APACHE FINANCE PTY LTD -v- QUADRANT ENERGY PTY LTD [2018] WASC 68 (2 March 2018)

2 Quadrant Energy Holdings Pty Ltd (QEH) holds all the issued share capital in Quadrant Energy which in turn holds all of the issued share capital in QEAL. On 1 November 2017, QEH received two notices (ATO notices) from the Australian Taxation Office (ATO) informing QEH that the ATO was undertaking two risk reviews (ATO risk reviews). The first was an income tax risk review of QEH and QEAL for the income years ending 31 December 2013 to 31 December 2016 (income tax review). The second was a risk review of QEH (and its subsidiaries that hold petroleum interests) for the financial years ending 30 June 2014 to 30 June 2017 concerning Petroleum Resource Rent Tax (PRRT review). The receipt of those notices led to a dispute between the Apache parties and the Quadrant parties as to the proper construction and operation of provisions in the SPA dealing with indemnities and, in particular, taxation indemnities. At the time that dispute arose, the Quadrant parties had not yet filed their defence and counterclaim in this action. When they did so, they included in their counterclaim pars [113] [124] and prayers for relief (e) to (h) which were directed to claims for declarations as to the proper construction of the tax indemnity provisions of the SPA. For reasons which will become apparent, it was necessary that that aspect of the counterclaim be resolved as a matter of urgency. Accordingly, I ordered that there be a separate trial of the issues arising in those paragraphs of the counterclaim and those prayers for relief. It is to those issues that these reasons are directed. For convenience, where the identity of a particular corporate entity within each group is of no significance, I will simply describe the competing parties as Apache and Quadrant respectively.

3 The separate questions which fall for determination are as follows:

(i) Does the obligation under section 9.15(b) of the SPA for Quadrant Energy and QEAL to take 'Disputing Action' (as defined in the SPA) arise in respect of a matter that may lead to the making or issuing of a 'Relevant Assessment' rather than only in respect of a Relevant Assessment itself, such that Quadrant and QEAL are presently obliged to take Disputing Action in connection with the ATO risk reviews on the terms required by the Apache parties?

(ii) Do the negative stipulations in section 9.15(e) of the SPA apply in advance of a Relevant Assessment having been issued, or, alternatively, a 'Tax Demand' having been made (rather than only in respect of a period after the Relevant Assessment has been issued or a Tax Demand has been made) such that Quadrant and QEAL are presently bound by those negative stipulations in connection with the ATO risk reviews?

4 As already noted, the dispute arose as a result of QEH and QEAL receiving the ATO notices. The notice in relation to the income tax review called for the production by 4 December 2017 of various documents and information described in 33 categories set out in the attachment to the notice. The income tax review notice contained advice that the recipient could 'still make a voluntary disclosure if you need to, as we work through the review with you'. A Large Market Income Tax Risk Review Plan, also dated 1 November 2017, outlined the plan for the income tax review. That document identified a number of risk hypotheses dealing with matters such as financing arrangements between Quadrant entities in Australia and related offshore entities, and interest payments made to related parties in relation to crossborder transactions. The key milestones and dates proposed completion of the information and documentation gathering by May 2018, and finalisation of the review by 31 May 2018. The risk review plan concluded with the advice that:

You have an opportunity to review your records to identify any errors or omissions you have made. If you make a voluntary disclosure while the risk review is ongoing any penalties that apply would be reduced by 80%. To make a voluntary disclosure you need to provide us with sufficient information to determine a shortfall amount.

5 The PRRT review notice also sought information listed in the appendix to the notice and made reference to the capacity to make a voluntary disclosure. The accompanying draft PRRT Risk Review Plan proposed the information and documentation gathering phase be completed by February 2018, with interviews and discussions on the review outcomes and notification of future action in April 2018, with the review finalisation being May 2018.

6 The SPA comprises Articles 1 to 14. Each Article contains a number of clauses described as sections. Article 9 of the SPA deals with indemnities on the part of both the vendors and the purchasers. Section 9.12 provides a tax indemnity granted in favour of Quadrant Energy (and related companies) in relation to tax or duty liabilities not provided for in the accounts upon which the sale price was based (Tax Indemnity). The Tax Indemnity is subject to certain exceptions enumerated in s 9.13. One of those exceptions is in relation to tax or duty not subject to a Tax Demand which is made within four years of the date of the agreement. Thus, the liability does not operate unless a demand is made under the indemnity by 9 April 2019. The Quadrant parties are concerned that the process involved in the ATO risk review, and any audit or other process that may follow, might extend the time before the issue of amended tax assessments beyond April 2019 so that the exception to the Tax Indemnity would operate.

7 Section 9.15 contains a provision which enables the Apache parties to give a notice requiring the Quadrant parties to take 'Disputing Action'. As will be seen, Disputing Action is a defined term. Section 9.14 requires a party who is entitled to the indemnity under s 9.12 to give Apache, within 10 days of receipt, a copy of any 'Relevant Assessment' or 'any written communication or notice from any Government Authority that might lead to the making or issuing of a Relevant Assessment'.

8 On 6 November 2017, the Quadrant parties' solicitors wrote to the solicitors for the Apache parties. That letter gave notice of the ATO notices for the purposes of s 9.14 of the SPA.

9 By letter dated 14 November 2017, the Apache parties' solicitors acknowledged receipt of the notice pursuant to s 9.14 and gave notice under s 9.15 of Apache's requirement that Quadrant take Disputing Action in relation to the ATO reviews. That letter was followed by a further letter dated 30 November 2017 from Apache's solicitors to Quadrant's solicitors referring to the letter of 14 November 2017, and seeking confirmation that Quadrant would immediately transfer control of the preparation and submission of the response to the ATO insofar as it concerns matters predating 1 October 2014, being the 'Economic Transfer Date' under the SPA. By letter dated 7 December 2017, Quadrant's solicitors wrote to Apache's solicitors advising that Quadrant did not accept that Apache is presently entitled to require Quadrant to take Disputing Action on the basis, amongst other things, that the SPA contemplates that Disputing Action may only be required in connection with a 'Relevant Assessment', rather than in connection with a matter which may lead to the making or issue of a Relevant Assessment.

10 As a result of the parties' differing positions on that issue, their dispute was introduced into these proceedings and now falls for determination. Because of the detailed analysis of the relevant provisions of the SPA that is required to resolve these issues, it is necessary to set out the relevant provisions.

11 The nature and effect of the SPA was summarised by Quadrant in its written submissions. Apache accepted that the summary was uncontroversial. The summary is as follows.

12 Pursuant to the SPA, Quadrant became the owner of QEAL, among other companies, when it acquired all of the issued capital of QEAL from the first, second and third plaintiffs on 'Closing' in exchange for payment of the 'Purchase Price'. 'Closing' occurred on 5 June 2015. Through that transaction, in effect, Quadrant acquired the Apache parties' Australian oil and gas extraction business (excluding certain assets which were separately sold) for a Purchase Price of approximately US$2.5bn.

13 The sale of the shares under the SPA was structured as a 'locked box' transaction, whereby the base amount of the purchase price (the 'Base Price') was determined by reference to the known state of affairs of the business at a fixed date prior to the date of signing the SPA and the closing of the transaction; the 'Economic Transfer Date', being 12.01 am on 1 October 2014. Certain agreed adjustments were made to that base amount between the Economic Transfer Date and Closing (the 'Net Adjustment Amount') to determine the final Purchase Price payable at Closing. That is, the Net Adjustment Amount could be positive or negative, thereby increasing or decreasing the Purchase Price from the quantum of the Base Price. The Net Adjustment Amount took into account both loans into the business for the ordinary running of it by the Vendors, as well as amounts paid out to the Vendors between the Economic Transfer Date and the date of Closing. However, the SPA also restricted both the loans in and payments out that could be made between the Economic Transfer Date and Closing in a manner which required the Apache parties to continue to run the business in an ordinary and commercial manner between the Economic Transfer Date and Closing.

