Federal Court of Australia

Shell Energy Holdings Australia Limited v Commissioner of Taxation [2026] FCA 577

ORDERS

THE COURT ORDERS THAT:

1.    The objection decision dated 23 February 2024 be set aside.

2.    The applicant file and serve any affidavits and written submissions on costs by 29 May 2026.

3.    The respondent file and serve any affidavits and written submissions on costs by 19 June 2026.

4.    The applicant file and serve any affidavits and written submissions in reply by 3 July 2026.

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

REASONS FOR JUDGMENT

JACKMAN J:

Introduction

1    The applicant, Shell Energy Holdings Australia Limited (SEHAL), is a member of the group of companies (Shell) headed at the relevant time by Royal Dutch Shell plc, a company registered in England and Wales and headquartered in the Netherlands. SEHAL seeks to set aside a decision by the respondent (the Commissioner) made on 23 February 2024 concerning the calculation of SEHAL’s cost base in certain shares in Woodside Petroleum Limited (WPL), a public company listed on the Australian Securities Exchange (ASX), for the purposes of the Income Tax Assessment Act 1997 (Cth) (1997 Act). SEHAL disposed of the shares in the years ended 31 December 2014 and 2017 (being the 2015 and 2018 income years).

2    In broad terms, the capital gains made by SEHAL on the disposals are calculated relevantly by taking the sale price received for the shares and then deducting the shares’ cost base. The shares’ cost base is set by former s 160ZZSC(1) of the Income Tax Assessment Act 1936 (Cth) (1936 Act). It provides for each of the relevant shares to be taken “(a) to have been acquired by the entity at [20 January 1997]; and (b) to have been so acquired for a consideration equal to the market value of the asset at that time”. The consideration then forms part of the cost base. As at 20 January 1997, there were 228,456,275 such shares, comprising about 34.27% of the shares in WPL (the WPL Shareholding).

Salient Facts

3    WPL was incorporated in Victoria on 17 August 1971. In the 1970s and 1980s, entities forming part of the Shell and BHP groups of companies (the latter being headed by BHP Group Ltd) acquired substantial shareholdings in WPL, some held indirectly through an entity called North West Shelf Development Pty Ltd (NWSD) that was jointly owned by Shell and BHP.

4    During 1990 and 1994, the BHP group disposed of its interests in WPL. On 28 June 1990, BHP sold a 30% shareholding in WPL by way of sales to multiple institutional investors, at a discount to the opening listed share price on that day of 1.87%. On 31 October 1994, BHP sold a 10% shareholding in WPL, by way of sales to multiple institutional investors at a discount to the opening listed share price on that day of 3.64%. That interest had been held directly (as to 4.24%) and indirectly (as to 5.76% through NWSD). Also on 31 October 1994, by reason of the sale of WPL shares by NWSD, Shell disposed of its indirect interest in 5.76% of WPL shares. Taken together, the disposals of shares on 31 October 1994 by BHP and Shell constituted the disposal of 15.76% of the total shares in WPL, at a discount to the listed share price of 3.64%.

5    In connection with the disposal on 31 October 1994, Shell’s management contemplated several options, including purchasing BHP’s interest or disposing of Shell’s indirect interest in WPL, which was held by NWSD. As indicated above, the latter option was pursued, with Shell’s management noting that this should leave “sufficient shares to dominate AGM and ‘steer’ Woodside in the right direction through board representation and other ties with Shell”, and that the remaining 34.27% interest in WPL would be “sufficient to exert adequate influence within WPL (the operator of the North West Shelf Project)” (CB2/1293 and 1297). The North West Shelf Project is a large gas project on Australia’s North West Shelf, involving “one of the world's largest natural gas fields” and “probably one of the largest single commercial investments in the world geared to a single project” (CB2/1286–7).

6    Following the second BHP disposal, by 1 November 1994, Shell Australia Ltd (SAL) was by far the largest shareholder in WPL, holding 228,456,275 WPL shares (or 34.27% of the total shares in WPL).

7    On 20 January 1997 (being the date as at which the WPL shares must be valued for the purposes of calculating the cost base), WPL had 666,666,667 ordinary shares on issue. SAL continued to hold 228,456,275 (or about 34.27%) of the shares, which was sufficient to block decisions that required a special majority (of 75% or more). SAL’s shareholding was more than the next seven largest shareholders combined. No other shareholder that was not a custodian or nominee held over 3%.

8    Throughout the course of 20 January 1997, 733,574 (or just over 0.1%) of the shares in WPL were actually traded, for a volume weighted average price (VWAP) of $9.41. The closing price was $9.42.

9    During most of 1997, WPL had ten directors, of whom four were officers or employees of Shell. Over its shareholding period, Shell had representation on WPL’s Board that was generally in proportion to its shareholding, with WPL taking steps to formalise that proportionate representation as a policy.

10    Throughout 1996 and 1997, Shell monitored its interest in WPL, including through “Project MacArthur”, which considered how Shell’s interest in WPL might be increased by merging Shell oil and gas assets with WPL oil and gas assets. The reasons for the proposal included “enhanc[ing] Shell’s position in an increasingly valuable strategic asset”, and one that participated in mutual projects with Shell (CB2/1313, 1315, 1323–4). Ultimately, the proposed merger did not proceed, in part because “the amount of control exercised by a holding of between 25% and 90% does not vary greatly across this range” (CB2/1325).

11    Despite the merger not proceeding, Shell and WPL maintained strong ties in this period. For example, the Chief Executive Officer of WPL had formerly been an employee of Shell (with Shell regularly seconding staff to WPL), WPL was the “[o]perator for the majority of Shell’s exploration and production interests in Australia” (CB2/895), and Shell was involved in multiple projects with WPL. These included the North West Shelf Project (which then involved the extraction and processing of gas from fields off the coast of Western Australia) and the Greater Sunrise and Browse projects (which then involved developing oil and gas fields located in the Timor Sea and the construction of a liquified natural gas plant in Western Australia to process natural gas extracted from the Browse Basin north of Broome).

12    In 1998 and 1999, representatives of Shell negotiated an “Alliance Agreement” with WPL. In early 1999, around 50 Shell employees relocated from Melbourne to Perth to be closer to WPL and implement the Alliance Agreement.

13    Shortly thereafter, a desire on the part of Shell to achieve greater alignment of its and WPL’s respective interests in two undeveloped gas resources off the coast of Western Australia, as well as increased cooperation internationally, led to Shell submitting a merger proposal to the WPL Board on 17 May 2000 (Merger Proposal). Had the Merger Proposal been accepted, Shell’s “upstream” oil and gas assets (being those involved in the exploration and production of crude oil and natural gas, as distinct from the conversion of oil and gas into finished products), and certain international assets, would have been sold to WPL in exchange for WPL issuing shares to Shell in an amount that would have increased Shell’s total shareholding from about 34% to 60%. However, the independent WPL directors (who had not been nominated by Shell) did not recommend the Merger Proposal to WPL’s shareholders.

14    On 24 November 2000, Shell made a takeover bid for the shares in WPL for $14.80 in cash and one call option per share (Takeover Bid), together with a revised merger proposal under which the assets that Shell proposed to transfer to WPL were more than double the value of the previous proposal (Revised Merger Proposal). Shell’s Bidder’s Statement stated that this “effectively equates to Shell paying a price of $18.80–$21.92 per share, well above the price at which your Woodside shares have ever traded” (CB2/1390). If the Takeover Bid and Revised Merger Proposal had been accepted, they would have increased Shell’s interest in WPL to around 56% (assuming that all the call options were subsequently exercised).

