Supreme Court New South Wales Medium Neutral Citation: Symond v Gadens Lawyers Sydney Pty Ltd [2013] NSWSC 955 Hearing dates: 18 February to 1 March 2013 Decision date: 19 July 2013 Jurisdiction: Common Law Before: Beech-Jones J Decision: Plaintiff succeeds in establishing negligence, breach of retainer and contravention of s 52 of the Trade Practices Act 1974 (Cth) against the First Defendant. Quantification of judgment to await further calculations. Catchwords: NEGLIGENCE - professional negligence - specialised tax advice - was advice concerning the tax consequences of the proposed business restructure negligent - whether advice that the redemption of preference shares would be tax free was wrong - failure to advert to the definition of "dividend" in s 6(1) of the Income Tax Assessment Act 1936 - failure to warn of the risk of application of s 45B and Part IVA of the ITAA 1936 to proceeds of the redemption- what alternative structures should have been recommended - negligent misstatement. CONTRACT - was there was a contract of retainer - breach of retainer. TRADE AND COMMERCE - trade practices - whether defendant engaged in misleading or deceptive conduct contrary to s 52 of the Trade Practices Act 1974 (Cth). CAUSATION - whether alleged deficiencies in advice caused liabilities of plaintiff under Deed of Settlement with the Commissioner of Taxation - whether deficiencies must coincide with the precise tax exposures settled under the Deed. DAMAGES - measurement of loss or damage - alternative structures that should have been recommended - tax consequences of those structures - which alternative would the plaintiff most likely have pursued "but for" the negligent advice - difference between plaintiff's financial position under "but for" scenario and in the events that transpired - benefit of pursuing restructure that was recommended - whether benefit from paying dividends earlier rather than later permanent or temporary - measurement of benefit - valuation of deduction in franking credits from franking account - reflective loss - whether deduction from franking account only caused reflective loss to shareholder. DAMAGES - apportionment of loss - concurrent wrongdoers - meaning of damage in context of "apportionable claim" - test for apportionment. Legislation Cited: - Civil Liability Act 2002 - Corporate Law Economic Reform Program (Audit Reform and Corporate Disclosure) Act 2004 (Cth) - Fringe Benefits Tax Assessment Act 1986 (Cth) - Income Tax Assessment Act 1936 (Cth) - Income Tax Assessment Act 1997 (Cth) - Professional Standards Act 1994 - Taxation Laws Amendment Act (No 3) 1998 (Cth) - Taxation Laws Amendment Act (No 2) 2002 - Trade Practices Act 1974 (Cth) Cases Cited: - Adeels Palace Pty Ltd v Moubarak [2009] HCA 48; 239 CLR 420 - Astley v Austrust Ltd [1999] HCA 6; 197 CLR 1 - Chen v Karandonis [2002] NSWCA 412 - Gould v Vaggelas [1985] HCA 85; (1984) 157 CLR 215 - Hayden v Federal Commissioner of Taxation (1996) 96 ATC 4797; 33 ATR 352 - Hendriks v McGeoch [2008] NSWCA 53 - Heydon v NRMA Ltd [2000] NSWCA 374; 51 NSWLR 1 - Hill v Van Erp [1997] HCA 9; 188 CLR 159 - Hunt & Hunt Lawyers v Mitchell Morgan Nominees Pty Ltd [2013] HCA 10; 87 ALJR 505 - J & G Knowles & Associates Pty Ltd v Commissioner of Taxation [2000] FCA 196; 96 FCR 402 - Johnson v Gore Wood & Co [2000] UKHL 65; [2002] 2 AC 1 - Jones v Dunkel (1959) 101 CLR 298 - Kenny & Good Pty Ltd v MGICA [1999] HCA 25; 199 CLR 413 - McRae v Commonwealth Disposals Commission (1951) 84 CLR 377 - March v E & MH Stramare Pty Ltd [1991] HCA 12; 171 CLR 506 - Mercedes Holdings Pty Ltd v Waters (No 3) [2011] FCA 236 - Mills v Federal Commissioner of Taxation [2011] FCAFC 158; 198 FCR 89 - Mills v Federal Commissioner of Taxation [2012] HCA 51; 87 ALJR 53 - Minister for Immigration & Ethnic Affairs v Guo [1997] HCA 22; 191 CLR 559 - Mitchell Morgan Nominees Pty Ltd v Vella [2011] NSWCA 390 - Murphy v Overton Investments Pty Ltd [2004] HCA 3; 216 CLR 388 - Norris v Blake [No 2] (1997) 41 NSWLR 49 - Prudential Assurance Co Ltd v Newman Industries Ltd (No 2) [1982] Ch 204; 1 All ER 354 - Sellars v Adelaide Petroleum NL [1994] HCA 4; 179 CLR 332 - Starrim Pty Ltd v Commissioner of Taxation [2000] FCA 952; 102 FCR 194 - Tepko Pty Ltd v Water Board [2001 HCA 19; 206 CLR 1 - Vinidex Tubemakers Pty Ltd v Thiess Contractors Pty Ltd [2000] NSWCA 67 - Wallace v Kam [2012] NSWCA 82; Aust Torts Reports 82 - Wallace v Kam [2013] HCA 19; 87 ALJR 648 - Wardley Australia Ltd v State of Western Australia (1992) 175 CLR 514 - Wynbergen v Hoyts Corporation Pty Ltd [1997] HCA 52; 72 ALJR 65 Category: Principal judgment Parties: John Joseph Symond (Plaintiff) Gadens Lawyers Sydney Pty Ltd (1st Defendant) Ross Edward Seller (4th Defendant) John Henry Bartrop (5th Defendant) Gregory Anthony Thomas Bateman (6th Defendant) John Cunningham Bell (7th Defendant) Bryan Robert Belling (8th Defendant) Dennis Raymond Bluth (9th Defendant) Seamus John Burke (10th Defendant) Susan Jane Burns (11th Defendant) Robert Angus Cameron (12th Defendant) John Alexander Cole (13th Defendant) Sancia Catherine de Jersey (14th Defendant) Christine Lynne Ecob (15th Defendant) John David Berkeley Edelman (16th Defendant) David Radcliffe Ford (17th Defendant) Kirston Marie Gerathy (18th Defendant) Richard Kenneth Graham (19th Defendant) Timothy Martin Griffiths (20th Defendant) Mark Alfred Harrowell (21st Defendant) Michael Raymond Hodgson (22nd Defendant) Gail Jennifer Howard (23rd Defendant) Victor Francis Kelly (24th Defendant) Nicholas John Matkovich (25th Defendant) Robert William McCormadk (26th Defendant) Brett Gregory McKenzie-Craig (27th Defendant) Peter Gregory Noble (28th Defendant) Gary Francis Punch (29th Defendant) Penelope Jane Snyman (30th Defendant) Ellis Neville Varejes (32nd Defendant) Damian Gregory Ward (34th Defendant) Representation: Counsel: A.J. Payne SC, J.O. Hmelnitsky and R.A. Jedrzejczyk (Plaintiff) S.R. Donaldson SC, B.L. Jones (First Defendant) Solicitors: Baker & McKenzie (Plaintiff) DLA Piper Australia (First Defendant) File Number(s): 2009/297612 Judgment 1In 1992 the plaintiff, John Symond, founded a business whose legal structure has changed over the years but which has always been known as "Aussie Home Loans" (the "business"). The business provides various financial services at the retail level. At times it has made losses but at least from 2005 it has been very profitable. 2In 2003 Mr Symond and those assisting him obtained legal advice from the first defendant, Gadens Lawyers Sydney Pty Ltd ("Gadens"). The partner principally responsible for providing that advice was Mr Ross Seller, an expert in taxation law. The subject of the advice concerned the tax consequences of a revised ownership structure of the business. One aspect of the advice was directed to the means by which Mr Symond could continue to borrow funds from the business. It was anticipated that he would need to do so to complete the construction of his home. 3Mr Seller and Gadens provided advice. It was acted upon and a restructure was effected in 2003 and 2004 (the "Restructure"). As part of the Restructure, a mechanism was put in place by which Mr Symond could withdraw funds from the Aussie Home Loans Group (defined at [15]) by redeeming preference shares issued by the new corporate vehicle that owned the entities making up the Aussie Home Loans Group, AHL Holdings Pty Ltd ("Holdings"). During the financial years ended 30 June 2004, 30 June 2005 and 30 June 2006, Mr Symond drew down around $57 million. The ultimate source of those funds was the external financier to the Aussie Home Loans Group, the Australia and New Zealand Banking Group Ltd ("ANZ"). 4On about 17 January 2005, Mr Seller left Gadens and joined the law firm Abbott Tout. He continued to provide advice and assistance. Later that year the Australian Taxation Office ("ATO") commenced a review of Mr Symond's taxation affairs as part of a process of scrutinising the taxation affairs of high net worth individuals. The manner in which Mr Symond had taken funds out of the business attracted the ATO's attention. In 2007 the ATO commenced an audit of his affairs. This led to a Deed of Settlement with the Commissioner for Taxation ("Commissioner") in which Mr Symond agreed to pay a substantial amount of tax, penalties and interest charges, and Holdings agreed to deduct an amount from its "franking account" that it maintained in accordance with s 200.15 of the Income Tax Assessment Act 1997 (Cth) ("ITAA 1997"). 5Mr Symond now sues Gadens. He alleges that it was negligent, acted in breach of contract, uttered negligent misstatements, and engaged in misleading conduct contrary to former s 52 of the Trade Practices Act 1974 (Cth) ("TPA"). He claims that Gadens' advice did not conform to the standard of a reasonably competent solicitor and was otherwise misleading. He also contends that Gadens should have advised him as to the availability of other means of structuring his affairs and those of the Aussie Home Loans Group to ensure that the monies he needed to borrow to complete the construction of his home were not taxed in his hands. 6Gadens denies these allegations. It also asserts that the implementation of the alternative structures that Mr Symond suggests it should have recommended to him would have caused the payment of much greater amounts of tax than the amounts paid under the settlement with the Commissioner. It contends that the deduction from the franking account did not cause him any compensable loss. In the alternative, Gadens contends that a number of other parties were "concurrent wrongdoers" with it and that accordingly its liability should be correspondingly reduced. 7Mr Symond sued Abbott Tout as well as Gadens. In February 2013 he settled his claim against Abbott Tout. As part of that settlement, Abbott Tout paid Mr Symond $1.85 million (excluding costs). The terms of that settlement affect the amount he can recover from Gadens in the manner explained at [451]. 8In summary, I have concluded that Gadens was negligent and in breach of its contract of retainer with Mr Symond in relation to the structure it proposed to Mr Symond, and its advice that the proceeds from the redemption of the preference shares would be "tax free" in his hands. In proposing that structure and providing that advice it also uttered negligent misstatements and engaged in conduct contrary to s 52 of the TPA. I find that Gadens was obliged to advise Mr Symond not to proceed with the Restructure and instead should have advised him of three other ways to restructure the business so as to achieve Mr Symond's objective, with the preferred scenario being the option described as "Scenario 2" (see [269]ff). Had this advice been given, the imposition of the tax, penalties and interest charges and the deduction from Holdings' franking account that occurred as a result of the settlement with the Commissioner, as well as various professional fees that Mr Symond paid, would have been avoided, although some allowance needs to be made for the possibility that other costs might have been incurred (see [424]). 9However, in assessing the quantum of Mr Symond's loss it is necessary to bring to account certain extra tax liabilities that Mr Symond would have incurred had he implemented Scenario 2. The parties were in sharp dispute as to whether those tax liabilities represented a permanent benefit, as contended by Gadens, or a temporary benefit, as contended by Mr Symond, arising from his adoption of the Restucture proposed by Gadens. I have concluded that some portion of those extra tax liabilities was permanent but the remainder was temporary. On the material available, I am unable to calculate the value of the offsetting benefit but have set out the basis for the parties to calculate it below at [374] to [375]. 10The parties were also in dispute about whether any aspect of the damages payable to Mr Symond should include an amount referable to the deduction from Holdings' franking account. I have concluded that the deduction was causative of a loss to Mr Symond as a shareholder of Holdings, and that its value should be determined by an assessment of the lost value to the pool of franking credits that was occasioned having regard to my assessment of the distribution rate of earned franking credits by Holdings (see [396] to [414]). 11I have also concluded that Abbott Tout was a concurrent wrongdoer with Gadens, but have rejected the latter's allegation that other parties were also concurrent wrongdoers. I have determined that it is "just" that Gadens bear 85% of the total losses occasioned to Mr Symond. The determination of the precise amount of the damages recoverable by Mr Symond from Gadens, if any, will need to await the calculations noted in [422] to [426], and then the application of the formula provided in the terms of settlement between Mr Symond and Abbott Tout that were in a limited respect also accepted by Gadens (see [452] to [455]). 12The balance of the judgment explains the reasons for this conclusion. It is structured as follows: (1)Background ([13]); (a)1992 to 2002 ([14] to [22]); (b)Mr Symond's Relationship with Gadens ([23] to [33]); (c)Restructure up to 30 June 2003 ([34] to [95]); (d)1 July 2003 to 1 July 2004 ([96] to [118]); (e)Redemption of the Redeemable Preference Shares ([119] to [129]); (f)Mr Seller's Move to Abbott Tout and the ATO Risk Review ([130] to [145]); (g)The ATO Audit and Settlement with Mr Symond in 2007 ([146] to [158]); (h)Further Factual Findings ([159] to [178]); (2)Duty of Care and Contract of Retainer with Gadens ([179] to [187]); (3)Standard of Care and Breach ([188] to [222]); (4)Negligent Misstatement ([223] to [229]); (5)Misleading or Deceptive Conduct ([230] to [231]); (6)The Connection Between the Liabilities Imposed by the Deed and Breach ([232] to [238]); (7)The Three Scenarios ([239] to [240]); (8)Scenario 1 - Continuing to Borrow from the AHLUT ([241] to [268]); (a)Tax Treatment of Scenario 1 ([243] to [258]); (b)Scenario 1 - Reconstituted Accounts and Financial Capacity ([259] to [268]); (9)Scenario 2 - Borrowing from the AHLUT and Interposing a Corporate Owner ([269] to [286]); (a)Scenario 2 - Tax Treatment ([272] to [277]); (b)Scenario 2 - Reconstituted Accounts and Financial Capacity ([278] to [286]); (10)Beath Scenario 3 - Division 7A Compliant Loan Agreement ([287] to [291]); (11)Deductibility of Interest ([292] to [297]); (12)The Required Advice ([298] to [312]); (13)The Preferred Scenario ([313] to [318]); (14)The Competing Assessments of Loss ([319] to [329]); (15)Penalties, GIC and Professional Fees ([330] to [335]); (16)Benefit of the Restructure ([336] to [376]); (a)Parties' Submissions ([336] to [346]); (b)Benefit of Restructure - Consideration ([347] to [373]); (c)Benefit of the Restructure - the Calculation to be Performed ([374] to [376]); (17)Loss of Franking Credits ([377] to [421]); (18)Quantum - Summary [422] to 426]; (19)Apportionment ([427] to [448]); (a)Apportionment - Abbott Tout ([434] to [444]); (b)Apportionment - PricewaterhouseCoopers (PwC) ([445] to [447]); (c)Apportionment - Mitchell & Partners ([448]); (20)Contributory Negligence ([449]); (21)Professional Standards Act 1994 ([450]); (22)The Settlement with Abbott Tout ([451]); (23)Further Progress ([456]). Background 13Unless I state otherwise, where I refer to some aspect of the evidence in the narrative from [14] to [158] it is evidence which I accept. 1992 to 2002 14As I have stated, Mr Symond started the business in February 1992. Prior to 2004, the business was conducted by Aussie Home Loans Limited as trustee for the AHL Unit Trust ("AHLUT"). Mr Symond owned and controlled all the units in the AHLUT through various entities, which relevantly included the Dawnraptor Trust and the Symond Investment Trust. At some point Mr Nicholas Paten acquired 10% of the units in the AHLUT as trustee for the Nicholas Paten Family Trust. Various restrictions were placed on his ownership of those units. It was common ground that in broad terms his units and shareholdings could be ignored, and Mr Symond was effectively the 100% owner of the business and the relevant entities that constituted it. 15At some point certain additional companies were introduced into the collection of entities that constituted the business, although for the present they can be ignored. At various times I refer to the "Aussie Home Loan Group" (or "Aussie group") which is synonymous with the collection of entities that owned and operated the business from time to time, with the exception of Mr Symond, Mr Paten, the Dawnraptor Trust and the Symond Investment Trust. 16The business operated at a loss between 1992 and 1994. For the years 1995 to 1999, the business made a taxable profit of under $5 million each year except for 1997 when the business made a taxable profit of around $7.3 million. The business then returned to making taxable losses in the years 2000 to 2002. 17In 1998 Mr Symond purchased some land in Point Piper. By 2002 the relevant approvals necessary to commence construction of a new home on that land had been obtained. As at early 2003 Mr Symond expected that it would take three years to build and require $50 million in funding. As is the case with all home building projects, big or small, it took longer and cost more. The house was completed in November 2006 and required funding of $57 million to complete. 18At various times the Aussie Home Loans Group had external lending arrangements with a number of lenders concerning its home loans and financial products. However from 1998, the ANZ was the only external lender providing finance to the business for its operating needs and Mr Symond personally. Prior to the Restructure Mr Symond borrowed funds from the AHLUT which in turn borrowed funds from the ANZ. The ANZ was aware of the loan arrangements between the AHLUT and Mr Symond and the purpose to which the loan proceeds were being put. Mr Symond personally guaranteed the loans and the ANZ held security over his assets including the land at Point Piper as well as the assets of the business. 19In 2003, Mr Symond informed the ANZ that he needed funds for the construction of his home at Point Piper and the amount of funding needed. The ANZ was informed by Mr Symond that monies loaned through its facility to the AHLUT were being used by Mr Symond to build his home. 20The loans from the AHLUT to Mr Symond were on interest-free terms. Prior to the Restructure no tax had been imposed on their receipt. No issue had been raised with them by the auditors of the Aussie Home Loans businesses. Mr Symond also stated that no issue had been raised with those loans by the ATO, although the extent of disclosure to it was not the subject of any evidence. 21In April 2002 Aussie Home Loans provided ANZ with forecasts for the business suggesting substantial profits and positive cashflow from that time until 30 June 2006. Mr Symond stated that by the start of 2003 "if the Aussie business was making a profit it was only a small one" but that "it was clear to me at the time that Aussie would start making a substantial profit within as little as a year". I accept this evidence. Although the level of profitability suggested by the projections given to the ANZ did not prove to be correct, the trend predicted by them and expected by Mr Symond was borne out. 22At various times prior to 2003 Mr Symond had turned his mind to divesting or diversifying the ownership of the business either by an institutional public offering ("IPO") or sale to another investor. He had preliminary negotiations with a number of potential investors. During those negotiations queries had been raised about the use of a trust as the vehicle that owned and operated the business. This had caused Mr Symond to believe that that form of ownership structure might make any divestment or diversification of ownership "more difficult". Mr Symond's Relationship with Gadens 23In 2002 Mr Jonathan (Jon) Denovan was the managing director of Gadens. Mr Symond first met Mr Denovan in the 1980s when he was working as a conveyancer and law clerk. Mr Symond later formed a joint venture known as Mortgage Acceptance Nominees Limited. Mr Denovan acted as his legal adviser from that time. 24From an early time in the life of the business, Gadens was retained to provide legal advice in relation to the Aussie Home Loan Group's operations and Mr Symond's interests in the business. Mr Denovan was a director of some of the entities within the Aussie group from late 2004 to August 2005. 25In the late 1990s or early 2000s, Mr Denovan told Mr Symond that he should begin preparing for an IPO, and that Gadens could advise on what steps needed to be taken. Gadens opened a new matter called "Project Panther", which involved the preparation of a detailed roadmap for conducting a sale of interests in the business by an IPO. 26Sometime in 2002, Mr Denovan said to Mr Symond, "you oughta get serious and go ahead with doing an IPO now. Gadens can manage it all for you. Our team are experts at IPOs. They are also tax specialists". Mr Symond responded "I could well look at an IPO but my trusts might need to be cleaned up first". Also, at some point in 2002 Mr Symond advised Mr Denovan that he expected the business "to become very profitable in the near future". 27Some time around 2001, Mr Denovan introduced Mr Symond and the Aussie group's then Chief Financial Officer, Mr David Makinson, to Mr Seller. Mr Denovan described Mr Seller as a "top tax expert" who, along with his associate Mr Justin Rossetto, could advise Mr Symond and Aussie Home Loans in relation to taxation issues. 28In or around 2002, Mr Denovan told Mr Symond that Messrs Seller and Rossetto would advise Mr Symond on how to restructure the Aussie group in order to position the business for an IPO. 29Mr Symond recalled attending a meeting in 2002 with Messrs Denovan, Seller and possibly Rossetto, at which Mr Seller explained how the business could be restructured to prepare it for an IPO. Mr Symond recalls Mr Seller saying: "You should do this. We have put together a very smart way to clean things up for you for the future." 30In 2002 discussions were held with potential investors in the business. They did not yield any offer which Mr Symond found acceptable and they ceased in August 2002. 31While these discussions were continuing, advice was sought from Mr Seller. In February 2002 Mr Makinson emailed Mr Seller a proposal for a revised corporate structure and sought his views on "any potential tax issues". Mr Seller replied in an email to Mr Makinson dated 28 March 2002. Mr Seller listed the key issues "with the corporatisation of [the] AHLUT", including "Treatment of Unit Holder Loans". This was clearly a reference to Mr Symond's loans from the AHLUT. 32Despite the negotiations ceasing in August 2002, Mr Makinson still sought advice about the appropriate structure. 33On 3 September 2002, Mr Makinson met with Mr Seller and briefly discussed how the Aussie Home Loans Group might go about effecting a restructure. Later that day, Mr Makinson emailed Mr Symond and summarised the discussion. He identified one of the priorities as being to "optimise [the] unitholder tax position". Restructure up to 30 June 2003 34Mr Seller stated that in January 2003 he was invited to join Messrs Symond and Robert Wannan at the cricket. Mr Wannan was a non-executive director of some of the companies in the Aussie Home Loans Group from 4 May 2001 to 27 October 2008. He says that Mr Symond raised the corporatisation issue with him and requested that he pursue it "although [it was] not vitally critical today". Both Mr Symond and Mr Wannan recalled the occasion but not the conversation described by Mr Seller. I accept that it occurred. 35In late 2002 or in early 2003 Mr Symond had a conversation with Messrs Makinson and Wannan regarding the proposed restructure of the Aussie group. Mr Makinson was the Chief Financial Officer of the Aussie Home Loans Group from September 2001 to September 2006. Mr Symond stated that during one of those conversations he said words to the following effect: "I think we should maybe consider a restructure, which will require unravelling the trusts and setting up a clean shell, so it will be less complicated in the future to do an IPO or let an investor come in. I need you to make sure Gadens and any other advisers involved look out for my interests and address the fundamental issues. I don't understand the technicalities. But there are a couple of deal breakers. They are: (i) I want to be able to retain the existing tax losses which I have in my trusts; (ii) I want to be able to continue to borrow funds from the trusts as I am currently doing without incurring any additional tax. I have already drawn down about $17 million and the construction of my house is underway. I have to be able to continue with that; and (iii) any restructure or arrangement set up has to be 100% compliant with the tax regulations. I can't risk any problems with the ATO. I need to focus on the business. It's getting there but it isn't there yet and any issues with the ATO may jeopardise the business's future. I have a reputation to maintain. The last thing I want is for the media or the public to think I'm some kind of tax cheat, or that I've done something wrong. Everything has to continue to be squeaky clean." 36I accept that this conversation occurred and it encapsulated Mr Symond's state of mind. Mr Symond instructed Messrs Makinson and Wannan to seek appropriate advice from Gadens regarding corporatisation and provide their recommendations based on that advice. 37On 17 February 2003, Mr Seller sent an email to Messrs Symond, Makinson and Wannan. The email stated: "The Corporatisation issue is also important and needs to be resolved and finished this Financial Year as the necessary [Capital Gains Tax] rollovers to make it work come to an end on 1 July. I briefly discussed these matters with [Mr Wannan] and [Mr Symond] in January. Perhaps we should all formally meet to set all this straight." (emphasis added) 38Mr Makinson responded the next day, saying he would "set up a [c]orporatisation meeting asap". 39On 20 February 2003, Messrs Makinson and Wannan met with Messrs Seller and Rossetto. Mr Wannan recalls that there was a discussion at that meeting as to how the business could be corporatised. A partner from the Aussie Home Loans Group's auditors, Ernst & Young ("E&Y"), Mr John Buttle, attended to discuss the accounting treatment of goodwill in the event that corporatisation was pursued. Mr Seller recalls Mr Buttle stating that if they "put the business into a new structure" it would be necessary to amortise goodwill. Mr Seller states that he told those present at the meeting that they would need to look at Mr Symond's "loan accounts and the effect of Division 7A as it would apply to the arrangement but [it] would be assisted by the amortisation of goodwill in the short term". He says he inquired as to the state of Mr Symond's loan account and that Mr Wannan replied that it was "about $10 million". Mr Seller says that he commented that that "we need to look into this for the purposes of Division 7A to avoid it becoming a deemed dividend". Neither Mr Wannan nor Mr Makinson recall these comments. However I accept that words to this effect were stated by Mr Seller. 40Mr Wannan recalls that it was agreed at the meeting that Gadens would prepare an advice on corporatisation. Consistent with that recollection, on 14 March 2003, Gadens sent a letter of advice (the "14 March 2003 Advice") outlining a proposed corporatisation strategy for the Aussie group. The advice had a space for signature for Mr Seller and another Gadens partner. It was attached to an email from Mr Rossetto to Messrs Symond, Makinson, Wannan, Denovan and Seller. 41The 14 March Advice 2003 described itself as a "report" and described its scope as follows: "This report will discuss the following:  the final corporatisation strategy.  