Federal Court of Australia

Kilgour v Commissioner of Taxation [2025] FCAFC 183

ORDERS

THE COURT ORDERS THAT:

1.    The appeal is dismissed.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

CHARLESWORTH J

1    In October 2016, News Corp Australia Investments Pty Ltd acquired all of the 120,000 issued shares in Punters Paradise Pty Ltd from three vendor companies under a Share Sale Agreement. The vendors previously held their respective interests in Punters as trustees of trusts, in these reasons referred to as the Pettett Trust (60%), the Kilgour Trust (20%) and the Reuhl Trust (20%). Pursuant to the Share Sale Agreement, the purchase price of $31,057,722.00 was apportioned between the vendors in amounts reflecting the number of shares sold by them, the trustees of the Kilgour and Reuhl Trusts each receiving $6,211,544.00 reflecting their 20% holdings.

2    These two appeals concern the tax treatment of those proceeds in the hands of the appellants, Mrs Sarah Alice Kilgour (a beneficiary of the Kilgour Trust) and Mrs Tamara Isterling (a beneficiary of the Reuhl Trust) for the income year ending 30 June 2017. The Commissioner of Taxation assessed their taxable income by including a capital gain, calculated by reference to distributions they each received referable to the Share Sale Agreement. That sum was calculated having regard to the “market value” of the shares as “CGT Assets” for the purposes of the Income Tax Assessment Act 1997 (Cth).

3    Mrs Kilgour and Mrs Isterling objected to the assessments and each then commenced an appeal against adverse objection decisions under s 14ZZ of the Taxation Administration Act 1953 (Cth) (TAA). To succeed on their appeals it was necessary that they prove both that the assessments recorded in the respective objection decisions were excessive, and what the assessments ought to have been:  TAA, s 14AAO.

4    They argued that for the purposes of calculating capital gains tax, the focus was on the market value of the 20% parcels considered as discrete transactions, without regard to the simultaneous acquisition by News Corp of 100% of Punters’ shares from the three shareholders collectively. In addition, they argued that the value of the assets sold by them did not include advantages to News Corp’s overall enterprise arising from the ownership and control of Punters, described in the evidence and submissions as “synergies”. It was submitted that the capital gain ought to have been assessed as less than $6 million with the result that they were entitled to the benefit of the small business concession in Div 152 of the Assessment Act. It is common ground that if the small business concession is available, the appellants would discharge their onus under s 14ZZ of the TAA and so succeed on their appeals.

5    Mrs Kilgour and Mrs Isterling relied on expert evidence to the effect that News Corp had paid more than the market value because of matters they allege formed no part of the value of their respective holdings, namely:  the willingness of the other shareholders to dispose of their respective parcels, and (relatedly) the synergies. Those factors were said to fall outside of the “market value” of the assets they disposed of.

6    The primary judge rejected those arguments:  Kilgour v Commissioner of Taxation [2024] FCA 687 (J) (at [119] – [152]). The grounds of appeal allege error in that aspect of the judgment in multiple respects.

7    The primary judge also rejected arguments to the effect that the transaction with News Corp was not at arms’ length, such that a “market value substitution rule” did not apply:  J, [16], [17] – [118]. Grounds of appeal relating to that issue have been withdrawn. Accordingly, this appeal proceeds from the premise that the transaction for the sale of the shares was an arms’ length transaction. As will be explained, the unchallenged finding that the transaction with News Corp was at arms’ length assumes some significance when ascertaining the market value of the CGT assets.

8    It is convenient to resolve the issues arising on the appeal by reference to Mrs Kilgour’s facts, circumstances, grounds and submissions. Mrs Isterling’s case is identical in every relevant respect.

9    Grounds 1 to 3 allege that the primary judge erred by concluding that if the transaction for the sale of the shares was at arms’ length, it would be unnecessary to consider Mrs Kilgour’s remaining arguments relating to the market value of the shares for the purposes of Div 152 of the Assessment Act. It is common ground that the primary judge erred in reasoning in that way. However, nothing turns on that error, because his Honour nonetheless went on to consider and resolve all of Mrs Kilgour’s remaining arguments. The focus of these appeals is whether his Honour erred in rejecting them.

Facts and Law

10    For the purposes of what follows I will refer to the corporate vendors of the shares as the Pettett Trustee, the Kilgour Trustee and the Reuhl Trustee and their respective holdings as the Pettett shares, the Kilgour shares and the Reuhl shares.

11    A taxpayer’s assessable income includes net capital gains, calculated in accordance with five steps prescribed in s 102-5 of the Assessment Act.

12    Under Subdiv 115-C of the Assessment Act, the capital gains of the Kilgour Trust were treated as capital gains of Mrs Kilgour.

13    A capital gain or capital loss is made if and only if a CGT event happens:  Assessment Act, s 102-20. The gain or loss is made at the time of the CGT event:  Assessment Act, s 102-20.

14    CGT events are listed and numbered in Div 104 of the Assessment Act. They include the disposal of a CGT asset. The relevant disposal in Mrs Kilgour’s case is the Kilgour Trustee’s transfer of its 20% shareholding in Punters to News Corp.

15    By s 104-10(3) of the Assessment Act, a CGT event in respect of an asset is deemed to occur when the taxpayer enters into a contract for the disposal of the asset or, if there is no contract, when change of ownership of the asset occurs. In its application to Mrs Kilgour as a taxpayer, that provision operates so that the CGT event (the disposal of the Kilgour shares) occurred when the Kilgour Trustee signed the Share Sale Agreement.

16    The capital gain resulting from a CGT event may be reduced or disregarded if the taxpayer can show that the maximum net asset value test in s 152-15 is satisfied:  Assessment Act, s 152-10(1). That test is expressed as follows:

152-15 Maximum net asset value test

You satisfy the maximum net asset value test if, just before the *CGT event, the sum of the following amounts does not exceed $6,000,000:

(a)    the *net value of the CGT assets of yours;

(b)    the net value of the CGT assets of any entities *connected with you;

(c)    the net value of the CGT assets of any *affiliates of yours or entities connected with your affiliates (not counting any assets already counted under paragraph (b)).

(emphasis added)

17    Given the effect of s 104-10(3), the calculation under s 152-15 was to be undertaken on the basis of net values “just before” the Kilgour Trustee entered into the Share Sale Agreement.

18    The “net value” of a CGT asset is obtained by subtracting certain sums from the “market values of those assets”:  Assessment Act, s 152-20. The words “market value” are not defined in this context of the Assessment Act. At first instance (as on appeal) it was common ground that market value is to be assessed in accordance with the principles discussed by the High Court in Spencer v Commonwealth (1907) 5 CLR 418, a matter involving the valuation of land compulsorily acquired by the Commonwealth. Griffith CJ there said (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, i.e., 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?’ It is, no doubt, very difficult to answer such a question, and any answer must be to some extent conjectural. The necessary mental process is to put yourself as far as possible in the position of persons conversant with the subject at the relevant time, and from that point of view to ascertain what, according to the then current opinion of land values, a purchaser would have had to offer for the land to induce such a willing vendor to sell it, or, in other words, to inquire at what point a desirous purchaser and a not unwilling vendor would come together.  …

19    As Isaacs J put it, the value was to be fixed as at the date of the sale, and events occurring after that date which no person could have anticipated must be disregarded. His Honour said that the “all important fact” existing on the date of the sale was the price that “a hypothetical prudent purchaser would entertain, if he desired to purchase it for the most advantageous purpose for which it was adapted”, assuming voluntary bargaining between the seller and purchaser, “willing to trade, but neither of them so anxious to do so that he would overlook any ordinary business consideration” (at 440 – 441). In the case of real property, the hypothetical purchaser is supposed to be perfectly acquainted with the land and aware of all facts and circumstances that might affect its value, taking into account not only its present purpose, but other more beneficial purposes to which it might be applied:  citing R v Brown (1866 – 1867) 2 LR QB 630, Cockburn CJ (at 631).

