Oswal v Commissioner of Taxation

JUDGE: FOSTER J DATE OF ORDER: 4 AUGUST 2014 WHERE MADE: CANBERRA (VIA VIDEO LINK TO SYDNEY)

1. The Application for Leave to Appeal filed by the applicant on 14 August 2013 be dismissed.
2. The applicant pay the respondent's costs of and incidental to that Application.
3. The legal representatives of the parties approach the Associate to the docket judge with a view to relisting the matter for further directions. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY GENERAL DIVISION NSD 1655 of 2013

AND: COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA

IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY GENERAL DIVISION NSD 1657 of 2013

AND: COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA

IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY GENERAL DIVISION NSD 1658 of 2013

BETWEEN: PANKAJ OSWAL AS TRUSTEE FOR THE BURRUP TRUST

AND: COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA

JUDGE: FOSTER J DATE: 4 AUGUST 2014 PLACE: canberra (via video link to sydney) (heard in SYDNEY)

REASONS FOR JUDGMENT 1 On 31 July 2013, a judge of this Court answered two separate questions in each of three proceedings (NSD 850 of 2012, NSD 851 of 2012 and NSD 852 of 2012) (Oswal v Commissioner of Taxation [2013] FCA 745; (2013) 2013 ATC 20-403). Both of those questions had been ordered to be determined as separate and preliminary questions pursuant to r 30.01 of the Federal Court Rules 2011 (Cth). 2 The separate questions arise in proceedings which concern appeals by Pankaj Oswal (Mr Oswal), both in his personal capacity and as Trustee of the Burrup Trust, and Radhika Oswal (Mrs Oswal) pursuant to Pt IVC of the Taxation Administration Act 1953 (Cth) in respect of various objection decisions in respect of assessments of income tax and penalties for the 2007 and 2010 Income Tax Years. 3 Mr and Mrs Oswal were satisfied with the primary judge's answer to separate question 1. However, they were dissatisfied with his Honour's answer to separate question 2. 4 On 14 August 2013, Mr and Mrs Oswal filed an Application for Leave to Appeal from his Honour's order in respect of separate question 2 in each of the three proceedings below. 5 The precise order which his Honour made in respect of question 2 was: THE COURT ORDERS THAT: … 2. Question 2: Whether either CGT event E1 or CGT event A1 happened in relation to any of the shares in Burrup Holdings Pty Ltd held by the trustee of the Burrup Trust at any time during the income year ended 30 June 2007, pursuant to either s 104-55 or s 104-10 of the ITAA 1997. Is answered: Yes; CGT event E1 happened in relation to 902 shares in Burrup Holdings Pty Ltd during the income year ended 30 June 2007 pursuant to s 104-55 of the ITAA 1997. 6 Each Application for Leave to Appeal is confined to the primary judge's answer to question 2 and thus confined to the 2007 Income Tax Year. 7 If permitted to do so, Mr and Mrs Oswal wish to challenge on appeal the primary judge's conclusion that, upon the true construction of the Trust Deed which established the Burrup Trust (Trust Deed) and upon the true construction of a resolution made by Mr Oswal on 13 March 2007 (the 13 March 2007 resolution), a new trust over 902 shares in Burrup Holdings Pty Ltd held by Mr and Mrs Oswal was created.

