The wrong taxpayer?
60 Orica's contention that the Commissioner has assessed the wrong taxpayer was developed on the basis of the matters recorded in this and the ensuing nine paragraphs. In 1979 Orica transferred its pharmaceuticals business to Orica Australia. Though no formal documents evidencing this are available, the annex to the board minute recorded at [12]‑[13] describes the group restructuring as the sale of the operating assets and transfer of operating liabilities from Orica to Orica Australia. The position after the restructure was that Orica would be the holding company, "not manufacturing or trading in its name". It would act as financier, borrowing and lending as appropriate. It would own existing land and buildings, most of which it would lease to Orica Australia. Orica Australia would be wholly owned by Orica. It would conduct in its name all the manufacturing and selling operations of the wholly owned businesses.
61 Orica's Annual Report for 1979 records that from 1 October 1979 its marketing and most of its manufacturing operations had been transferred to its wholly owned subsidiary Orica Australia. Orica Australia's financial statements for 1979 record the same event. The 1980 statements record that the company had purchased the operating assets and assumed certain liabilities and provisions of Orica and had taken over the marketing and manufacturing operations previously conducted by Orica.
62 From 1 October 1979 Orica Australia carried on the pharmaceuticals business, but there was no express assignment to it of any rights under the 1935 Deed.
63 The Operating Guidelines of 12 April 1984 referred to at [16] describe Orica Australia's primary role as acting as the Australian agency for all ICI Pharmaceuticals Division products for human use listed in an appendix, which is not in evidence. Under the heading 'Marketing' it is said that Orica Australia is regarded by ICI Pharmaceuticals Division as its vehicle for sale of the listed products in Australia. Orica says these Guidelines recognise that the benefit of the Business belongs to Orica Australia, and that the benefit of the distribution rights under the 1935 Deed belong to Orica Australia and not Orica.
64 Orica says that in 1993 it entered into the Distribution Agreement with Zeneca in substitution for the 1935 Deed. It describes the termination provisions as requiring Zeneca to purchase what it rendered as "the business of Orica Australia" for a price determined by a valuation process.
65 After Zeneca's notice of termination was served in December 1997, Zeneca and Orica implemented the valuation process. The completion of the process was halted as a result of the proceedings in the Chancery Division. At this time Zeneca and Orica negotiated as to whether Zeneca would buy the Business or proceed to termination of the Distribution Agreement. In the first of the two draft Umbrella Agreements in evidence (between Orica Australia, Orica NZ, Orica and Zeneca), Orica Australia and Orica NZ are described as the vendors. Recital A states that the vendors have conducted the Business in their respective countries since 1 October 1979. Recital B states that "In connection with the Business, the Vendors own the Assets". Clause 2 defines "Assets". Zeneca was to pay the purchase consideration to the vendors according to their respective entitlements.
66 Save for the addition of some Schedules, the second draft Umbrella Agreement is to the same effect as the first except that the purchase price was to be paid to Orica for and on behalf of the vendors.
67 Both draft Umbrella Agreements refer in various places to the Distribution Agreement as the Agreement dated 1 June 1993 between Orica and Zeneca.
68 The Preservation Agreement of 3 September 1998 identifies Orica Australia and Orica NZ as the vendors in the potential sale of business agreement.
69 By the Sale Agreement of 4 September 1998 Orica Australia and Orica NZ sell the Business to Zeneca BV. Orica is a party, but does not sell anything. The vendors sell "as legal and beneficial owners" various assets, including the "Goodwill", which is defined so as to include the Distribution Agreement "between [Orica] and [Zeneca]".
70 On the basis of the foregoing Orica submits that the Commissioner's case, which it says is essentially that part of the consideration of $328,500,000 was for the benefit of the Distribution Agreement (some $268 million), is at odds with the agreement between the parties and with the underlying business facts which had existed for 20 years. Orica contends that the 1935 Deed, essentially a distribution agreement, and later the Distribution Agreement that replaced it, belonged to Orica Australia, which built up the Business and in 1979 paid to acquire it.
