Capital Gains Tax Appeal Dismissed: Vendor Shareholders Dealt at Arm's Length

OUTCOME: Dismissed

Federal Court of Australia

[NAME_1] v Commissioner of Taxation [2024] FCA 687 File number: QUD 99 of 2022 QUD 100 of 2022 QUD 101 of 2022 QUD 102 of 2022

Judgment of: LOGAN J

Date of judgment: 26 June 2024

Catchwords: TAXATION – where the applicants appeal from objection decisions made by the respondent Commissioner concerning the inclusion in their taxable income of the capital gain proceeds from the sale of shares in a company, [COMPANY_2] ([NAME_4]), to [COMPANY_5] ([NAME_6]) – where there was no formal relationship, in terms of shareholding, directorships or control, between [NAME_4] and [NAME_6] or any other [NAME_7] related entities ([NAME_7]) – where the applicants contended that there was "internal championing" for the purchase of [NAME_4] within [NAME_7] that caused a price higher than "market value" to be paid and that, as a result, the parties did not deal with each other at arm's length – where the ultimate approval for the purchase of [NAME_4] was made by a head office in New York that was removed from [NAME_7]'s Australian operations – whether the applicants were at arm's length to [NAME_6] within the meaning of s 116-30 of the Income Tax Assessment Act 1997 ([NAME_10]) – appeal dismissed TAXATION – where the applicants contended that [NAME_7] included "special value" in its purchase price for [NAME_4] that resulted in a price that was not "market value" – where the applicants led expert evidence that excluded this "special value" from the valuations of the [NAME_4] shares on the basis of valuation guidelines issued by the respondent Commissioner – whether "special value" forms part of the "market value" of an asset – whether the Commissioner's valuation guidelines misstated the law

Legislation: Evidence Act 1995 ([NAME_10]) s 140 Income Tax Assessment Act 1936 ([NAME_10]) ss 26AAA, 97, 102AG Income Tax Assessment Act 1997 ([NAME_10]) ss 102-5, 102-20, 104-5, 104-10, 108-5, 110-25, 116-5, 116-10, 116-20, 116-25, 116-30, 152-15, 995 Property for Public Purposes Acquisition Act 1901 ([NAME_10]) Taxation Administration Act 1953 ([NAME_10]) ss 14ZZ, 14ZZO

Cases cited: [COMPANY_11] v Commissioner of Taxation [1983] 1 NSWLR 1 [NAME_12] v Federal Commissioner of Taxation (1988) 19 ATR 1352 Bradford-on-Avon Assessment Committee v White [1898] 2 QB 630 Briginshaw v Briginshaw (1938) 60 CLR 336 Commissioner of Taxation v Consolidated Media Holdings Ltd (2012) 250 CLR 503 Commissioner of Taxation v Miley (2017) 106 ATR 779 Davis v Seisdon Union [1908] AC 315 Earl Cadogan v Sportelli [2010] 1 AC 226 [NAME_13] v Federal Commissioner of Taxation (2012) 208 FCR 300 Inland Revenue Commissioners v Clay [1914] 1 KB 339 Inland Revenue Commissioners v Clay [1914] 3 KB 466 Jones v Dunkel (1959) 101 CLR 298 [NAME_14] v [NAME_15] of the Parishes of Erith and West Ham [1893] AC 562 [NAME_16] v [NAME_17] of Land Tax (NSW) (1915) 20 CLR 231 Mersey Docks and Harbour Board v Liverpool (1873) LR 9 QB 84 MMAL Rentals Pty Ltd v Bruning (2004) 63 NSWLR 167 Northern Territory v Griffiths (2019) 269 CLR 1 Promenade Investments Pty Ltd v New South Wales (1992) 26 NSWLR 203 R v London and North-Western Railway Co (1874) LR 9 QB 134 R v West Middlesex Waterworks Co (1859) 28 LJ(MC) 135 [COMPANY_18] v [NAME_19] (Area No 7) [1938] AC 321 Spencer v The Commonwealth (1907) 5 CLR 418 [NAME_20] No 5 Will Trust v Federal Commissioner of Taxation (1990) 21 ATR 1123 [NAME_22] v [NAME_25], Vizagapatam [1939] AC 302 [NAME_26] B, 'Valuation Principles in the Income Tax Assessment Act' (1996) 8 Bond Law Review 112

Division: General Division

Registry: Queensland

National Practice Area: Taxation

Number of paragraphs: 154

Date of hearing: 9 June 2023 12 – 16 June 2023 22 – 23 June 2023

Counsel for the Applicant: [redacted]

Solicitor for the Applicant: [redacted]

Counsel for the Respondent: [redacted]

Solicitor for the Respondent: [redacted]

BETWEEN: [NAME_38] Applicant

AND: COMMISSIONER [NAME_202] [COMPANY_9] Person

QUD 100 of 2022

BETWEEN: [NAME_42] Applicant

AND: COMMISSIONER OF TAXATION Respondent

QUD 101 of 2022

BETWEEN: [NAME_46] Applicant

AND: COMMISSIONER OF TAXATION Respondent

QUD 102 of 2022

BETWEEN: [NAME_50] Applicant

AND: COMMISSIONER OF TAXATION Respondent

order made by: LOGAN J DATE OF ORDER: 26 JUNE 2024

THE COURT ORDERS THAT:

1. The appeal be dismissed. 2. The applicant pay the respondent's costs of and incidental to the appeal in a lump sum, that lump sum to be fixed by a registrar, failing agreement by the parties. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

LOGAN J: 1 These four taxation appeals concern a capital gains tax controversy arising out of the sale of all the shares in [COMPANY_2] ([NAME_4]) to the Australian incorporated [COMPANY_52] ([NAME_6]) pursuant to a written Share Sale Agreement dated 4 October 2016 (Share Sale Agreement). [NAME_6] appears to be part of an Australian group including [COMPANY_40] and [COMPANY_54] (collectively, [NAME_41]) [NAME_41]'s ultimate holding company is the United States incorporated [NAME_55] ([NAME_7]). [NAME_7]'s principal office is in New York, New York State in the United States of America. 2 As its corporate name suggests, [NAME_4] carried on business in that part of the gaming industry long associated with the horse racing industry. It operated an online social platform which allowed users to exchange racing tips. It had two sources of income: (a) selling advertising space on its website; and (b) commissions from bookmakers via "affiliate deals". 3 The "affiliate deals" were arrangements made by [NAME_4] with sundry bookmakers, whereby the bookmaker concerned paid a commission to [NAME_4] when a user of its website clicked on a hyperlink on that website which directed the user to that bookmaker. Such commissions were paid monthly, based on the net loss of each individual user. 4 The four taxation appeals, and the related applicants, are as follows: (a) QUD 99 of 2022, commenced by [NAME_38] ([NAME_56]); (b) QUD 100 of 2022, commenced by [NAME_42] ([NAME_57]); (c) QUD 101 of 2022, commenced by [NAME_46] ([NAME_58]); (d) QUD 102 of 2022, commenced by [NAME_50] ([NAME_59]), (collectively, the Applicants). 5 Pursuant to the right of access to an exercise of Commonwealth judicial power, necessary for the validity of a law imposing a taxation liability, conferred by s 14ZZ of the Taxation Administration Act 1953 ([NAME_10]) (TAA), each of the Applicants has appealed to the Court against an objection decision of the respondent Commissioner of Taxation respectively issued to them on 1 February 2022. By the objection decision, a related objection dated 15 October 2021 was disallowed. Because the "taxable facts" are common to each of the appeals, they were heard together. 6 As with any taxation appeal, the onus lies on the Applicants to prove that the assessments which were the subject of the respective objection decisions were excessive: s 14ZZO, TAA. Insofar as discharging that onus entails proof of particular facts, they need only prove those facts on the balance of probabilities: s 140, Evidence Act 1995 ([NAME_10]) (Evidence Act). 7 As at 4 October 2016, [NAME_4] had 120,000 issued ordinary shares. These were held by the following shareholders in the following percentages: (a) [COMPANY_60] ([NAME_62]) as the trustee of the [COMPANY_63] ([COMPANY_63]) – 60% of the issued ordinary shares; (b) [COMPANY_64] ([NAME_65]) as the trustee of the [COMPANY_67] ([NAME_1]) – 20% of the issued ordinary shares; (c) [COMPANY_68] ([NAME_69]) as the trustee of the [COMPANY_70] ([COMPANY_70]) – 20% of the issued ordinary shares (collectively, the vendor shareholders). 8 [NAME_62] and the [COMPANY_63] are associated with [NAME_71] and his wife, [NAME_72]. 9 [NAME_65] and the [NAME_1] are associated with [NAME_73] and his wife, [NAME_74]. 10 [NAME_69] and the [COMPANY_70] are associated with [NAME_75] and his wife, [NAME_77]. 11 On 4 October 2016, the vendor shareholders, together with [NAME_59], [NAME_78] and [NAME_79] as guarantors, entered into the Share Sale Agreement with [NAME_6]. Pursuant to that agreement, and in total, the vendor shareholders received the sum of $31,057,722 in respect of the disposal of the whole of the shares in [NAME_4]. Reflecting the proportion of the shares in [NAME_4] until then respectively held, that amount was paid as follows: (a) $6,211,544 to [NAME_65] as the trustee of the [NAME_1]; (b) $6,211,544 to [NAME_69] as the trustee of the [COMPANY_70]; and (c) $18,634,634 to [NAME_62] as the trustee of the [COMPANY_63].

Basis of Challenged Assessments 12 The challenged assessments are premised upon the respective trustee distribution resolutions in the 2017 income year as applicable to the net income of each trust of which a vendor shareholder was trustee. The amounts respectively paid to those trustees arising from the sale of the shares in [NAME_4] have been assessed, pursuant to s 97 of the Income Tax Assessment Act 1936 ([NAME_10]) (ITAA 1936), as forming part of the taxable income of the respective applicants as presently entitled beneficiaries of those trusts. This explains how [NAME_59] and his wife, [NAME_78]'s wife and [NAME_79]'s wife were assessed. They challenge the inclusion of the amounts assessed in their taxable income.