The Reasons of the Primary Judge 8 At [6] of his Reasons, the primary judge noted that, irrespective of the outcome of the Court's determination of the separate questions concerning the 2007 Income Tax Year, the appeal in relation to the 2010 Income Tax Year will nonetheless need to be determined by the Court. 9 At [9] of his Reasons, the primary judge said: If the Court agrees with the applicants' contention, the applicants' Pt IVC appeals must be allowed. If not, further questions will arise for determination - including whether the shares in Burrup Holdings were in the 2007 income year "taxable Australian property" pursuant to s 855-15 of the Income Tax Assessment Act 1997 (Cth) ("ITAA 1997"), Item 2(a) of the table - an indirect Australian real property interest (see s 855-20). These further questions raise valuation issues which are likely to call for extensive expert evidence from both sides. Depending on how the preliminary questions are answered, this could be avoided. 10 At [10]-[21], the primary judge set out the relevant facts. Because none of the parties to the present applications challenges his Honour's summary of the relevant facts, it is convenient for present purposes to set out that summary in full: FACTUAL CONTEXT 10 The facts relevant to a resolution of the separate questions may be shortly stated. 11 By deed dated 22 June 2001 ("Burrup Trust Deed"), the Burrup Trust (then known as the Vasundhara Trust) was established. Mr Oswal was, in the 2007 income year, the "Trustee", the "Guardian" and the "Appointor" of the Burrup Trust. The "Primary Beneficiaries" of the Burrup Trust were Mrs Oswal, Mr Oswal and Vasundhara Oswal. 12 Burrup Holdings was incorporated on 14 June 2001. By the beginning of the 2007 income year, the shareholders in Burrup Holdings were: (1) Mr Oswal, as trustee of the Burrup Trust, held 902 shares, which was equal to 55% of the total issued capital of the company; (2) Yara Australia Pty Ltd ("Yara") held 492 shares, which was equal to 30% of the total issued capital of the company; and (3) Mr Rambal, as trustee of the Vikas Rambal Family Trust ("VRFT"), held 246 shares, which was equal to 15% of the total issued capital of the company. 13 On 12 January 2007, certain legal proceedings brought by Mr Rambal on behalf of the VRFT were resolved pursuant to a heads of agreement. Under the heads of agreement, in consideration for payment of a sum of $75 million, Mr Rambal was to deliver duly executed share transfer forms and share certificates to Mr Oswal in respect of shares in certain companies, including VRFT's 246 shares in Burrup Holdings. 14 On or about 13 March 2007, Mr Oswal, as trustee of the Burrup Trust, resolved as follows: I, Pankaj Oswal, being the Trustee of the Burrup Trust and having obtained consent of the Guardian of the Burrup Trust, do hereby resolve pursuant to Clause 17.1 of the Deed of Trust, to appoint for the absolute benefit of the named beneficiaries below, a part of the corpus of the trust as detailed below. Henceforth the corpus so appointed and income or accretion of capital there from shall be held on separate trust and for the absolute benefit of the named beneficiaries in their own individual capacities. Mr Pankaj Oswal - 574 shares in Burrup Holdings Pty Ltd Mrs Radhika Oswal - 574 shares in Burrup Holdings Pty Ltd. 15 Mr Oswal signed an instrument dated 13 March 2007 containing a resolution in the terms set out in [14] above. It is not clear whether this instrument constitutes the resolution or whether it is merely evidence that a resolution in these terms was made, but nothing turns on this so far as the efficacy of the appointment and declaration, if any, made by the resolution is concerned. Both parties accept that a resolution in the terms of that contained in the instrument of 13 March 2007 occurred on or about that date and that the appointment and declaration, if any, referred to therein took effect according to their terms save that, as at 13 March 2007, Mr Oswal, as trustee of the Burrup Trust, held only 902 shares in Burrup Holdings. In referring to 1,148 shares, the 13 March 2007 resolution apparently included the 246 shares which Mr Oswal, as trustee of the Burrup Trust, had agreed, pursuant to the heads of agreement with Mr Rambal, to purchase from VRFT. 16 On 26 April 2007, as contemplated by the heads of agreement, Mr Oswal and Mr Rambal entered into a deed by which, inter alia, the shares in [12(3)] above were to be transferred to Mr Oswal, as trustee of the Burrup Trust. The share transfer was registered in the share register of Burrup Holdings on a date between 26 April 2007 and 18 September 2008, probably around 22 May 2007. 17 However, the shares in Burrup Holdings the subject of the 13 March 2007, resolution were not transferred to either Mr or Mrs Oswal in 2007. Nor did Mr Oswal make, or cause to be made, any change to the register of members of Burrup Holdings in 2007. It was not until on or about 18 September 2008 that Mr Basil Lenzo, General Counsel for Burrup Holdings, made the following entries in the register of members of Burrup Holdings: (1) An entry recording Mr Oswal as trustee as having transferred 1,148 shares in Burrup Holdings on 13 March 2007 and 26 April 2007. (2) an entry recording Mr Oswal as having acquired 574 shares on 26 April 2007; and (3) an entry recording Mrs Oswal as having acquired 574 shares in 26 April 2007. 18 Mr Lenzo formed the view that the entries should be dated 13 March 2007 and 26 April 2007 without reviewing the Burrup Trust Deed, without any direction from Mr Oswal and without a share transfer form. The entry dated 13 March 2007 was later amended to bear the date 26 April 2007. 19 The making of entries in the share register of Burrup Holdings was the subject of findings of fact made by Martin J in Oswal v Yara Australia Pty Ltd [No 3] [2011] WASC 255. His Honour found that the entries showing a transfer of shares from the trustee to Mr Oswal and Mrs Oswal in accordance with the 13 March 2007 resolution were made on 18 September 2008 (at [251], [252]). The entry made on 18 September 2008 in relation to the trustee was backdated to 13 March 2007, and was subsequently "whited out" and changed to 26 April 2007 (at [251], [252], [274-276]). The entries made on 18 September 2008 in relation to Mr and Mrs Oswal were backdated to 26 April 2007 (at [251], [252]). 20 On 26 June 2007, Mr Oswal as trustee of the Burrup Trust, resolved that the net income of the Burrup Trust for the 2007 income year be dealt with as follows: The said income shall be applied for the benefit of the beneficiaries listed below, for the amount shown by setting the same aside and by crediting the same beneficiaries in the books of the Trust. Such sums shall, upon being so credited, rest in and become the absolute property of these beneficiaries and shall be held by them separately as Trust Funds. The Trustee shall distribute the net income of the trust as follows: Beneficiary Allocation Mrs Radhika Pankaj Oswal 100% and the necessary book entries to give effect to the foregoing to be made as soon as practicable. 21 At all times between 13 March 2007 and 30 June 2007, the trustee of the Burrup Trust: (1) Owed legal fees to Maxim Litigation Consultants (now Lavan Legal); and (2) owed approximately $340 million to ANZ Bank and other lenders under outstanding facilities, although the Commissioner puts in issue an amount of $75 million said to be owed to ANZ Bank. 11 At [22]-[62], his Honour dealt with separate question 2. At [22], his Honour said: The 13 March 2007 resolution is expressed as an appointment of part of the corpus of the Burrup Trust, identified as being shares in Burrup Holdings, for the absolute benefit of Mr Oswal as to 574 shares and for the absolute benefit of Mrs Oswal as to 574 shares; it further provides that the corpus so appointed shall be held on separate trust for their absolute benefit in their individual capacities. The appointment is expressed to be made pursuant to cl 17.1 of the Burrup Trust Deed. 12 After then referring to the 13 March 2007 resolution and cl 17.1 of the Trust Deed, at [24] of his Reasons, his Honour held that the appointment made by the 13 March 2007 resolution was authorised by cl 17.1 of the Burrup Trust Deed. His Honour also said: The appointment is confined to an identified part of the corpus of the trust fund, and later references in the resolution to "income" and "accretion of capital" are declaratory of the consequences of the appointment of that part of the corpus of the trust fund so identified. 13 At [25]-[29], his Honour said: 25 The applicants contended that the effect of the appointment made by the 13 March 2007 resolution was to establish a separate fund of assets under the "umbrella" of the Burrup Trust, but that the appointment did not create a new trust in respect of the Burrup Holdings shares. In support of this contention they relied on three matters: the provisions of the Burrup Trust Deed, especially cl 12; the reasoning and conclusion of Martin J in Oswal v Yara Australia [No 3] at [210]-[213]; and what fell from Lord Wilberforce, with whom the majority of their Lordships agreed, in Roome v Edwards [1982] AC 279. I shall deal with each of these matters before moving on to my analysis of whether CGT event E1 happened in consequence of the appointment and declaration, if any, made by the 13 March 2007 resolution. 26 It may well be the case that the appointment established a separate fund in respect of the Burrup Holdings shares, but if it did, I am not persuaded that cl 12.1 of the Burrup Trust Deed contributed to, or has anything relevant to say about, that result, nor am I persuaded that any separate fund so established was a "Beneficiary's Fund" for the purposes of the Burrup Trust Deed. It is necessary that I explain my position on this point. 27 Clause 12 of the Burrup Trust Deed is headed "INCOME HELD AS A SEPARATE FUND". Clauses 12.1 and 12.2 provide: 12.1 Separate fund An amount set aside for a Beneficiary under clauses 7 and 10 or 17 will be held by the Trustee as a separate fund on trust for the Beneficiary and until payment to that Beneficiary or any person in trust for that Beneficiary, the accretions to and income from that investment will belong to that Beneficiary. 12.2 Trustee's Powers and Indemnities The Trustee's Powers and the indemnities granted by clauses 19 to 26 apply to a Beneficiary's Fund. 28 Like cl 12, cll 7 and 10 are concerned with income of the "Fund". Like cl 12, cll 7.2, 7.3 and 10.1 refer to income of the Fund being "set aside" for a "Beneficiary" and the term "Beneficiary's Fund" used in cl 12.2, is defined in cl 1 as meaning "a fund separate from the Fund held on trust by the Trustee for a Beneficiary under clauses 10 and 12". Clauses 10 and 12 are not concerned with the capital or corpus of the Fund. The reference then in cl 12.1 to cl 17 cannot be a reference to cl 17.1 for three reasons: first because cl 17.1 is not concerned with income of the Fund, but capital or corpus; second, because cl 17.1 empowers the "Trustee" to "appoint, apply, or distribute, the whole or any part of the capital of the Fund", but does not have anything to say about the "setting aside" of income or of an "amount" which is income for the benefit of a Beneficiary; and third, and fundamentally, any appointment of corpus pursuant to cl 17.1 need not be on terms consistent with a trust of the kind described in cl 12.1. The reference in cl 12.1 to cl 17 is a reference to a Beneficiary's Fund in cl 17.2. 29 So if the appointment made pursuant to cl 17.1 of the Burrup Trust Deed does establish a separate fund in respect of the Burrup Holdings shares, this is not a separate fund of the kind contemplated by cl 12.1, nor is it a "Beneficiary's Fund" within cl 12.2 to which the Trustee's powers and indemnities under cll 19 to 26 of the Burrup Trust Deed extend. 14 At [30]-[31], his Honour then considered in detail the decision of Martin J in Oswal v Yara Australia Pty Ltd (No 3) [2011] WASC 255, (2011) 86 ACSR 1. 15 At [32] of his Reasons, his Honour said: In coming to the conclusion that there was the establishment of a separate fund but not the creation of a new trust in the present case, his Honour's reasoning relies heavily on the terms of cl 12.1 of the Burrup Trust Deed. As I have endeavoured to demonstrate in [22] to [29] above, cl 12.1 is not relevant to an appointment of the whole or part of the capital of the Fund pursuant to cl 17.1. In my view, in deciding the effect of the appointment of part of the corpus of the Fund pursuant to the 13 March 2007 resolution, regard only should be had to the terms of the empowering provision, namely, cl 17.1 of the Burrup Trust Deed, and, in particular, the terms of the appointment itself, namely, the 13 March 2007 resolution. Such an approach to the ascertainment of intention would seem to be more consistent with the views expressed in Byrnes v Kendall (2011) 243 CLR 253 at [46]-[66] per Gummow and Hayne JJ, with which French CJ, at [17], agreed. 16 His Honour then moved on to consider a third contention relied upon by Mr and Mrs Oswal based upon a passage from the speech of Lord Wilberforce in Roome v Edwards [1982] AC 279 at 292-293. 17 His Honour was not persuaded that Roome v Edwards was of any real assistance in resolving the issues confronting his Honour. 18 At [37] of his Reasons, his Honour said: In the context of the issue under consideration in the present case, it needs to be understood that there was never any issue in Roome v Edwards that the appointment of the 1955 fund became subject to trusts which were distinct and different from the trusts of the main fund, the only question being whether a new "settlement" was created for the purpose of s 25(1) of the Finance Act 1965 (UK). That is a very different question to the one with which we are here concerned, namely, whether a trust was created over an asset, and for that reason, what his Lordship had to say in the passage from his speech extracted in [33] above, does not assist the applicants' case contended for in [25] above. Its relevance to the question of whether any trust so created, was created by "settlement" is another matter, and is considered below in the context of my analysis of whether CGT event E1 happened in consequence of the appointment and declaration, if any, made by the 13 March 2007 resolution. 19 At [38]-[62], his Honour considered whether, in light of the views to which he had come concerning the true construction of the Trust Deed and the 13 March 2007 resolution, CGT event E1 happened in respect of 902 shares in Burrup Holdings in the 2007 Income Tax Year. At [62], his Honour held that such an event did happen in that year. 20 At pars 7-9 of their draft Notices of Appeal, Mr and Mrs Oswal appear to challenge his Honour's reasoning found at [38]-[62] of his Reasons. However, during the course of oral argument (Transcript 13, ll 18-25), Senior Counsel for Mr and Mrs Oswal informed me that his clients did not disagree with the conclusions which the primary judge reached on the tax issues, that is to say, if there was a new trust created (as held by his Honour), then that new Trust satisfied the definition of declaration of trust or settlement and thus constituted CGT event E1 within the meaning of s 104-55 of the Income Tax Assessment Act 1997 (Cth). In light of that concession, the appeal which Mr and Mrs Oswal seek to pursue will be confined to his Honour's conclusion expressed at [22] of his Reasons that the effect of the 13 March 2007 resolution was that the corpus of the Burrup Trust, as identified in that resolution, should thereafter be held on separate trust for the absolute benefit of Mr and Mrs Oswal in their individual capacities.