14 Therefore, it was on this fixed date, being the Economic Transfer Date and not at completion, that economic risk transferred from Apache to Quadrant, because Quadrant was, in effect, purchasing the business at a price based on a state of affairs at a time prior to it taking control. Consistent with the logic of these provisions, the benefit and burden of the business prior to the Economic Transfer Date remained with the Apache parties.

15 There were express exceptions in the SPA concerning certain excluded transactions and assets, as not all economic risks and benefits of the Apache parties' Australian business were transferred from the Apache parties to Quadrant. The exceptions are not material to the issues that now fall to be resolved as separate issues.

16 Article 9 of the SPA deals with a number of indemnities. Section 9.12 provides:

9.12 Tax Indemnity

Subject to Closing and subject to Section 9.13, Vendors (in proportion to their respective entitlement to the Purchase Price) shall indemnify, defend and hold harmless Purchaser, the Companies, the Subsidiaries, and the head company of the Purchaser's Consolidated Group (the 'Indemnified Entities') against, and must pay to Purchaser on demand, the following amounts:

(a) the Agreed Percentage of any Tax or Duty payable by an Indemnified Entity to the extent the Tax or Duty arises from or relates to any period up to and including the Economic Transfer Date (unless specified otherwise in paragraphs (i) and (ii) below), including any Tax or Duty payable by the Indemnified Entity to the extent the Tax or Duty arises from or relates to:

(i) an asset of the Company or a Subsidiary having been before the Economic Transfer Date the subject of a Claim for CGT rollover relief pursuant to the Tax Act or an exemption from Duty notwithstanding the Tax or Duty liability may arise after the Economic Transfer Date; and

(ii) a determination made by the Australian Commissioner of Taxation under section 177F of the Tax Act in relation to a tax benefit obtained (or obtained but for that section) before or after the Economic Transfer Date in connection with a scheme to which Part IV A of the Tax Act applies and which was entered into or commenced to be carried out (A) on or before the Economic Transfer Date or (B) any time up to and including the Closing Time which would not have, or might reasonably be expected not to have, been entered into or carried out but for this Agreement; and

(b) the Agreed Percentage of any Losses suffered by an Indemnified Entity because the actual amount of PRRT Credits as at 30 September 2014 is less than the amount of the PRRT Credits disclosed in the Data Room for 30 September 2014 to the Purchaser, to the extent that the difference arises from the disallowance of (i) exploration expenditure actually utilised by an AEL Group entity, or transferred by any AEL Group entity to any of the Indemnified Entity's petroleum projects, on or before the Economic Transfer Date or (ii) general and administrative costs treated as PRRT expenditure; and

(c) the Agreed Percentage of Tax Costs incurred by or on behalf of an Indemnified Entity to the extent those Tax Costs:

(i) are reasonable; and

(ii) arise from or relate to any of the matters for which Vendors may be liable under the Tax Indemnity.

17 Article 1 of the SPA deals with interpretation. Section 1.1 contains definitions. The chapeau to s 1.1 reads:

In this Agreement, unless otherwise defined, the following terms and expressions shall have the following meanings.

all reasonable costs and expenses incurred in:

(a) managing an inquiry; or

(b) conducting any Disputing Action,

in relation to a Tax Demand.

19 The reference to 'Data Room' in s 9.12(b) is a reference to various forms of information and documents made available to the Quadrant parties no later than 2 April 2015.

20 Section 9.13 contains a number of exceptions to the operation of the indemnity. The provisions relevant for present purposes are as follows:

9.13 Exceptions to Tax Indemnity

The Tax Indemnity does not apply to an amount of Tax or Duty or Loss suffered to the extent that:

...

(b) the Tax or Duty or Loss is provided for in the Last Accounts;

(c) the Tax or Duty or Loss is not subject to a Tax Demand which is made within four (4) years of the date of this Agreement;

...

The exceptions to the Tax Indemnity in this Section 9.13 shall not apply to the extent of any increase in Tax or Duty or Loss suffered resulting from any Disputing Action undertaken by Purchaser in accordance with a request by Vendors as referred to in Section 9.15.

21 Tax Demand, Tax Indemnity and Claim are all defined terms. 'Tax Demand' means a Claim pursuant to the Tax Indemnity. 'Tax Indemnity' means the indemnity in s 9.12.

in relation to any Person, a claim, action, proceeding, demand, lawsuit, arbitration, order, judgment, award, damage, loss, cost, expense, or liability incurred by, or made by, or recovered by or against, the Person, howsoever arising and whether past, present, unascertained, immediate, future, or contingent.

23 Section 9.7 is entitled 'Limitation on Claims'. Consistent with s 9.13(c), s 9.7(b) specifies that the indemnities under s 9.12 terminate on the date that is four years after the date of SPA.

24 As noted above, upon receipt of the ATO notices, Quadrant gave notice to Apache under s 9.14. That provision reads:

9.14 Indemnified Entity to Notify Vendors

An Indemnified Entity must:

(a) give Vendors a copy of any Assessment for the Tax or Duty or Loss suffered the subject of any Claim for the Tax Indemnity within ten (10) Business Days after the earlier of:

(i) the day the Relevant Assessment is received; or

(ii) the day on which the obligation to pay the Tax or Duty or Loss suffered created or evidenced by the Relevant Assessment arises; and

(b) within ten (10) Business Days of the Indemnified Entity receiving any written communication or notice from any Governmental Authority that might lead to the making or issuing of a Relevant Assessment, give a copy of that communication to Vendors.

25 'Assessment' and 'Relevant Assessment' are defined as follows:

'Assessment' means something which creates or evidences an obligation to pay an ascertained amount of Tax or Duty at or before a fixed time, including:

(a) any document received from a Governmental Authority administering any Tax or Duty assessing, imposing or claiming any Tax or Duty (including an assessment (whether of a nil amount or otherwise), penalty notice or demand);

(b) a notice to a contributing member of a Consolidated Group given under section 72115(5) of the Tax Act.

...

'Relevant Assessment' means an Assessment in respect of which Vendors are liable to indemnify an Indemnified Entity under this Agreement.

26 Section 9.15 enables Apache to require Quadrant to take 'Disputing Action'. 'Disputing Action' is defined to mean

any action to have a matter withdrawn, reduced, or postponed or any action to avoid, dispute, object to, resist, mitigate, settle, compromise, defend, or appeal against the matter.

9.15 Disputing Action

(a) Within ten (10) Business Days of receiving notice from an Indemnified Entity of a Relevant Assessment, or of a matter that may lead to the making or issue of a Relevant Assessment, Vendors may by notice require Purchaser to take Disputing Action at Vendors' expense in connection with the Relevant Assessment.

(b) Subject to paragraphs (c) and (d) of this Section 9.15, if Vendors require Purchaser to take Disputing Action in connection with a Relevant Assessment, Purchaser must, and must procure that Purchaser and (after Closing) the affected Company and/or Subsidiary, provide all reasonable assistance in respect of the Disputing Action as Vendors reasonably request and undertake each of the following:

(i) take such Disputing Action as is reasonably requested by Vendors;

(ii) at the request of Vendors, give Vendors information and access to personnel, premises, plant, goods, documents and records to Vendors and to its professional advisers as is reasonably necessary to take such Disputing Action; and

(iii) authorise legal or other professional advisers nominated by Vendors to act in respect of the Disputing Action on behalf of the Indemnified Entity, but in accordance with the instructions of Vendors.

(c) In requiring Purchaser to take Disputing Action, Vendors must:

(i) act in good faith;

(ii) act reasonably in all the circumstances, including having regard to the likelihood of success and the effect of the Disputing Action on the goodwill or reputation of Purchaser's business; and

(iii) obtain Purchaser's written consent (not to be unreasonably withheld) prior to entering into or agreeing any settlement or compromise with respect to the Disputing Action.

(d) Purchaser will not be obliged to take a Disputing Action unless the grounds of objection are considered to have a reasonable chance of success, as set out in an opinion, obtained by Purchaser at its sole cost and expense, from an Australian senior counsel of at least 10 years' experience and currently practising in Tax or Duty (as applicable) at the independent bar ('Tax Advisor'), as soon as is reasonably practicable. Similarly, Purchaser cannot refuse to take a Disputing Action if Vendors obtain, from a Tax Advisor of Vendors' choosing, a tax opinion that the action has a reasonable chance of success.