20    The dispute on these appeals concerns the application of those principles to the following unchallenged factual findings.

Facts

21    Punters carried on a business in the gaming industry, including an online platform with editorial content, on which users exchanged their racing and sports betting tips. It had two primary sources of income: the selling of advertising space on the platform and commissions from bookmakers via “affiliate deals”, calculated by reference to the betting losses of the user. The business was developed by individuals whose interests were reflected in the three shareholdings. They together resolved to sell all of the shares in Punters and engaged an agent (Mr Daniel Bernstein) to prepare an information memorandum and set up an online data room. It was Mr Bernstein who introduced News Corp as a potential purchaser

22    Negotiations for the Share Sale Agreement took place by way of meetings and correspondence commencing in February 2016. On 22 March 2016, the parties to the negotiations signed a non-disclosure agreement relating to the possibility of the acquisition.

23    News Corp forms a part of a group of companies with media and gaming sector interests. The decision to purchase the shares in Punters was made in New York following internal deliberation about the value of Punters’ enterprise. Evidence of the internal deliberations showed that Punters’ business was viewed as a valuable adjunct to News Corp’s existing wagering and sports coverage business activities.

24    In correspondence between Punters’ shareholders and News Corp (as in News Corp’s internal communications) the purchase price for the shares was discussed as a multiple of Punters’ earnings before interest, taxes, depreciation and amortisation (EBITDA).

25    The primary judge made the following finding concerning News Corp’s internal deliberations:

79    On 28 April 2016, a further internal memorandum was prepared addressed to Mr Eales and, amongst others, Mr Anderson and Mr Salom 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, ‘Punters Paradise’]

80    The valuations were stated not to take into account cost synergies with News Corp due to cost savings and related improvement of the value position. It was stated these would be considered during a due diligence phase.  …

26    At around the same time, in June 2016 the shareholders made it plain to News Corp that they were only interested in a “100% cash deal” (that is, without an earnout structure), and that their expectation was a purchase price representing 10 x EBITDA. At that time the expectation was that the 2016 financial year earnings would be about $3 million. The shareholders otherwise made it clear that their expected purchase price was $30 million. The shareholders’ expectations were formed without any knowledge of the internal deliberations occurring within News Corp which circled around the same value.

27    During the negotiations the shareholders’ agent made it known to News Corp that there was another prospective purchaser for the shares.

28    In July and August 2016, News Corp made two “non-binding indicative offers” proposing the terms of a transaction, including the purchase price. The shareholders signified that the second of those non-binding offers was acceptable to them. News Corp then conducted due diligence enquiries and lawyers were engaged to draw up an agreement. Eight drafts of an agreement were exchanged before the Share Sale Agreement was executed on 4 October 2016. The due diligence process did not result in a material change to the price referred to in the second non-binding offer.

Share Sale Agreement

29    The Share Sale Agreement relevantly defined the “Vendors” as the Pettett Trustee, Kilgour Trustee and Reuhl Trustee and the “Shares” as the 120,000 ordinary shares in the capital of Punters. The “Purchase Price” was defined as an “Initial Purchase Price” of $29,300,000.00, together with an “Adjustment Amount”.

30    By clause 3.1, the Vendors sold the Shares to News Corp. By clause 4, the “aggregate price” payable by News Corp to the Vendors was the Purchase Price. The Purchase Price was “proportionally allocated between the Vendors” (clause 4.3). Each party agreed to keeping the terms of the Share Sale Agreement confidential (clause 12.1). The Vendors’ liabilities under the Share Sale Agreement were imposed jointly and severally on all of them, as were those of their guarantors (clause 1.4).

31    Settlement on the sale occurred in December 2016, followed by a working capital adjustment payment in February 2017.

Expert opinion

32    At trial, expert valuation evidence was given by Mr Andrew Fressl (a chartered accountant, business valuer and mergers and acquisition specialist) and Mr Michael Churchill (a business securities and intangible asset valuation specialist). Each prepared several reports and elaborated on their opinions in oral evidence. The experts valued the shares in accordance with the International Valuation Standards Council (IVSC) framework, which excludes from the market value of an asset the “synergistic value”. As Mr Fressl summarised it, the framework describes synergistic value as “the 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”.

33    On the appeals, the focus of the parties’ submission was on the opinions of Mr Churchill. In addition to the IVSC framework, Mr Churchill relied upon the following extract from guidelines published by the Commissioner:

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 original)

34    Applying the IVSC definition and the Commissioner’s guidelines, Mr Churchill opined that News Corp had paid more than market value for all of the shares in Punters. He opined that the Purchase Price was a reflection of News Corp’s views concerning the value of the synergies in the context of its existing business enterprises.

35    The primary judge gave the following unchallenged summary of the effect of Mr Churchill’s opinion (at [107]):

(1)    the “enterprise market value” of all the shares in Punters immediately prior to the sale was between $15.5 million and $21.9 million, with a median value of $18.2 million;

(2)    the market value of the RG (Pettett) 60% interest immediately prior to the sale was between $9 million and $12 million;

(3)    the market value of each of the 20% KI (Kilgour) and RC (Isterling) interests immediately prior to the sale was $2.4 million to $3 million;

(4)    the purchase price paid by News Corp was inflated and included a “special” or “strategic price”, in the order of $12.5 million.

36    As can be seen, Mr Churchill approached the valuation task by first ascertaining the value of the whole of Punters’ business enterprise, then calculated the value of the Kilgour shares as equating to 20% of the whole. He concluded that the $12.5 million paid by News Corp reflected attributes of the shares that were valuable to News Corp as a specific purchaser and so should be excluded from the assessment of market value.

Conclusion of the primary judge

37    The primary judge expressed the view that Mr Churchill was “genuinely troubled by what seemed to him a price which reflected a premium or special value to News Corp in the acquisition of all the shares”, a feature Mr Churchill had found to be present upon reviewing evidence of News Corp’s internal deliberations.

38    His Honour emphasised the need to focus upon the statutory language of the Assessment Act and less so on the IVSC framework or the Commissioner’s guidelines.

39    The authorities reviewed at length by the primary judge are the same as those referred to by the parties on these appeals, some of which will be canvassed in the disposition of the appeal grounds.

40    By reference to the authorities, his Honour said that it was well established that the additional value an asset might have to a particular purchaser is to be taken into account when estimating what the asset might fetch in an open market, the effect depending on both the estimated value to that purchaser and on “the likelihood that he would actually buy on the valuation date”:  Earl of Cadogan v Sportelli [2010] 1 AC 226, (at [2]), citing Inland Revenue Commissioners v Clay [1914] 3 KB 466 (at 472).