15    However, the independent WPL directors (who had not been nominated by Shell) concluded that the Takeover Bid was “inadequate” and did “not contain an adequate premium for the transfer of control of the company to Shell” (CB3/1843). The independent WPL directors subsequently released a Target’s Statement that recommended that shareholders reject the Takeover Bid on the basis that the offer price was inadequate, and the change of control premium was insufficient (CB3/1846). The Target’s Statement included, and the WPL directors’ advice was based on, a report from Deloitte Corporate Finance Pty Ltd (Deloitte) which concluded that the offer price was neither fair nor reasonable, and an appropriate control premium would be 30% to 40% over the traded share price (CB3/1846, 1967–8).

16    On 23 April 2001, while the Takeover Bid was still pending, it was blocked by orders which the then Treasurer of the Commonwealth made under s 18 of the Foreign Acquisitions and Takeovers Act 1975 (Cth) (FATA) (CB3/2169).

17    On 1 January 2003, a multiple entry consolidated (MEC) group (within the meaning of s 719-5 of the 1997 Act) was formed with SEHAL as the provisional head company, and SAL became a subsidiary member of that MEC group. Consequently, for income tax purposes, and by operation of the entry history rule in s 701-5 of the 1997 Act, everything that happened to SAL in relation to its ownership of the WPL shares is taken to have happened to SEHAL as head company of the MEC group, preserving the shares’ time of acquisition. After formation of the MEC group, the shares held by SAL in WPL were transferred to SEHAL. The transfer had no income tax consequences, instead being disregarded by operation of the single entity rule in s 701-1(1) of the 1997 Act.

18    In late 2005, Shell undertook “Project Tano”, which was a review of how Shell managed its interest in WPL and how Shell could better influence WPL as a holder of 34.27% of the WPL shares. A paper concerning Project Tano dated 16 December 2005 observed that Shell had been able to influence the outcome of previous major WPL mergers and acquisitions (M&A) activity, and exercise “stewardship” through meetings between senior Shell executives and WPL’s Chairman and Chief Executive Officer, and that Shell-nominated directors on the WPL Board were “expected by both Shell and Woodside to put forward the Shell view in Board discussions” and “represent Shell’s interests in Board discussions” (CB3/2179–80). The term “stewardship” was used to refer to “the process of managing Shell’s interests in Woodside” (CB3/2179). The paper acknowledged increasing misalignment and tension between WPL and Shell because of (among other things) WPL competing internationally in the same markets as Shell, and predicted that the relationship would eventually become unstable (CB3/2176). The paper also noted concern that Shell’s influence on WPL’s decision-making was becoming increasingly limited (CB3/2176), and referred to an impression that the “Shell Relationship Committee” (a sub-set of the WPL Board created to deal with WPL’s ongoing relationship with Shell, from which the Shell-nominated directors were excluded) had almost become a “shadow Board” (CB3/2181).

19    In connection with Project Tano, steps to achieve a better “stewardship” of Shell’s shareholding in WPL were developed and implemented, including arranging for (CB3/2197–8):

(a)    the WPL Chairman and Chief Executive Officer to visit Shell’s head office one or two times per year for “Investor Relations one-on-one meetings” in which WPL could share its strategy and plans and Shell could share its views on relevant matters of mutual interest;

(b)    the Australia-based Shell-nominated director of WPL to advise WPL’s Chairman and/or Chief Executive Officer to seek Shell’s view in respect of matters where Shell had indicated that it wished to convey its view (for example, in relation to entering a new country where Shell had experience);

(c)    Shell to appoint a senior executive to serve as the focal point for all management communications between Shell and WPL; and

(d)    a report on WPL activities to be prepared and disseminated four to six times per year, to ensure that senior Shell executives stay abreast of WPL developments.

20    At the time, it was observed that, as part of its strategy regarding its investment in WPL, “Shell should use all its means to influence Woodside … to maintain maximum alignment with credible Shell objectives for Shell’s investment in Woodside” (CB3/2179).

21    Between 2007 and 2010, SEHAL acquired a further 40,003,252 WPL shares through dividend reinvestment plans. By November 2010, SEHAL held 268,459,527 shares in WPL.

22    By 2010, several developments had occurred that made it desirable for Shell to dispose of its WPL shares, in particular:

(a)    whereas WPL had previously been viewed as a core asset, developments in respect of other assets in Shell’s portfolio had reduced the need to maintain such significant exposure to the North West Shelf project through WPL;

(b)    the Government had continued to indicate that it would not approve Shell significantly increasing its shareholding or gaining full control over WPL; and

(c)    Shell’s current and future investment requirements (in relation to its businesses and investments other than WPL) were significant, and it was anticipated that they would be best met through the sale of a significant investment. At that point in time, the capital invested by Shell in WPL was projected to yield only minimal cashflow over the short-to-medium term.

This led Shell to consider options for the disposal of its WPL shareholding, including through a single or multiple tranche sell-down.

23    On 8 November 2010, SEHAL resolved to, and did, dispose of 78,340,163 shares in WPL (First Disposal), equating to 10% of the issued share capital in WPL as at that date. The shares were sold off-market and to multiple institutional investors. Under the “Block Trade Agreement” by which the disposal was effected, Shell agreed to a one-year lock-up period during which it could not dispose of further WPL shares except in limited circumstances. However, at the time, Shell foreshadowed that it would consider the most appropriate course of action in respect of the remaining shareholding once the lock-up period had expired. The sale price per share was $42.23, being a discount of 7.4% to the opening listed share price on the ASX that day.

24    The First Disposal, which reduced SEHAL’s shareholding in WPL from 34.27% to 24.27%, resulted in a proportionate reduction in the number of Shell-nominated directors, from three to two.

25    In 2014, the management of Shell concluded that the further dilution of Shell’s shareholding in WPL was a logical step following the First Disposal, in circumstances where the shares were no longer held for strategic reasons. That conclusion was reinforced by (CB3/2302):

(a)    Shell’s requirement for significant group-wide divestment proceeds to fund current and expected investments. Further, it was anticipated that WPL’s dividend yield might need to be reset when major Shell projects would need funding, and that WPL might even reinstate a dividend reinvestment plan or consider an equity raising; and

(b)    the need to influence decisions in respect of the Browse project through Shell’s shareholding in WPL having decreased following Shell’s acquisition of Chevron’s interest in Browse, and WPL’s announcement of a change in Browse’s development concept.

26    Consequently, on 17 June 2014, Shell disposed of 78,271,512 WPL shares (Second Disposal), representing 9.5% of the issued capital in WPL as at that date. The shares were sold off-market and to multiple institutional investors. The disposal was implemented through a “Block Trade Agreement” with Citigroup and Goldman Sachs. The disposal formed part of Shell’s global divestment plan to improve capital efficiency by focusing on directly owned assets. The sale price per share was $41.35, which represented a discount to the opening listed share price on ASX of 2.2%.

27    On the same day, Shell also announced that it had agreed with WPL’s directors for WPL to buy back a further 9.5% of WPL’s shares from Shell. However, the buy-back was subject to approval from WPL’s shareholders, who voted to reject it on or about 1 August 2014.

28    In 2016, Shell’s management concluded that the disposal of Shell’s residual interest in WPL was a logical step following the First Disposal and Second Disposal, in circumstances where the shareholding was no longer held for strategic reasons. Other factors that supported the decision including that (CB3/2600):

(a)    the disposal was in line with Shell’s stated public target of achieving US$30 billion of divestment proceeds from 2016 to 2018;

(b)    the disposal would likely be looked upon favourably by credit rating agencies because Shell could use the proceeds to deleverage without sacrificing material cashflow from dividends; and

(c)    WPL was pursuing mid-scale (that is, less than US$1 billion) M&A over which Shell would have no control.

29    Consequently, on 13 November 2017, SEHAL disposed of its remaining 111,847,852 WPL shares through an underwritten sale with Morgan Stanley and UBS (Third Disposal), comprising 13.28% of WPL shares on issue as at that date. The shares were sold off-market and to multiple institutional investors. The sale price per share was $31.10, being a discount to the ASX opening listed share price that day of 3.0%.