Principal Issues and Outcome 13 The underlying taxable facts concerning the business conducted by [NAME_4] prior to the Share Sale Agreement, the negotiations which preceded that agreement and the making of that agreement are not, in themselves, controversial. However, flowing from what is known as the "market value substitution rule", found in s 116-10(2) of the Income Tax Assessment Act 1997 ([NAME_10]) (ITAA 1997), what is very much controversial is whether, in the sale of the shares, the vendor shareholders in [NAME_4] dealt with [NAME_6] at arm's length? If they did not, there is a consequential controversy as to the market value of the shares immediately prior to their disposal. It will be necessary, later in these reasons for judgment, to set out at length the provisions of the capital gains tax regime in the ITAA 1997 which give rise to these issues. 14 In relation to [NAME_56]'s and [NAME_58]'s taxation appeals only, a subsidiary, consequential issue concerning the application of the small business concession found in Division 152 of the ITAA 1997 may arise, if the threshold arm's length dealing issue and the market value issue in relation to the market value of the shares in [NAME_4] are each answered favourably to them. This issue is whether the requirements of the maximum net asset value test in s 152-15 of the ITAA 1997 are satisfied? 15 For reasons which follow, and notwithstanding the ingenuity of the submissions made on behalf of the Applicants by [NAME_80] and [NAME_81], my conclusion is that [NAME_4] and [NAME_6] dealt with each other at arm's length in connection with the Share Sale Agreement. The evidence offered by the Applicants exposed the internal decision-making processes in relation to the purchase of the shares in [NAME_4] not just of [NAME_41] but also within the [NAME_7] group hierarchy up to [NAME_7]'s Head Office in New York. That evidence reveals that, ultimately, the decision to purchase the shares was made in New York, following significant internal analysis within the [NAME_7] group of companies of the worth of the shares, as reflected in [NAME_4] business. The share acquisition was a corporate group-level, strategic decision made at a corporate group headquarters, not subordinate, Australian operational level. In this Head Office decision, there was neither collusion with any of [NAME_82], [NAME_44] or [NAME_48] (or their respective wives) or [NAME_4]' appointed agent, nor a mere rubber-stamping of an analysis offered by a not disinterested, local operational level subordinate within [NAME_41]. 16 What follows from this is that the "market value substitution rule" was inapplicable. Hence, the consequential market value issue and the related small business concession issue are, strictly, unnecessary to decide. This notwithstanding, because each issue was fully argued and against the contingency that my conclusion as to arm's length dealing may be in error, I have nonetheless addressed these issues below as well.

An Arm's Length Dealing 17 "Arm's length dealing" and, for that matter, "market value" are each terms found in the "market substitution rule" specified in s 116-10(2) of the ITAA 1997. Neither term is defined in the ITAA 1997, although that Act does offer guidance in respect of the reaching of a conclusion as to what is or is not an "arm's length" dealing. Thus, by s 995 of the ITAA 1997, it is provided, in respect of "arm's length", that, "in determining whether parties deal at arm's length, consider any connection between them and any other relevant circumstance". 18 As with the construction of any statutory provision, the task of giving that provision meaning must commence with the text approved by Parliament, having regard to the context in which it is found and its evident purpose: Commissioner of Taxation v Consolidated Media Holdings Ltd (2012) 250 CLR 503, at [39]. 19 Materially, the text of s 116-10 of the ITAA 1997 is as follows: 116-10 Modifications to general rules (1) …. Explanation of modifications (2) The first is a market value substitution rule. It is relevant if: • you receive no capital proceeds from a CGT event; or • some or all of the capital proceeds cannot be valued; or • you did not deal at arm's length with another entity in connection with the event. It is the last of these alternatives which the Applicants contend is applicable. 20 It is immediately obvious that s 116-10 provides for a modification of general rules applicable to a CGT event. This makes it contextually necessary to chart out what are the applicable general rules. 21 The statutory pathway in the ITAA 1997 to those general rules is as follows. 22 An entity's assessable income for a given income year includes that entity's net capital gain (if any) for the income year: s 102-5. That section also sets out how a "net capital gain" is worked out. An element of doing that, and the only one presently relevant, is calculating whether a capital gain has been made. 23 A capital gain is made if and only if a CGT event happens: s 102-20. The gain is made at the time of the event: s 102-20. 24 Section 104-5 sets out the various CGT events. One such event is the disposal of a CGT asset, referred to as a CGT event A1: s 104-10. A share in a company is a CGT asset: s 995 definition and s 108-5, note 1. Interpolating the facts of this case into the statutory pathway thus far detailed, the shares in [NAME_4] were CGT assets and their sale to [NAME_41] under the Share Sale Agreement was the disposal of a CGT asset by the shareholders concerned, thereby constituting CGT event A1. The time of the event was when that agreement was made, 4 October 2016. 25 In turn, a capital gain is made if the capital proceeds from the disposal of a CGT asset are more than that asset's cost base: s 104-10(4). A CGT asset's cost base is worked out as provided for in s 110-25 of the ITAA 1997, but it is not necessary, in order to resolve this case, to delve into that aspect. 26 Section 116-5 of the ITAA 1997 directs attention to s 116-20 with respect to the general rules for working out what are the capital proceeds from a CGT event and also makes reference to s 116-25. 27 Section 116-20 provides: 116-20 General rules about capital proceeds (1) The capital proceeds from a *CGT event are the total of: (a) the money you have received, or are entitled to receive, in respect of the event happening; and (b) the *market value of any other property you have received, or are entitled to receive, in respect of the event happening (worked out as at the time of the event). Note 1: The timing for each event are in Division 104. Note 2: In some situations you are treated as having received money or other property, or being entitled to receive it: see section 103-10. Note 3: If you dispose of shares in a buy-back, the capital proceeds are worked our under Division 16K of the Income Tax Assessment Act 1936. 28 Section 116-10 instructs that there are 6 modifications to the general rules that may be relevant and that, "The table in s 116-25 lists which ones may be relevant to each CGT event listed in the table." 29 Thus, the modifications specified in s 116-20 are potentialities. Regard to s 116-25 is necessary to determine whether a potential modification is applicable to a particular disposal. As already mentioned, the only potential modification identified by the Applicants is the first of the six specified modifications, the "market value substitution rule" as found in s 116-10(2), set out above. 30 Within s 116-25, and in respect of CGT event A1, it is provided that modification 1 (the market value substitution rule) is one of the modifications which can apply to that event and for special rules that can apply, "If the disposal is of * shares… : see s 116-80". There is no suggestion in this case that any such special rules are applicable. 31 When, if at all, the potentiality of modification 1 becomes an actuality is specified in s 116-30 of the ITAA 1997. Because in this case there were capital proceeds received in respect of the disposal of the shares in [NAME_4], whether that actuality came to pass is determined by reference to s 116-30(2), which provides: 116-30 Market value substitution rule: modification 1 No capital proceeds (1) …. There are capital proceeds (2) The *capital proceeds from a *CGT event are replaced with the *market value of the *CGT asset that is the subject of the event if: (a) some or all of those proceeds cannot be valued; or (b) those capital proceeds are more or less than the market value of the asset and: (i) You and the entity that *acquired the asset from you did not deal with each other at *arm's length in connection with the event; or (ii) The CGT event is CGT event C2 (about cancellation, surrender and similar endings). (The market value is worked out as at the time of the event.) 32 So it is that both in potentiality (s 116-10(2)) and actuality (s 116-30(2)) that whether there was an arm's length dealing between the entity disposing of the asset and the entity acquiring the asset is a critical pre-condition to modifying the general rule in s 116-20 for the determination of what are the capital proceeds in respect of that disposal. 33 A consideration of text and context therefore instructs that the determination of whether there is a capital gain in respect of the disposal of a CGT asset is premised upon the prima facie position that the total of the consideration, the "capital proceeds" received or to entitled to be received, will usually reliably supply one element in the calculation of any gain. That reliability entails implicit assumptions. One is that the parties have dealt with each other at arm's length. Another is that, ordinarily, those capital proceeds received or entitled to be received in respect of the disposal of a CGT asset will, ordinarily but not necessarily, represent the market value of that asset. 34 Modification 1 is therefore in the nature of an exception to a prima facie position. In relation to that exception, regard to the text of s 116-30 also discloses that the fact that the capital proceeds are more or less than the market value of the asset is not to be equated with a conclusion that the entity disposing of the asset and the entity that acquired the asset did not deal with each other at arm's length in connection with the event. Outcome is not to be equated with such a cause. Instead, that the capital proceeds are more or less than the market value of the asset may or may not be indicative of a non-arm's length dealing. 35 There is therefore both accuracy and error in a submission by the Commissioner that "arm's length" and "market value" are discrete subjects. Having regard to the analysis just offered, it is more accurate to state that they are separate, but potentially not unrelated, subjects. There can be an interplay. 36 In turn, that takes up a point made for the Applicants in submissions. It was put that capital proceeds which do not represent the market value of an asset can be an indicator that the parties to a disposal of that asset did not deal with each other at arm's length. I agree. That circumstance sounds an interrogative note about a dealing. 37 Textually and contextually therefore, given the definition of "arm's length", an examination of whether the parties to a disposal have dealt with each other at arm's length should commence with an examination of what, if any, connection existed between the parties "in connection with" the dealing. It is the dealing which supplies the prism through which one views whether, and, if so, to what extent, there was any connection between the parties. Flowing from the phrase "in connection with", the statutory criterion is not whether the parties to the disposal were at arm's length but whether, in relation to the disposal concerned, they dealt with each other at arm's length. 38 Further, enlarging upon a point already touched upon, a feature of the definition of "arm's length" is that it does not so much define the term as offer subjects for inquiry as to whether the term as ordinarily understood is applicable on particular facts. That the one definite subject for inquiry is the existence of any connection between the parties shows that Parliament is not using "arm's length" in any sense different to the term's meaning as a matter of ordinary English. That meaning is, "conducted or agreed by independent parties not able to coerce or control each other; characterized by distance, independence, or impartiality" (Oxford English Dictionary, Online Edition). That ordinary meaning also indicates what subjects which might, in terms of the definition of "arm's length", be a relevant circumstance in relation to a dealing, apart from a "connection". 39 So construing "arm's length" also advances an evident purpose of modification 1 in supplying a basis for displacing a prima facie position as to the reliability of looking to the specified capital proceeds in working out whether there has been a capital gain as a result of a particular CGT asset disposal. 40 Flowing from the discussion in the preceding paragraphs, another relevant circumstance might be that the capital proceeds did not represent market value. It is possible that an examination of the circumstances of a dealing in respect of the disposal of a CGT asset might reveal that a price which was impressionistically above or below expectation. That impression might be based on an investigation of the asset concerned and its features, of the market and sales which appeared comparable, or disclosed features of the dealing between the parties or of a particular party which might explain that impressionistically aberrant price. This is no more than common sense. Unsurprisingly and as will be seen, it also accords with the practice of valuers. That same investigation might also disclose that a higher than expected price was referable to what valuers term "special value". A truly difficult issue, explored below, is whether the term "market value" as used in s 116-30, and s 116-10(2), of the ITAA 1997 does or does not include special value. 41 Thus far, and deliberately, I have sought to derive a meaning for "arm's length" dealing by reference to statutory text, context and purpose, uninformed by authority. 42 As it happens, the meaning so derived is consistent with authorities which have considered the meaning to give to arm's length dealing in analogous contexts. Those authorities were helpfully collected by McKerracher J in [NAME_13] v Federal Commissioner of Taxation (2012) 208 FCR 300 ([NAME_13]), at [95]:

1. Whether the parties dealt at arm's length is a question of fact: [NAME_20] No 5 Will Trust v Federal Commissioner of Taxation (1990) 21 ATR 1123 at 1134-1135; [COMPANY_85] v Federal Commissioner of Taxation (1995) 30 ATR 400 at 403-404; 129 ALR 503 at 507; Federal Commissioner of Taxation v AXA Asia Pacific Holdings Ltd (2010) 189 FCR 204 at [106].

2. There is a distinction between dealing at arm's length and an arm's length relationship: ACI Operations Pty Ltd v Berri Ltd (2005) 15 VR 312 at [224]. Whether the parties did not deal at arm's length is not to be decided by answering whether the parties were not in an arm's length relationship. The fact that the parties are themselves not at arm's length does not mean that they have not, in respect of a particular dealing, dealt with each other at arm's length: [NAME_12] v Federal Commissioner of Taxation (1988) 19 ATR 1352 at 1355-1356; 81 ALR 173 at 177; [NAME_20] No 5 Will Trust at 1131-1133.

