham Properties are "held for" the joint venture by one of the joint venturers. Again, the appellants argue this is language consistent with an intention to create a trust. The effect of cl 5(b), it is contended, is that the equal joint legal interest is maintained across the whole venture, other than the Lewisham Properties, the bare title of which is to be retained by LEPL, which is held on trust for both joint venturers in equal shares. It is contended that her Honour's analysis at [33] fails to allow for the language of cl 2.1 and cl 5 of the JVA and the apparent intention that the beneficial interest in the Lewisham Properties be shared equally. 48 As to cl 6 referred to by the primary judge in the passage quoted above, the appellants say the "payment waterfall" upon receipt of the proceeds of the Lewisham Properties only makes commercial sense if the parties had equal beneficial interests in the properties. The clause provides: The Joint Venturers agree that the proceeds of sale of any Joint Venture Assets, any other revenue derived from the Joint Venture or the Joint Venture Assets and any amounts retained under paragraph (c) below are to be applied in the following order of priority: (a) first, to pay unpaid costs and expenses incurred after the date of the Call Option, and to reimburse Joint Venturers for costs and expenses incurred after the date of the Call Option and not funded by Senior Debt, Abacus Debt or other debt, in each case, in furtherance of the Project; (b) second, to pay interest and principal due and payable on any Senior Debt secured by the relevant Property; (c) third, to be retained as a cash reserve to be available to pay forecast costs, expenses, interest and principal referred to in paragraphs (a) and (b); (d) fourth, to pay principal and any other amounts owing in respect of Senior Debt (whether or not due) until the Senior Debt is discharged in full; (e) fifth, to pay interest accrued in respect of Abacus Debt; (f) sixth, to pay principal and any other amounts owing in respect of Abacus Debt (whether or not due) until the Abacus Debt is discharged in full; (g) seventh, if the Acquisition Option has been exercised, to pay Abacus the Acquisition Option Fee then accrued; (h) eighth, if the Acquisition Option has been exercised, to reduce the outstanding Acquisition Option Price until the outstanding Acquisition Option Price is reduced to zero; (i) ninth, to pay the Option Amount to Abacus; (j) tenth, the balance (if any) to be distributed in the Agreed Proportions between the Joint Venturers in respect of the relevant Property. 49 As to this argument, the primary judge said the following (at [35]): The [appellants] submitted that cl 6 should be read in light of cl 5(c), which provided that [LEPL] and Abacus were to "share all losses, expenses and outgoings" of the joint venture as to 50% each. It was argued that the distribution "waterfall" in cl 6 includes payments of such expenses and outgoings, such as sub-cls (a) and (c), which expressly provide for payment of the expenses of the joint venture. It was submitted that the use of the proceeds of sale to pay expenses to be shared as to 50% between each of [LEPL] and Abacus meant that the proceeds of sale and other revenue from the Lewisham Properties must be derived beneficially by those two entities. Were it otherwise, it was argued, the expenses would not be shared as to 50% each as required under cl 5(c) - the expenses would be being met wholly by the joint venturer beneficially entitled to those proceeds of sale or other revenue. There are three answers to this submission. First, cl 5(c) is "subject to this document". Secondly, the fact that cl 5(c) provided for the sharing of losses, expenses and outgoings of the joint venture in the "Agreed Proportions" (namely, 50:50) reflects the proportionate interest of the joint venturers in the joint venture, and that any profits from the proceeds of the sale of "Joint Venture Assets", after the satisfaction of ranking priorities, was to be divided in equal shares. Clause 5(c) does not indicate or require that Abacus has a 50% equitable estate in the Lewisham Properties. Thirdly, the cascading priority provisions also tell against the [appellants'] contention. Notably, those cascading payments included sub-cls 6(e) and (f), which required the proceeds to be applied to pay interest accrued in respect of debts owed to Abacus, principal debt and any other amounts owing to Abacus as priority payments, the effect of which would have been to require the moneys owed to Abacus to be repaid out of its equity in the Lewisham Properties, if it was the case that Abacus had a 50% equitable interest in the Lewisham Properties. Such clauses are inconsistent with an intention that Abacus hold a 50% equitable interest in the property. As provided in cl 6(j), the parties were to share equally in the balance of the proceeds only after the payment of expenses and repayments of debts, including to Abacus. 50 The appellants also contend that there are other textual indicia in the JVA which support the conclusion that it was intended to create a trust. In that regard the Lewisham Properties are defined as part of the "Joint Venture Property" and also "Joint Venture Interest". Objectively viewed, the intention of the language in cl 5 of the JVA "which is held for the joint venture" is said to be reinforced by the Lewisham Properties comprising part of the "Joint Venture Assets". 51 The appellants also draw on cl 11 of the JVA, suggesting it shows an objective intention that Abacus have a beneficial interest in the Lewisham Properties. Clause 11 of the JVA is in these terms: ENCUMBRANCES (a) Subject to the terms of this document Abacus (but not the other Joint Venturer, who may only do so with the prior written consent of Abacus) shall be entitled to grant a security interest over its Joint Venture Interest provided that it gives 10 Business Days' notice of its intention to do so to the other Joint Venturer. (b) Prior to entering into a security interest over its Joint Venture Interest, Abacus shall procure that the proposed beneficiary of the security interest (Financier) enters into a deed with each of the Joint Venturers whereby the Financier agrees that should it wish to exercise its security rights and sell Abacus' Joint Venture Interest, it shall allow the other Joint Venturer an opportunity to buy the Joint Venture Interest which is to be the subject of such sale in accordance with the provisions of this clause 11 provided that the Financier will receive, upon completion of such sale, all amounts which it is entitled to recover by enforcing its security. (c) If Abacus is in default under any security interest granted by it over its Joint Venture Interest such that its Financier is entitled to appoint a receiver over its Joint Venture Interest or issue a notice under section 57(2)(b) of the Real Property Act 1900, the other Joint Venturer shall have a right to acquire the Joint Venture Interest of Abacus in accordance with this clause 11. (d) Upon receipt by Abacus of a notice from its Financier of the default or a notice under section 57(2)(b) of the Real Property Act 1900 issued by or on behalf of its Financier or upon Abacus receiving notice of the appointment by its Financier of a receiver over its Joint Venture Interest, Abacus or its Financier shall notify the other Joint Venturer in writing of the receipt by Abacus of such notice. … (h) Each Joint Venturer will pay its Agreed Proportion of all rates and taxes (including land tax) and other amounts applicable to the Joint Venture Interest so that the Joint Venture Interest shall not be encumbered as a result of the non-payment of such amount. 52 Absent Abacus having a beneficial interest in the Lewisham Properties, the appellants say there could be no application of the Real Property Act 1900 (NSW). The appellants argue that s 56 limits the operation of s 57 to "any land, or estate or interest in land". The conferral on Abacus of only contractual rights, they say, would make cl 11 of the JVA otiose and, contrary to the primary judge's reasons, cl 11's operation should not be confined to the contingency of the option in cl 16 having been exercised. Clause 16 granted Abacus the option to purchase the Lewisham Properties and is examined further below. The appellants also note that cl 11 refers to "Market Value" (at cl 11(c)) which is defined in cl 1.1 of the JVA in a manner which they say is at least awkward if only a chose in action is the subject of the clause. The definition provides that: Market Value means, in respect of any property at any time, the price at which the property might reasonably be expected to be sold at that time assuming: (a) a willing, but not anxious, buyer and seller; and (b) a reasonable period within which to negotiate the sale, having regard to the nature and situation of the property and the state of the market for property of the same kind; and (c) that the property will be reasonably exposed to the market; and (d) that no account is taken of the value or other advantage or benefit, additional to Market Value, to the buyer incidental to ownership of the property being valued; (e) the seller has sufficient resources to allow a reasonable period for the exposure of the Property for sale; and (f) the seller has sufficient resources to negotiate an agreement for the sale of the Property. 53 Next the appellants draw on cl 9(c) and cl 10.6 of the JVA. Clause 9(c) provides as follows: 9 MAINTENANCE, INSURANCE AND VALUATION … (c) Unless the Joint Venturers agree otherwise, the Joint Venturers must cause the Market Value of the Joint Venture Assets to be determined as at 30 June in each year. 54 Clause 10 of the JVA then sets out a scheme for dispute resolution, particularly in circumstances where one of the joint venturers has undergone a change of control. In the event that such a dispute cannot be resolved by negotiation, either party may issue a "Final Change of Control Notice" which constitutes either an offer to buy the offeree's interest, or sell the offeror's interest. Clause 10.6 then provides: 10.6 Failure to accept Offer Unless otherwise agreed by the Joint Venturers, if the Offeree has not accepted either the Sale Offer or Buy Offer made under clause 10.3 in accordance with clause 10.4, then the Offeror must proceed to sell the Joint Venture Assets as soon as reasonably practicable on the following basis: (a) the Offeror must undertake an orderly sale of the Joint Venture Assets, as it sees fit but with no obligation to await an improvement in the Market Value; (b) the sale will be by way of public auction, tender or expression of interest, a Joint Venturer may participate as a potential purchaser; and (c) the Offeror must appoint an agent agreed by the Joint Venturers within 5 Business Days after the date of the Final Change of Control Notice and, failing agreement by that date, the Offeror must request the president of the Australian Property Institute - NSW Branch to appoint an agent from one of CB Richard Ellis, Jones Lang LaSalle and Colliers Jardine (or their successors). 55 Similarly, the appellants point to cl 10.5(c) of the JVA which contemplates a situation where the offer to buy or sell has been accepted and is in these terms: 10.5 Completion … (c) Each Joint Venturer irrevocably appoints each Director of the other Joint Venturer, jointly and severally, as its attorney, on its behalf and in its name to sell and transfer its Joint Venture Interest in accordance with this clause 10, to execute under hand or under seal and deliver (conditionally or unconditionally) any instrument of transfer in respect of that Joint Venture Interest and any other documents that in the opinion of the attorney are necessary to carry out any of the provisions of this clause. Each Joint Venturer must on request of the other Joint Venturer execute and deliver to the other Joint Venturer a separate document, in a form registrable at the NSW Land and Property Management Authority, containing the power of attorney granted under this clause 10.5(c). … (Emphasis added.) 56 These provisions, it is said, contemplate the sale of a joint venturer's interest by appointing an attorney for sale of that interest and require the parties to provide a "separate document, in a form registrable at the NSW Land and Property Management Authority, containing the power of attorney granted". The appellants point out that a power for attorney for sale would only need to be registered at what was then the NSW Land and Property Management Authority if it dealt with an interest in land: s 52 of the Powers of Attorney Act 2003 (NSW). Similarly, the appellants say that the list of agents in cl 10.6(c) further demonstrates the objective intention contended for; those persons clearly only being concerned with sales of real property, not choses in action. 57 The next argument advanced for the appellants is based on cl 16.1 which grants Abacus an option to acquire the "Property" defined in cl 1.1 as: … the real property owned as at the date of this document by [LEPL], being the real property … in which Abacus has exercised its option to acquire a 50% joint venture interest pursuant to the Call Option. … 58 Clause 16 is set out below. Although the Option Agreement does not define "joint venture interest", it does define "Property" as the Lewisham Properties in a way which the appellants say demonstrates that neither cl 16 of the JVA nor the Option Agreement are directed only to contractual rights. The sense of the language is that the clause refers to an interest in the Lewisham Properties. The Option Agreement provides by cl 2.1, for the "purchase [of] a 50% joint venture interest in the Project". Further, Recital B of the Option Agreement provides that: [LEPL] has agreed with effect on the Effective Date to grant to [Abacus] an option, for [Abacus] to purchase the [Lewisham Properties]. 59 Read with Recital B and the terms of the JVA, the objective intention, the appellants argue, is that of creating an equitable interest in the Lewisham Properties. Contrary to the reasoning of the primary judge, the "option" referred to in Recital B of the Option Agreement was the option created by that document, not by cl 16 of the JVA. 60 The appellants say the primary judge erred by conflating these two options when her Honour held at [32]: Thus, what was purchased by the exercise of the call option was a "joint venture interest in the Project" - that is, an interest in the set activities and agreed distribution of proceeds relating to the Lewisham Properties. I accept the submission for the Commissioner that Recital B to the Call Option Agreement is to be understood as a reference to the acquisition option provided for in cl 16 of the [JVA], which was annexed in draft form to the Call Option Agreement. Clause 16 provided, relevantly: 16.1 Grant of Call Option Each Owner grants to Abacus an option for Abacus to purchase the Property. 16.2 Irrevocable offer This Acquisition Option constitutes an irrevocable offer by the Owner to sell the Property to Abacus and does not give rise to a conditional contract for the sale of the Property. 16.3 Exercise of Acquisition Option during the Acquisition Option Period Abacus may exercise the Acquisition Option during the Acquisition Option Period by giving the following to the Owner: (a) a completed Acquisition Option Notice; (b) a Contract signed by Abacus, with all details completed; and (c) a cheque payable to the Owner or to the relevant financiers to whom the Senior Debt is owed for the Acquisition Option Price. … That construction is consistent with the contractual scheme and gives the provisions a sensible commercial meaning, whereas the [appellants'] contention that cl 2.1(a) of the Call Option Agreement operated to give Abacus an option to acquire a 50% beneficial interest in the Lewisham Properties disregards the clear words of that provision. 61 The final argument on this topic is that the reference to s 66G of the Conveyancing Act in cl 13 is relevant. Clause 13 of the JVA relevantly provides as follows: 13 SECTION 66G APPLICATIONS (a) The Joint Venturers agree that neither of them will (except after 6 months prior notice in writing to the other of them) make application to court for the appointment of trustees for sale or partition of the Property pursuant to the provisions of section 66G of the Conveyancing Act 1919 (NSW). (b) If a Joint Venturer receives notice that the other Joint Venturer will make such application, the first Joint Venturer may issue a Final change of Control Notice in accordance with clause 10.3 in which case clauses 10.3 to 10.7 will apply. 62 The appellants argue that cl 13 is also only sensibly applicable to an interest in property, not to choses in action. As to s 66F of the Conveyancing Act which defines "co-ownership", her Honour said at [45]-[48]: 45 Section 66F(1) of the Conveyancing Act provides: Co-ownership means ownership whether at law or in equity in possession by two or more persons as joint tenants or as tenants in common; and co-owner has a corresponding meaning and includes an incumbrancer of the interest of a joint tenant or tenant in common. 46 Thus, for a person to make an application under s 66G of the Conveyancing Act in relation to property, there must be at least two "co-owners" of the property and, as defined in s 66F(1), a "co-owner" must have a beneficial interest in the property in the strict sense. The [appellants] placed reliance on Kelly v Kelly [2007] NSWSC 1076 where Austin J observed at [30] and [32]: First, s 66G(1) relates to specific parcels of property in co-ownership, both in terms of its wording and its purpose. The opening words of the subsection identify some particular property held in co-ownership, and the section authorises the court to appoint trustees to that property for the purposes of sale or partition. The purpose of s 66G(1) is to allow the court to authorise the sale of particular property, by making orders which, typically, include orders relating to the process of sale and the destination of the purchase money. Orders of these kinds do not appear appropriate where the applicant for orders has only a right in respect of a potentially fluctuating group of assets, stemming from his or her entitlement to compel the due administration of those assets. … The plaintiff has an interest in relation to the assets of the estate as a whole, and an expectation that, upon due administration, he will receive the half-interest in one or two or all three properties to which he is entitled under the will and the court's orders… In my opinion the general and inchoate interest described in Schultz's case and Horton v Jones, even if it is a proprietary interest in all of the assets of the unadministered estate, is not sufficient to attract the jurisdiction under s 66G. 47 Thus, it was argued, for cl 13 of the [JVA] to be capable of having any operation, [LEPL] and Abacus must each have a beneficial interest (in the strict sense) in the Lewisham Properties, otherwise there would not be at least two co-owners of the Lewisham Properties and so s 66G would be inapplicable. It was submitted that the Court should avoid giving an interpretation to the [JVA] that rendered one of its provisions otiose when another interpretation that is open on the text of the agreement would give that provision work to do, citing in support XL Insurance Co SE v BNY Trust Company of Australia Limited [2019] NSWCA 215 at [72]-[73] per Gleeson JA (Bell P agreeing); HP Mercantile Pty Ltd v Hartnett [2016] NSWCA 342 at [154] per Leeming JA. Additionally, it was submitted that the fact that the parties included cl 13 indicated that, objectively considered, the parties intended the [JVA] would give each of them a beneficial interest in the Lewisham Properties, and effect should be given to that objective intention. 48 The difficulty with the argument is that cl 13 on its face appears to be inconsistent with the contractual requirement for the Lewisham Properties to be held for the purposes of the joint venture and cl 5(b), which expressly provided that there was no co ownership of the Lewisham Properties as tenants in common. Further, s 66F of the Conveyancing Act requires that the co ownership be "in possession", denoting an immediate right to possession or enjoyment of the particular property. Given the terms of the [JVA], an immediate right to possession by Abacus of one half of the Lewisham Properties would have been inconsistent with the continued devotion of the Lewisham Properties to the purposes of the joint venture. Accordingly, I do not consider that cl 13 supports the construction urged by the [appellants]. 63 The appellants argue that [45] of her Honour's reasons confirms there is no conflict between cl 5(b) and cl 13 of the JVA because, contrary to what her Honour said at [48], cl 5(b) does not exclude co-ownership where one party holds the bare legal title and another holds the beneficial interest. It is said cl 13 ought to have been given effect as reflecting the intention that the Lewisham Properties be held on trust for the parties in equal shares. Commercially, there would be good objective reasons to support this textual construction as a trust would have afforded protection to Abacus with respect to the insolvency risk then associated with dealing with LEPL and the appellants more broadly.