Statutory provisions

30    Parts 3-1 and 3-3 of the 1997 Act are concerned with capital gains and losses. They replaced provisions previously contained in former Pt IIIA of the 1936 Act. Former Pt IIIA was enacted by the Income Tax Assessment Amendment (Capital Gains) Act 1986 (Cth) to effect the introduction, with effect from 20 September 1985, of a tax on capital gains which basically applied to assets acquired on or after 20 September 1985 (in contradistinction to “pre-CGT” assets acquired before then). As discussed below, Pts 3-1 and 3-3 have a similar scope of operation.

31    Section 102-5(1) of the 1997 Act provides that a taxpayer’s net capital gain for the income year is included in the taxpayer’s assessable income for that income year. The net capital gain is calculated taking into account, among other things, the “capital gains” and “capital losses” made by the taxpayer during the year.

32    Section 995-1(1) of the 1997 Act provides that a capital gain or capital loss is worked out in the way described in a “CGT event”. It further provides that a “CGT event” is any of the CGT events described in Div 104 of the 1997 Act.

33    Within Div 104, s 104-10(1) of the 1997 Act provides that CGT event A1 happens if the taxpayer disposes of a CGT asset. Under s 104-10(4), the taxpayer makes a capital gain if the capital proceeds from the disposal are more than the CGT asset’s cost base, and the taxpayer makes a capital loss if those capital proceeds are less than the asset’s reduced cost base. Under s 104-10(5), a capital gain made from CGT event A1 happening is disregarded if the CGT asset concerned was acquired before 20 September 1985. As noted above, the provisions of former Pt IIIA of the 1936 Act were similarly concerned with the disposal of assets acquired after 19 September 1985.

34    Section 108-5 of the 1997 Act defines “CGT asset” to mean “any kind of property”. The note to the section states that examples of CGT assets include “shares in a company”.

35    Pursuant to s 110-25 of the 1997 Act, the cost base of a CGT asset consists of five elements. In accordance with s 110-25(2), the first element is the total of, relevantly, the money the taxpayer paid in respect of acquiring the CGT asset.

36    Pursuant to s 110-36 of the 1997 Act, the cost base of a CGT asset acquired at or before 11.45am (Australian Capital Territory time) on 21 September 1999 also includes indexation of, relevantly, the first element of the cost base.

37    As can be seen from the above, the trigger that relevantly enlivens the application of Pt 3-1 is a CGT event. CGT event A1 only occurs when the ownership of a “CGT asset” changes from the taxpayer to another entity. It is then that consideration must be given to various matters to determine any capital gain or loss, including the cost base of the CGT asset that has been disposed of. In the present case, the application of the CGT provisions was triggered when SEHAL disposed of the WPL Shareholding in 2014 and 2017.

38    As noted above, Pts 3-1 and 3-3 of the 1997 Act replaced provisions previously contained in former Pt IIIA of the 1936 Act. Section 149-5 of the Income Tax (Transitional Provisions) Act 1997 (Cth) (Transitional Provisions Act) is one of several measures concerned with the transition from the old law (in former Pt IIIA of the 1936 Act) to the rewritten law (in Pts 3-1 and 3-3 of the 1997 Act).

39    The broad effect of s 149-5 is to ensure that pre-CGT assets that were actually acquired before 20 September 1985, but were deemed by the 1936 Act to have been acquired after 19 September 1985, are treated in the same way under the rewritten law in the 1997 Act. Section 149-5 applies if an entity last acquired a CGT asset before 20 September 1985, continues to own that asset just before the start of the 1999 income year, and was taken to have acquired the asset on a day (the “acquisition day”) on or after 20 September 1985 under Div 20 of former Pt IIIA of the 1936 Act (which formed part of the old CGT law). In those circumstances, in applying the rewritten law (in Pts 3-1 and 3-3 of the 1997 Act) to the entity, the entity is taken to have acquired the asset on the acquisition day, and the first element of the cost base on the acquisition day is the amount for which the entity is taken to have acquired the asset under Div 20.

40    Division 20 of former Pt IIIA of the 1936 Act included former ss 160ZZSA and 160ZZSC. Former s 160ZZSA required a public entity, in certain circumstances, to determine at certain times commencing at the last moment of 20 January 1997 whether there had been continuity in “majority underlying interests” in assets held since 19 September 1985.

41    Definitional provisions relevant to the operation of former s 160ZZSA were contained in former ss 160A, 160ZZRR, 160ZZRS, and 160ZZRT of the 1936 Act. Former s 160ZZRR(1) defined “majority underlying interests” in relation to an asset to mean more than half of the beneficial interest that natural persons hold (whether directly or indirectly) in the asset, and in income derived from the asset. By former ss 160ZZRS and 160ZZRT, a natural person was taken to hold an “indirect beneficial interest” in an asset of an entity or in income derived from that asset if that natural person would have the right to receive any capital or income distribution from the entity (including via any interposed entity or entities). Former s 160A defined “asset” to mean “any form of property” and to include “any other right … whether legal or equitable and whether or not a form of property”.

42    The consequences of a determination under s 160ZZSA that there had not been continuity since 19 September 1985 were provided by former s 160ZZSC(1) which provided as follows:

If a determination by a public entity under subsection 160ZZSA(2) in relation to the first test time shows that majority underlying interests in an asset of the entity at that test time were not held by natural persons who held majority underlying interests in the asset at the base time, the asset is taken for the purposes of this Part:

(a)     to have been acquired by the entity at the time applicable under this section; and

(b)     to have been so acquired for a consideration equal to the market value of the asset at that time.

SEHAL’s treatment of the disposal of the WPL Shareholding in its tax returns

43    On 9 August 1999, SAL made a determination pursuant to s 160ZZSA of the 1936 Act. There is no dispute that this determination was correctly made.

44    On 20 January 1997:

(a)    the VWAP on the ASX for WPL shares was $9.41;

(b)    the closing listed price was $9.42;

(c)    WPL had 666,666,667 shares on issue; and

(d)    SAL held 228,456,275 shares in WPL, comprising about 34.27% of the total issued shares as at that date.

45    SEHAL lodged its tax returns for the 2011, 2015 and 2018 income years on 15 July 2011, 31 July 2015 and 31 December 2017 respectively. In each of those tax returns, SEHAL returned assessable capital gains on disposal of shares in WPL calculated on the basis of a cost base of $11.38 per share, representing a premium of 18% to the closing listed price on 20 January 1997 plus indexation.

46    On 10 May 2018, the Commissioner commenced a review of SEHAL in relation to its disposal of shares in WPL in the 2015 and 2018 income years. In September 2019, the Commissioner commenced an audit of SEHAL in relation to its disposal of shares in WPL in the 2015 and 2018 income years.

47    On 9 June 2021, the Commissioner issued amended assessments to SEHAL for the years ending:

(a)    31 December 2015 (2015 Income Year);

(b)    31 December 2017 (2018 Income Year); and

(c)    31 December 2018 (2019 Income Year).

48    These amended assessments reflected the Commissioner’s determination that SEHAL’s net capital gain for the 2015 Income Year and 2018 Income Year was greater than asserted by SEHAL. This was because the Commissioner did not accept that, in working out the cost base for the shares in WPL, a premium should be applied to the listed price.

49    The effect of the increase to SEHAL’s net capital gain was a reduction in carried forward tax losses and the earlier utilisation of non-refundable research and development tax offsets, leading to an increase in tax payable in the 2019 Income Year. The effect of the amended assessments is that an additional $98,895,530.70 in income tax is claimed by the Commissioner to be payable by SEHAL, being the combined total for the years 2015 and 2018.

