Kilgour v Commissioner of Taxation [2025] FCAFC 183

1. In Metwally v University of Wollongong (1985) 60 ALR 68 at 71, the High Court said:

It is elementary that a party is bound by the conduct of his case. Except in the most exceptional circumstances, it would be contrary to all principles to allow a party, after a case has been decided against [that party], to raise a new argument which, whether deliberately or by inadvertence, [that party] failed to put during the hearing when [that party] had the opportunity to do so.

(square brackets provided)

1. However, if the facts have been established beyond controversy or the point involves a question of construction of law, "... then a court of appeal may find it expedient and in the interests of justice to entertain the point, but otherwise the rule is strictly applied": Water Board v Moustakas [1988] HCA 12; (1988) 180 CLR 491 at 497; [1988] HCA 12, and the cases cited therein.
2. In Gomez v Minister for Immigration and Multicultural Affairs (2002) 190 ALR 543 at 549, the Full Court referred to Metwally before observing that the phrase 'exceptional circumstances' indicates a discretion to entertain a new ground of appeal if it is expedient and in the interests of justice to do so.
3. In the recent decision in Lam v Liu [2025] NSWCA 254, the New South Wales Court of Appeal considered the issue of a point being raised on appeal which was not raised in the court below. Free JA at [44]-[47], referred to the strict principles that militate against allowing new points to be run on appeal, referring first to Suttor v Gundowda Pty Ltd [ 1950] HCA 35; (1950) 81 CLR 418 at 438 (Latham CJ, Williams and Fullager JJ) where their Honours observed that in circumstances where a point is not taken below and evidence could have been given which could have prevented the point from succeeding, it cannot be taken afterwards. See also Coulton v Holcombe [1986] HCA 33; (1986) 162 CLR 1 at 7-8.
4. So too, the matters identified by Lander J in SZKMS v Minister for Immigration and Citizenship [2008] FCA 499 at [22]-[24], to which Charlesworth J refers, are relevant considerations as part of the overall approach to an application for leave to introduce a new argument.

1. Whereas an explanation as to why an argument was not advanced at first instance must be provided in all cases, nonetheless, it is not necessary in all cases for that explanation to be advanced by way of evidence. Such a requirement has the potential to lead to disputes as to what occurred at first instance and potentially cross-examination on affidavits with the resultant interference with the orderly conduct of appeals.
2. That is not to say evidence is never required and each case will depend on its own facts. The nature of the point sought to be advanced will, to an extent, inform the question as to whether evidence why the point was not advanced is required, however ultimately that will be a matter for the court entertaining the appeal.
3. It is neither desirable nor possible to be prescriptive as to what constitutes exceptional circumstances, but there are a number of factors which are relevant to the question of whether leave should be granted:

(a) An explanation will be required but not necessarily supported by evidence. Clearly, that explanation will be important and the requirement for evidence as to why the point was not taken below will depend on the point being taken and the circumstances of the matter;

(b) Where a point is not taken below and evidence could have been given which could have prevented the point from succeeding, it cannot be taken on appeal: Metwally at p 71;

(c) If the facts have been established beyond controversy or the point involves a question of construction of law, it may be expedient and in the interests of justice to entertain the point: Water Board at p 497. That will involve the exercise of a discretion and it is in that context that the merits of the proposed argument is a consideration; and

(d) Whether prejudice will be visited upon the other party, and whether that prejudice is capable of being addressed.

1. The above factors are all relevant factors but are not exhaustive when considering whether to exercise the discretion in accordance with the standard set by the High Court in Metwally.
2. The argument which the appellant now seeks to advance was not advanced before the primary judge and there was no evidence upon which the argument could be founded.
3. Further if, and to the extent the appellant relies on the acquisition of the shares at $30 million reflects a "special value" to News Corp as a basis for the "friendly negotiation" point it now seeks to advance, any "special value" was not made out on the evidence: J [149].
4. In these circumstances, leave should not be granted.
5. Further, and in any event, I agree with Charlesworth J that the argument has no merit.
6. Accordingly, I would not grant leave to advance the argument.

I certify that the preceding sixteen (16) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice O'Sullivan.

