Esso Australia Resources Pty Ltd v Commissioner of Taxation [2011] FCAFC 134 | Case summary

The interlocutory application filed 21 October 2011 be dismissed with costs. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011. IN THE FEDERAL COURT OF AUSTRALIA VICTORIA DISTRICT REGISTRY GENERAL DIVISION VID 536 of 2011 VID 537 of 2011 VID 538 of 2011 VID 539 of 2011 VID 540 of 2011 VID 541 of 2011 VID 542 of 2011 VID 543 of 2011 VID 544 of 2011

REASONS FOR JUDGMENT 1 These appeals are listed for hearing before a Full Bench for five days commencing on Monday 7 November 2011. On 26 October 2011 we dismissed an application made by the Commissioner of Taxation ('the Commissioner') to adjourn the hearing of the appeals and said that we would publish our reasons for taking this course as soon as possible. These are those reasons. 2 The appeals are concerned with the operation of the Petroleum Resource Rent Tax Assessment Act 1987 (Cth) ('the PRRTA Act') on two particular categories of hydrocarbon streams produced by the Gippsland basin petroleum production and processing operation which is jointly owned by the appellants in two of the appeals, BHP Billiton Petroleum (Bass Strait) Pty Ltd ('BHP') and Esso Australia Resources Pty Ltd ('Esso'). 3 One substantial point in the appeals concerns the proper construction of the definition of 'marketable petroleum commodity' contained in s 2 of the PRRTA Act which is in these terms: 'marketable petroleum commodity' means any of the following products produced from petroleum: (a) stabilised crude oil; (b) sales gas; (c) condensate; (d) liquefied petroleum gas; (e) ethane; (f) any other product declared by the regulations to be a marketable petroleum commodity; not being a product produced from another product of a kind referred to in paragraphs (a) to (f) (inclusive). 4 There is an ambiguity in this definition. Although the concept defined is one which appears to invoke some notion of a market the wording of the definition does not, in terms, say as much; that is to say, the products listed in subparagraphs (a) to (f) are specified without reference to their relationship to any particular market. The relevance of the definition of 'marketable petroleum commodity' relates, under the PRRTA Act, to the identification of what is known as the 'taxing point'. 5 At trial, the learned primary judge held that certain streams of liquefied petroleum gas and sales gas derived by BHP and Esso through its Gippsland basin operations were not marketable petroleum commodities within the meaning of s 2 because they were not products which had been produced, in effect, for sale. In the appeals BHP and Esso will submit that this was an error and that the definition of 'marketable petroleum commodity' does not require that the petroleum products in question be produced with an intention to sell. This Court will, therefore, determine whether the learned primary judge was correct in that regard. 6 There is a significant quantity of revenue involved in this litigation. After the primary judge's judgment was given in this matter, the Federal Government announced that it would seek to have Parliament amend the PRRTA Act 'to provide greater certainty around how the taxing point is calculated for the purposes of the Petroleum Resource Rent Tax (PPRT), with effect from 1 July 1990'. This was announced in the Budget Measures Budget Paper No. 2 which was circulated to members of Parliament on the occasion of the introduction of the Appropriation Bill (No 1) 2011-2012 and Appropriation Bill (No 2) 2011-2012 on 10 May 2011. At that time the Government did not introduce any draft bill to give effect to its proposal. 7 These appeals eventually came on for call-over before Gray J on 19 July 2011. At that time, Counsel then appearing for the Commissioner drew to his Honour's attention the Government's proposal to amend the PRRTA Act but no application was then made by him that the appeals should not proceed. In that event, Gray J listed the appeals for a week in the Full Court sittings commencing on 31 October 2011. 8 After that had occurred, and on 13 October 2011, the Assistant Treasurer introduced into the House of Representatives the Tax Laws Amendment (2011 Measures No. 8) Bill 2011. If passed the Bill will repeal the current definition of 'marketable petroleum commodity' in s 2 and introduce a new s 2E as follows: (1) A marketable petroleum commodity is a product listed in subsection (2) that: (a) is a produced from petroleum for the purpose of: (i) sale; or (ii) used as a feedstock for conversion to another product (whether a product listed in subsection (2) or not); or (iii) direct consumption as energy; and (b) is in its final form for that purpose. (2) The products are as follows: (a) stabilised crude oil; (b) sales gas; (c) condensate; (d) liquefied petroleum gas; (e) ethane; (f) any other product specified in regulations made for the purposes of this paragraph. (3) However, a product cannot be a marketable petroleum commodity if it has been produced wholly or partly from a product that was a marketable petroleum commodity. 