The tax implications associated with the strategy.  A discussion of how the corporatisation will be affected by the new Consolidations Regime.  A discussion of how the corporatisation will be affected by the new General Value Shifting Regime (GVSR);  The tax implications associated with the existing loans from [the AHLUT] to [Mr Symond] and the most beneficial way to treat these loans going forward.  The Corporate law issues associated with the corporatisation such as re-negotiation of contracts." (emphasis in original) 42The 14 March 2003 Advice suggested that "the simplest way to restructure the Aussie group is to roll-over the AHLUT into a company" (New Co). It proposed the transfer of the assets of the AHLUT to that company, the disposal or redemption of the units in the AHLUT and the issue of new shares by New Co to the unitholders. In relation to My Symond's loan, it stated: "Loans to [Mr Symond] At present, there is a loan arrangement between the AHLUT and [Mr Symond] allowing [him] to withdraw funds from the trust on a monthly basis. We must decide how to treat these existing loans in light of the corporatisation and also decide how to treat this arrangement going forward. Before we provide you with written advice on this topic, we will discuss the various options available to you in conference." 43In cross examination Mr Seller said that he understood that any proposal he came up with for corporatising the Aussie group had to address matters such that any loans to Mr Symond would be received by him in the most tax efficient way. 44A conference was held on 17 March 2003 between Messrs Seller, Denovan, Makinson, Wannan and representatives of E&Y. Mr Makinson took his copy of the 14 March 2003 Advice to the meeting. He made notes on the front page. Mr Makinson says it was his usual practice to raise any issues noted down at meetings. The first note comprises a list of what Mr Makinson stated were the three "important issues", the second of which is "Loans to [Mr Symond]". Further down in the left-hand margin on the front page, Mr Makinson wrote: "How will [Mr Symond] access $$ going forward?". An email from the representatives of E&Y present at the meeting to Mr Makinson sent at 5.00pm on that day contains a list of "Key Issues" which are said to have potential tax consequences for the unit holders. Two of those issues are "Loans to [Mr Symond] - Existing" and "Loans to [Mr Symond] - Prospective". 45Mr Wannan recalls that he stated the following: "[Mr Symond] has 3 particular needs and any restructure would have to address them, those needs being: (a) to unlock equity in the context of a future sell down or IPO; (b) to continue to borrow funds tax free without any Division 7A problems in order to complete the construction of his home at Point Piper; and (c) to preserve the existing tax losses in the business. He also has obligations in relation to the option documentation with [Mr Paten] under which he has an option to purchase [Mr Paten]'s 10% in the Aussie Home Loans Group and [Mr Paten] has a put option entitling him to require [Mr Symond] to purchase that 10%." Mr Wannan also made handwritten notes on his copy of Gadens' letter dated 14 March 2003. Those notes included the entries "Issue: [Mr Symond] existing and future loans" and "Div 7A". 46Mr Seller denied that Mr Wannan or anyone else mentioned Mr Symond obtaining funds to construct his home. Mr Seller asserted that he advised the meeting that the income tax losses of the AHLUT could be carried over into the new corporate structure. He also asserts that he stated, inter alia, that "we'll need to provide a separate advice in relation to the loans covering issues such as Division 7A deemed dividends, [Fringe Benefits Tax] and perhaps Part IVA". He also states that he floated the possibility of Mr Symond selling the "rights to his name" and thereby creating a "debit loan account" which he could draw on. Neither Mr Wannan nor Mr Makinson can recall Mr Seller making those comments. There is no file note to support them. If such a proposal had been floated I would have expected it to have been raised in either an email or in the meeting that Messrs Makinson and Wannan had with him the next day (see below). 47Having regard to the various notes of the meeting I am satisfied that during that meeting someone raised with Mr Seller the necessity of addressing the adverse effects of any proposed restructure on Mr Symond's ability to access funds from the business and, if possible, ensuring that there were none. I am also satisfied that some reference was made to "Division 7A", ie Division 7A of Part III of the Income Tax Assessment Act 1936 (Cth) ("ITAA 1936"). I am not prepared to accept that there was any proposal raised for Mr Symond to sell the rights to his name or that Mr Seller indicated he or Gadens would advise on Division 7A of the Fringe Benefits Tax Assessment Act 1986 (Cth) ("FBTAA") and the anti-avoidance provisions in Part IVA of the ITAA 1936. 48Even if those things had been raised the position would only be worse for Gadens. As I will explain, in their subsequent advices they did not address the potential application of Division 7A, the FBTAA or Part IVA of the ITAA 1936 to the operation of Mr Symond's loan account, but instead made unequivocal statements about him receiving funds "tax free". If Mr Seller had stated on 17 March 2003 that he would separately advise on those matters then his subsequent silence, coupled with the unambiguous nature of the statements he did make, would reinforce the suggestion that those parts of the taxation legislation had no potential operation upon the structure that Gadens suggested. 49On 18 March 2003, Messrs Makinson and Wannan met with Mr Symond to discuss the previous day's conference with Gadens. Mr Symond said words to the following effect: "I do not want to go ahead with a restructure at this time, but get Gadens to look into the fundamental issues of the tax losses and the tax consequences of a restructure on my loans so that we can consider it down the track." 50After the meeting, Mr Makinson sent an email to Messrs Seller, Denovan, Rossetto and Wannan, which was copied to Mr Symond. The email relevantly stated: "[Mr Wannan] and I met with [Mr Symond] this morning to assess his appetite to proceed with corporatisation at this time. One of the key pressures was, until receiving [Mr Seller]'s latest advice, a perceived imperative to get things done by 30 June 2003. It now seems that this imperative does not in fact apply, and based on this, plus our concerns about the scale and cost of the exercise in what is already a very busy time, [Mr Symond, Mr Wannan] and I all agree that we will not proceed with corporatisation at the moment." 51Mr Denovan responded to Mr Makinson's email at 3.47pm, saying he thought the decision "sound[ed] sensible," and suggesting that Gadens prepare "a report on the difference [between Mr Symond]'s loan accounts, existing and future, pre and post incorporation (with worked examples)". 52Mr Seller responded to Mr Makinson's email on 20 March 2003. He pointed out that certain provisions providing relief from capital gains tax would cease on 30 June 2003. He suggested that: "it would be better to commence a strategy now to bring about the corporatisation within the next 12 [months at] the outside." 53This prompted a further meeting on 11 April 2003, attended by Messrs Makinson, Wannan, Seller and Rossetto. Mr Symond was overseas at the time. 54At that meeting, Messrs Makinson and Wannan explained their and Mr Symond's reasons for deferring corporatisation. Mr Wannan recalled Mr Seller responding with words to the effect of, "I think you've made the wrong decision and you ought to proceed with a restructure this year". Mr Seller denied saying this. Mr Wannan also recalls that either he or Mr Makinson stated that the 14 March 2003 Advice "doesn't really deal with [Mr Symond]'s personal issues" and told Mr Seller that: "You have also not provided us with any definitive advice yet about whether [Mr Symond] can continue to take loans from the business without any tax consequences. ... [Mr Symond] has an ongoing need to fund the construction of his home and to get the funds for that project tax free if possible. Your advice therefore must address the personal consequences for [Mr Symond] ..." Mr Seller did not address this part of the conversation as recounted by Mr Wannan but did deny that any reference was made to Mr Symond constructing his own home. Mr Wannan recalled Mr Seller agreeing that not all of these issues had been addressed but indicating that he would do so. Mr Seller could not recall saying words to that effect. 55In his affidavit Mr Seller set out a detailed description of what was stated during the meeting on 11 April 2003. He recounts a dialogue between himself, Mr Makinson and Mr Wannan about Mr Symond accessing "more cash going forward" and Mr Makinson stating that it "should all sort itself out in the short term in any event because we are expecting to have a significant equity deal or initial public offer within the next three years". Mr Seller stated that Messrs Wannan and Makinson exchanged jocular references to Mr Symond's spending habits and that he, Mr Seller, noted that Mr Symond's loan account balance was $17 million and inquired about his spending rate. He says that Messrs Wannan and Makinson referred to Mr Symond buying a "boat" or a "helicopter". He states that the following conversation ensued: Mr Seller: "Well being sensible how much would he really need in the short term until there is an external investor of some sort? There is always a Division 7A issue that must be considered whenever Mr Symond receives a loan or payment from a company whether directly or indirectly through a trust. If the company has distributable profits or surplus then the [ATO] would seek to characterise the loan or payment as a deemed dividend under Division 7A. Whilst there is no accounting profit, especially given the write off of goodwill for the next few years, I don't expect there to be accounting profits in the group which would mean that there is unlikely to be a significant tax problem with Division 7A. This would change though if the group became profitable in an accounting sense. The amortisation of goodwill reduces accounting profit which in turn reduces the chance of there being a distributable surplus for the purposes of Division 7A. Whilst goodwill amortisation occurs it is highly unlikely that the group will have a distributable surplus and would be very difficult for the [ATO] to try to apply Division 7A or alternatively to try and apply Part IVA." Mr Makinson: "Yes I understand." Mr Wannan: "Yes I understand." Mr Makinson: "It should not be a problem in the short term as there are unlikely to be any significant profits from the group's operations in the next three years and also cash flow is reasonably tight so he would not be able to afford to fund too much in any event." Mr Seller: "So if we deal with the $17 million and added a similar amount would that be enough by way of potential draw downs possible in the future as a return of capital?" Mr Makinson: "I'm not sure, [Mr Symond] can spend quite a lot of money." Mr Makinson laughed again. Mr Wannan also laughed again and said: "Yes he can." Mr Seller: "Well it would be preferable to borrow outside the group if it is anticipated that significant amounts are to be drawn down and leave a fairly open-ended amount that he could borrow with a guarantee say from the group. That would virtually eliminate the deemed dividend risk." Mr Makinson: "What do you mean - borrow in [Mr Symond]'s name?" Mr Seller: "Well yes, either in his name or [the name of] one of his entities. It would be the easiest way to accommodate any demand for funds [Mr Symond] may have in the short term." Mr Wannan: "[Mr Symond] does not want any borrowings in his name or outside the group. He wants them all inside the operating entity." Mr Makinson: "Yes I agree that is right." Mr Wannan: "I will talk to [Mr Symond] about it and come back to you." 56Messrs Wannan and Makinson denied Mr Seller's version of this discussion, especially the references to Mr Symond's spending or that Mr Seller proffered advice about the potential operation of Division 7A or Part IVA. 57I do not accept the conversation as recounted by Mr Seller occurred. Mr Seller made a file note of the meeting but its contents did not support the terms of the conversation he recounted. If there had been a discussion about Mr Symond's spending, then the topic would have turned to the construction of his home and not the possibility of a boat or helicopter. Why would Mr Makinson or Mr Wannan refer to those items when they knew he was spending very large sums on his house? As further outlined below, over the next months Mr Seller provided a number of written advices about the tax treatment of amounts that Mr Symond proposed to withdraw. He did not reiterate any aspect of the oral advice he claims to have given in that conversation. Given the context in which the advice was being sought, if advice of this kind had been proffered it would have at the very least been followed up by a request for Gadens to outline these concerns in writing. 58An internal Gadens' memorandum dated 15 May 2003 relevantly stated: "Aussie decided not to go ahead with the corporatisation. When we met with them on 11 April they gave the following reasons: 1. The existing loans to [Mr Symond] might need to be repaid or commercialised (Div 7A issues). 2. [Mr Symond] may not be able to draw money from the new company without having to pay tax (Div 7A issues). 3. There was uncertainty as to whether the losses may be used by the head entity in the consolidated group. 4. Six months wouldn't be enough time to clear up all corporate issues (ie, reassigning contracts). ... Key concerns Any proposal we put to Aussie must take consider [sic] the following: 1. [Mr Symond] must be able to draw funds from the new company in the same manner (ie, tax free in his hands)." (emphasis added) 59I am satisfied that the first four points in this memorandum record what was conveyed to Mr Seller in the meeting on 11 April 2003 as the reasons for the decision not to proceed with corporatisation. I am also satisfied that Mr Wannan's recollection as to what he conveyed were the shortcomings in the 14 March 2003 Advice is reasonably accurate. It is consistent with what is recorded in the memorandum prepared on 15 May 2003 and with the follow-up email sent by Mr Seller on 12 May 2003 noted below. 60In cross examination, Mr Seller accepted he understood that any proposal that Gadens would put to the Aussie group and Mr Symond had to address the concern that "[Mr Symond] must be able to draw funds from the new company in the same manner (ie, tax free in his hands)", and that any such advice would be provided to Mr Symond for his consideration concerning his personal tax affairs. 61On 12 May 2003, Mr Seller sent an email to Messrs Symond, Makinson and Wannan, saying that Gadens had "gone a long way to solving all the issues we discussed last time as well as the loans issue and a possible uplift of the cost base for [Mr Symond] if and when he sells". Mr Seller also requested another meeting with Messrs Makinson and Wannan. 62On 21 May 2003, Gadens sent a draft letter of advice setting out a new proposed corporate structure for the Aussie group (the "21 May 2003 Draft"). The draft advice was attached to an email from Mr Seller to Mr Makinson, copying Messrs Symond, Wannan, Denovan and Rossetto. 63The 21 May 2003 Draft bore the date 22 May 2003. It stated that its purpose was: "... to present an alternative structure for the corporatisation of Aussie Home Loans (Aussie). We have devised this alternative structure as you expressed some concerns with our original structure when we met with you on 11 April 2003." 64The 21 May 2003 Draft then recited the four concerns listed in the memorandum of 15 May 2003 noted above at [58]. 65The 21 May 2003 Draft continued: "We have since considered these issues and present an alternative structure for the corporatisation of Aussie (alternative structure). The alternative structure addresses all of your above-mentioned concerns and provides significant tax benefits for Aussie." (emphasis added) 66The 21 May 2003 Draft proposed to corporatise the business by interposing a company ("New Co A") between Mr Symond and the AHLUT, and having the AHLUT transfer the operating assets of the business to a subsidiary of New Co A called "New Co B". 67The 21 May 2003 Draft recommended that existing and future loans to Mr Symond be dealt with by the creation of a new special purpose trust, as follows: (a)a special purpose unit trust would be established and the AHLUT would subscribe for 50 million $1 units in the new trust; (b)the new trust would lend $50 million to Mr Symond; (c)Mr Symond would use a portion of the $50 million to repay his outstanding loans to the AHLUT; (d)the remainder of the $50 million would be lent to the AHLUT; (e)the AHLUT would repay that loan to Mr Symond at his discretion; and (f)the entire Aussie group would be consolidated for tax purposes, but the new trust would not be part of the consolidated group. 68The 21 May 2003 Draft included the following diagram of the proposed new structure: 69Crucially, in setting out the steps to be followed, the draft advice stated: "[Mr Symond] will use a portion of the $50 million to repay his outstanding loans to the AHLUT. [He] will then lend the remainder of the $50 million to the AHLUT who will repay these amounts to [him] at his discretion. When the funds are returned to [Mr Symond] via the AHLUT they will be tax-free in [his] hands." (emphasis added) 70Other than this statement, the only discussion of the taxation exposure of Mr Symond in this letter was the following: "John Symond's ability to draw funds from Aussie The concern we have regarding the arrangement with New Trust, is that it may be caught by the interposed entity provisions once the [business] consolidates. The argument would be as follows. After the group consolidates all payments made by the group will be made by New Co A for tax purposes. The interposed entity provisions state that if an amount is paid by a private company to an interposed entity that on-lends those funds to an associate of the private company, the provisions will deem that private company to have made the loan and not the interposed entity. The amount may then be taxed as a deemed dividend in the hands of the associate that received the funds. In the current situation, this may apply where the AHLUT pays $50 million to New Trust who on-lends that amount to [Mr Symond] who is an [associate] of the AHLUT. Prior to consolidations this doesn't pose a problem as the amount is being paid out of a trust and not a company. The question is whether after the group is consolidated, the amounts that were previously paid to New Trust are now deemed to have been paid by New Co A bringing it within the scope of the interposed entity provisions. Provided the units are subscribed for in New Trust by the AHLUT prior to consolidations, the interposed entity provisions should not apply. The provisions may apply if this was done after the group consolidated. In any event we believe that the consolidation should occur on 1 July 2003 to further minimise the consequences of the loans." (emphasis in original) 71This passage was subject to severe criticism by Mr Symond and the tax expert engaged on his behalf for these proceedings, Mr Magid. It was said that it reveals a misunderstanding of the consolidation provisions. It is not necessary to resolve this. The reference to the "interposed entity" provisions is to Subdivision E of Division 7A. They are addressed below at [273] to [275]. At present it is only necessary to note that these were the only caveats placed on the emphatic statement that the return of funds would be "tax-free in [Mr Symond]'s hands". 72On 22 May 2003, a meeting was held between Messrs Symond, Makinson, Wannan and Seller to discuss the 21 May 2003 Draft. It is not clear whether Messrs Denovan and Rossetto were present. Mr Wannan recalls that Mr Seller addressed the 21 May 2003 Draft, stating inter alia: "[Mr Symond] will be able to obtain funds tax free by the introduction of a new trust and loans to and from the [AHLUT]. Under these arrangements there will be no income tax consequences [and] Division 7A will not apply to force the loan to be commercialised as it is dealing with an amount lent from a trust and not a private company. The return of funds to [Mr Symond] via the [AHLUT] is a return of capital and therefore would be tax free in his hands." 73Mr Wannan also recalls Mr Symond stating that he was not across the detail of the proposal but seeking an assurance that Mr Seller had "no doubts about what [he had] told [them] and how the restructure affect[ed] [him] personally" and that the proposal was "squeaky clean" and thus could not cause reputational damage to either him or the "Aussie brand". He recalled Mr Seller responding that "we are confident we have addressed all of your concerns and that there are no problems". 74Neither Mr Symond nor Mr Makinson specifically asserted that Mr Seller said words to this effect. However, Mr Symond identified this as one of the meetings in which Mr Seller provided assurances in similar terms. I address that part of his evidence and Mr Seller's evidence at [160]ff. 75In his affidavit Mr Seller stated that he did not recall the statements attributed to him by Mr Wannan. He recalled a conversation in which Messrs Wannan and Makinson expressed satisfaction with the structure suggested in the 21 May 2003 Draft and inquired whether the amount available could be increased above $50 million. Mr Makinson did not recall this, Mr Symond said he recalled it in "general terms", and Mr Wannan did not dispute its substance either. 76I accept that Mr Seller said words to the effect attributed to him by Mr Wannan and that part of the meeting transpired in the manner suggested by Mr Seller. The end result is at this meeting Mr Seller reiterated the clear and emphatic terms of the 21 May 2003 Draft so far as it concerned the tax free receipt of loan funds by Mr Symond and Mr Symond and his advisers were satisfied with that advice. 77On 20 June 2003, Gadens sent a revised letter of advice that bore the date 19 June 2003 (the "19 June 2003 Advice") to Mr Makinson. This letter was in similar terms to the 21 May 2003 Draft regarding the corporate structure proposed by Gadens and the taxation consequences of implementing that structure. It addressed a number of additional topics that are not relevant. The 19 June 2003 Advice contained the same statements as noted in [63] and [65] above, and the statement in [69] that "[w]hen the funds are returned to [Mr Symond] via the AHLUT they will be tax-free in [Mr Symond's] hands". It also advised that the entire group would be consolidated for tax purposes, but not the new trust referred to in the diagram in [68]. Instead of the passage immediately following the heading "[Mr Symond]'s ability to draw funds from Aussie" set out in [70], the 19 June Advice stated: "5. [Mr Symond]'s ability to draw funds from the consolidated Aussie We are of the opinion that [Mr Symond] can withdraw funds from the group by way of repayment of his new loan account. We do not believe the interposed entity provisions in Division 7A of the [ITAA1936] will be applicable once the Aussie group consolidates. These rules may have applied if the AHLUT pays $50 million to New Trust who on-lends that amount to [Mr Symond] post consolidation. A question also arises whether after the group is consolidated, the amounts that were previously paid to New Trust are now deemed to have been paid by New Co A bringing it within the scope of the interposed entity provisions. Our opinion is that provided the units are subscribed for in New Trust by the AHLUT prior to consolidation, the interposed entity provisions should not apply. The provisions may apply if this was done after the group consolidated. In any event we believe that consolidation should occur on 1 July 2003 to further minimise the consequences of the loans." 78Mr Rossetto's email attaching the 19 June 2003 Advice also included a covering letter "explaining what needs to be done before 30 June 2003" and suggested a "meet[ing] ... to discuss the revised advise [sic] and agree on what steps should be taken before 30 June". 79Messrs Makinson and Rossetto exchanged emails on 23 June 2003 about setting up a meeting with Mr Symond to "walk [him] thru [sic] the proposal". During that exchange Mr Rossetto reiterated the time pressures involved, stating that "the new structure needs to be in place by 30 June 2003". 80One topic that had to be addressed was the position of Mr Paten. On the evening of 23 June 2003, Mr Rossetto emailed a letter of advice to Messrs Makinson, Wannan and Seller. The letter was entitled "[Mr Paten] trust arrangement" and Mr Seller was listed as the author. Under the heading "Advice" the letter stated: "The trust arrangement as outlined in our letter of 19 June is as follows: 1. A special purpose unit trust (New Trust) is first established and the AHLUT subscribe [sic] for a set number of $1 units in New Trust. In [Mr Symond]'s case it will be $50 million. (emphasis in original) 2. At the same time a party close to Mr Symond (even [Mr Symond] himself) [will] subscribe for some special 'control' units in New Trust. The person who holds these special units will ultimately control New Trust. 3. New Trust then lends those funds to [Mr Symond]. 4. [Mr Symond] the [sic] uses a portion of the $50 million to repay his outstanding loans to the AHLUT. 5. [Mr Symond] then lends the remainder of the $50 million to the AHLUT who will repay these amounts to [him] at his discretion. When the funds are returned to [him] via the AHLUT they will be tax-free in [his] hands as they represent a return of capital. For a detailed discussion of the tax implications associated with these steps please refer to our original advice." (emphasis added) 81On 25 June 2003, a meeting was held between Messrs Makinson, Wannan, Seller, Rossetto and other Gadens representatives. There was a discussion concerning the requirements for implementing the restructure. Mr Wannan raised a concern about the impact of the restructure on Mr Paten. He recalled Mr Seller agreeing to prepare a letter concerning the effects of the restructure on Mr Paten and to provide him with an assurance that he would not be materially disadvantaged. Mr Wannan advised those present at the meeting that Mr Symond had stated that the cost of building his home had increased and requested that the amount of borrowing be increased from $50 million to $75 million. He recalled Mr Seller stating "that won't be a problem". Mr Seller did not deny that there was a discussion about Mr Paten or increasing the amount of the borrowing, but denied knowledge that it was connected to Mr Symond's construction of his home. I have already found that he was aware that Mr Symond was proposing to continue to draw down funds to build his home. I accept Mr Wannan's evidence. 82A further meeting took place the following day on 26 June 2003. This time both Mr Symond and Mr Paten were present. The details of the Restructure were explained to Mr Paten, who requested a written assurance that he would not be adversely affected. Mr Symond responded that he was prepared to provide a signed undertaking to that effect, based on the advice he had received from Gadens. 83Mr Wannan recalled that the 19 June 2003 Advice was discussed and that Mr Seller said: "[Mr Symond] will not be adversely effected [sic]. There will be no Division 7A problems, no capital gains tax concerns and both the existing loans and future loans will be able to continue unaffected." In cross examination Mr Seller stated that he did not recall using these words but agreed that it was possible he said "something along those lines" and it was "consistent in [his] view" with Mr Symond's tax position personally as at June 2003. I am satisfied he said those words. 