71 Orica submits that nothing turns on the fact that one company is the wholly owned subsidiary of the other. The matter should be determined as though the parties were at arms length.
72 Orica relies on the principle recognised by Griffith CJ in O'Keefe v Williams (1910) 11 CLR 171 at 191 that:
Every contract between subject and subject involves an obligation, implied if not expressed, that neither party shall do anything to destroy the efficiency of the bargain which he has made. The implied covenant or agreement for quiet enjoyment in the case of a demise of land is merely an instance of the application of this rule.
73 In reliance on this principle, Orica submits that Orica Australia having purchased the Business which depended for its existence on the distribution provisions of the 1935 Deed, the benefit of that Deed, either by reason of an implied contractual obligation "or some doctrine of promissory estoppel", was thereafter held for Orica Australia's benefit as the conductor of the Business. Thereafter, for almost 20 years, the vendor of the Business stood by and let the purchaser build up its value. This, Orica says, created an estoppel which would give rise to a trust. Then in 1993 when Orica negotiated with Zeneca about a replacement for the 1935 distribution arrangements, it was plainly doing so for the benefit of Orica Australia, to which it had sold the business and for which it held the existing distribution rights.
74 Although the 1979 documentation is meagre, I am satisfied that Orica sold the operating assets of its pharmaceuticals business to Orica Australia, which assumed some of Orica's liabilities in relation to the business. I infer from the words "sale" and "purchase" that Orica Australia gave consideration for the acquisition. I am satisfied that from 1 October 1979 Orica Australia carried on the business, and at least after 1984 on the basis described in the Guidelines. The Guidelines also suggest that it did this in reliance on the distribution rights conferred by the 1935 Deed. Having regard to the Orica Group structure as it then existed, there was no need for the 1935 Deed to be assigned to Orica Australia, because Orica was entitled to undertake the distribution business by itself or by its constituent affiliates, of which Orica Australia was one. It was not in dispute that the business was dependent for its profitability, indeed its existence, on the availability of the distribution rights granted by ICI under the 1935 Deed.
75 Although I accept that Orica sold the operating assets of the business to Orica Australia and that the latter assumed some of the former's operating liabilities, I am not prepared to infer that thereafter the benefit of the distribution rights belonged to Orica Australia. Orica accepts that there was no express assignment of those rights. If, as Orica asserts, the 1935 distribution rights were held by it on trust for Orica Australia, the trust must have come into existence at or about the time of the sale in 1979. In Walker v Corboy (1990) 19 NSWLR 382 at 386 Priestley JA, dealing with cases where the parties have not expressly stated their intention to create a trust, said:
It seems to me to be prudent not to approach the question whether equitable doctrines are applicable in a commercial situation with the thought in mind that one should be disinclined to give a positive answer to that question. The question simply is, do the particular circumstances attract equitable rules.
…
In situations where there is no express agreement [requiring the application of equitable rules for their working out], then ultimately whether a court will apply equitable rules will depend upon the court's understanding of the expectation of the parties implicit in their dealings with one another in the commercial milieu in which the particular dispute has arisen. It is to these areas that the court's factual and evaluative attention should be directed and upon which decision should be based.
At 390 Clarke JA spoke of:
the caution which should be exercised when deciding whether an intention to impose trust obligations should be inferred from the complex set of circumstances which often attend the commercial relationship of parties who have traded together for a long period of time. If, however, the court, applying due caution, concludes that it is proper to infer, or impute, the requisite intention then it is the duty of the court to give expression to that conclusion.