9 Clause 3 of the schedule introducing this amendment provides that the 'amendments made by this Schedule apply in relation to the year of tax commencing on 1 July 1990 and each later year of tax'. It will be seen that the effect of the proposed s 2E(1)(a) will be that any doubt about the correctness of the learned primary judge's conclusion will be removed. 10 At present, the status of this bill is as follows: it was introduced and read a first time on 13 October 2011; it has been read a second time (on the same day) with a second reading speech delivered by the responsible Minister; thereafter the second reading debate was adjourned. On 19 October 2011 the House of Representatives Standing Committee on Economics issued a media release in the following terms: The House of Representatives Economics Committee will inquire into and report on the Tax Laws Amendment (2011 Measures No. 8) Bill 2011 and the Pay As You Go Withholding Non-compliance Tax Bill 2011. The Bills clarify that the petroleum resource rent tax (PRRT) applies when a product is in its intended final form, rather than the earlier point in the production process when the substance first meets the definition of a marketable petroleum commodity. A later taxing point implies a higher tax liability. The legal interpretation of this part of the PRRT has been the subject of a long running legal dispute between Esso and the Tax Office, with the most recent decision supporting the later taxing point. The Explanatory Memorandum to the Bills states that the Federal Court's decision affirms 'the long established application of the PRRT'. An appeal on the decision is scheduled for November. … The Chair of the Committee, Julie Owens, said that the committee will examine the adequacy of the bills in achieving the policy objective and where possible identify any unintended consequences. The Bills and Explanatory Memorandum are available form the committee's website. Submissions should be sent to the committee by close of business on Wednesday, 26 October 2011. A public hearing is scheduled between 9.15 am and 3 pm on Thursday, 27 October 2011 in committee room 2R1 at Parliament House, Canberra. 11 The evidence before us showed that the bill had been designated as having category 'T' status which, according the Legislation Handbook issued by the Department of Prime Minister and Cabinet, is the highest priority which a bill can be given in the Government's legislative programme and denotes 'time critical bills for introduction and passage during the one sitting period'. The current Parliamentary sitting period is the Spring Session which will conclude at the end of November. The next sitting period will be the Autumn Session which will commence around the beginning of February 2012 and conclude during March 2012. 12 The basis for the Commissioner's adjournment application was that it was highly likely the bill would pass and thereby render the appeals a pointless and wasteful exercise. Once the bill became law the appeals from the judgment of the learned primary judge could not succeed. 13 Leaving aside the question of authority for the time being, there are, we think, at least three problems with the Commissioner's contention. First, it is by no means obvious that the bill is guaranteed passage through both the House of Representatives and the Senate since the Government does not control either House. The bill is a retrospective taxing law operating over a 21 year period. It is to be expected that there will be some resistance to its introduction particularly where those affected by it are significant corporations such as BHP and Esso. Given that the Government does not command a majority in either House it is impossible to say that the passage of the bill is inevitable. Secondly, once that is accepted it is difficult to distinguish the present situation from that obtaining when the matter was fixed for hearing by Gray J on 19 July 2011 for the sittings commencing on 31 October 2011. It is true, as Mr Davies QC submitted, that there is now a fully drafted bill which has been introduced into the House of Representatives with category 'T' status; further, it is also true that an adjournment might well have been difficult to secure at the call-over where there was neither legislation nor an indicative time frame for the introduction of legislation. In the rather unusual situation currently obtaining with respect to the present Parliament, however, we do not think that the introduction of a potentially controversial bill with category 'T' status increases by much the certainty of the situation from that existing in July. 14 Thirdly, a determination of the appeals on the present state of the law will permit a determination of the questions of costs which will inevitably arise even if the bill does become law before this Court concludes its deliberations. The bill, as it is presently drafted, does not direct the Court as to how the present litigation should be resolved. One may foresee therefore a submission that even if the bill does become law (defeating BHP and Esso's construction argument) yet should they have their costs of the trial if it turns out that their construction of the present law was correct. If such a submission were made, it is difficult to see that it would not be necessary to resolve the proper construction of the present definition as an incident of the costs debate. It is not clear therefore that the resolution of the issues presently framed for the Court's consideration is necessarily without utility. 