84Mr Wannan also recalled that either he or Mr Makinson asked Mr Seller whether there was "any chance of Part IVA applying". Mr Seller responded with words to the effect of "I do not believe Part IVA is relevant at all". This part of the conversation was not taken up with Mr Seller in cross examination. 85Mr Wannan recalls that at one point during the meeting, Mr Paten said words to the effect: "I do not want to be worse off in the same way as [Mr Symond] doesn't want to be adversely affected." Mr Seller replied: "[J]ust as for [Mr Symond], there will be no tax issues of concern which will arise for [Mr Paten] from the corporatisation." 86In cross examination Mr Seller stated that he could not remember saying those words but was not prepared to deny stating them. I am also satisfied that he said those words. 87In his affidavit Mr Seller recounts a discussion at this meeting which addressed the position of Mr Paten. He also asserted that there was a "discussion about Division 7A risks and Part IVA risks". During one part of cross examination he stated that he could not recall saying in this meeting that Mr Symond faced Division 7A or Part IVA risks. However, when he was later shown his affidavit he asserted that "[t]hat's the sort of thing that most definitely would have been said at these meetings, yes". In a context where Gadens' written advice was unequivocal and made no reference to any such risks this was not the type of matter that "would have been said". I am not satisfied that Mr Seller made any such statement. To the contrary, I find he did not. 88On 30 June 2003, a settlement meeting was held to sign the settlement documentation for corporatisation. The meeting was attended by Messrs Symond, Wannan, Seller and Paten, as well as other lawyers from Gadens. 89In his affidavit Mr Seller stated that during this meeting he told Mr Symond that "[t]here is always a risk in drawing money out of a corporate group, but I believe this restructure works". Mr Symond denied being told this. In cross examination Mr Seller recalled a brief conversation in the "hallway" but could not remember giving any warning about tax risk. Later he said that he certainly gave a warning about Division 7A. I do not accept that he made any reference to Division 7A or Part IVA in any conversation between himself and Mr Symond on 30 June 2003. 90Upon execution of the relevant documents, the following transactions were effected: * Holdings was interposed between the AHLUT and its unit holders, with the unit holders receiving shares in Holdings in the same proportion to their unit holdings in the AHLUT in exchange for their units, pursuant to a Sale and Subscription Deed; * AHL Investments Pty Limited ("Investments") was established as a 100% subsidiary of Holdings; * Mr Symond transferred nine shares and Mr Paten transferred one share in Aussie Home Loans Holdings Pty Ltd - being its entire issued share capital - to Investments; * a new trust, the Alice Trust, was created, with twenty ordinary units issued to the AHLUT on creation; * the AHLUT subscribed for 75 million $1 ordinary share units in the Alice Trust; * Mr Symond subscribed for 10,000 A-class units in the Alice Trust; * the Alice Trust made loans totalling $75 million as follows: * a. $837,369.12 to the Dawnraptor Trust; * b. $9,365,681.20 to the Symond Investment Trust; and * c. $64,796,949.68 to Mr Symond; * the Dawnraptor Trust and the Symond Investment Trust used the proceeds of the loans from the Alice Trust to repay their loans to the AHLUT; and * Mr Symond used the proceeds of the loan from the Alice Trust to: * a. lend $1,725,637.93 to Mr Paten; * b. repay a loan from the AHLUT, in the amount of $5,333,310.62; and * c. lend $57,738,001.13 to the AHLUT. 91Mr Symond also signed a letter addressed to Mr Paten stating that it was his intention and that of all the parties he controlled that the Restructure did not "change [Mr Paten's] position in any manner which causes material detriment" and undertaking to "amend all documentation and do all other things necessary to ensure that the Restructure does not have any material adverse effect" on Mr Paten should he discover such a consequence after the Restructure was effected. 92This letter was drafted by Gadens. It demonstrates the very high level of reliance placed by My Symond on Gadens at the time. The letter potentially made Mr Symond liable to take unspecified action ("all things necessary") in favour of Mr Paten should the Restructure prove detrimental. 93On 9 July 2003, Gadens sent a letter to Mr Symond confirming that the Restructure had taken place on 30 June and summarising the transactions that had been effected. 94The effect of the transactions described in [90] above was that as at 1 July 2003 the ownership structure of Aussie Home Loans was as follows: 95As between Mr Symond and Mr Seller there is a significant dispute in their evidence as to whether in the period up to 30 June 2003 Mr Seller made reference to any tax risks for Mr Symond in withdrawing funds under the proposed structure. I have already resolved aspects of that dispute but I return to determine the balance of it at [160]ff below. 1 July 2003 to 1 July 2004 96On 16 July 2003 Mr Seller sent an email to Mr Makinson communicating an intention to add to the Restructure "the issue of redeemable shares" in place of the "loan from [Mr Symond] to Aussie" which at that time was a loan from him to the AHLUT. This was the first reference in the evidence to the use of redeemable preference shares (RPS). 97Also in July 2003, the ANZ approved a loan facility with the Aussie group that had an overall limit of just over $45 million. 98On 25 July 2003 Messrs Seller, Makinson and Wannan held a meeting in which Mr Seller proposed capitalising the loans by issuing the RPS. Mr Seller recalls Mr Wannan suggesting that this arrangement would assist in complying with lending conditions to be imposed by the ANZ on a new facility. Mr Wannan denied stating that. It is not necessary to resolve that dispute. 99On 29 July 2003, Gadens sent a letter of advice (the "29 July 2003 Advice") which proposed a strategy for capitalising the loan from Mr Symond to the AHLUT. It relevantly stated: "This letter should be read in conjunction with our letter to you of 19 June 2003, which outlined the final corporatisation strategy implemented by Aussie on 30 June 2003. The capitalisation of the loans between the members of the Aussie group may be viewed as an additional step to the overall corporatisation strategy. Capitalisation strategy The strategy for capitalising the loan from [Mr Symond] to the AHLUT is as follows: 1. [Mr Symond] will subscribe for 57,738,001 $1 redeemable preference shares in [Holdings] ...; 2. [Mr Symond] will pay for the shares by way of promissory note; 3. [Holdings] will then subscribe for 57,738,001 units in the AHLUT and will pay for those units by endorsing the promissory note received from [him]; 4. The AHLUT will then repay the loan to [Mr Symond] in full by endorsing the promissory note it receives from [Holdings]. The net effect is that [the] AHLUT no longer has a loan from [Mr Symond] and [he] is the holder of 57,738,001 redeemable preference shares in Holdings; 5. [Mr Symond] will then be able to redeem those shares from time to time for cash." 100The only relevant part of the letter addressing the taxation treatment of the funds obtained from redeeming the shares was the following: "Step 5 As stated above, [Mr Symond] will be issued with 57,738,001 $1 redeemable preference shares in Holdings and will pay for those shares by way of promissory note. [He] is therefore contributing $57,738,001 of capital to Holdings. Holdings may periodically return this capital to [Mr Symond] in consideration for redeeming his preference shares. Provided that the value of the distribution of capital to [him] does not exceed the amount paid up on the share, the distribution will be tax free in the hands of the shareholders. For example, if Holdings redeem[s] 1 million of [his] shares, provided he is paid $1,000,000 or less for the shares, it will not be taxable in [his] hands." (emphasis added) 101This letter gave no warnings about any tax risks associated with the receipt of funds following a redemption. 102On 4 August 2003, a meeting was held between Messrs Wannan, Makinson, Seller, Ms Habib and others. Ms Habib has held various positions but from November 2001 until late 2006 she was engaged as Financial Controller. According to Mr Wannan, either he or Mr Makinson asked Mr Seller whether he was "certain that there are no adverse tax consequences in relation to this proposal for [Mr Symond] and [the business]". He stated that Mr Seller replied with words to the following effect: "The capitalisation will provide another layer of protection to [Mr Symond] and there will be no adverse tax consequences associated with capitalising the loans from the Alice Trust to the various [Mr Symond] entities. [He] will be redeeming shares for cash tax free instead of Aussie repaying [his] loans to the Unit Trust." 103Mr Seller denied making this statement. Mr Makinson did not refer to this meeting in his affidavit. Ms Habib was only able to recall that Gadens did not refer to any adverse tax consequences in the meetings she attended in July and August 2003. 104The statement attributed to Mr Seller by Mr Wannan was completely consistent with the terms of the 29 July 2003 Advice. I accept that it was said. It seems to me inevitable that the discussion would have focussed on that advice and the tax position of Mr Symond. If Mr Seller had not reiterated his advice then I would expect the subsequent correspondence to have referred to that. 105On 14 August 2003, Gadens sent a revised letter of advice concerning capitalisation (the "14 August 2003 Advice"). It repeated the comments set out above. 106On 18 August 2003 Gadens sent to Mr Makinson a letter entitled "Capitalisation of Intra Group Loans". It enclosed a bundle of documents that were said to "effect the transactions contemplated by our advice with respect to the AHLUT", ie to convert the loan from Mr Symond to the AHLUT into RPS in Holdings. The letter stated, inter alia, that the preference shares are "not redeemable except out of legally available profits or the proceeds of a new issue of shares made for that purpose". (This advice was reiterated in an email sent by Gadens to Ms Habib on 24 November 2003.) 107Although it is not entirely clear, it appears that these documents were all executed around September 2003. Mr Makinson sought confirmation from Mr Seller that they could be dated 30 June 2003 so that their effect could be reflected in the accounts for the financial year ended on that date. Mr Seller advised that "if it is a formalisation of decisions made earlier then it is not a problem [to backdate the documents]". It is difficult to see how that could be correct given that capitalising the loans was a matter that was only first raised in July 2003. However no issue was raised concerning this with any of the witnesses and it was not suggested that anything turned on it. 108On 30 October 2003, Messrs Seller and Rossetto met with Ms Habib. Mr Seller recalls Mr Makinson being present but neither he nor Ms Habib have any recollection to that effect. According to Mr Seller a conversation to the following effect took place: Mr Makinson: "Will the transfer of assets and the consequential restructuring affect Mr Symond's ability to continue withdrawing funds from the Group?" Mr Seller: "There will need to be a new step, involving the issue of redeemable preference shares by [Investments] to the [AHLUT]. Holdings will then cancel its units in [the AHLUT] and Mr Symond will redeem his redeemable preference shares in [Holdings]. The Division 7A risk will remain. Provided there is no profit in the Group there will be no distributable surplus, so Division 7A should not apply. As you know, there will be no profit whilst the goodwill is being amortised. The Part IVA risk also remains the same." 109Ms Habib denied that Mr Seller made the statement he attributes to himself. She took three pages of notes of the meeting. They do not refer to Division 7A or Part IVA. Mr Makinson denies he was present when any such risk was outlined. 110In cross examination Mr Seller was referred to the notes he took of this meeting but was unable to nominate any part of those notes which referred to a discussion concerning Division 7A or Part IVA. This is another occasion on which Mr Seller asserts he provided a verbal warning which detracted from the emphatic nature of the written advice he provided, yet there is no documentary evidence to support his assertion and much against it. I do not accept his evidence as to what was stated during this meeting. 111On 19 November 2003, Mr Seller wrote to Mr Makinson setting out "a summary of the reasons why the assets of the [AHLUT] should be transferred to [Investments]". The letter advised that if the business was to remain an asset of the AHLUT and there was to be a sale or float of Mr Symond's shares in Holdings, then the due diligence process would disclose the arrangements with the Alice Trust to third parties. 112On 4 December 2003 at 9.58am, Mr Seller emailed Mr Makinson stating, inter alia: "[E&Y has] asked that we prepare an advice covering Part IVA issues (if any) to do with the Alice trust. I am happy to do this and will but am unsure of its relevance to the audit. However an advice dealing with the Part IVA issues of the corporatisation and consolidation would be relevant. As a result I though[t] we should do a Part IVA type advice for the consolidation [and] corporatisation issues. A separate advice should cover the Alice trust. Please advise." 113At 10.27am, Mr Makinson responded: "Will be guided by you on whether we need a wider Part IVA advice - I thought we had largely covered this off in earlier advices?" 114Mr Seller replied on 5 December 2003: "The advice needed would need to cover the whole transaction. It would be a worthwhile exercise to have it on file. There was a document released recently by the ATO dealing with their views on anti avoidance and Part IVA. In my view we fit favourably within the circumstances set out in that document. Our advice should refer to that. Would you like me to contact [E&Y] in that regard and Steve [Danielson]?" 115Gadens prepared a draft of this advice but it was not tendered. In his affidavit Mr Seller noted that one version of the draft was marked "[t]his letter was never sent by Gadens to the client" and another version was marked "NOT SENT". Mr Seller stated that he could not recall it being sent but that "it may have been sent as a draft as it was my practice to do so". I am not satisfied that it was. 116In the latter part of 2003 through to the first half of 2004 consideration was given to the transfer of the operating assets from the AHLUT to Investments. One issue arising from that transfer and the corporatisation steps effected on 30 June 2003 was the accounting treatment of goodwill. On 6 January 2004 E&Y advised that "Aussie" (presumably Holdings) would be required to amortise goodwill in its published accounts up to 30 June 2005. For accounts prepared after that time the introduction of a new accounting standard would no longer require that although the accounts for the year ended 30 June 2006 would still need to show a comparison with the accounts for the previous years. 117On 1 July 2004 Aussie Home Loans Ltd as trustee for the AHLUT and Investments entered into a Business and Asset Sale Agreement the effect of which was to transfer the operating assets from the AHLUT to Investments. The consideration for the transfer was not specifically stated in the agreement but having regard to valuations that were prepared it was likely to be well in excess of $100 million. The agreement records that it was paid by Investments issuing ordinary shares of $1 each to the AHLUT. However correspondence between Gadens and Aussie Home Loans in July and August 2004 clarified that part of that share issue had to be in the form of RPS as that would enable the AHLUT to draw funds from Investments and then pass them to Holdings for provision to Mr Symond. 118Thus after this final step in the Restructure the ownership structure of the Aussie Home Loans Group was as follows: Redemption of the Redeemable Preference Shares 119On 30 June 2004 Messrs Seller and Rossetto sent a memo to Mr Makinson and Ms Habib outlining how the distributions via the RPS should be effected (the "30 June 2004 Memo"). At the time of that memo the transfer of the operating assets to Investments was anticipated to occur very soon. The memo recounted the current method of redemption whereby the AHLUT redeemed units held by Holdings and then Holdings redeemed RPS held by Mr Symond. Under the heading "Tax implications associated with these steps" it addressed the application of the capital gains tax regime to the redemption process and added: "Tax will only be payable where the amount paid to [Mr Symond] for a particular share exceeds his cost base in that share (emphasis in original). Essentially this means that $57,738,001 may be distributed to [Mr Symond] tax-free." (emphasis added) 120Although in context the word "tax" was a reference to capital gains tax, the memo does not even hint at the possibility of the imposition of other forms of tax on the receipt by Mr Symond of funds from the redemption process. 121The memo also outlined how the redemption process would operate after the transfer of the operating assets to Investments. Investments would redeem the RPS held by the AHLUT, which in turn would redeem the units held by Holdings and Holdings would redeem the RPS held by Mr Symond. In relation to the tax treatment of that process it advised that "[t]he same principles will apply". 122On 1 July 2004 Mr Seller states that he attended a meeting with Ms Habib and Mr Makinson. Neither Ms Habib nor Mr Makinson could recall attending such a meeting. Mr Seller recalls that Mr Makinson said that the auditors needed to agree to the "process of dealing" with the RPS, and asked him (Mr Seller) to "conduct a review of the arrangement for Division 7A risk purposes". Mr Makinson stated that he did not recall attending the meeting or making such a request. Ms Habib cannot recall attending the meeting or the conversation asserted by Mr Seller. She denies that Mr Makinson suggested in her presence that the auditors agree to the process for redemption, as she states that was a process she sought Gadens' advice on. 123In the end result I am not satisfied that the conversation that Mr Seller asserts occurred on 1 July 2004 in fact happened. The likelihood that Mr Makinson spontaneously requested a review of the arrangement involving the RPS for "Division 7A risk purposes" strikes me as unlikely in view of the emphatic advice from Gadens to that time. The only correspondence that addressed Division 7A was the exchange next noted which concerns the limited issue of a potential Division 7A exposure if sufficient redemptions were not documented in a financial year to cover the amounts taken out by Mr Symond. 124On 12 July 2004, Mr Rossetto sent by email a memorandum entitled "Tax Queries" to Ms Belinda Meyers and Ms Mary Habib, copied to Mr Seller. The memorandum was apparently responding to certain queries raised by the business, the first of which was: "Given that there were a number of ad hoc 'redemptions' over the course of the year, can these redemptions be treated as advances to a standard annual redemption which is reconciled and formalised at the end of each Financial Year? Current transactions are treated as such for other arrangements within the organisation." 125The response to this question from Mr Rossetto stated that he assumed that a loan arrangement would be put in place to cover the ad hoc extraction of funds during the year pending the final redemption with the proceeds of that redemption wiping out the loan balance. He added: "Please note that the redemption of the units/shares should be done before 30 June each year. This is extremely important as there may be a Division 7A (deemed dividend) problem if there is an outstanding loan at year-end. The redemption should be finalised before this time each year." (emphasis in original) 126On 19 August 2004, Mr Makinson sent an email to Messrs Seller and Rossetto, which relevantly stated: "I've just come from a meeting with [the] ANZ, the upshot of which is that they are proposing to fund the bulk of the construction costs of [Mr Symond]'s house via a new commercial facility to Aussie to the tune of some $20-23 million. I am going on the assumption that these funds would be remitted to [Mr Symond] via the usual mechanism of redemption of the redeemable preference shares. Can you confirm? Also - are there any other particular concerns I should be aware of, given the quantum of funds involved?" 127On 25 August 2004, Mr Rossetto responded to Mr Makinson's query, which was copied to Ms Habib and Mr Seller. Under the heading "Loan to [Investments]", the email stated: "If it is a loan to [Investments] we assume that [Investments] will draw down on the loan periodically to make payments for [Mr Symond]'s house. If so, the funds should be moved from [Investments] to [Mr Symond] via the normal redemption process. However, before this can be done Investments and [the] AHLUT will decide on the final purchase price for the 1 July 2004 transfer. This is important as [Investments] still has to issue ordinary and redeemable preference shares to the AHLUT as consideration. The number of redeemable preference shares will equal the $57 million (approx) less what was paid to [Mr Symond] over the last financial year. The remaining shares issued to [the] AHLUT will be ordinary shares. [Mr Symond] will then access funds from Aussie via the previously used redemption process. The difference post 1 July 2004 is that there will be another layer to the redemption. [Investments] will redeem shares held by [the] AHLUT on a dollar for dollar basis then the AHLUT will redeem units held by Holdings on a dollar for dollar basis then Holdings will redeem some of the redeemable preference shares held by [Mr Symond] on a dollar for dollar basis. There should be no other tax issues associated with this transaction." 128Other than the limited reference to Division 7A in the email noted at [125], none of these communications from Gadens contained any warning of any possible adverse tax consequences from the redemption of RPS. 129During the period from 30 June 2003 to early 2006, Mr Symond withdrew funds from the business by redeeming the RPS. The total amount that Mr Symond received by way of redemptions over that period was $57,662,999.70, comprised of $20,652,804.70 in the year ended 30 June 2004, $16,251,485.00 in the year ended 30 June 2005, and $20,758,710.00 in the year ended 30 June 2006. Consistent with the above exchanges, it appears that amounts were withdrawn spasmodically with subsequent redemptions being effected to regularise the withdrawal of funds. Mr Seller's Move to Abbott Tout and the ATO Risk Review 130In or about January 2005, Messrs Seller and Rossetto left Gadens to join Abbott Tout. They continued to provide legal advice to Mr Symond and the business on taxation matters. 131In May 2004 Mr Seller alerted Mr Symond to what he described as the ATO's "[H]igh Net Worth Individuals Task Force", which appears to be a group within the ATO that applies a level of scrutiny, less than that involved in a full tax audit, to individual tax payers with a net worth in excess of $30 million. On 16 February 2005 the ATO wrote to Mr Symond, care of Mitchell & Partners, advising that it was conducting a review of his income tax affairs and seeking his response to certain questions which were attached. The questions posed were of a general nature. 132Also in February 2005, Abbott Tout was engaged to review the 2004 income tax returns of the Aussie group. No consideration was then given to the tax treatment of the RPS. 133In April 2005 E&Y raised a number of queries including whether the ATO could apply the anti-tax avoidance provisions in Part IVA of the ITAA 1936 to aspects of the Restructure. They noted that the application of Part IVA "will depend upon the existence of a tax benefit" but that whatever the outcome of such application, "these transactions are likely to raise the interest of the ATO, and are therefore likely to come under scrutiny". Ms Habib forwarded E&Y's concerns to Abbott Tout and requested that it prepare a response. 134Abbott Tout first responded to E&Y's queries in a letter dated 21 April 2005 addressed to Ms Habib. It simply stated that Part IVA would not be applicable because "[t]here is no tax benefit associated with the implementation of this structure since the taxable position of the entities involved has not changed based on the apportionment of any future taxable income". 135Abbott Tout expanded upon this response in a letter dated 13 May 2005 also addressed to Ms Habib. It asserted that there were "valid commercial reasons associated with [the] implementation" of the Restructure which could defeat the application of Part IVA. However it is notable that its explanation of the Restructure is confined to only that part which involved the corporatisation, ie the insertion of Holdings. It omitted any reference to the transactions involving Mr Symond's loan account, the Alice Trust, the loan of funds to the AHLUT and the conversion of that loan into RPS. In relation to the question of tax benefits, the letter stated, inter alia: "In terms of any benefits associated with utilising the consolidation provisions, we note that the newly consolidated group does not enjoy any tax advantages that the old group wouldn't have otherwise had. ... Therefore, we are of the opinion that Part IVA would not apply to the restructure." 136This appears to be addressing the tax benefits to the Aussie Home Loans Group and not Mr Symond. 137In August 2005, the ATO contacted Mitchell & Partners indicating that it wanted further detail in relation to "the restructure of 2003, the redeemable preference shares that were created - the objectives, intentions, outcomes, etc". On 2 August 2005 Mr Makinson forwarded an email from Mitchell & Partners to Messrs Symond and Wannan advising them of this request, and noting: "As you'll see, the ATO has requested a meeting following their recent questionnaire, and their focus is on the corporate restructure and the redeemable preference shares. [Mr Seller] has consistently and unequivocally advised that this aspect does not present any tax risks." In the balance of this email Mr Makinson queried whether Mr Seller and Abbott Tout should continue to be retained. It appears that the next morning Mr Makinson and others met with Mr Rossetto. Mr Makinson sent an email to Mr Symond and Mr Wannan reporting on that meeting which stated: "We met with [Mr Rossetto] this morning and re-walked through the corporatisation restructure. From this, it seemed to all of us that we definitively have the issues covered, and we should therefore be able to satisfy the ATO's concerns. The only potential fly in the ointment would be if the ATO tries to apply the general anti-avoidance provisions, but given that our actions were always driven by clear commercial requirements (and not to minimise tax) it would seem to be difficult for the ATO to succeed if that's the path they end up following." 