3. Whether the parties dealt at arm's length involves an analysis of the manner in which the parties to a transaction conducted themselves in forming that transaction: [NAME_84] at 402-403; 506.

4. At issue is whether the parties have acted separately and independently in forming their bargain: [NAME_84] at 403-404; 507; [COMPANY_86] at [226] (did the parties apply "independent separate wills"); [COMPANY_87] at [105]. There should be an assessment of whether the parties dealt with each other as arm's length parties would be expected to behave so that the outcome is a matter of real bargaining: [NAME_20] No 5 Will Trust at 1132-1133; [NAME_84] at 402-404; 506, 507; [COMPANY_87] at [105].

5. It is relevant to consider the nature of any relationship between the parties: [NAME_20] No 5 Will Trust at 1132-1133; [NAME_84] at 402-403; 506.

6. If the parties are not at arm's length the inference may be drawn that they did not deal with each other at arm's length: [NAME_84] at 402-403; 506; [COMPANY_86] at [225]. 43 Informed by this understanding of the meaning of arm's length dealing, it is now necessary to explain, by reference to the evidence, why I have concluded that the parties to the Share Sale Agreement dealt with each other at arm's length. 44 [NAME_4] and [NAME_6] were at arm's length from one another; indeed, this is common ground. This is relevant but, as the authorities summarised in [NAME_13] confirm, by no means determinative. It bears repeating that the relevant question is whether the parties dealt with each other at arm's length? 45 There was no ownership or managerial control connection whatsoever between [NAME_4] and [NAME_7] or any of the latter's subsidiaries, including [NAME_41] and [NAME_6]. [NAME_4] was a small, closely held, Australian proprietary company in which neither [NAME_6] nor any corporate superior in a large, multi-national group of companies ultimately controlled from New York by [NAME_7] had, directly or indirectly, any shareholding interest. 46 Flowing from this conclusion, and the sixth of the propositions set out in the extract from [NAME_13], as quoted above, the Commissioner submitted that, where parties were at arm's length, an inference arose that they dealt with each other at arm's length. As I explain below, it is unnecessary on the evidence in this case to draw any such inference; so, the point is unnecessary to decide. Further, as an element of proving the assessments concerned to be excessive, the onus was always on the Applicants to prove that the parties to the Share Sale Agreement did not deal with each other at arm's length. The Applicants' endeavour to discharge this onus was always premised on a concession that the parties were at arm's length but a contention that the evidence showed that their dealing was not. Outcomes in cases where the evidence disclosed that the parties to a dealing were not at arm's length can also be explained on the basis that a taxpayer did or did not discharge the onus of proving that the dealing between them was at arm's length. The authorities summarised in [NAME_13] also establish that there is no necessary antipathy between a conclusion that the parties to a dealing were not at arm's length and a conclusion, on particular evidence, that they nonetheless dealt with each other at arm's length. 47 Although there was no ownership or control relationship between any of the parties to the Share Sale Agreement, individuals in [NAME_4] and individuals in [NAME_7]'s controlled entities in Australia were acquainted with each other even prior to the dealing which led to the Share Sale Agreement. 48 That finding is necessarily dependent on acceptance of the evidence given by [NAME_88], [NAME_1] and [NAME_48], each of whom I had the benefit of observing upon their attendance for cross-examination on their evidence in chief by affidavit. I am well-satisfied that each of [NAME_88], [NAME_1] and [NAME_48] gave honest evidence. There were some inconsistencies of recollection between them as to who was or was not present at particular meetings (notably an initial meeting on 17 February 2016, mentioned below) which preceded the making of the Share Sale Agreement. These differences are of no moment as to the honesty of any of them. As to those differences, none of them in 2016, at the time when meetings preliminary to the making of the Share Sale Agreement occurred with particular representatives of [NAME_41] (or some other [NAME_89] of [NAME_7]), had any reason to think that it would, into the indefinite future, be of any importance to place exactly who did or did not attend any particular meeting. Further, such differences of recollection as there were did not intrude upon how individual relationships between one or the other of them and individuals whom one might, without any need for greater accuracy, describe as employed by one [NAME_89] or another of [NAME_7] came about. Those relationships form an important part of the Applicants' case. Identifying them and how they came about is assisted by a brief excursion into the history of [NAME_4], as revealed by the evidence of [NAME_88], [NAME_1] and [NAME_48]. 49 The respective wives of [NAME_88], [NAME_1] and [NAME_48] also gave evidence in chief by affidavit. Their evidence was confined to formal proofs. They did not participate personally in any engagement with any officer or employee of any [NAME_89] of [NAME_7] in relation to the disposal of the shares in [NAME_4]. They were not required to attend for cross-examination. Although I accept their evidence, so doing is in itself neutral on the subject of whether [NAME_4] and [NAME_6] dealt with each other at arm's length. The same may be said of the evidence offered by [NAME_4] tax agent and accountant, [NAME_90]. 50 Until 2012, [NAME_82] and [NAME_48] had no association with [NAME_4]. As [NAME_59] related, [NAME_4] was formed in September 2008 on the joint initiative of him and a [NAME_92]. Although it began modestly, from the outset its business was as described above. The inspiration for the business lay in a combination of [NAME_59]'s formal training and experience in software engineering and a recreational interest he had in the racing industry, also informed by having worked on building a tipping website in Australia for horse racing. [NAME_59] came to know [NAME_95] via an online horse racing forum. He came thereafter to know and admire [NAME_95]'s work as a racing industry photographer. 51 Initially, [NAME_95] had the majority shareholding interest in [NAME_4] (60% to [NAME_59]'s 40% of a then issued total of 100,000 shares). From modest beginnings, the business grew, especially via [NAME_59]'s initiative in obtaining affiliate deals with bookmakers. In 2010, a further 20,000 shares were issued to [NAME_59], which gave him an ownership interest equal to that of [NAME_95]. In the latter half of 2011, relations between [NAME_88] and [NAME_94] deteriorated. It matters not to this case about the rights or wrongs in that deterioration, only that its sequel came in 2012 to be a buying out of [NAME_95]'s interest in [NAME_4] by entities controlled by [NAME_82] and [NAME_48] and their respective wives. The end result by 2016 was the shareholding in [NAME_4] as described above. 52 [NAME_59] had come to know [NAME_79] in 2009 and, through him, in 2011, [NAME_78]. In conjunction with his friend, [NAME_79], [NAME_78] had developed and operated a successful online sports tipping website named "Footy Tips". Via their successful operation of "Footy Tips", [NAME_82] and [NAME_48] had the experience of interest shown in its acquisition by large public companies such as [NAME_96] and [NAME_97] when they placed the business on the market. Eventually, in 2011, after a protracted negotiation both by them directly and via a representative [NAME_82] and [NAME_48] appointed, they came to sell the Footy Tips business to a United States incorporated company, [NAME_98], for $8,500,000. It was at an event to celebrate this sale that [NAME_78] was introduced to [NAME_59] by [NAME_79]. 53 After he and [NAME_79], via the respective entities mentioned above, bought into [NAME_4], [NAME_78] became that company's Chief Operating Officer. From the outset, [NAME_79] was remote from the day-to-day management of [NAME_4], but took an active role in strategic discussions about the company with [NAME_83] [NAME_99]. His taking up of shares in [NAME_4] was a strategic investment decision. He was never a director of [NAME_4]. [NAME_59] remained active in the management of [NAME_4]. On the evidence, the three of them came to be, and have remained, on good terms. Also on the evidence, and as is hardly surprising in relation to a small business, considerable informality seems to have attended director level managerial decision-making. 54 On the evidence, [NAME_78] brought to his role in [NAME_4] not just formal study in business marketing but a definite flair for it. Drawing on his experience with the Footy Tips business, one stratagem he followed was to build relationships with racing authorities and media companies, such as [NAME_7]'s [NAME_100]. One of his objectives in doing this was to share editorial content. That was because the publication of [NAME_4]' articles on other websites exposed [NAME_4] and its business to a greater audience. Another driver for this relationship building was that the racing authorities and media companies owned the rights to the racing replays and footage, which it was in [NAME_4]' interest to access to play on its own website. Via these relationships, [NAME_78] also sought to sell access to [NAME_4]' racing form guide, which contained analyses of horses and their performances. Offering a range of interesting racing industry related content was obviously important in drawing persons to [NAME_4]' internet platform. 55 It seems likely [NAME_78] drew on experience of marketing stratagems which had proved successful when operating the Footy Tips business. He certainly drew on a contact within a [NAME_7] subsidiary from that era. In that era, [NAME_78] had come to know a [NAME_101], who was then employed at [NAME_104] (another [NAME_7] subsidiary). [NAME_105] and by email, [NAME_78] was introduced on 26 June 2013 to [NAME_106], the Head of Product Strategy & Distribution in a [NAME_7] [NAME_89]. In turn, this led in July that year to face to face meetings in Sydney between [NAME_78], [NAME_109], a [NAME_110], Head of Innovation at a [NAME_7] [NAME_89], and other [NAME_7] [NAME_89] staff. They discussed entering into a "partnership" for the publication by a [NAME_7] controlled publication of some of Punter's web content. Exchanges between them on that subject continued throughout the balance of 2013. 56 By 2014, [NAME_7]'s relations with [NAME_4], both via [NAME_78] and also via a content editor at [NAME_4], [NAME_113], had reached the point that [NAME_7] controlled publications were occasionally publishing, with attribution and by agreement, [NAME_4] authored articles. These articles contained references back to the [NAME_4] website. In this fashion and as [NAME_78] related, [NAME_4] was able to project itself to the much wider audience that read [NAME_7] controlled publications. 57 Towards the end of 2015, [NAME_88], [NAME_1] and [NAME_48] resolved to sell either [NAME_4] or its business if opportunity arose. This was the result of a collective view that the business had grown as much as possible and also because of apprehended regulatory headwinds arising from concerns expressed at government level about a need for greater regulation of online gambling, because of its adverse impact on problem gamblers. 58 To this end, on 1 January 2016, they caused [NAME_4] to engage [NAME_116] from [COMPANY_118] ([NAME_119]) in the United States of America to prepare an information memorandum on [NAME_4] and to start setting up an online data room for the purposes of its sale. [NAME_78] had become aware of [NAME_120] in 2015. [NAME_4] had been featured on the [NAME_121] 2015 Technology Fast 50 winners list. In turn, [NAME_119] had reached out to every company on the list by email stating they would be holding presentations in Australia for businesses interested in selling. [NAME_83] [NAME_99] attended such a presentation in [NAME_79] attended the like presentation in Sydney. [NAME_120] was the presenter at both [NAME_119] presentations. They were each impressed by [NAME_120]. They each also believed that engaging [NAME_119] for the purposes of the sale of [NAME_4] would reach a much wider audience of potential buyers. 59 From the outset of their collective decision to sell [NAME_4], [NAME_59] aspired to sell the company at a price when reflected a multiple of 10 x EBITDA (earnings before interest, taxes, depreciation, and amortization). [NAME_78] was aware of this aspiration; he, perhaps, was more sanguine but, in internal discussions between the three of them, agreed this would be a great achievement. It certainly would have been relative to the factor of 4 x EBITDA which had informed [NAME_78] when assessing the value of [NAME_4] at the time when he decided to take up shares in it in 2012. That, of course, was prior to the growth which occurred after he joined [NAME_4]. 