The Foreshadowed Grounds of Appeal 21 The issues which Mr and Mrs Oswal would seek to raise on appeal if leave to appeal is granted are expressed in the following terms in grounds 1-6 and 10-11 of the draft Notice of Appeal lodged with their Applications for Leave to Appeal: 1. His Honour erred in holding that the resolution of the trustee of the Burrup Trust ("Trustee") made on 13 March 2007 ("13 March 2007 resolution") created a new trust over 902 shares in Burrup Holdings Pty Ltd held by the Trustee ("BHPL Shares") [paragraph 61 of the reasons for judgment]. 2. His Honour should have found that the effect of the 13 March 2007 resolution was the creation of a separate fund within the Burrup Trust, subject to the terms, powers and indemnities of the Burrup Trust Deed. 3. His Honour erred in holding that clause 12.1 of the Burrup Trust Deed was not engaged by the exercise of the power of appointment pursuant to clause 17.1 of the Burrup Trust Deed by way of the 13 March 2007 resolution [paragraphs 26 and 29 of the reasons for judgment]. 4. His Honour should have found that clause 12 applied to the exercise of the power of appointment under clause 17.1 of the Burrup Trust Deed by way of the 13 March 2007 resolution, and that the appointment established a separate fund: (a) of the kind contemplated by clause 12.1; and (b) that was a "Beneficiary's Fund" within clause 12.2. 5. His Honour erred in declining to follow the judgment of Justice Martin in Oswal v Yara Australia [No. 3] [2011] WASC 255 [paragraphs 31 to 33 of the reasons for judgment]. 6. His Honour should have followed the reasoning of Justice Martin in Oswal v Yara Australia [No. 3] [2011] WASC 255 and should have held that the 13 March 2007 resolution created a separate fund within the Burrup Trust but did not create a new trust. … 10. His Honour erred in holding that CGT event E1 in section 104-55 of the 1997 Act happened in respect of 902 BHPL shares in the income year ended 30 June 2007 [paragraph 62 of the reasons for judgment]. 11. His Honour should have found that CGT event E1 did not happen in respect of 902 BHPL shares in the income year ended 30 June 2007. 22 The relief which Mr and Mrs Oswal will seek on appeal is an order allowing their appeal in each case, an order setting aside the primary judge's order in relation to question 2 in each case and an order answering question 2 in the negative.