138Notification of the ATO's request was sent to Messrs Rossetto and Seller. Mr Rossetto prepared a memo for Mr Seller which adverted to Part IVA risks arising from the use of the Alice Trust and RPS. In a note to file dated September 2005 Mr Seller considered the possibility that Division 7A may operate to deem the redemptions of the RPS as dividends but concluded that it would not. Mr Seller subsequently gave consideration in March 2006 as to whether s 45B of the ITAA 1936 applied to the redemption of the RPS and concluded that it did not, principally because profits had not been earned. His memo also rejected the application of Division 7A because he asserted that as at 30 June 2003 Holdings and Investments did not have any distributable surplus (see s109Y in Division 7A discussed below at [149]). He also rejected the application of Part IVA for the same reason noted above, namely he could not see how any tax was avoided, ie how any tax was payable under the counterfactual circumstance. 139There is no evidence that his analysis or conclusions were communicated to anyone at the Aussie group. 140On 8 March 2006 the ATO wrote to Mr Danielson advising that it had "conducted a Risk Review of [Mr Symond] and his group of trusts and companies (the Aussie group) for the income tax years from 1999 to 2004". It attached an outline which was said to be of the "potential risks identified during the review" and invited written representations. The letter also noted that any tax shortfall penalty may be reduced if a party voluntarily discloses the details of the tax shortfall. The attached outline listed two matters, one of which was whether the issue and redemption of the 57,738,000 RPS "are [a] de facto dividend distribution from profits and should be treated as such". 141On 2 August 2006, the ATO wrote to Mr Danielson, inviting him to provide written submissions "in relation to the issue and cancellation of promissory notes and the issue of 57,738,000 redeemable preference shares (REDPs) on 30 June 2003 and the subsequent redemptions of those shares". This was said by the ATO to be a wider issue than that raised in its letter of 8 March 2006. Mr Danielson forwarded the ATO's letter to Messrs Symond, Makinson, Wannan and Seller. 142On 17 August 2006, the ATO sent another letter to Mr Danielson, confirming that, having considered the available materials, the ATO was of the preliminary view that the RPS mechanism "was not a necessary part of the Aussie group restructure and was implemented to enable [Mr Symond] to access untaxed profits of the Group in a tax free form". The letter stated that the ATO considered that the RPS mechanism potentially enlivened Part IVA, s 45B and other provisions of the ITAA 1936 concerning debt forgiveness. Mr Danielson forwarded the letter to Messrs Makinson, Wannan and Seller. 143Mr Seller drafted a response which he sent to Messrs Wannan, Danielson and Makinson on 23 August 2006. It sought to refute the potential operation of Part IVA and s 45B by pointing to the absence of budgeted or actual profits for the financial years ended 30 June 2004, 30 June 2005 and 30 June 2006. Mr Makinson queried the accuracy of those assertions given that the reason for the losses in the years ended 30 June 2004 and 30 June 2005 was the amortisation of goodwill and that an accounting profit had been earned in the financial year ended 30 June 2006. A modified version of his response was provided to the ATO. 144On 27 September 2006 the ATO responded. The authors expressed the view that they were not satisfied that "the issue of the Redeemable Preference shares was a necessary part of the corporate restructure of the Aussie Group in 2003". They pointed out that the corporatisation could have been effected without the issue of the RPS. They also stated that they were "not satisfied on the material provided that the redeemable preference shares were properly redeemed". Understandably they pointed to the apparent contradiction between Mr Symond having redeemed shares that could only have been redeemed out of profits and the assertion in the most recent correspondence that no profits had been earned. 145On 16 October 2006 Mr John McDonald from Aussie wrote to the ATO directly. He accepted that the RPS had not been properly redeemed. He asserted that this was an oversight and that the redemption should have been undertaken by way of capital reduction. He said that the Board was meeting to address the issue and that an application to ASIC for a "no action" letter was under consideration. This letter was applied for in December 2006. The ATO Audit and Settlement with Mr Symond in 2007 146On 6 February 2007 the ATO wrote to Mitchell & Partners advising of its intention to audit Mr Symond and his related entities. The ATO letter relevantly stated that Mr Symond could, should he wish to do so, "make any voluntary disclosure prior to the commencement of the audit". An enclosed document listed the "Issues subject to audit". They included the repayment of Mr Symond's loan to the AHLUT and the issue of the RPS. 147Holdings engaged PricewaterhouseCoopers ("PwC") to act on its behalf in relation to the audit. 148On 28 February 2007, PwC briefed a Queens Counsel to advise on the application of s 45B of the ITAA 1936 in relation to the redemption of the RPS. On 9 March 2007 a further brief was sent to the QC seeking advice on several matters including the application of Division 7A and Part IVA. 149Counsel's advice was recorded in a file note dated 12 April 2007. It was tendered at the trial but subject to a direction under s 136 of the Evidence Act 1995 restricting its use to the fact that advice in those terms was given and not as to its contents. Amongst other matters, the advice suggested that the payments made by way of redemption of RPS may be deemed dividends by the operation of s 109C of the ITAA 1936, although such dividends are limited by the amount of the "distributable surplus" of Holdings determined in accordance with s 109Y. In broad terms the distributable surplus is the company's net asset position less paid up capital. The advice suggested that there was some uncertainty as to the operation of s 109Y in respect of the circumstances of Holdings. However, to the extent that there were recorded profits without allowance for amortisation of goodwill, then s 109Y would not operate to limit the amount that was included as a deemed dividend and there were otherwise reasons to believe that the Commissioner's power to redetermine the distributable surplus under s 109Y(2) may arise. The advice stated that deeming a payment to be a dividend does not give rise to a franking credit, but instead results in a debit from the franking account. The advice also raised the possibility of the application of s 45B of the ITAA 1936. 150On 20 April 2007, PwC Legal forwarded this opinion to Messrs Wannan and McDonald. 151On 7 May 2007 Mr Symond, together with representatives of PwC, attended a conference with the QC. At about this time PwC modelled the tax effect of applying Division 7A and s 45B to the $75 million loan from the Alice Trust, as well as to combinations of the redemptions for the financial years ended 30 June 2004, 30 June 2005 and 30 June 2006. Its calculations appeared to accept the potential for the Commissioner to determine a level of distributable surplus sufficient to embrace the entirety of all of these payments being assessable. Its modelling resulted in a range of exposures between $10.1m and $62.8m, including general interest charge (GIC) but excluding penalties or the effect of deductions from Holdings' franking account. 152On 31 May 2007, Mr Symond's tax return for the financial year ended 30 June 2006 was lodged by his tax agent Mr Danielson. No amount for a dividend was disclosed. 153Between June and December 2007 there was further correspondence between the ATO and those acting on behalf of Mr Symond. 154On 21 December 2007 the ATO wrote to Mr Symond stating that it had concluded its audit. It thanked him for his assistance and acknowledged that there had been no finding of dishonesty or intention to avoid tax. 155On the same day Mr Symond entered into a confidential deed of settlement with the ATO (the "Deed"). Clause 3 of the Deed provided: "3 Acknowledgement of the Taxpayers 3.1 The Taxpayers [Mr Symond and Holdings] acknowledge that the loan amounting to $75m which is payable by Mr Symond to Alice Trust and accounted for as owing to Symond Investment Trust will only be extinguished by the repayment of the debt in full, and will not be forgiven. 3.2 The Taxpayers acknowledge that in the year ended 30 June 2006, Mr Symond was deemed to have received a dividend from [Holdings] in the amount of $11,700,000, by operation of s 109C of the [ITAA 1936], and that Mr Symond is not entitled to a franking credit on this deemed dividend. 3.3 The Taxpayers acknowledge that [Holdings] will debit its franking account in the amount of $5,014,286 in respect of the deemed dividend paid by it to Mr Symond on 30 June 2006." 156The result of these acknowledgments was that Mr Symond agreed to pay an additional $5,975,744.00 in tax as well as a penalty of $597,574.00 and GIC of $445,339.00. 157Mr Symond paid the settlement sum of $7,018,866.10 on 5 September 2008, pursuant to amended assessment notices issued by the ATO on 19 and 21 August 2008. 158On 31 October 2008 Mr Symond sold one third of his ownership interest in the Aussie Home Loans Group to the Commonwealth Bank of Australia ("CBA"). I was not provided with any details concerning this sale nor any evidence as to the manner in which it was negotiated. Further Factual Findings 159I have already addressed a significant number of the primary factual disputes. However there were some other disputes that remain to be resolved. In that regard I make four points. 160First, in his affidavit sworn 16 December 2010, Mr Symond stated that he had a "handful of meetings" with Mr Seller prior to signing the documentation in relation to the first phase of the Restructure on 30 June 2003. He said that at a number of those meetings he said to Mr Seller words to the following effect: "We need to consider preparing ourselves to make sure that if a situation arose to do an IPO or liquidity event we would be ready to go. If we are going to go down the track of being a public company, we should look and act like it for some years before hand. But I need you to make sure that my interests and fundamental issues are covered. If they aren't addressed, then I don't want to go ahead. The fundamental issues and priorities are: (i) to preserve the tax losses in my trusts. I need to be able to use these in the future; (ii) for me to be able to continue borrowing funds in the same way as I am now without incurring any additional tax to fund the construction of my home, which is going to cost a lot more than I first thought; and (iii) that no tax problems or issues with the ATO arise. This has to be 100% compliant with the tax laws and regulations. I don't want to be accused of trying to enter into some kind of scheme. It all has to be 100% above board." 161Mr Symond stated that each time these words were uttered Mr Seller responded with words to the effect that "we understand your fundamental concerns. There won't be a problem; what we are proposing addresses each one of your issues". He also said that Mr Seller stated "we are confident it is compliant with the tax laws and regulations", assuring him that "[y]our requirements have been met in what we've set up. There are no issues. You are covered". 162In his affidavit sworn 21 May 2012 Mr Seller denies stating this to Mr Symond. Instead he states that in May or early June 2003 and again in June 2003 he said to Mr Symond words to the effect: "The corporatisation of the business should not of itself create any taxation issues or problems. The real issues arise out of receiving payments from the group in an essentially tax free form. That raises Division 7A risks and Part IVA risks. We think the structure works but there is a risk that the [ATO] would seek to apply Division 7A or Part IVA." 163In cross examination Mr Seller stated that in the period May to June 2003 "there were discussions about the effects of Division 7A and Part IVA". 164Mr Symond denied receiving any such advice. I accept Mr Symond's denials that he was advised in those terms. I also accept Mr Symond's evidence that he was advised in terms similar to those he states and which I have extracted in [160] above. 165In the period from February to June 2003 there were three direct meetings involving Mr Symond and Mr Seller, conducted on 22 May 2003 ([72]), 26 June 2003 ([82]) and 30 June 2003 ([88]). Those meetings occurred in a context where Mr Symond was in favour of corporatisation but not committed to any deadline. Instead it was Gadens that was urging a quick timetable for its implementation. Mr Symond and those assisting him had repeatedly made it clear that his ability to draw funds from the business with no or little tax exposure was a critical factor in determining whether, how and when to pursue corporatisation. In response Mr Seller and Gadens advised the adoption of a funding structure involving the Alice Trust. On three occasions in this period Mr Seller had stated in writing that Mr Symond's receipt of the funds would be tax free, namely in the 21 May 2003 Draft, the 19 June 2003 Advice, and the letter of 23 June 2003 concerning Mr Paten (see [69], [77] and [80] respectively). There is not a single piece of documentary evidence supporting any suggestion that Mr Seller qualified the written advice in any way. If he had, I doubt that the transaction would have proceeded. 166In these circumstances Mr Seller's version is highly improbable and I reject it. In contrast, Mr Symond's version of their discussion is highly likely. It is broadly consistent with the recollection of Mr Wannan (see [73] and [83] to [85]). I accept it. 167Second, in his affidavit Mr Seller stated that sometime during the first half of 2003 in one of his meetings with Messrs Wannan and Makinson he apprised them of the risk that loans made to Mr Symond could be subject to fringe benefits tax because they might be "seen as deferred income". He also stated that he alerted them to the possibility that loans from the AHLUT might be seen as a distribution of capital and "assessable as a capital gain". He says he told them that "even if there was no corporate structure, significant loan accounts might create a tax problem". 168Both Mr Wannan and Mr Makinson deny ever receiving any advice to that effect from Mr Seller. I accept their denials. Based upon what I have already outlined, their denials accord with the probabilities. There is no documentary evidence to support Mr Seller's assertion. If Mr Seller believed that there was some risk that Mr Symond was exposed to from the current arrangements he would have deployed that argument in his efforts to persuade Mr Symond to pursue corporatisation and do so quickly. If Mr Wannan or Mr Makinson was appraised of such a risk, I expect they would have requested such an advice in writing. 169Third, a number of the evidentiary disputes that I have resolved concern meetings at which Mr Rossetto was present (see [39], [53], [81] and [108]). Mr Rossetto was clearly a witness in Gadens' "camp" and no explanation was given for the failure of Gadens to call him. I draw additional support for my findings in relation to those meetings he attended from the failure of Gadens to adduce evidence from Mr Rossetto or explain why he was not called (Jones v Dunkel (1959) 101 CLR 298). 170Fourth, under the rubric of "causation/reliance" Gadens made a number of submissions directed to the knowledge of Messrs Symond, Wannan and Makinson as to the tax risk Mr Symond was assuming in agreeing to implement the Restructure, which included those elements directed to funding his withdrawals of funds from the Aussie Home Loans Group. Senior Counsel for Mr Symond, Mr Payne SC, submitted that these submissions misstated his client's case, a submission to which I will return. However at this stage it is appropriate that I address Gadens' submission at a factual level. 171Gadens submitted that Mr Symond was aware that the proposed structure involved an element of "round robin payments by promissory notes" and was arranged in a manner to give effect to his instructions that he be able to draw money from the new holding company tax free. It submitted that, as an astute businessman, it can safely be concluded that Mr Symond knew that the arrangement had a significant element of risk which he freely assumed. 172There are two short answers to this submission which Mr Symond made clear in cross examination. First, he made it clear that his objective was not for him to extract money from the business tax free, but to be able to borrow funds without paying "any additional tax". Thus he was asked: "Q. Can we take it that it was a matter of considerable importance to you as at the end of June 2003 that the $60 million or so that was being provided by the ANZ Bank and on lent to you would be in your hands free of tax? A. Free of paying any additional tax. I didn't want - wish to pay double tax. ... Q. Additional to what? A. Well I didn't want any structure that would create unnecessary additional tax over and above the normal tax that we all pay." 173Mr Symond's intention was to borrow money from the ANZ via the AHLUT to construct his home. Like many people, he did not consider it usual to pay tax on the receipts of borrowings for that purpose. He wanted to avoid paying tax on those monies, which he considered "additional tax". This did not mean that he wished to avoid paying tax on other monies which would normally attract tax such as dividends and the like even if the payment of dividends and consequential tax was necessary to avoid the imposition of tax on the borrowing receipts. 174Second, Mr Symond may have initially understood that if such borrowings came via company or trust structures then there was a risk that some tax liability was triggered but in his mind that risk was eliminated by the advice from Gadens: "myself, Makinson, Wannan [were] given assurances that everything was squeaky clean, everything complied, nothing to worry about ...". It follows from the findings that I have made that I accept that Mr Symond, Mr Makinson and Mr Wannan were given assurances to that effect by Gadens. 175Gadens also pointed to other aspects of Mr Symond's and the business' tax arrangements as suggestive of a willingness to accept risk. It pointed to the tax treatment adopted for certain "marginisation" payments which was based on advice from its former auditors in circumstances where Mr Seller had advised that a more cautious tax treatment should be adopted. It also referred to an occasion where the Aussie Home Loans Group acted on more aggressive advice from Abbott Tout regarding the available fraction for carried forward losses, instead of more cautious advice from E&Y. None of these occasions is even remotely close to the circumstances of this matter. This case involves Mr Symond's personal tax position and not some legitimate dispute over the tax characterisation of some aspect of the business. The adoption of a risky tax structure concerning the payment of amounts to Mr Symond was a matter clearly capable of doing significant personal and reputational harm to him, and consequently to the "Aussie" brand. The material that I have referred to above was clear in articulating a need for a very high level of assurance as to his tax position. That level of assurance was provided by Gadens. 176Gadens' submissions on this point also refer to the AHLUT deducting from its taxable income interest paid on that part of its borrowings from the ANZ that were used to build Mr Symond's home for the year ended 30 June 2004. The material does not demonstrate that that was a particularly aggressive approach. It does not affect the conclusion I have just reached. 177Gadens' submissions also refer to the knowledge of Messrs Wannan and Makinson. Mr Wannan was and is an experienced commercial lawyer in the corporate and property areas. He was not experienced in taxation law but was aware generally that the tax legislation had anti-avoidance measures. Similarly Mr Makinson had significant experience in banking and I expect that he would have had a similar level of knowledge to Mr Wannan. However neither of them were tax experts. Mr Seller was. Both of them had concerns about pursuing corporatisation because of its possible effect on Mr Symond's position. It was Mr Seller's emphatic advice that ameliorated their concerns. 178The end result of my findings is that while corporatisation was seen as desirable by Mr Symond and those advising him, one of, if not the, principal concern was its potential effect on his ability to borrow monies from the business without paying tax on the borrowings. It was Gadens that conceived of a structure designed to achieve that. It gave advice to that effect in unqualified, emphatic terms which was repeated on a number of occasions. To the extent that there were discussions about tax risks, they only involved Gadens eliminating any concern about those risks on the part of Mr Symond and those assisting him. Duty of Care and Contract of Retainer with Gadens 179As I have stated, Gadens was sued in tort, for breach of contract and for contravening former s 52 of the TPA. Both parties agreed that the first two questions that arose were (i) whether there was a contract of retainer between Mr Symond and Gadens, and (ii) whether Gadens owed him a duty to exercise reasonable care in the provision of tax advice. 180In its final submissions, Gadens conceded that the answer to the second question was "yes". I regard that concession as overwhelmingly well founded given that Mr Symond was clearly the intended beneficiary of the advice, and the entire transaction was being conducted on his instructions and for his benefit (Hill v Van Erp [1997] HCA 9; 188 CLR 159; and Hendriks v McGeoch [2008] NSWCA 53 at [69] to [77] per Basten JA). However the parties disagreed on the answer to the first question. 181There was no written retainer or costs agreement tendered in evidence. Gadens noted that each of its letters of advice in the period up to the end of 2002 was addressed to "Aussie Home Loans Ltd", the trustee of the AHLUT. It also pointed out that all the invoices for the transaction were addressed to that entity. Gadens submitted that it was the only counter-party to the contract of retainer. 182The obvious problem with attempting to confine the identity of the client to Aussie Home Loans Ltd is that its status significantly changed from 1 July 2003 and then again from 1 July 2004 (see [94] and [118]). This highlights the difficulty that can arise in identifying the relevant "client" for a law firm advising on a transaction that involves a corporate restructure. The 21 May 2003 Draft ([62]), the 19 June 2003 Advice ([77]), the 29 July 2003 Advice ([99]), the 14 August 2003 Advice (105]) and the letter of 19 November 2003 ([111]) are not addressed to "Aussie Home Loans Ltd" but to "Mr David Makinson, Aussie Home Loans". I doubt that this change from the earlier correspondence was a slip. It more likely reflected the circumstance that Aussie Home Loans Ltd was no longer the head corporate entity in the group. Further, the letter of 9 July 2003 was addressed to "Mr John Symond, AHL Holdings Pty Limited" (see [93]). 183Mr Symond contended that the existence of a contract of retainer between him and Gadens can be inferred from an objective assessment of the "conduct of the parties, in what they said and did towards each other" (Hendriks at [10] per Giles JA). In Hendriks Giles JA noted that the "status of the parties, the relationship between them and the nature of the putative contract will bear upon whether a contract should have been inferred to have been made" (at [11]). His Honour found that the respondent in Hendriks was a party to a contract with a law firm, in circumstances where he, his mother and his brother attended a meeting with a solicitor of that firm, and the mother outlined a proposal to transfer certain property to each of her sons. These circumstances and the fact that all members of the family were well known to the solicitor, who described himself as the family solicitor without ever having stated that he was acting for the mother alone, were found to be more than sufficient to support the conclusion that a contract of retainer existed between at least the firm, through the solicitor, and the respondent (Hendriks at [12] per Giles JA). Spigelman CJ agreed, finding a "multipartite contract" between the firm and all members of the family and the solicitor (at [3]). Basten JA dissented from this conclusion, but not as to the appropriate principle to apply (at [66]). 184The circumstances pointing to there being a contract of retainer between Mr Symond and Gadens in this case are far stronger than those identified in Hendriks. 185Mr Symond had used Gadens as a legal advisor for a long period of time, apparently in relation to aspects of the business or other businesses conducted through corporate entities. 186As I have explained, the Restructure involved the creation of a new corporate owner of the group and a transfer in ownership of the business. The one entity common to the ownership structure of the business throughout the Restructure was Mr Symond himself. His 100% ownership of the business and its legal structures did not change. The Restructure was undertaken for his benefit and ultimately on his instructions. If Mr Symond was not the client of Gadens throughout the entire period then it is difficult to see who or what was. Aussie Home Loans Limited might answer that description for the period up until 30 June 2003, but from that date it was not the ultimate holding company within the group, and from 1 July 2004 it did not even own the business. It paid the bills throughout but, other than that, there is nothing pointing to it being the client for the whole of that period. It would hardly reflect the reality of the circumstances to hold that it was the only entity that had contracted with Gadens to provide services. In theory a subsidiary could contract to obtain legal services exclusively for either the benefit of its parent company or ultimate owner, but that is not a relationship that is easily inferred. The difficulty with Holdings being a party to the contract of retainer is that it does not appear to have been incorporated until just before its introduction into the Aussie Home Loans Group immediately prior to the first stage of the Restructure in mid 2003. 187In contrast, what remained constant throughout the transaction was Mr Symond's position as the ultimate owner of the business, the ultimate source of instructions and the person who was intended to ultimately benefit from the transaction. An objective assessment of the circumstances leads to the conclusion that a contract for the provision of legal services existed between at least him and Gadens. I so find. Standard of Care and Breach 188It follows from the finding that there was a contract between Mr Symond and Gadens that Gadens was required to provide legal services with reasonable care and skill (Astley v Austrust Ltd [1999] HCA 6; 197 CLR 1 at [47] per Gleeson CJ, McHugh, Gummow and Hayne JJ). For present purposes this duty is not relevantly different to the tortious duty. The standard expected of Gadens was that of an ordinary skilled solicitor exercising and professing to have a special skill in taxation law (Heydon v NRMA Ltd [2000] NSWCA 374; 51 NSWLR 1 at [146] per Malcolm AJA). The discussion in Heydon at [147] confirms that there is no difference in approach whether the liability is considered in contract or tort. A duty to warn of a material risk arises with both (Heydon id). 