(e) Purchaser must not, and must procure that each Indemnified Entity does not, compromise or settle any Relevant Assessment or agree any matter which may affect the outcome of any dispute or negotiation with any Governmental Authority in relation to a Claim that is the subject of the Tax Indemnity without the prior written consent of Vendors.

(f) Vendors must keep Purchaser fully informed about any Disputing Action Vendors take under this Section 9.15 including providing Purchaser with reasonable access to a copy of any notice, correspondence or other document relating to the Disputing Action.

(g) Vendors shall indemnify, defend and hold harmless Purchaser and the Indemnified Entity against, and pay on demand, the amount of any and all Tax Costs reasonably incurred by Purchaser or any of its related bodies corporate in connection with any Disputing Action taken under this Section 9.15 pursuant to Vendors' request.

28 The principles applicable to the construction and interpretation of contracts are wellestablished and, as the parties both noted in their submissions, were conveniently summarised by the plurality in Electricity Generation Corporation v Woodside Energy Ltd[1] in the following passage:

The meaning of the terms of a commercial contract is to be determined by what a reasonable businessperson would have understood those terms to mean. That approach is not unfamiliar. As reaffirmed, it will require consideration of the language used by the parties, the surrounding circumstances known to them and the commercial purpose or objects to be secured by the contract. Appreciation of the commercial purpose or objects is facilitated by an understanding 'of the genesis of the transaction, the background, the context [and] the market in which the parties are operating'. As Arden LJ observed in Re Golden Key Ltd, unless a contrary intention is indicated, a court is entitled to approach the task of giving a commercial contract a businesslike interpretation on the assumption 'that the parties ... intended to produce a commercial result'. A commercial contract is to be construed so as to avoid it 'making commercial nonsense or working commercial inconvenience'. (citations omitted)

29 The Quadrant parties placed considerable emphasis on certain defined meanings of terms or expressions used in the SPA. In BHP Petroleum (Australia) Pty Ltd v Sagasco South East Inc,[2] the court agreed with the proposition that in an agreement drawn with legal advice as part of a complex and sophisticated commercial enterprise, the deliberate use of defined words is not to be lightly passed over, even where the definition leaves open the possibility of another meaning for a defined phrase. The force of that proposition was acknowledged by Leeming JA (with whom McColl and Gleeson JJA agreed) in Perpetual Custodians Ltd v IOOF Investment Management Ltd.[3] Perpetual Custodians Ltd involved consideration of a defined term in two agreements. One of the agreements qualified the defined terms with the words 'unless the context otherwise provides'. The second agreement did not. Leeming JA concluded that it is not necessary for express provision to that effect to be made, a rule which applies in the case of statutes. He continued:

The same approach applies to contracts. For example, Lord Steyn has written extrajudicially that '[e]ven an agreed definition is of limited use: it takes no account of contextual requirements': (2001) 21 OJLS 59 at 60. The same point was made by Fullagar J in Halford v Price (1960) 105 CLR 23 at 33. Professor McMeel has written (The Construction of Contracts, 2nd ed (2011) Oxford University Press, p 159) that 'even defined terms must yield to wider context or contrary intention'. Professor Carter has said that 'the absence of [words to the effect "unless the context indicates otherwise"] does not mean that the definition necessarily applies to every usage of the term in the document' (The Construction of Commercial Contracts (2013) Hart, p 446). That must in my opinion be correct in principle. The ordinary approach to construction insists on reading the contract as a whole and doing so harmoniously, so as to resolve or minimise internal inconsistency. Foreign to that approach would be a slavish rule that defined terms inevitably bear every aspect of their defined meaning. The contestable nub of the matter is what is sufficient to constitute a displacing context or contrary intention. Owen and Steytler JJ have said that 'the deliberate use of defined words is not to be lightly passed over, even where the definition leaves open the possibility of another meaning for a defined phrase': BHP Petroleum (Australia) Pty Ltd v Sagasco South East Inc [2001] WASCA 159 at [24], a proposition whose force I acknowledge [86].

30 Observations to the same effect were made in Segelov v Ernst & Young Services Pty Ltd,[4] where Gleeson JA said 'it remains necessary to consider the purpose as well as the text, of the definition and the context in which it is used. The sense in which a definition is used cannot be determined mechanically'.

31 Reading definitions into a clause using the defined expressions was described in Apache Oil Australia Pty Ltd (Quadrant Oil Australia Pty Ltd) v Santos Offshore Pty Ltd[5] as being what would ordinarily be done as a matter of construction.

32 As noted above, the defined terms in s 1.1 are said to apply 'unless otherwise defined'.

Commercial purpose and object of the tax indemnity provisions of the SPA

33 In their written submissions, both Quadrant and Apache submitted that s 9.15 must be construed in the context of the tax indemnity regime under s 9.12 to s 9.15 and the SPA as a whole.[6] That is plainly correct. In the course of oral submissions, senior counsel for Apache took a different approach. He criticised Quadrant's submissions on the basis that they seek to 'interpret the notice provisions under [s 9.14 and s 9.15] through the prism of the indemnity provision under s 9.12'.[7] I do not accept that criticism of Quadrant's approach. As the parties both acknowledged in their written submissions, s 9.12 forms part of the context in which s 9.14 and s 9.15 are to be construed.

34 As Quadrant submits, the tax indemnity regime provides that the Apache parties are, inter alia, liable to indemnify the Quadrant entities for Tax or Duty payable by the Quadrant entities after Closing that arises from, or relates to, the period prior to the Economic Transfer Date, consistent with the internal logic of the SPA. Apache expresses the purpose of the Tax Indemnity differently, although in my view not inconsistently with Quadrant. It submits that the clear underlying purpose of the tax indemnity regime is to allocate and manage the risk and consequences of a tax liability accruing to Quadrant and other Indemnified Entities that arises from or relates to a period before the Economic Transfer Date when the Apache parties were the operators and in control. I accept Apache's description of the object and purpose of the tax indemnity provisions in Article 9 of the SPA.

• Section 9.14 has two limbs.
• The first limb (s 9.14(a)) requires an Indemnified Entity to give the Apache parties a copy of any Assessment for a Tax, Duty or Loss that is the subject of any Claim for the Tax Indemnity (Claimed Liability) within 10 business days after the day the Relevant Assessment is received or the day on which an obligation to pay the Claimed Liability arises (whichever is the earlier). An 'Assessment' is something that creates or evidences an obligation to pay an ascertained amount of Tax or Duty. A 'Relevant Assessment' is an Assessment in respect of which the Apache parties are liable to indemnify an Indemnified Entity.
• The second limb (s 9.14(b)) requires an Indemnified Entity, within 10 days of 'receiving any written communication or notice from any Governmental Authority that might lead to the making or issuing or a Relevant Assessment', to give a copy of it to the Apache parties.
• While the first limb applies when a Relevant Assessment has been issued, the second limb applies when no Relevant Assessment has been issued.
• There is no issue that Quadrant's solicitors' letter of 6 November 2017 was a notice under the second limb, ATO notices being notices from a Governmental Authority that might lead to the making of a Relevant Assessment.
• Section 9.15(a) imposes a time limit of 10 business days within which Apache could, by notice, require Quadrant to take Disputing Action. That 10 day time period runs from receipt by Apache of a notice under s 9.14.
• The 'matter' referred to in s 9.15(a) (being a matter that may lead to the making or issue of a Relevant Assessment) is the 'written communication or notice' referred to in s 9.14(b).
• The expression 'in connection with' found in s 9.15(a) is an expression of wide import.
• The reference to 'the Relevant Assessment' where it appears in the phrase 'Disputing Action ..... in connection with the Relevant Assessment' at the end of s 9.15(a) is, on its ordinary textual meaning, a reference to Disputing Action either in connection a Relevant Assessment that has been issued or to a Relevant Assessment that may be issued as a result of a matter that gave rise to a notice under s 9.14(b).
• The obligation of Quadrant to take such Disputing Action in connection with that (actual or potential) Relevant Assessment arises upon the Apache parties giving notice under s 9.15(a) requiring such action to be taken, whether or not 'the Relevant Assessment' has been issued or is ever issued.