The Burrup Trust Deed 23 The Burrup Trust (then known as the Vasundhara Trust) was established by Trust Deed executed on 22 June 2001 between Peter Moltoni (as Settlor) and Mr Oswal (as Trustee). 24 Clause 1 set out a number of definitions which were to apply in the Deed … unless stated otherwise. The following definitions are presently relevant: • Appointor means the person named or described in Item 6 of the Schedule or a successor of that person; • Beneficiary means a beneficiary of the Trust; • Beneficiary's Fund means a fund separate from the Fund held on trust by the Trustee for a Beneficiary under clauses 10 and 12; … • Fund means the Settled Sum and all other money and property whether income or capital in nature, from time to time held by the Trustee on the terms of this Document; • General Beneficiary means: (c) each Primary Beneficiary; (d) each Family Member of a Primary Beneficiary; (e) each person nominated by the Appointor under clause 6 as a General Beneficiary; and (f) each Additional Beneficiary; unless excluded under clause 5. • Guardian means the person named or described in Item 5 of the Schedule or a successor of that person; • Primary Beneficiary means each person named or described in Item 3 of the Schedule; … • Trust means the trust created by this Document; • Trustee means each person named or described as Trustee in this Document or a successor of that person; • Trustee's Powers means the rights powers, and discretions, granted by this Document or by law and exercisable by the Trustee; … 25 As the learned primary judge held (at [11] of his Reasons), Mr Oswal was, in the 2007 Income Tax Year, the Trustee, the Guardian and the Appointor of the Burrup Trust. The Primary Beneficiaries of that Trust were Mr Oswal, Mrs Oswal and Vasundhara Oswal. The Trust Deed was in a form fairly typical of Trust Deeds establishing discretionary trusts in the years around 2001. 26 Clause 2.2 provides: Headings Except in the Schedule, headings in this Document are for convenience only and do not affect its interpretation. 27 Clause 2.2 appears under the main heading of cl 2 - INTERPRETATION. 28 Clause 3 is in the following terms: TRUSTEE TO HOLD FUND The Trustee shall hold the fund on the trusts set out in this Document with the benefit of and subject to the Trustee's Powers. 29 Clauses 7, 8, 10, 12 and 17 are in the following terms: 7 INCOME OF FUND Except as provided in clause 14.1, the Trustee shall deal with the income of the Fund for each Accounting Period in one or more of the following ways: 7.1 Power to accumulate By accumulating income, in which case that income will be added to and form part of the capital of the Fund. 7.2 Determination for General Beneficiaries if Guardian in office If a Guardian is then in office: (a) with the consent of the Guardian if clause 27 does not apply, by paying, applying, or setting aside, income to or for any one or more of the General Beneficiaries then living or in existence in the proportions and in the manner determined by the Trustee; or (b) if the Guardian does not consent to the exercise of the Trustee's discretion or the Trustee does not act pursuant to clause 7.3(a) in respect of the whole or any part of the income, by holding the income or that part of the income on the trusts set out in clause 7.4. 7.3 Determination for Primary Beneficiaries if no Guardian in office If no Guardian is then in office: (a) by paying, applying, or setting aside, income to or for any one or more of the Primary Beneficiaries then living or in existence in the proportions and in the manner determined by the Trustee; or (b) if the Trustee does not act pursuant to clause 7.3(a) in respect of the whole or any part of the income, by holding the income or that part of the income on the trusts set out in clause 7.4. 7.4 Destination if no determination is made If: (a) a Guardian is then in office and the Guardian does not consent to the exercise of the Trustee's discretion or the Trustee does not act pursuant to clause 7.2(a) in respect of the whole or any part of the income; or (b) no Guardian is then in office and the Trustee does not act pursuant to clause 7.3(a) in respect of the whole or any part of the income; the Trustee shall hold the income which has not been the subject of a determination under this clause on TRUST: (c) for all the Primary Beneficiaries then living or in existence in equal shares; or (d) if no Primary Beneficiary is then living or in existence, for all the General Beneficiaries then living or in existence in equal shares; or (e) if no General Beneficiary is then in existence, for one or more charitable institutions, trusts, or purposes, as determined by the Trustee. 8 INCOME AND CAPITAL TREATMENT 8.1 Definition In this clause, "Act" means the Income Tax Assessment Act 1936 and the Income Tax Assessment Act 1997. 8.2 Capital and income The Trustee may from time to time: (a) treat a profit or gain whether income or capital in nature, or a receipt of money or property which for the purposes of the Act: (i) is assessable income; or (ii) is included in the calculation of a taxpayer's assessable income; as income of the Fund; (b) treat a payment, expense, or loss, which is an allowable deduction for the purposes of the Act as expenditure against the income of the Fund; (c) distinguish between income of different types or from different sources, deal with income of each type or from each source in a different manner, and allocate any payment, expense, or loss, referred to in paragraph (b) to income of a particular type or from a particular source; (d) distinguish dividends and trust distributions which have been franked within the meaning of the Act from dividends and trust distributions which have not been franked and then deal with franked dividends and trust distributions in one manner and unfranked dividends and trust distributions in another manner; and (e) if the Trustee has decided to treat a receipt being a capital gain within the meaning of the Act as income of the Fund, distinguish between that income and other income of the Fund, deal with that income in one manner and other income in a different manner, and pay, apply, or set aside, for the benefit of a Beneficiary the income consisting of or attributable to the capital gain. … 10 INCOME APPLICATION 10.1 Pay apply or set aside The Trustee may pay, apply, or set aside, income to which a Beneficiary is entitled by: (a) payment of the income by cash or cheque to that Beneficiary or to any other person at the direction of that Beneficiary; (b) payment of the income into an account held by that Beneficiary whether solely or jointly with any other person, at a bank or other financial institution; (c) setting aside the income as a credit for that Beneficiary in the books of the trust; (d) application of the income for the maintenance, education, advancement, or benefit, of that Beneficiary; (e) if that Beneficiary is an infant or under a legal disability, payment of the income to the parent, guardian, carer, or administrator, of that Beneficiary or to the person with whom that Beneficiary is residing; or (f) dealing with the income in more than one of those ways. 10.2 Discharge If money is paid in accordance with clause 10.1: (a) the trustee will not be bound to see to the application of that money; and (b) the payment, application, or setting side, will constitute a full and final discharge to the Trustee for the money paid, applied, or set aside. 10.3 Power to distribute income to non-residents Nothing in this Trust Deed shall prohibit the Trustee from paying, applying or setting aside income to a Beneficiary who is not a resident of Australia. … 12 INCOME HELD AS SEPARATE FUND 12.1 Separate fund An amount set aside for a Beneficiary under clauses 7 and 10 or 17 will be held by the Trustee as a separate fund on trust for that Beneficiary and until payment to that Beneficiary or any person in trust for that Beneficiary, the accretions to and income from that investment will belong to that Beneficiary. 12.2 Trustee's Powers and indemnities The Trustee's Powers and the indemnities granted by clauses 19 to 26 apply to a Beneficiary's Fund. 12.3 Application of Beneficiary's Fund The Trustee may from time to time: (a) if the beneficiary of a Beneficiary's Fund is not an infant or a person under a legal disability, pay or transfer the income of that fund to that beneficiary; or (b) if the beneficiary of a Beneficiary's Fund is an infant or a person under a legal disability, apply the income of that fund in the manner provided in clause 10.1(d) and 10.1(e). … 17 APPLICATION OF CAPITAL BEFORE VESTING DAY 17.1 Capital of Fund If: (a) a Guardian is then in office, clause 27 does not apply, and the Guardian consents; or (b) no Guardian is then in office; the Trustee may from time to time before the Vesting Day whether or not the Trustee has made an appointment under clause 16.1, appoint, apply, or distribute, the whole or any part of the capital of the Fund to or for a General Beneficiary for the Beneficiary's own use and benefit or for the maintenance, education, advancement, or benefit, of a General Beneficiary. 17.2 Capital of Beneficiary's Funds The Trustee may from time to time: (a) if the beneficiary of a Beneficiary's fund is not an infant or a person under a legal disability, pay or transfer the capital of that fund to that beneficiary; or (b) if the beneficiary of a Beneficiary's Fund is an infant or is a person under a legal disability, apply the capital of that fund in the manner provided in clause 10.l(d) and 10.1(e). 30 Clause 19 sets out the Trustee's powers. Under cl 19.14, the Trustee has the power to transfer the whole or any power of the Fund to another trust.