189In broad terms there were three aspects of negligence and breach of contract that Mr Symond alleged against Gadens. First, it was contended that the advice given by Gadens about the proceeds of the redemption of RPS being "tax free" was either wrong or, at the very least, should have been but was not suitably qualified. The second aspect concerned the advice that Gadens should have given about the transaction it proposed. In particular Mr Symond pleaded that Gadens should have advised that the proposed form of transaction should not be pursued or provided significant warnings as to the tax consequences and risks from pursuing it. Third, it was contended that the exercise of reasonable care required Gadens to identify and recommend certain alternative structures to enable Mr Symond "to draw funds from the Aussie Home Loans Group without thereby incurring a tax liability". 190Mr Symond adduced evidence from a very experienced solicitor in the field of taxation law, Mr Lawrence Mark Magid. Mr Magid holds the degree of Juris Doctor from Boston Law School and a Master of Laws (in Taxation) from New York University School of Law. He was admitted to practise as an attorney in the State of New York in 1977 and as a solicitor in New South Wales in 1983. He commenced employment with the firm then known as Allen Allen & Hemsley in 1980 and became a partner in 1984. He has occupied a number of extracurricular positions on taxation bodies. Mr Magid has practised in the area of taxation law for over 25 years. 191Gadens adduced evidence from a solicitor, Mr Garry Francis Beath. Mr Beath is a senior tax partner at Minter Ellison. He has been a partner since 1986. He graduated with a Bachelor of Laws from the University of Sydney in 1975. He was awarded a Master of Laws with Honours in 1983. 192Not surprisingly, there was no challenge to the qualifications of either Mr Magid or Mr Beath to give expert evidence concerning the conduct of an ordinary skilled solicitor exercising and professing to have a special skill in taxation law. 193As I will explain, Mr Magid addressed the accuracy and appropriateness of the advice given and structure proposed by Gadens in detail. Mr Beath was not asked to address those matters. Instead he focused on the third aspect of the particulars of the negligence that I have referred to in [189], namely whether the ordinary skilled solicitor exercising and professing to have a special skill in taxation law should have suggested any of the alternative structures that Mr Magid identified. 194I will first address the first and second aspects of the particulars of negligence. 195Mr Magid referred to the unequivocal statements in the 14 August 2003 Advice and the 30 June 2004 Memo about the "tax-free" status of the proceeds from the redemption of the RPS in Mr Symond's hands. He said those assertions significantly overstated the position and were subject to a number of important qualifications which should have been but, on the instructions given to him, were not explained by Gadens. Those qualifications were as follows. 196First, Mr Magid considered that Gadens' advice was deficient because there was no reference to the possibility that the proceeds of the redemption might fall within the definition of "dividend" in s 6(1) of the ITAA 1936 and thus be included in Mr Symond's assessable income. As at 2003, that definition extended to include "any distribution made by a company to any of its shareholders, whether in money or other property". This wide definition had an exclusion for: "(e) monies paid or credited, or property distributed, by a company for the redemption or cancellation of a redeemable preference share if: (i) the company gives the holder of the share a notice when it redeems or cancels the share; and (ii) the notice specifies the amount paid-up on the share immediately before the cancellation or redemption; and (iii) the amount is debited to the company share capital account; except to the extent that the amount of those moneys or the value of that property, as the case may be, is greater than the amount specified in the notice as the amount paid-up on the share." 197Mr Magid noted that the advice given by Gadens did not explain that, in order for the amount paid as the price of redeeming the RPS to fall outside the definition of a "dividend", there would have to be compliance with the procedures contemplated by paragraph (e), namely giving the requisite notice and debiting the company's share capital account. 198In cross examination it was suggested to Mr Magid that the risk of non-compliance with the steps referred to in paragraph (e) of the definition of "dividend" could have been addressed at the stage of implementing the process of redeeming the RPS. Mr Magid rejected that contention. He stated that advice in the categorical terms that Gadens provided was simply inaccurate without a reference to the steps necessarily taken to invoke paragraph (e). I agree. 199In any event, at no time did Gadens provide any advice about the implementation of the process of redeeming RPS or otherwise which adverted to any need to take any of the steps referred to in paragraph (e) of the definition of "dividend". 200Gadens contended that Mr Symond had not tendered evidence demonstrating that such notices were not given at the time the RPS were redeemed. However, at this point of the analysis, whether or not the notices were in fact given is irrelevant. Gadens' advice was inaccurate in stating that the proceeds from the redemption of the RPS would be "tax free" by reason, inter alia, of its failure to advert to the definition of "dividend". 201Second, Mr Magid noted that Gadens' advice did not include any reference to the risk of the application of the anti-avoidance rule in s 45B of the ITAA 1936 to the receipt by Mr Symond of the proceeds from the redemption of the RPS. 202The form of s 45B has not changed since the relevant period. This section "applies", inter alia, in circumstances where there is a "scheme" under which a person is provided with a "capital benefit" by a company; under that scheme the relevant taxpayer obtains a "tax benefit" (as defined); and, having regard to the "relevant circumstances of the scheme" (as defined), it would be concluded that the person or one of the persons who entered into or carried out the scheme did so for a purpose of enabling the taxpayer to obtain a tax benefit, whether or not the dominant purpose but not including an incidental purpose (s 45B(2)). Under s 45B(3)(b) the Commissioner may make a determination that s 45C applies in relation to a capital benefit. In that circumstance, the capital benefit is taken to be an unfranked dividend paid to the taxpayer out of the profits of the company (ss 45C(1) and (2)). 203The concept of a "capital benefit" includes the distribution of share capital and, according to Mr Magid, would include the receipt of one dollar per share by way of the redemption of the RPS by Mr Symond. Subsection 45B(9) provides that a taxpayer obtains a tax benefit for the purposes of s 45B if the person will be liable to pay less tax under the relevant scheme than the person would have been liable to pay if the capital benefit had been a dividend. Mr Magid noted that if the proceeds of the redemption of the RPS did not constitute a dividend, Mr Symond would have been liable to pay a lesser amount of tax than he would have been if there had been a dividend. Other than his description of the "scheme", no issue was taken with these aspects of this part of Mr Magid's reasoning. 204Thus the potential application of s 45B turned upon whether, having regard to the "relevant circumstances of the scheme", it might have been or would have been concluded by the Commissioner that one of the persons who entered into or carried it into effect did so with a more than incidental purpose of enabling Mr Symond to obtain the tax benefit just identified (s 45B(2)(c)). Section 45B(8) specifies a non-exhaustive list of the relevant circumstances. They include: "(a) the extent to which the ... capital benefit is attributable to capital or the extent to which the ... capital benefit is attributable to profits (realised and unrealised) of the company or of an associate (within the meaning of section 318) of the company; ..." Under s 318 of the ITAA 1936 the "associates" of a company include its subsidiaries and trustees of the trusts of which the company is a beneficiary. Thus the AHLUT was an associate of Holdings. 205Mr Magid opined that there was a "reasonable likelihood" that the view would have been formed that the "scheme" was implemented "for a purpose which was not an incidental purpose of enabling Mr Symond to obtain a tax benefit ... if Holdings and its associates derived and accumulated profits, whether realised or unrealised, and exhibited a pattern of distributing no dividends, but providing capital benefits [ie via RPS] at periodic intervals". 206It was suggested to Mr Magid in cross examination that the requirement in s 45B for such a purpose would not have been satisfied as the monies paid as a result of the redemption of the RPS merely substituted for the repayment of the debt that was owed to Mr Symond by the AHLUT just prior to the transactions noted in [106] and [107]. Mr Magid emphatically rejected that suggestion. His answer reveals that he considered that the relevant "scheme" for the purposes of the application of s 45B was not limited, as Gadens suggests, to merely the steps involved in swapping the debt owed by the AHLUT to Mr Symond for the issue of RPS by Holdings to him. Instead he considered that it included the "round robin" style transactions that started with a loan to Mr Symond by the AHLUT in the amount of approximately $17 million, and ended with the AHLUT owing him $57 million (and Mr Symond owing $75 million to the Alice Trust). As Mr Magid put it: "And the circulatory [sic] of that arrangement by which this debt from the unit trust to Mr Symond was created is, in my view, a smoking gun." 207Thus, the essence of Mr Magid's opinion was that the circularity of the arrangements which had led to the creation of the debt owing from the AHLUT to Mr Symond in the first place was very likely to arouse the Commissioner's interest. He considered that was clearly a "circumstance" which might result in the formation of an adverse view under s 45B. 208In its written submissions Gadens contended that: "While in the course of his cross examination, Mr Magid sought to extend the definition of the scheme to include the creation of the debt owed by [the] AHLUT as a consequence of the original restructure, that series of transactions did not contemplate payment to [Mr Symond] by any corporate entity and could not have been for the purpose of substituting capital benefits for dividends." 209I do not accept that Mr Magid extended his definition of the scheme in cross examination but, even if he did, his evidence was still persuasive. Further I do not accept the balance of this submission. The net effect of the round robin transactions and the substitution of the RPS issued by Holdings for the debt owed by the AHLUT to Mr Symond was that a debt owed by Mr Symond to the business became a means by which he drew capital benefits out of the business. Further, it was only contemplated that he could draw those capital benefits in the event that profits were derived, as the RPS were supposed to only be redeemable out of profits. The material available as at 2003 to 2004 revealed that profits were envisaged (see [21]). In my view, those circumstances were very likely to lead to the formation of an opinion that the capital benefit he was acquiring was in fact one that was truly "attributable to profits (realised and unrealised)", as referred to in s 45B(8)(a). 210As noted in the end result for the years ended 30 June 2004 and 30 June 2005, there were no profits realised by Holdings but this was in part achieved by the booking of goodwill consequential upon the transfer of the operating businesses from the AHLUT to a subsidiary of Holdings. This meant that the redemptions that in fact occurred were not authorised and they were not properly made out of profits. However, at present I am considering the accuracy and appropriateness of Gadens' advice considered prospectively. In my view, that advice contemplated the payment of capital benefits by way of redemption of RPS out of profits. If it had been implemented in the way Gadens suggested, and even if the relevant notice had been given under paragraph (e) of the definition of "dividend" in s 6(1), then there was a strong likelihood that it would have attracted the operation of s 45B of the ITAA 1936, and led the Commissioner to act under s 45C to include some or all of the capital benefits in his assessable income. 211Third, Mr Magid pointed to the failure of the Gadens' advice to advert to the risk of the application of the general anti-avoidance provisions found within Part IVA of the ITAA 1936. Section 177F of the ITAA 1936 empowers the Commissioner to determine that the amount of a "tax benefit" referable to an amount which is not included in the assessable income of a taxpayer be included where that "tax benefit" has been obtained in connection with a scheme to which Part IVA applies. 212Mr Magid identified the various transactions undertaken on 30 June 2003 and those involving the capitalisation of the loan from Mr Symond to the AHLUT in August 2003 as a "scheme". The concept of a "tax benefit" is explained by s 177C. It relevantly includes an amount that was not included in Mr Symond's assessable income of a year of income where it would or might reasonably be expected to have been included had the scheme not been entered into or carried out. The concept of "tax benefit" therefore requires a consideration and comparison of the events that occurred with those that would have occurred or might reasonably have been expected to occur if the scheme had not been entered into or carried out. In the present circumstances it required that there be some form of prospective assessment by Gadens in the period June to August 2003, or mid-2004, as to what the Commissioner might, with the benefit of hindsight of later events, assert was that counterfactual. One such alternative hypothesis suggested by Mr Magid was that Holdings might pay dividends to Mr Symond, or make loans to him, which might give rise to deemed dividends under Division 7A, although Mr Magid opined that another likely scenario was that the AHLUT would simply continue lending to Mr Symond which would not have incurred, or may not have incurred, any further tax liability (see below). 213Section 177D provides that Part IV applies to a scheme where, having regard to the circumstances enumerated in s 177D(b)(i) to (vii), it would be concluded that one of the persons who entered into or carried out the scheme did so for the purpose of enabling the taxpayer to obtain a tax benefit in connection with the scheme. Mr Magid's conclusion was that, at least so far as the scheme involved the circularity that I have referred to, the absence of any apparent commercial purpose for that aspect of the scheme appears to "make it extremely difficult to resist the conclusion that the persons who entered into or carried out the scheme(s) did so for the dominant purpose of enabling Mr Symond to obtain a tax benefit". 214Gadens asserted that Mr Magid stated that Mr Symond would be in a "reasonably strong" position to resist the application of Part IVA because of the difficulties in identifying an appropriate counterfactual. I would not characterise his evidence in that way. Clearly he regarded the application of Part IVA as less likely than s 45B, but still a realistic possibility. 215In cross examination it was put to Mr Magid that, at least so far as s 45B and Part IVA were concerned, Gadens would have adequately discharged its obligation by providing "sufficient warning" of the existence of the anti-avoidance provisions that would or could be relied upon by the Commissioner. Mr Magid accepted that proposition, but added the important rider that "[i]t just leaves open the question of what constitutes sufficient warning". I agree. 216I have already rejected Mr Seller's evidence that he provided verbal advice as to the existence of a risk that s 45B and Part IVA would be applied. I have also already referred above to the fact that at least Messrs Wannan and Makinson were aware of the existence of anti-avoidance provisions generally. However, the fact that they had that knowledge and Gadens might have been able to act on that basis does not assist. First, Gadens' advice was so emphatic that it eliminated any concern as to the operation of the anti-avoidance provisions. Second, given the specialised nature of the advice Gadens was providing, any advice about the potential application of those provisions needed to address their application in some detail and attempt to quantify the likelihood of their application. This was especially the case so far as s 45B was concerned. 217In my view the ordinary skilled solicitor exercising and professing to have a special skill in taxation law who was in Gadens' position as at 2003/2004 would have had to conclude that (i) the successful application of s 45B was very likely in the event that the client implemented its advice and redeemed the RPS out of available profits, and (ii) there was a realistic possibility that the Commissioner would successfully apply Part IVA of the ITAA 1936. 218It follows that I accept so much of Mr Magid's evidence which outlined the deficiencies in the 14 August 2003 Advice and 30 June 2004 Memo that was given by Gadens concerning the structure that it proposed. His opinions are equally applicable to the 29 July 2003 Advice. The ordinary skilled solicitor exercising and professing to have a special skill in taxation law would not have advised the client in such emphatic terms. In so far as the advice addressed the structure suggested by Gadens, they would have been obliged to advert to the definition of "dividend" and the potential application of s 45B and Part IVA. They would have been obliged to advise as to the strong or at least reasonable likelihood that s 45B would be successfully applied, and the realistic possibility that Part IVA would be successfully applied. 219Further, I accept Mr Magid's opinion that a competent legal practitioner specialising in taxation law in 2003 and 2004 "would not have advised, as Gadens did, that the establishment of the Alice Unit Trust, and the circular series of funding steps between [the] AHLUT, the Alice Unit Trust, Mr Symond and others, and back to [the] AHLUT, was either necessary or desirable to enable Mr Symond to draw money from the Aussie Home Loans group after Holdings had become the parent entity of that group". 220As stated by Mr Magid, the circularity of those steps "exhibited contrivance" of a kind that was likely to attract the Commissioner's attention. Further, the proposed structure involving the use of RPS suggested by Gadens was inherently flawed. Its proposal that Mr Symond obtain funds by redeeming the RPS out of available profits in circumstances where the RPS represented the capitalisation of a loan from the AHLUT to Mr Symond that had only come into existence via a round robin set of transactions raised such a level of tax risk, especially under s 45B, that it could not have been responsibly suggested to a client in Mr Symond's position. It should have been apparent to Gadens that Mr Symond was not willing to accept any proposal that carried with it an appreciable risk of an adverse assessment or close scrutiny by the Commissioner. 221Neither the pleadings nor any of the submissions of the parties adverted to the provisions of Part 1A of the Civil Liability Act 2002 ("CLA") which was applicable to so much of Mr Symond's claim as involved a claim for economic loss resulting from a failure to exercise reasonable care and skill regardless of whether that claim was brought in contract or tort (s 5A(1)). My conclusion to this point that Gadens breached its standard of care by providing over emphatic advice concerning the proposed Restructure, and by recommending the form of Restructure that it did, is in conformity with ss 5B and 5C. For the purposes of s 5B(1) the relevant "risk of harm" to which Mr Symond was exposed was incurring adverse tax assessments as well as excessive costs resulting from close scrutiny of his affairs by the Commissioner if he adopted a structure which was either ineffective or of dubious utility from a tax perspective. This risk was clearly foreseeable and not insignificant (ss 5B(1)(a) and (b)). The relevant "precautions" that should have been taken were providing accurate advice and not recommending the form of restructure that was in fact recommended. They were precautions that a reasonable person in Gadens' position would have taken, bearing in mind that that person professes to have a specialised skill in taxation law and is well remunerated to advise and guard against the risk of harm in question (s 5B(1)(c)). A consideration of the criteria in ss 5B(2)(a) to (c) supports that conclusion. 222The remaining issue in terms of breach is what form of structure should have been suggested by Gadens. That is the third step that I have noted in [189] above. In his first report, Mr Magid suggested that the advice should have been that Mr Symond continue to borrow funds from the AHLUT. By the time of the hearing, three possible structures that Gadens could have suggested to Mr Symond had emerged. One difficulty in simply stating at the outset what structure or structures should have been suggested is that such advice requires that consideration be given to the client's commercial position. For the present, I will pass over the question of what other structures should have been suggested or recommended by Gadens to Mr Symond. I will address the other bases upon which it is said that Gadens is liable to Mr Symond, and a contention by Gadens that Mr Symond's liability to the Commissioner under the Deed was not causally related to the established breaches. I return to the question of the appropriate advice that should have been given at [298]ff. Negligent Misstatement 223Mr Symond also pleaded a cause of action in negligent misstatement in relation to the statements in each of the 19 June 2003 Advice, 29 July 2003 Advice, 14 August 2003 Advice, 30 June 2004 Memo and the email exchange in August 2004 (noted at [126] to [127]) concerning the tax status of the amounts drawn down by Mr Symond. I have misgivings about whether this is really a separate cause of action in circumstances where I have already accepted Mr Symond's case in negligence arising out a relationship of solicitor and client and the maker of the statement is the former and the recipient is the latter. It seems to me that any misstatements in the advice that Gadens gave are simply particulars of that negligence and are otherwise subsumed in the failings that I have already identified. Leaving that aside, this cause of action could not rise any higher than the negligence that I have already addressed, and is probably lower in that (i) it requires the identification of a misstatement; (ii) it is focused on the precise terms of particular advices; (iii) the "but for" analysis is arguably different in that it might only involve a consideration of what Mr Symond would have done had he been provided with an accurate statement of the level of tax risk associated with Gadens' proposal, rather than on the basis that Gadens should not have suggested the Restructure at all; and (iv) it does not attract any duty to take the positive step of suggesting the adoption of a different structure. Nevertheless for the sake of completeness I will address it. 224Mr Symond alleges that each of the identified communications expressly represented that, if Gadens' advice was implemented, Mr Symond would "be entitled to draw funds without thereby incurring a tax liability". All but the last of the relevant advices refer to the proceeds being to "tax-free" (see [69], [72], [77], [100], and [105]). The last refers to there being "no other tax issues associated with this transaction" (see [127]) which in context has the same effect. I accept that these advices conveyed the representation pleaded, although a more accurate statement of their effect would be that they represented that Mr Symond would be entitled to draw funds "without any risk or substantial risk of thereby incurring a tax liability". 225Mr Symond further contends that this representation was false in that "[i]t was not the case that, if the advices were adopted, Mr Symond would thereby be entitled to draw funds without thereby incurring a tax liability". The findings that I have made to this point do not go this far. In so far as they relate to the receipt of the proceeds of the RPS they only demonstrate that there was a significant risk of his incurring a tax liability. In so far as they relate to the structure in place prior to the capitalisation of the "loan" from Mr Symond to the AHLUT, they demonstrate that there was a significant risk of attracting the Commissioner's scrutiny. These findings are sufficient to render false the slightly revised version of the representation that I have suggested, however the version pleaded requires me to determine whether, on the balance of probabilities, the implementation of Gadens' advice would have resulted in him incurring a tax liability. In my view it would have. As I have explained, a proper implementation of Gadens' advice involved redeeming the RPS out of available profits. If that had occurred, profits would have been derived. In those circumstances I consider that s 45B of the ITAA 1936 would have applied to the receipt of those funds in Mr Symond's hands. This consequence is sufficient to render the express representations that were pleaded concerning the tax free status of the proceeds of the RPS conveyed by those advices (other than the 19 June 2003 Advice) false. 226Mr Symond also pleaded that each of these advices impliedly represented that it had been prepared with the exercise of reasonable care. Little attention was given to this point in submissions, but I consider that would follow. The advices were sent from solicitor to client. They were sent by solicitors who asserted that they had a specialised skill and expertise on the subject matter of the advices. They involved a matter of considerable complexity. The topic was of great importance to the intended recipients of the advices. It was obvious that Mr Symond and those around him were relying on their accuracy and that, if they were erroneous, significant financial harm could be caused. Not only did those circumstances give rise to a duty to take reasonable care in the provision of the advices (see Tepko Pty Ltd v Water Board [2001] HCA 19; 206 CLR 1), they also have the result that the advices convey that they were prepared with such care. It follows from the findings that I have already made that in the case of each of the advices this representation was also false. 227The combination of the findings at [189] to [221] with the conclusion as to what the representations conveyed and that they were false leads to the further conclusion that those representations involved a negligent misstatement. The discussion of ss 5B and 5C of the CLA at [221] applies with equal force at this point. 228I have already referred to the effect of the emphatic nature of the advice given by Gadens. It ameliorated any concerns, to the extent that there were any, as to the tax exposure of Mr Symond under its proposed structure. Even if the appropriate application of the "but for" test to this cause of action only requires a consideration of what Mr Symond would have done had accurate advice been given as to the real level of risk posed by the structures suggested by Gadens, I consider that the provision of such advice would have resulted in the Restructure as proposed by Gadens not proceeding (s 5D(1)(a) of the CLA). 