15 Those matters, by themselves, suggest that no adjournment should be granted. In any event there is much to be said for the view that it is not appropriate for a Court to take into account as a controlling factor the prospect of a substantive legislative amendment which would accrue for the benefit of one party. In Meggitt Overseas Ltd v Grdovic (1998) 43 NSWLR 527 the New South Wales Court of Appeal (Mason P, Sheller and Beazley JJA agreeing) adopted as correct (at 534) a passage from the dissenting reasons for judgment given by Burt CJ in Re Minister for Minerals and Energy; Ex parte Wingate Holdings Pty Ltd [1987] WAR 190 at 194: … As a matter of principle the submission made by Wingate in its opposition to the adjournment should be accepted. The courts are charged with the high responsibility of administering justice according to the law as it is. A party invoking the jurisdiction of the court must be permitted to seek his justice upon that basis and the court cannot deny him that right because of a reasonable expectation that at some future date the law will be changed and with that change that his rights according to law will be changed. It may well be that his victory, should he enjoy one, will be Pyrrhic. If it is, then so be it. That is a matter for him. 16 We see no reason to depart from that statement of principle. Indeed the Full Court of this Court has previously said as much, albeit in obiter, in Attorney-General (Cth) v Foster (1998) 84 FCR 582 at 585 [7]: '… nor would the Court have been justified in adjourning the matter on account of the possibility that the law could be the subject of amendment by Parliament' (citing Meggitt). 17 Ultimately, the Commissioner did not seek to contest that, in general, this was the correct position. Instead, he submitted that the principle was a general one and as such susceptible to exceptions. The first step in the Commissioner's argument was to observe that one such exception involved those cases where an adjournment was sought to enable a proposition to be tested in an appeal brought by the parties to that case. The second was to note the analogy between the retrospective effect of a judicial determination on the content of the law and the retrospective effect of the present bill should it become law. The Commissioner's first step is supported by Meggitt for Mason P was quite clear that that situation was governed by different principles ('[such] a situation has been correctly viewed differently from the case at hand'). But the Commissioner's second step is only partially supported by Meggitt. It is true, as the Commissioner submits, that one reason given by Mason P for the existence of the exception was that a judicial determination would be retrospective in effect; but it was not the learned President's sole reason. Another reason - just as important - was the certainty that the judicial determination would occur: 'The reason why a pending appeal is different from a proposal for legislative amendment is that there is a level of certainty that the point will be addressed' (at 534). That notion has a certain resonance here where it will be seen, for the reasons we have already given, that there is not the requisite degree of certainty as to the bill's passage. 18 A second exception to the general principle also relied upon by the Commissioner was the acceptance by Mason P that amending legislation might be relevant to cases involving discretionary relief such as a prerogative remedy or an injunction. His Honour observed: 'In such cases relief may be denied on the ground of futility. On that basis, it may be proper to have regard to imminent legislative changes: [reference to authorities omitted]. I note that possibility without endorsing it.' [Emphasis added]. When regard is had to the last emphasised sentence it may be that Meggitt does not provide a great deal of support for the Commissioner's submission. In any event, the present case is not one involving discretionary relief so that, even accepting the exception's existence, it has no direct application. 19 The Commissioner then sought to extract from the same exception the somewhat broader proposition that the Court should have regard to the fact that the passage of the bill would render the appeals futile. Meggitt seems to us to the contrary. In embracing the dissenting judgment of Burt CJ in Wingate, Mason P accepted that an appellant in the position of Esso or BHP might well achieve a Pyrrhic victory but his Honour also adopted Burt CJ's curt response to that state of affairs: 'If it is, then so be it. That is a matter for him.' We see no reason to take a different course. 20 It was for those reasons that we dismissed the Commissioner's application for an adjournment with costs. I certify that the preceding twenty (20) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justices Edmonds & Perram.

Esso Australia Resources Pty Ltd v Commissioner of Taxation

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