Consideration: Ground 1 64 It is necessary to point to the existence of an intention to create an express trust with certainty and clarity: Korda per French CJ (at [3], [5]-[7] and [11]), Gageler J (at [109]), Keane J (at [204]). As the appellants recognise, the JVA nowhere on its face suggests that 50% of the Lewisham Properties is held by LEPL on trust for Abacus. As French CJ said in Korda (at [49]), a court ought not be astute to impute an intention to create a trust from strained or equivocal language or "straws plucked from textual or contextual breezes". 65 Gageler J said (at [110]): Amongst the numerous and otherwise largely equivocal indications of contractual intention to which the parties to the present appeal have drawn attention in argument, one contractual omission is, in my view, decisive. It is the acknowledged absence of any contractual indication that Forest Co and Milling Co should hold the proceeds separately from other moneys of their own. … (Citations omitted.) 66 Keane J said (at [208]): The language of the relevant documents is not to be strained to discover an intention to create a trust of the broad scope for which AET contends. In Byrnes v Kendle, Gummow and Hayne JJ noted the approval by Mason CJ and Dawson J in Bahr v Nicolay [No 2] of the proposition stated earlier by du Parcq LJ that: "unless an intention to create a trust is clearly to be collected from the language used and the circumstances of the case, I think that the court ought not to be astute to discover indications of such an intention." (Citations omitted.) 67 The primary judge was correct to recognise (at [50]) that such caution applies a fortiori in the context of a sophisticated commercial arrangement and agreement which contains elaborate provisions, but eschews express invocation of the language of trusts. 68 In Korda, Keane J said further (at [228]) that: The Tripartite Agreement provided, by cl 8, for the keeping of records by the Forest Co and the Milling Co to enable Covenantholders' entitlements to be identified. Jessup v Queensland Housing Commission (230) is again of assistance. In that case, McPherson JA considered provisions, at least as rigorous as cl 8, for the keeping of records of moneys received by a putative trustee, and said: "All of these are or resemble obligations like those imposed by equity on a trustee in similar circumstances. In the end, however, they tell against rather than in favour of the existence of a trust. If [the provider] as settler had intended to create a trust, it would have been simple to have said so, instead of descending to the detail it did in the Agreement; or, if the reason for including the detail was to point up the specific obligations of [the recipient] as trustee, it would have been cautionary to have done both. It is true, said du Parcq LJ in In re Schebsman (231), that 'by the use possibly of unguarded language, a person may create a trust, as Monsieur Jourdain talked prose, without knowing it, but unless an intention to create a trust is clearly to be collected from the language used and the circumstances of the case, I think that the court ought not to be astute to discover indications of such an intention'. If the purpose of [the provider] was to inspire the poetry of trusts, it is odd that it chose to express itself in common law prose." 69 Even though it may be accepted, as Korda recognises, that contracts may provide one of the most common bases for the establishment or implication of a trust, there still needs to be a clear intention expressed on the face of the contract from the language otherwise used. Commercial documents using words such as "hold" or "holding" will not be sufficient to supply that intention. 70 Nothing in the concept of "joint venture" used to describe the relationship of the parties to the JVA points to a conclusion that LEPL held 50% of its interest in the Lewisham Properties on trust for Abacus. As the primary judge noted, joint ventures can take many forms and an analysis of whether the form of joint venture in the particular case gives rise to a trust directs attention to the JVA and its surrounding circumstances. 71 Turning to the particular clauses on which the appellants rely, cl 2.1 and cl 5(b) of the JVA in particular, are said by use of the words "holding" and "held" to indicate a trust in favour of Abacus. The fundamental difficulty underlying this contention is that under cl 2.1 of the Option Agreement, what Abacus was granted was an option to purchase a 50% joint venture interest in the "Project". "Project" was defined in the Option Agreement as, in effect, a set of activities directed to the re-zoning and then the sale of the Lewisham Properties and the distribution of the returns to "the participants in the Project", being LEPL and, "if the call option is exercised", LEPL and Abacus. What Abacus purchased by exercising its option on 24 June 2010 was a "joint venture interest in the Project", which, as the primary judge correctly concluded, was expressly defined as being "an interest in a set of activities and agreed distribution of proceeds relating to the Lewisham Properties". 72 Clause 2.1 of the JVA set out the purpose of the joint venture as identified by the primary judge at [25]. The purpose was described by the use of four words: "holding, developing, managing and dealing", each of which described activities the parties had agreed to engage in with the Lewisham Properties "in furtherance of the Project", that is, the rezoning and sale of the Lewisham Properties and the distribution of the proceeds. "Holding", where it appeared in cl 2.1 was simply a reference to one of the things that was to be done with the Lewisham Properties in furtherance of the JVA. It was not directed to the creation of beneficial interests in those properties. Substantially more clarity of expression, particularly in a sophisticated commercial agreement, would be required to create a trust. 73 As to the use of the expression "held for the joint venture" (not the joint venturers) where it appears in cl 5(b) of the JVA, this was again simply describing the purpose to which the Lewisham Properties were to be applied. The joint venture was the set of activities as described in cl 2.1, which the parties had agreed to engage in with the Lewisham Properties "in furtherance of the Project". These words were not directed to creation of beneficial interests in the properties. Rather, they were describing what was to be done with them. The cumulative effect of each of these provisions in cl 2.1 and cl 5(b) was correctly held by the primary judge as being an agreement that the Lewisham Properties be devoted to the purposes of the development and realisation of those properties as a joint commercial enterprise between the joint venturers with a view to sharing the proceeds as provided for in the JVA. That may impose duties on the legal owner with respect to the property, but does not create an equitable interest in the property, as noted by Santamaria JA in Commissioner of State Revenue (Vic) v Danvest Pty Ltd [2017] VSCA 382; (2017) 55 VR 190 (at [82]): Each of the dicta emphasised by the Commissioner uses the term 'beneficial interest'. In every case, the adjective 'beneficial' is not used technically. Rather, it points to the circumstance that the legal owner of the property in question is subject to duties in respect of that property in favour of a third party (a partner or beneficiary). However, the fact that the legal owner owes such duties to a third party does not mean that the latter has an equitable interest in that property. It is a fallacy to hold that, because legal ownership is vested in one person, the equitable interest is vested in somebody else. (Emphasis added, citations omitted.) 74 The primary judge correctly concluded that the relevant language fell far short of evincing an intention that LEPL was to hold 50% of its interest in the Lewisham Properties on trust for Abacus. Certainly, it does not do so with the clarity and certainty necessary to impute a trust where none has been expressly stated. This is specifically so, having regard to the fact that cl 5(b) specifically exempts the Lewisham Properties from the joint ownership which applies to all other joint venture assets. The JVA specifically addresses in cl 5(b) the ownership of the joint venture assets generally as a tenancy in common while specifically excluding the Lewisham Properties from that arrangement. The failure to expressly state at this point of the JVA that the Lewisham Properties were to be held on trust for Abacus is significant. If that was what has been intended, it would have been natural and simple to have said so at that point, just as parties who use the terminology of "trust" should ordinarily be treated as having meant what they said and said what they meant: Korda (at [109]). 75 Contrary to the contention for the appellants, the inclusion of the Lewisham Properties in the definition of "Joint Venture Assets" does not indicate that LEPL held half of its interest on trust in favour of Abacus. Rather, it provides only that the Lewisham Properties were among the properties which the parties had agreed would be the subject of the activities contemplated by the JVA in furtherance of the Project, and whose proceeds would be distributed in the agreed manner. 76 As to the appellants' arguments in reliance on the "payment waterfall" in cl 6, her Honour's consideration of the issue is set out above (at [49]). As the primary judge held, there is nothing in the content of cl 6 evincing an intention to create a trust. The payment waterfall, rather, tells against the appellants' contention that the JVA impressed on 50% of LEPL's interest in the Lewisham Properties, a trust in favour of Abacus. The agreement in cl 6(a) that unpaid costs and expenses incurred after the exercise of the call option be paid out of the proceeds of sale of, or revenue derived from, the joint venture assets or from the joint venture (not by Abacus) reflects only, as the primary judge correctly concluded, the parties' agreement to engage in the activities identified in cl 2.1 of the JVA in relation to the Lewisham Properties in furtherance of the Project and to distribute the returns among the joint venturers as agreed. It does not indicate any intention to create a beneficial interest in the Lewisham Properties in favour of Abacus. Similarly, the provisions in cl 6(e) and cl 6(f) of the JVA for the repayment of principal and interest on debts owing to Abacus out of the proceeds and revenue of the joint venture is not consistent with the imputation of a trust. It would have been most unusual for the JVA to contemplate that repayments of debts and accrued interest owing to Abacus be made from its own equity in the Lewisham Properties. 77 As to cl 11 of the JVA, her Honour held that it would strain the language of cl 11(e), when read in the context of the JVA as a whole, to construe it as impressing a trust over 50% of LEPL's interests in the Lewisham Properties. Her Honour was correct to conclude that nothing in the references to s 57 of the Real Property Act in cl 11(c) and cl 11(d) advances the appellants' case. That the parties contemplate a possibility that if a "Financier" may have taken security over the interests of Abacus in the joint venture or might appoint a receiver or issue a notice under s 57(2)(b) of the Real Property Act, is consistent with a circumstance in which Abacus exercises the option for which cl 16 of the JVA provides as discussed by the primary judge at [32]. It is in that circumstance that cl 11 would have work to do. 78 As to the defined term "Market Value" relevantly, picked up in cl 9(c) and cl 11(e)(i), nothing in the definition suggests that Abacus necessarily had a 50% beneficial interest in the Lewisham Properties. The definition of Market Value simply reflects the exchange value test of market value associated with Spencer v The Commonwealth [1907] HCA 82; (1907) 5 CLR 418. There is no difficulty in applying that market value test to an interest in a joint venture not involving a beneficial interest in specific property of the joint venture. Clause 9(e) simply requires the joint venture assets to be valued according to that definition annually. Clause 11(e)(i), as noted by the primary judge, was directed to a circumstance in which Abacus has in fact exercised the option in cl 16 to purchase the Lewisham Properties. Her Honour was correct to conclude at [41] that cl 16.3 makes it clear that it was an option to buy an undivided legal interest as registered proprietor in the fee simple of the Lewisham Properties. That is because the word "Contract" is a capitalised word, which is defined in cl 1.1 as a contract for the sale of the Lewisham Properties in the form of sch 2 to the JVA. Schedule 2 in turn refers to the form of annexure C to the Option Agreement. Annexure C to the Option Agreement is the standard form of contract for the sale of land in New South Wales. 79 Clause 6(h) also does not advance the construction urged by the appellants as, for the reasons already given, the parties' agreement concerning the distribution of proceeds is not indicative of an intention to create a 50% equitable interest in the property in favour of Abacus. 80 The option at cl 16.1 of the JVA was clearly an option granted to Abacus to "purchase the Property" that referred to the property described as "Property 1", which was defined in cl 1.1 as: ... the real property owned as at the date of this document by [LEPL], being the real property the subject of the Project [that is, the Lewisham Properties] in which Abacus exercised its options to acquire a 50% joint venture interest pursuant to the Call Option. 81 The definition of "Property 1" does not connote that the exercise of the call option to which it refers gave Abacus a beneficial interest in the Lewisham Properties. The 50% joint venture interest acquired by Abacus as a result of the exercise of the call option referred to in the definition of "Property 1" was an interest in the "Project". The Project was, as previously discussed, a set of activities and an agreed distribution of proceeds in relation to the Lewisham Properties. It was in those activities and agreed distribution that Abacus held a 50% interest. It did not by virtue of an exercise of the call option gain a beneficial interest in the Lewisham Properties themselves. 82 Rather, it was only cl 16 of the JVA which gave Abacus a right to acquire a specific proprietary interest in the Lewisham Properties. It was only that ownership of the real property which cl 16.1 gave Abacus the option to purchase. 83 The construction placed by the appellants on the JVA as a whole is difficult to reconcile with cl 16 which is clearly an important provision. It is unclear what commercial rationale there could be for the grant of an option in cl 16 of the JVA for Abacus to purchase property which, by the appellants' hypothesis, was already 50% beneficially owned by it. It follows that the only sensible construction, as held by the primary judge (at [32]), was that the option for Abacus to purchase the Lewisham Properties referred to in Recital B of the Option Agreement was the option granted by cl 16 of the JVA. That option could not be the option in cl 2.1 of the Option Agreement because that was an option to purchase a 50% joint venture interest in the Project. Clause 2.1 of the Option Agreement was not an option for Abacus to purchase Lewisham Properties. The only option answering that description was that set out in cl 16 of the JVA. 84 The appellants also rely on the content of cl 10.5 and cl 10.6 of the JVA, the change of control provisions. Clauses 10.2-10.6 of the JVA are engaged when a "change of control" occurs to one of the joint venturers. Where there is a "change of control", there is a right after failed negotiation to issue a notice to sell or buy pursuant to cl 10.3. Clause 10.5 deals with acceptance and the following transfer of the interest. To ensure performance, there is a power of attorney under cl 10.5(c) for delivery of the power in registerable form. This accommodates a circumstance where a joint venturer's interest involves an interest in land. The requirement in cl 10.5(c) for delivery by the transferring joint venturer, on request, of a power of attorney registerable at the NSW Land and Property Management Authority, accommodates a circumstance where that joint venturer's joint venture interest involves interests in land. However, it does not compel a conclusion that, by reason of the JVA, LEPL held 50% of its interest in the Lewisham Properties on trust for Abacus . Where the offer cl 10.3 provides for is not accepted, cl 10.6 provides for the effective liquidation of the joint venture by the sale of all the "Joint Venture Assets". Neither it, nor the identity of the agents referred to in cl 10.6(c), says anything about the nature of Abacus' interest in the Lewisham Properties. None of this is capable of compelling a conclusion that a 50% interest in Lewisham Properties was held on trust for Abacus. 85 The appellants also advance an argument in relation to the effect of cl 13 of the JVA, which is set out above and deals with s 66G applications. The appellants suggest that because cl 13(a) of the JVA prohibited, except with six months' notice, an application for the appointment of a trustee under s 66G of the Conveyancing Act, the Lewisham Properties must have been held in co-ownership (within the meaning of s 66F and for the purposes of that section), so that an application under s 66G of the Conveyancing Act could be made. The difficulty is that even assuming cl 13(a) of the JVA rested on a premise that an application under s 66G of the Conveyancing Act might be possible, as French CJ noted in Korda (at [36]): … the provision does not establish its premise. … [A] common assumption about the legal effect of a transaction does not necessarily support an inference that it had that legal effect. … (Citations omitted.) 86 The primary judge was correct to conclude that the JVA did not create a relationship of co-ownership in the Lewisham Properties between Abacus and LEPL which could engage s 66G of the Conveyancing Act. This was correctly held because the JVA in cl 5(b) expressly excluded a tenancy in common of the Lewisham Properties. The suggestion for the appellants that nonetheless the JVA silently created an equitable tenancy in common cannot be accepted. Nor can any suggestion that the JVA silently created a joint tenancy (either at law or in equity) in the Lewisham Properties. The primary judge was also correct to point out that a co-ownership necessary to engage s 66G of the Conveyancing Act must be "in possession", denoting an immediate right of possession or enjoyment of the property. The whole premise of the JVA was that the Lewisham Properties would be held, developed, managed and dealt with in furtherance of the Project. It could not be contemplated that the JVA operated on the premise that Abacus would have an immediate right to enter into possession and enjoy the Lewisham Properties at any time. Clause 13 did not support the construction advanced for the appellants. In addition, the primary judge also pointed out at [51] that as LEPL held the Lewisham Properties subject to the LET, if it had intended to grant a further equitable interest in the Lewisham Properties to Abacus, one would expect some reconciliation of the existing equitable interest with a new equitable interest in Abacus. The absence of any such reconciliation was a further reason why the inference of a trust in favour of Abacus could not be supported. 87 For all these reasons, ground 1 of the appeal cannot succeed. The entitlements and obligations created by the JVA relevantly consisted of an obligation to devote the Lewisham Properties to the purpose of the joint venture and in furtherance of the Project and to share in the proceeds as agreed to in the JVA. That created rights in Abacus which may resemble in some ways those of a partner in partnership, for example, a right to the proper administration of the joint venture and to share in the proceeds of the joint venture in accordance with the JVA. But it did not demand the imputation of a trust preserving a proprietary interest in the Lewisham Properties.