60 On the initiative of [NAME_109], and via contact with [NAME_78], [NAME_88], [NAME_1] and [NAME_48] came to attend a meeting with [NAME_122], who was the Managing Director of [NAME_7]'s Australian operating companies, at [NAME_7]'s [NAME_100]' office at Surry Hills, Sydney on 17 February 2016. It seems likely that other officers or employees of a [NAME_7] [NAME_89] were also present, probably [NAME_109], but nothing turns on exactly who else was present. Although recollections differ as to his attendance, it seems inherently likely that [NAME_79] was present at this initial meeting. It was after all a significant event, to be invited to attend at [NAME_7]'s office and [NAME_79] neither otherwise participated in the operational management of [NAME_4] nor in later dealings with [NAME_7]. So the meeting is just the type of event one might expect him to remember. [NAME_88], [NAME_1] and [NAME_48] had no inkling in advance that the subject would be raised, thinking that the meeting was to further the content sharing "partnership", [NAME_125] informed them in words to the effect "[NAME_7] is interested in buying [NAME_4]". This occurred after [NAME_78] had explained [NAME_4] business model, which included reference to its "affiliate" arrangements. 61 The statement made by [NAME_125] at this meeting and those made by an officer or employee of a [NAME_7] [NAME_89] at later meetings are relevant to the determination of whether the parties dealt with each other at arm's length in connection with the disposal of the shares in [NAME_4]. They are relevant more for the fact that particular statements were made than for the truth of the contents. That is not to say that any officer or employee of [NAME_7]'s [NAME_100] set out to mislead [NAME_88] or [NAME_1] in dealings with them any more than [NAME_83] [NAME_99] set out to mislead any officer or employee of [NAME_7] or an [NAME_89]. To the contrary, when measured against the whole of the evidence, negotiations by [NAME_7] (or a subsidiary) with [NAME_83] [NAME_99] were conducted with a candour which was reciprocated. The statements made form but part of an overall factual matrix, which notably includes the internal analysis within [NAME_7] and its [NAME_100] as that evolved during negotiations which culminated in the Share Sale Agreement on 4 October 2016. 62 [NAME_59]'s response to this expression of interest by [NAME_125] was to this effect, "We're interested in selling if it is a 100% cash deal. We are not interested in an earn-out structure". The meeting concluded with [NAME_88], [NAME_1] and [NAME_48] agreeing to send [NAME_7] (ie its [NAME_100]) [NAME_4]' financial statements and to host representatives of [NAME_7]'s [NAME_100] on a visit to [NAME_4]' Melbourne office for the purpose of gaining a better understanding of [NAME_4]' operations. There was no discussion at that stage about a buyout price. However, [NAME_78] was left with the impression that [NAME_125] was enthusiastic about an acquisition. [NAME_59]'s recollection, which I accept as accurate, was that [NAME_125] stated, "Horse Racing will be the next big thing for News." It seems likely that this statement was one source of [NAME_78]'s impression. 63 A sequel to this meeting was that, on 8 March 2016, [NAME_59], [NAME_78] and [NAME_126] hosted a [NAME_128], the Victorian Editorial Manager, and a [NAME_131], each of a [NAME_7] [NAME_89], on a tour of the [NAME_4] office in Melbourne and gave them a related briefing about [NAME_4]' operations. [NAME_109] was given a like tour of [NAME_4] office (and briefing) by [NAME_59]. During this, [NAME_109] stated to [NAME_59] that he was "available to support [NAME_4] throughout the process". 64 Later that month, on 21 March 2016, and by email, [NAME_78] put [NAME_125] in touch with [NAME_120]. As a result and on [NAME_120]'s initiative, [NAME_125] came on 22 March 2016 to sign on behalf of [NAME_7] and its [NAME_100] a non-disclosure agreement relating to the possible acquisition of [NAME_4]. 65 On 23 March 2016, [NAME_125] and [NAME_134] attended [NAME_4] office and conducted further discussions with [NAME_83] [NAME_99] about the possible acquisition. During this meeting, [NAME_125] said words to this effect: [NAME_7] typically only buys businesses on an earn out structure, but I know that you want a cash deal. I will drive that conversation with [NAME_7] head office in New York to get approval. I'm sure I can work something out. 66 On 13 April 2016, employees of [NAME_7]'s [NAME_100] again attended [NAME_4]' Melbourne office. On this occasion, those who attended were a [NAME_135], [NAME_134] and a [NAME_138]. They met with [NAME_83] [NAME_99]. This was the first occasion on which [NAME_83] [NAME_99] had met [NAME_141]. In the course of this meeting and with reference to [NAME_125], [NAME_141] said to them words to the effect that "Damien [sic] is a mad punter and loves horse racing. We think it's important for us to work on our wagering strategy" and "It is my responsibility to put our wagering strategy together". 67 When additional regard is had to the evidence of the internal deliberations within [NAME_7] and its [NAME_100] in relation to the acquisition of the shares in [NAME_4], it is clear that [NAME_141] became and remained one (but not the only one) "internal champion" of that acquisition. It is also evident that there was a career opportunity for [NAME_141] with this, related to increased involvement by [NAME_7] and its subsidiaries in online gaming as an adjunct to its sporting news coverage. Statements by [NAME_141] during negotiations with [NAME_83] [NAME_99], as just related and as related below, were, I find, external manifestations of his internal championing. [NAME_125] was probably also an "internal champion" of the acquisition. There are two necessary caveats in relation to these conclusions. One is that they do not, for reasons I give below, carry with them any finding of impropriety by [NAME_141] or [NAME_125] (neither of whom gave evidence). The other is that it is clear to the point of demonstration from these same internal deliberations that neither [NAME_141] nor even the more locally senior [NAME_125] had any determinative role in relation to the acquisition. Each of them was only ever a [NAME_7] [NAME_89] subordinate. 68 Given my noting of the absence of [NAME_141] and [NAME_125] from being called to give evidence, it is convenient at this point to deal with a submission by the Commissioner that I should, in light of [NAME_141]'s absence and that of any other [NAME_7] (or subsidiary) witness, notably also [NAME_125], draw an inference that evidence from such persons would not have assisted the Applicants in discharging their burden of proof, consistent with the principles in Jones v Dunkel (1959) 101 CLR 298. Having regard to enduringly influential observations made about that case and the drawing of such an inference by Hunt J in [COMPANY_11] v Commissioner of Taxation [1983] 1 NSWLR 1, at 13, I am for the following reasons only disposed to accept this submission to a limited extent. It was not put either to [NAME_59] or [NAME_78], who were the active, Australian resident, in-house negotiators for [NAME_4], that they were mistaken (or worse) in their evidence as to what was said to them by [NAME_141] or [NAME_125] from time to time. The Applicants, via deliberate tender in their evidentiary case, exposed, for better or for worse, the internal deliberations of [NAME_7] and its subsidiaries, in relation to the proposed and ultimate acquisition of the shares in [NAME_4] under the Share Sale Agreement. The Applicants also tendered, deliberately, and again for better or for worse, the email exchanges which occurred either between [NAME_4], its solicitor, [NAME_142] (who gave evidence) and [NAME_120] on the one part and [NAME_7] (and its subsidiaries) and those who acted for it in relation to the Share Sale Agreement on the other part. In circumstances where the contemporaneous negotiating and transactional documents were so fully exposed and were generated at a time when no author could have had any inkling of a later taxation controversy, the statements in these documents, in conjunction with unchallenged and, as I have found, honest accounts by [NAME_83] [NAME_99] as to what was said, offer a reliable picture of the dealing which occurred in connection with the disposal of the shares in [NAME_4]. Indeed, the Commissioner in submissions urged that particular weight be given to what was revealed by the contemporaneous documents. 69 Had the Applicants just sought to rely upon "internal championing" as a factor telling against an "arm's length" dealing, without any attendant pejorative quality in relation to [NAME_141] (or [NAME_125]), I would not for these reasons have been prepared to draw an inference from their absence as witnesses that their evidence would not have been helpful to the Applicants. But the Applicants' submissions went further than this. It was put in relation to [NAME_7] and [NAME_141] at least that "listed public companies, including this one, are operated by people who can sometimes do bad things, including acting in their own interests rather than the interests of the employer (or its members)". Even in a case where proof is but on the balance of probabilities, such a conclusion is not lightly to be made: s 140(2), Evidence Act; Briginshaw v Briginshaw (1938) 60 CLR 336. I am not disposed to reach it in respect of [NAME_141] (or [NAME_125]) on the evidence to hand, which includes their absence from the witness box. Instead, in their absence from the witness box, I conclude that their evidence would not have been helpful to the Applicants on this subject. My conclusion that [NAME_141] and [NAME_125] were "internal champions" does not carry with it any conclusion that either or each of them venally put personal self-interest over duty of faithfulness to employer in promoting the acquisition of the shares in [NAME_4]. 70 To resume the chronology, throughout the balance of April 2016, May 2016 and up to 3 June 2016, either via [NAME_120] or directly from [NAME_4], [NAME_7] and its [NAME_100] were provided with further financial information about [NAME_4] financial performance and forecasts and website traffic. 71 On 17 June 2016, [NAME_83] [NAME_99] met with [NAME_83] [NAME_124] and [NAME_137] for some two hours, initially at [NAME_4]' Melbourne office and then at a nearby restaurant. This was the first occasion when, from [NAME_4]' end, the expected price and basis of sale was raised. As to this, [NAME_59] used words to this effect: We are only interested in a 100% cash deal. Our expectation is 10 x EBITDA. We're expecting to finish the 2016 year at about $ 3 million. Related to this, [NAME_59] made it clear that the shareholders expected around $30 million cash to sell [NAME_4]. Also at this meeting, [NAME_125] asked [NAME_83] [NAME_99], in effect, whether they would like to "stay on as [NAME_7] employees". Each of them expressed interest in this. Post-sale employment came to be one feature of the Share Sale Agreement and the precise basis of this did feature later in exchanges about the wording of that agreement but this was the only occasion when the subject was informally discussed. 72 On 30 June 2016, [NAME_83] [NAME_99] met with [NAME_141] and a [NAME_144] (also of a [NAME_7] [NAME_89]) at [NAME_7]'s [NAME_89] office at Surry Hills. During this meeting, [NAME_141] told them, in effect, that he was "working on getting approval" to make an offer. 73 On 4 July 2016, without, I find, prior authorisation from any of [NAME_88], [NAME_1] or [NAME_48], [NAME_120] sent an email to [NAME_147] in which he referred to a potential competitive bid for [NAME_4] coming out of New York. As far as anyone in [NAME_4] in Australia was aware, there was no such competitive bid. I draw no adverse inference about this in relation to [NAME_120]. He was not called. It is possible that he was aware of such a bid but saw no need to advise anyone in [NAME_4], because events in relation to [NAME_7]'s interest overtook things. Further, exploration of whether there was such a bid is something of a sidewind. It is enough to have exposed what was put by [NAME_120] to [NAME_7] and its subsidiaries. 74 As to [NAME_7] related events, on 14 July 2016, [NAME_120] (who passed this on to [NAME_4]) was advised by [NAME_147] that he had submitted the proposed offer for the acquisition of [NAME_4] for approval from [NAME_7]'s CEO in New York and that he expected to revert to [NAME_120] the following week with the offer. 75 In the meantime, it was announced to the world at large on 15 July 2016, and the fact was that, [NAME_141], whose formal position within [NAME_7]'s [NAME_100] had hitherto been executive general manager of The Daily and Sunday Telegraph, had been appointed to the newly-created role of group director - wagering, reporting to [NAME_125]. 76 What followed was a series of "non-binding indicative offers" ([NAME_148]) from [NAME_7] concerning the acquisition of all the shares in [NAME_4]. Before offering some details of these, it is instructive, in my view, in determining whether there was an arm's length dealing in connection with the disposal of the shares in [NAME_4], to understand what had, by then, occurred internally within [NAME_7] in relation to the subject of the possible acquisition of those shares. 