229What counterfactual is Mr Symond's actual position to be compared against for the purposes of determining whether he suffered any loss by relying on Gadens' negligent misstatement? I have already referred to the fact that the action for negligent misstatement does not carry with it any positive duty on the part of Gadens to suggest any alternative structure. Nevertheless I doubt that the position is any different to that which arises as a consequence of the breach of retainer and the wider case in negligence. In the event that Mr Symond had received accurate advice from Gadens as to the level of risk posed by its structure and rejected it, it seems to me overwhelmingly likely that he would have sought alternative advice from a firm proffering specialist tax advice which can be assumed to be competent. This leads to the same counterfactual inquiry undertaken below as to the appropriate advice that should have been given and the consequences of acting on it. Misleading or Deceptive Conduct 230Mr Symond also alleges that the conduct of Gadens in making the representations that I have referred to above (at [223]) constituted misleading or deceptive conduct contrary to former s 52 of the TPA. Gadens accepted that its communications to Aussie Home Loans Limited were undertaken in trade and commerce, but did not otherwise admit any part of Mr Symond's claim. However, it follows from that admission and the findings that I have made that its conduct in making these representations (other than in the 19 June 2003 Advice which did not concern RPS) contravened former s 52 of the TPA. 231Mr Symond seeks damages under former s 82 or an equivalent order under former s 87 of the TPA. While the measure of damages under s 82 is not necessarily the same as for negligence (see Murphy v Overton Investments Pty Ltd [2004] HCA 3; 216 CLR 388), Mr Symond formulated his loss under this head in the same manner as he did for negligent misstatement. Thus, the analysis below applies with equal force to this claim of action. However, it should be noted that the test for causation that inures in the word "by" found in s 82 adopts the common law "common-sense concept" discussed in March v E & MH Stramare Pty Ltd [1991] HCA 12; 171 CLR 506 (Wardley Australia Ltd v State of Western Australia (1992) 175 CLR 514 at 525 per Mason CJ). The test of causation in s 5D is not necessarily the same (Adeels Palace Pty Ltd v Moubarak [2009] HCA 48; 239 CLR 420 at [43] to [44]). Nevertheless, in this case I have not been able to discern any material difference in their application. The Connection Between the Liabilities Imposed by the Deed and Breach 232Gadens submitted that there was a "manifest lack of connection" between any alleged "deficiencies" in its advices and the liabilities that Mr Symond incurred under the Deed, such that the latter could not be said to be caused by the former. In particular it contended that the Deed represented a settlement of his exposure to a liability under Division 7A of Part III of the ITAA 1936, whereas none of the alleged deficiencies in its advice were said to have involved a failure to warn about a risk of that exposure. It was submitted that, even if the application of the "but for" test was satisfied, that was not sufficient to establish causation at law between any deficiencies in its advice and the liabilities Mr Symond bore under the Deed (see March v E & MH Stramare Pty Ltd). 233In so far as Mr Symond's causes of action are in negligence and breach of contract this contention amounts to a submission that the liabilities incurred by Mr Symond fall outside the scope of liability (s 5D(1)(b) of the CLA). In Wallace v Kam [2013] HCA 19; 87 ALJR 648 at [14], the High Court held that the test posed by s 5D(1)(a) of the CLA involves a strict application of the "but for" test and is "entirely factual, turning on proof by the plaintiff of relevant facts on the balance of probabilities in accordance with s 5E". This task eschews policy or value judgments (Wallace at [15], citing with approval Allsop P in Wallace v Kam [2012] NSWCA 82; Aust Torts Reports 82 to 101). However s 5D(1)(b) requires a determination that it is appropriate for the scope of the negligent person's liability to extend to the harm so caused. In contrast to s 5D(1)(a), this is an entirely normative assessment. In accordance with s 5D(4), it requires "consideration by a court of whether or not, and if so why, responsibility for the harm should be imposed on the negligent party" (Wallace at [14]). 234Regardless of whether Gadens' contention is considered through the prism of the common law test (for the claim under s 52) or s 5D, I do not accept it for two reasons. First, I do not accept the factual premise of this submission that the taxation liability or exposure of Mr Symond resolved by the Deed was not one that should have been adverted to by Gadens in its advices. I have already found that one of the reasons why Gadens' advice was deficient was because of its failure to address the application of s 45B and Part IVA of the ITAA 1936 to his receipt of the proceeds of the RPS. I have concluded that, if Gadens' advice had been properly implemented and the RPS had only been redeemed from profits, then it was very likely that s 45B would have applied to the receipt of the proceeds of the redemption of the RPS by Mr Symond. Both the Commissioner and those advising Mr Symond acted on the basis that there was such a risk. In his letter of 17 August 2006 the Commissioner raised both s 45B and Part IVA (see [142]). Section 45B was referred to in the advice from Queens Counsel obtained on behalf of Mr Symond in April 2007 ([149]). In May 2007 PricewaterhouseCoopers ("PwC") modelled Mr Symond's liability exposure if s 45B was applied to the entirety of his receipt of the proceeds from the redemption of the RPS ([151]). 235Simply because the Deed had the effect of recording a tax liability of Mr Symond under Division 7A does not mean that either party regarded that as his only potential exposure. To the contrary, both parties were cognisant of his being exposed to other tax liabilities including under s 45B and Part IVA. Even if, in this case, it was necessary to establish that the "deficiencies" in Gadens' advice coincided with one of the tax exposures that was settled with the Commissioner, that has been established. 236Second, in any event this contention involves a mischaracterisation of Mr Symond's case in negligence which to this point I have accepted. Properly analysed the "deficiency" in its advice or conduct was not the mere failure to advert to the three matters discussed at [196] to [214]. The relevant deficiency was in the broad statement that Mr Symond's receipt of the proceeds of the RPS would be "tax free". The matters outlined at [196] to [214] are simply reasons why Gadens' emphatic assertion as to the tax free status of the proceeds of the redemption of the RPS was either wrong or at least far too emphatic, and why it was negligent to have even suggested the proposed structure in the first place. 237Gadens' advice and conduct went well beyond advising in respect of specific tax risks. They suggested the very structure that should be adopted and warranted that it was free of all tax risks ("tax free"). This advice was analogous to the emphatic statement of the valuer discussed in Kenny & Good Pty Ltd v MGICA [1999] HCA 25; 199 CLR 413 at [59] to [62] per McHugh J, and [80] per Gummow J. Bearing in mind the need to consider the "precise relationship between the relevant parties" (Kenny & Good at [78] per Gummow J), Gadens' conduct took place in a context where it was Mr Symond's solicitor and professed to have a specialised skill in the area of taxation law. The "relationship of reliance" between Mr Symond and Gadens "was particularly close" in that, but for Gadens' advice, Mr Symond would not have pursued the Restructure (Kenny & Good at [83] per Gummow J). 238In these circumstances Gadens bears legal responsibility for the tax risks that materialised as a consequence of the adoption of the structure it proposed and advised would enable Mr Symond's withdrawal of funds "tax free" (ss 5D(2) and (4)). The Three Scenarios 239Mr Symond put forward two scenarios which he submitted were part of the competent advice that Gadens should have outlined to him and the business during 2003 and 2004. He submits that if they had been put forward by Gadens he would have adopted at least one of them. He also submitted that his loss is to be determined by assessing the difference between his actual financial position and the financial position he would have been placed in had he proceeded with one of those two scenarios. This involved obtaining Mr Magid's opinion as to the tax consequences of each scenario and what was necessary to ensure that the loans to Mr Symond were not taxed, reconstructing the financial results for the Aussie Home Loans Group having regard to each scenario, determining whether the group had the financial capacity to implement each scenario and the steps noted by Mr Magid, and then having his financial expert, Mr Potter, model the financial consequences of adopting each scenario. Gadens adopted the same approach, relying on the expertise of Mr Beath and its financial expert, Ms Jones. Mr Beath's reports gave rise to another scenario, so called "Beath Scenario 2.1", which for convenience I will describe as "Beath Scenario 3". 240Initially as between Messrs Magid and Beath there were very significant differences as to what the tax consequences of the adoption of the various scenarios would have been. After they conferred and further material was forthcoming, these differences narrowed dramatically. This had a flow-on consequence for the reports of Mr Potter and Ms Jones. In the end result they accepted the accuracy of each other's calculations and only disagreed on three matters (see [323] to [326]). Scenario 1 - Continuing to Borrow from the AHLUT 241The first (alternative) scenario put forward by Mr Symond involved him continuing to borrow from the AHLUT as he had done before the Restructure. In its final form it also involved the introduction of a corporate entity as the ultimate holding company of the AHLUT and the Aussie Home Loans businesses in October 2008. 242For the sake of precision I will set out the description of Scenario 1 from the joint report of Mr Potter and Ms Jones: "(i) That rather than implementing the Restructure of the Aussie Group, [the] AHLUT would have continued; (ii) During the course of any given year Mr Symond would borrow funds from [the] AHLUT in the same amount and at the same time as actually occurred with respect to the redemption of the RPS under Project Alice; (iii) The Trustee of [the] AHLUT would declare any assessable trust income on or before 30 June in the relevant assessable income year and at Mr Symond's direction, distribute that income (payments assumed to be made by 31 October following the end of the tax year) to unitholders including Mr Symond. Mr Symond would have ultimately been entitled to all of the distributions of income, either directly or indirectly and would have received funds: - in cash to the extent necessary to satisfy Mr Symond's taxation liabilities with respect to the trust income declared; and otherwise - By reduction of Mr Symond's loan account balance with [the] AHLUT; (iv) The AHLUT would have corporatised on or about 31 October 2008; and (v) [The sale] of 33 percent of Mr Symond's interest in the Aussie Group to CBA would have occurred on 31 October 2008." Tax Treatment of Scenario 1 243As I have said, Messrs Magid and Beath were in substantial agreement as to the tax implications if Scenario 1 had been adopted instead of the Restructure and the necessary steps had been taken to ensure, or at least maximise the likelihood, that Mr Symond would not be taxed on his receipt of borrowings necessary to build his house in the period 2004 to 2006. Five points should be noted. 244First, Messrs Magid and Beath agreed that Scenario 1 would not have achieved the objective of making a corporate entity the ultimate owner (before Mr Symond) of the business. It was accepted that an ownership structure involving a company was far more attractive to a prospective purchaser than the acquisition of units in a unit trust (such as the AHLUT). Under Scenario 1 this objective would not be achieved until 30 October 2008, just prior to the sale to the CBA of one third of the shares in Holdings. Although Mr Symond and the other senior personnel were relatively lukewarm about corporatisation during the period 2003 to 2004, they did accept its advantages and agreed to implement it. 245Second, Messrs Magid and Beath accepted that under Scenario 1 Mr Symond would have been taxed at his marginal rate on his receipt of the AHLUT's net income. Subsection 97(1) of the ITAA 1936 provides, inter alia, that, in respect of a beneficiary of a trust estate who is not under a legal disability and "is presently entitled to a share of the income of the trust estate", the assessable income of the beneficiary shall include so much of the net income of the trust estate as is attributable to the period when they were a resident. It is not in issue that Mr Symond was at all material times an Australian resident. All the parties treated the concept of present entitlement in s 97(1) as one that was triggered upon the AHLUT earning profits in the relevant year. The concept of "present entitlement" is further considered in relation to Scenario 2 (at [273]). 246Third, Messrs Magid and Beath considered that Mr Symond's receipt of loan funds from the AHLUT may have been taxable under s 99B of the ITAA 1936, to the extent it was not taxable under s 97, depending on the source of the funds. Subsection 99B(1) provides that, subject to s 99B(2), if an amount, being property of a trust estate, is paid to or applied for the benefit of a resident beneficiary during a year of income it shall be included in their assessable income for that year. This includes the receipt of a loan. However s 99B(2)(b) provides that such an amount is to be reduced by "an amount that, if it had been derived by a taxpayer being a resident, would not have been included in the assessable income of that taxpayer of a year of income". Messrs Magid and Beath agreed that, if the amount lent to the beneficiary was sourced from a third party and that amount was derived by the beneficiary directly, it would not have been included in the beneficiary's assessable income. Generally borrowings are not so included. The same cannot necessarily be said for amounts that a beneficiary borrows from the trust that are not so sourced. The amount lent may, for example, represent the proceeds of profits from trading activities. In this case Mr Symond says that the AHLUT had a loan facility with the ANZ which would have enabled the AHLUT to borrow the funds and then on-lend to Mr Symond. I address this below. 247Fourth, the only other potential tax liability that arose on this scenario was the potential application of the FBTAA to the loans by the AHLUT to Mr Symond. This was said to arise from the possibility that the loan from the AHLUT to Mr Symond might fall within the definition of "fringe benefit" in s 136 of the FBTAA which relevantly provided: "fringe benefit, in relation to an employee, in relation to the employer of the employee, in relation to a year of tax, means a benefit: (a) provided at any time during the year of tax; or (b) provided in respect of the year of tax; being a benefit provided to the employee or to an associate of the employee by: (c) the employer; or (d) an associate of the employer; or (e) a person (in this paragraph referred to as the arranger) other than the employer or an associate of the employer under an arrangement covered by paragraph (a) of the definition of arrangement between: (i) the employer or an associate of the employer; and (ii) the arranger or another person; or (ea) a person other than the employer or an associate of the employer, if the employer or an associate of the employer: (i) participates in or facilitates the provision or receipt of the benefit; or (ii) participates in, facilitates or promotes a scheme or plan involving the provision of the benefit; and the employer or associate knows, or ought reasonably to know, that the employer or associate is doing so; in respect of the employment of the employee, but does not include: (f) a payment of salary or wages or a payment that would be salary or wages if salary or wages included exempt income for the purposes of the Income Tax Assessment Act 1936; or ..." (I note that on 23 June 1998 paragraph (r), formerly lettered as (q), was added to this definition which addressed loans compliant with s 109N: Taxation Laws Amendment Act (No 3) 1998 (Cth), Item 11 of Sch 8 and s 2, and Taxation Laws Amendment Act (No 2) 2002, Item 3 of Sch 12 and s 2(i). It was not suggested that this amendment had any effect upon these proceedings, although it does appear to confirm that Beath Scenario 3 did not carry with it any risk of attracting fringe benefits tax.) 248Although it was common ground that at all relevant times Mr Symond was the managing director of "Aussie Home Loans", the precise identity of his employer was not specified. In any event I will assume that the AHLUT would fall within one of paragraphs (c) to (ea) of the above definition. 249In their joint report Messrs Magid and Beath stated that "[o]n the limited facts and information which have been provided to them, it appears ... that the loans would more likely have been provided to Mr Symond in connection with his 'ownership' of the Aussie Home Loans Group (if that were the case, then [the FBTAA] would not have applied)". In oral evidence Mr Magid explained that the Commissioner had issued statements to the effect that the applicability of this definition to the circumstance where a benefit is conferred on a person who is both an owner and an employee "is determined by reference to a judgment being formed as to whether the benefit is provided in respect of the employment [or] ... in respect of the ownership". This appears to be a reference Tax Ruling MT 2019 which does not advance the matter beyond the analysis set out below. 250Messrs Magid and Beath did not cite any direct experience of the Commissioner asserting that a loan made in similar circumstances was a fringe benefit. Mr Beath added that one matter the Commissioner would take into account was the level of remuneration received by the employee as part of considering whether the loan was in substance "disguised remuneration". Both Mr Magid and Mr Beath agreed that Mr Symond's salary of $800,000.00 was a "reasonably healthy salary" in the context of the business, but that the avoidance of the Commissioner's scrutiny was not a "virtual certainty". 251The words "in respect of the employment of the employee" in the definition of "fringe benefit" appear to comprehend a distinction between the conferral of benefits on an employee by reason of their status as a shareholder compared with their status as an employee. The expansive nature of this concept is confirmed by s 148(1) of the FBTAA which provides that a benefit is provided in respect of the employment of an employee: "(a) whether or not the benefit is also provided in respect of, by reason of, by virtue of, or for or in relation directly or indirectly to, any other matter or thing; (b) whether the employment will occur, is occurring, or has occurred; (c) whether or not the benefit is surplus to the needs or wants of the recipient; (d) whether or not the benefit is also provided to another person; (e) whether or not the benefit is, to any extent, offset by any inconvenience or disadvantage; (f) whether or not the benefit is provided or used, or required to be provided or used, in connection with that employment; (g) whether or not the provision of the benefit is, or is in the nature of, income; and (h) whether or not the benefit is provided as a reward for services rendered, or to be rendered, by the employee." 252However the words "in respect of" in the definition of "fringe benefit" set out by s 136(1) have their limits. They require that a "sufficient" or "material" relationship between the benefit and the employment be established (J & G Knowles & Associates Pty Ltd v Commissioner of Taxation [2000] FCA 196; 96 FCR 402 at [26] per Heerey, Merkel and Finkelstein JJ; Starrim Pty Ltd v Commissioner of Taxation [2000] FCA 952; 102 FCR 194 at [52] per Lindgren J). In Starrim at [52], Lindgren J stated that the requisite relationship: "... is not established merely by the existence of some or a causal relationship, and, in particular, ... [is] not established by nothing more [than] the fact that the employee has been able to cause the benefit to be provided to him or her by reason of his or her office as a director of the employer." (emphasis in original) 253In Knowles at [28], the Full Court of the Federal Court stated that in determining whether there is a sufficient or material relationship between the benefit and the employment it will be helpful to ask "whether the benefit is a product or incident of the employment". 254Starrim and Knowles concerned, respectively, loans provided by a company to shareholder employees and to employees who were the beneficiaries of a trust estate for which the company was trustee. In Knowles, a corporate trustee of a unit trust made interest-free loans to each of its four directors who, together with members of their families, were the persons for whose ultimate benefit the trust was established. The directors had drawn money from the cheque account maintained by the corporate trustee as and when they saw fit to meet private expenditures, and the amounts drawn were then recorded in the books of account as loans. Drawings by a director were not related to the work done by him and the corporate trustee paid each director a salary. The Full Court observed that if the directors drew upon the assets of the unit trust because the trust was ultimately established for their benefit and that of their families "it is unlikely that there would be a sufficient connection with [their] employment" to attract the FBTAA (at [33]). 255In Starrim Lindgren J held that a bank loan on-lent by a company to its directors (who were also its shareholders) to purchase a property was not a loan fringe benefit, as the requisite connection between the employment and the benefit did not exist. Rather, the loan was for a commercial purpose as the bank provided it on the basis that it would be used to purchase a nursery and landscaping business and a property comprising a private residence in which the directors would reside and an area on which the business was to be carried on. Lindgren J found that, although the directors were paid "very little" by the company, they had received the loan "simply in their capacity as 'purchasers of the [p]roperty'" (at [64] and [83]). His Honour considered the amount lent and the fact that the loan was a one-off event to be relevant considerations (at [82]). 256The decisions in Knowles and Starrim provide strong support for the tentative view expressed by Messrs Magid and Beath that a loan from the AHLUT to Mr Symond of funds provided by the ANZ would not fall within the definition of a fringe benefit. The relevant circumstances include the size of the loan, being $57 million over three years. This level of borrowing suggests the loan was not some form of compensation for his position as managing director, but instead involved him borrowing (ultimately from the ANZ) against his 100% ownership of the business (and his house). It is not clear to me whether a salary of $800,000.00 is less than the prevailing market rate for a private business of the size of Aussie Home Loans. It is certainly not nominal. There is nothing in the material that suggests that any aspect of the RPS structure that was in fact put in place represented a determination to provide Mr Symond with additional remuneration arising from his position as managing director. The same applies if a loan of equivalent size was made by the AHLUT. 257In these circumstances I consider that there would be only an insignificant prospect of a loan from the AHLUT under Scenario 1 being characterised as a fringe benefit for the purposes of the FBTAA. 258Fifth, Messrs Magid and Beath agreed that, leaving aside the application of the FBTAA, Mr Symond's affairs would have only attracted a "very limited" level of scrutiny by the Commissioner if Scenario 1 had been adopted, the AHLUT had paid out Mr Symond's present entitlement with the consequence that he had paid tax on that entitlement at his marginal rate, and the loans to Mr Symond were funded by the loan facility with the ANZ. I regard the prospect that this scrutiny would not have extended beyond the review in 2005 into a full blown audit as insignificant. In relation to FBT, I regard the likelihood that, in the event that Scenario 1 was pursued, the Commissioner would have scrutinised the transaction beyond the review as being low. On this scenario, the Commissioner's consideration would have been undertaken in circumstances where Mr Symond would have paid substantial amounts of personal tax on the profits made by the business and there was no element of circularity with any aspect of the transaction. It would not have required the provision of much information to the Commissioner to demonstrate that. Scenario 1 - Reconstituted Accounts and Financial Capacity 259As I have stated, for Scenario 1 to have the tax consequences identified by Messrs Beath and Magid it was necessary for the AHLUT to be able to distribute to Mr Symond any present entitlement he had to its net income, and for an external financier to fund the loan amounts paid to him via the AHLUT. An issue arises as to the AHLUT's financial capacity to do so. 260These matters were addressed by Ms Habib in her affidavit sworn 14 September 2012. Ms Habib prepared revised accounts for the financial years ended 30 June 2004, 30 June 2005 and 30 June 2006 reflecting the financial position of the AHLUT and Mr Symond under Scenario 1 for those years: Year ended 30 June Accounting profit (after tax) Tax profit Distributions (that would have been paid) Grossed up dividend Tax (that would have been) paid by Mr Symond 2004 $6,250,975 -- -- n/a -- 2005 $19,750,403 $10,501,203 $10,501,203 n/a $5,093,083 2006 $29,356,551 $33,535,847 $33,535,847 n/a $16,264,886 261These figures can be contrasted with the actual amounts for these years: AHL Holdings (actual) Year ended 30 June Revenue Accounting Profit (after tax) Tax profit Dividends paid Franking credits attached Grossed-up dividend Tax paid by Mr Symond 2004 103,570,876 * -- 6,483,233 -- -- -- -- 2005 114,572,442 *(6,652,304) 22,089,077 -- -- -- -- 2006 126,082,608 *19,190,722 33,807,500 -- -- -- -- 2007 144,193,542 20,308,104 32,852,900 5,000,000 2,142,857 7,142,857 1,137,318 2008 145,171,746 22,312,848 32,885,513 10,000,000 4,285,714 14,285,714 2,314,158 2009 165,527,569 22,609,086 31,926,433 9,176,480 3,932,777 13,109,257 2,046,411 2010 227,264,000 31,145,000 47,947,000 21,800,000 9,342,857 31,142,857 3,301,876 2011 292,204,000 51,497,000 77,303,000 22,000,000 9,428,571 31,428,571 3,345,437 2012 268,878,000 33,046,000 49,883,000 22,200,000 9,514,286 31,714,286 not avail. (* Gadens' figures for the accounting profit in those years were ($16,952,563.00), $13,362,875.00 and $18,929,540.00 respectively. It was not suggested that anything turned on this difference.) 262It can be seen that there is a substantial difference in the accounting profit for Scenario 1 compared with that which was booked under the Restructure. At least one of the reasons for this difference was that under the Restructure there was a transfer within the group of ownership of the operating businesses which gave rise, under the accounting standards, to a requirement to amortise the goodwill over a period. Further, under Scenario 1, during the years depicted in this table there is no company interposed between Mr Symond and the AHLUT, and Mr Symond receives distributions directly from the trust. Thus there are no "dividends" or franking credits. Consistent with the opinion of Messrs Magid and Beath, the distributions are not taxed at their source (ie the AHLUT), but solely on receipt in Mr Symond's hands at his marginal rate of 48.5%. 