Ground 2: claim for a deduction of the excess amount 88 Although the appeal was not argued in this order, it is convenient to deal next with ground 2. By this ground, an issue is raised as to whether costs of borrowings, including interest paid on borrowings paid by the LET was deductible from income received by the LET in the 2013 tax year pursuant to s 8-1(1) and s 8-1(2) of the Income Tax Assessment Act 1997 (Cth) (1997 Act). 89 LEPL claimed as deductions from its income for the 2013 income year a portion of the amount it paid to Abacus from the sale of the Lewisham Properties, which exceeded principal, interest and other amounts it was liable to pay. This included amounts owed by other members of the Demian Group (the excess amount). Her Honour said at [55]-[56] and [76]: Revenue borrowings issue 55 When the Lewisham Properties were sold in the 2013 income year, Abacus was paid $48,009,738.87 out of the proceeds of sale. Of that amount, $18,861,669.52 was applied to the repayment of the principal owing from the drawdowns by [LEPL] on the [Abacus Facility] and $5,772,315.78 was applied to pay capitalised interest on those drawdowns. Two million dollars was paid on account of the cancellation amount payable pursuant to cl 4 of the Call Option Agreement, which had the effect of cancelling the call option in respect of the Lewisham Properties. The balance of $21,375,753.57 was applied by Abacus in discharge of debts owed by other members of the Demian Group under the [Abacus Facility]. Consequently, the amounts paid to Abacus out of the proceeds of sale exceeded the repayment of the drawdowns and capitalised interest of [LEPL] by $23,375,753.57 (the excess amount). In issue was whether a portion of the excess amount is deductible from the net income of the [LEPL] Trust for the 2013 income year as "revenue borrowings". The [appellants] contended that an "applicable" proportion of the excess amount has a revenue character on the basis that: (a) it was not in dispute that [LEPL] was in the business of property development or that the Lewisham Properties were its trading stock; (b) those properties were purchased by [LEPL] between 2003 and 2005 and financed through borrowings from Capital Finance, Perpetual Trustee and [NAB]; (c) because those borrowings were used by [LEPL] to fund the purchase of its trading stock, viz, the Lewisham Properties, those borrowings formed an "integral part" of [LEPL's] business and part of the process by which Lewisham acquired its trading stock and thus were of a revenue character; (d) in 2010, [LEPL] repaid the Capital Finance and [NAB] loans using two drawdowns on its facility with Abacus: on or around 30 July 2010, it drew down $8,703,431.38 (plus an amount for Abacus' fees, costs and expenses), which it used to repay the Capital Finance loan; and on 3 August 2010, it drew down $1,350,350 which it used to repay the [NAB] loan; (e) the amounts borrowed from Abacus, at least to the extent of the drawdowns to repay the [NAB] and Capital Finance, had the same character as the original borrowings and were on revenue account; and (f) the excess amount paid to Abacus has a revenue character to the extent to which the drawdowns from the [Abacus Facility] were used to discharge [LEPL's] borrowings from Capital Finance and the [NAB] because to that extent, the excess amount is attributable to the discharge of those revenue borrowings. 56 The [appellants] accepted that not all of the access amount was revenue in nature. However, it was contended that 53.3% of the excess amount should be treated as revenue in nature on the basis that percentage amount is the same proportion that the revenue drawdown of [LEPL] from the [Abacus Facility] ($10,053,791.38) to repay the [NAB] and Capital Finance bore to the total principal drawdowns ($18,861,669.52). 53.3% of the excess amount translates to a deduction claim of $12,459,923 if Abacus did not hold a 50% equitable interest in the Lewisham Properties, or $6,229,961.50 if Abacus held a 50% equitable interest and [LEPL] only had a 50% interest in the Lewisham Properties. … 76 When the Lewisham Properties were sold in 2012, the collateralization clause was engaged and $23,375,723.55 was paid to Abacus to discharge debts of other entities in the Demian Group. 90 The primary judge held (at [66]): … The evidence did not substantiate that the original borrowings were an incident of the process by which [LEPL] operated to purchase its trading stock, as distinct from borrowings made by [LEPL] to provide funds to enable it to conduct its business enterprise, which is an affair of capital. It follows from this conclusion that the excess amount is not deductible. That finding made by her Honour is said, by the appellants, to be erroneous. The appellants argue that the evidence demonstrated that the borrowings were used to acquire trading stock and that was sufficient to demonstrate that the borrowing costs were, in effect, on income account. 91 The appellants acknowledge a distinction between borrowing to acquire (or re-finance the acquisition of) trading stock (being real property acquired by a property developer which was to be developed and sold) on the one hand, and borrowings for the general purposes of the business disconnected from trading stock (for example, borrowings that may have been used to refurbish any office LEPL occupied or to establish or develop systems by which the trading stock development could be better conducted). The distinction is demonstrated by Commissioner of Taxation (Cth) v Hunter Douglas Ltd [1983] FCA 242; (1983) 14 ATR 629 (at 641-642 and 643-645), where expenditure on acquiring trading stock is a noted exception to the prima facie position of borrowings being on capital account. Her Honour discussed Hunter Douglas at [62]-[63] of the primary judgment: 62 Hunter Douglas was a case where the taxpayer borrowed money in foreign currency to use in the course of its business, including to pay wages, payroll tax and for stock in trade. Exchange rate movements resulted in the taxpayer making exchange losses. It was held by majority (Fisher and Lockhart JJ, Franki J dissenting) that the exchange losses were not deductible by reason that the borrowings and exchange losses were not an integral part of the ordinary operation of the taxpayer's business of development, manufacture and marketing of window covering, home improvement, casual living, architectural and building products. After reference to Avco [Financial Services Ltd v Commissioner of Taxation (Cth); Commissioner of Taxation (Cth) v Avco Financial Services Ltd [1982] HCA 6; (1982) 150 CLR 510], Fisher J reasoned at 641-2: The position is different where the company is not a finance company but a trading or manufacturing company which incurs exchange losses or gains otherwise than through the purchase of trading stock. Here the losses or gains will in the ordinary course be on capital account. For them to be on revenue account it is necessary for the taxpayer to establish that the additional expenditure to meet exchange losses was expenditure incurred in the process of producing its income, and in the words of Mason, Aickin and Wilson JJ in Avco set out above, as an integral part of that process. It is not sufficient, with all respect to the learned trial judge, to rely upon the finding that in fact the borrowed monies were used to satisfy day to day outgoings. The borrowings in such a case are prima facie an addition to the capital employed in the business. … … the borrowing of the moneys and the repayment thereof in this matter was expenditure in relation to the financing of the taxpayer's business by augmenting its working capital. It was money borrowed to pay liabilities incurred in carrying on and expanding the business, as part and parcel of the taxpayer's financial as opposed to its trading activities. The borrowings and their exchange losses were not an integral part of the ordinary operation of the taxpayer's business. They were borrowings arranged for special purposes… Lockhart J similarly concluded at 645 that the borrowings were not "an integral part of the ordinary operations of the taxpayer's business so as to represent a matter of revenue rather than capital", citing Avco at 524-5 per Mason, Aickin and Wilson JJ. 63 Lockhart J at 643 referred to Avco and observed that, in general, loans and repayments of loans were on capital account. Lockhart J then referred to two exceptions to this "prima facie presumption", namely borrowings by finance companies to lend to their customers, and borrowings by trading companies to finance the purchase of trading stock. Lockhart J explained at 643: Borrowings by finance companies in the ordinary course of their business or borrowings by trading companies to purchase trading stock are examples of expenditure incurred in the earning of a taxpayer's income and not for the purpose of enhancing the business or organisation of the taxpayer as an income earning entity. It is well established that such borrowings are revenue items. … Where a trading company buys goods which it turns over as trading stock gains or losses incurred are of a revenue nature. If moneys payable by a taxpayer are allowable deductions, in general any increase or decrease in those amounts caused by fluctuations in the exchange rate are likewise allowable deductions or assessable income as the case may be. If a trading company borrows money overseas in circumstances where the borrowing is a necessary part of and has the purpose of purchasing trading stock gains or losses will be revenue items. and at 645: Borrowing money to carry on business must prima facie be treated as augmenting the capital employed in the business. Borrowings by finance companies to then lend to their customers, and borrowings by trading companies to finance the purchase of trading stock, are exceptions to this general rule. Such borrowings are an integral part of the ordinary conduct of the company's business and are thus revenue, not capital, items. Moneys borrowed by a finance company are turned over by making loans to its customers. At 645, Lockhart J contrasted the facts in Thiess Toyota and Cadbury-Fry Pascall, holding that the borrowings were not part of the process by which the taxpayer operated to purchase trading stock. His Honour concluded that the nature of the borrowings determined the nature of the exchange losses for fiscal purposes. As the principal purpose of the borrowing was to finance an expansion of the taxpayer company's business activities and to provide additional funds to increase its working capital for the purpose of avoiding a cash flow or liquidity problem during the period of expansion, the borrowings were on capital account and thus so too were the exchange losses. 92 Recently in Federal Commissioner of Taxation v Sharpcan Pty Ltd [2019] HCA 36; 93 ALJR 1147 in a frequently quoted passage, the High Court directed attention to whether an "enduring advantage" is sought to be obtained by borrowing the funds. There, the High Court said (at [18]): Authority is clear that the test of whether an outgoing is incurred on revenue account or capital account primarily depends on what the outgoing is calculated to effect from a practical and business point of view. Identification of the advantage sought to be obtained ordinarily involves consideration of the manner in which it is to be used and whether the means of acquisition is a once-and-for-all outgoing for the acquisition of something of enduring advantage or a periodical outlay to cover the use and enjoyment of something for periods commensurate with those payments. Once identified, the advantage is to be characterised by reference to the distinction between the acquisition of the means of production and the use of them; between establishing or extending a business organisation and carrying on the business; between the implements employed in work and the regular performance of the work in which they are employed; and between an enterprise itself and the sustained effort of those engaged in it. Thus, an indicator that an outgoing is incurred on capital account is that what it secures is necessary for the structure of the business. (Citations omitted.) 93 The appellants contend LEPL was not, in borrowing funds to acquire the Lewisham Properties, seeking to strengthen its permanent capital (although that might have been an indirect consequence of a purchase which proved profitable). Rather, the appellants assert the funds drawn down were wholly used to acquire the Lewisham Properties, which the parties agreed formed LEPL's trading stock. Those properties were: (a) 72-90 OCB Rd: purchased by contract on 21 June 2003 for $1.1 million, funded by a loan secured by mortgage of $700,000 (70%) from NAB dated 18 August 2003 and settling on 21 August 2003; (b) 62 OCB Rd: purchased by contract on 8 January 2004 for $510,000, funded by a loan secured by mortgage of $408,000 (80%) from Perpetual dated 24 June 2004 and settling on 24 June 2004; (c) 11/78 OCB Rd and 8 William St: purchased for $8,600,000 on 4 August 2005 funded by a loan secured by mortgage from Capital Finance of $8,400.000 (97.67%); and (d) later, on 12 June 2007, a further $865,000 was borrowed from Equititrust, secured by a mortgage dated 31 July 2007 against some of the Lewisham Properties. 94 As noted, on 31 March 2010, LEPL (personally and as trustee of the LET) and other related companies entered into the Abacus Facility. The Abacus Facility was secured by mortgages and a fixed & floating charge and permitted borrowing up to $20 million. A cognate Payment Deed was also entered into. 95 By cl 2.1 of the Abacus Facility, the purpose to which the funds could be applied was limited to repaying "amounts owing by the Borrower or secured against property of the Borrower". The Payment Deed then bound all parties to apply the proceeds of sale, or any other income, from the Lewisham Properties to the repayment of that debt, or other debts owed to Abacus by the Demian Group. As noted, the primary judge referred to this as the "collateralization clause". 96 In the course of the primary judge's reasons, her Honour said at [77]-[78]: 77 The [appellants] argued that the obligations of [LEPL] to Abacus as a result of the two drawdowns on the Abacus Facility on 29 July 2010 and 3 August 2010 were in "substitution" for its obligations to repay the loans from Capital Finance and [NAB], within the meaning of that concept as explained in Thiess Toyota and Cadbury-Fry Pascall. It was submitted that the funds were advanced under those two drawdowns for the purpose of discharging the loans from Capital Finance and [NAB], and those funds were used for that purpose. Consequently, so the argument went, the obligations of [LEPL] were also on revenue account for it. I disagree. The evidence did not substantiate that the Abacus Facility was a mere "substitution" for the loans to purchase the Lewisham Properties. Rather, the Abacus Facility was a key part of the capital profit earning structure of the whole group of Demian entities, which consolidated and restructured the former capital structure necessitated by the impact of the global financial crisis on the finance arrangements of the Demian entities, including [LEPL's] borrowings. Even if the original borrowings were on revenue account, the refinancing in 2010 was plainly undertaken to augment the capital of the Demian group and accordingly was on capital account. 78 Moreover, the excess amount paid by [LEPL] to Abacus when it sold the Lewisham Properties was an amount paid in discharge of an obligation in the nature of a guarantee. $23,375,723.55 was applied, not in the discharge of [LEPL's] indebtedness, but in discharge of debts owed by other entities in the Demian Group or in discharge of other obligations owed to Abacus. The payment was wholly separate from the acquisition of the Lewisham Properties and cannot be characterised as part of the costs of the purchase of the trading stock. Nor was the repayment an integral part of the process by which [LEPL] acquired that trading stock. Accordingly, no part of the excess amount bears the character of a revenue outgoing. 97 The appellants contend that this passage was erroneous in finding a lack of connection or nexus between the Abacus Facility and the borrowings. The primary judge held (at [74]) that the Abacus Facility was used to discharge those earlier borrowings. That finding alone, they argue, is sufficient to establish the necessary connection. Once that connection is achieved, so much of the borrowings which were used to re-finance the debt used to acquire the Lewisham Properties retained the character of being on revenue account. That the Abacus Facility was later increased and the additional funds lent for other purposes does not alter the nexus of the initial draw down and its direct usage to discharge earlier borrowings, the appellants contend. 98 Additionally, the primary judge considered an argument as to apportionment at [79]-[81], which it is unnecessary to consider.