77 At local level in Australia, initial views about the acquisition of [NAME_4] were expressed in an internal memorandum authored by [NAME_134] following the [NAME_4] office visit he and [NAME_149] made on 8 March 2016. By early April 2016, [NAME_7]'s [NAME_100] had formed a team, headed by [NAME_141], to examine and report upon a possible acquisition of the shares in [NAME_4]. 78 By 20 April 2016, investigations on this subject within [NAME_7]'s [NAME_100] had progressed to the point where the following topics were canvassed and views expressed in an internal memorandum of that date to which [NAME_125] and [NAME_141] were addressees: (a) EBITDA multiples – For "Best Bets", it was stated that a 3.5- 4x comparable for an affiliate business without substantial assets was appropriate, whereas gambling comparables were said to be 10-12x EBITDA. (b) The valuation for [NAME_4] was accordingly said to fall within a range of $14.5M (5x) to $34.4M (12x), including a net cash position of $0.2M on trailing commissions. (c) There was discussion of the digital racing wagering market and various ways in which [NAME_7] could enter the market (including by partnering or acquiring [NAME_4]) The memorandum sought approval to progress the subject of acquisition to the point of making a [NAME_148]. 79 On 28 April 2016, a further internal memorandum was prepared addressed to [NAME_125] and, amongst others, [NAME_141] and [NAME_134] in which, among other things, the following is stated based on updated information: (a) valuation – "The owners and their advisors have not provided an expectation for lack of comparables." (b) multiples – "Indicative DCF analysis suggests an Enterprise Value of $30.2m representing a trailing EBITDA multiple of 10x." (c) range – "Initial valuation range for PP of $15.5m (5x) to $38.3m (13x) including net cash position of $1.3m on trailing EBITDA." ["PP" is, inferentially and obviously, "[NAME_3]"] 80 The valuations were stated not to take into account cost synergies with [NAME_7] due to cost savings and related improvement of the value position. It was stated these would be considered during a due diligence phase. One possibility canvassed in this memorandum was the acquisition of 51% of the shares in [NAME_4]. Once again, approval to progress the subject of acquisition was sought. 81 I consider these April 2016 internal memoranda to be highly significant with respect to whether there was an arm's length dealing in connection with the disposal of the shares in [NAME_4] to [NAME_6]. They disclose that, well before [NAME_59] revealed at the meeting in June 2016 the expectation of the [NAME_4] shareholders of a price for all of the shares in [NAME_4] based on 10 x EBITDA, which translated to a total purchase price of $30 million, internal deliberations within [NAME_7]'s [NAME_100] had already identified $30 million as an enterprise value for [NAME_4], based on an EBITDA assessment. There is no suggestion of any prior collusion between anyone in [NAME_4] (or [NAME_120]) and anyone in [NAME_7] or its [NAME_100] informing the views as to value expressed in these April 2016 internal memoranda. Those views were all the internal work of personnel within [NAME_7]'s [NAME_100] alone. 82 In May 2016, [NAME_7]'s internal team working on the [NAME_4]' acquisition put a submission by memorandum dated 13 May 2016 to [NAME_41]'s Executive Chairman, [NAME_150], and its Chief Financial Officer (CFO), [NAME_152]. This memorandum took up the analysis in the 28 April 2016 memorandum. It was also stated that [NAME_7] had been provided by [NAME_4] with a price indication of $28.5M. It was stated that the team had determined that this represented an EBITDA multiple of 10x or a revenue multiple of 5.1x and that this value had been verified value through the team's own discounted cash flow analysis. The source of this indicative price seems to have been [NAME_120]. In response to the 13 May 2016 memorandum, [NAME_155] responded to [NAME_125] (and copied to [NAME_156]) by email, "Let's discuss in London. In particular … we should understand and list the risks and competitive response..". By mid-May then, [NAME_41]'s Executive Chairman had become involved in deciding whether and in what way a [NAME_7] subsidiary would acquire some or all of the shares in [NAME_4]. 83 In early July 2016, the [NAME_41] executives were preparing a further memorandum for consideration by the Office of the Chief Executive Officer (OCEO). This memorandum was finalised and sent by [NAME_156] to a [NAME_157] and a [NAME_160] of the [NAME_7] on or around 17 July 2016. 84 It is unclear on the evidence before me what specific roles [NAME_163] and [NAME_164] held in the OCEO, or for that matter the other recipients of [NAME_156]'s email. However, I am prepared to draw an inference on the evidence before me, including [NAME_156]'s email and its metadata, the content of the memorandum sent by [NAME_156], the content of a later memorandum to the OCEO dated 19 September 2016 (in particular the information under the "Transaction Background" section) and [NAME_41]'s subsequent actions after the sending of each OCEO memorandum (discussed below), that at least one of [NAME_163] and [NAME_164] was an authorised decision-maker for [NAME_7] within the OCEO in New York and that the OCEO made decisions for [NAME_7] at a global level. 85 In this involvement, and unsurprisingly in terms of the evidence as to the [NAME_7] hierarchy, the OCEO was dealing with high-level Australian management including [NAME_155], [NAME_156] and [NAME_125]. There is no hint in this high-level internal deliberation that [NAME_141] had any direct input to the OCEO. Instead, [NAME_141]'s role was to furnish his superiors with information and analysis for the latter's discussions with the New York based corporate group superiors. 86 The evidence discloses that, after further internal deliberations and obtaining further information from [NAME_120], [NAME_147] advised [NAME_155] (and [NAME_156]) on 21 July 2016: We plan to submit a bid by COB tomorrow for [NAME_3] with the following terms: - 100% cash offer for $28.5M - Three year employment contracts for CEO and COO with non-competes - Intention to integrate [NAME_3] with our digital wagering offering We believe $28.5m (representing 10x EBITDA) is an appropriate bid given the signals we have received about what price will grant us exclusivity while also giving us some headroom up to the agreed $30M approval from OCEO. We understand there is also another bidder but we are the preferred party. Attached is the [NAME_148] and the internal project kick-off document we will use should we be successful. 87 This memorandum appears to be the immediate, consequential response to a formal approval decision made in New York by [NAME_163] and/or [NAME_164] on or around 21 July 2016 which became known to [NAME_147] in Australia that day. 88 The following day, 22 July 2016, [NAME_7] made its first [NAME_148]. Features of this [NAME_148] included: (a) [NAME_7] would acquire up to 100% of the shares in [NAME_4] for cash; (b) the offer attributed an enterprise value of $28.5m to [NAME_4] on a "debt free, cash free basis" and on the basis of the business having a normal level of working capital at closing; (c) [NAME_4] management team including [NAME_59] and [NAME_78] would continue their employment with [NAME_4] for a minimum of three years after the acquisition. 89 As foreshadowed in [84], the making of the first [NAME_148] by [NAME_41], is only explicable on the basis that the OCEO approved the action recommended in the memorandum sent to [NAME_163] and [NAME_164] on or around 17 July 2016. It is of no moment that a written response from the OCEO is not in evidence. 90 Via an email sent by [NAME_120] to [NAME_147], the [NAME_4] shareholders rejected the first [NAME_148]. At the same time, [NAME_120] put an alternative to [NAME_7] in which he reiterated a need for a cash price set at a 10 x EBITDA multiple with 10% thereof being in escrow for 12 months, all liabilities capped at the value of the escrow, working capital fixed at $400,000 and senior employment roles for [NAME_59], [NAME_78] and [NAME_79]. 91 [NAME_147]'s reply to [NAME_120] described the first [NAME_148] as a "no nonsense offer" and emphasised that the [NAME_4]' EBITDA was not normalised. 92 On 8 August 2016, [NAME_7] made a second [NAME_148]. Features of this [NAME_148] included: (a) all of the shares in [NAME_4] would be acquired at an increased price of $29.3 m; (b) warranty claims would be capped at the level of the purchase price; and (c) a hitherto 3-year post-acquisition minimum term of employment for [NAME_59] and [NAME_78] was deleted. 93 Although the [NAME_4] shareholders signified that this second [NAME_148] was acceptable, that remained subject to the drawing up of a mutually acceptable share sale agreement and the undertaking by [NAME_7], to its satisfaction, of due diligence inquiries. For this purpose, the [NAME_4] shareholders engaged external legal advisers on 9 August 2016. These lawyers then exchanged draft share sale agreements (8 in all) with those acting for [NAME_7]. For the purposes of the due diligence inquiries, a "data room" was operated between 11 August and 27 September 2016. [NAME_78] in particular within [NAME_4] also dealt with numerous related inquiries by [NAME_7] and those acting on its behalf. 94 The exchanging of drafts and due diligence inquiries having occurred, on 19 September 2016, [NAME_156] made a submission via memorandum to the OCEO New York, copied to, amongst others, [NAME_155], to make a binding offer to acquire all the shares in [NAME_4]. As with the first [NAME_148], a formal response from the OCEO to this memorandum is not in evidence. However, I draw an inference that such approval must have been given by the OCEO due to [NAME_6]' subsequent conduct in entering the Share Sale Agreement for [NAME_4] on 4 October 2016. Settlement under this agreement occurred in December 2016. Also under this agreement, a working capital adjustment payment was made in February 2017. 95 The Commissioner submitted that the facts just related disclosed that there had been "real bargaining" between the [NAME_4] shareholders and [NAME_7] (and its subsidiaries). Although that description is used in some cases, one must be careful not to substitute it for the text of the statute. It is nothing more than a turn of phrase in which the adjective "real" provides the intended elucidation. In particular, the subject is not to be approached as if an arm's length dealing can only occur if it is attended with an atmosphere of higgling, haggling and hassling which one might perhaps find in the purchase of a carpet in the Grand Bazaar. I respectfully doubt that the description "real bargaining" was ever intended to convey that understanding. One might equally say genuine offer and acceptance. The chronology offered above shows there was bargaining and that bargaining was certainly not a mere façade or sham. It was "real". But it is perfectly possible for a dealing at arm's length in connection with the disposal of an asset to occur in circumstances where the only outwardly evident bargaining is an offer made to buy or sell at a particular price which is accepted without demur. That bargaining can also be "real". The definition of arm's length envisages a multi-factorial, inherently dealing specific, factual analysis in which but one factor, which may or may not be determinative, is a connection between the parties. 96 On the evidence, [NAME_7] considered an acquisition of some or all of [NAME_4] or its business to be in its commercial interest. It took the initiative, without any prompting by or on behalf of anyone in [NAME_4] or its agent, [NAME_120], to raise that prospect with the shareholders (or strictly their representatives) in that company in February 2016. Because of its own internal deliberations, [NAME_7] had a value range in mind for the whole of the shares in [NAME_4] (or its business). As it happened, the shareholders in [NAME_4], quite independently, had in mind not just to sell their shares but also a price for the whole of those shares which fell within this range. 97 Of course, there was an "internal champion" or two within [NAME_7]'s [NAME_100]. But no disposal of an asset ever occurs in the absence of interest by a buyer. Given his early involvement and local seniority, it is more likely than not that [NAME_125], rather than [NAME_141], was the major champion or "business lead". It is highly unlikely that it was mere coincidence that the initiative in raising an acquisition with [NAME_88], [NAME_1] and [NAME_48] in February 2016 came from [NAME_125]. That is not to say that [NAME_141] did not also later embrace the promotion of the acquisition. That a perception of coincident corporate and personal advantage may have attended [NAME_141]'s promotion of the acquisition does not mean that the dealing was not at arm's length or that he acted improperly. For reasons already given, no pejorative quality attends my allowance for such a coincidence. 98 Also revealed by the evidence of [NAME_7]'s internal deliberations is that [NAME_141] never had sole responsibility for production of the analysis that [NAME_156] chose to put to the OCEO in New York. [NAME_147], in particular, took a very active role in relation to the possible acquisition. 