41    The primary judge referred with approval to the reasoning in Federal Commissioner of Taxation v Miley [2017] FCA 1396; 106 ATR 779, in which Wigney J had regard to the value of shares to a particular purchaser (being the actual purchaser) for the purposes of Div 152 of the Assessment Act.

42    His Honour said that the Commissioner’s guidelines (extracted above at [33]) were erroneous because they “conflated two quite separate valuation principles with a misleading result”. His Honour continued (at [149]):

…  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 Mr Churchill identified as special value was but part of the market value of a purchase of all the shares in Punters by News Corp Investments. It represented a synergistic benefit, which has a similar rationale to what sometimes [sic] 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 Sheller JA); Miley, at [100].

43    The primary judge held that News Corp’s “synergistic benefit” was a “beneficial potentiality [that] always existed in relation to this particular type of purchaser in a hypothetical market” (at [150]) and that it was otherwise erroneous to value the Kilgour shares in isolation from a transaction involving the transfer of all of the shares in Punters to the same purchaser. His Honour went on to conclude (at [152]):

As to the valuation of the majority and minority shareholding in Punters 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 Punters 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:  Miley, 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:  McDonald. That does not mean that, in the circumstances of this case, the best evidence of what all the shares in Punters 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.

Issues on the appeal

44    Putting aside [1] to [3] of the Amended Notice of Appeal (ANOA), the 16 paragraphs that are pressed largely take the form of submissions alleging that the primary judge misapplied the principles discussed in no less than eight English and Australian decisions:  Federal Commissioner of Taxation v Byrne Hotels Qld Pty Ltd (2011) 196 FCR 524; Turner v Minister of Public Instruction (1956) 95 CLR 245; Cedars Rapids Manufacturing and Power Company v Lacoste [1914] AC 569; Raja Vyricherla Narayana Gajapatiraju v The Revenue Divisional Officer, Vizagapatam [1939] AC 302; Spencer; Cadogan; Inland Revenue Commissioners v Crossman [1936] 1 All ER 762, Lynall v Inland Revenue Commissioners [1972] AC 680.

45    Notwithstanding the thicket of authority referred to in the ANOA, the ultimate question on the appeal is whether the primary judge erred in his application of the Assessment Act to the facts as found. The questions arising on the appeal fall for consideration by reference to the specific factual and statutory context. In large part, authorities decided in different factual and legal contexts are of limited assistance. Generally, the authorities to which the appellants refer do not assist in answering the questions arising in these matters.

46    The grounds of appeal are both repetitive and overlapping. They may be distilled into five broad and interrelated questions, as follows:

(1)    whether the primary judge misapplied s 152-15 of the Assessment Act by failing to value the Kilgour shares “just before the CGT event”, specifically by having regard to the price paid in the actual transaction recorded in the Share Sale Agreement, not executed at that time;

(2)    whether the primary judge misidentified the CGT asset by assessing the market value of the Kilgour shares as equating to a 20% proportion of the price paid for Punters’ shares as a whole, in circumstances where the Kilgour Trustee did not have a controlling interest in Punters to sell;

(3)    whether the primary judge erred by including in the value of the Kilgour shares the synergistic benefit to News Corp as the actual purchaser of Punters when combined with News Corp’s other business enterprises (being synergies not inherent in the relevant CGT asset), thereby failing to value the CGT asset by reference to the hypothetical vendor and purchaser in accordance with Spencer;

(4)    whether the primary judge misapplied the principles in Spencer and other authorities by attributing to the prospective purchaser in the hypothetical market the price that News Corp was prepared to pay, contrary to evidence of the existence of confidentiality agreements surrounding the negotiations and sale (about which prospective purchasers in the hypothetical market would be unaware); and

(5)    in the alternative, whether the primary judge misapplied the principles in Spencer and other authorities by failing to find that a hypothetical prospective purchaser aware of the synergistic value of the shares to News Corp would negotiate a price midway between the “enterprise value” proposed by Mr Churchill and the price in fact paid by News Corp.

47    The last of those questions raises an argument not advanced before the primary judge at first instance. It will be necessary to consider whether the appellants should be granted leave to raise that argument for the first time on these appeals.

The Temporal Issue

ANOA, [8A], [8B], [8C], [8F], [8G], [12]

48    For present purposes, the relevant CGT Asset is the 24,000 shares in Punters sold by the Kilgour Trustee to News Corp. The CGT event is taken to have occurred “just before” the execution of the Share Sale Agreement on 14 October 2016. I will refer to that as the valuation time.

49    It was submitted that when ascertaining the market value of the CGT asset at the valuation time, every event occurring after that time must be ignored. It followed, the appellants submitted, that the primary judge erred by having regard to the fact and terms of the Share Sale Agreement pursuant to which News Corp acquired the CGT assets previously held by the Kilgour Trustee, both because the execution of the Share Sale Agreement and the transfer of shares occurred at later points in time, and because the focus of the Spencer test for market value was on a hypothesised sale of an asset, not the price in fact achieved upon an actual sale to an actual purchaser. The appellants’ argument was to the effect that transactions occurring after the CGT event were irrelevant considerations when determining “market value” of the CGT asset and that, accordingly, evidence of an actual transaction occurring after the valuation time was inadmissible.

50    It may be accepted that the Assessment Act prescribes the moment in time at which market value is to be assessed. To value a CGT asset other than at the valuation time would be to deviate from the statutory valuation task and so involve error.

51    However, for the purposes of performing the proper statutory task, neither the principles in Spencer nor the provisions of the Assessment Act establish exclusionary rules of the kind contended for by the appellants.

52    The prescription that the CGT event occurs “just before” the execution of an agreement for the transfer of the CGT asset does not in terms carry with it a requirement that an actual transaction must be ignored for all purposes when ascertaining the market value of the CGT asset at the immediately preceding moment in time. Whether an actual transaction may permissibly inform the valuation task must depend upon the facts and circumstances of the particular case.

53    There may be cases in which evidence of the negotiation and terms of an actual sale may well provide a reliable indication of the opinion as to price that both the hypothetical vendor and hypothetical purchaser would form at the valuation time. Indeed, there may be cases where an actual transaction supplies the most informative answer to the hypothetical question. That is especially so where the actual sale occurs between parties at arms’ length and at a time proximate to the date on which the value of the asset is to be assessed, and where the subject matter of the sale is otherwise comparable to (or identical to) the asset to be valued.

54    The relevance of the evidence taken into account by the primary judge in the present case will be identified elsewhere in these reasons. For the purposes of resolving the temporal question, I reject the submission that the prescription of the “just before” time in the Assessment Act in and of itself required the primary judge to ignore for all purposes the facts and circumstances surrounding the actual transaction in which the Kilgour shares were transferred in fact.