Consideration: Ground 2 99 As discussed above, the primary judge's rejection of the deduction claim was premised on four bases: (1) that the original borrowings by LEPL to acquire the Lewisham Properties were not on revenue account because they were not an incident of the commercial operations by which LEPL acquired the Properties (at [66]); (2) the Abacus Facility was not a mere substitution of the loans to purchase the Lewisham Properties, but rather was a key part of the capital profit earning structure of the Demian Group necessitated by the GFC (at [77]); (3) the excess amount was paid in discharge of an obligation in the nature of a guarantee of the indebtedness of other entities of the Demian Group and its payment was wholly separate from the acquisition of the Lewisham Properties and was not part of the income producing activities of the LEPL (at [78]); and finally (4) that the basis of apportionment advanced by the appellants to identify the part of the excess amount on revenue account did not identify an amount related to assessable income or yield a portion, having a revenue nature (at [81]). 100 Of course the appellants bore the onus on this issue and the onus to show what the assessment should have been. 101 As to the first basis of reasoning, it was not in dispute that LEPL borrowed funds which it used to acquire properties for the conduct of its property development business. An outgoing to acquire trading stock is deductible by virtue of s 70-15 of the 1997 Act and also interest paid on funds borrowed in the course of a business, including interest on borrowings used to purchase trading stock, is generally deductible: Avco Financial Services Ltd v Commissioner of Taxation (Cth); Commissioner of Taxation (Cth) v Avco Financial Services Ltd [1982] HCA 6; (1982) 150 CLR 510 (at 525). However, repayment of borrowed funds used to purchase trading stock does not generate a further deduction. Just because borrowed funds are used to purchase trading stock does not make the borrowing on revenue account: Hunter Douglas (at 643 and 645). The authorities discussed by the primary judge establish that it is only when the borrowing is an incident of the commercial operations by which the taxpayer acquires trading stock, that the borrowing is on revenue account and it is only then that further gains or losses, such as foreign exchange gains or losses on repayment arising from those operations may be assessable income or allowable deductions. The evidence did not establish that the borrowings used to purchase the Lewisham Properties were an incident of the process by which LEPL operated to purchase its trading stock as opposed to being borrowings it used to conduct its business enterprise. As noted, the appellants bore the onus on this issue. 102 As to the second basis on which the primary judge rejected the claim, the appellants contended that moneys drawn from the Abacus Facility were used to re-finance the borrowings made to purchase the Lewisham Properties. Again, it was accepted by the primary judge that the funds were used in that way, but again, that does not meet the primary judge's point that the Abacus Facility consolidated and restructured the capital and profit earning structure of the Demian Group as a whole in order to respond to the GFC. It was a rescue package used for a range of purposes of various entities and activities of the Demian Group. Whatever the character of the original borrowings may have been to purchase the Lewisham Properties, borrowings made under the Abacus Facility were not on revenue account. 103 As to the third reason given by her Honour for rejecting the claimed deduction, the appellants have not shown error in the primary judge's conclusion that the repayment of the excess amount which related to borrowings of other entities of the Demian Group was wholly separate from LEPL's acquisition of trading stock and did not have a demonstrated nexus with its income earning activities. 104 As to the fourth of her Honour's reasons for rejecting the claimed deduction, similarly, no error is shown in the conclusion that the basis for apportionment advanced by the appellants did not logically connect any part of the excess amount to the business activities of LEPL. Rather, the excess amount related to the repayment of debts of other members of the Demian Group and had no relevant connection with the income producing activities of LEPL. Indeed, apportionment is unnecessary to consider in light of the other findings and determinations. 105 No error has been demonstrated in the conclusion of the primary judge that the Commissioner had ruled correctly in relation to the deduction of the excess amount. Ground 2 of the appeal cannot succeed.