50    On 9 August 2021, SEHAL objected to the amended assessments pursuant to Part IVC of the Taxation Administration Act 1953 (Cth) (TAA). On 23 February 2024, the Commissioner disallowed SEHAL’s objection, that being the decision which SEHAL seeks to set aside. On 23 April 2024, SEHAL commenced this appeal to the Court.

Legal Issues Concerning the Application of former s 160ZZSC(1) to the WPL Shareholding

51    As noted above, the parties agree that, on 9 August 1999, SAL properly made a determination under former s 160ZZSA(2) that as at 20 January 1997 there had not been continuity of majority underlying interests in the assets it held on 19 September 1985.

52    The parties also agree that:

(a)    as a result of that determination by SAL, by operation of former s 160ZZSC(1) (which applies by reason of s 149-5(2)(a) of the Transitional Provisions Act), each asset which SAL held as at 19 September 1985, and still held as at 20 January 1997, was taken “(a) to have been acquired by [SAL] at [20 January 1997]; and (b) to have been so acquired for a consideration equal to the market value of the asset at that time”;

(b)    those assets included the 228,456,275 shares that SAL held in WPL as at 20 January 1997, which collectively comprised the WPL Shareholding; and

(c)    when applying s 160ZZSC(1) to those shares, it is each of the WPL shares which together comprised the WPL Shareholding that is a relevant “asset” (as opposed, for example, to any given parcel of shares being an asset). That is, neither party contends that the relevant “asset” is a parcel of shares.

53    The legal question that divides the parties is whether SEHAL is entitled to claim as part of the cost base under former s 160ZZSC(1) a premium over the VWAP of WPS shares on 20 January 1997 reflecting the significant influence which the WPL Shareholding conferred (given that it comprised 34.27% of WPL shares). That in turn depends on whether the market value is to be assessed on the basis of:

(a)    a single WPL share being traded on the ASX, as the Commissioner contends; or

(b)    each WPL share being valued in the context of the deemed acquisition by a single entity, SAL, of 228,456,275 WPL shares on the same day, as SEHAL contends.

54    The starting-point in assessing value is the particular statutory scheme which provides the legal context in which the valuation is to be undertaken, and that context determines the relevant principles of valuation to be applied: Commissioner of State Revenue (WA) v Placer Dome Inc [2018] HCA 59; (2018) 265 CLR 585 (Placer Dome) at [13] (Kiefel CJ, Bell, Nettle and Gordon JJ).

55    Subject to the paramountcy of the particular statutory scheme, given that “market value” in former s 160ZZSC(1) is not defined, the following general propositions are also relevant:

(a)    value is the price which a hypothetical willing but not anxious buyer could reasonably expect to pay to acquire a given asset when dealing with a hypothetical willing but not anxious seller after proper negotiations between them have concluded and without overlooking any ordinary business consideration: Spencer v Commonwealth [1907] HCA 82; (1907) 5 CLR 418 (Spencer’s Case) at 440–1 (Isaacs J); Placer Dome at [17] (Kiefel CJ, Bell, Nettle and Gordon JJ) and [158] (Gageler J);

(b)    the seller and the buyer are to be taken to be cognisant of all circumstances which might affect its value either advantageously or prejudicially: Spencer’s Case at 441; Placer Dome at [18], [159];

(c)    the valuation of an asset should be approached by supposing that the asset will be exploited in the most advantageous or commercially sensible way: Spencer’s Case at 441; Commissioner of Taxation v Miley [2017] FCA 1396 (Miley) at [104] (Wigney J). Similarly, in relation to land, regard must be had to the highest and best use of the land, being the most valuable use of the land, objectively ascertained by reference to the hypothetical buyer, which is physically possible, legally permissible and financially feasible: Valuer-General Victoria v WSTI Properties 490 SKR Pty Ltd [2025] HCA 23; (2025) 423 ALR 186 (WSTI) at [37] (Gageler CJ, Gordon, Steward, Gleeson and Jagot JJ); and

(d)    even though the buyer and the seller are hypothetical, the subject matter of the hypothetical transaction is the actual subject matter to be valued and the context of the hypothesised transaction is the actual market for that subject matter (Placer Dome at [160] per Gageler J), and it is necessary to have regard to the realities of the market (Miley at [94] per Wigney J).

56    The Commissioner relies on the statement by Wigney J in Miley at [79] that where the relevant asset is one of a kind that is regularly bought and sold in a market or exchange (such as listed shares), the market value is generally the current price or the amount actually obtainable in market sales (such as the current price quoted for the shares on that exchange on the relevant day), citing Spencer’s Case at 431 (Griffiths CJ) and HTW Valuers (Central Qld) Pty Ltd v Astonland Pty Ltd [2004] HCA 54; (2004) 217 CLR 640 at [37] (Gleeson CJ, McHugh, Gummow, Kirby and Heydon JJ). So much may be accepted. However, while that is “generally” the case, it is not invariably the case, as the expert evidence in this case (discussed below) reveals.

57    Turning to the application of the statutory scheme under former s 160ZZSC(1) to the circumstances of the present case, the valuation exercise involves the application of that provision to each and every one of SAL’s assets as at 20 January 1997 that were acquired before 20 September 1985 for the purpose of working out the consideration (being equal to market value) for each such asset as at 20 January 1997. While it is agreed between the parties that the asset in question is each WPL share held by SAL at the time, the section must be applied 228,456,275 times on the same day. Contrary to the Commissioner’s submission, there is no inconsistency between finding that the asset in question is each WPL share held by SAL at the relevant time, and saying that the section must be applied in the context of the deemed acquisition by a single entity (SAL) of 228,456,276 such shares.

58    Further, contrary to the Commissioner’s submissions, I do not regard paras (a) and (b) of former s 160ZZSC(1) as intended to be read as “separate” or “independently” (see the Commissioner’s opening written submissions at [85]–[87]). The Commissioner submits that para (a) refers to the time of the deemed acquisition, whereas para (b) refers separately and independently to the consideration for the deemed acquisition. However, the two paragraphs are joined together by the conjunction “and”, indicating their interdependent operation, and the use of the words “so acquired” in para (b) expressly refer back to, and incorporate, para (a). Accordingly, the consideration referred to in para (b) is inextricably tied to the deemed acquisition by a single acquirer on a single day as referred to in para (a).

59    In support of the submission that paras (a) and (b) of former s 160ZZSC(1) should be construed as separate and independent, I was taken through a lengthy and detailed exposition of the legislative history of that provision and related provisions. One focus of the analysis was on the historical antecedent to former s 160ZZSC in the very differently worded s 160ZZS(1) in its original form, which was then amended by the Taxation Laws Amendment Act (No 2) 1992 by adding sub-s (1A) which was broadly similar to former s 160ZZSC(1). The new s 160ZZS(1A) contained a para (a) and a para (b), which were plainly interdependent concerning the deemed timing and consideration together with identifying the single deemed acquirer. Another focus of the analysis was on a comparison with former s 160ZZSD (dealing with test times after 20 January 1997), which was then “re-written” in different terms in ss 149–65, 149–70 and 149–75 of the 1997 Act. In light of the significantly different language of those provisions in the 1997 Act compared to s 160ZZSC(1), I do not find that material helpful. In addition, the Explanatory Memorandum to the Tax Law Improvement Bill (No 1) 1998 (Cth), which effected the “re-write”, is marred by erroneously referring to former s 160ZZSC as being “redundant”. In fact, it remained applicable to the period preceding the 1998–99 income year as the present proceedings demonstrate. Further, the Explanatory Memorandum begins with the salutary statement that the Bill is “designed to help people to more readily read, use and apply the new law”. I regard that objective as achieved in the present context of construing former s 160ZZSC(1) by reading the plain language of the section, without trying to force that language into a different meaning by reference to the different language of other provisions and their legislative history.

60    Accordingly, it is open to SEHAL to contend that the shares comprising the WPL Shareholding were more valuable on a per-share basis than a single share, because they collectively conferred an influence that a single share did not.