55    In support of the temporal argument, the appellants seized on the reasons of Isaacs J in Spencer, where his Honour identified the question arising before the High Court as being the value of subject land on 1 January 1905. His Honour said that whether the land became more valuable or less valuable after that date was irrelevant and that “all circumstances subsequently arising are to be ignored”. However, that sentence must be understood in the context of what follows, including this (Spencer, at 440):

…  Its value is fixed by Statute as on that day. Prosperity unexpected, or depression which no man would ever have anticipated, if happening after the date named, must be alike disregarded.  …

(emphasis added)

56    Considered in its proper context, the sentence does not require the valuer to ignore future matters that were fairly able to be predicted, nor did Isaacs J deny the relevance of the potential use of the asset in question in its future development. The important fact was the opinion as to price that a hypothetical purchaser would entertain for the land “for the most advantageous purpose for which it was adapted”. His Honour continued (Spencer, at 441):

…  We must further suppose both [seller and purchaser] to be perfectly acquainted with the land, and cognizant of all circumstances which might affect its value, either advantageously, or prejudicially, including its situation, character, quality, proximity to conveniences or inconveniences, its surrounding features, then present demand for land, …

57    The evidence in Spencer was such that the land was suitable for future development as a factory. However, on the evidence, there was no demand for factory sites as at the valuation date and hence no evidence that hypothetical prudent purchasers would factor that future beneficial use into their opinion of the fair price. Accordingly, on the facts, the highest use for the land in question was its existing use as workmen’s cottages.

58    Further, and contrary to the appellants’ arguments, the temporal question (as articulated on these appeals) was not authoritatively answered by the Full Court in Byrne Hotels. There, Bennett J made an incontestable statement that a “CGT liability” is a liability existing at the “just before” time (at [56]). The only issue before the Full Court was whether legal fees and agent commissions associated with an actual transaction met that description. Her Honour said (at [56], Dowsett and Greenwood JJ agreeing in principle at [1] and [79]):

Section 152-15 requires that the MNAV test be assessed ‘just before’ the CGT event. This means that, for the purposes of s 152-20(1), the taxpayer is required to calculate liabilities that are related to the CGT assets ‘just before’ the CGT event. The section is deliberately aimed at a ‘moment in time’. The wording of ‘just before’ indicates that the legislature intended to exclude from the MNAV test the effects of the CGT event arising on or after the CGT event. The test is whether a particular obligation, as at the ‘just before’ time, is a liability. That is, whether at that time the obligation involves any kind of property or a legal or equitable obligation that is not property. If a contingent liability fits that definition, it is to be accounted for. If, however, as at the ‘just before’ time, an obligation cannot be classified as a liability, irrespective of whether a liability arising only as a consequence of the CGT event is subsequently incurred, it cannot be accounted for under s 152-20(1).

59    The only question arising in Byrne Hotels was whether legal fees and agent commissions fell within the definition of CGT liabilities. The Full Court was not asked to decide whether, in determining “market value” of a CGT asset at the “just before” valuation time, the valuer is to ignore actual arms’ length negotiations extending over some months evidencing the actual opinions of a prudent purchaser and prudent vendor of the relevant asset.

60    In Barisa Pty Ltd v Varga Bros Investments Pty Ltd (1991) 4 ACSR 620, the task of assessing the market value of shares in a company arose in the context of a damages assessment upon proof of breach of contract for their sale. The valuation date was the date of settlement on the contract. At that time, there were pending claims against the company. The New South Wales Court of Appeal held that valuation of the shares was not to be undertaken having regard to the later known outcomes of those claims because at the valuation time their outcomes could only be matters of conjecture. However, it was permissible to have regard to uncertainties and risks associated with the claims. Unsurprisingly, the measure of that value was specific to the facts in that case.

61    Similarly, in Cedars land was compulsorily acquired under a statute by a company for the construction of a dyke and powerhouse. Lord Dunedin rejected the land-owner’s claim to be entitled to a proportionate share in the value of the resulting development. However, the value of the land may be enhanced by the probability that a purchaser seeking special advantages might hope to acquire other rights necessary to develop the subject land for such a scheme (at 580).

62    On the uncontested facts in the present case, at the valuation time prescribed in the Assessment Act, there existed an unexecuted agreement capable of immediate execution by the Kilgour Trustee for the sale of the Kilgour shares on the terms set out in that document. As explained below, the state of affairs then existing permissibly informed the question of market value, on the proper application of the principles in Spencer. By having regard to the price recorded in the Share Sale Agreement just before its execution (and the history of dealings leading to that point), the primary judge did not deviate from the requirement that the CGT asset be valued at the time immediately before the Share Sale Agreement was signed by the Kilgour Trustee. Rather his Honour proceeded from a footing that execution of an agreement for a sale price of $30 million was as good as certain. So much is apparent from his Honour’s approval of the reasoning in Miley. Faced with similar facts, and in the same statutory context, Wigney J observed (at [81]) that where a recent sale transaction could be said to be between a willing but not anxious seller and a willing but not anxious buyer, the price that they actually agreed upon “may generally be taken to be the market price, or at least a reliable indicator, if not the best evidence, of the market price”. His Honour went on to say (at [111]):

In any event, in the circumstances of this case, the time ‘just before’ the CGT event was the ‘time when one party has already signed the contract and the other party has picked up his pen and is about to sign [and] there was no real uncertainty that the contracts for sale would be entered into’: cf. FCT v Byrne Hotels Qld Pty Ltd (2011) 196 FCR 524; 83 ATR 261; 2011 ATC 20-286 at [61]. In the case of the sale of the AJM shares, at that time there was, and was known to be, a purchaser willing to pay $5.9 million for Mr Miley’s shares on the basis that the other shareholders were also willing to sell their shares to it, and the purchaser was willing to purchase all the shares. There was no uncertainty that the contract would be entered into. It should also be noted in this context that Mr Miley’s expert valuer, Mr Halligan, valued AJM on the basis of the exchange effected by the Agreement because ‘it [the Agreement] was negotiated, and its terms set, before the valuation date’ (see [95] of Mr Halligans’s report).

63    The finding in Miley at [111] reflects the findings made by the primary judge in the present case.

64    The appellants submit that Miley was wrongly decided. I do not accept that submission. It is sufficient to say that the passage at [111] does not involve error and the primary judge in the present cases did not err in adopting the same course. The passage reflects the factual circumstances existing at the valuation date, not afterward. To the extent that Wigney J stated that there may be cases in which it is “unnecessary to hypothesise”, I need not express any view as to the correctness of the statement. This action proceeded from the joint position that the Spencer test and the hypothetical scenario it erected was agreed to apply at first instance, as on these appeals. In hypothesising in accordance with that test, it is permissible to have regard to evidence of an actual sale, provided that the facts and circumstances of the actual sale otherwise legitimately inform the inquiry of what the hypothetical buyer and seller would do.

65    The primary judge should be understood to have found that the potential for there being an arms’ length transaction on the terms set in the Share Sale Agreement should, as at the valuation date, be regarded as a certainty. The actual behaviour of the Kilgour Trustee was relevant and informative in the application of the Spencer test, as was the behaviour of News Corp, when determining where a willing but not anxious seller and a willing but not anxious buyer might meet on price:  cf Miley (at [81]). In light of what follows, it was not otherwise impermissible to take those actual opinions into account in the application of the Spencer test.

The controlling interest and Synergy questions

ANOA, [7], [8], [8A], [8D], [8E], [8F], [8H], [8I], [10], [11], [13]

66    It was submitted that the primary judge erred by misidentifying the CGT asset to be valued, specifically by failing to hypothesise a sale of a 20% shareholding in Punters in isolation from any contemporaneous transfer of the remaining 80% by other shareholders. Expressed another way, the argument was that the correct valuation methodology required that the primary judge hypothesise an imaginary auction at which the Kilgour Trustee offered its minority holding for sale to prospective purchasers willing and able to buy that minority interest and nothing more. It was submitted that the purchase price specified in the Share Sale Agreement included a premium representing the benefit to News Corp of 100% ownership, necessary for News Corp to enjoy synergies such as the complementary nature of the acquired business to its existing enterprise and associated cost savings. The circumstance that News Corp acquired 100% of the shares under the Share Sale Agreement was said to be irrelevant because the Assessment Act required the focus to remain upon (and only upon) the value of (and only of) a minority holding. It was submitted that no purchaser in the hypothetical market would be willing to pay 20% of $30 million for the infirmities of a minority holding, and that a majority or absolute interest was not an asset that the Kilgour Trustee could offer for sale.