Ground 3: the 2 April 2003 change of the Demian Trust's trustee 106 As noted above, Advanced Holdings (controlled by Mr Demian) was the sole unitholder of the LET since its creation by deed on 1 May 2003. Advanced Holdings therefore received distributions from the activities of the LET which included the proceeds from the development of the Lewisham Properties. There is a significant question as to the capacity in which Advanced Holdings held the LET units. The appellants contended at first instance that just under a month before the creation of the LET, Advanced Holdings became the trustee of the Demian Trust by a "Deed of Appointment of Trustee" dated 2 April 2003 and executed by Mr Demian as principal of the Demian Trust. The appellants say therefore, that Advanced Holdings held the LET units in its capacity as trustee of the Demian Trust. The primary judge disagreed, finding that Advanced Holdings was not validly appointed as trustee of the Demian Trust by the April 2003 instrument. Ground 3 is a challenge to that finding. 107 The primary judge reasoned at [88]-[93]: 88 Clause 22 of the Demian Trust Deed is titled "Power of Appointment of New Trustee". It provides, relevantly: The Principal may at any time by notice in writing to the Trustee remove from office any or all of the Trustees or Trustee for the time being of this Deed and may by Deed appoint a new Trustee in its or their place to be the Trustee hereof… 89 The "Principal" at the relevant time was Mr Demian. On 2 April 2003, Mr Demian signed a document entitled "Deed of Appointment of a Trustee" addressed to "the Trustee and Beneficiaries" of the Demian Trust. The document stated: Pursuant to clause 22 of the trust deed dated 20th March 1998 governing the said Trust, I appoint Advanced Holdings Pty Limited as trustee of the Demian Trust. 90 Mr Demian's evidence was that he understood that the effect of this deed was to appoint Advanced Holdings as a co-trustee of the Demian Trust, with Demian Holdings remaining as a trustee of the Demian Trust. 91 The parties were in dispute on the proper construction of cl 22. In issue is whether the power to appoint a new trustee under cl 22 could be exercised without an anterior removal of a trustee from the office. 92 The Commissioner argued that cl 22 of the Demian Trust Deed is a power of the Principal in two parts. First, it is a power of removal of a trustee in office. Second, epexegetically to the first power, it is a power to appoint a new trustee in substitution of the removed trustee. It was submitted that cl 22 is not a power to appoint an additional trustee or trustees. As at 2 April 2003, Demian Holdings was the trustee of the Demian Trust and no notice in writing removing it was signed by Mr Demian as Principal. As a consequence, it was argued, the power to appoint a replacement trustee in cl 22 of the Demian Trust never arose, with the result that the appointment of Advanced Holdings as trustee on 2 April 2003 was ineffective. 93 The [appellants] argued that the proper construction of cl 22 is that it permitted the appointment of multiple persons as co-trustees. Reference was made to cl 1(a), which defines "Trustee" as meaning "the Company, person or persons named as such in the Schedule or any other Trustee or Trustees for the time being of the Trust Fund". It was submitted that unless cl 22 permitted the appointment of two or more persons as co-trustees, there could never be "other […] Trustees for the time being". 108 In relation to this topic, the primary judge held that cl 22 of the Demian Trust Deed, the power relied upon for the 2 April 2003 asserted change of trustee, conferred a composite power of removal and appointment. Her Honour said at [94]: The clause should be construed on its terms. The clause can sensibly be given the construction urged by the Commissioner, allowing for two or more trustees to be appointed by one instrument. The deed clearly contemplates that there can be two or more trustees at any point in time: see definition of "Trustee" (cl 1(a)); cls 1(j) and 23. However, that does not gainsay the express words that condition the power in cl 22 on replacement, not of addition. The clause, properly construed, requires one or more trustees to be removed (including by retirement: cl 15) and, that having happened, permits one or more trustees to be appointed in their place. Removal is the pre-condition of the power of appointment. Accordingly, I find that Advanced Holdings was not validly appointed as trustee of the Demian Trust in 2003. (Emphasis added.) 109 The instrument of 2 April 2003 by which Advanced Holdings was purportedly appointed did not expressly remove Demian Holdings as trustee and consequently was held by her Honour to fail. 110 Contrary to Mr Demian's evidence before the primary judge, it is no longer contended that the April 2003 instrument operated to appoint Advanced Holdings as an additional co-trustee to Demian Holdings. On appeal, the appellants contend that the 2 April 2003 instrument should be construed to be effective by impliedly removing Demian Holdings as the trustee and effecting the appointment of Advanced Holdings. The appellants contend that the Court should give effect to the objective intention sought to be achieved where the words of an instrument allow that intention to be given effect: Fell v Fell [1922] HCA 55; (1922) 31 CLR 268 per Issacs J (at 273-274). To the extent of any ambiguity in the terms, the Court should construe the clause so that the operation of the trust is advanced: Re Baden's Deed Trust [1969] 2 Ch 388 per Harman LJ (at 400). The appellants say that the Court should seek to determine and give effect where possible to the relevant parties' objective intention, here, as evidenced by the terms of the Demian Trust Deed and the instrument dated 2 April 2003: Re Gulbenkian's Settlements Trust [1970] AC 508 per Lord Upjohn (at 522). Further, the appellants contend the Court will give efficacy to documents, including trust instruments so they are interpreted in a way that a reasonable commercial person would construe them, which is hostile to technical interpretations and undue emphasis on niceties of language: Mannai Investment Co Ltd v Eagle Star Life Assurance Co Ltd [1977] AC 749 (at 770-771 and 780). 111 The document described as a "deed of appointment of a trustee" makes it clear that the object was to appoint Advanced Holdings as trustee. It is argued that the document objectively is intended to have effect with respect to the identity of the trustee. That intention can be given effect as follows, according to the appellants. The reasonable reader of the instrument (a fortiori the trustee) should be taken to know the proper construction of the trust deed, particularly as the instrument recited that it was invoking cl 22 of the Demian Trust Deed. Knowing that the Demian Trust Deed required removal of the existing trustee as a condition of appointment of a new trustee to give effect to the instrument, a reasonable person would understand that the instrument had the effect of removing the existing trustee and appointing Advanced Holdings as the new trustee. That is, where removal was a condition of appointment, then the principal is capable of both removing and appointing the trustee and the Demian Trust Deed expressly refers to that power. The deed appointing a new trustee necessarily then, also conveys the necessary anterior step of removing the existing trustee.

Consideration: Ground 3 112 There is an important addendum to the principle referred to by Issacs J in Fell, namely, that the Court "cannot give effect to any intention which is not expressed or plainly implied in the language of", in this case, the "Deed of Appointment" dated 2 April 2003. To do otherwise would be to engage impermissibly in what Issacs J referred to as "gratuitous, groundless, fanciful implication". 113 The relevant intention is that manifested by the April 2003 instrument read in its surrounding circumstances: Byrnes v Kendle per Gummow and Hayne JJ (at [53]-[54]) and Heydon and Crennan JJ (at [105]). The text of the instrument provides no support for the submissions advanced by the appellants because it does not in any way refer to removal of the existing trustee. It speaks only of appointing Advanced Holdings "as trustee", not as the "new" trustee for the Demian Trust. The absence of words such as "new" or "replacement" creates a significant difficulty for the appellants. On the appellants' construction, one would expect that the instrument would at least identify the object of the purported removal, being the existing trustee, Demian Holdings, but that entity is not referred to at all. These deficiencies are not in the areas of ambiguity or niceties of language that the appellants refer to. The essential words pertaining to a straightforward concept are simply not present. To achieve the outcome advanced by the appellants, they would cross the line from construction into rectification. 114 There is no substance, therefore, to the contention that the April 2003 deed appointing a new trustee also conveys the necessary anterior step of removing the existing trustee. The Court cannot give effect to an unstated intention to remove Demian Holdings as trustee and to replace with Advanced Holdings. Nor can such an intention reasonably be implied in the circumstances of this case, particularly in circumstances where the signatory to the deed gave evidence that he thought he was appointing an additional trustee. While the subjective view of Mr Demian may not be of moment, it illustrates the difficulty in departing from the natural reading of the words which appear on the paper. 115 Ground 3 cannot succeed.

Ground 4: Express trust 116 Ground 4 is pressed in the alternative to ground 3. The appellants contend that, in the event that Advanced Holdings was not appointed trustee of the Demian Trust in April 2003, the documents created at the time of the issue of the LET units nonetheless disclose an objective intention that Advanced Holdings would hold the units for the benefit of the Demian Trust. The point was argued at trial on the basis of a resulting trust which the primary judge rejected, and the appellants now only press the creation of an express trust. 117 The appellants rely on the following documents to show that the units in the LET were issued expressly on the basis that they would be held by Advanced Holdings as trustee of the Demian Trust: (a) LEPL's 1 May 2003 consent to act as trustee of the LET refers to the initial unit holder as "Advanced Holdings … as trustee for the Demian Trust"; (b) the minutes of a meeting of LEPL's directors dated 1 May 2003 contained a resolution to the same effect; (c) the application for units in the LET by Advanced Holdings dated 1 May 2003 is executed as trustee of the Demian Trust and records the application by Advanced Holdings as trustee of the Demian Trust; (d) the units certificate dated 1 May 2003 records that Advanced Holdings "as trustee for the Demian Trust" is registered as the holder of the units; and (e) the LET's register of unit holders records "Advanced Holdings as trustee of the Demian Trust" as the sole unit holder. 118 The submissions on this ground raised three distinct routes by which an express trust could have operated as contended by the appellants: (a) that the documents disclosed "the objective intention of both the issuer and Advanced Holdings that the LET units formed part of the corpus of the Demian Trust"; or (b) that an express trust was created whereby Advanced Holdings held the LET units on trust for Demian Holdings in its capacity as trustee of the Demian Trust (interposed trust); or (c) that an express trust was created whereby Advanced Holdings held the LET units on trust for the beneficiaries of the Demian Trust on exactly the same terms as the Demian Trust (mirror trust). 119 The contention at (a) above does not truly stand in the alternative to ground 3; it is not possible for the LET units to have formed part of the corpus of the Demian Trust given that Advanced Holdings did not become the trustee in April 2003. In any event, responding to the arguments put differently at first instance, the primary judge said that the difficulty for the appellants was that the evidence showed that the trust was actually administered on the basis that Demian Holdings was the trustee, not Advanced Holdings. There was a complete absence of any evidence of acts undertaken by Advanced Holdings characteristic of the office of trustee and for which the doctrine of trustee de son tort might apply. The only exception was in relation to execution of the 2007 Deed of Amendment, by which Advanced Holdings purported to, inter alia, replace the previous default beneficiaries with the Default Beneficiaries. But even if the execution of the 2007 Deed of Amendment was sufficient in itself for the doctrine of trustee de son tort to apply, which her Honour did not accept, given that subsequently the trust continued to be administered on the basis that Demian Holdings was the trustee of the Demian Trust, the appellants did not explain how, by that act, it could be said that the units in the LET, which Advanced Holdings had held in its own right since May 2003, thereby became part of the corpus of the Demian Trust. Accordingly, the primary judge rejected the contention that the doctrine of trustee de son tort applies on the facts of this case. 120 As to the contentions for an interposed or mirror trust, it would appear that they would provide the only logical possibilities by which the LET units could be held by Advanced Holdings, ultimately for the beneficiaries of the Demian Trust, in circumstances where it was not the trustee of the Demian Trust. The appellants submit that, by either means, such an express trust gives effect to the objective intention of the donor and Advanced Holdings that it take the LET units on trust.

Consideration: Ground 4 121 Ground 4 is expressed to be in the alternative to ground 3, but the Commissioner argues, correctly, that ground 4 cannot succeed if ground 3 is rejected except by way of an interposed or mirror trust. The central argument is that each of the documents relied upon demonstrates the objective intention of both the issuer and Advanced Holdings that the units form part of the corpus of the Demian Trust. However, if ground 3 is rejected (as it has been), the primary judge's finding that Advanced Holdings was not validly appointed as trustee of the Demian Trust on 2 April 2003 must stand. On that basis, even if it is accepted that ancillary documents on which the appellants rely were to demonstrate an objective intention as asserted, such intention necessarily failed. The units in the LET, held by Advanced Holdings, could not form part of the corpus of the Demian Trust because Advanced Holdings was not ever appointed validly as the trustee of the Demian Trust. 122 Nor, for completeness only, could it be concluded that Advanced Holdings thereafter held the units in the LET subject to some new and different trust, hitherto unidentified by the parties, of which Advanced Holdings was the trustee and whose terms were identical to the Demian Trust or whose sole beneficiary was Demian Holdings, which held that beneficial interest on the terms of the Demian Trust by way of some interposed trust. These documents cannot fairly be construed as manifesting any intention that Advanced Holdings would hold the units in the LET on the terms of any such mirror trust or interposed trust. 123 The documents simply reflect the then erroneous assumption that Advanced Holdings was the trustee of the Demian Trust at the time that it subscribed for units in the LET. If that assumption was correct, then ground 4 would not arise. If it was incorrect (as it is found to have been), the erroneous assumption cannot be made good by imputing to the parties an intention to create a new and different mirror trust or interposed trust over the units in the LET, of which trust, Advanced Holdings was the trustee. 124 The documentation on which the appellants rely depends upon an erroneous understanding as to the true state of affairs. It cannot give rise to the creation of an express trust. 125 Ground 4 must be rejected.