1. I have read in draft the reasons for judgment of Charlesworth J, and agree that the appeals should be dismissed for the reasons given by her Honour. I add the following observations in relation to the issues raised by the grounds of appeal.
2. It is no longer in dispute that the capital proceeds from the disposal by each of the appellants of their shares in Punters Paradise Pty Ltd comprised the money that each of them received or was entitled to receive in respect of that disposal, namely the amount of $6,211,544 representing their proportionate share of the total purchase price of $31,057,722 paid by News Corp Australia Investments Pty Ltd for all of the shares in Punters. Because the primary judge found that the appellants and News Corp dealt with each other at arm's length in connection with the sale and purchase of the shares in Punters, the "market value substitution rule" did not apply in working out the capital proceeds of the CGT event_: Kilgour v Commissioner of Taxation_ [2024] FCA 687 (J) at [15], [116], [118]; see generally Income Tax Assessment Act 1997 (Cth) (ITAA 1997) ss 116-10(2), 116-20(1), 116-30(2)(b).
3. The sole issue on the appeal is whether the appellants were entitled to small business relief under Div 152 in Pt 3-3 of the ITAA 1997 in respect of the capital gains from the sale of their shares in Punters. In order to meet the basic conditions for such relief, each of the appellants was required to satisfy the "maximum net asset value test" in s 152-15. In particular, the net value of each appellant's CGT assets "just before the CGT event" must not have exceeded $6,000,000. Accordingly, it was necessary for each of the appellants to establish that the value of their shares in Punters at the relevant time was less than the capital proceeds that they each received on the disposal of those shares.
4. In the context of the "market value substitution rule", s 116-30(2)(b) of the ITAA 1997 contemplates the theoretical possibility that the capital proceeds of an arm's length dealing involving the disposal of a CGT asset can be more or less than the market value of that asset. Nevertheless, the underlying premise is that, where the parties have dealt with each other at arm's length, the capital proceeds are likely to represent the market value and can be relied on as an element in the calculation of any capital gain or loss: J [33]. Notwithstanding that the appellants' attempt to rely on the market value substitution rule "failed at the first hurdle" (J [119]), the primary judge proceeded to consider and make findings on the market value of the shares held by each of the appellants: at J [119]-[151]. Those findings were, and remain, unnecessary for the purposes of working out the capital proceeds for, and the capital gain on, the disposal of those shares. However, they have continued relevance for the application of the "maximum net asset value test" in s 152-15, for the purposes of determining whether the appellants were entitled to small business relief under Div 152 of the ITAA 1997.
5. Unlike the market value substitution rule under s 116-30, where the market value is worked out as at the time of the CGT event, the maximum net asset value test for the purposes of Div 152 is directed to the net value of the taxpayer's CGT assets "just before" the CGT event. In the present case, the time of valuation was just before the disposal of the shares in Punters, which is defined as the time of entry into the Share Sale Agreement.
6. It was common ground between the parties that the value of assets for the purposes of Div 152 is to be ascertained in accordance with the principles expounded in Spencer v Commonwealth (1907) 5 CLR 418: see J [120]. The Spencer principles do not preclude reference to subsequent events or circumstances which can be regarded as probative of the value of an asset at the time of valuation. Thus, subsequent comparable sales can be taken into account, not "as matters which would be present in the minds of the hypothetical parties", but "simply evidence of an event from which an inference can be drawn about the position at an earlier (but not very much earlier) time", provided that allowance can be made for any material change in circumstances since that time: Brisbane City Council v Mio Art Pty Ltd [2011] QCA 234; [2012] 2 Qd R 1 at [79] (Fryberg J). See also Caradi Pty Ltd v Secretary, Department of Transport [2020] VSCA 197 at [177]-[178] (Tate, Emerton and Osborn JJA); Propell National Valuers (WA) Pty Ltd v Australian Executor Trustees Ltd [2012] FCAFC 31; (2012) 202 FCR 158 at [5] (Stone J); McCathie v Federal Commissioner of Taxation [1944] HCA 9; (1944) 69 CLR 1 at 16 (Williams J).
7. The use of subsequent sales in assessing market value can be distinguished from the effect of subsequent events that were not within the knowledge of the hypothetical vendor and purchaser at the time at which the market value is to be ascertained, or that were no more than future possibilities or unrealised potentialities as at that time. It is in this sense that "[a]ll circumstances subsequently arising are to be ignored", and "[w]hether the land becomes more valuable or less valuable afterwards is immaterial": Spencer at 440 (Isaacs J). Potentialities as at the time of valuation can be taken into account in ascertaining value, but not their subsequent realisation: see e.g. Turner v Minister of Public Instruction [1956] HCA 7; (1956) 95 CLR 245 at 268-269 (Dixon CJ), 293 (Kitto J, Fullagar J agreeing), 295 (Taylor J).
8. It can be accepted that s 152-15 of the ITAA 1997 is aimed at a "moment in time", and is "intended to exclude the effects of the CGT event arising on or after the CGT event": Federal Commissioner of Taxation v Byrne Hotels Qld Pty Ltd [2011] FCAFC 127; (2011) 196 FCR 524 at [56] (Bennett J). But this does not prevent the CGT event itself, as distinct from its effects, from being taken into account as evidence of the value of the CGT asset "just before" the CGT event, at least where (as in the present case) the CGT event is the disposal of the CGT asset. The Share Sale Agreement provides evidence, if not the "best evidence" (see Federal Commissioner of Taxation v Miley [2017] FCA 1396; 106 ATR 779 at [81]-[82] (Wigney J)), of the value of the shares in Punters "just before" their disposal.