67    For those reasons, News Corp was said to be a “special” purchaser such that its opinion on price was not to be equated with that of the Spencer hypothetical purchaser.

68    I do not accept those submissions.

69    When valuing an asset, the valuer may have regard to the costs, risks and benefits of exploiting potential future uses inherent in the asset. The authorities demonstrate that the identification of those potentials and the appropriate method for measuring them in dollar terms may be the subject of dispute, but the fundamental relevance of the potential uses is otherwise well established:  see for example Turner (concerning the value of land fit for subdivision but not yet subdivided).

70    The CGT asset was to be valued having regard to all relevant facts and circumstances, including attributes inherent in the asset and all other relevant facts and circumstances in existence at the valuation time.

71    Shares have value because their ownership gives rise to rights and powers under the Corporations Act 2001 (Cth). In important respects, the rights and powers are enhanced by the numbers owned, relative to the numbers owned by others. The value also derives from the potential for cooperation between shareholders. That potential includes the prospect of a minority holding to be sold in conjunction with the sale of shares held by others in the same entity to the same purchaser desirous of acquiring a controlling interest. The fulfilment of that potential is all the more likely in the case of an entity with only three shareholders, each desirous of selling their holdings and willing to cooperate in the negotiation of a transaction to a single buyer. As Wigney J correctly observed in Miley (at [104]), the most commercially sensible way for a minority shareholder to exploit the potential in the shares is to sell them to the one purchaser as part of a package along with the shares held by other shareholders. To approach the valuation task in that way is not to ignore the need to value the CGT asset, rather it is to value the asset having regard to ordinary concepts of highest and best use, demand and supply.

72    Nothing in the authorities relied upon by the appellants required the primary judge to ignore the circumstance that the Kilgour shares could be (and indeed were) offered for sale as part of a package with the remaining 80% of the shares, in a cooperative effort by the three shareholders to realise a potential always inherent in their individual holdings. In and of itself, the willingness of the other shareholders to sell was not confidential as between them. That willingness formed a part of the market conditions in which the valuation task was to be performed as a factual matter capable of affecting the demand for the Kilgour shares, value being derived from the relationship of demand and supply:  R v West Middlesex Waterworks Co (1859) 120 ER 1078, Wightman J (at 1082). Nothing in Spencer or the Assessment Act required the primary judge to ignore those known commercial circumstances.

73    It was further submitted that ownership of the Kilgour shares did not bring with it the power to “drag along” the other shareholders such that no such power was inherent in the only CGT asset the Kilgour Trustee could sell.

74    Factually speaking, that is correct. It explains why in many cases a minority holding will be offered for sale in isolation and, in the usual course, that isolation will be relevant when assessing market value. However, as has been mentioned, in the context of the ownership and control of a company there is potential for cooperation, and the jointly made offering of the Punters shares was as much a factual reality as in a case where each shareholder could be “dragged” to sell by the others. It was an “ordinary business consideration” relevant to market value in accordance with the principles stated in Spencer:  see Commissioner of State Revenue (WA) v Placer Dome Inc (2018) 265 CLR 585, Kiefel CJ, Bell, Nettle and Gordon JJ (at [17]).

75    In any event, the existence of a willing buyer having a special interest in the asset is not in all cases to be ignored when determining market value in accordance with the Spencer principles. The Kilgour Trustee was in a like position to the seller of a minority holding discussed in MMAL Rentals Pty Ltd v Bruning (2004) 63 NSWLR 167. In that case, Spiegelman CJ concluded that a contractual formulation of “fair market value” did not preclude consideration of the value of the minority holding in the eyes of the majority shareholder. His Honour reasoned from the premise that a majority shareholder would be willing to pay more than “net asset value” to ensure 100 % ownership in the company (at [72]). His Honour rejected the contention that the value of the minority holding was only slightly above what other potential purchasers might pay (at [73]):

In such a situation, valuation is not done on the basis of an estimate of what a third party would pay and then allowing the majority holder one more bid. This is because a vendor in a market, including a ‘fair market’, would know that the majority holder was prepared to pay more and is well placed to bargain for a higher price by refusing to sell. The minority holder would not part with the property unless the majority holder offered a price that was substantially closer to the price the latter would be willing to go up to. The ‘one more bid’ approach does not describe a situation of a ‘willing but not anxious vendor’ in the exchange bargain test. (See Inland Revenue Commissioners v Clay [1914] 1 KB 339 especially at 349; Inland Revenue Commissioners v Clay [1914] 3 KB 466 at 472; Raja Vyricherla Narayana Gajapatiraju v Revenue Divisional Officer, Vizagapatam [1939] AC 302 at 314–317; Geita Sebea v Territory of Papua (1941) 67 CLR 544 at 557; Mordecai v Mordecai (1988) 12 NSWLR 58 at 69–70; Melcann Ltd v Super John Pty Ltd (1994) 13 ACLC 92 at 94; Pauls Ltd v Dwyer (2002) 43 ACSR 413 at 422 [30]; 21 ACLC 224 at 230 [30].)

76    His Honour went on to describe the potential inhering in a minority shareholding as representing the operation of a market, not as an exception to the test established by Spencer, but rather an operation of the test “involving the determination of how a willing vendor of a minority interest would behave” (MMAL at [75]).

77    I respectfully agree with that analysis. The class of purchaser for the Kilgour shares included any buyer interested in acquiring them in a transaction for the sale and purchase of the remaining 80% offered simultaneously by the other shareholders. Indeed, the Share Sale Agreement, to which all the shareholders were parties as vendors required that the vendors each sell their respective shareholdings with the purchase price proportionally allocated between vendors according to their percentage shareholdings. So it is that the willing vendors can be understood to behave in a way such that they would be unwilling to sell their assets in insolation from the sale of the others. That was a legitimate factor to take into account when valuing the CGT asset at the valuation time.

78    As for the business-related synergies, on these appeals it was not shown that the commercial benefits of absolute control of Punters (more specifically its business) were benefits exclusive to only one potential purchaser in News Corp, for three reasons. First, the potential for a purchase of the Kilgour shares simultaneously with the remaining 80% was not unique to News Corp but applied to all potential purchasers because that was the basis upon which the shareholders offered their shares for sale. Secondly, to the extent that the submissions referred to costs savings that might be enjoyed by consolidating business activities, the evidence of internal deliberations shows that the opinion that News Corp formed as to the fair price expressly excluded those cost savings. Thirdly, on the evidence to which this Court was taken on the appeal, it was not shown that the value of the Punters business in complementing existing businesses in the economic field of sports betting or affiliate relationships was a benefit unique to News Corp and no other potential purchaser. The primary judge concluded that the beneficial potentialities in the transaction “always existed in relation to this particular type of purchaser in a hypothetical market”:  J, [150]. For the purposes of the IVSC framework, the benefits of acquiring Punters were not attributes of value only to a specific owner or purchaser and no other buyers in that hypothetical market.