Ground 5: the 13 November 2006 change of the Demian Trust's trustee 126 A further attempt was made to replace Demian Holdings with Advanced Holdings as trustee of the Demian Trust by a series of documents on 13 November 2006. The primary judge addressed these at [97] and [103], saying: 97 I do not accept on the strength of these documents that Demian Holdings in fact retired or resigned as represented, or was removed as trustee of the Demian Trust so as to satisfy the condition to enliven the power in cl 22 of the Demian Trust Deed for the Principal to appoint a new trustee. … 103 Accordingly I find that Advanced Holdings was not validly appointed trustee of the Demian Trust in 2006. 127 Her Honour held that the documents dated 23 November 2006 were ineffective because the evidence failed to establish Demian Holdings retired or Advanced Holdings was appointed as trustee for the Demian Trust for five reasons. The appellants argue that each of these reasons is in error. 128 The first reason outlined by her Honour was that there was no evidence of Demian Holdings giving notice that it had retired as a trustee. Notwithstanding this, as her Honour noted, the minutes of a meeting of directors of Demian Holdings referred to the purported retirement and recorded a resolution that "the Company" had retired as trustee of the Demian Trust. At [96], the primary judge said: 96 In evidence were the following documents (collectively the November 2006 documents): (a) a document entitled "Minutes of a meeting of the directors of Demian Holdings Pty Limited" signed by Mr Demian as chairman and dated 13 November 2006, which recorded: Documents tabled: 1. The Trust Deed dated 20th March, 1998. (The "The Demian Trust") 2. Deed of Retirement of Trustee. IT WAS RESOLVED; 1. That the Company has retired from its capacity as trustee of The Demian Trust, and that the Company executes a Deed of Retirement and Appointment. 2. That the Resignation Notice Tabled at the meeting be executed by the Company. 3. That the Company is not and cannot become a beneficiary under the Trust Deed, this clause 3 is irrevocable. (b) a document headed "Notice of Removal of Trustee", addressed to "The Trustee and Beneficiaries" of the Demian Trust, executed as a deed by Mr Demian and dated 13 November 2006, which recorded: Notice of Removal of Trustee I [Mr Demian] refer to the vacancy caused by the resignation of Demian Holdings Pty Limited from the office as trustee of The Demian Trust. 1. I accept the resignation of Demian Holdings Pty Limited from the office as trustee of The Demian Trust effective immediately. 2. Pursuant to clause 22 of the Trust Deed dated 20th March, 1998 governing the said trust, I appoint Advanced Holdings Pty Limited to continue its role as trustee and further more to become the sole trustee for The Demian trust (c) a document entitled "Minutes of a Meeting of the directors of Advanced Holdings Pty Limited" signed by Mr Demian as chairman and dated 13 November 2006, which recorded: Documents tabled: The Chairman tabled the following documents:- 1. The Trust Deed dated 20th March, 1998. (The "The Demian Trust") 2. Deed of Retirement and Appointment of Trustee IT WAS RESOLVED; 1. That the Company consents to being appointed Sole Trustee of The Demian Trust. 2. That the Company executes a Deed of Appointment of Sole Trustee in the form of the document tabled at the meeting. 3. That the Company is not and cannot become a beneficiary under the Trust Deed, this clause 3 is irrevocable. (Emphasis added.) 129 The principal of the Demian Trust (Mr Demian) was present at both meetings. 130 Secondly, her Honour held that there was no evidence of Demian Holdings giving two months' notice of its retirement as required under the Trust Deed. Her Honour said (at [98]): First, there was no evidence of a resignation notice executed by Demian Holdings, let alone the resignation notice purportedly tabled at the meeting of the directors of Demian Holdings on 13 November 2006. 131 The appellants say the evidence was a notice signed by Mr Demian, dated 30 November 2006, referred to by her Honour at [96(b)] set out above, accepting Demian Holdings' resignation. The appellants contend that on the proper construction of the Demian Trust Deed, the two month notice period was for the benefit of the principal, Mr Demian, to allow time for the appointment of a replacement trustee. He recorded that the retirement would take effect immediately with the effect, the appellants contend, that the notice period was waived. If that construction is wrong, the appellants say the notice executed by Mr Demian, read together with the minutes of the directors' meetings, shows that both the principal and the retiring trustee waived the notice period. The appellants say there is no reason why the notice period could not be waived. 132 Thirdly, the appellants argue that the conclusion of the primary judge that Mr Demian signed the "Notice of Removal of Trustee" in his personal capacity was wrong. As to this, her Honour said (at [100]): Thirdly, whilst in cross-examination Mr Demian identified the document headed "Notice of Removal of Trustee" as the Deed of Retirement of Trustee referred to in the minutes of meeting of the directors of Demian Holdings, the "Notice of Removal of Trustee" was executed by Mr Demian in his personal capacity and not by him on behalf of the Demian Holdings. It was not "the resignation" by Demian Holdings as trustee. 133 This conclusion must be in error, the appellants argue, because Mr Demian holds the office as principal of the Demian Trust, but her Honour's reasoning overlooked the minutes of the meeting of directors of Demian Holdings in which "the Company" recorded its resignation. 134 Fourthly, her Honour held, on the assumption that Demian Holdings had not retired, the "Notice of Removal of Trustee" was not the exercise of a power under cl 22 of the Demian Trust Deed. Her Honour said (at [101]): Fourthly, although entitled "Notice of Removal of Trustee" the document did not purport to be an exercise of power by Mr Demian as Principal under cl 22 to remove Demian Holdings as trustee. Rather, the notice assumed a prior effective resignation by Demian Holdings as trustee. 135 The appellants argue that the premise to that reasoning (that Demian Holdings' resignation was ineffective) is wrong for the reasons identified. But if the premise were right, because the notice referred to cl 22 of the Demian Trust Deed and also to accepting the resignation of Demian Holdings, the objective intention was clear. The effect of the notice was to remove Demian Holdings (by accepting its resignation as a matter of apparent intention) and to appoint Advanced Holdings as trustee of the Demian Trust. Again, the appellants contend these documents were intended to have a substantive operation and should be given that operation. 136 Fifthly, "the Deed of Retirement and Appointment of Trustee" was not produced in evidence. The appellants say that while this is correct, the contemporaneous references to it, and series of documents that proceed consistently with it, prove the intended effect. 137 The appellants assert that the primary judge erred in construing the 13 November 2006 documents such that if ground 3 and ground 4 were to fail (as they have), ground 5 should be upheld. That is, on 13 November 2006, Advanced Holdings was appointed trustee of the Demian Trust, either because Demian Holdings effectively resigned and Advanced Holdings was appointed, or because the notice dated 13 November 2006 had the effect of removing Demian Holdings and appointing Advanced Holdings.

Consideration: Ground 5 138 It was held by her Honour at trial that the 13 November 2006 documents were genuine (at [123]). That was a matter put in issue at trial, but decided adversely to the Commissioner. He did not further agitate that point on appeal. 139 The Commissioner points to the fact that Mr Demian had also accepted in cross-examination that no copy of the resignation notice had ever been produced to the Australian Taxation Office (ATO), but asserted that the "Notice of Removal of Trustee" dated 13 November 2006 was the "Deed of Retirement" referred to in the 13 November 2006 minutes. That contention could not be correct. That was the state of the evidence in circumstances in which the appellants bore the onus of proof that those documents existed and where the means of such proof lay peculiarly within their capacity: see Australian Securities and Investments Commission v Hellicar [2012] HCA 17; (2012) 247 CLR 345 per French CJ, Gummow, Hayne, Crennan, Kiefel and Bell JJ (at [164]-[166]) and Heydon J (at [256]). These respective passages read as follows: The cogency of proof 164 The Court of Appeal concluded that ASIC's failure to call Mr Robb had "consequences for the cogency of ASIC's case". By this the Court of Appeal meant that the cogency of ASIC's proof was diminished. 165 Disputed questions of fact must be decided by a court according to the evidence that the parties adduce, not according to some speculation about what other evidence might possibly have been led. Principles governing the onus and standard of proof must faithfully be applied. And there are cases where demonstration that other evidence could have been, but was not, called may properly be taken to account in determining whether a party has proved its case to the requisite standard. But both the circumstances in which that may be done and the way in which the absence of evidence may be taken to account are confined by known and accepted principles which do not permit the course taken by the Court of Appeal of discounting the cogency of the evidence tendered by ASIC. 166 Lord Mansfield's dictum in Blatch v Archer that "[i]t is certainly a maxim that all evidence is to be weighed according to the proof which it was in the power of one side to have produced, and in the power of the other to have contradicted" is not to be understood as countenancing any departure from any of these rules. Indeed, in Blatch v Archer itself, Lord Mansfield concluded that the maxim was not engaged for "it would have been very improper to have called" the person whose account of events was not available to the court. … 256 Fifthly, these cases, and Shalhoub v Buchanan in particular, merely point out that the greater the failure of a party bearing the onus of proof to call available witnesses with valuable evidence to give, the harder it is to satisfy that onus. The Court of Appeal appeared to accept as much when it said that its rule "takes matters beyond Jones v Dunkel, and beyond what was said in, for example, Shalhoub". The cases illustrate nothing more than Dawson J's observation: "When a party's case is deficient, the ordinary consequence is that it does not succeed". Counsel for the Hellicar respondents put the following submission about the principle stated in Blatch v Archer: "The underlying rationale for this principle can be simply put: a party with the burden of proof is expected to meet the requisite proof. If a party provides limited evidence when further evidence was available, a tribunal of fact is entitled to consider that failure when assessing whether the party has produced evidence to satisfy the standard of proof." That is correct. And counsel's submission that that rationale was recognised in Ho v Powell is also correct. (Citations omitted, emphasis in original.) 140 The primary judge was not in error for declining to infer that a resignation notice and Deed of Retirement and Appointment existed and were effective on the sole basis of reference to them in the 13 November 2006 minutes. This is especially so in the context of her Honour's findings as to the state of record keeping of the Demian Group. Her Honour said at [154]: … there is nothing in the evidence which suggests that Advanced Holdings undertook any acts in its capacity as trustee of the Demian Trust in the income years 2007 to 2017, other than to execute the 2007 Deed of Amendment. In particular, there is nothing in the evidence to suggest trust distribution resolutions for the Demian Trust were made by Advanced Holdings in any of the income years in question. 141 Also conspicuously relevant were the shifting positions taken by the Demian Group as to the identity of the trustee of the Demian Trust, including by the creation and supply to the ATO of false documents as discussed by the primary judge at [107]-[123], where her Honour was particularly critical and sceptical of the evidence of Mr Demian, for example, at [123]: The explanation for the inconsistent statements regarding the trustee of the Demian Trust, if one exists, is plainly within the knowledge of Mr Demian and his advisors and the discrepancies and inconsistencies called for an explanation, yet no evidence was led by the [appellants] at all to explain the conflicting statements and documents provided to the Commissioner, let alone why the November 2006 documents were not provided in response to the s 264 notice. If, as the [appellants] now contend, Advanced Holdings became sole trustee of the Demian Trust in 2006, the failure of Mr Demian to explain why Demian Holdings still continued to act as trustee in subsequent years gives rise to an inference that his evidence on that matter would not have assisted his case: Commercial Union Assurance Company of Australia Ltd v Ferrcom Pty Ltd (1991) 22 NSWLR 389 at 418-9 per Handley JA. However, I do not think that it follows that the Court should not be satisfied that the November 2006 documents were not genuine. Rather the evidence amply supports the conclusion that those documents were deliberately withheld from the Commissioner. But aside from the two 2003 documents admitted to be fabrications, the evidence otherwise did not suggest that the November 2006 documents were also falsely created. 142 The primary judge noted (at [99]) that cl 15(a) of the Demian Trust Deed required the trustee of that trust to give two months' notice of its resignation and there was no evidence of the provision of that notice: Secondly, and correlatively, there was no evidence that Demian Holdings gave written notice of its intention to resign as trustee of the Demian Trust as required by cl 15(a) of the Demian Trust Deed. Clause 15(a) provides: Retirement of Trustee The Trustee may at any time resign from the office of Trustee by giving not less than two (2) months' notice in writing (which may be withdrawn by the Trustee) addressed to the person or persons in whom the power of appointing a new Trustee or new Trustees of the settlement is then vested. 143 Her Honour further observed that the reference in the "Notice of Removal of Trustee" to the resignation being "effective immediately" supported the inference that such notice was not given. Her Honour is criticised by the appellants for failing to find that Mr Demian, as principal, had waived the notice period. That criticism cannot be sustained. No evidence was given to such effect by Mr Demian and no submission was put to the primary judge to that effect. The appellants were not entitled to an inference that the notice period had been waived in circumstances where it had not been advanced in evidence or argument. The more likely inference from the reference in the "Notice of Removal of Trustee" to the resignation being "effective immediately" was that drawn by the primary judge. If that matter had been raised below and Mr Demian had given evidence to that effect, it would have been tested in cross-examination. It is too late for this assertion to be advanced at this point. 144 The benefit of the notice period was not entirely for the benefit of the principal. It was also for the benefit of the beneficiaries whose interests the trustee served. There is no suggestion that the beneficiaries waived the notice period. 145 The primary judge observed that the "Notice of Removal of Trustee" was signed by Mr Demian in his personal capacity and thus was not the resignation notice or "Deed of Retirement and Appointment" referred to in the 13 November 2006 minutes. The appellants also argue that this reasoning overlooked the reference to Demian Holdings' resignation in the 13 November 2006 minutes. Clearly the primary judge did not overlook that reference, but rather found the reference to be inadequate to prove the existence and effectiveness of that resignation. 146 That was a conclusion which was open to her Honour, having had the benefit of observing Mr Demian in cross-examination. As a matter of construction from the document, in any event, the document did not purport to remove Demian Holdings as trustee of the Demian Trust. It merely assumed a prior effective resignation by Demian Holdings. The references to the "Deed of Retirement and Appointment" and "Deed of Appointment of Sole Trustee" discussed by the primary judge at [96(a)] and [96(c)], did not compel her Honour to find that the documents existed and were effective in circumstances in which, as her Honour noted, the documents were not produced in evidence.

Statutory provisions 147 In the course of oral argument, the Court raised with senior counsel for each party the question as to the evidentiary effect of the content of the 13 November 2006 minutes and whether, in the absence of any evidence to the contrary, statutory provisions dictate that the primary judge should have accepted in full the correctness of the records there contained. In this regard, the appellants argued in supplementary submissions that the minute should be treated as proof of the matters it records, either by reason of the relevant provisions of the Evidence Act 1995 (Cth) or the Corporations Act 2001 (Cth). They argue that once documents are admitted, the documents are evidence for all purposes by virtue of s 60 of the Evidence Act, including evidencing the representations of fact in them, whether by s 60 of the Evidence Act or as company minutes by s 251A(6) of the Corporations Act: see Hellicar (at [7] and [69]). The appellants argue that s 60 of the Evidence Act, and s 251A and s 1305 of the Corporations Act separately give evidentiary effect to the documents. Each of the Evidence Act and the Corporations Act separately provide for admissibility and effect, according to the appellants. The appellants argue that where, as in this case, no evidence was led to contradict the 13 November 2006 documents, the documents are to be taken as proof of what they represent. They are to be taken as proof, the appellants argue, that: (a) Demian Holdings sought to resign as trustee of the Demian Trust and in a directors' meeting resolved to resign and execute the tabled "Deed of Retirement of Trustee"; (b) the principal of the Demian Trust, Mr Demian, who was also the sole director of the retiring trustee and the incoming trustee, in writing and with formality recorded the resignation of Demian Holdings and invoked his power under cl 22 to appoint Advanced Holdings as trustee; and (c) Advanced Holdings, by a resolution, passed at a directors' meeting, accepted the appointment of it to the vacant office of trustee of the Demian Trust. 148 The appellants say that subject to one caveat, and in order to find the retirement of Demian Holdings did not occur, it must be found that those minutes were incorrect. There was no evidence, the appellants observe, that one, let alone both company records were inaccurate. Indeed, there was extensive testing of Mr Demian on the 13 November 2006 documents, culminating in the primary judge find the documents were genuine. The only caveat, the appellants accept, is whether the powers created by cl 15 and cl 22 of the Demian Trust Deed were properly invoked (in contrast to an attempt to invoke those powers). That is a question of construction based on the evidence and available inferences. 149 The appellants argue that the Demian Holdings minutes provide the basis for the Court to infer that Demian Holdings retired as trustee of the Demian Trust because the principal's notice and the Advanced Holdings minutes are premised on the effective retirement of Demian Holdings which is recorded in that company's minutes, with the deed also referred to. The appellants point to the fact that the Commissioner relies on the principal's immediate acceptance of Demian Holdings' resignation as assisting his case on the basis that a two month notice period applied, but that evidence, the appellants contend, actually assists the appellants. It evidences, they say, that the resignation occurred either with the two month notice having earlier been given or in circumstances where the principal for whose benefit the notice period existed, waived the notice period and put into immediate effect the change of trustee for the Demian Trust. The evidence of waiver was apparent on the document by use of the words "effective immediately". 150 In considering that issue, the appellants argue the difference between the evidence of a fact and finding of a fact by inference from other evidence is material. The resolutions and documents recorded as tabled are evidence relevantly uncontradicted. 151 The appellants argue that two conclusions are open to the Court: (a) as a matter of inference the resignation complied with the terms of the Demian Trust Deed, including giving early notice because all of the 2006 documents refer to the Demian Trust Deed dated 20 March 1998 and the power in cl 22 is expressly referred to, the inference being the notice requirement in cl 15 was complied with; or, if that is wrong (b) that as a matter of law (a characterisation of the facts), Demian Holdings resigned from the office of trustee of the Demian Trust with the documents taken as evidence of their content, which resignation the principal accepted immediately as he was entitled to do by waiving the notice requirement. 152 Having regard to the Corporations Act, the appellants argue that because the documents were admitted in evidence and have the effect already described, reliance on the Corporations Act as an independent source of admissibility and effect is likely to be unnecessary. In any event however, the documents are uncontroversial records of the respective companies, Demian Holdings and Advanced Holdings. They have formal headings and they are in a common format for minutes. They record the location, attendance, appointment of chair, documents tabled and formal resolutions. The resolutions are enumerated and formal and the chairman signed and dated them. They are both formal resolutions of the respective companies pursuant to s 248B of the Corporations Act. The documents have been accepted as being genuinely created. The genuineness of the documents, together with their content establishes the formality of the documents as a sound basis for the inference that s 251A(1) was complied with.