99 The "internal championing" dimension in the Applicants' submissions offered a possible explanation for why it was, according to the Applicants' principal submission, that the sale price was not the outcome of "real bargaining" and, hence, that [NAME_4] and [NAME_6] had not dealt with each other at arm's length in connection with the disposal of the shares in [NAME_4]. Evidence which was said to support this sale price based submission came from two experts, [NAME_165] and [NAME_168]. 100 [NAME_170] is a chartered accountant, business valuer and mergers and acquisitions specialist. He has over 20 years' experience in the field of business valuation and mergers and acquisitions. He furnished reports dated 25 August 2022, 11 November 2022 and 17 February 2023 and adopted and elaborated upon the opinions expressed therein in his oral evidence. 101 [NAME_171] is a business, securities and intangible asset valuation specialist of [COMPANY_172] with over thirty years of experience. He furnished reports dated 22 December 2016, 22 August 2017, 27 April 2018, 10 May 2018, 27 February 2020, 14 November 2022 and 16 February 2023. He, too, adopted and elaborated upon the opinions expressed in these reports in his oral evidence. 102 Each of these gentlemen was an impressive witness whom I am quite sure endeavoured faithfully to discharge his obligation of candour and impartiality as set out in the Court's practice note concerning expert witnesses. Both were advantaged by their eventually coming to have the benefit of considering the evidence as to [NAME_7]'s internal deliberations. 103 I make these observations concerning their evidence having expressly taken into account a critique offered by [NAME_173], a chartered financial analyst and business valuation specialist of [NAME_176] both in her report of 22 December 2022 and in her oral evidence. I use the term "critique" deliberately, because, although she has valuation expertise, albeit not in the mergers and acquisitions context, [NAME_177] did not furnish her own opinion as to the market value of the shares in [NAME_4]. She did, however, opine, for reasons she detailed in her report, that a 10 x EBITDA multiple "appears to be a reasonable metric to determine the market value of [NAME_4]". Those reasons included multiples she derived from comparables she found cited in [NAME_171]'s reports. 104 It was put for the Applicants that [NAME_177]'s critique was, overall, one of form not substance. I agree. A supporting example cited by the Applicants is apt. [NAME_177] opined that the weight to be afforded to [NAME_171]'s opinions was diminished because he did not specify the type of valuation engagement. She also considered that the [NAME_178] financial forecasts ought to have been briefed to [NAME_171] because it was "required by the standard". [NAME_177] did not explain how or why a valuation undertaken by reference to forecasts made available to potential purchasers was likely to be more reliable. [NAME_177]'s views about the adequacy of the testing of the financial forecasts to a degree she would have expected was also influenced by her reference to an Australian Securities and Investments Commission regulatory guide which was not applicable to the valuations furnished by [NAME_171]. 105 [NAME_170] was not much impressed by the rigour of the internal [NAME_7] analysis. He calculated that the net present benefit of the revenue synergies less the integration costs as a result of the acquisition of all the shares in [NAME_4] was $13.1 million. He also saw [NAME_7] as a "price taker". These factors and others he mentioned were, he opined, features of a non-arm's length dealing. I do not doubt that they could be, but, on the whole of the evidence and in light of what I have related above, they were not in this instance. [NAME_170]'s overall opinion on analysing the [NAME_4] share sale transaction was that it was unlikely to have resulted in market value having been paid. That may or may not be true but as far as the applicable provisions in the ITAA 1997 are concerned, if the parties dealt with each other at arm's length, it would be nothing to the point that market value was not paid. The "capital proceeds" would be what was paid or payable under the Share Sale Agreement. 106 [NAME_171], I thought, was always genuinely troubled by what seemed to him a price which reflected a premium or special value to [NAME_7] in the acquisition of all the shares. With the benefit of reviewing the internal [NAME_7] deliberations, he found that feature present. There is no substance in the criticism offered of [NAME_171] in relation to extrapolations he made from [NAME_4] own data. Further, a human error which occurred in relation to the briefing of some information to [NAME_171] was fully and benignly explained in his evidence and that of the Applicants' solicitor, [NAME_179]. It is not necessary to descend into detail about that. 107 Drawing together the various opinions as to value expressed by [NAME_171], they were: (a) the "enterprise market value" of all the shares in [NAME_4] immediately prior to the sale was between $15.5 million and $21.9 million, with a median value of $18.2 million; (b) the market value of the [NAME_62] ([NAME_44]) 60% interest immediately prior to the sale was between $9 million and $12 million; (c) the market value of each of the 20% [NAME_65] ([NAME_1]) and [NAME_69] ([NAME_48]) interests immediately prior to the sale was $2.4 million to $3 million; (d) the purchase price paid by [NAME_7] was inflated and included a "special" or "strategic price", in the order of $12.5 million. 108 For reasons which, in the circumstances, it is unnecessary to detail, it was put for the Applicants that the result of adopting these market values was that gross proceeds of $4.95m were attributable to each of [NAME_57] and [NAME_59] and $2.7 million to each of [NAME_182] and [NAME_183]. It was also put that [NAME_56] and [NAME_58] were entitled to the benefit of the small business relief provided by Division 152 of ITAA 1997 because "just before" the CGT event constituted by the share disposal, the net value of CGT assets connected to each of them did not exceed $6 million, the maximum net asset value test amount (see s 152-15 of the ITAA 1997). 109 The Applicants submitted that I should conclude that the parties to the Share Sale Agreement, although at arm's length, had nonetheless not dealt with each other at arm's length in relation to the disposal of the shares in [NAME_4]. The submission was an ingenious one and should be set out exactly: This case is one of the rare examples where a conclusion that the parties did not deal with each other at arm's length is reached by examining the acts and omissions of the parties, here the purchaser, to determine whether the parties acted in the transaction as parties do when they are dealing with each other at arm's length. That conclusion might be rebutted by a tribunal of fact being satisfied that the sale and purchase price represented market value; where the tribunal of fact is not so satisfied, the conclusion of the absence of arm's length dealing may be more readily drawn. 110 As I have already concluded in relation to the construction of "modification 1" in the context of the general rules, a price in respect of a disposal of a CGT asset which is seemingly not at market value can sound an interrogative note as to whether the parties dealt with each other at arm's length in connection with that disposal. So the evidence of [NAME_170] and [NAME_171] is not irrelevant. But even if accepted their views were not determinative. 111 The Applicants' submission is just a version of one considered and rejected by Davies J in [NAME_12] v Federal Commissioner of Taxation (1988) 19 ATR 1352 (Barnsall). Materially, his Honour had to determine (in the context of a satisfaction based criterion) whether an error of law had attended the meaning given by the Commissioner to the then s 26AAA(4)(b) of the ITAA 1936, which included the analogous language, "having regard to any connection between the taxpayer and the person to whom the property is so sold or any other relevant circumstances, the taxpayer and the other person were not dealing with each other at arm's length". Evidence was tendered that the grant of options concerned was not an unusual transaction in respect of shares and it was submitted that it was not shown that the prices fixed by the options were not fair. In rejecting the submission that it followed that the dealing was at arm's length, Davies J stated in Barnsall, at 1357: However, the effect of this evidence was to show no more than that the price fixed by the option agreements between [NAME_184] and [COMPANY_186] may well have been a fair price. Proof that a transaction was fair is not sufficient to show, in the context, that the dealing was at arm's length. The term "at arm's length" in s 26AAA(4)(b) is not to be construed as meaning "for a fair price". Indeed, this provision did not turn its attention primarily to price, though the price paid may be a relevant factor. The provision did not purport to fix a fair price for the transaction but rather, when a finding had been made that the dealing was not an arm's length, fixed and arbitrary consideration, the value of the property at the time of its sale. 112 In the same way, and in relation to "modification 1", the proof that a disposal was "fair", or at market value, is not sufficient to show that the dealing was at arm's length, so, too, is proof that a disposal was not "fair", or not at market value, is not sufficient to show that the dealing in connection with the disposal was not at arm's length. What in hindsight, and sometimes even in prospect, are advantageous or disadvantageous disposals of assets can occur between parties who have dealt with each other at arm's length. This is just a feature of business and private life in relation to the disposal of assets. A "price taker" is not necessarily a purchaser who has dealt with the vendor other than at arm's length in connection with the disposal of an asset. He may just want the asset for some reason, have the requisite means and be content to pay the price requested. 113 The Applicants put that their invited conclusion was supported by observations made Hill J in [NAME_20] No 5 Will Trust v Federal Commissioner of Taxation (1990) 21 ATR 1123, at 1132, in respect of another materially identical provision, s 102AG(3) of the ITAA 1936. Those observations are the source of the "real bargaining" reference which inspired the Commissioner's submission already mentioned. His Honour stated: What is required in determining whether parties dealt with each other in respect of a particular dealing at arm's length is an assessment whether in respect of that dealing they dealt with each other as arm's length parties would normally do, so that the outcome of their dealing is a matter of real bargaining. 114 It bears repeating that judicial observations intended to offer guidance about the meaning of a provision are not a substitute for the text of the provision. Further, such observations are, inevitably, reactive to the way in which a case was conducted both in evidence and submissions. Neither "dealt with each other as arm's length parties would normally do" nor "real bargaining" are to be found in the text of "modification 1". To treat them as if they were is to afford them more weight than they can bear. Viewed as guidance, I respectfully agree with the observations. But they are not a substitute for the multi-factorial, particular dealing specific analysis I consider the text of the provision demands. 115 Perhaps via its subsidiary, [NAME_6], [NAME_7] did pay too much for all the shares in [NAME_4], perhaps it did not. If nothing else, [NAME_177]'s evidence shows that a 10 x EBITDA multiple was not necessarily idiosyncratic. In turn, there is reason to question whether her evidence is reliable. There is merit in the Applicants' submission that, in stating that [NAME_4] "offered horse racing and betting services through its own platform", she misunderstood the nature of its business. Further, and unlike both [NAME_170] and [NAME_171], her multiple does not take account of a regulatory risk to [NAME_4]' business model. 116 However, to explore this further in relation to whether there was an arm's length dealing is unproductive. That is because what the whole of the evidence reveals is two unrelated parties forming their own views based on their own assessment as to what the shares were worth. They dealt with each other accordingly. [NAME_7]'s decision was ultimately made at the very highest level, remote from Australia, based on what it considered was in [NAME_7]'s strategic commercial interests, particularly in light of perceived synergistic benefits of [NAME_7]'s ownership and conduct of the [NAME_4] business. 117 Yet further, and as explained below, the "special" or "strategic" price element excluded by [NAME_171] from his understanding of "market value" is, as that term is to be understood in the provisions concerned, just part of the "market value". 118 For all of the reasons given thus far, I conclude that the vendor shareholders in [NAME_4] and [NAME_6] dealt with each other at arm's length in connection with the disposal of all the shares in [NAME_4].