Apache's arguments in support of its construction

36 Apache advances six reasons why it says its construction should be preferred.

37 First, it observes that there are three mentions of 'Relevant Assessment' in s 9.15(a). The first two are preceded by the indefinite article 'a'. The last is preceded by the definite article 'the'. This evinces a necessary correspondence between the lastmentioned 'Relevant Assessment' and the first two references. Thus, 'the Relevant Assessment' mentioned in the phrase 'in connection with the Relevant Assessment' must be a reference not only to a Relevant Assessment that has been issued, but also to a Relevant Assessment to which a matter notified under s 9.14(b) might lead.

38 Second, expressions such as 'in connection with', and similar phrases such as 'arising out of' and 'relating to', 'have repeatedly been held to be words of the widest import',[8] although Apache accepts that the precise relationship between two things that such an expression contemplates will be determined by the context in which the expression is used. By way of illustration, Apache refers to Australian Securities and Investments Commission v Park Trent Properties Group Pty Ltd [No 3][9] where Sackville AJA held that financial advice about setting up a selfmanaged superannuation fund (SMSF) and investing in property through it was financial advice 'in relation to' beneficial interests in SMSFs, and rejected a submission that this could not be so because the SMSFs in question were not in existence at the time the financial advice was given. Thus, Apache argues Disputing Action may comfortably constitute action 'in connection with' a Relevant Assessment that might result from a matter notified under s 9.14(b), even if the action is taken prior to or in the absence of any such Relevant Assessment eventuating.

39 Third, the breadth of the definition of 'Disputing Action' belies any suggestion that the obligation under s 9.15(b) to take Disputing Action arises only when a Relevant Assessment has been issued. As noted above, 'Disputing Action' is defined broadly in s 1.1 as 'any action to have a matter withdrawn, reduced, or postponed or any action to avoid, dispute, object to, resist, mitigate, settle, compromise, defend, or appeal against the matter'. Because the expression 'Disputing Action' is not used anywhere else in the SPA other than in s 9.15 and by way of crossreference to that section in s 9.13, the definition must be taken to have been drafted exclusively for the purpose of describing the Disputing Action contemplated by s 9.15. Yet, Apache argues, only some elements of the definition of Disputing Action are apt to describe an action that could sensibly be taken in respect of a Relevant Assessment that has been issued. For instance, it may be possible to have an issued Relevant Assessment withdrawn, or to dispute, object to or appeal against it. However, once a Relevant Assessment has been issued, it is too late to take action to 'postpone' or 'avoid' it, as it is a fait accompli. Actions to postpone or avoid a Relevant Assessment (or a matter that might lead to it being issued) must therefore be actions that the parties contemplated would be taken before any such Assessment was issued.

40 Fourth, given that s 9.15 is the only place in which the concept of a Disputing Action is employed substantively in the SPA, it can be inferred that the word 'matter' in the definition of Disputing Action was intended to be used consistently with the way in which it is used in the closelyrelated s 9.14(b), so that it encompasses a 'matter that may lead to the making of a Relevant Assessment' (such as the ATO Reviews). In other words, 'any action to have a matter withdrawn' etc. in the definition of Disputing Action must include any action to have a matter that may lead to the making of a Relevant Assessment (such as the ATO Reviews) withdrawn etc. Apache submits that it is telling that the definition of Disputing Action employs the expression 'action to have a matter withdrawn [etc]' rather than a narrower expression such as 'action to have a Relevant Assessment withdrawn [etc]'.

41 Fifth, Apache argues that the construction for which it contends is not only supported by the language and structure of s 9.15 for the reasons advanced above, but is consistent with commercial sense. Apache argues that it would be commercially nonsensical for the SPA to give the Apache parties (under s 9.14(b)) a right, within 10 business days after receiving notice of a matter that might lead to the issuing of a Relevant Notice, to notify Quadrant that they require Quadrant to take Disputing Action in connection with the Relevant Assessment if (as Quadrant contends) Quadrant was not required to take the Disputing Action unless and until such a Relevant Assessment was issued. Apache submits it is obvious (and would have been obvious to the parties to the SPA, being sophisticated commercial entities operating highly valuable business enterprises) that:

(i) audits and similar processes were matters that may lead to the issuing of a new or revised Relevant Assessment;

(ii) taking appropriate action in respect of such processes before any Relevant Assessment is issued (such as by actively engaging in a review or audit process), or failing to take appropriate action, may affect the likelihood of any such Relevant Assessment being issued at all, the ability to challenge the assessment if issued, or the amount of any liability under the assessment; and

(iii) the Apache parties would be best placed to take any such action in respect of a matter that may lead to the issuing of a Relevant Assessment, given that a Relevant Assessment would be one that necessarily related to a time when the Apache parties were operating and in control of the relevant entity the subject of the primary liability for the Tax or Duty to which the Relevant Assessment relates.

42 Sixth, on the other hand it would serve no sensible commercial purpose to confer on the Apache parties a right under s 9.15, after they receive notice under s 9.14(b) of a matter that may lead to the issuing of a Relevant Assessment (but has not presently done so), to require Quadrant to take Disputing Action at some time in the future if (and only if) such a Relevant Assessment were issued. It would be manifestly premature to make any decision about requiring action to be taken in response to a Relevant Assessment that might eventuate (as opposed to taking action in response to a matter that might lead to the making of such a Relevant Assessment) unless and until it in fact eventuated. In addition, such a right would be redundant given that s 9.15 separately confers the right on the Apache parties, after they receive notice under s 9.14(a) that a Relevant Assessment has been issued, to require Quadrant to take Disputing Action in respect of that Relevant Assessment.

Quadrant's arguments in support of its construction

43 Quadrant submits that the tax indemnity provisions contain a number of important features.

44 First, Quadrant submits that the better view is that no indemnity can be sought by the Quadrant entities until they have a presently existing liability to pay an amount under s 9.12(a). The indemnity is for '...the Agreed Percentage of any Tax or Duty payable by an Indemnified Entity'.

45 Second, the obligation for the Apache parties to pay an amount pursuant to the indemnity in s 9.12 arises only when Quadrant makes a Tax Demand. The amount claimed is payable by the Apache parties to Quadrant on demand, therefore a 'Claim' pursuant to s 9.12 must be for an amount which is presently due and owing.

46 Third, under s 9.14, an Indemnified Entity must notify the Apache parties of any Assessment or any written communication or notice from any Governmental Authority that might lead to the making or issuing of a Relevant Assessment.

47 Fourth, the Apache parties may elect to require Quadrant to take Disputing Action in connection with a Relevant Assessment under s 9.15(a).

48 Fifth, the indemnity does not apply unless a Tax Demand has been made by Quadrant to the Apache parties within four years of the date of the SPA as noted above. Accordingly, Quadrant must make a Claim on the indemnity (the Tax Demand) prior to 9 April 2019.

49 Quadrant submits that, on a proper construction of s 9.15, the obligation on Quadrant to take Disputing Action is not engaged until a Relevant Assessment is in fact received.

50 Quadrant places particular reliance on the definition of the term 'Relevant Assessment' being 'an Assessment in respect of which the vendors are liable to indemnify ...' (emphasis added) and 'Assessment' meaning 'something which creates or evidences an obligation to pay an ascertained amount of Tax or duty at or before a fixed time'. It notes that the term 'Relevant Assessment' only appears in s 9.14 and s 9.15 of the SPA.

51 Quadrant notes that the obligation to take Disputing Action only arises in relation to 'Disputing Action .... in connection with the Relevant Assessment' (emphasis added). Because the definition of 'Relevant Assessment' and 'Assessment' both contemplate a present liability or obligation to pay some tax, properly construed, Quadrant argues s 9.15(a) contemplates that:

When notice is given by Quadrant pursuant to section 9.14(a), the Apache Parties can give notice requiring Quadrant to take Disputing Action immediately as there is a presently existing Relevant Assessment.