61    Further, former s 160ZZSC(1) is a deeming provision to the effect that each of the relevant assets is taken to have been acquired by the entity (ie SAL) on 20 January 1997 for a consideration equal to the market value of the asset at that time. That deeming provision creates a statutory fiction that all WPL shares comprising the WPL Shareholding were acquired by SAL on 20 January 1997.

62    Deeming provisions do not always create a statutory fiction, as Windeyer J demonstrated in Hunter Douglas Australia Pty Ltd v Perma Blinds [1970] HCA 63; (1970) 122 CLR 49 at 65–67. However, where a deeming provision has that effect, and the circumstances specified in the deeming provision are satisfied, the provision requires that one proceed on the deemed basis when applying the law, notwithstanding the true facts: Commissioner for Railways v Bain [1965] HCA 5; (1965) 112 CLR 246 at 273 (Windeyer J); Maroney v The Queen [2003] HCA 63; (2003) 216 CLR 31 at [11] (Gleeson, McHugh, Callinan and Heydon JJ); Perry Herzfeld and Thomas Prince, Interpretation (3rd ed, 2024) at [3.130]. In such cases, the hypothesis must be made to work: Chevron Australia Holdings Pty Ltd v Federal Commissioner of Taxation [2017] FCAFC 62; (2017) 251 FCR 40 at [48] (Allsop CJ), that being a case concerning a deemed statutory fiction, albeit one dealing with different taxation provisions from the present, namely those concerning transfer pricing.

63    Section 160ZZSC(1) is a deeming provision that creates a statutory fiction, because it requires that an entity be treated as having acquired an asset on a particular day when it did not actually acquire the asset in question at that time. Further, the entity may or may not have paid market value for the asset when the asset was acquired, but that is irrelevant to the operation of the provision. As discussed below, the effect of the deeming provision has two important consequences for the application of the provision to the circumstances of the present case.

64    First, the statutory hypothesis is that a single purchaser acquired each relevant asset on the same relevant day. Accordingly, the purchase of each of the shares in question in the present case is not to be approached on the basis that it occurred in isolation. Nor does the hypothetical purchase proceed on the basis of smaller parcels having been acquired, corresponding to only a part of the WPL Shareholding. Nor is the deemed purchase made by any other entity or entities than SAL, such as multiple institutional investors of smaller parcels.

65    Second, it is neither necessary nor relevant to ask whether such shares could as a matter of fact and law have been acquired by SAL (or anyone else) on 20 January 1997. Former s 160ZZSC(1) requires that the acquisition of the asset be deemed to be acquired by a single entity on a single day, irrespective of how realistic or fanciful such a hypothesis may be.

66    Those two propositions undermine a series of submissions made by the Commissioner in which the Commissioner advanced a number of legal, regulatory and financial impediments to an actual acquisition by SAL of 34.27% of WPL shares on 20 January 1997. While the Commissioner accepts that a single share could be valued as part of a larger parcel, the Commissioner submits that that approach could be taken only if such a larger transaction were possible. The Commissioner submits that any attempted acquisition of a parcel of shares in WPL comprising 34.27% ownership would have had to overcome:

(a)    the legal requirement for an acquisition of more than 20% of the shares on issue to be made by way of a takeover offer; further, the Commissioner submits that there is no evidence of an entity with adequate resources which would have been likely to have been prepared to make a takeover offer for WPL, in view of its market capitalisation at the time being over $6 billion;

(b)    the power of the Treasurer under the FATA to have blocked a proposed acquisition of shares in WPL by a foreign person that would result in the foreign person acquiring 15% or more of voting power in the corporation, which is what the Treasurer in fact did in 2000;

(c)    s 50 of the Trade Practices Act 1974 (Cth), which restricted the acquisition of shares in a corporation where the acquisition would have had, or been likely to have had, the effect of substantially lessening competition in a market, unless authorisation for the acquisition had been obtained from the Australian Competition and Consumer Commission pursuant to s 88 of that Act; further, the Commissioner submits that there is no evidence that the purchase of 34.27% of the shares in WPL would not have contravened s 50, that there was an entity in the market with the ability and willingness to buy such a parcel of shares, and that authorisation under s 88 could have been obtained.

67    The Commissioner also submits that the fact that, when SEHAL eventually sold all of its WPL shares, it did so in parcels of less than 20% to multiple institutional investors supports the conclusion that the reality of the market in at least 2010 (when the First Disposal took place) was that a transaction involving a single parcel of 34.27% of WPL shares would not have occurred. The Commissioner accepts that it would have been possible on 20 January 1997 to sell parcels of WPL shares comparable in size to the parcels of shares that were disposed of in 2010, 2014 and 2017 to institutional investors, and indeed smaller parcels of WPL shares were sold off-market to institutional investors from at least 1990. However, the Commissioner submits that all known off-market transactions of shares in WPL that actually occurred were for prices less than the listed price.

68    The Commissioner thus submits that, as SEHAL has not proven that its hypothesis of a single transaction of shares representing 34.27% of WPL was legally permissible and financially feasible (and indeed has not attempted to do so), SEHAL cannot rely on its hypothesis to establish the market value of a share in WPL in excess of the listed price. The Commissioner submits that the reality of the market was that on 20 January 1997, SEHAL could have sold the shares comprising 34.27% of WPL off-market to institutional investors in smaller parcels at a discount to the listed price. The Commissioner thus submits that the market value for the highest and best use of the WPL Shareholding is therefore, at most, the listed price, which is the value at which the Commissioner has assessed SEHAL.

69    I reject the Commissioner’s submissions which I have summarised in the preceding three paragraphs. Under former s 160ZZSC(1), SAL is taken to have acquired each share in the WPL Shareholding on 20 January 1997 for a consideration equal to the market value of each of those shares on that day. That statutory fiction necessarily requires the fictional hypothesis that there were no impediments to SAL acquiring each of those shares on that day. If it be relevant, which I doubt, as a matter of fact SAL already held those shares on 20 January 1997, and there were no legal, regulatory or financial impediments to SAL continuing to do so as at 20 January 1997. Indeed, SEHAL acquired further shares after that date through WPL’s dividend reinvestment plans.

70    Accordingly, the legal context in which one must work out the consideration (being the market value) for which each of the WPL shares comprising the WPL Shareholding is to be taken to be acquired, is that of a deemed simultaneous acquisition of each share comprised in the entirety of the WPL Shareholding by a single purchaser (SAL) on 20 January 1997. The statutory task is not to determine the market value of a single WPL share being traded in isolation from any other deemed acquisition of WPL shares that day. Accordingly, I accept SEHAL’s contentions on the legal issues concerning the application of former s 160ZZSC(1).

71    I note SEHAL’s submission that it is unremarkable for a tax statute to require market value to be determined by reference to an assumed simultaneous transaction of this kind, as opposed (for example) to providing for market value to be determined by reference to a series of stand-alone hypothetical separate sales or purchases, citing Federal Commissioner of Taxation v Resource Capital Fund III LP [2014] FCAFC 37; (2014) 225 FCR 290 at [52] (Middleton, Robertson and Davies JJ). While the decision in that case does illustrate the general proposition advanced by SEHAL, I do not place reliance on it given the different statutory scheme in question.

72    The Commissioner placed reliance on the Explanatory Memorandum for the Taxation Laws Amendment Bill (No 1) 1997 (Cth) which introduced former s 160ZZSC(1) and stated at [6.55]:

The asset is taken to have been acquired for its market value on the day it is taken to have been acquired by the public entity. [Item 7 – new subsections 160ZZSC(1)(b) and 160ZZSD(1)(b)]

I do not regard that statement in the Explanatory Memorandum as providing any significant assistance one way or the other in resolving the present controversy.