The Relevant Principles (Leave to Appeal) 31 In Samsung Electronics Co Ltd v Apple Inc (2011) 217 FCR 238 at 248-251 [25]-[37], the Full Court summarised the relevant principles which this Court will apply when considering an application for leave to appeal from an interlocutory judgment of a single judge of this Court. At 248-249 [26]-[29], the Full Court said: 26 In this Court, it is well established that the relevant test (or "litmus test") for whether leave to appeal from an interlocutory judgment will be granted, comprises the following two integers: (1) Whether, in all the circumstances of the case, the decision is attended by sufficient doubt to warrant its being reconsidered by the Full Court; and (2) Whether substantial injustice would result if leave were refused supposing the decision to be wrong. (DÉcor Corporation Pty Ltd v Dart Industries Inc (1991) 33 FCR 397 at 398-400). 27 In Bienstein v Bienstein (2003) 195 ALR 225 at [29] (p 231), McHugh, Kirby and Callinan JJ said that: The principles that govern the grant of leave to appeal are well established. An applicant for leave must establish that the decision in question is attended with sufficient doubt to warrant the grant of leave. The applicant must also show that substantial injustice will result from a refusal of leave to appeal. 28 The test for leave to appeal explained by the High Court in Bienstein v Bienstein is the same test as the Full Court had earlier articulated in DÉcor. 29 As the Full Court itself said in DÉcor, the test which it described is appropriate for the general run of cases. The test should not, however, be applied as if it were some hard and fast rule. Each case must be considered on its merits. 32 At 249-251 [30]-[37], the Full Court went on to consider the different ways in which the Court might approach the question of leave depending upon the practical effect of the orders in respect of which leave is sought. If the practical effect of the relevant order or orders is to finally determine the rights of the parties, leave is more likely to be granted. On the other hand, if the order is concerned solely with the mechanics of case management and pre-trial preparation, leave is unlikely to be granted. 33 In Ex parte Bucknell (1936) 56 CLR 221 at 225, the High Court (Latham CJ and Rich, Dixon, Evatt and McTiernan JJ) considered the principles which should govern the grant of leave to appeal from an interlocutory judgment of a Supreme Court of a State or Territory pursuant to s 35(1) of the Judiciary Act 1903 (Cth). At 227, after discussing and explaining the relevant principles in the preceding two pages, the Court pointed out that, in some cases, a decision by the High Court upon an interlocutory matter may save much expense and delay. When it is shown that this is the case, or that it may probably be the case, the Court will be more ready to grant leave to appeal. 34 As I understand the submissions advanced on behalf of Mr and Mrs Oswal, they contend that the substantial injustice that will be visited upon them supposing his Honour's judgment to be wrong is of the type referred to in Ex parte Bucknell at 227, that is, inconvenience, expense and delay.