However, where notice is given by Quadrant pursuant to section 9.14(b), the Apache Parties can give notice of a requirement to take Disputing Action to Quadrant, but there is no obligation on Quadrant to take that particular Disputing Action (or any Disputing Action) at that point in time, because there is not yet a Relevant Assessment. Indeed, not only is there no obligation, Quadrant would be incapable of taking Disputing Action as the predicate to it (the Relevant Assessment, that is, the thing "in connection with" the Disputing Action is taken) does not yet exist so there would be no content for the Disputing Action. At that stage, there is only the potential for a Relevant Assessment to be issued.

Therefore, if the Apache Parties were to provide a notice pursuant to section 9.15(a) in response to notice given pursuant to section 9.14(b), as is the case here, the notice at that stage is merely notification requiring that Disputing Action be taken at a future point in time if a Relevant Assessment is issued that relates to the section 9.14(b) notice.[10]

52 Quadrant advances eleven reasons why it contends that that construction is to be preferred.

53 First, because as referred to above, s 9.15(a) says '...require Purchaser to take Disputing Action...in connection with the Relevant Assessment'. Quadrant submits that the use of the definite article 'the' is apt to describe an actual Relevant Assessment, not circumstances prior to the issue of a Relevant Assessment, where there is only the potential for a Relevant Assessment to be issued. Quadrant argues that, were Disputing Action able to be required in respect of circumstances before the Relevant Assessment is issued, one would have expected the draftsperson to have included words in s 9.15(a) to make that clear, such as 'in connection with the Relevant Assessment or a matter which might lead to the making or issue of the Relevant Assessment', so as to be consistent with the first part of subpar 9.15(a).

54 Second, applying the approach described in Apache Oil Australia Pty Ltd v Santos Offshore Pty Ltd,[11] Quadrant notes that when the defined terms 'Assessment' and 'Relevant Assessment' are read directly into the text of s 9.15(a), it reads:

...[the Apache Parties] may by notice require [Quadrant] to take Disputing Action at [the Apache Parties'] expense in connection with the [something which creates or evidences an obligation to pay an ascertained amount of Tax or Duty at or before a fixed time...] in respect of which [the Apache Parties'] are liable to indemnify [Quadrant] under this Agreement].

55 Quadrant submits that, when read in this way, the section is clearly referring to taking Disputing Action 'in connection with' a concrete and presently existing thing, not a hypothetical or contingent future thing.

56 Third, because s 9.15(b), which is the subparagraph of s 9.15 which provides content to the obligation of Quadrant to undertake Disputing Action (stating that Quadrant must 'provide all reasonable assistance in respect of the Disputing Action' and must undertake 'such Disputing Action as is reasonably requested'), is similarly conditioned to s 9.15(a). Section 9.15(b) states 'if [Apache Parties] require [Quadrant] to take Disputing Action in connection with a Relevant Assessment'. For the reasons referred to in in relation to the first reason advanced above, Quadrant argues that this is apt to describe Disputing Action in respect of a presently existing Relevant Assessment, but not circumstances prior to that time.

57 Fourth, because s 9.15(b) is framed in a manner which allows for the particular Disputing Action which the Apache parties require Quadrant to take to be adjusted from time to time to suit changing circumstances. This allows for the Apache parties to provide an initial generic notice under s 9.15(a) following notice under s 9.14(b) that Disputing Action will be required in connection with a Relevant Assessment, with the specific content or form of that Disputing Action being given at the later point in time once the Relevant Assessment has issued.

58 Fifth, because s 9.15(b) is expressly subject to s 9.15(d), which begins '[s]ubject to paragraph (c) and (d) ...'. Accordingly, Quadrant's obligation to take any Disputing Action pursuant to s 9.15(b) is conditional upon Quadrant's right to refuse to take such action by means of s 9.15(d) (though it is also conditioned upon the requests for Disputing Action being 'reasonably requested' in s 9.15(b)(i)). Given the disruptive and intrusive nature of any Disputing Action (in that the Apache parties are in essence empowered to force Quadrant to submit itself to challenge or dispute a matter it may not wish to dispute) one would expect that the right to require Quadrant to take such action be subject to a right to challenge it. For reasons set out below, Quadrant submits that s 9.15(d) appears to only apply in respect of a presentlyexisting Relevant Assessment. Therefore, given that s 9.15(b) is subject to s 9.15(d), and s 9.15(d) can only have effect after a Relevant Assessment has been issued, it must be that s 9.15(b) is similarly limited to circumstances in which there is a Relevant Assessment.

59 Sixth, s 9.15(d) states '[Quadrant] will not be obliged to take a Disputing Action unless the grounds of objection are considered to have a reasonable chance of success, as set out in an opinion' of tax counsel. The reference to 'grounds of objection' is apt to describe objection to a Relevant Assessment, but not apt to describe actions taken prior to the existence of one. If no Relevant Assessment has been issued, it is difficult to envisage what, if any, formal objection could be taken.

60 Seventh, s 9.15(e) restricts Quadrant from compromising or settling a Relevant Assessment, or agreeing any matter 'which may affect the outcome of any dispute or negotiation with any Government Authority in relation to a Claim that is the subject of the Tax Indemnity without the prior written consent of [the Apache Parties]'. The use of the present tense 'Claim that is the subject of the Tax Indemnity' means that s 9.15(e) applies only in circumstances where Quadrant has made a Claim pursuant to s 9.12, being a Tax Demand. Quadrant submits that the better view is that in order for a Claim relating to income tax or PRRT to have been made, a Relevant Assessment must have been issued. That is, s 9.15(e) does not regulate Quadrant's conduct prior to a Relevant Assessment being issued or a Tax Demand being made.

61 Eighth, s 9.15(g) provides that the Apache parties are to indemnify Quadrant and any Indemnified Entity against any and all Tax Costs 'reasonably incurred by [Quadrant] or any of its related bodies corporate in connection with any Disputing Action taken under this Section 9.15 pursuant to [Apache Parties'] request'. 'Tax Cost' is defined to mean:

all reasonable costs and expenses incurred in:

(a) managing an inquiry; or

(b) conducting any Disputing Action,

in relation to a Tax Demand.

62 The defined term 'Tax Demand' means 'a Claim pursuant to the Tax Indemnity' (that is, a Claim made pursuant to s 9.12).

63 Referring to the statement of Le Miere J in Terravision Pty Ltd v Black Box Control Pty Ltd [No 3][12] that 'where the definition does not fit comfortably into the text, the exercise of construction will need to address any logical or grammatical infelicities that arise and further analysis will be necessary to ascertain its legal meaning', Quadrant submits that the term 'Claim' takes its meaning from its context. In the context of the definition of 'Tax Demand', the 'Claim' is the 'demand' pursuant to s 9.12 (that is, being a demand for an amount that is presently due and owing such that it can be paid by the Apache parties' 'on demand' as required in s 9.12). The demand may be made in respect of any presently owing Tax or Duty which relates to the period prior to the Economic Transfer Date.

64 Quadrant argues that the fact that s 9.15(g) requires the Apache parties to indemnify Quadrant for all Tax Costs which relate to a Tax Demand supports the proper construction that Disputing Action can only be taken in respect of a presentlyexisting Relevant Assessment. That is because s 9.15(g) limits the Apache parties' obligation to indemnify Quadrant for costs, to costs which result from the decision to take Disputing Action or costs which are incurred following the making of a Tax Demand. That is said to provide a commercially sensible outcome for two reasons:

(i) if Quadrant notified the Apache parties of the receipt of a Relevant Assessment but the Apache parties elected not to take Disputing Action, Quadrant would be liable for any costs it incurred should it elect to take steps to compromise, settle or agree any matter relating to the assessment or claim, as those costs would fall outside the definition of 'Tax Costs'; and

(ii) if it was the case that Disputing Action could be required before a Tax Demand could be made, the Apache parties would not be obliged to indemnify Quadrant regarding any Disputing Action they required to be taken before a Relevant Assessment is issued or Tax Demand is made.