Expert evidence

73    That resolution of the legal issues gives rise to a factual issue as to market value, and in particular the amount (if any) of the appropriate adjustment to the VWAP or closing price of WPL shares quoted on the ASX on 20 January 1997. The market value of each share comprised in the WPL Shareholding was the subject of competing expert evidence. SEHAL relied on the evidence of Mr Tony Samuel contained in two reports, dated 27 November 2024 (First Samuel Report) and 25 July 2025 (Second Samuel Report). The Commissioner relied on the evidence of Mr John McGuiness contained in his report dated 28 March 2025 (McGuiness Report). In addition, the two experts prepared a joint expert report dated 17 October 2025 (JER).

74    The experts agreed that, to estimate the market value of a significant influence interest in WPL as at 20 January 1997, it was appropriate to use a market approach and apply an adjustment (if applicable) to a “market price” of $9.41: JER at [3.1.6]–[3.1.9]. The term “market price” as used by the experts is simply the VWAP as at 20 January 1997 of $9.41, calculated on the basis of the 733,574 shares (or 0.1% of the total shares issued) which changed hands on 20 January 1997. Neither of the experts opined that the “market price” was the per-share “market value” of the WPL shares that comprised the WPL Shareholding, and both concluded that the per-share market value reflected an adjustment to the market price. The question is what adjustment should be made to the market price of $9.41 to take into account the circumstance that, in the hypothetical acquisition posited by former s 160ZZSC(1), the total number of WPL shares to be acquired by the same purchaser on the same day was not 733,574 shares (being a 0.1% shareholding), but was instead 228,456,275 shares (being a 34.27% shareholding).

75    It is worth noting at this stage that the market approach values a business or asset by considering comparable transactions in the market either by reference to transactions involving comparable businesses or assets, or transactions of the asset itself (First Samuel Report at [68]). An alternative approach would have been the income approach, which requires an estimate of the future cash flows likely to be derived by the business or the asset, and the conversion of those cash flows to a present value (First Samuel Report at [70]). Contrary to the Commissioner’s submissions on the point, as neither Mr Samuel nor Mr McGuiness adopted the income approach, I do not regard the absence of evidence as to the cash flows of WPL or Shell (as anticipated at 20 January 1997) as a deficiency in terms of SEHAL satisfying its onus of proof.

76    Mr Samuel’s opinion was that an adjustment of between 15% and 20% over the VWAP of $9.41 is appropriate.

77    Mr Samuel reasoned that the WPL Shareholding provided significant influence over WPL: First Samuel Report at [35(a)]. Contemporaneous market commentaries described Shell’s influence over WPL as a “clearly dominant position” that amounted to “effective control”: First Samuel Report at [114]. Shell itself, however, expressed the opinion in its audited financial statements that it had significant influence (but not control): First Samuel Report at [35(a)(iii)]. The WPL Shareholding was equivalent in size to the next seven largest shareholdings combined: First Samuel Report at [35(a)(ii)] and [113(b)]. In addition, Shell had proportionate representation on WPL’s Board, in that during most of 1997, WPL had ten directors, of whom four were officers or employees of Shell (with the number of Shell-nominated directors later reducing proportionally when SEHAL’s shareholding reduced): First Samuel Report at [35(a)(i)] and [113(a)].

78    Mr Samuel reasoned that control or influence over a company is valuable to a shareholder by its nature, particularly in that the control or influence is over the cash flows arising from, and risks associated with, an investment, such as those associated with M&A activity: First Samuel Report at [25] and [27]. That conclusion is consistent with valuation texts (First Samuel Report at [28] and [83]–[89]), studies of control transactions (First Samuel Report at [138(a)–(c)]), and market-based evidence of premiums paid by acquirers to obtain a similar level of influence (First Samuel Report at [29]–[34]; and see generally the references collected by Mr Samuel in the JER at [4.1.3]).

79    In order to estimate what adjustment was appropriate, Mr Samuel first looked for, but did not find, any transactions which took place in the seven years before 20 January 1997 which could be used as a basis for determining an appropriate premium for the WPL Shareholding given the lapse of time: First Samuel Report [127]–[128] and [129(a)]. He then analysed 1,249 actual market transactions from 1997 across all industries, including 64 transactions in the energy sector and 31 transactions in the oil and gas sector: First Samuel Report at [145]–[152]. He did so using Bloomberg, which has a function that allows users to search for transactions using a range of different criteria (First Samuel Report at [34(c)], footnote 7). I note that Bloomberg is commonly used by valuers when conducting comparable company analysis (Second Samuel Report at [167]). Mr Samuel then applied filters to exclude certain transactions from the data set, and applied different weightings to different data sets: First Samuel Report [131]–[139]. In particular, Mr Samuel treated transactions between 1997 and 2007 as providing more persuasive evidence than transactions between 2008 and 2020, both because they were closer in time to the valuation date of 20 January 1997, and because they did not suffer from the valuation problems associated with the Global Financial Crisis: [131]. Mr Samuel excluded transactions that occurred at a discount to the exchange listed price (at [133]) and those that reported premiums which Mr Samuel regarded as excessive (at [136]), for reasons which I find compelling. Mr Samuel gave more weighting to transactions with a premium of less than 50%, as the WPL Shareholding would not have conferred a controlling interest, and it was reasonable to assume the appropriate premium would have been less than the premiums indicated in empirical studies of control premiums (at [139]).

80    Mr Samuel concluded that a reasonable range for a premium that would be paid for significant influence was between 15% and 20%, as (among other things) it:

(a)    is consistent with the median premiums for pre-2008 transactions across all industries (First Samuel Report at [158(a)]);

(b)    is conservative in light of the median premiums in the energy sector (First Samuel Report at [158(b)]); and

(c)    represents approximately half the premiums evidenced in studies of control transactions (First Samuel Report at [159]).

81    In the Second Samuel Report, Mr Samuel expanded his empirical analysis to cover two different data sources (FactSet and Capital IQ): Second Samuel Report at [167]–[171]. Mr Samuel relevantly concluded that the median premiums for each of the three data sources supported his earlier conclusions: Second Samuel Report at [169].

82    Contrary to the Commissioner’s submissions, it was not necessary for Mr Samuel to investigate the particular circumstances of each transaction in the data set in order to analyse the degree of comparability to the present hypothetical transaction. A sufficiently large data set can, and in this case does, provide enough information from which appropriate inferences can be drawn without undertaking that highly specific and particularised analysis. Furthermore, the size of the data set renders negligible any issues with one or two individual data points, such as were suggested by the Commissioner in cross-examination of Mr Samuel: see T105–111. Mr Samuel’s opinion, which I accept, was that there was sufficient information for him to express a reliable conclusion in response to the questions he was asked: T126.4–6.

83    Mr Samuel did not attempt to quantify any “special value” for Shell from the WPL Shareholding, being an amount that reflects particular attributes of an asset that are available only to a particular buyer: First Samuel Report at [77]–[79]. It is therefore unnecessary to deal with the issue of “special value” which may accrue only to a particular buyer, and the issue whether special value is relevant to the valuation required by former s 160ZZSC(1).

84    By contrast to Mr Samuel’s valuation, the opinion of Mr McGuiness was that an adjustment range of plus or minus 2.5% to the VWAP of $9.41 was appropriate: McGuiness Report at [1.3.4].

85    An important issue of valuation principle arises from Mr McGuiness’s opinion that the absence of information of a difference in expected cash flows of a significant influence interest and the cash flows of a minority interest in relation to WPL prevented him from ascribing any value to the significant influence carried by the WPL Shareholding: McGuiness Report at [1.3.5(c)–(d)] and JER at [5.2.16]. However, as Mr Samuel explained, value is a function of both the expected future cash flows and the risks associated in generating those cash flows: Second Samuel Report at [36(a)] and [124]; JER at [5.1.2(a)]. That is well established in respected academic literature: JER at [5.1.11]. As Mr Samuel explained (Second Samuel Report at [37] and [124]), the risks inherent in generating the projected future cash flows are:

(a)    higher for a minority interest shareholder, as that shareholder has no control over the cash flows being generated by the asset (which, in the case of shares, are mostly dividends), and a higher risk results in a lower value; and

(b)    lower for a controlling or significant influence shareholder, who can dictate or significantly influence the timing and amount of dividends, as well as numerous other factors, and a lower risk results in a higher value.