The Oswals' Submissions 35 Senior Counsel for Mr and Mrs Oswal submitted that: (a) The primary judge's decision in respect of separate question 2 is attended by sufficient doubt as to warrant a grant of leave to appeal. (b) Substantial injustice will be visited upon Mr and Mrs Oswal if leave to appeal is not granted supposing the decision of his Honour to be wrong. (c) While it is accepted that the 13 March 2007 resolution was made pursuant to cl 17.1 of the Trust Deed, the resolution did not have the effect of paying or distributing part of the capital of the Fund. (d) The effect of that resolution was to create a sub-fund within the Burrup Trust which continued in existence. Because of the terms of cl 12, that sub-fund, being a Beneficiary's Fund (as defined in cl 1 of the Trust Deed), remained subject to the Trustee's continuing powers and rights of indemnity so that no new and independent trust was thereby created for the purposes of CGT event E1. Reliance was placed upon the reasoning of Slade LJ in Bond (Inspector of Taxes) v Pickford [1983] STC 517 at 520-523 where his Lordship discussed the difference between powers to alter a trust in the wider form and powers to do so in the narrower form. (e) The reference in cl 12.1 to cll 7, 10 and 17 is to: (i) The Trustee's power to set aside the income of the Fund (cl 7); (ii) The means by which the Trustee could set aside such income (cl 10); and (iii) The Trustee's power to make appointments of capital for the benefit of a General Beneficiary (cl 17.1). (f) Apart from setting aside and/or appointing income or capital for the benefit of a beneficiary, cll 7, 10 and 17 also give the Trustee power to do other things in relation to income (in the case of cl 7 and cl 10) and in relation to capital (in the case of cl 17.1), which would not, if exercised, lead to the creation of a Beneficiary's Fund. (g) The exercise of a power to "… appoint …" the whole or any part of the capital of the Fund to or for the benefit of a General Beneficiary under cl 17.1 creates a Beneficiary's Fund (as defined in cl 1). (h) The conclusion reached by the primary judge at [28] of his Reasons that the reference in cl 12.1 to cl 17 is not a reference to cl 17.1 but is rather a reference to cl 17.2 only is incorrect for two main reasons: (i) The reference in cl 12.1 is a reference to cl 17 as a whole and is not confined to cl 17.2. (ii) The reference in cl 12.1 ought not be construed as a reference to cl 17.2 alone because the subject matter of cl 12 is the status of an ongoing Beneficiary's Fund, whereas cl 17.2 is concerned with the effective termination of such a Fund. (i) The applicant's construction of cl 12 is supported by the decision of Martin J in Oswal v Yara Australia Pty Ltd (No 3). In that case, Martin J construed the relevant clauses in the fashion now urged upon the Court by Mr and Mrs Oswal. (j) Substantial injustice will result if leave is not granted. This is because: (i) A resolution of the appeal in favour of Mr and Mrs Oswal will effectively determine the Pt IVC proceedings before the primary judge in relation to the 2007 Income Tax Year. (ii) If leave is not granted, the parties will be required to address the alternative case being propounded by Mr and Mrs Oswal in respect of the 2007 Income Tax Year. Such a course will impose a significant evidentiary burden upon the Oswals and lead to significant delays and significant costs. These delays will be compounded by the additional circumstances that Mr and Mrs Oswal no longer control a large number of the relevant documents and are involved in other litigation which will inevitably impact upon their capacity to pursue their alternative case. (k) The substantial injustice is in the category of injustice adverted to by the Court in Ex parte Bucknell at 227, namely, inconvenience, delay and cost.