65 Quadrant notes that s 9.12(c)(ii) provides that Quadrant can make a demand for Tax Costs it has incurred to the extent those Tax Costs arise from or relate to matters for which the Apache parties may be liable under the Tax Indemnity. It contends that, properly construed, this provision provides that Quadrant is entitled to be indemnified and make demand for all costs that it in fact incurs, which result from Disputing Action or any inquiry in relation to a Tax Demand, regardless of whether those actions ultimately result in any change to the amount of Tax or Duty which Apache is ultimately required to indemnify Quadrant pursuant to s 9.12. Quadrant contends that that outcome is also consistent with s 9.15(a), which states that the '[Apache Parties] may by notice require [Quadrant] to take Disputing Action at [the Apache Parties'] expense in connection with the Relevant Assessment'.

66 Ninth, s 9.13 provides certain exceptions to the Tax Indemnity in s 9.12. The final paragraph of s 9.13 provides '[t]he exceptions to the Tax Indemnity in this Section 9.13 shall not apply to the extent of any increase in Tax or Duty or Loss suffered resulting from any Disputing Action undertaken by [Quadrant] in accordance with a request by [Apache Parties] as referred to in Section 9.15'. Quadrant argues that, in order to calculate an 'increase' in Tax, there needs to be a baseline. In the absence of a Relevant Assessment having been issued, that baseline is a matter of mere speculation.

67 Tenth, Quadrant submits that its interpretation achieves the best balance of commercial risk and motivation of the parties for the following reasons:

(i) Section 9.13(c) provides that no indemnity need be given by the Apache parties pursuant to s 9.12 in respect of a Tax Demand made more than four years from the date of the SPA (being 9 April 2019). A Tax Demand can only be made once the Relevant Assessment is issued, as prior to this time, there is no presently existing obligation to pay any tax, for the reasons outlined above. Therefore, in the period prior to such issue, the risk of an audit or risk review not being completed in a timely manner is a risk borne by the Quadrant entities, as Quadrant could lose the opportunity to make a claim for the indemnity in s 9.12 if the process does not lead to the making of a Relevant Assessment within the four year window. Therefore, it makes commercial sense for the parties to have agreed that the Quadrant entities will have control of tax affairs and communications with the ATO prior to a Relevant Assessment being issued, because those parties have the incentive to ensure that any review process is completed in time for it to make a Tax Demand, and bear the risk of failing to do so.

(ii) Further, at the time the parties entered into the SPA, a tax return had not been lodged for the 2014 tax year, which, given that it covered a period prior to the Economic Transfer Date (1 January 2014 to 30 September 2014), could have been the subject of a Tax Demand. Indeed, the tax return for the 2014 year was not lodged until 2016.[13] Therefore, and given that there is at least a four year window for the ATO to issue an amended assessment, the parties entered into the SPA on the basis that at least in respect of the 2014 tax year, the ATO's window for issuing an amended assessment was longer than the window provided for Quadrant to make a Tax Demand in respect of any assessment for that tax year. This known circumstance, and the risk it created for Quadrant, provides further reason for the logic of the SPA being that Quadrant would control the process prior to the Relevant Assessment being issued; to ensure that it was completed in a timely manner.

(iii) Were the process to be driven by the Apache parties prior to a Relevant Assessment being issued, then subject to the ameliorating effect of the obligation imposed by s 9.15(c)(i) and (iii) to act in good faith, their incentive would not be to pursue the Disputing Action in a timely fashion, as the slower the process, the more likely that any Tax Demand Quadrant might make would fall outside of the four year window.

(iv) If it was correct that Disputing Action could be required before a Relevant Assessment was in existence, there is nothing within s 9.15 which would prevent the Apache parties from requiring that the Disputing Action continue even after the four year window for a Tax Demand had elapsed. That is, Quadrant could be forced to continue Disputing Action even after it lost the opportunity to be indemnified by the Apache parties in respect of any subsequent assessment. Such a scenario is not purely hypothetical; it may be in the interests of the Apache parties to dispute certain matters for reputational reasons, even if Quadrant could not seek an indemnity against them. As previously noted, Quadrant might also have to pay for that Disputing Action. Such an outcome would be highly uncommercial.

(v) On the other hand, once the Tax Demand has been made, Quadrant is no longer bound by the time limit in s 9.13(c) and so there is no risk to Quadrant in the Apache parties being given the opportunity to have control of the Disputing Action process at that time, and Quadrant is properly protected in relation to costs of the Disputing Action.

68 Eleventh, Quadrant submits that there is commercial value to the provision of notification of certain matters to the Apache parties before the grant of a right to the Apache parties to require that Quadrant take certain steps in respect of those matters. Section 9.14(b) ensures that the Apache parties are provided with notice that a future Tax Demand may be made, given that they are notified of matters which might lead to the making or issuing of a Relevant Assessment. Such notification is inherently valuable, irrespective of whether the right is given to the Apache parties to control the progress of the matter, for two reasons:

(i) First, it allows the Apache parties to prepare for, and make provision for, a potential future Tax Demand. Further, it would give the Apache parties the opportunity to voluntarily offer input into the process during the period of time prior to the issuing of the Relevant Assessment, which would potentially be valuable to both Quadrant and the Apache parties, though Quadrant would not be obliged to take account of such input. Quadrant argues that, construed in that way, s 9.14 and s 9.15(a) are analogous to notice provisions under a professional indemnity insurance policy, in that they require Quadrant (akin to the insured party) to notify the Vendors (akin to the insurer) of a claim or a potential claim. Analogous to the position under an insurance policy, the giving of notice of a potential claim does not necessarily enliven the obligation to indemnify the insured.

(ii) Second, it means that, if no notification is given pursuant to s 9.15(a), Quadrant knows that the Apache parties do not intend to take Disputing Action at that time and can conduct its affairs accordingly.

69 While recognising the force of a number of the arguments advanced by Quadrant, I have concluded that the construction for which Apache contends is to be preferred for the reasons that it advances.

70 I am strongly influenced in reaching that conclusion by my rejection of Quadrant's contention that the purpose to be served by a notice under s 9.15(a) in response to a notice sent by Quadrant under s 9.14(b) is 'merely notification requiring the "Disputing Action" be taken at a future point in time if a Relevant Assessment is issued that relates to the section 9.14(b) notice'. That submission is closely related to the submission that a notice under s 9.14(b) is akin to a notice of a potential claim under an insurance policy. To the extent that that analogy is apposite, it can be observed that at least one purpose of a notice to an insurer of a potential claim serves the purpose on enabling the insurer to take whatever steps may be available to it under the policy or at law to protect its potential liability. In a context where ultimate liability for an assessment might result from the matter to which the s 9.14(b) notice refers, the capacity to require Quadrant to take Disputing Action is consistent with that purpose. The requirement for Quadrant to give notice under s 9.14 is, in my view, clearly intended to facilitate Apache's entitlement to require Disputing Action under s 9.15(a) commencing from the date of receipt of the s 9.14 notice. I reject the submissions that, insofar as a s 9.15(a) notice follows a s 9.14(b) notice, its purpose is simply to allow Apache to prepare for, or make provision for, a future Tax Demand.

71 I accept Apache's submission that the use of the definite article in the third reference to 'Relevant Assessment' in s 9.15(a) is a reference back to the Relevant Assessment referred to in whichever of the of alternatives limbs of s 9.15(a) is applicable. In other words, if the notice from Quadrant is a notice under s 9.14(a), 'the Relevant Assessment' is the Assessment that has been issued and to which that notice relates. If the notice from Quadrant has been given under s 9.14(b), 'the Relevant Assessment' is the Assessment that may issue as a result of the matter (being the written communication or notice from a Government Authority).

72 The definition of Relevant Assessment does not demand a different construction. Once it is determined that 'the Relevant Assessment' in s 9.15(a) is (in relation to the receipt of a notice under s 9.14(b)) an Assessment that may in future be issued, the definition can be applied without construing s 9.15(a) as limiting the capacity to require Disputing Action.