263Ms Habib also addressed whether the loan facilities with the ANZ could fund the necessary payments made under the loans and distribution of the AHLUT's net income. Ms Habib assumed that the loan facilities from the ANZ that were in fact in place would have been made available under Scenario 1, with one modification. Some of the loan facilities that were taken out with the ANZ limited the amount that could be drawn down by reference to a percentage of the AHLUT's net profit "after tax" (the "withdrawal ratio"). They also contained a carve out from this condition for amounts necessary to meet "Unitholders/Shareholders' loan commitments to [the] ANZ or taxation liabilities", which included Mr Symond's taxation liabilities. Ms Habib noted that this form of the withdrawal ratio made no sense in the context of a trust such as the AHLUT which did not pay tax, the payment of tax being the responsibility of unitholders receiving the trust income. She therefore assumed a revised form of withdrawal caveat for Scenario 1 which provided for a withdrawal ratio limiting the amount drawn down to no "more than 75% of the Net Cash Provided from Operating Activities less net proceeds from Marginisation unless withdrawals are in respect of servicing either Unit Holders/Shareholders loan commitments to [the] ANZ or taxation liabilities". There was no suggestion by Gadens that this revised form of covenant was unreasonable or even unlikely. I accept that it is one that the ANZ would have accepted had Scenario 1 been pursued. 264For the financial year ended 30 June 2004 (FY04) Ms Habib calculated that there would have been no distributions payable or paid by the AHLUT (due to carried forward losses). She assumed that the amounts paid out to Mr Symond totalling $20,652,806.00, as a result of his "redemption" of RPS to that value, would have been lent to him by the AHLUT. (It appears that those amounts were funded by borrowings from the ANZ in the events which took place.) On this basis Ms Habib calculated that a further amount of $3,706,569.00 could have been drawn down in addition to any funds used to "repay [the] ANZ loan commitments or service taxation liabilities". 265For the financial year ended 30 June 2005 (FY05) the amount lent to Mr Symond would have been $16,326,485.00, which equates to the value of the RPS he "redeemed" in that year. Ms Habib calculated that the taxable income of the AHLUT for that year under Scenario 1 would have been $10,501,203.00. The distribution of this amount to Mr Symond would have attracted taxation of $5,093,083.00 in his hands at his marginal rate of 48.5%. Ms Habib assumed that the balance of the distribution would have been repaid to the AHLUT to reduce Mr Symond's loan balance. Thus, in addition to his loans, the amount of cash that would have had to been distributed to Mr Symond to meet his taxation liability on the distributions was $5,093,083.00. Consistent with the above description of the revised terms of the facility that she assumed, Ms Habib stated that that cash distribution would not have affected the withdrawal ratio for the loan covenant as it was a payment to service tax liabilities. She concluded that under Scenario 1 "... a further amount of $4,747,003.00 could have been 'withdrawn' in addition to any funds used to repay [the] ANZ loan commitments or service taxation liabilities", which I take to include the figure of $5,093,083.00. 266For the financial year ended 30 June 2006 (FY06), Mr Symond "redeemed" preference shares to the value of $20,758,710.00. Ms Habib assumed this amount was borrowed from the AHLUT. She calculated that the taxable income for the AHLUT under Scenario 1 would be $33,535,847.00. This would have required a cash payment of $16,264,886.00 to meet Mr Symond's taxation liabilities, with the balance of the distribution being returned in reduction of his loan account. She concluded that under Scenario 1 there would have been a margin of $12,061,095.00 under the revised withdrawal caveat in addition to "any funds used to repay [the] ANZ loan commitments or service taxation liabilities". 267Ms Habib's calculations were reviewed by Mr Potter in his report dated 8 October 2012. He confirmed the accuracy of her calculations. Mr Potter also reviewed compliance by the Aussie Home Loans Group under Scenario 1 with the balance of the financial covenants in the ANZ loan facilities, namely the interest cover ratio, asset cover ratio and overall facility limit, and concluded that none of them would have been breached by giving effect to the assumptions of Scenario 1. Mr Potter was not cross examined about this aspect of the report and it was never addressed by Ms Jones. I accept this part of Mr Potter's and Ms Habib's evidence. 268Accordingly, I am satisfied that under Scenario 1 for the financial years 2004 to 2006 the AHLUT could have sourced the funds for Mr Symond's borrowings from the ANZ facilities and had the capacity to make sufficient cash distributions to Mr Symond to ensure that he met his taxation liabilities on distributions and maintain the tax free status of the loan receipts in his hands. Scenario 2 - Borrowing from the AHLUT and Interposing a Corporate Owner 269Mr Potter and Ms Jones described Scenario 2 as follows: "(i) That rather than implementing the Restructure of the Aussie Group, and adopt a structure under which redeemable preference shares were issued and redeemed, Mr Symond would have interposed a company between the unit holders and the [AHLUT], which for the purposes of the scenario has been assumed to have [the] same name as the actual entity, [Holdings]; (ii) Mr Symond would have borrowed funds from [the] AHLUT in the same amount and at the same time as actually occurred with respect to the redemption of the RPS under Project Alice; (iii) The Trustee of [the] AHLUT would declare any assessable trust income on or before 30 June in the relevant assessable income year and distribute that income to [Holdings] (as sole beneficiary) by 31 October following the end of the tax year; (iv) [Holdings] would have included any distribution from [the] AHLUT as part of its profit for the year and pay taxes upon those profits at the corporate rate; (v) [Holdings] would have declared and paid (payments to be made on or before 31 October following the end of the tax year) to its shareholders (ultimately Mr Symond) a dividend along with any available franking credits that attach to that dividend, representing all of the after tax income received from [the] AHLUT: o In cash to the extent necessary to satisfy Mr Symond's taxation liabilities with respect to the dividend declared; and otherwise o By applying the balance to reduce the balance of the loan account with [the] AHLUT; and (vi) Mr Symond would have included the dividend received from [Holdings] (including any franking credits with respect to the tax already paid by [Holdings]) in his personal tax return and used the cash component of his dividend to pay any additional tax required; and (vii) Sale of 33 percent of Mr Symond's interest in the Aussie Group to CBA to CBA [sic] would have occurred on 31 October 2008." 270Given the significance of Scenario 2, I include the following diagrammatic representation: 271Unlike Scenario 1, but in common with the Restructure, Scenario 2 involves the interposing of a company between Mr Symond and the AHLUT (which I will also refer to as Holdings). Thus Scenario 2 has the attraction of offering an ownership structure preferable to Scenario 1 for either a purchaser or a float. Although it was not a necessary part of Scenario 2, the scenario also enabled the transfer of the operating businesses from the AHLUT to a direct subsidiary of Holdings in the same manner that occurred under the Restructure, if that was considered appropriate. Scenario 2 - Tax Treatment 272Messrs Beath and Magid were also in agreement as to what steps would need to be undertaken to ensure the tax free status of, or at least minimise the possibility of the attachment of a tax liability to, the funds lent to Mr Symond under Scenario 2. They involved a consideration of Subdivisions EA and E of Division 7A of the ITAA 1936. 273In relation to Subdivision EA, the combined effect of ss 109XB and 109XA(2) is that amounts lent by a trust (ie the AHLUT) to a shareholder (ie Mr Symond) of an associated company (ie Holdings) will be taxed as deemed dividends in the same manner as loans from a private company to a shareholder if one of two conditions is fulfilled. The first is satisfied if, at the time the loan "takes place", the company (ie Holdings) is "presently entitled" to an amount from the net income of the trust estate and that amount was not paid to the company before the earlier of the due date for the lodgement or date of lodgement of the return of the AHLUT's trustee (s 109XA(2)(b)(i)). The second is satisfied if, after the loan takes place but before the earlier of the due date for the lodgement or the date of lodgement of the return of the AHLUT's trustee, the company (Holdings) becomes "presently entitled" to an amount from the net income of the trust estate which is not paid before lodgement or the due date for lodgement of the return of the AHLUT's trustee (s 109XA(2)(b)(ii)). 274Messrs Symond and Beath agreed that the practical effect of these provisions was that, in order to ensure that the loan proceeds paid from the AHLUT to Mr Symond under Scenario 2 were not assessable in Mr Symond's hands, the AHLUT had to pay the entirety of its income to Holdings prior to the due date of lodgement or date of lodgement for the relevant year. This raised an issue as to the financial capacity of the AHLUT to do this which Mr Habib also addressed (see below). 275The simplified outline of Subdivision E of ITAA 1936 set out in s 109S states that its provisions enable a private company (such as Holdings) to be taken to have paid a dividend to the "target entity" (ie Mr Symond) if an entity interposed between the private company and the target entity (ie the AHLUT) makes a payment or loan to the target entity under an arrangement involving the private company. Messrs Magid and Beath agreed that this outcome would be avoided if the AHLUT did not source the funds for its loans to Mr Symond from Holdings, and Holdings did not return any of the funds paid to it by the AHLUT in discharge of its present entitlement as unitholder in the AHLUT. Neither of them suggested that that part of the assumptions involved in Scenario 2 whereby Holdings would declare dividends in favour of Mr Symond, part of which would be used to reduce his loan account with the AHLUT, would itself trigger the operation of Subdivision E in relation to the loans made by the AHLUT to him. 276Messrs Magid and Beath also agreed that the potential application of the FBTAA to the loans made by the AHLUT to Mr Symond was the same under Scenarios 1 and 2. The finding I make at [257] is equally applicable at this point. 277As with Scenario 1, Messrs Magid and Beath agreed that, leaving aside the application of the FBTAA, if Scenario 2 had been adopted, the AHLUT had paid Holdings its present entitlement in time to avoid the application of Subdivision EA of Division 7 and Holdings did not return that amount to the AHLUT, then the ATO's review of Mr Symond's affairs would have been unlikely to extend beyond the review undertaken in 2005 into a full blown audit. Mr Beath stated that during the review process an adviser should have been able to put forward material to satisfy the Commissioner that funds used to pay out Holdings' present entitlement to the AHLUT's net income were not returned to make the loan to Mr Symond. I repeat my findings at [258]. Scenario 2 - Reconstituted Accounts and Financial Capacity 278Two outstanding issues of financial capacity in relation to Scenario 2 arise from the reports of Messrs Magid and Beath, namely whether the AHLUT could fund the necessary cash distributions of Holdings' net present entitlement for the relevant years, and whether the AHLUT could have obtained funding for its loans to Mr Symond. 279Ms Habib prepared revised accounts for FY04, FY05 and FY06 reflecting the effect of the steps necessary to give effect to Scenario 2: Year ended 30 June Accounting Profit (after tax) of AHLUT * Accounting Profit (after tax) of Holdings Tax profit Dividends paid (by Holdings) Franking credits Grossed-up dividend Additional tax paid by Mr Symond 2004 $5,813,847 ($16,848,596) -- -- -- n/a 2005 $19,717,391 $13,655,069 $10,232,591 $7,162,814 $661,546 $7,824,360 $3,133,269 2006 $29,238,636 $19,207,625 $33,417,933 $23,392,553 $8,282,870 $31,675,423 $7,079,710 (* These figures were sourced from Ms Habib's affidavit sworn 14 September 2012. At the hearing, Mr Symond's counsel provided a table that included the figures $4,060,693.00, $13,802,171.00 and $20,467,045.00 for the accounting profit of the AHLUT for FY04, FY05 and FY06 respectively, but the source was not stated.) 280Ms Habib explained these figures in her affidavit. For FY04, carried forward tax losses in the AHLUT meant that it did not earn profits and thus there was no distribution payable to Holdings. 281For FY05 she calculated that the taxable income of the AHLUT would have been $10,232,591.00. This would have had to have been distributed to Holdings. Holdings would have paid 30% tax on that amount ($3,069,777.00) leaving a balance of $7,162,814.00 which, in turn, would have been distributed to Mr Symond as the 100% sole shareholder. Under this scenario, there would only have been $661,546.00 in available franking credits. Although this was not explained, presumably it occurred because no franking credits for previous years could have been generated. Hence the tax paid by Mr Symond on that dividend distribution was calculated at $3,133,268.00, a combination of the marginal rate of tax he was liable to pay and the limited amount of franking credits. Under this scenario, the after tax balance of the dividend payable to Mr Symond by Holdings would have been used to repay the AHLUT in reduction of his loan balance. 282For FY06 Ms Habib calculated that the AHLUT would have been required to pay a distribution to Holdings of $33,417,933.00 in respect of which Holdings would have paid tax of $10,025,380.00. The balance of $23,392,553.00 would then have been distributed as a dividend to Mr Symond with franking credits of $8,282,870.00. Again, this means that these dividends were not fully franked. The figure for the additional tax payable by Mr Symond was determined to be $7,079,710.00. This was presumably calculated by applying Mr Symond's top marginal rate to the amount of the grossed up dividend and then deducting the franking credits. Again Ms Habib assumed that the after tax balance of the dividend payable to Mr Symond was used to reduce his loan balance with the AHLUT. 283Ms Habib also addressed the capacity of the business structure effected by Scenario 2 to make these payments. I have already described the assumption that Ms Habib made in relation to whether the loan facilities with the ANZ could fund the necessary payments. For Scenario 2 Ms Habib resorted to the same or a similar version of the clause concerning the withdrawal ratio that was in fact imposed by the ANZ, namely a limit of 75% of the Net Profit After Tax "unless withdrawals are in respect of servicing Unit Holders/Shareholders [sic] loan commitments to [the] ANZ and [or] taxation liabilities". 284For each of FY04, FY05 and FY06, Ms Habib assumed that Mr Symond borrowed the same amount as he redeemed using the RPS mechanism in those years. She also noted that the withdrawal ratio did not affect the ability to draw down amounts necessary to meet Mr Symond's tax liability on the dividend payments he received in FY05 and FY06. As with Scenario 1 Ms Habib determined that there was still room allowed by the withdrawal ratio to draw further amounts down even after the loans had been made to Mr Symond and cash distributions had been made sufficient to meet his tax liability on the dividend payments he received. 285Mr Potter reviewed these calculations in the same manner as he did Ms Habib's equivalent calculations for Scenario 1. As with Scenario 1 he also considered the interest cover ratio, asset cover ratio and overall facility limit. He concluded that the Aussie group had sufficient financial capacity to enable Mr Symond to draw down "the required level of funds from the business" without triggering a breach of the ANZ loan covenants. It was not immediately apparent to me how either Ms Habib's or Mr Potter's analysis addressed the capacity of the AHLUT to make the necessary payment to Holdings of its present entitlement. However, as the assumptions that underpin Scenario 2 only envisage a cash leakage from the Aussie Home Loans Group for the purpose of lending money to Mr Symond and the payment of Holdings and Mr Symond's personal tax liabilities, it would seem to follow that the "required payments" Mr Potter refers to include the payment from the AHLUT to Holdings. As I have stated, Scenarios 1 and 2 assume that the AHLUT later receives a repayment from Mr Symond in reduction of his loan account, that amount being sourced from the net proceeds of his dividend distribution from Holdings. 286Accordingly I am satisfied that under Scenario 2 for FY04 to FY06 the AHLUT had the capacity to make sufficient cash distributions to Mr Symond to ensure that he met his taxation liabilities on distributions and maintain the tax free status of the loan receipts in his hands. Beath Scenario 3 - Division 7A Compliant Loan Agreement 287As I have stated, during the course of the exchange of the experts' reports Mr Beath raised a variation on Scenario 2 known as "Beath Scenario 3". Section 109N of the ITAA 1936 exempts from treatment as deemed dividends loans from a private company to a relevant entity that satisfy certain criteria. Beath Scenario 3 involved Mr Symond borrowing from the AHLUT on terms that complied with those criteria by utilising a benchmark interest rate and requiring the repayment of the principal and interest over a seven year period. Under Beath Scenario 3, principal and interest repayments would have been firstly paid out of dividends paid to Mr Symond by Holdings. To the extent that the dividend payments would not have been sufficient to meet the repayments of the principal and interest, then Mr Symond would have had to borrow the necessary funds on a commercial basis from a third party lender. 288Messrs Magid and Beath agreed that this approach would have ensured that the loans to Mr Symond were not taxable and the "restructure would not be vulnerable to a credible challenge from, or a dispute with, the Commissioner". 289Ms Habib did not undertake a reconstitution of the various accounts to indicate what the outcome of this scenario was, nor did she directly address the capacity of either Mr Symond or the Aussie Home Loans Group to give effect to it. However, this scenario was modelled by Ms Jones in her first report. She assumed that Mr Symond borrowed $20,652,806.00 in FY04, $16,326,485.00 in FY05 and $20,758,710.00 in FY06 under loan agreements that complied with s 109N. She concluded that no dividends would have been paid or payable in FY04 and FY05, and thus in those years Mr Symond would have had to fund principal and interest repayments in his own right of $1,881,754.00 and $5,277,063.00 respectively. For FY06, FY07 and FY08 sufficient dividends would have been generated to pay the outstanding balances under the loan agreements, but it was assumed that Mr Symond met the additional tax liability on those dividends from his own resources. 290Mr Potter addressed this part of Ms Jones' report in his second report. He disagreed with Ms Jones' assessment of the overall "cost" of pursuing this scenario based upon their disagreement over whether the detriment accruing from the payment of tax by Holdings at an earlier time under the various scenarios is a permanent or only temporary difference (see below at [336]ff). Only one aspect of Mr Potter's disagreement concerned the capacity of either Holdings or Mr Symond to give effect to Beath Scenario 3. Mr Potter pointed out that it was open to Mr Symond to use the proceeds of the sale of his one third of the business to the CBA in 2008 in repayment of his outstanding loan balances. 291Although there was not a great deal of information as to the resources of Mr Symond outside of his ownership of the business to enable me to make findings concerning his financial capacity to give effect to Scenario 3, it seems likely that he would have been able to do so. However it is unnecessary to consider this further because, as further discussed below, the propensity for this scenario to require substantial contributions by Mr Symond from sources outside the business would have presented a significant factor weighing against his pursuit of Beath Scenario 3. Deductibility of Interest 292From 1 July 2004 the Aussie group ceased claiming a tax deduction for the interest payments on the loans borrowed from the ANZ. Presumably the view was taken that since in substance the loan was being used to fund Mr Symond's home it was not sufficiently related to the earning of assessable income for a deduction to be claimed. 293In one of his reports Mr Beath effectively asserted that deduction of interest payments should have continued under the Restructure because the loan proceeds were being used to redeem units held by Holdings. He contrasted this with the proceeds of the loan from the ANZ to the AHLUT being directly on-lent to Mr Symond, in which case the interest would not have been deductible. Mr Magid agreed with the latter but did not agree that the interest payments were deductible under the Restructure. Gadens' submissions did not address this disagreement. Mr Symond's submissions addressed it, but claimed it was only relevant if I found that Beath Scenario 3 was the most likely. I do not agree. As I understand Mr Beath's evidence, he was seeking to draw a contrast between the Restructure and each of Scenarios 1, 2 and Beath Scenario 3 because all of those scenarios involve a direct borrowing by Mr Symond from the AHLUT. If his opinion was accepted, it would mean that there was an additional benefit from the adoption of the Restructure compared with those scenarios, namely the ability to deduct interest on the borrowings from the ANZ. 294However, even though I was impressed with Mr Beath's evidence generally, I do not accept his evidence on this issue and prefer that of Mr Magid. 295Section 8.1(1) of the ITAA 1997 provides that a loss or outgoing may be deducted from an entity's assessable income to the extent that it is incurred in gaining or producing that income or is necessarily incurred in carrying on a business for the purpose of gaining or producing such income. In the joint experts' report Mr Beath, relying on taxation ruling TR 2003/9, stated that the interest paid on funds borrowed by the AHLUT from the ANZ and used to redeem units under the Restructure would have been tax deductible under s 8.1. Mr Magid disagreed on the basis that those funds were borrowed for the identifiable purpose of replacing capital that had been used to acquire units in the Alice Trust that were not capable of producing assessable income or acquired in carrying on a business for producing such income. 296I accept Mr Magid's analysis. TR 2003/9 provides that a trustee is only entitled to a deduction for interest paid on funds borrowed to pay distributions to beneficiaries where that interest is "sufficiently connected" with the assessable income earning activity or business carried on by the trustee in their capacity as trustee (at [5]). In determining whether that condition is satisfied, two principles are relevant. First, the mere fact that the trustee has an obligation to make a distribution does not, of itself, render the interest deductible (at [11]) (see Hayden v Federal Commissioner of Taxation (1996) 96 ATC 4797 at 4804; 33 ATR 352 at 360). Second, where a trust borrows funds to repay "working capital" (i.e. capital used in the production of assessable income), the interest on that borrowing is deductible as "the character of the refinancing takes on the same character as the original borrowing" (at [15], citing Federal Commissioner of Taxation v JD Roberts; Federal Commissioner of Taxation v Smith (1992) 92 ATC 4380 at 4388; 23 ATR 494 at 504). 297In this case the funds borrowed by the AHLUT from the ANZ were used to repay the loan made by Mr Symond to it in the early stages of the Restructure. The loan by Mr Symond to the AHLUT, which arose from his subscription for 57,738,001 $1 RPS in Holdings paid for by promissory note and Holdings' subscription for 57,738,001 units in the AHLUT paid for by endorsement of that note, was not an investment by him in an assessable income earning activity or business carried on by the trust. It effectively contributed no new capital to the business. Accordingly, the AHLUT's use of its borrowings to pay out Mr Symond's loan in consideration for the redemption of his preference shares could not be described as the replacement of its "working capital". Interest on those borrowings was not deductible. The Required Advice 298The description of the above scenarios as well as the evidence concerning the taxation consequences of their adoption are relevant to the unresolved question noted at [222] concerning what advice Gadens should have given to Mr Symond in 2003 to 2004. For the present I will leave out Ms Habib's analysis as well as that of Mr Potter and Ms Jones as they involve elements of hindsight. 299Mr Payne SC submitted that it was incumbent on Gadens to proffer advice about each of the three scenarios that included an outline of the corporate structure they entailed, the potential tax liabilities they raised and the measures necessary to overcome or minimise those liabilities. I agree. 300Each of the three scenarios addresses the point stressed on behalf of Mr Symond in 2003 and 2004, namely his concern to avoid or at least minimise the imposition of tax on his borrowings. Scenario 2 and Beath Scenario 3 have the added attraction of introducing a corporate owner of the Aussie group. Even though Mr Symond and the rest of his advisers were lukewarm about that proposal, they nevertheless accepted its benefits. 301As at 2003 the Aussie Home Loans Group had been making relatively modest trading losses for some years. However, as I have stated at [21], profits were anticipated. A valuation report prepared by PwC as at November 2003 noted that Holdings' net profit after tax for the year ended 30 June 2003 was $4.5 million, and predicted steep increases in profits thereafter. While the actual profits did not reach the numbers predicted, in broad terms PwC's forecast proved correct. Mr Magid agreed that one thing that a competent solicitor in Mr Seller's position would have done in 2003 was to make an inquiry about expected further profitability. If that step had been taken, it would have revealed an expectation of profits in the relatively short term. According to Mr Magid, "that would raise the spectre of Division 7A". Generally an owner of a business deriving profits cannot expect to borrow funds from the business without incurring a substantial risk of exposure under Division 7A unless profits made by the business are paid out and subject to tax. The advice given to Mr Symond should have reflected that proposition. Given Mr Symond's statement that he did not want to incur "additional tax", ie tax on his borrowings, I have no doubt he would have accepted that as a necessary consequence of his need for funds to complete the building of his house. 