Further, as Mr Samuel stated, it does not follow that the absence of contemporaneous forecasts, budgets or business plans leads to a conclusion that no benefit arises from a controlling or significant influence interest, or that no premium would be paid for such interests: Second Samuel Report at [39] and [127]–[128].

86    Mr McGuiness accepted that strategic benefits should be taken into account when estimating market value if they are available to more than one market participant: JER at [16.2.8]–[16.2.9]. As Mr Samuel explained, the strategic benefits of significant influence are usually available to more than one market participant: Second Samuel Report at [41(e)]. Mr McGuiness’s opinion thus produces the erroneous consequence that the midpoint of his range results in the significant influence inherent in the WPL Shareholding attracting no premium at all, despite the strategic benefits of significant influence being available to more than one buyer.

87    By contrast with the use by Mr Samuel of extensive analysis of actual market transactions, Mr McGuiness’s opinion does not appear to be supported by any financial or empirical analysis. The basis of Mr McGuiness’s range of appropriate adjustments of plus or minus 2.5% is, at best, highly attenuated both in terms of valuation principles and empirical observation.

88    Indeed, Mr McGuiness’s range is commercially implausible. The logical implication of Mr McGuiness’s range extending to negative 2.5% of VWAP is that, if a hypothetical acquirer had sought to acquire 34.27% of the WPL shares on 20 January 1997, this could have caused WPL shareholders who were not willing to sell their shares for $9.41 (that is, the 99.83% of WPL shareholders on 20 January 1997 who were not willing to sell at that price on that day) to actually reduce their asking price, as Mr Samuel pointed out in the JER at [23.1.6]. That is illogical, because increased demand (by a buyer wanting to buy 34.27% rather than the 0.1% of WPL shares traded on that day) causes prices to rise, not fall, as Mr Samuel demonstrated by reference to “market depth” information showing how the quantity of WPL shares available for purchase increases with the share price: Second Samuel Report at [107]–[109]. Further, Mr McGuiness’s conclusion that significant influence would attract little or no premium (or even a discount) conflicts with what occurred in relation to Shell’s attempted takeover of WPL in 2000. A premium to the market price was offered by Shell and found inadequate by WPL’s board. The WPL independent directors’ advice was based on a report from Deloitte which concluded that an appropriate control premium would be 30% to 40% over the traded share price.

89    As a separate matter, Mr McGuiness put misplaced and heavy reliance on the disposals of WPL shares by BHP (in 1994 and 1997) and Shell (in 1994), which took place at a discount to the “market price”. However, those disposals were plainly not reliable indicators of what a hypothetical willing but not anxious buyer could reasonably expect to pay to acquire the WPL Shareholding when dealing with any willing but not anxious seller. None of the disposals involved the purchase of a tranche of shares by a single purchaser, in that they were all sales to multiple institutional investors none of which acquired a significant influence or controlling interest: Second Samuel Report at [157]. Thus none of them is consistent with the statutory hypothesis posited by the former s 160ZZSC(1). Disposals of shareholdings to multiple institutional investors, none of which acquired a significant influence or controlling interest, do attract discounts (referred to as “blockage discounts”), by reason of them being in blocks which are more than the market could bear at the prevailing price in a short space of time: First Samuel Report at [157(b)]. In addition, following each of the BHP disposals in 1990 and 1994, Shell retained its 34.27% shareholding in WPL, with the result that even if there had been a single purchaser of BHP’s shares, it would not have acquired the same level of influence inherent in the WPL Shareholding.

90    Mr McGuiness criticised Mr Samuel’s use of market-based evidence post-dating 20 January 1997 as involving an impermissible use of hindsight: JER at [10.2.4] and [10.2.9]. Mr McGuiness even went so far as to say that if there had been a directly comparable transaction one month after the valuation date of 20 January 1997 (and of which there was no information in the market as at 20 January 1997), he would absolutely exclude that from his analysis of the market value of the shares as at 20 January 1997 (T172.17–20). That may well be Mr McGuiness’s personal approach, but it defies common sense and I reject it as the proper approach to assessing market value. There was no impermissible use of hindsight by Mr Samuel. It is both permissible and appropriate to draw an inference from evidence of premiums paid for acquiring significant influence in a company after 20 January 1997 as to the likely premium in the present case, in that the empirical studies and the market-based evidence used by Mr Samuel provide substantial evidence indicating that pre- and post-1997 premiums are broadly consistent: First Samuel Report at [130]; JER at [10.1.2(c)]. Further, Mr Samuel placed greater weight on transactions that preceded 2008: First Samuel Report at [158(a)]. By reason of the passage of time, there is no more reliable evidence than that identified by Mr Samuel: JER at [10.1.2(b) and (c)]. If authority is needed for the proposition that the principles in Spencer’s Case 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 (as distinct from what would be present in the minds of the hypothetical parties), the cases are usefully collected in Kilgour v Commissioner of Taxation [2025] FCAFC 183; (2025) 313 FCR 360 at [118] (Horan J).

91    An unfortunate feature of Mr McGuiness’s evidence was his propensity to attribute propositions to Mr Samuel which Mr Samuel neither expressed nor held. The most glaring instance was in relation to Mr McGuiness’s proposition that Mr Samuel assumed that there is a systemic mispricing of a market price where the value of a significant influence interest is always more than a market price: McGuiness Report at [5.6.1]. Mr McGuiness even went so far as to express the point in the following way (McGuiness Report at [5.7.3]:

The acquisition premiums are used in assertions there is a systemic mispricing in a market price where a significant influence interest value is always higher than a minority value. This is a silent point in Mr Samuel’s Report and there is no information in his report for this matter.

92    The obvious explanation for the silence and lack of information was that Mr Samuel did not hold the views which Mr McGuiness misattributed to him, and indeed Mr Samuel regarded those views as non sequiturs: Second Samuel Report at [27]–[28] and [101]–[102]. As Mr Samuel said, it is well established that controlling and minority interests are not like-for-like, as they do not provide their owners with the same ability to control the operating and financial decisions of the entity, and it follows that the difference (on a per share basis) is not due to “systemic mispricing” but is instead due to the additional value attributed to control: Second Samuel Report at [28] and [101]–[102].

93    Ironically, Mr McGuiness in the joint report took issue with an entirely accurate paraphrase by Mr Samuel of an aspect of Mr McGuiness’s opinion, apparently on the carping basis that it was not a verbatim quotation: JER [8.2.17]; T220.16–221.20. In cross-examination, Mr McGuinness agreed that this paragraph of the JER should be disregarded: T221.19–21.

94    The academic literature, and numerous control premium studies, also support Mr Samuel’s opinion as to the appropriate premium. Mr McGuiness referred to academic literature to which Mr Samuel had not referred (McGuiness Report at [1.3.12]–[1.3.13]), but Mr Samuel said (and I accept) that that additional academic literature on which Mr McGuiness relied (primarily the view of Mr Nath in the United States) did not represent a widely held view in 1997 and, in Mr Samuel’s experience, does not represent a widely held view today: Second Samuel Report at [19(b)(ii)] and [175]–[179]. Indeed, Ms Deards SC’s skilful cross-examination on the matter culminated in concessions by Mr McGuiness (T170.44–171.10) to the effect that:

(a)    in 1997, Mr Nath’s argument was in its infancy and was not the prevailing view in the United States;

(b)    Mr McGuiness could not say whether Mr Nath’s line of thinking was influenced by a different appraisal standard in the United States;

(c)    the argument that Mr Nath put forward, and that Mr McGuiness relied on, runs counter to textbooks written by leading practitioners and the prevailing view of the financial community; and

(d)    Mr Nath’s view was controversial and a minority view.