79    Nothing in the authorities compels the valuer to imagine the sale of the CGT asset in a public auction devoid of the commercial considerations in fact influencing the price described in the preceding paragraphs.

Knowledge

ANOA, [8G]

80    It was submitted that the primary judge’s approach erroneously treated “the hypothetical vendor and hypothetical purchasers in the open market as omniscient”. Accordingly, it was said, the primary judge failed to have regard to his earlier finding that negotiations between the vendors and News Corp were kept confidential, as were the concluded terms of the Share Sale Agreement. The appellants relied on Lynall; Wholesale Gas Limited v Origin Energy Limited [2009] 1 Qd R 305; Varga (at 622 – 623); Holt v Cox (1997) 23 ACSR 590 (at 600).

81    The knowledge that may be imputed to the hypothetical purchaser for the purposes of the test in Spencer is a question of fact. The primary judge made no finding that there was anything confidential about the fact that all of the vendors were willing to sell their shares to a single purchaser and were cooperating in the commercially sensible manner described earlier in these reasons. Nor did his Honour make a finding that the vendors were required by any agreement or arrangement to deal exclusively with News Corp. On the facts as found, News Corp was advised that another prospective purchaser was interested in acquiring the shares and there was no suggestion that the existence of a competing buyer evidenced a breach of any confidentiality term. In addition, the attributes of the Punters business were not confidential in the sense that they could only be known to a single buyer. On the facts, the nature and potential of the business itself was capable of ascertainment upon any person entering the data room set up by the vendors’ agent and familiar with the industry sector in which the business operated.

82    Contrary to the appellants’ submissions, the primary judge did not imagine an auction at which the purchasers were aware of the price that a “special purchaser” was willing to pay. As explained above, the primary judge (having found that the negotiations with News Corp were at arms’ length) concluded that the negotiations had evidentiary value in determining what a willing but not anxious buyer would pay. The effect of his Honour’s reasoning was that purchasers of the same type would be willing to pay $30 million for the 100% holding, not because they should be supposed to have knowledge of actual negotiations with a competing bidder, but because they would independently perceive the same value residing in the asset as News Corp did.

83    It does not assist the appellants to point to cases in which varying degrees of information have been held to be relevant or irrelevant in carrying out the valuation task. Reference to isolated passages or phrases in the case law (without reference to the questions arising for adjudication in each case or the facts giving rise to those questions) are of little, if any, assistance. The authorities relied upon by the appellants were not so analogous to the present case that they should be regarded as authoritative on the questions arising in these matters with respect to what facts the hypothetical Spencer purchaser must be taken to know or not know.

The new argument

84    That is sufficient to dispose of this appeal.

85    However, it remains to consider whether the appellants should be granted leave to introduce an alternative argument not raised in the proceedings at first instance. Contrary to the appellants’ submissions I do not accept that the grant of leave to file the ANOA carried with it a grant of leave to adduce an argument of the kind advanced for the first time in oral submissions. The new argument cannot be detected within the amendments, other than in the most oblique way.

86    The appellants emphasised that the new argument only arises for consideration should the Court reject their contentions that the presence of a purchaser such as News Corp in a transaction for 100% of Punters shares’ must be ignored.

87    The argument was to the effect that at a hypothetical “open market auction”, a willing but not anxious buyer having News Corp’s characteristics would enter into friendly negotiations with the willing but not anxious seller of the shares. The result, it was submitted, would be that the seller and buyer would split the difference between the price that buyer would pay and the price other buyers would pay. Accordingly, it was said, the market value of the 100% holding should be assessed at the midway point between $18 million and $30 million. On that arithmetic, the CGT asset should be valued at $4.8 million (20% of $24 million) with the result that the small business concession would apply and Mrs Kilgour must succeed on her appeal. It was submitted that the primary judge erred by ascribing a value of $30 million to the 100% shares rather than $24 million. The argument is new in the sense that the primary judge was not invited by the appellants to make any such finding.

88    The new argument is said to be supported by the decision of the House of Lords in Cadogan, Lord Neuberger there referring to the “split” valuation methodology that may be applied where prospective purchasers in the hypothetical market know of the presence of the special purchaser in the market and the price that purchaser is willing to pay. Referring to the benefits inuring to the special purchaser as “marriage value”, his Lordship said:

60    After careful consideration of the evidence and arguments, the Lands Tribunal decided, contrary to the tenant’s case, that the marriage value should be divided equally between the parties, so that the value of the landlord’s interest was increased by £29,121.50. The tribunal’s reasoning was expressed in these terms, at p 211 by reference to the evidence of the landlord’s surveyor:

‘Mr Hopper’s addition … represents the actual amount which the lessee in friendly negotiations with the lessor would be willing to bid above the amount which any other purchaser would pay:  that amount would take his bid well above that of any other potential purchaser. Mr Hopper assumed that the parties were of equal bargaining strengths. I agree:  neither can unlock the marriage value without the other. In friendly negotiations they would agree to divide it equally as they had done in the 57 settlements [as between landlords and tenants of other houses where the tenant was seeking to enfranchise].

61    In reaching the conclusion that the value of the landlord’s freehold interest should be increased by half the marriage value, the Lands Tribunal was following the approach which it had adopted in Norfolk v Trinity College, Cambridge [1976] 1 EGLR 215. Precisely the same approach was followed in a subsequent Lands Tribunal decision, Lowther v Strandberg [1985] 1 EGLR 203. In all three cases, the tenant’s argument, that the landlord should receive a smaller proportion than 50% of the marriage value, failed.

…

64    …  Section 9(1D) thus put an end to any attempts to split the marriage value other than equally between landlord and tenant under section 9(1A); where section 9(1E) applies, it simply removes marriage value from the valuation exercise.

89    As I understand it, applied to the present case, the argument is that the “additional” $12 million News Corp alone was prepared to pay should be imagined to be split equally between the Spencer vendor and purchaser as in a side negotiation at an open market auction at which other prospective purchasers had ceased bidding.

90    Leave to introduce the new argument will not be granted, for three reasons. First, a legally represented party desirous of introducing a new argument on appeal should give some explanation (by way of evidence) as to why the argument was not advanced at first instance. If that evidence is not given the Court may infer that competently represented party made an informed choice not to run the argument at an earlier time. At the very least, a court should not too readily assume that the availability of the argument was overlooked.

91    Secondly, to raise the argument now would be to effectively deprive the respondent of a right of appeal to a Full Court. As Lander J said in SZKMS v Minister for Immigration and Citizenship [2008] FCA 499:

22    The High Court has made it plain that, ordinarily, a party is confined in its grounds of appeal to matters which have been raised in the Court below. The High Court said in Metwally v University of Wollongong (1985) 60 ALR 68 at 71:

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

23    In Coulton v Holcombe (1986) 162 CLR 1, the majority said at 7:

It is fundamental to the due administration of justice that the substantial issues between the parties are ordinarily settled at the trial. If it were not so the main arena for the settlement of disputes would move from the court of first instances to the appellate court, tending to reduce the proceedings in the former court to little more than a preliminary skirmish.