Market Value 119 Although the Applicants' contention that "modification 1" is applicable has failed at the first hurdle, it is nonetheless desirable to express conclusions in relation to the market value issue in the case. 120 Although it is not a defined term, the parties were at one that "market value" in s 116-20 and s 116-30 and Division 152 was to be understood in the sense explained in [NAME_187] (1907) 5 CLR 418 ([NAME_188]). The only difference, which was not shown to be material in the circumstances of this case, is that the former two provisions look to market value as at the time of the CGT event, whereas Division 152 looks to market value just before the CGT event. 121 The controversy in [NAME_188] arose in respect of the compulsory acquisition of land for which compensation based on the value of the land was payable. The statute authorising the acquisition and providing for compensation, the Property for Public Purposes Acquisition Act 1901 ([NAME_10]), did not use the term "market value" but the expositions in that case as to how compensation based on value was to be assessed have come to be regarded as explanatory of the meaning of "market value" or "value" in a variety of statutory contexts. Griffith CJ stated, [NAME_188], at 432: In my judgment the test of value of land is to be determined, not by inquiring what price a man desiring to sell could actually have obtained for it on a given day, ie, whether there was in fact on that day a willing buyer, but by inquiring 'What would a man desiring to buy the land have had to pay for it on that day to a vendor willing to sell it for a fair price but not desirous to sell?' To similar effect is this statement by Isaacs J, [NAME_188], at 441: To arrive at the value of the land at that date, we have, as I conceive to suppose it sold then, not by means of a forced sale, but by voluntary bargaining between the plaintiff and a purchaser, willing to trade, but neither of them so anxious to do so that he would overlook any ordinary business consideration. We must further suppose both to be perfectly acquainted with the land, and cognizant of all circumstances which may affect its value, either advantageously or prejudicially, including its situation, character, quality, proximity to conveniences or inconveniences, its surrounding features, the then present demand for land, and the likelihood, as then appearing to persons best capable of forming an opinion, of a rise or fall for what reason soever in the amount which one would otherwise be willing to fix as the value of the property. 122 Similar observations about the appropriate approach to assessment of compensation, which it is not necessary to reproduce, were also made in [NAME_188], at 436 – 437, by Barton J, the other judge who constituted the High Court for the purpose of the hearing of the appeal. 123 The valuation approach in [NAME_188] posits a hypothetical in which a willing but not anxious vendor deals at arm's length with a willing but not anxious purchaser, each perfectly acquainted with the asset concerned, and asks what resultant sale price could reasonably be expected? 124 This approach has been regarded as applicable to the ascertainment of "market value" where that term is used in the Division 152 of the ITAA 1997: Commissioner of Taxation v Miley (2017) 106 ATR 779 ([NAME_189]). Moreover, as [NAME_189] also exemplifies, it has been regarded as applicable to determining not just the market value of land but also of shares. So the position which was common ground between the parties has the benefit of support in authority. I proceed accordingly. 125 This same approach is evident in the reports of [NAME_171]. In turn, as made explicit by [NAME_171] in his report of 16 February 2023 and upon which he elaborated in his most helpful oral evidence, his understanding of the valuation approach to adopt was based on the International Valuation Standards Council (IVSC) conceptual framework, which is taken up in the Commissioner's market valuation guidelines. In the latter and with reference to the IVSC framework, it is stated that "market value" is "[t]he estimated amount for which an asset or liability should exchange on the valuation date between a willing buyer and a willing seller in an arm's length transaction, after proper marketing and where the parties had each acted knowledgeably, prudently and without compulsion". The obvious provenance for this statement is [NAME_188]. 126 [NAME_171] extracted in this report (at para 54) valuation concepts which the Commissioner in his guidelines considered flowed from the IVSC definition of market value. These included the following: Market value does not reflect attributes of an asset that are of value to a specific owner or purchaser that are not available to other buyers in the market. Such advantages may relate to the physical, geographic, economic or legal characteristics of an asset. Market value requires the disregard of any such element of value, because at any given date it is only assumed that there is a willing buyer, not a particular willing buyer. [Emphasis in the Commissioner's guidelines] 127 As became ever clearer in his oral evidence, it was this caveat which underpinned [NAME_171]'s view that the sum paid by [NAME_6] under the Share Sale Agreement was more than the market value of all the shares in [NAME_4]. 128 [NAME_170] similarly looked to the IVSC standard. Notably, that formed the basis of his excluding from his understanding of "market value" what is referred to in that standard as "synergistic value". He highlighted the distinction between the two by quoting (at para 4.4.21 of his supplementary report of 11 November 2022) the IVSC definition of "synergistic value", sometimes termed "marriage value": [T]he result of a combination of two or more assets or interests where the combined value is more than the sum of the separate values. If the synergies are only available to one specific buyer, then synergistic value will differ from market value, as the synergistic value will reflect particular attributes of an asset that are only of value to a specific purchaser. 129 With the benefit of reviewing the internal [NAME_7] deliberations about the acquisition, [NAME_190] and [NAME_167] each considered that the price paid for the shares in [NAME_4] reflected a purchaser who saw synergistic value in those shares. Their opinions, separately reached, were well-grounded not just in that evidence but also in the reasons why, long before the subject of a purchase of the shares was broached in February 2016, those managing [NAME_4] saw advantage, as detailed above, in pursuing a content sharing "partnership" with [NAME_7]'s [NAME_100]. 130 It is only natural that [NAME_171] looked to the IVSC standard and to the Commissioner's guidelines. However, these appeals must be decided by the application of the text of the ITAA 1997 to the facts as found on the evidence, not on the basis of statements made in that standard or those guidelines. 131 The term used in the provisions of the ITAA 1997 with which these appeals are concerned is "market value". It may be accepted that the market concerned is a hypothetical one. But there is nothing in the text of the provisions concerned which dictates either expressly or by necessary implication that one must exclude from this hypothetical market a particular willing purchaser present in that market who sees value particular to that purchaser in acquiring the asset concerned. Nor is there support for the exclusion of such a purchaser to be found in [NAME_188]. A purchaser "cognizant of all circumstances which may affect its value, either advantageously or prejudicially" might well be cognisant of an advantage peculiar to that purchaser and be willing to pay for that advantage. 132 That the value must be market value doubtless does, by necessary implication, exclude from consideration any value in the asset which is peculiar to the vendor and which is necessarily lost on its disposal. Market value is thus not a value peculiar or special to the vendor alone. Care must therefore be taken when considering those acquisition of land cases where compensation is based on a value to the owner. 133 The hypothetical market also assumes a vendor and one or more purchasers. At least when acting in the same capacity, the hypothetical vendor in the market cannot also be the hypothetical purchaser. 134 The notion that a determination of market value as used in provisions such as those under present consideration should exclude "special value" to a particular purchaser is not unique either to the IVSC standard or the Commissioner's guidelines or even to our times or country. This is revealed by a comprehensive and illuminating survey and analysis of authority offered by [NAME_191] in his article, 'Valuation Principles in the Income Tax Assessment Act' (1996) 8 Bond Law Review 112. [NAME_194]' conclusion (at p 160), which is well-supported by authority, is that "the exclusion of special value from market value in the hypothetical market test [is] an 'economic paradox' and a 'contradiction in terms'". For reasons which follow, which draw upon [NAME_194]' article without further attribution, I agree, and for exactly the reason [NAME_194] gives. 135 The origins of the hypothetical market formulation for the determination of value stated in [NAME_188] may be traced to a need which emerged in the mid-nineteenth century in England to determine the value of the annual rent at which premises could be let and the value of property for the levying of rates and successions duty. The formulation was based on economic principles. This is evident in an early such case, R v West Middlesex Waterworks Co (1859) 28 LJ(MC) 135, at 138, 120 ER 1078, at 1082, Wightman J stated: Value is derived entirely from the relation of demand to supply, and if a water company comes into competition with a mere agriculturist for land for waterworks, an addition is made to the value of such land by the additional competition. ... Upon the common principles regulating value, it is enhanced in proportion to the scarcity of the thing in demand; so that, if a few levels only were suitable for the required transit, or a few sources of water alone were accessible, the price would be higher. 136 These economic principles were applied in a hypothetical market with market value being determined via a process described as the "higgling of the market": Mersey Docks and Harbour Board v Liverpool (1873) LR 9 QB 84, at 96, per Blackburn J. 137 In the nineteenth century rating cases, the hypothetical market was held to include hypothetical potential tenants who would bid to rent the property concerned because of synergistic benefits, for example because the resultant right to occupy that property would add value to that person's existing other properties. Thus, in R v London and North-Western Railway Co (1874) LR 9 QB 134, the market rent of a branch railway line owned by a railway company was held to be determined by reference to other railway companies whose lines also connected with the branch line as being possible tenants of the branch line. That rent was determined as if the branch line were added to the other lines and thus increased a railway company's network. To like effect is [NAME_14] v [NAME_15] of the Parishes of Erith and West Ham [1893] AC 562, where the market value of the rent of a sewer pumping station was held to reflect the value to a person who owned the adjoining sewerage system because the pumping station was important as an adjunct to the system and its owner was included as a hypothetical tenant. Like reasoning is also evident in Davis v Seisdon Union [1908] AC 315. 138 At odds with the inclusion of purchasers who would derive synergistic benefits in such a hypothetical market is a line of cases concerning the market rental value of licensed premises during an era when "tied houses" were a feature of the hotel or "pub" industry in the United Kingdom. A "tied house" was one owned by a brewery but leased to an independent publican on terms which included a requirement that the publican purchase the beer and ales of that brewery. A later variant was that the brewery itself operated the premises by employed staff. 139 The resultant valuation issue arose in this way. If a brewery could be included in the range of possible tenants in the hypothetical market place, the market rental value of the premises would reflect not only the rental paid by the publican tenant but, in addition, would include the additional profit which a brewery would make through having the exclusive sale of its product at those premises because it was a tenant. On this basis, a brewery would pay more to rent such premises than others tenants because of the advantage to a brewery of being able to restrict the sale of its competitors' beer and supply its own product. 