95    Mr McGuiness did not accept the general proposition that it is better to look at empirical evidence than a developing academic theory, saying that he would need to be presented with the empirical evidence, and he disregarded the information in Mr Samuel’s report as postdating the valuation date of 20 January 1997 (T171.19–22). As I have already indicated, I do not regard evidence of transactions after 20 January 1997 as irrelevant, either as a matter of proper valuation practice or as a matter of law. I also readily accept the general proposition that empirical evidence is to be preferred over a developing academic theory, especially where that theory is contrary to the views of leading practitioners and the prevailing views of the financial community.

96    The Commissioner criticised Mr Samuel’s evidence for not considering whether the amount that the buyer would be prepared to pay would be potentially reduced because the buyer would be constrained in either increasing its 34.27% holding to a takeover of 100% or selling its holding to someone else even in that percentage: T64.32–37. The Commissioner submits that where there are restrictions on transfers of shares being valued, the market value is determined on the basis that the restriction is lifted so that the hypothetical transfer can occur, but the purchaser will hold the shares subject to any restrictions, citing Abrahams v Federal Commissioner of Taxation (1944) 70 CLR 23 at 29–30 (Williams J). However, the point goes nowhere in the present case in light of Mr Samuel’s explanation as to why the on-going restrictions on the shares were not relevant to the valuation exercise, namely that (a) the market value definition assumes that the purchaser will always try to extract the highest and best use of the asset; and (b) if the buyer extracts value from holding the shares and obtaining the cash flows, and if that is at least as high a use as selling them at a discount to someone else, then one would never assume a sale to someone else because that is not the highest and best use (Mr Samuel’s re-examination at T124.25–31). I infer from Mr Samuel’s opinion as to the irrelevance of the point that he regarded as a reasonable assumption that the conditions referred to in the previous sentence were applicable.

97    In sum, I strongly prefer the evidence of Mr Samuel to that of Mr McGuiness. I do not regard it as necessary to deal specifically with all of the points sought to be made by Mr McGuiness in these reasons, as I do not place credibility in, or reliance upon, Mr McGuiness’s evidence and I regard Mr Samuel’s evidence as compelling.

98    Three further submissions by the Commissioner should be dealt with. First, the Commissioner submits that Mr Samuel was not given all relevant information to inform his opinion, referring to documents entitled “Request for authority to open negotiations” (CB2/1313) and “Options Woodside” (CB2/1293). However, it was not put to Mr Samuel that either document would have affected his opinions or analysis in any way, and he was not cross-examined at all on the second document. Looking at the documents objectively, the two documents may well have strengthened Mr Samuel’s opinions. Accordingly, the submission goes nowhere.

99    Second, the Commissioner submits that Mr Samuel wrongly approached the valuation exercise as a question as to the highest price that the hypothetical buyer would be prepared to pay, rather than the price that would be paid in a hypothetical transaction between a buyer and seller. However, that proposition was not put to Mr Samuel. Rather, what was put, and properly accepted by Mr Samuel, was that he approached the issue of market value as the price that would be negotiated with an open and unrestricted market between a knowledgeable, willing, but not anxious buyer and a knowledgeable, willing, but not anxious seller acting at arm’s length (T56.36–57.3).

100    Third, the Commissioner criticises Mr Samuel for not assuming that WPL Shareholders would compete with each other to lower (!) the price below a price that reflects a significant influence premium (see Mr Samuel’s cross-examination at T61.28–45). As Mr Samuel pointed out, that would make no sense because the sellers would seek to obtain the highest price they could, and in any event the relevant hypothesis of SAL acquiring 34.27% of WPL on 20 January 1997 makes no sense in the real world because it could not have happened (T61.28–45). Given the fanciful but necessary nature of the hypothesis, it is idle to speculate as to whether the hypothetical sellers would have acted independently, or colluded with each other. But one can be confident that they would not have sought to lower the price.

101    Accordingly, I accept Mr Samuel’s evidence that the market value of each share in the WPL Shareholding as at 20 January 1997 was $9.41 plus a premium of 15% to 20%.

102    The parties both seek a further finding not only as to the appropriate range but also as to the appropriate point within that range, so as to yield a precise dollar figure for market value which can then be used by the Commissioner in issuing new amended assessments. Mr Samuel said that he could not be more precise than his range of 15% to 20%, and thus would take the midpoint if asked to adopt a specific figure (T93.20–95.39, especially T94.40–42). He said, however, that the conclusion might depend on how much control the 34.27% shareholding would have conferred on the acquirer, such that the extent of the significant influence might lead one way or the other in the range of 15% to 20% (T94.42–95.2). If that amounted to effective control then the figure would be higher than 20%, whereas Mr Samuel had assumed only significant influence (T94.43–46).

103    In my view, the evidence supports a finding to the effect that the extent of the significant influence which the WPL Shareholding conferred as at 20 January 1997 was towards the upper end of the range of significant influence. In summary, that evidence includes the following:

(a)    four of the ten directors of WPL were representatives of SEHAL;

(b)    SEHAL’s voting rights in a general meeting were equivalent to those of the next seven largest shareholders combined;

(c)    an internal Shell document dated 2 February 2024 stated that selling down the NWSD holding in WPL “leaves sufficient shares to dominate AGM and ‘steer’ Woodside in the right direction through board representation and other ties with Shell” (CB2/1293);

(d)    Shell’s “Group Divestment Proposal” dated 15 July 1994 stated that the sale of NWSD’s 11.53% shareholding in WPL “would leave SAL with a 34.27% remaining interest in WPL, sufficient to exert adequate influence within the WPL (the operator of the North West Shelf Project)” (CB2/1297);

(e)    Mr Lorbeer said that, with the WPL Shareholding, “Shell held a lot of sway” (T32.26–27); and

(f)    newspaper articles in 1995 (to which no objection was taken by the Commissioner) described Shell as having a “clearly dominant position” in WPL, as being in control or effective control of WPL, and as a company which “largely directs the traffic” at WPL (First Samuel Report at [114]).

104    In addition, I accept Mr Samuel’s evidence that his range of 15% to 20% is conservative (First Samuel Report [158(b) and (c)].

105    Accordingly, I regard the appropriate premium as being above the mid-point of Mr Samuel’s range of 15% to 20%. SEHAL submits, and I accept, that the appropriate figure for market value is a premium of 18% over the closing market price on 20 January 1997 of $9.42, being a premium of about 18.2% over the VWAP of $9.41 that day. That yields a market value for each share that day of $11.12.

Conclusion

106    Accordingly, in my view, the market value for the purposes of former s 160ZZSC(1) of each share in the WPL Shareholding as at 20 January 1997 was $11.12. SEHAL has discharged its burden of proving that the amended assessments which are the subject of this proceeding are excessive within the meaning of s 14ZZO of the TAA. It follows that the Commissioner’s objection decision of 23 February 2024 should be set aside.

107    In my preliminary view, the Commissioner should pay SEHAL’s costs of the proceedings. However, it is conceivable that the Commissioner may contest that tentative view, and SEHAL may seek a special order as to costs, such as by way of indemnity costs (eg arising from offers of compromise) or a lump sum order or both. Accordingly, I have set a timetable for the filing and service of any affidavits and written submissions concerning the question of costs. If a lump sum order is sought, the affidavits should provide evidence as to the quantification of costs, so as to avoid the need to refer the matter to a Registrar. I anticipate dealing with the question of costs on the papers.

Associate:

Dated:    11 May 2026