The Commissioner's Submissions 36 Senior Counsel for the Commissioner made the following submissions: (a) The conclusion reached by the primary judge that the 13 March 2007 resolution created, by declaration or settlement, a separate trust over the 902 shares in Burrup Holdings Pty Ltd follows from the express terms of the resolution itself. By that resolution, Mr Oswal subjected those shares to a new and separate trust by means of a declaration that he would henceforth stand possessed of the shares upon that trust. The resolution was within the ordinary conception of a declaration of trust. (b) The learned primary judge's construction of cl 12 of the Trust Deed was not erroneous. (c) Neither of the two main reasons advanced by Mr and Mrs Oswal in support of their contention that the primary judge's construction of cl 12 was erroneous has any merit. First, a Beneficiary's Fund (as defined in cl 1 of the Trust Deed) may be created by the exercise of powers under each of cl 17.2(a) and cl 17.2(b) of the Trust Deed as well as by the exercise of powers given to the Trustee by cl 17.1 of that Deed. Second, cl 17.2 is not exclusively concerned with the effective termination of a Beneficiary's Fund. The powers set out in cl 17.2 may be used to produce a range of consequences including the creation of a new and ongoing Beneficiary's Fund. (d) The primary judge did not err by not following the reasoning of Martin J in Oswal v Yara Australia Pty Ltd (No 3). That reasoning was expressly rejected by McLure P on appeal from his Honour and implicitly disapproved by the majority (Pullin and Murphy JJA). Although McLure P dissented in the result, her Honour was the only member of the Court who addressed the interpretation of the 13 March 2007 resolution and the true construction of the Trust Deed. (e) Even if, contrary to the Commissioner's submissions, the primary judge erred in his construction of cl 12 of the Trust Deed in the manner contended for by Mr and Mrs Oswal with the consequence that cl 12 does have a relevant operation upon the 13 March 2007 resolution, it does not follow that the conclusion reached by his Honour as to the existence of CGT event E1 was wrong. Even if the 13 March 2007 resolution did create a Beneficiary's Fund pursuant to cl 12.1 of the Trust Deed, such a Beneficiary's Fund would nonetheless constitute a separate trust from the Burrup Trust itself. This argument depends upon interpreting the definitions of Beneficiary's Fund and Fund and construing cl 3 of the Trust Deed. (f) For all of the above reasons, the decision of the learned primary judge is not attended by sufficient doubt to justify its reconsideration by the Full Court. In fact, the decision is plainly correct. (g) The cost, inconvenience and delay in litigating at first instance issues which Mr and Mrs Oswal have themselves chosen to litigate, and which they advance as their alternate case in the proceedings below, do not in the particular circumstances of the present case constitute substantial injustice within the relevant principles sufficient to justify the grant of leave to appeal. That cost, inconvenience and delay must be balanced against the cost, inconvenience and delay which would be involved in appellate intervention at this stage, prior to the determination of all issues before the primary judge. (h) The avoidance of unnecessary fragmentation of the trial process, and of the preparation of cases for trial, is an important policy of restraint upon appellate review which is manifested in s 24(1A) of the Federal Court of Australia Act 1976 (Cth) (the Federal Court Act) (Bomanite Pty Ltd v Slatex Corp Aust Pty Ltd (1991) 32 FCR 379 at 391 per French J (as his Honour then was)). (i) The determination of separate question 2 does not in any way finally determine the entitlement of Mr and Mrs Oswal to any relief. They remain free to pursue their alternate case at first instance. Their appellate rights in relation to the subject matter of separate question 2 are preserved and may be exercised, in the ordinary way, at the conclusion of the litigation at first instance. Those rights will extend to the interlocutory determination of separate question 2 (s 24(1E) of the Federal Court Act. (j) "In seeking to balance the rights and interests of the parties, the demands upon the time and resources of the Court, the claims of other litigants, and the orderly conduct of these proceedings, the appropriate course in this case is to refuse leave to appeal so as to permit the first instance proceedings to run their course prior to the invocation of any appellate function" (par 23 of the Commissioner's Written Submissions).