Consideration: Statutory provisions 153 The reasons why her Honour did not accept that these documents effected a replacement of the trustee have been set out above. The question is whether the provisions of the Evidence Act or the Corporations Act should require or do require a different conclusion to be reached. Dealing first with the Evidence Act, the November 2006 documents were admitted into evidence without objection as business records under s 69 of that Act and were thereby evidence of the truth of the matters that the document represented: see Hellicar (at [7] and [69]). Thus, in relation to the 2006 Demian Holdings minutes, the relevant representations are: (a) that a document titled "Deed of Retirement of Trustee" had been tabled at the meeting; and (b) that the directors of Demian Holdings had resolved at the meeting: (i) that Demian Holdings had retired as trustee of the Demian Trust and that Demian Holdings would execute a "Deed of Retirement and Appointment"; and (ii) that the "Resignation Notice" tabled at the meeting would be executed by Demian Holdings. 154 Some caution is required in this regard, because the 2006 Demian Holdings minutes do not contain any representation as to the formal contents of the Deed of Retirement or the resignation notice tabled at the meeting: see the discussion in Hellicar (at [16] and [69]) where the High Court said: 16 The minutes of the meeting of 15 February 2001 recorded a number of matters relating to the separation proposal. They included the board's resolution that "it is in the best interests of [JHIL] to effect the Coy and Jsekarb Separation" and a number of other resolutions relating to the separation. Critical to the present matters, the minutes recorded: "ASX Announcement The Chairman tabled an announcement to the ASX whereby the Company explains the effect of the resolutions passed at this meeting and the terms of the Foundation (ASX Announcement). Resolved that: (a) the Company approve the ASX Announcement; and (b) the ASX Announcement be executed by the Company and sent to the ASX." … 69 The minutes of both the February and April board meetings were admitted in evidence. Both sets of minutes were admissible as business records and were evidence of the truth of the matters that they represented. The February board minutes were thus evidence of the facts that a draft ASX announcement was tabled and that it was approved; the April board minutes were evidence of the fact that the board had approved the minutes of the February meeting as an accurate record of proceedings at that earlier meeting. (Citations omitted.) 155 Accordingly, the Demian Holdings minutes themselves do not prove that either the Deed of Retirement or resignation notice was a valid notice of retirement under cl 15 of the Demian Trust Deed. 156 Similarly, in relation to the "Notice of Removal", the representation contained in the document is that Mr Demian, in his capacity as the principal of the Demian Trust, accepted the resignation of Demian Holdings from the office of trustee of the Demian Trust "effective immediately". It does not contain any representations as to the form, contents or efficacy of any "resignation notice" provided by Demian Holdings. The "Notice of Removal" does not refer to cl 15 of the Demian Trust Deed and, in particular, the two months' notice that must be given by the retiring trustee under that clause. There is no representation that Mr Demian waived the notice period and the "Notice of Removal" does not prove the appellants' assertion that the notice period should be inferred to have been waived. No case was run and no evidence adduced on that point. 157 In relation to the Advanced Holdings minutes, the relevant representations are: (a) that a document entitled "Deed of Retirement and Appointment of Trustee" had been tabled at the meeting; and (b) that the director of Advanced Holdings resolved at the meeting: (i) that Advanced Holdings consented to being appointed the sole trustee of the Demian Trust; and (ii) that Advanced Holdings would (or had) executed the document entitled "Deed of Appointment of Sole Trustee" in the form tabled at the meeting. 158 Again, the Advanced Holdings minutes do not, however, contain any representation about the form, content or efficacy of the "Deed of Retirement and Appointment of Trustee" or the "Deed of Sole Appointment of Trustee" tabled at the meeting. The minutes do not, therefore, prove that Advanced Holdings had been validly appointed under cl 22 of the Demian Trust Deed. 159 Both parties refer, of course, to Hellicar, but this case may be contrasted with the facts and evidence in Hellicar where the representation contained in the minutes in Hellicar were of a draft Australian Securities Exchange (ASX) announcement coupled with the evidence of the form of draft ASX announcement taken to the board meeting, and the evidence of the not materially different form of the ASX announcement as published. In that case, it was appropriate to infer that in the absence of evidence to the contrary, that the board had approved the actual draft ASX announcement tabled. The difficulty in the present case, however, is the absence of any evidence of the formal content or efficacy of the underlying documents which the November 2006 documents referred to and depended upon. The representations in both sets of minutes did not and could not prove that those other documents effected a valid resignation of Demian Holdings as trustee of the Demian Trust and/or a valid appointment of Advanced Holdings. The Evidence Act does not compel a contrary conclusion. 160 As to the Corporations Act, as noted, s 251A(1) relevantly provides that the company: … must keep minute books in which it records within 1 month: … (b) proceedings and resolutions of directors' meetings. … The minutes must be signed within a reasonable time after the meeting by the chair or relevant director. 161 Section 251A(1) draws a distinction between a record of the proceedings and resolutions and a book in which the record is kept: Australian Securities and Investments Commission v Macdonald (No 11) [2009] NSWSC 287; (2009) 256 ALR 199 (at [57]). Section 251A(6) provides that a minute that is "so recorded" and signed is evidence of the proceeding, resolution or declaration to which it relates unless the contrary is proven. That provision is only engaged when there has been a strict compliance with the requirements of s 251A(1), including that the minute was recorded in a minute book within a month of a meeting: Macdonald (No 11) (at [59]-[72]), and where Gzell J said (at [70]-[71]): 70 When the legislature created the requirement of one month in Section 251A(1) it did so with the object of restricting the benefit of the section to reasonably contemporaneous documents. Hence the need for strict compliance. 71 As a matter of construction, only documents recorded in a minute book within one month of a meeting are accorded the evidentiary value specified in Section 251A(6). This is apparent from the use of the words "so recorded and signed" in the subsection. They refer back to the earlier provisions of the section. A minute is "so signed" if it is signed in accordance with Section 251A(2), Section 251A(3) or Section 251A(4) as they are the only provisions within the section that require a signature. Likewise, a minute is "so recorded" if it is recorded in a minute book within a month of the meeting as provided in Section 251A(1) for that is the only provision within the section that requires recording. 162 Section 1305 of the Corporations Act concerns the admissibility of books in evidence, providing under s 1305(1) that a book kept by a body corporate under a requirement of the Act is admissible in evidence in any proceeding and is prima facie evidence of any matters stated or recorded in the book. Section 1305(2) provides that a document purporting to be kept by a body corporate is, unless the contrary is proven, taken to be a book kept as mentioned in s 1305(1). 163 It has been held in cases such as Macdonald (No 11), that the general provision in s 1305(2) of the Corporations Act must give way to the specific provision dealing with the minute books in s 251A. There is no reason to depart from this conclusion, noting what was said in Macdonald (No 11) (at [61] and [68]): 61 ASIC submits that a draft minute document recording the proceedings and resolutions of directors' meetings electronically or in paper is prima facie evidence of the matters stated or recorded therein. But Section 1305(1) only applies if a book is required to be kept under the Act and the relevant requirement is Section 251A(1). The general provision in Section 1305(2) must give way to the specific provision in Section 251A(1). In that way the provisions operate harmoniously: Project Blue Sky Inc v Australian Broadcasting Authority (1998) 194 CLR 355 at [69]-[70]. … 68 In Gosford Christian School Ltd v Totonjian (2006) 201 FLR 424 at [19], Barrett J extended the effect of a failure to comply with Section 251A(1) to a non-entitlement to the benefit of Section 1305. His Honour held that a copy of a minute that did not form part of a minute book in accordance with Section 251A(1) did not derive evidentiary value from Section 1305(2). To construe Section 1305(2) as ASIC submits would circumvent the purpose of Section 251A(1) and its forerunner Section 253. 164 There was no evidence that the minutes had been entered in any minute books held by either company within one month of the relevant meetings. No strict compliance with s 251A(1) of the Corporations Act was established as required: see Warner Capital Pty Ltd v Shazbot Pty Ltd [2020] NSWCA 121 per Gleeson JA (Macfarlan and Meagher JJA agreeing) (at [114]): This conclusion can be reached without resort to the possible application of s 251A(6) of the Corporations Act, which provides that "A minute that is so recorded and signed is evidence of the proceeding, resolution or declaration to which it relates, unless the contrary is proved". It seems that there was no evidence at trial that the minute formed part of a minute book in accordance with s 251A(1), so as to attract the evidentiary presumption in s 251A(6) of the Corporations Act: Gosford Christian School Ltd v Totonjian [2006] NSWSC 725; (2006) 201 FLR 424 at [19] (Barrett J). 165 Accordingly, s 251A(6) of the Corporations Act was not engaged and s 1305(2) cannot assist the appellants: see Macdonald (No 11) (at [61] and [68]) and Gosford Christian School Ltd v Totonjian [2006] NSWSC 725; (2006) 201 FLR 424 per Barrett J (at [19]). 166 More importantly, it should be separately observed that even if it be assumed to the contrary that there was compliance with s 251A(1), so as to engage s 251A(6), the operation of that provision does not demonstrate any error on the part of the primary judge. It does not create a statutory presumption in favour of the events recorded in the minutes of either company. It does not create a statutory presumption in favour of a conclusion that Demian Holdings effectively resigned as trustee and Advanced Holdings was appointed. 167 The proper approach was that outlined by Gzell J in Macdonald (No 11) (at [74]-[78]) where his Honour said: 74 ASIC contends that Section 251A(6) contains the sort of deeming that Section 253(3) had. But Section 251A(6) does not say that the minute is conclusive evidence of happenings at a meeting unless the contrary is proved. It does not state, as Section 253(3) stated, that the events recorded in the minute are deemed to have happened. It says the minute is evidence of the events unless the contrary is proved. And whether the contrary is proved must be judged on the whole of the evidence. If the evidence establishes that an event recorded in a minute did not occur, the fact of its recording in the minute has no effect. 75 Hamilton J adopted this approach of judging whether the contrary had been proved by surveying the whole of the evidence in Silver v Dome Resources NL (2007) 62 ACSR 539 at [61]-[63] where, having referred to a minute to which Section 251A(6) applied, his Honour considered the evidence as a whole and concluded that the evidence against the holding of the meeting should be rejected. In so doing his Honour attributed no special weight to the minute. The Court of Appeal affirmed the decision but did not address Section 251A(6) in Dome Resources NL v Silver (2008) 72 NSWLR 693. 76 ASIC relies on a number of cases that discuss the phrase "unless the contrary is proved" and like phrases. Such phrases will vary in meaning depending upon their context. In the cases relied upon by ASIC, the context is one that specifies that a certain state of affairs is deemed, or presumed, or taken to exist. That is the context of Section 253(3). It is not the context of Section 251A. 77 Thus in Repatriation Commission v Gordon (1990) 26 FCR 569 Spender J considered s 29 of the Acts Interpretation Act 1901 (Cth) in which service is deemed to be effected by properly addressing, prepaying and posting a document, and, unless the contrary is proved, is deemed to have been effected at the time at which the letter would be delivered in the ordinary course of post: see also Hughes v The Queen (1983) 10 A Crim R 125; Foster v The Queen (1982) 6 A Crim R 400; 61 FLR 440; Hodgson v Hart District Council [1986] 1 WLR 317; Re Myer & Son Family Butchery Pty Ltd [1998] QSC 2; Damaso v The Queen (2002) 130 A Crim R 206; 168 FLR 103; Singh v The Queen (unreported, Court of Criminal Appeal, WA, Library No 6002, 18 September 1985); Abbott v Western Australia (2005) 152 A Crim R 186; R v Phillips [1991] 3 NZLR 175; R v Hansen (2005) 22 CRNZ 83; Hansen v The Queen [2007] 3 NZLR 1; Sheldrake v Director of Public Prosecutions [2005] 1 AC 264 and McLean Bros & Rigg Ltd v Grice (1906) 4 CLR 835. 78 These cases do not bear on the interpretation of section 215A(6) in my view. It requires a weighing up of the evidence for and against the happening of the events recorded in a minute entered in a minute book within one month. If that weighing favours the recorded events, the contrary is not proved. If it favours evidence against the happening of the event, the contrary is proved. There is no shift in the onus of proof to the party asserting that the event did not happen. (Emphasis added.) 168 Section 251(6) of the Corporations Act does not require the Commissioner to prove the contrary to anything that was stated in the Demian Holdings minutes or the Advanced Holdings minutes. Demian Holdings did not provide a valid notice of its retirement as trustee of the Demian Trust and Advanced Holdings had not been validly appointed. The onus remained on the appellants throughout to establish those matters on the evidence. Nothing was established as to the form, content and efficacy of the key underlying documents. 169 A court may be entitled to accept at face value for all purposes, including the underlying transactions, those documents admitted under the statutory provisions. But it is not obliged to do so. In circumstances where there are factors which may mitigate against the prima facie acceptance of such records as, for example, where there are other findings of fact firmly adverse to the quality of corporate management by a sole director (as there were in this case), a court is not obliged to accept at face value and for all purposes, the existence and efficacy of challenged underlying transactions referred to in a company minute. This may present a sobering bookkeeping reminder to directors of small companies, but the evidentiary rules established under these statutory provisions were not intended to circumvent the need to establish the efficacy of all the underlying transactions recorded in a company's minutes in all cases. In this case, those underlying transactions were squarely in issue and their efficacy open to being doubted. 170 Further to this analysis, what the primary judge said at [129] must be accepted: 129 It follows from the finding that Advanced Holdings was not validly appointed as trustee of the Demian Trust on 2 April 2003 that the units in the [LET] issued to Advanced Holdings in its own right in 2003. Moreover, even if Advanced Holdings was validly appointed as trustee of the Demian Trust in November 2006, the [appellants] did not explain how by that act it could be said that the units thereby became part of the corpus of the Demian Trust and there was no evidence that they did. Accordingly, I find that Advanced Holdings held the units in its own right in the 2013 income year, not as trustee for the Demian Trust. It follows that Advanced Holdings was assessable in its own right on the net income of the [LET] for the 2013 income year. (Emphasis added.) 171 Ground 5 cannot succeed.