9. Further, and in any event, the circumstances "just before" the Share Sale Agreement was signed include the history of negotiations conducted between the parties, the non-binding indicative offers made by News Corp, the appellants' price expectations, News Corp's internal valuations of Punters, and the possibility that there may have been a potential competitive bidder (as to the latter, see J [73], [86]). At the time of valuation, it was known that News Corp was willing to pay just over $31 million for all of the shares in Punters, and there was no real uncertainty that the Share Sale Agreement would be entered into: cf. Miley at [111].
10. In so far as the appellants submitted that the Share Sale Agreement resulted from private negotiations between the parties that were not within the knowledge of a hypothetical vendor and purchaser in the market, the Spencer principles do not limit the matters that may be taken into account to those within public knowledge. Rather, it is presumed that a willing, but not anxious, vendor and purchaser would be "perfectly acquainted" with the property and "cognizant of all circumstances which might affect its value" as at the time of valuation: Spencer at 441 (Isaacs J). In this regard, it is not suggested that News Corp possessed any information bearing on the value of Punters that would not have been available to any other potential purchaser. The decision in Lynall v Inland Revenue Commissioners [1972] AC 680, on which the appellants relied, is distinguishable - in that case, the question was whether confidential board documents could be taken into account in ascertaining the value "in the open market" of shares in a private company, for the purposes of estate duty payable on the death of the shareholder. Here, while the negotiations between the appellants and News Corp may have been private, they were not based on any confidential information that could not have been disclosed to any prospective purchaser of the shares in Punters.
11. On the facts that were found by the primary judge, there was no basis to exclude any "special value" paid by News Corp in respect of perceived "synergistic benefits" arising from its ownership and control of the Punters business: J [149]. The primary judge did not accept that the "beneficial potentiality" arising from any such synergies was specific to News Corp, and proceeded on the basis that News Corp was representative of a "particular type of purchaser in a hypothetical market": J [150]. Further, in relation to cost synergies, News Corp's internal valuations of Punters were independent of any "cost savings and related improvement of the value position": J [80].
12. In such circumstances, the critical issue on the appeal becomes whether the primary judge erred in determining the value of the shares held by each of the appellants as a proportion of the price paid by News Corp for the purchase of all of the shares in Punters, instead of ascertaining the market value of a 20% interest in Punters considered in isolation from the sale of any other shares in Punters.
13. In the appellants' submission, the relevant question is what amount would have been paid by a hypothetical willing but not anxious purchaser for each appellant's shares alone, representing a 20% minority interest in Punters. The appellants argued that News Corp was not interested in purchasing a minority interest in Punters, and that the value of a 20% shareholding was less than 20% of the price that News Corp was prepared to pay for all of the shares combined.
14. An argument to similar effect was rejected in Miley. In that case, Wigney J concluded that the value of the shares sold by the taxpayer "as part of a package" involving the purchase of all of the shares in the company did not incorporate a discount in respect of a "lack of control" of the company, in circumstances where all of the shareholders were willing to sell their shares to a single purchaser who was willing to purchase all of the shares at a given price: Miley at [75], [92], [112], [114]-[116]. His Honour held that those circumstances reflected the "reality of the market", by which the taxpayer and the other shareholders had acted together in a "commercially sensible way" to sell their shares at the same time to a single purchaser: Miley at [99], [102], [104]. In my view, the approach adopted in Miley is both correct and directly applicable to the circumstances of the present case, in which the shareholders acted together to obtain the highest price for their shares by selling them at arm's length to a single purchaser who was willing to acquire all of the shares. There was no error by the primary judge in following that approach: J [152].
15. Finally, I agree that the appellants should be refused leave to raise the new argument that the "special value" to News Corp of Punters' business would have been shared equally between the appellants on the one hand and News Corp on the other hand, as the outcome of "friendly negotiations" between the parties. In addition to the matters referred to by Charlesworth J, there does not appear to be any factual or evidentiary foundation for such an argument in the present case. The primary judge did not expressly accept Mr Churchill's opinion that the "enterprise market value" of Punters was $18.2 million and did not make a finding that the purchase price paid by News Corp included a "special" or "strategic" value in the order of $12.5 million: cf. J [106]-[107]. Further, there was no expert evidence before the primary judge to support an approach by which a hypothetical vendor and purchaser would have negotiated to divide any such special or "marriage value" equally between the parties.
16. It follows that each of the appeals should be dismissed.

I certify that the preceding sixteen (16) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Horan.