NSW Coal Compensation Board v NSW Coal Compensation Review Tribunal & Anor [2002] NSWSC 326 | Case summary

JUDGMENT 1 Master Malpass: These proceedings were commenced by Summons filed on 3 December 2001. Relief is sought pursuant to s 69 of the Supreme Court Act 1970 (in the nature of a Writ of Certiorari). Subsection (3) enables the court to quash the ultimate determination of a court or tribunal if that determination has been made on the basis of an error of law that appears on the face of the record of the proceedings. Subsection (4) provides that the face of the record includes the reasons expressed by the court or tribunal for its ultimate determination. 2 An agreed statement of facts has been reached. It is embodied in a document dated 25 February 2002 and filed in court on that day. A copy of that document has been tendered as Exhibit "B". 3 It is unnecessary to refer to all of the matters which are contained in the Agreed Statement of Facts. It suffices to merely make mention to some of them. It commences with the vesting in the Crown of privately owned coal on and from 1 January 1982. 4 Following a restoration of coal to former owners, a coal title 1/834458 was issued to Rosemary Hudson Reynolds (Mrs Reynolds) in November 1993. On 17 November 1995, Mrs Reynolds executed a Deed of Assignment which assigned the coal in that title to the second defendant as Trustee of the Inglebrae Coal Trust for a consideration of $1,147,000. 5 Pursuant to s 5A of the Coal Acquisition Act 1981 (the Act), the coal contained within the coal title was reacquired by the Crown on 13 March 1998. 6 Section 5A deals with revesting in the Crown of coal granted under the Coal Ownership (Restitution) Act 1990. The section is in the following terms:- " 5A Revesting in the Crown of coal granted under Coal Ownership (Restitution) Act 1990 (1) This section applies to coal granted under the Coal Ownership (Restitution) Act 1990 , whether granted before or after the commencement of this section. (2) On the recommendation of the Minister, the Governor may, by proclamation, declare that specified coal to which this section applies is vested in the Crown. (3) In deciding whether to make such a recommendation, the Minister may have regard to the revenue that would be likely to accrue to the Crown if the coal were vested in the Crown. (4) On the publication in the Gazette of a proclamation under this section, the coal specified in the proclamation is vested in the Crown freed and discharged from all trusts, leases, licences, obligations, estates, interests and contracts. (5) The reference in subsection (4) to leases does not include a reference to mining leases within the meaning of the Mining Act 1992 . (6) This section expires at the end of 31 December 1998." 7 The section enables revesting of the coal to take place. The process requires the recommendation of the Minister, proclamation by the Governor and the publication in the Gazette of the proclamation. 8 The second defendant made an application for compensation pursuant to clause 6 of the Coal Acquisition (Re-acquisition Arrangements) Order 1997 (the Order). On 27 August 1999, the plaintiff determined total compensation in the sum of $9,500,100. 9 Clause 6 is in the following terms:- " 6 Compensation to owner of revested coal (1) Any person, other than the Crown or an instrumentality or agency of the Crown, is eligible to apply for compensation under this Part in respect of saleable coal that: (a) is vested in the Crown under section 5A of the Acquisition Act, and (b) was immediately before it so vested in the Crown vested in the person. (2) The compensation payable is to be calculated in accordance with Schedule 1. (3) Compensation in respect of coal referred to in this clause is payable in accordance with this Order and not otherwise. (4) If coal that is the subject of an application under this clause was the subject of a determination under the 1985 Arrangements: (a) the applicant is, pending the determination of the compensation payable under this clause, entitled to a preliminary payment of compensation under this Order equal to the amount of the compensation determined under the 1985 Arrangements, and (b) the amount of compensation payable under this clause is not to be less than the amount of the compensation determined under the 1985 Arrangements, except to the extent of any reduction under clause 8 (Gains to be offset against compensation) of this Order." 10 On 9 January 2001, a Notice of Assessment of Capital Gains Tax (CGT) in the sum of $2,105,804.54 was issued by the Australian Taxation Office (ATO) to the second defendant (following a self-assessment). The assessment of liability to pay capital gains tax was made by reference to the compensation determined pursuant to clause 6. 11 Thereupon, the second defendant made an application for compensation under clause 7 of the Order. The clause is presently in the following terms:-