Ground 6: Deductibility of a risk fee or Monitoring Fee 172 As recounted above, by a deed of amendment executed on 3 May 2011 (along with various other amendment deeds), LEPL was required to pay a Monitoring Fee of $1.5 million to Abacus under the Abacus Facility. 173 The Monitoring Fee was to maintain the Abacus Facility for the 2011 year only, rather than the entirety of the Facility, rendering it deductible the appellants say, for reasons similar to those advanced under ground 2. The primary judge ruled against this, saying (at [84]): The Abacus Facility, as amended (relevantly) by a Deed of Amendment on 17 May 2010, provided for the payment to Abacus of an annual "risk fee" payable on each anniversary of the [Abacus Facility]. This fee was initially set at $500,000 per annum and, by a Deed of Amendment dated 27 October 2010, was increased to $750,000. By a Deed of Amendment dated 3 May 2011, the parties to the [Abacus Facility] agreed there would be a drawdown of $4.8 million under the [Abacus Facility], $1.5 million of which would be used to pay two annual instalments of the $750,000 annual "risk fee". By a Deed of Rectification and Amendment dated 8 August 2011, the parties to the [Abacus Facility] rectified the 3 May 2011 Deed of Amendment so that instead of the $1.5 million payment being described as a payment of two annual instalments of the risk fee, that amount was instead described as the single payment of a "Monitoring Fee" as follows: a Monitoring Fee of $1,500,000 in consideration for the extraordinary amount of management time of the Lender involved in dealing with the Demian Parties in relation to their various arrangements and projects during the financial year to 30 June 2011, The [appellants] argued that from a commercial and business point of view, the $1.5 million "Monitoring Fee" was still to maintain the availability of the Abacus Facility during a specific period of time - that is, the financial year ended 30 June 2011 - and that as it was a fee for the maintenance of the facility during that particular period of time, rather than simply for the facility as a whole, it was deductible. I disagree. The Abacus Facility was a key part of the capital structure of the whole Demian Group and the monitoring fee was a one-off cost for the maintenance of that aspect of the capital structure of the group: Sharpcan at 1154-5 [18]. It was not an outgoing incurred in the course of Lewisham Estates' income earning activities and did not have a revenue character. 174 The finding that the Monitoring Fee was a key part of the capital structure of the Demian Group of entities followed from the finding challenged in ground 2. The appellants say the Monitoring Fee was payable under the Abacus Facility as amended and referred to the primary judge's finding at [84]. It is argued that it was simply a cost of borrowing. The borrowing was, for the reasons identified in relation to ground 2, not on revenue account and therefore not deductible. If ground 2 had been made out, it would follow that about 53.3% of the borrowing cost was attributable to the purchase of trading stock. The Monitoring Fee was a further charge extracted by the lender, being attributable to the whole of borrowing, but was capable of being applied proportionately or rateably over the borrowing on the appellants' argument. The appellants argue that it ought to be apportioned, adopting the reasoning in Ronpibon Tin NL v Commissioner of Taxation (Cth) [1949] HCA 15; (1949) 8 CLR 47, that is, that it is a sum which is capable of a rateable apportionment over the whole of the borrowings.

Consideration: Monitoring Fee 175 There is no proper basis for disagreement with the conclusion of the primary judge. Her Honour had found correctly that the Abacus Facility was a key part of the capital structure of the whole Demian Group (at [68]-[77]). Thus, it was a one-off cost to maintain that part of the capital structure of the Demian Group. It was not an outgoing incurred in the course of LEPL's income earning activities. It is not to the point that some of the moneys drawn down from the Abacus Facility were used to re-finance borrowings used by LEPL to purchase trading stock. 176 Ground 6 cannot succeed.

Penalties 177 The primary judge also reached conclusions on penalties in the AAT decision. The appellants contend that if the primary appeal is allowed, it would follow that the appeal from the AAT decision should also be allowed and the question of both assessment and penalty remitted to the Commissioner. The primary appeal has not been allowed, but the question of penalties still arises on the grounds of appeal. The appellants argue that the penalties should be remitted for reconsideration because even if the appellants' arguments of law are rejected, they were properly advanced arguments based on complex commercial documents. The appellants also rely on the fact that they genuinely engaged specialist tax advisors, took their counsel and applied it to the Demian Group structure. Most importantly, they involved disputes with the Commissioner on complex matters of construction on which the primary judge held in part in favour of the appellants and partly in favour of the Commissioner. There was no question of avoidance of tax on the appellants' part, but simply a reliance upon a certain legal construction. Income was returned as if the trustee of the Demian Trust had held the LET units and its beneficiaries were then assessed, whereas the primary judge held that Advanced Holdings held the LET units in its own right. 178 The appellants argue that there was no failure to take reasonable care, let alone recklessness or intentional disregard to return income via a contended trust holding because the Court construed the circumstances to be a holding in its own right. The view they advance as to the activities in 2003 and 2006 was reasonable, the appellants say. 179 The appellants point out that the total amount in dispute was the approximate tax on the profit from the development of the Lewisham Properties, the sale proceeds being $49,065,000. There was a shortfall of disclosure, but otherwise the income was disclosed leaving a problem only of attribution, namely, who was responsible for the tax. In those circumstances, it is argued that the AAT, through her Honour, was wrong "as a matter of principle" to conclude that the shortfall arose from a failure to provide information to the Commissioner.

Consideration: penalties 180 The basis of the challenge to the findings on penalty does not appear to raise an error of law as required by s 44 of the Administrative Appeals Tribunal Act 1975 (Cth). The appellants have orally sought to characterise the question of law as a failure to take into account a mandatory fact. That mandatory fact, it appears to be suggested, was the finding about the appellants' intentional disregard. This is no more than a merits review. It is clear that there was a finding on this topic and what is sought to be challenged is the correctness of that factual finding. That is not a permissible form of challenge to the determination of the Tribunal, but in any event, on the facts, it could not be sustained. 181 Assuming, however, that there is a question of law, the arguments advanced on penalties involve considerable oversimplification of the circumstances. As the Commissioner notes, penalties were assessed to LEPL pursuant to s 284-75(1) of Sch 1 to the Taxation Administration Act 1953 (Cth) (TAA) and calculated at 40 penalty units under s 284-90(1), item 3B of the TAA that LEPL had engaged in recklessness in making false or misleading statements in its tax returns for the 2011 and 2012 income years. Her Honour said at [12]-[13] of the AAT decision: 12. Penalties were imposed on LZHN pursuant to s 284-75(1) of Sch 1 to the TAA 1953 in respect of the 2011, 2012 and 2013 income years. During the objection phase, the Commissioner remitted in full penalties imposed in respect of the 2013 income year and accordingly, the penalties in issue are the penalties imposed in respect of the 2011 and 2012 income years, totalling $6,800 and $8,160 respectively. Penalties for each of those income years were calculated at 40 penalty units under s 284-90(1) item 3B on the basis that LZHN had engaged in recklessness in making false or misleading statements in its tax returns for the relevant income years. For the 2012 income year, the 20% uplift in penalty under s 284-220 was applied. 13. As to ground (1), no evidence was adduced by LZHN to support the contention that the company took reasonable care in relation to the tax returns for the 2011 and 2012 income years for the purposes of the exception contained in s 284-75(5) and, accordingly, there is no warrant to find that the exception applies. (Emphasis added.) 182 There was no evidence to support the contention that LEPL took reasonable care in preparing its tax returns (indeed, the appellants no longer press the penalties appeal in relation to the LEPL). There was actually no evidence that Mr Demian's understanding of the legal effect of the JVA was in the form advanced for the appellants. There was no evidence from Mr Incollingo (one of the tax advisors) regarding his understanding of the documents relating to the identity of the trustee of the Demian Trust and the assumptions on which that understanding was based. 183 In relation to Advanced Holdings, the penalties were assessed under s 284-30 of Sch 1 to the TAA and calculated at 75% of the tax shortfall pursuant to item 1 in s 284-90 on the basis that shortfall resulted from the intentional disregard of taxation law. In this regard, her Honour said at [18] in the AAT decision: In issue is the penalty assessment that issued to MGSL for the 2013 income year. The Commissioner imposed penalties on the basis that MGSL made false or misleading statements in its income tax return for the 2013 income year that resulted in a shortfall amount. The Commissioner also determined that the tax shortfall resulted from the intentional disregard of a taxation law and imposed the rate of 75% of the tax shortfall amount pursuant to item 1 of the table in sub-s 284-90(1) of Sch 1 of the TAA 1953. The base penalty amount was further increased by 20% under s 284-220(1)(a) on the basis that MGSL took steps to prevent or obstruct the Commissioner from finding out about the shortfall amount. 184 The appellants did indeed invite her Honour, sitting as the AAT, to find that the tax shortfall did not result from any false or misleading statements given by him, but rather, from Mr Incollingo, who was not acting as the company's agent in responding to the s 264 notice. Her Honour rejected this submission, recording (at [19]) that the shortfall: was the direct result of the failure of Mr Demian to keep proper adequate and accurate records, his failure to provide all relevant information and documentation to his tax agent and his wilful and reckless inattention to the correctness of the return as lodged. (Emphasis added.) 185 These are factual findings which cannot be ignored on appeal. 186 Her Honour had also said in the primary judgment that Mr Demian was aware that LCI Partners had created backdated documents to provide to the Commissioner. Her Honour said at [113]: Mr Demian denied that he was aware that LCI Partners had created backdated documents to provide to the Commissioner but I find it implausible he did not know. After all, he had signed the 2013 tax return for the Demian Trust as a director of Demian Holdings on the basis that Demian Holdings was the trustee of the Demian Trust, and the backdated documents were consistent with the return as lodged. … The versions that Mr Demian signed were not correct in many details, and the evidence was that Mr Amorello prepared revised documents. A comparison of the documents supplied to the Commissioner and the versions signed by Mr Demian suggests that the documents supplied to the Commissioner were doctored from the actual documents which Mr Demian had signed. Whether that is so or not need not be decided, as what is salient is that Mr Demian signed a unit certificate and a transfer of unit document in circumstances that have no apparent explanation, other than for the purpose of providing such documents to the Commissioner in response to the s 264 notice. It is telling that, other than saying he signed the documents as part of a bundle, Mr Demian's evidence left wholly unexplained why he signed any such documents at all in 2015. Absent such evidence, the reasonable inference is that Mr Demian knew of the intended purpose of the documents he signed. 187 Additionally, reference has already been made to findings made by the primary judge (at [104]-[123]) regarding the shifting and contradictory statements about which entity was the trustee of the Demian Trust at various points in time. The evidence does not support the view that the appellants adhered to a construction of trust documents that simply turned out to be incorrect. Rather, there was a persistent failure to explain glaring inconsistencies in the information that was provided to the Commissioner despite those matters being plainly within the knowledge of Mr Demian and his advisors. 188 The primary judge's assessment of penalty in the AAT decision cannot be faulted.

THE COMMISSIONER'S CROSS-APPEALS 189 In these circumstances, it is unnecessary to consider the Commissioner's cross-appeals.

CONCLUSION 190 For these reasons, each of the grounds of appeal should be rejected and the appeals in NSD 1286 of 2020 and NSD 1293 of 2020 dismissed accordingly. The appellants should pay the Commissioner's costs of those proceedings. The cross-appeals, NSD 1326 of 2020 and NSD 1327 of 2020, should be dismissed with no orders as to costs. I certify that the preceding one hundred and ninety (190) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justices Logan, McKerracher and Perram.