76 At 395 Meagher JA said:
except in the case of constructive trusts where a trust is thrust on the parties irrespective of their intentions and as a matter of policy, an intention to create a trust is an essential element of a trust …
When, as here, the parties have no expressed intention, it then becomes necessary to see, in all the circumstances of the case, what intention the law should impute to them: see Trident General Insurance Co Ltd v McNiece Bros Pty Ltd (1988) 165 CLR 107 at 120-121 per Mason CJ and Wilson J (at 146‑147) per Deane J.
…
It is necessary to look at the nature of the transaction, the particular provisions of the agreement of the parties, and the whole of the circumstances attending the relationships between the parties. If one examines the whole of the relevant circumstances in the present case I am of the view that the law would not impute to the parties any intention to create a trust.
77 In Walsh Bay Developments Pty Ltd v Federal Commissioner of Taxation (1995) 130 ALR 415 at 423 Beaumont and Sackville JJ, with whom Jenkinson J agreed, approved the passages from Walker v Corboy 19 NSWLR 382 quoted at [75] above.
78 Adopting the above approach and looking at all the circumstances of the present case, no intention on Orica's part to create a trust is to be found. Nor is any such intention to be attributed to it. The fact that Orica Australia had access to the distribution rights under the 1935 Deed made it unnecessary for the parties to turn their minds to some other basis for access.
79 The position is the same if the matter is viewed as at mid‑1993 when the Distribution Agreement was being negotiated. Article 21, which is set out at [24], enabled Orica to assign the Agreement to a wholly owned affiliate without Zeneca's consent. Thus the benefit of the distribution arrangements could be passed to Orica Australia. In those circumstances, Orica evinced no intention to create a trust in Orica Australia's favour and no such intention should be attributed to it. The parties showed in clause 21 the way in which Orica Australia might derive the benefit of the distribution rights. It was not by way of a trust. Article 14 also points against any intention on Orica's part that it hold the benefit of the Agreement on trust for Orica Australia. Article 14.1 required Zeneca to make a payment to Orica equal to the value of Orica's business or the business of its affiliate assignee under Article 21.
80 The events that later happened show, to my mind, that the distribution rights remained with Orica. In 1993, after the negotiations about replacing the distribution rights under the 1935 Deed, Zeneca appointed Orica its distributor. If in 1979 Orica had been paid for the benefit of the 1935 Deed, it would not have made sense for Orica to have been appointed distributor in 1993. This confirms my view that the 1935 Deed was not part of the 1979 sale, and that Orica kept the distribution rights to itself until they were replaced by the 1993 Distribution Agreement.
81 In my view the Sale Agreement proceeds on a false basis. By clause 2 the vendors (Orica Australia and Orica NZ) sold the listed assets to Zeneca BV "as legal and beneficial owners". One asset was "the Goodwill", which included "the benefit of the Distribution Agreement, which was defined as the 1 June 1993 agreement between Orica and Zeneca. As I have indicated, Orica retained ownership of the Distribution Agreement. There was no trust in Orica Australia's favour.
82 The Commissioner sought to derive assistance from a 1995 agreement between Zeneca and Orica Australia, by which Zeneca appointed Orica Australia its subdistributor of various Ohmeda pharmaceutical products (the 1995 agreement). The Commissioner said this showed that when Zeneca intended to confer a benefit on Orica Australia, it did so expressly. I doubt that much assistance can be derived from the contrast between the Distribution Agreement and the 1995 agreement. Clause 3.1 of the 1995 agreement provided:
Pursuant to [Orica Australia's] rights under Article 4.3 of the distribution agreement dated 1 June 1993 between Zeneca and [Orica Australia], Zeneca hereby appoints [Orica Australia] as its exclusive sub‑distributor of the Products in the Territory …
Clause 4.3 of the Distribution Agreement provided that if during the term of the agreement Zeneca acquires the rights to sell the products of a third party in the Territory, such rights will be offered to Orica. The drafter of the 1995 agreement has confused Orica (called ICI Australia in the Distribution Agreement) with Orica Australia (called ICI Australia) in the 1995 Agreement.