" 7 Compensation for consequential loss when coal revested (1) A person, other than the Crown or an instrumentality or agency of the Crown, who claims to have sustained a consequential loss that is attributable to the operation of section 5A of the Acquisition Act is eligible to apply for compensation under this Part but only if the consequential loss is a pecuniary loss that is directly attributable to the discharge by virtue of the operation of that section of any trust, lease, licence, obligation, estate, interest or contract established, granted, incurred, created or entered into before the commencement of this Order. (2) A claim cannot be made under this clause for a loss in respect of which an application could be made under clause 6 and cannot be made for a loss that is attributable to a liability to pay royalties to the Crown. (3) If the Board is satisfied that an applicant has sustained a loss to which this clause applies and that having regard to all the circumstances of the case it would be just and equitable for compensation to be paid in respect of the loss, the Board is to determine the amount of compensation to be paid to the person. The compensation to be paid is not to exceed the amount of that loss. The compensation must be just and equitable. (3A) If, on considering a claim to which this clause applies: (a) the Board is not satisfied that the applicant has sustained a loss, or (b) the Board is satisfied that the applicant has sustained a loss but, having regard to all the circumstances of the case, considers it would not be just and equitable for compensation to be paid in respect of the claim, the Board is to refuse the claim. (4) Compensation in respect of a loss to which this clause applies is payable in accordance with this Order and not otherwise." 12 On 16 February 2001, the plaintiff made a determination which refused the second defendant's application for compensation under clause 7. It did so on the basis that the liability to pay capital gains tax does not constitute a pecuniary loss that is directly attributable to the discharge by virtue of the operation of s 5A of the Act of any trust, lease, licence, obligation, estate, interest or contract established, granted, incurred, created or entered into before the commencement of the Order. 13 The court has been informed that the consideration of the application and the subsequent determination did not involve a hearing. The plaintiff did have before it a recommendation which had been prepared by one senior assessor and checked by another. The recommendation concluded that the application should be refused on the ground that the CGT liability was not a consequential loss provided for under clause 7. 14 An appeal was brought from that determination. It was determined by the first defendant on 28 September 2001. It allowed an appeal. The reasons for that determination are before the court (they are embodied in a document headed "Judgment"). I shall now refer to certain matters which appear in the reasons. 15 The plaintiff had put to the second defendant that the liability to pay CGT was not a consequential loss of the kind referred to in clause 7. Further, it was said that CGT was only a tax on the profit component of the compensation. 16 The first defendant did not agree with this approach. It took the view that the taxation liability was a loss which did not arise until after compulsory re-acquisition and therefore must be regarded as a consequential loss which is attributable to the operation of s 5A of the Act. It also expressed it to be a consequential loss in the form of additional taxation. 17 The first defendant expressed further views. I should mention some of them. 18 It was of the view that the liability for CGT was directly attributable to the operation of s 5A of the Act. It had formed the view that there was a direct causal link between the compulsory acquisition of the asset and the liability for CGT. It said that were it not for the compulsory acquisition of the asset, it would have remained in the hands of the appellant and therefore not liable to CGT. 19 It accepted that the test for compensation had two parts. The second being that the appellant had to satisfy the Tribunal that it is just and equitable that compensation be paid. Whilst it did not expressly say so, it can be implied that it was so satisfied. 20 The judgment concludes with these paragraphs:- "The appeal is allowed but only as to that part of the $2,105,804.54 CGT which is directly attributable to the re-acquisition of the parcel of coal the subject of this appeal. The claim is referred back to the Board for determination of that amount." 21 For completeness, it should be added that there was an amendment to clause 7 (by the addition of subclause (3A) ) and that it came into effect prior to the appeal being determined by the first defendant. This was not known to either the parties or the first defendant at the time. For present purposes the amendment does not have any impact on the resolution of these proceedings. 22 I shall now turn to the scheme prescribed by clause 7. It is different to that to be found in clause 6 and requires the Board to determine the amount of compensation to be paid upon it being satisfied of two matters. Firstly, it has to be satisfied than an applicant has sustained a loss to which the clause applies. Secondly, it has to be satisfied that having regard to all of the circumstances of the case it would be just and equitable for compensation to be paid in respect of that loss. 23 The scheme prescribes that the compensation is not to exceed the amount of that loss. It also prescribes that the compensation must be just and equitable. 24 In the present case, the plaintiff determined the application upon it not being satisfied as to the first of these two matters. It did not proceed to address the second of them. 25 The plaintiff attacks what was done by the first defendant on two grounds. Firstly, it submits that there was error in law in deciding that the second defendant's liability to pay CGT on any profit component of the compensation was a consequential loss to which clause 7 could apply. Secondly, in the alternative, it is submitted that the first defendant erred by not referring the application back to the plaintiff for it then to consider whether or not it was satisfied that having regard to all of the circumstances of the case it would be just and equitable for compensation to be paid. 26 Counsel for both the plaintiff and the second defendant have prepared written submissions. Counsel have orally addressed to those submissions. The court has been referred to and given material relating to a formidable body of authority. In this case, whilst the authority may provide guidance, the matters to be determined by the court primarily turn upon the proper construction to be given to the relevant provisions. In performing this task, the authorities really do not assist with present deliberations. 