140 Such an issue arose in Bradford-on-Avon Assessment Committee v White [1898] 2 QB 630 (Bradford-on-Avon). In that case, on a case stated to a Queen's Bench Divisional Court from the Court of Quarter Sessions, the rating authority submitted that the market rental of the licensed premises concerned should include the premium which a brewery would pay to rent the premises in order to sub-let them as a tied house. This submission was rejected. Channell J, at 638-9, dismissed it in this way and without elaboration: Suppose the owner of a public-house, who is desirous of letting it, receives an offer from a brewer to take it as tenant from year to year at a certain rent: the owner might say to the brewer, "I will not take that rent from you; I know it is worth more than that to you; you will make large profits out of it by letting it as a tied house, and I shall not let it to you unless you will give me more." The brewer, being really anxious to make those profits, would probably give more. That sum is obviously given for reasons personal to the brewer; it has nothing to do with the market value of the premises, though the possibility of its being given may be a matter tending to raise the market value. Such a rent as that could not, in my opinion, be treated as a rent which might reasonably be expected to be obtained for the premises within the meaning of the Act … Although, with respect, this statement is at odds with economic concepts of supply and demand in a market, it is apparent (also at 638) from his Lordship's reasons that he considered this rejection was in accordance with the by then well-developed "higgling of the market" approach to valuation. A separate judgment to like effect was delivered by Ridley J. 141 Bradford-on-Avon endured as authority for some 40 years. It was over-ruled in [COMPANY_18] v [NAME_19] (Area No 7) [1938] AC 321, another licensed premises rating case, for reasons which effectively coincide with the economic principles and the hypothetical market-based reasoning evident in the nineteenth century rating cases. This is revealed, especially in the part I have emphasised, in the following passage from the speech of Lord MacMillan, at 336, with whom the other members of the House agreed: The Rating and Valuation Act, 1925, s. 68, sub-s. 1, defines "gross value" to mean the "rent at which a hereditament might reasonably be expected to let from year to year," on certain assumptions immaterial for the present purpose. It is not the rent at which the hereditament is actually let, unless that happens to be the rent at which it might reasonably be expected to let. It is the rent which a hypothetical tenant might reasonably be expected to pay. The hypothetical tenant may reasonably be expected to pay the rent which in the letting market for such premises would be offered as the result of the competition existing in that market. The valuing authority must gauge both the extent of the competition in the market and the rent likely to be offered and accepted in that market. In the case of a public-house I can see no justification for including brewers among the competitors but excluding the rent which they would offer. The motives which actuate buyers in a market may be of all kinds, but it is not their motives but their bids that matter. In the case of trade premises the competitors for the tenancy are presumably always actuated by a consideration of the profit which they think they can make by utilising the premises, and they will have this in view when they make their bids. The brewer who wishes the premises because he thinks he can make money by sub-letting them to a tied tenant is influenced by perfectly legitimate business considerations; he offers the rent which he thinks it worth his while to pay to obtain the tenancy. Why should the rent which he is prepared to pay be excluded from consideration in fixing the market value of the tenancy? He is one of the competitors in the market, and the figure which he is prepared to pay is an element which ought clearly to be taken into account in arriving at the market price. [Emphasis added] 142 Outside the field of the rating of licensed premises, English authority accepted, even before Bradford-on-Avon was over-ruled, that in assessing market value, it was appropriate to take into account a price which a special buyer in the market would pay. Inland Revenue Commissioners v Clay [1914] 1 KB 339 (Clay) (Scrutton J), on appeal Inland Revenue Commissioners v Clay [1914] 3 KB 466, offers a good example of this. In that case, the owner of a nursing home purchased the two adjacent houses for £1000 each, so that it could expand its site; at that time the adjoining sites had a market value of £750 as private residences. A challenge was made to a referee's fixing of the value of each of the adjacent houses at £1000. In dismissing that challenge, Scrutton J (as he then was) at first instance distinguished compulsory acquisition cases because of their focus on value to the owner and then stated, at 348 – 349: Under this Act one is to estimate the price which the fee simple would realize "sold in the open market by a willing seller." The seller is not to be assumed to be making a forced sale at any price he can get, however low. He must be willing to sell, not demanding compensation for a forced sale, but he is not required to exclude the principal bidder from his market, because that principal bidder wants the house more than anyone else and will therefore give more for it. The Solicitor-General admitted that if No. 82 was taken by a nursing home, the competition between the owners of No. 82 and No. 84 for No. 83 might be taken into account; but he said that the offers of the [NAME_195] alone, though based on real necessity, and advantageous to him as the [NAME_195], must be excluded from the "open market" to be considered. I am unable to follow this reasoning. If the [NAME_196] had said to an expert, "I wish to sell, but am not forced to, and can wait and negotiate; my house is worth 750l. to private owners to live in, but my next neighbour desires to extend his premises, and my house is so convenient and well built that it will pay him to go up to 1200l. rather than build elsewhere; what do you think I can realize by a sale?" I think such an expert would have answered, "Well, it depends on diplomacy in bargaining, but I should think you could be sure of selling for at least 1000l., and if you refuse to sell except at your price you can very likely get more." I exclude the last hypothesis of refusal, as I do not think the vendor would then be a "willing seller at the time," but I see nothing in the Act to require me to exclude the first hypothesis, which seems to me the obvious business way to look at the transaction. In other words I cannot exclude from the "open market" the principal buyer, though for a genuine business reason he will pay a price higher than others. [emphasis added] 143 An appeal against his Lordship's order was dismissed by the Court of Appeal, with each judge adopting the whole of market reasoning apparent in the judgment of Scrutton J. Given the market value controversy in this case, it is desirable to quote the following excerpts from the appeal judgments. Cozens-Hardy MR, at 472 stated: An "open market" sale of property "in its then condition" presupposes a knowledge of its situation with all surrounding circumstances. To say that a small farm in the middle of a wealthy landowner's estate is to be valued without reference to the fact that he will probably be willing to pay a large price, but solely with reference to its ordinary agricultural value, seems to me absurd. Swinfen Eady LJ, at 475, stated: A value, ascertained by reference to the amount obtainable in an open market, shews an intention to include every possible purchaser. The market is to be the open market, as distinguished from an offer to a limited class only, such as the members of the family. 144 Although the statute in Clay referred to "open market", nothing turns on this with respect to its present relevance. That is because in the provisions in question in this case, "market value" is not a reference to a restricted market. It is necessarily implicit that the market concerned is an open one. 145 What was said in Clay as to the need not to exclude from the hypothetical market willing buyers who might have a special interest in acquiring the land has, repeatedly, been accepted as correct. Notably, that acceptance includes by the Judicial Committee in [NAME_22] v [NAME_25], Vizagapatam [1939] AC 302, at 316 – 317. Unsurprisingly, given the myriad of jurisdictions for which that body once acted as an ultimate appellate clearing house, but as [NAME_194] correctly notes in his article, that case has been widely influential. That influence extends to Australia: MMAL Rentals Pty Ltd v Bruning (2004) 63 NSWLR 167, at 180 [73] – [75] (per Spigelman CJ); Northern Territory v Griffiths (2019) 269 CLR 1, at 113 [251] per Edelman J. I record my gratitude to [NAME_197] and [NAME_198], who appeared for the Commissioner, for the latter reference. 146 Recently, and with reference to Clay, Lord Hoffman stated, in Earl Cadogan v Sportelli [2010] 1 AC 226, at 266 [2], "It is well established that the additional value to a special purchaser must be taken into account in estimating what the property would fetch in the open market. What effect it will have depends not only upon its estimated value to the special purchaser (often no easy matter) but also upon the likelihood that he would actually buy on the valuation date." 147 A like discussion of principle is also evident in the judgment of Wigney J in [NAME_189], at [94] – [98], with which I respectfully agree, and where also pertinent authorities are helpfully collected. [NAME_189] also exemplifies that the non-exclusion of a special purchaser from the hypothetical market also applies to the valuation of shares. 148 In an endeavour to avoid being overwhelmed by this avalanche of authority, counsel for the Applicants put that it was the usual practice of valuers to exclude outliers from assessments based on comparable sales, that is prior sales where a price obtained could be seen to have been obtained by unusual factors. The propriety of looking to evidence of comparable sales in assessing value is long established: [NAME_16] v [NAME_17] of Land Tax (NSW) (1915) 20 CLR 231 ([NAME_16]). The submission as to valuation principle is unquestionably correct but, with respect, it does not have present application. That is because it is the market value of the "outlier" which falls for determination. To use the circumstances in Clay as an illustrative explanatory example, although the valuation of the houses adjoining the nursing home was correctly fixed at £1000 each, because the hypothetical market for each necessarily included the proprietor of that nursing home as a special purchaser, it would not follow that homes in like condition to those adjoining homes but in an adjacent street also had a market value of £1000. All other things being equal, their market value would be £750. In the valuation of those adjacent street homes, the sales of those adjoining the nursing home would be "outliers". 149 I have discussed this subject at length not just out of deference to counsel for the Applicants but also in deference to [NAME_171]'s ability and integrity as a valuer. It is quite clear on the evidence that he felt himself constrained by the Commissioner's guidelines, particularly the passage I have quoted above. The passage quoted appears uncritically to have conflated two quite separate valuation principles with a misleading result. It is correct, save whether the relevant touchstone is "value to the owner", that one excludes "attributes of an asset that are of value to a specific owner" from the hypothetical market. However, it is contrary to over-whelming authority to exclude from the hypothetical market attributes of an asset that are of value to a specific purchaser. In truth, what [NAME_171] identified as special value was but part of the market value of a purchase of all the shares in [NAME_4] by [NAME_6]. It represented a synergistic benefit, which has a similar rationale to what sometimes called a "marriage value" upon the merger of leasehold and freehold interests: Promenade Investments Pty Ltd v New South Wales (1992) 26 NSWLR 203, at 227 (per [NAME_199]); [NAME_189], at [100]. 150 If, truly, the circumstances of the disposal of the shares in [NAME_4] were such that, contrary to the conclusion I have reached, the vendor shareholders and [NAME_6] were not dealing with each other at arm's length, it would be odd to take up elements of [NAME_7]'s synergistic benefit analysis and apply it as if the parties had dealt with each other at arm's length. But the very fact that that element is present in that analysis is one factor which tells against the dealing being other than at arm's length. Moreover, that beneficial potentiality always existed in relation to this particular type of purchaser in a hypothetical market. 151 The irony in this case is that a feature of the acceptance of the Commissioner's submission that the disposal of the shares in [NAME_4] has not been proved not to have been at market value has been exposure of an error in the valuation guidelines published by the Commissioner. If there be any issue as to penalty, and such an issue is not before the Court, that might be thought to have obvious, benign consequences for the vendor shareholders.

Division 152 152 As to the valuation of the majority and minority shareholding in [NAME_4] and the Division 152 issue, all that need additionally be stated is that the disposal of one did not occur in isolation from the disposal of the other. All the shares in [NAME_4] were disposed of at the same time. That being so, it is erroneous to value them as if, just before their disposal, they were being sold in isolation: [NAME_189], at [102] and [104]. Immediately beforehand, they were subject to a binding offer for an overall price under what became, immediately thereafter, the Share Sale Agreement. On the evidence, there is no warrant for discounting the capital proceeds which were then received for the contingency that the disposal might not occur. True it is that it is conventional to exclude offers from valuations: [NAME_16]. That does not mean that, in the circumstances of this case, the best evidence of what all the shares in [NAME_4] were worth immediately prior to the disposal is what was achieved on their disposal. Valuations which assign a different value to the shares are wrong in principle. 153 It follows that no entitlement to the small business concession under Division 152 exists.

Outcome 154 For these reasons, the assessments concerned have not been proved to be excessive. Each appeal must therefore be dismissed, with costs. I certify that the preceding one hundred and fifty-four (154) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Logan.

Associate: Dated: 26 June 2024