24    The appellate process is to correct error. If a party is entitled to raise issues for the first time on appeal, the appeal court will become de facto the primary court. That is undesirable. It is particularly undesirable where the appellate jurisdiction of the Court is being exercised by a single judge and any right of appeal from that single judge is to the High Court.  …

92    Thirdly, the argument is devoid of merit. It proceeds from the erroneous starting point that $30 million was a “special price” that only News Corp would pay. That factual proposition was not established on the evidence.

93    Nothing in Spencer or the Assessment Act precluded the primary judge finding (as he did) that the market for the shares included other purchasers like News Corp identifying the same potentials inherent in the CGT asset. The task of the primary judge was to measure those potentials in financial terms. On the evidence, no occasion arose (whether as a question of law or fact) to consider a scenario in which the hypothetical seller would settle on a price of $24 million in a “friendly negotiation” with a single purchaser absent competition from purchasers of a like kind.

Conclusion

94    For the reasons given above, each of Mrs Kilgour’s grounds of appeal is rejected, and there should be an order dismissing her appeal.

95    Mrs Isterling’s arguments are rejected for the same reasons, and her appeal should also be dismissed.

96    The parties will be heard as to the appropriate form of costs orders in each proceeding.

Associate:

Dated:    12 December 2025

REASONS FOR JUDGMENT

O’SULLIVAN J:

97    I have had the advantage of reading the respective draft reasons of Charlesworth and Horan JJ and agree that this appeal should be dismissed.

98    The appellant sought leave to advance an argument not advanced before the primary judge, which is that at an open market auction a friendly negotiation between the hypothetical willing but not anxious buyer and hypothetical willing but not anxious seller would occur, whereby the parties would split the difference between the price that particular buyer would pay and the price other buyers would pay. The consequence of that argument, as advanced by the appellant, is that the market value of the entire holding should be assessed at $24 million such that the appellant’s 20% holding should be valued at $4.8 million, which is under the small business concessional limit of $6 million.

Principles

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

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

(square brackets provided)

100    However, if the facts have been established beyond controversy or the point involves a question of construction of law, “… then a court of appeal may find it expedient and in the interests of justice to entertain the point, but otherwise the rule is strictly applied”: Water Board v Moustakas (1988) 180 CLR 491 at 497; [1988] HCA 12, and the cases cited therein.

101    In Gomez v Minister for Immigration and Multicultural Affairs (2002) 190 ALR 543 at 549, the Full Court referred to Metwally before observing that the phrase ‘exceptional circumstances’ indicates a discretion to entertain a new ground of appeal if it is expedient and in the interests of justice to do so.

102    In the recent decision in Lam v Liu [2025] NSWCA 254, the New South Wales Court of Appeal considered the issue of a point being raised on appeal which was not raised in the court below. Free JA at [44]–[47], referred to the strict principles that militate against allowing new points to be run on appeal, referring first to Suttor v Gundowda Pty Ltd [1950] HCA 35; (1950) 81 CLR 418 at 438 (Latham CJ, Williams and Fullager JJ) where their Honours observed that in circumstances where a point is not taken below and evidence could have been given which could have prevented the point from succeeding, it cannot be taken afterwards. See also Coulton v Holcombe [1986] HCA 33; (1986) 162 CLR 1 at 7-8.

103    So too, the matters identified by Lander J in SZKMS v Minister for Immigration and Citizenship [2008] FCA 499 at [22]–[24], to which Charlesworth J refers, are relevant considerations as part of the overall approach to an application for leave to introduce a new argument.

Consideration

104    Whereas an explanation as to why an argument was not advanced at first instance must be provided in all cases, nonetheless, it is not necessary in all cases for that explanation to be advanced by way of evidence. Such a requirement has the potential to lead to disputes as to what occurred at first instance and potentially cross-examination on affidavits with the resultant interference with the orderly conduct of appeals.

105    That is not to say evidence is never required and each case will depend on its own facts. The nature of the point sought to be advanced will, to an extent, inform the question as to whether evidence why the point was not advanced is required, however ultimately that will be a matter for the court entertaining the appeal.

106    It is neither desirable nor possible to be prescriptive as to what constitutes exceptional circumstances, but there are a number of factors which are relevant to the question of whether leave should be granted:

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

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

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

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

107    The above factors are all relevant factors but are not exhaustive when considering whether to exercise the discretion in accordance with the standard set by the High Court in Metwally.

108    The argument which the appellant now seeks to advance was not advanced before the primary judge and there was no evidence upon which the argument could be founded.

109    Further if, and to the extent the appellant relies on the acquisition of the shares at $30 million reflects a “special value” to News Corp as a basis for the “friendly negotiation” point it now seeks to advance, any “special value” was not made out on the evidence: J [149].

110    In these circumstances, leave should not be granted.

111    Further, and in any event, I agree with Charlesworth J that the argument has no merit.

112    Accordingly, I would not grant leave to advance the argument.

Associate:

Dated:    12 December 2025

REASONS FOR JUDGMENT

HORAN J:

113    I have read in draft the reasons for judgment of Charlesworth J, and agree that the appeals should be dismissed for the reasons given by her Honour. I add the following observations in relation to the issues raised by the grounds of appeal.

114    It is no longer in dispute that the capital proceeds from the disposal by each of the appellants of their shares in Punters Paradise Pty Ltd comprised the money that each of them received or was entitled to receive in respect of that disposal, namely the amount of $6,211,544 representing their proportionate share of the total purchase price of $31,057,722 paid by News Corp Australia Investments Pty Ltd for all of the shares in Punters. Because the primary judge found that the appellants and News Corp dealt with each other at arm’s length in connection with the sale and purchase of the shares in Punters, the “market value substitution rule” did not apply in working out the capital proceeds of the CGT event: Kilgour v Commissioner of Taxation [2024] FCA 687 (J) at [15], [116], [118]; see generally Income Tax Assessment Act 1997 (Cth) (ITAA 1997) ss 116-10(2), 116-20(1), 116-30(2)(b).

115    The sole issue on the appeal is whether the appellants were entitled to small business relief under Div 152 in Pt 3-3 of the ITAA 1997 in respect of the capital gains from the sale of their shares in Punters. In order to meet the basic conditions for such relief, each of the appellants was required to satisfy the “maximum net asset value test” in s 152-15. In particular, the net value of each appellant’s CGT assets “just before the CGT event” must not have exceeded $6,000,000. Accordingly, it was necessary for each of the appellants to establish that the value of their shares in Punters at the relevant time was less than the capital proceeds that they each received on the disposal of those shares.

116    In the context of the “market value substitution rule”, s 116-30(2)(b) of the ITAA 1997 contemplates the theoretical possibility that the capital proceeds of an arm’s length dealing involving the disposal of a CGT asset can be more or less than the market value of that asset. Nevertheless, the underlying premise is that, where the parties have dealt with each other at arm’s length, the capital proceeds are likely to represent the market value and can be relied on as an element in the calculation of any capital gain or loss: J [33]. Notwithstanding that the appellants’ attempt to rely on the market value substitution rule “failed at the first hurdle” (J [119]), the primary judge proceeded to consider and make findings on the market value of the shares held by each of the appellants: at J [119]–[151]. Those findings were, and remain, unnecessary for the purposes of working out the capital proceeds for, and the capital gain on, the disposal of those shares. However, they have continued relevance for the application of the “maximum net asset value test” in s 152-15, for the purposes of determining whether the appellants were entitled to small business relief under Div 152 of the ITAA 1997.