27 It is now convenient to return to relevant provisions of the scheme for compensation. Section 6 of the Act enables the Governor by order to make arrangements inter alia for the determination of the cases in which compensation is to be payable as a result of the operation of s 5A and for the determination of the amount and method of payment of any such compensation. Arrangements were made and these may be found in the Order. The expressed object of the Order is to make arrangements for the payment of just and equitable compensation. 28 Clauses 6 - 9 comprise Part 2 of the Order. This part is headed "Compensation in respect of restored coal revested in the Crown". Clauses 6 and 7 deal with inter alia eligibility to apply for compensation. These clauses are markedly different. 29 Although it has reference to "Any person", clause 6 has application only to a person who may be described as the owner of saleable coal that is vested in the Crown under s 5A and was immediately before it so vested in the Crown vested in "the person". The term "owner" appears only in the heading to the clause ("Compensation to owner of revested coal"). The compensation is made payable because of the vesting (the Board does not have a discretionary function). The amount payable is to be calculated in accordance with Schedule 1. Schedule 1 sets out a formula for the calculation of the compensation. Broadly speaking, it has been said to compensate the owner for the after-tax value of the royalty income that may have been earned in the future but for the vesting. It seemed to be common ground that such compensation itself was not taxable. 30 Clause 7 refers to "A person" and not to "Any person". There is no mention of "owner" in the heading ("Compensation for consequential loss when coal revested"). 31 The clause is lacking harmonious draftsmanship. At its commencement the eligibility to apply is expressed in the terms "A person, other than the Crown or an instrumentality or agency of the Crown, who claims to have sustained a consequential loss that is attributable to the operation of section 5A". However, the balance of subclause (1) seems to both further qualify these terms and introduce other elements which must be satisfied before eligibility is attained ("but only if the consequential loss is a pecuniary loss that is directly attributable to the discharge by virtue of the operation of that section of any trust, lease, licence, obligation, estate, interest or contract established, granted, incurred, created or entered into before the commencement of this Order."). These words are intended to define "consequential loss". 32 Clause 8 deals with the offsetting of gains. It provides that in the calculation of an amount of compensation payable under Part 2 of the Order (which includes clauses 6 and 7) the Board may make such reduction as it determines to be equivalent to the money value of any benefit obtained by the applicant from the discharge. 33 The language of provisions of the Act and the other provisions of the Order provides little guidance as to what was had in mind as "consequential loss". A similar lack of assistance emerges from the content of parliamentary speeches. However, it does not seem to be in dispute that inter alia it at least encompasses persons other than the owner who have suffered a loss directly attributable to the discharge by virtue of the operation of s 5A of any of the specified entitlements coming into being before the commencement of the Order. I have used the term "entitlements" as a general reference to the objects of discharge enunciated in subclause (1). 34 The dictionary definition of "consequential" connotes "the nature of consequence; following as an effect or result, or as a logical conclusion or inference; consequent; resultant" (see Macquarie Dictionary). 35 The consequential loss has to be "a pecuniary loss". It has to be directly attributable to the discharge by virtue of the operation of s 5A of any of the specified entitlements ("trust" etc) that came into being ("established" etc) before the commencement of the Order. In other words, there has to be a discharge of a specified entitlement by virtue of the vesting. 36 There has been argument as to whether or not a tax on a profit can be properly treated as a loss. For present purposes, it is unnecessary for me to pursue that question. 37 It seems to me that, when regard is had inter alia to the language used by the legislature, clause 7 was not intended to provide eligibility for compensation to the owner for the incurring of a tax liability (such as CGT) on the profit component of compensation received because that coal has been revested in the Crown. The incurring of such a tax liability is not the discharge of an entitlement by virtue of the revesting. Accordingly, it seems to me, as a matter of construction of clause 7, that what is sought by the second defendant in the present application is not consequential loss within the meaning of the clause. 38 Even if a different view were taken on this question of construction, it seems to me that the application of the second defendant must fail for other reasons. 39 The first defendant does not seem to have directed its attention towards the relevant provisions of the Income Tax Assessment Act 1936 (Part 111A). In my view, it is necessary to have regard to those provisions when looking at the question of whether or not this CGT liability is directly attributable in the relevant sense. 40 Broadly speaking, liability to pay CGT is attracted where there is an asset which is acquired after 20 September 1985 and is disposed of after that date in circumstances where, and to the extent that, the "indexed cost base" is exceeded by the consideration. 41 Submissions have been made as to the meaning of "directly attributable". There has been a reference to decided cases. However, there does not seem to be any real dispute between the parties on this question. The second defendant puts it in terms of requiring a direct causal connection that is not remote. 42 In my view, the liability had by the second defendant to pay CGT is not directly attributable to the operation of s 5A. It is attributable to the provisions of the Income Tax Assessment Act 1936 and to the collocation of matters that brought about an attraction of liability under that Act. 43 In the light of the decision reached on the first ground, it is now unnecessary to deal with the alternative second ground. 44 However, in deference to the arguments put by counsel I will make certain observations. 45 The appeal to the Tribunal has to be dealt with by way of reconsideration. This is prescribed in clause 6 of Schedule 3 to the Coal Acquisition (Compensation) Arrangements 1985 (the 1985 Order). The language of this provision restricts the reconsideration to a reconsidering of the matters that were considered by the Board.

NSW Coal Compensation Board v NSW Coal Compensation Review Tribunal & Anor

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Judgment (12 paragraphs)

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