73 The notice under s 9.14(b) can only be required to be given if a communication may lead to the making of 'an Assessment in respect of which Vendors are liable to indemnify an Indemnified entity under this agreement'. At the time that a communication is received from a Governmental Authority, it may be impossible to know whether any assessment that may ultimately issue will be one in respect of which the indemnity provisions will operate. This case provides an example. The concern that underlies the parties' contentions in this case is that, depending on how long the ATO risk reviews and any subsequent audits or other enquiries take, any assessment issued as a consequence may or may not be issued within the four year limit of the Tax Indemnity. Yet neither party suggests that the obligation on Quadrant to give notice under s 9.14 did not arise. That is because it is acknowledged that the communication 'may' lead to an Assessment. So s 9.14 invokes a notice regime that is not limited to existing liabilities flowing from issued Assessments and existing Tax Demands.

74 It is not therefore contemplated by s 9.14, and in turn s 9.15, that a Governmental Authority's communication will necessarily lead to an Assessment in respect of which the tax indemnity operates. Disputing Action can be required 'in connection with' a Relevant Assessment or, relevantly, a Relevant Assessment that may result from a Governmental Authority communication. The words 'in connection' with are words of broad import.[14] The decision of Sackville AJA in Park Trent Properties Group,[15] upon which Apache relies, turns largely on the terms of the legislation there under consideration and is of limited assistance in construing s 9.15. However, in Koppen v Commissioner for Community Relations,[16] Spender J, referring to the decision of the English Court of Appeal in Johnson v Johnson,[17] held that the words 'in connection with' can be used to describe a future event. Johnson v Johnson concerned a question of whether something could be 'connected with' a matrimonial cause that had not yet come into existence. In concluding that it could, their Lordships were guided by a case decided in the British Columbia Supreme Court, In re Nanaimo Community Hotel Ltd.[18] That case concerned the construction of a statutory provision which gave the Exchequer Court the exclusive jurisdiction to hear and determine all questions that may arise 'in connexion with any assessment made under' the relevant act. McFarlane J rejected an argument that no jurisdiction was conferred until there had been an assessment. He noted that '[o]ne of the very generally accepted meanings of ''connexion'' is ''in relation between things one of which is bound up or involved in another'' or again ''having to do with'''. He found that the words include matters occurring prior to as well as subsequent to or consequent upon so long as they are related to the principal thing.

75 In my respectful view, that analysis is correct and is applicable to s 9.15 of the SPA. Disputing Action in relation to the matter that gives rise to a s 9.14(b) notice is action 'in connection with' a Relevant Assessment, albeit that no Assessment has yet issued. Reading into s 9.15(a), the definitions of Relevant Assessment and Assessment do not change that conclusion. While those definitions describe a present liability, Disputing Action can be required in connection with something that may in the future give rise to that (then) present liability. For the same reasons, Quadrant's reliance on the reference to the words 'in connection with a Relevant Assessment' in s 9.15(b) does not assist. Those words refer back to 'the Relevant Assessment' that is the subject of a notice under s 9.15(a) which, in response to a s 9.14(b) notice, is an Assessment that may issue in future.

76 If Disputing Action could only be required after an Assessment had actually been issued:

(a) any capacity on the part of Apache to take steps to influence the ultimate outcome of the process that may lead to an Assessment for which Apache may be ultimately liable is lost; and

(b) there would be no need to include the reference to a s 9.14(b) notice in s 9.15(a). If Apache is required to await the issue of an Assessment before Quadrant was required to take Disputing Action, it would be sufficient that s 9.15 simply entitled Apache to give notice of Disputing Action within 10 business days of receipt of a s 9.14(a) notice. Given that s 9.14 would require a further notice to be given by Quadrant when an Assessment was actually issued, there would be little purpose in the earlier notice under s 9.14(b).

77 Facilitating Apache's capacity to influence and participate in the process of the ATO reviews, to the extent that the reviews relate to the period prior to the Economic Transfer Date, is consistent with the allocation and management of the risk of tax liabilities arising from that period. It is thus consistent with the purpose and object of the tax indemnity regime. The point is illustrated by the references to voluntary disclosure that is available during the review process and which can have a substantial bearing on the ultimate tax liability.

78 The breadth of the definition of Disputing Action is consistent with the construction that allows Disputing Action to be required before an Assessment is issued. The use of expressions like 'postpone', 'avoid' or 'resist' sit comfortably with action taken in advance of an Assessment being issued.

79 Similarly, the words 'any action to have the matter withdrawn ...' sit comfortably with the reference to 'a matter that may lead ....' which are used in s 9.15(a). As senior counsel for Quadrant submitted, those words might be capable of applying to an assessment that has been issued, so I accept that the definition is merely consistent with but not determinative of Apache's construction of s 9.15.

80 I agree with Apache's submission that its construction is both supported by the language of s 9.15 and is consistent with commercial sense for the reasons they advance which I have set out above at pars [41] and [42].

81 I reject Quadrant's contention that, if Apache's construction were intended, the draftsperson would have added at the end of s 9.15(a) the words 'or a matter which might lead to the making or issue of a Relevant Assessment'. The concept embodied in those words is encompassed in the use of the words 'in connection with' coupled with the expression 'the Relevant Assessment', being a reference to a Relevant Assessment to which a Governmental Authority notice may lead.

82 Nor do I consider that Quadrant's construction is supported by the capacity of Apache, under s 9.15(b), from time to time to adjust the Disputing Action that it requires Quadrant to take. That capacity is commercially sensible in the context of action in relation to matters that may lead to an assessment. It is a strained construction to suggest that the flexibility available under s 9.15(b) exists in order to allow Apache to give notice that it is going to require Disputing Action if and when an assessment issues in circumstances where it cannot be precise about the action until it sees the Assessment.

83 Quadrant, noting that the obligation to take Disputing Action is subject to s 9.15(d), submits that the reference to 'grounds of objection' in s 9.15(d) is apt to describe an objection to an Assessment that has actually issued, and not apt to describe actions taken prior to the existence of an Assessment. Given the breadth of the types of action referred to in the definition of Disputing Action, the expression 'grounds of objection' cannot sensibly be construed narrowly. It is in my view simply a reference to the particular action that might be required by Apache under s 9.15(b). The countervailing provision in s 9.15(d), that prevents Quadrant from refusing to take a Disputing Action where Apache obtains an opinion that 'the action' has a reasonable chance of success, supports that construction of 'grounds of objection'. It may be some forms of Disputing Action cannot be sensibly measured by chances of success. In those cases s 9.15(d) may have no work to do. But that does not lead to a construction of s 9.15(a) or (b) that limits the type of Disputing Action that might be required to be taken. In my view, s 9.15(d) is of no assistance in construing s 9.15(a).

84 Quadrant submits that the prohibition in s 9.15(e) on it agreeing 'any matter which may affect the outcome of any dispute or negotiation with any Governmental Authority in relation to a Claim that is the subject of the Tax Indemnity' necessarily contemplates a present obligation pursuant to an Assessment that is in existence.

85 It is common ground that s 9.15(e) has two distinct and separate limbs. The first limb prohibits Quadrant from compromising or settling a Relevant Assessment. The second limb prohibits Quadrant agreeing any matters which may affect the outcome of any dispute or negotiation with any Governmental Authority in relation to 'a Claim that is the subject of the Tax Indemnity'. Clearly the first limb requires that a Relevant Assessment has been issued. Quadrant submits that the use of the present tense in the phrase 'Claim that is the subject of the Tax Indemnity' means that s 9.15(e) applies only in circumstances where Quadrant has made a Claim pursuant to s 9.12, being a Tax Demand.

86 Apache submits that, taken in its context, that expression includes unascertained future or contingent liabilities under the Tax Indemnity. To understand that submission it is necessary to examine the definitions of the terms used.

87 As noted earlier, the SPA s 1.1 defines 'Claim' to mean:

in relation to any Person, a claim, action, proceeding, demand, lawsuit, arbitration, order, judgment, award, damage, loss, cost, expense, or liability incurred by, or made by, or recovered by or against, the Person, howsoever arising and whether past, present, unascertained, immediate, future, or contingent.

88 'Tax Indemnity' is defined in SPA s 1.1 as the indemnity under s 9.12.