117    Unlike the market value substitution rule under s 116-30, where the market value is worked out as at the time of the CGT event, the maximum net asset value test for the purposes of Div 152 is directed to the net value of the taxpayer’s CGT assets “just before” the CGT event. In the present case, the time of valuation was just before the disposal of the shares in Punters, which is defined as the time of entry into the Share Sale Agreement.

118    It was common ground between the parties that the value of assets for the purposes of Div 152 is to be ascertained in accordance with the principles expounded in Spencer v Commonwealth (1907) 5 CLR 418: see J [120]. The Spencer principles do not preclude reference to subsequent events or circumstances which can be regarded as probative of the value of an asset at the time of valuation. Thus, subsequent comparable sales can be taken into account, not “as matters which would be present in the minds of the hypothetical parties”, but “simply evidence of an event from which an inference can be drawn about the position at an earlier (but not very much earlier) time”, provided that allowance can be made for any material change in circumstances since that time: Brisbane City Council v Mio Art Pty Ltd [2012] 2 Qd R 1 at [79] (Fryberg J). See also Caradi Pty Ltd v Secretary, Department of Transport [2020] VSCA 197 at [177]–[178] (Tate, Emerton and Osborn JJA); Propell National Valuers (WA) Pty Ltd v Australian Executor Trustees Ltd (2012) 202 FCR 158 at [5] (Stone J); McCathie v Federal Commissioner of Taxation (1944) 69 CLR 1 at 16 (Williams J).

119    The use of subsequent sales in assessing market value can be distinguished from the effect of subsequent events that were not within the knowledge of the hypothetical vendor and purchaser at the time at which the market value is to be ascertained, or that were no more than future possibilities or unrealised potentialities as at that time. It is in this sense that “[a]ll circumstances subsequently arising are to be ignored”, and “[w]hether the land becomes more valuable or less valuable afterwards is immaterial”: Spencer at 440 (Isaacs J). Potentialities as at the time of valuation can be taken into account in ascertaining value, but not their subsequent realisation: see e.g. Turner v Minister of Public Instruction (1956) 95 CLR 245 at 268–269 (Dixon CJ), 293 (Kitto J, Fullagar J agreeing), 295 (Taylor J).

120    It can be accepted that s 152-15 of the ITAA 1997 is aimed at a “moment in time”, and is “intended to exclude the effects of the CGT event arising on or after the CGT event”: Federal Commissioner of Taxation v Byrne Hotels Qld Pty Ltd (2011) 196 FCR 524 at [56] (Bennett J). But this does not prevent the CGT event itself, as distinct from its effects, from being taken into account as evidence of the value of the CGT asset “just before” the CGT event, at least where (as in the present case) the CGT event is the disposal of the CGT asset. The Share Sale Agreement provides evidence, if not the “best evidence” (see Federal Commissioner of Taxation v Miley [2017] FCA 1396; 106 ATR 779 at [81]–[82] (Wigney J)), of the value of the shares in Punters “just before” their disposal.

121    Further, and in any event, the circumstances “just before” the Share Sale Agreement was signed include the history of negotiations conducted between the parties, the non-binding indicative offers made by News Corp, the appellants’ price expectations, News Corp’s internal valuations of Punters, and the possibility that there may have been a potential competitive bidder (as to the latter, see J [73], [86]). At the time of valuation, it was known that News Corp was willing to pay just over $31 million for all of the shares in Punters, and there was no real uncertainty that the Share Sale Agreement would be entered into: cf. Miley at [111].

122    In so far as the appellants submitted that the Share Sale Agreement resulted from private negotiations between the parties that were not within the knowledge of a hypothetical vendor and purchaser in the market, the Spencer principles do not limit the matters that may be taken into account to those within public knowledge. Rather, it is presumed that a willing, but not anxious, vendor and purchaser would be “perfectly acquainted” with the property and “cognizant of all circumstances which might affect its value” as at the time of valuation: Spencer at 441 (Isaacs J). In this regard, it is not suggested that News Corp possessed any information bearing on the value of Punters that would not have been available to any other potential purchaser. The decision in Lynall v Inland Revenue Commissioners [1972] AC 680, on which the appellants relied, is distinguishable — in that case, the question was whether confidential board documents could be taken into account in ascertaining the value “in the open market” of shares in a private company, for the purposes of estate duty payable on the death of the shareholder. Here, while the negotiations between the appellants and News Corp may have been private, they were not based on any confidential information that could not have been disclosed to any prospective purchaser of the shares in Punters.

123    On the facts that were found by the primary judge, there was no basis to exclude any “special value” paid by News Corp in respect of perceived “synergistic benefits” arising from its ownership and control of the Punters business: J [149]. The primary judge did not accept that the “beneficial potentiality” arising from any such synergies was specific to News Corp, and proceeded on the basis that News Corp was representative of a “particular type of purchaser in a hypothetical market”: J [150]. Further, in relation to cost synergies, News Corp’s internal valuations of Punters were independent of any “cost savings and related improvement of the value position”: J [80].

124    In such circumstances, the critical issue on the appeal becomes whether the primary judge erred in determining the value of the shares held by each of the appellants as a proportion of the price paid by News Corp for the purchase of all of the shares in Punters, instead of ascertaining the market value of a 20% interest in Punters considered in isolation from the sale of any other shares in Punters.

125    In the appellants’ submission, the relevant question is what amount would have been paid by a hypothetical willing but not anxious purchaser for each appellant’s shares alone, representing a 20% minority interest in Punters. The appellants argued that News Corp was not interested in purchasing a minority interest in Punters, and that the value of a 20% shareholding was less than 20% of the price that News Corp was prepared to pay for all of the shares combined.

126    An argument to similar effect was rejected in Miley. In that case, Wigney J concluded that the value of the shares sold by the taxpayer “as part of a package” involving the purchase of all of the shares in the company did not incorporate a discount in respect of a “lack of control” of the company, in circumstances where all of the shareholders were willing to sell their shares to a single purchaser who was willing to purchase all of the shares at a given price: Miley at [75], [92], [112], [114]–[116]. His Honour held that those circumstances reflected the “reality of the market”, by which the taxpayer and the other shareholders had acted together in a “commercially sensible way” to sell their shares at the same time to a single purchaser: Miley at [99], [102], [104]. In my view, the approach adopted in Miley is both correct and directly applicable to the circumstances of the present case, in which the shareholders acted together to obtain the highest price for their shares by selling them at arm’s length to a single purchaser who was willing to acquire all of the shares. There was no error by the primary judge in following that approach: J [152].

127    Finally, I agree that the appellants should be refused leave to raise the new argument that the “special value” to News Corp of Punters’ business would have been shared equally between the appellants on the one hand and News Corp on the other hand, as the outcome of “friendly negotiations” between the parties. In addition to the matters referred to by Charlesworth J, there does not appear to be any factual or evidentiary foundation for such an argument in the present case. The primary judge did not expressly accept Mr Churchill’s opinion that the “enterprise market value” of Punters was $18.2 million and did not make a finding that the purchase price paid by News Corp included a “special” or “strategic” value in the order of $12.5 million: cf. J [106]–[107]. Further, there was no expert evidence before the primary judge to support an approach by which a hypothetical vendor and purchaser would have negotiated to divide any such special or “marriage value” equally between the parties.

128    It follows that each of the appeals should be dismissed.

Associate:

Dated:    12 December 2025