Sufficient Doubt 37 When resolving in the terms of the 13 March 2007 resolution, Mr Oswal, as Trustee of the Burrup Trust, purported to act pursuant to cl 17.1 of the Trust Deed. In the resolution itself, Mr Oswal recorded the fact that there was, as at the date of the resolution, a Guardian in office and that he had obtained the consent of the Guardian to the resolution which he was about to make. Given that he was the Guardian, as well as the Trustee, it was probably not necessary for him to go through the formality of recording that he consented to the resolution in his capacity as the Guardian. However, nothing turns on this. 38 The terms of the resolution itself make clear that Mr Oswal was purporting to invoke the power of appointment given to him in his capacity as Trustee of the Burrup Trust under cl 17.1 of the Trust Deed. He was not endeavouring to "apply, or distribute …." any part of the capital of the Fund. The subject matter of the exercise of his purported power of appointment was "… a part of the corpus of the [Burrup] Trust as detailed [in the resolution itself] …" being two parcels of shares in Burrup Holdings Pty Ltd each of 574 shares. One parcel was appointed for the absolute benefit of Mr Oswal and the other for the absolute benefit of Mrs Oswal. 39 Although the expression Fund is defined in cl 1 of the Trust Deed, the phrase "the capital of the Fund" is not separately defined. However, it is tolerably clear that the phrase "the capital of the Fund" is intended to refer to that part of the Fund (as defined) which is properly characterised as capital (as distinct from income). As is typical of trust deeds of the type under consideration here, there is a distinction made throughout the Trust Deed between the concept of income, on the one hand, and the concept of capital, on the other hand. The two parcels of shares which were the subject of the 13 March 2007 resolution are properly characterised as property which was capital in nature held by the Trustee on the terms of the Trust Deed at the time the resolution was made. For these reasons, there can be little doubt that the 13 March 2007 resolution is properly characterised as a resolution made pursuant to cl 17.1 of the Trust Deed. 40 In the language of the resolution itself, the corpus so appointed and all income and accretion of capital thereafter achieved in respect of that corpus is to be held "… on separate trust and for the absolute benefit of [Mr and Mrs Oswal] in their own individual capacity". 41 Thus, the resolution itself contemplates the creation of a separate trust, that is to say, a trust which is separate from the Burrup Trust. The terms of the relevant resolution and of the Trust Deed take the present case outside the ratio decidendi of Bond v Pickford. Here, the Trust Deed authorised the Trustee to remove assets from the Burrup Trust and to create a new and independent bare trust in respect of those assets. 42 The interpretation of the 13 March 2007 resolution which I have set out at [37]-[41] above is the interpretation arrived at by the primary judge (see, in particular, [22] and [43] of his Honour's Reasons). 43 As noted by his Honour at [25] of his Reasons, Mr and Mrs Oswal argued before him (and continued to argue before me) that no trust separate from the Burrup Trust was created by the 13 March 2007 resolution but rather all that the resolution did was to establish a separate fund of assets under the umbrella of the Burrup Trust itself. Mr and Mrs Oswal point to cl 12 of the Trust Deed and submit that, when a separate fund is created as contemplated by that clause, the fund does not comprise a separate trust but is rather a trust established under the Trust Deed itself. The learned primary judge rejected that submission upon the basis that the reference to cl 17 in cl 12.1 of the Trust Deed should be construed as a reference only to cl 17.2 for the reasons which his Honour gave at [28] of his Reasons. 44 The reasons which his Honour gave at [28] are compelling. 45 Clause 7 and cl 10 of the Trust Deed quite clearly concern only the income of the Trust. That conclusion can be sustained without reference to the headings to those clauses bearing in mind that, under cl 2.2 of the Trust Deed, the Court is cautioned against using those headings as an aid to the interpretation of the clauses themselves. Clause 17, on the other hand, addresses that part of the Fund which is correctly described as capital. Clause 17.1 of the Trust Deed deals with the appointment, application or distribution of the whole or part of the capital whereas cl 17.2 deals with the payment or transfer of the capital or the application of the capital in a particular manner. The concepts addressed by cl 17.1 are not easily classified as "setting aside" a part of the Fund whereas the concepts addressed in cl 17.2 are satisfactorily so classified. 46 The primary judge analysed and rejected the reasoning of Martin J in Oswal v Yara Australia Pty Ltd (No 3) (at [30]-[32] of his Reasons). 47 At the time his Honour delivered his Reasons and made orders in answer to the separate questions, the appeal from the decision of Martin J in Oswal v Yara Australia Pty Ltd (No 3) had not been decided. On 16 August 2013, the Court of Appeal of the Supreme Court of Western Australia published its reasons in support of the Court's decision to dismiss the appeal (Yara Australia Pty Ltd v Oswal (No 2) [2013] WASCA 187). At [141] of the Court's Reasons, McLure P held that, upon the true construction of the 13 March 2007 resolution, a separate trust, in the nature of a bare trust, of the relevant shares, had been established. The majority (Pullin and Murphy JJA) did not find it necessary to decide that question. However, when refashioning the trial judge's orders, Pullin JA (with whom Murphy JA agreed) removed language which suggested that the effect of the 13 March 2007 resolution was to create a sub-fund under the umbrella of the Burrup Trust (see [328] of the Reasons). 48 At [31] of the primary judge's Reasons in the present case, when addressing [210]-[213] of the decision of Martin J in Oswal v Yara Australia Pty Ltd (No 3), his Honour said that he was unable to so easily draw a line between the establishment of a separate fund, on the one hand, and the creation of a new trust, on the other hand. He said that a finding that a separate fund of assets comprising the shares the subject of the appointment made under the 13 March 2007 resolution was established was no impediment to a conclusion that a new trust in respect of those assets had come into existence. 49 His Honour then moved on to consider the submissions made on behalf of Mr and Mrs Oswal based upon Roome v Edwards (at [33]-[36] of his Reasons). His Honour did not find Roome v Edwards to be of any real assistance in resolving the issues in the present case. 50 I think that there is much force in the submissions made on behalf of the Commissioner to the effect that, even if that which was created by the 13 March 2007 resolution was a Beneficiary's Fund in respect of the shares in question pursuant to cl 12.1 of the Trust Deed, such a Beneficiary's Fund would nonetheless constitute a separate trust from the Burrup Trust. As submitted by the Commissioner, this would seem to follow from a correct interpretation of the definitions of Beneficiary's Fund and Fund in cl 1 and the correct construction of cl 3. 51 For all of the above reasons, I have come to the view that the decision of the learned primary judge in answering separate question 2 is not attended by sufficient doubt as to warrant a grant of leave to appeal.

No Substantial Injustice 52 In any event, I do not consider that the matters of convenience, delay and cost relied upon by Mr and Mrs Oswal as likely to cause substantial injustice to them supposing his Honour's decision to be wrong constitute such substantial injustice. 53 I have come to this conclusion essentially for the reasons put forward by the Commissioner. 54 In particular, as was submitted by the Commissioner, the asserted costs, inconvenience and delay of litigating the remaining issues at first instance must be balanced against the costs, inconvenience and delay which would inevitably be involved in appellate intervention at this stage, prior to the determination of all issues before the primary judge. This would amount to an unnecessary fragmentation of the trial process. 55 The mere fact that the primary judge thought fit to set aside for preliminary and separate determination two particular questions does not mean that the Full Court is obliged to entertain an appeal in respect of those questions. Given the nature of question 2, it was only ever going to be of real utility if the question were answered in the negative, that is, in favour of the arguments being propounded by Mr and Mrs Oswal. It was always understood by all parties that, should the question be answered in the affirmative, as has happened, there would need to be a trial before his Honour of all remaining issues in the proceedings. In my judgment, even if I were minded to think that his Honour's decision was attended by sufficient doubt to justify a grant of leave to appeal, I would not be persuaded that the alleged substantial injustice to which Mr and Mrs Oswal point would be sufficient to tip the scales in favour of the continued fragmentation of the issues in the proceedings below.

Conclusions 56 For all of the above reasons, the Applications for Leave to Appeal must all be dismissed with costs. I propose to direct the parties to approach the docket judge with a view to having each of the proceedings below relisted in order to progress the final determination of those proceedings. 57 There will be orders accordingly. I certify that the preceding fifty-seven (57) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Foster.