89 Apache submits that, giving effect to the plain meaning of those defined terms, the expression 'Claim the subject of the Tax Indemnity' includes (relevantly) an 'unascertained, ... future, or contingent ... claim, ... demand ... [or] liability' the subject of the Tax Liability. It submits that conceptually, an unascertained, future or contingent liability, claim or demand may readily be 'the subject of' an indemnity in an unascertained or contingent way, or 'the subject of' the indemnity in the future, as the case may be.

90 Apache illustrates the point by reference to Quadrant's foreshadowed position in respect of the outcome of the ATO Reviews. It is not in issue that the ATO Reviews are matters that may lead to the issuing of a Relevant Assessment. Quadrant has foreshadowed that, in the event an amended assessment is issued to QEAL or any of the Indemnified Entities, 'then those entities intend to make a demand upon the Apache parties pursuant to the tax indemnity in s 9.12 of the SPA'.[19] Apache argues that that foreshadowed demand may readily be characterised, as a matter of ordinary English, as a future or contingent demand 'that is the subject of the Tax Indemnity'.

91 Thus, Apache submits that s 9.15(e) should be construed so that it operates to require that Quadrant does not agree any matter that may affect the outcome of any dispute or negotiation with any Governmental Authority (such as the ATO) in relation to the foreshadowed demand under the Tax Indemnity, without the prior written consent of the Apache parties. It contends that that construction provides the very kind of protection that the parties would readily contemplate in the context of the tax indemnity regime. That is, protection against Quadrant acting in its selfinterest, but to the Apache's detriment, by agreeing with the ATO a matter that could increase the Apache parties' liability under the Tax Indemnity simply to ensure that any Relevant Assessment is issued in time for the Quadrant parties to make a claim under the Tax Indemnity before it expires.

92 In my view, the second limb of s 9.15(e) corresponds with the second limb of s 9.15(a) which in turn corresponds with s 9.14(b). It is difficult to see what the second limb of s 9.15(e) would add to the first limb if it required, as Quadrant submits, that an Assessment be in existence. The construction of s 9.15(e) contended for by Apache is to be preferred.

93 As Quadrant submits, however, the consequence of that construction of s 9.15(e) leads to the conclusion that Quadrant's foreshadowed demand is a 'Claim' pursuant to the Tax Indemnity and is thus a Tax Demand.

94 That conclusion impacts on Quadrant's arguments as to the operation of s 9.15(g). That section requires Apache to indemnify Quadrant and pay to Quadrant any and all Tax Costs reasonably incurred in connection with Disputing Action taken at Apache's request. As noted above, Tax Costs are reasonable costs and expenses in managing an enquiry or conducting any Disputing Action 'in relation to a Tax Demand'. Quadrant argues that, because 'Claim' where it is used in the definition of Tax Demand must in its context be read as referring to a demand for an amount that is presently due, s 9.15(g) would provide no indemnity for costs of Disputing Action relating to some future contingent assessment. That is because, Quadrant argues, that action could not be 'in relation to a Tax Demand' since a Tax Demand could only be made when an Assessment has been issued. Because 'Claim' should not be read down as suggested by Quadrant, that argument falls away.

95 The Tax Indemnity includes an indemnity in relation to Tax Costs.[20] It covers reasonable Tax Costs that 'arise from or relate to any of the matters for which Vendors (Apache) may be liable under the Tax Indemnity'. Matters for which Apache may be liable under the Tax Indemnity include a Relevant Assessment that may result from the communication from a Governmental Authority that leads to a s 9.14(b) notice. It is consistent with the purpose of the Tax Indemnity provisions of the SPA that Quadrant should be indemnified for costs and expenses incurred in complying with a Disputing Action requirement. Apache's construction of s 9.15(a), and the definition of 'Claim' as it applies in s 9.15(e) and in the definition of 'Tax Demand' are all consistent with that purpose.

96 The final paragraph of s 9.13 does not assist Quadrant's construction. That paragraph provides that the exceptions to the Tax Indemnity do not apply to any increase in tax or duty resulting from the taking of Disputing Action. Quadrant submits that, if Disputing Action can be taken in relation to future unascertainable possible assessments, it is impossible to establish a baseline from which to measure any increase in liability resulting from the Disputing Action. That simply means that the paragraph has no work to do in those particular circumstances. It does not inform the proper construction of s 9.15.

97 I do not accept that Quadrant's construction achieves the best balance of commercial risk as submitted by Quadrant. The parties in this case are each concerned with the possible duration of the ATO reviews and any audit process that might follow before any amended assessment is issued. Quadrant is concerned that, if left to Apache to control, the process may be drawn out beyond the four year period of the indemnity. Apache is concerned that if Quadrant remains in control of the process, in the interests of ensuring any amended assessment is issued within the four year period, it may not take all steps that might be necessary to minimise the ultimate liability that will fall on Apache. Pursuant to s 9.15(c)(i), Apache is required to act in good faith in requiring Quadrant to take Disputing Action. No express reciprocal obligation falls on Quadrant in taking Disputing Action. The better balance of commercial risk is that the provisions give control to the party who faces ultimate liability for the tax, subject to the obligation to act in good faith. In any event, given the conclusion that I have reached as to Quadrant's capacity to make a Tax Demand in relation to a Relevant Assessment that may follow from the ATO reviews, the issue of timing of the ultimate outcome of the reviews may not be critical to the operation of the Tax Indemnity.

98 It follows that my answer to the first question is 'yes'. For the reasons discussed in relation to s 9.15(e), the answer to the second question is also 'yes'.

[1] Electricity Generation Corporation v Woodside Energy Ltd [2014] HCA 7; (2014) 251 CLR 640 [35].

[2] BHP Petroleum (Australia) Pty Ltd v Sagasco South East Inc [2001] WASCA 159 [24].

[3] Perpetual Custodians Ltd v IOOF Investment Management Ltd [2013] NSWCA 231 [86].

[4] Segelov v Ernst & Young Services Pty Ltd [2015] NSWCA 156; (2015) 89 NSWLR 431 [87] (Gleeson JA, Meagher and Leeming JJA agreeing).

[5] Apache Oil Australia Pty Ltd (Quadrant Oil Australia Pty Ltd) v Santos Offshore Pty Ltd [2016] WASCA 213 [99] (Newnes & Murphy JJA, Mitchell JA agreeing).

[6] Quadrant Outline of Submissions, 2 February 2018, [19]; Apache Outline of Submissions, 9 February 2018, [12], [14].

[8] Fitzpatrick v Emerald Grain Pty Ltd [2017] WASC 206 [51] (Martin CJ); see also Eriez Magnetics Pty Ltd v Duro Felguera Australia Pty Ltd [2017] WASC 304 [44] (Martin CJ) and the authorities there cited.

[9] Australian Securities and Investments Commission v Park Trent Properties Group Pty Ltd [No 3] [2015] NSWSC 1527 [411] [416] (Sackville AJA).

[10] Quadrant's Outline of Submissions 2 February 2018, [30].

[11] Apache Oil Australia Pty Ltd v Santos Offshore Pty Ltd [99] (Newnes and Murphy JJA, Mitchell JA agreeing); see also Segelov v Ernst and Young Services Pty Ltd [88] (Gleeson JA, Meagher and Leeming JJA agreeing); Halford v Price (1960) 105 CLR 23, 26 27 (Dixon CJ). See the cognate principle in Kelly v R [2004] HCA 12; (2004) 218 CLR 216 [103] (McHugh J) in the context of statutory interpretation.

[12] Terravision Pty Ltd v Black Box Control Pty Ltd [No 3] [2016] WASC 95 [42] (Le Miere J); see also Segelov v Ernst and Young Services Pty Ltd [87] (Gleeson JA, Meagher and Leeming JJA agreeing).

[13] Affidavit of Robyn Murphy, 18 January 2018, [37].

[14] Fitzpatrick v Emerald Grain Pty Ltd [51] (Martin CJ).

[15] Park Trent Properties Group [411] [416] (Sackville AJA).

[16] Koppen v Commissioner For Community Relations (1986) 67 ALR 215, 220.

[17] Johnson v Johnson [1952] P 47; [1952] 1 All ER 250.

[18] In re Nanaimo Community Hotel Ltd [1944] 4 DLR 638.

[19] Affidavit of Robyn Murphy, 18 January 2018, [52].