302In the end result I am satisfied that competent advice should have outlined all three of the above scenarios to Mr Symond and those advising him. The advice should have addressed the various taxation issues that I have identified above at [243] to [258] and [272] to [277], including the risk of the FBTAA being applied and the operation of Division 7A. With Scenarios 1 and 2 it would have to have been made clear that, if profits were made, either the net income of the AHLUT (under Scenario 1) or profits via dividends (under Scenario 2) would need to be distributed to Mr Symond and tax paid to ensure, or at least maximise the prospect, that no tax would be imposed on Mr Symond's receipt of loan proceeds. With Beath Scenario 3, that was not necessarily the case, however the absence of receipts from dividends would have meant that Mr Symond was required to meet even higher loan payments from somewhere other than the business. I repeat my comments at [221] concerning ss 5B and 5C of the CLA, with the proviso that the relevant "precaution" is advice concerning the three scenarios. 303At this point it is necessary to address that part of Mr Beath's report which addresses the advice a competent solicitor would have provided. As I have stated, Mr Beath was not asked to and did not opine upon the competence of the advice that Gadens in fact gave. Nor does he expressly state what proposed structure should have been recommended to Mr Symond or Aussie. Mr Beath did state that Beath Scenario 3 "could have been implemented so as to achieve Mr Symond's alleged objectives", but also added that "Mr Symond would not have been in a better financial position [under Beath Scenario 3] than he was following the settlement with the ATO" (emphasis in original). Mr Beath did not state whether or not a reasonably prudent solicitor would have suggested the structure implemented in that scenario. 304The only relevant opinion that Mr Beath proffers is a negative one, namely that a "reasonably prudent solicitor [in Gadens' position] would not have advised Aussie Home Loans to enter into either Scenario 1 or Scenario 2". I will address the reasons put forward in support of this opinion shortly. However I note that the combined effect of the limited instructions given to Mr Beath and his responses was that Gadens did not assert that its advice was appropriate, but did not put forward any form of advice that it contended the reasonably prudent solicitor should have provided. The three scenarios that Mr Symond now suggests he should have been advised of may not be perfect, but at least they have the merit of seeking to address the issue upon which advice was being sought. The final position of Gadens at the trial was a vacuum so far as that was concerned. One thing a reasonably prudent solicitor in Gadens' position could not do was stay mute, especially if they proposed to charge for their time. Marcel Marceau was not a tax lawyer. 305Mr Beath nominated three reasons for his opinion that a reasonably prudent solicitor would not have advised that Scenario 1 be adopted. The first was that Scenario 1 did not involve the insertion of a corporate vehicle in the group structure for the purposes of an eventual float on the ASX or trade sale. It is common ground that this is a deficiency in Scenario 1 but it did not render Scenario 1 an inappropriate option to suggest to Mr Symond. Mr Beath's opinion reflects an instruction that this was the "Aussie Group's objective". As I have stated, Mr Symond and his team were lukewarm about that "objective", and the relative advantages and disadvantages of maintaining the existing method should have been canvassed. 306The second reason nominated by Mr Beath was that Scenario 1 would not have allowed Mr Symond to borrow on a tax free basis because the loan proceeds would have been taxable under s 97 of the ITAA 1936 "to the extent the loans represented income to which he became presently entitled". Mr Beath also considered that the proceeds would potentially be taxed under ss 99B and 26(b) of the ITAA 1936 or s 104-70 of the ITAA 1997. In relation to ss 97 and 99B, these concerns were very real based on the assumptions and instructions given to Mr Beath. However the revised assumptions for Scenario 1 involve the distribution of net income of the AHLUT so that tax would not be payable under s 97 on the loan proceeds. Further, in the joint report Mr Beath agreed that, if the net income of the AHLUT was distributed to Mr Symond and the source of the funds lent to Mr Symond by the AHLUT was a third party financier, then the concerns about s 99B fell away. The advice about the structure that should have been given to Mr Symond should have pointed out those concerns and the means to address them. Otherwise in the joint report Mr Beath agreed that if the loans to Mr Symond were "bona fide" they would not attract the operation of s 26(b) of the ITAA 1936 or s 104-70 of the ITAA 1997. 307Third, Mr Beath points to the potential for the FBTAA to be applied to the loans. I have referred to this risk above, including the opinion expressed by Mr Beath in the joint report. 308Mr Beath also nominated three reasons for his opinion that a reasonably prudent solicitor would not have advised that Scenario 2 be adopted. First he opined that some part of the loan funds provided to Mr Symond would have been taxable under Subdivision EA of Division 7A of the ITAA 1936. I have addressed Subdivision EA above at [273]. A reasonably prudent solicitor in Gadens' position should have informed their client of the need to ensure that Holdings' present entitlements to the AHLUT's net income were paid out by the relevant time so as to maintain the tax free status of the loan receipts in Mr Symond's hands. 309The second reason nominated by Mr Beath was that any advice to enter into Scenario 2 would have been deficient if it failed to state that the Aussie Home Loans Group should form a "tax consolidated group". In oral evidence Mr Beath explained that this comment was only added "more for completeness" because he was addressing a version of Scenario 2 that did not include advice about the advantages of consolidation. In the end result nothing turns on this. I consider this to be only an additional matter that the reasonably prudent solicitor should or might have considered in advising their client about Scenario 2. 310The third reason nominated by Mr Beath in relation to Scenario 2 was the potential for the FBTAA to be applied to the loans. I have discussed this potentiality above. 311Gadens' written submissions also contend that neither Scenario 1 nor Scenario 2 achieves the "fundamental aim of the Restructure, namely, placing the business of the Aussie Home Loans Group into an ownership structure other than a trust". As I have stated, this is the case with Scenario 1 but it is not clear why that observation applies to Scenario 2. Gadens asserted that it follows from the fact that Scenario 2 assumes "the [AHLUT] continued to derive income from the operation of the business and to apply it towards funding [Mr Symond's] building project" by distributing income to Holdings, which was then passed on to Mr Symond, or lending him money directly. This does not detract from the achievement of corporatisation by the implementation of Scenario 2. The provision of loans to Mr Symond was only a temporary measure necessary to enable him to complete the construction of his house. Further, Scenario 2 did not prevent or preclude the transfer of the operating businesses to a direct subsidiary of Holdings as happened under the Restructure. 312None of the reasons put forward by Mr Beath in his report or Gadens in its submissions affect my finding that a reasonably prudent solicitor in the position of Gadens would have advised their client of each of the three structures and their relative advantages and disadvantages. The various problems they raise are simply matters that would need to be reflected in the explanation of the risks posed by each of them, and the steps required to be taken to ensure that Mr Symond was not taxed, or to minimise the risk that he would be, upon his receipt of the loan funds. The Preferred Scenario 313To this point I have not addressed which of the three scenarios, if any, a reasonably prudent solicitor would have recommended to Mr Symond or the business that they pursue. To a significant extent the determination of which one, if any, should have been suggested depended upon the extent of the client's preference for corporatisation, an assessment of the likelihood that profits would materialise in the next few years, and the preparedness of Mr Symond to expose himself to tax and commercial risk. 314I consider that the question of which structure, if any, a competent solicitor would have recommended (as opposed to raised) resolves into the same question as which one would have been adopted. Having been advised as to the various restructuring options, Mr Symond and his team would have considered the issues and responded. In the end result, the reasonably competent solicitor would have then settled on a suggested course and advised Mr Symond accordingly (the most likely scenario), or a consensus would have emerged as to which one was the most appropriate. 315Mr Payne SC submitted that Scenario 2 was the most likely scenario to have been adopted by My Symond and Aussie (and implicitly that it was the course which would have been recommended by a reasonably prudent solicitor). I agree. It had the benefits of corporate ownership that I have outlined. Scenario 1 would have had the attraction of suggesting a method that had already been utilised. However, competent advice concerning its continued use would have been accompanied with stern warnings about the need to distribute all the income of the AHLUT and ensure that the source of the loan funds was the facilities with the ANZ. Even if the status quo reigned for a short period, as time marched on through 2003 and 2004 the (otherwise happy) realisation would have dawned that profits were being made or would be made. At that time I expect the warnings about using the existing method of borrowing would have registered, if they had not already. Even if Scenario 2 had not been adopted at the outset I consider it overwhelmingly likely that it would have been adopted at the point when it was clear that the previous approach could not be pursued without distributing all the income of the AHLUT and Mr Symond paying tax on that distribution. 316Beath Scenario 3 had the attraction of offering a higher level of assurance that tax would not be paid on the borrowings than Scenario 1 or Scenario 2. I have already accepted that Mr Symond and those advising him were seeking a strong level of comfort to that effect. It was stated repeatedly in correspondence. However Beath Scenario 3 involved a real likelihood that Mr Symond would have had to access resources outside the Aussie Home Loans Group to meet his liabilities under the loan agreements that conformed with s 109N. This undermines the very rationale for the whole exercise, which was to allow Mr Symond to access or at least borrow against the wealth in the Aussie Home Loans Group. 317Provided the various aspects of Scenario 1 and Scenario 2 that I have outlined above were complied with then, save for the FBTAA exposure, a relatively high level of assurance that the receipt of the loan proceeds would not be taxable could have been provided. This is reflected in the level of agreement between Messrs Magid and Beath in the joint report and the level of confidence they displayed before me. As I have explained they were less confident about the FBTAA risk. I expect that level of certainty would have caused some concern to Mr Symond and those advising him and would have been weighed against the matter I just noted. To obviate that concern, further advice would have been likely to have been sought which I expect would have reflected the finding I make at [257]. The cost of that further advice is a matter that should be reflected in any award in Mr Symond's favour. (I will assess that cost at $25,000.00 having regard to the level of fees charged during the ATO audit.) 318Accordingly I will approach the assessment of the loss suffered, if any, by Mr Symond on the basis that the most likely alternative scenario "but for" Gadens' negligence was that he would have pursued Scenario 2. This is equally applicable to the s 52 claim (see [232]) and the negligence and breach of retainer claims (CLA, s 5D(1)(a)). The Competing Assessments of Loss 319Both Mr Potter and Ms Jones prepared a number of tables setting out their respective calculations of Mr Symond's loss and damage for each scenario. The parties did not urge me to apply some form of weighted average to the outcomes of the three scenarios. Instead they accepted that, if Scenario 2 was found to be the scenario most likely to be adopted, I should confine myself to considering that part of their respective assessments that was applicable to Scenario 2, while allowing for contingencies where appropriate (as in Norris v Blake [No 2] (1997) 41 NSWLR 49). 320The final form of the table summarising Mr Potter's assessment of the loss suffered by reason of Mr Symond and the business following Gadens' advice and not pursuing Scenario 2 was as follows: Components of damage Principal Interest Total Tax $5,674,500 $2,103,801 $7,778,301 Penalties $567,450 $210,380 $777,830 GIC $391,620 $46,708 $438,328 Professional fees $1,853,955 $588,479 $2,442,433 Franking credits $2,582,357 -- $2,582,357 Less benefit of the Restructure ($1,201,833) -- ($1,201,833) Total $9,868,048 $2,949,368 $12,817,416 321In an annexure to the joint report of Mr Potter and Ms Jones, Ms Jones set out her response to Mr Potter's table which, omitting interest, was as follows: Components Mr Potter Ms Jones - Alt A Ms Jones - Alt B Tax $5,674,500 $5,674,500 $5,674,500 Penalties $567,450 $567,450 -- GIC $391,620 $391,620 -- Professional fees $1,853,955 $1,780,178 $632,111 Franking credits $2,582,357 -- -- Less benefit of the Restructure ($1,201,833) ($10,212,989) ($10,212,989) Total $9,868,049 ($1,799,241) ($3,906,378) 322In submissions, Mr Donaldson SC emphasised that this table involved Ms Jones restating Mr Potter's table and submitted that the approach set out in her report was the appropriate one. However the only difference between the approach of Ms Jones depicted in the two columns on the right hand side of this table and the approach outlined in her report is that in the latter she determined the extra tax payable as a result of the application of Subdivision EA of Division 7A ($14,958,965.00) and the FBTAA ($18,896,554.00). I have already addressed those matters and rejected them. 323In the end result there were, on this part of the case, three areas of contention between Messrs Symond and Potter on the one hand and Gadens and Ms Jones on the other. 324The first was the extent to which the "Penalties", "GIC" and professional fees incurred by Mr Symond as part of his settlement with the ATO were referable to Gadens' negligence, breach of retainer or misleading conduct. Both Mr Potter and Ms Jones agreed that this difference between them flowed from the differences between each of their instructions. In Ms Jones' case the difference between "Alt A" and "Alt B" turns on differing factual assumptions she makes relevant to those items. Ultimately the resolution of this dispute turns on a factual assessment by me (which I undertake at [330]ff). 325The second area of disagreement concerns the item described as "benefit of the Restructure" in the second last row of these tables. It was agreed that under Scenario 2 tax on profits earned in the early years would have been paid earlier than was actually paid. There is a sharp disagreement between the parties and the experts as to whether this represents a permanent detriment to Mr Symond that outweighs the cost of the settlement with the ATO, as suggested by Ms Jones, or is only a temporary difference attributable to the timing of the payment of that tax, as suggested by Mr Potter. This is addressed at [336]ff. 326Third, the parties and Mr Potter and Ms Jones disagreed over whether any loss was occasioned by reason of the deduction from Holdings' franking account that occurred as part of the settlement with the ATO. This is addressed at [377]ff. 327Before addressing these issues it is necessary to note one matter concerning the loans owed by Mr Symond to the Alice Trust in the events that actually transpired and to the AHLUT under Scenario 2. In comparing those two scenarios it needs to be understood that both Mr Potter and Ms Jones agreed that the differences in the methods by which Mr Symond funded the building of his home made no difference to his ultimate net position. Thus in the "real world" he incurred a debt to the Alice Trust of $75 million but received funds following the purported redemption of the RPS. As at 30 June 2006 the assets of Holdings were depleted by the cash that was paid out under the redemptions made by Mr Symond. As he was effectively the 100% owner of Holdings, his net asset position did not alter. While he owed the Alice Trust $75 million, he also owned the company that ultimately owned the Alice Trust (ie Holdings). Again his net position was neutral. There was nothing in the evidence to support any submission that the loan from the Alice Trust to him was anything other genuine. Mr Symond made a series of acknowledgements concerning that debt in the Deed. 328Similarly under Scenario 2, as at 30 June 2006, Mr Symond would have had an outstanding debt to the AHLUT which is likely to have been less than that he in fact owed to the Alice Trust. The loan account would have been debited by the $57 million he borrowed to build the house, but would have been credited by the balance of the dividend payments he received after tax was paid on their receipt. Again, as he was the effective 100% owner of Holdings and the AHLUT, his net position in relation to the loan was the same as in the events that actually transpired. 329It follows that the differences between Mr Symond's position under Scenario 2 and in the "real world" turn upon an assessment of the economic and tax consequences for Mr Symond and Holdings of effecting the transactions necessary to ensure that he was not taxed on the borrowings under Scenario 2 and comparing the net result with what actually happened. In undertaking that comparative exercise two facts common to both scenarios are the level of funds utilised by Mr Symond to build his home and the performance of the business. Penalties, GIC and Professional Fees 330I have referred above to the evidence of Messrs Magid and Beath concerning the likely level of scrutiny of Mr Symond's taxation affairs had Scenario 2 been adopted and implemented. In summary, I am satisfied that, if it had been adopted, the risk that there would have been any scrutiny of his affairs beyond the review that was commenced in 2005 was insignificant. However I consider the potential level of scrutiny in respect of FBT was slightly higher than "insignificant", albeit low. To allow for the possibility that further scrutiny beyond the 2005 review might have occurred in respect of FBT exposure, I consider that an amount of $75,000.00 in expenses should be deducted. This reflects the low level of risk attached to this occurring and the likely narrow scope of such a review. 331The Deed recorded that the amounts payable for penalties and general interest charges in respect of the proceeds from Mr Symond's redemption of the RPS in FY06 were $567,450.00 and $391,620.00 respectively. The suggestion that the liability to pay those amounts was not attributable to the negligent advice given by Gadens arose out of a comment in Mr Beath's report that it was open to Mr Symond to have avoided those charges by lodging a return for FY06 that accepted that the amounts redeemed by him during that year were assessable as income under Division 7A. However in cross examination he accepted that, in circumstances where the same mechanism had been used to withdraw funds in previous years and the Commissioner was inquiring into those withdrawals, it would have been "fraught with difficulty" to include the redemptions made in FY06 in the FY06 return. To have done so would have meant that the starting point for any negotiations with the Commissioner was that tax was payable on the redemptions in that year. Instead that became the end point for the negotiations. I find that the penalties and GIC incurred in respect of the redemptions made in FY06 were referable to the negligence, breach of contract and misleading conduct of Gadens. 332The amount of professional fees claimed was the impressive figure of $1,858,278.92. Between March and December 2007 a number of invoices were issued by PwC, PwC Legal, Queens Counsel, Mitchell & Partners, Deloitte, E&Y and A.T. Lawyers Pty Ltd, which appears to be a company associated with Mr Seller and Abbott Tout. These invoices totalled $2,028,560.96. They were all paid by Mr Symond personally. Many of the invoices provided a reasonably detailed description of the work undertaken. Ms Habib reviewed each invoice and identified the amounts solely referable to the ATO audit. In some cases there was an element of estimation involved but she explained that she had "worked closely with most [of the] suppliers", although not all of them, and knew "what matters were being discussed at the time". Gadens did not seek to challenge this aspect of her assessment and my review of the invoices does not reveal any reason to doubt the accuracy of her estimate. 333Gadens raises two issues in relation to the claim for professional fees. First, it contends that this aspect of the claim wrongly assumes that the ATO audit commenced in February 2007. While Gadens accepts that the Deed recites the commencement date for the audit as 6 February 2007, it points to evidence indicating that the time for voluntary disclosure was extended by the Commissioner and asserts that the audit did not commence until that period expired in August 2007. The correspondence relied on by Gadens indicates that the period for voluntary disclosure was extended to July 2007. It is not apparent to me that has the result that the audit did not commence until after that time. In any event it does not matter. On 6 February 2007 the ATO wrote to Mitchell & Partners advising of its concerns in relation to the Restructure and that an audit would ensue. The invoices reveal that the work charged for was undertaken either for or in anticipation of an ATO audit. In those circumstances, whether or not the audit formally commenced in February or August 2007 is irrelevant. 334The second issue raised by Gadens concerns the identity of the addressee of the relevant invoices. They were either addressed to Mr Symond, "Mr John MacDonald, Aussie Home Loans", "Aussie Home Loans Limited", or "Mr John McDonald, General Manager, AHL Holdings Pty Ltd". Ms Jones calculated that invoices totalling $1,042,395.00 were addressed to Mr Symond, $683,312.00 were addressed to Holdings, and $132,572.00 were addressed to "Aussie Home Loans" (presumably Aussie Home Loans Limited). Gadens submitted that Mr Symond was not liable to pay the amounts that were not invoiced to him personally, and his choice to pay them is not a loss for which it can be held responsible. I do not agree. I have already accepted that the services the subject of that part of these invoices for which recovery is claimed were provided in connection with or in anticipation of an audit by the ATO in relation to the Restructure. The issues that the ATO indicated were the subject of the audit in its letter of 6 February 2007 were primarily concerned with that part of the Restructure that had the effect of removing funds from the Aussie Home Loans Group into Mr Symond's hands. They were all matters concerning a benefit conferred on him as shareholder and his assessable income. In those circumstances it was arguably incumbent upon Mr Symond to assume personal responsibility for those costs vis-à-vis Holdings or the other Aussie Home Loans businesses. At the very least it was reasonable for him to assume that responsibility. 335I am satisfied that Mr Symond incurred the claimed amount of professional fees of $1,858,278.72 by reason of the negligence, breach of contract and misleading conduct of Gadens. Benefit of the Restructure Parties' Submissions 336The table set out above (in [279]) indicates that had Scenario 2 been pursued then in FY05 and FY06 Holdings would have had to distribute net dividends of $7,162,814.00 and $23,392,553.00 respectively so as to ensure, or at least maximise the prospect, that Mr Symond would not be taxed on his receipt of loan funds from the AHLUT. It seems that in both those years Holdings would not have been able to acquire sufficient franking credits to make those dividends fully franked. Thus the grossed up dividends for the two years would have been $7,824,360.00 and $31,675,423.00 respectively, a total of $39,499,783.00. Taking into account the limited franking credits available and utilising a marginal rate of 48.5%, the end result is that Mr Symond would have paid tax of $3,133,269.00 and $7,079,710.00 in those two years on the receipt of those dividends, a total of $10,212,979.00. Gadens agreed with those calculations. 337In the events that transpired Mr Symond did not pay $10,212,979.00 in tax on profits earned during FY05 and FY06. It is this difference in tax payments that is the line item "benefit of Restructure" in the tables in [320] and [321]. The fact that Mr Symond did not pay those amounts of tax is said to be a benefit accruing to Mr Symond from pursuing the Restructure suggested by Gadens. 338Mr Symond contends that the benefit of pursuing that Restructure, as compared with Scenario 2, was only a temporary one which would have dissipated over time in the "real world". He submits that the only value that should be attributed to this item is one that represents the advantage to Mr Symond of not paying the tax that he would have paid in Scenario 2 in FY05 and FY06 but at a later time. He submits that this amount should then be offset against the tax liability and other amounts he was required to pay under the Deed. 339Gadens contends that Mr Symond obtained a permanent saving of $10,212,979.00 in pursuing the structure it proposed and that this saving outweighs the liabilities he incurred under the Deed with the consequence that, even if he can establish negligence or a breach of contract, Mr Symond suffered no loss as a result. 340The starting point for Mr Symond's contention is that the underlying assumption that the earnings and "profits" of Holdings or at least the underlying business are not materially different in the events that transpired and under Scenario 2. According to Mr Symond and his expert, Mr Potter, the "loss" under Scenario 2 associated with the payment of tax on dividends at an earlier point of time cannot be a permanent loss because the profits which led to those dividends being distributed were, will be or should be taken to be ultimately distributed to shareholders in the events that occurred. 341Mr Potter contended that the cessation of that loss depended upon when the actual dividends that were in fact paid "caught up" to the level of dividends paid under Scenario 2. That is, under Scenario 2 the higher dividends paid in earlier years necessarily meant that at some point lower dividends would be paid in later years. Mr Potter contended that this must be so because in Scenario 2 Holdings will have less retained earnings and cash as at 30 June 2006 than in the events that transpired. If the assumption that the earnings of Holdings and the business are the same under Scenario 2 and in the "real world" is to be maintained, then Holdings' retained cash would need to be replenished. For example, Mr Habib's calculations assumed that dividend payments made under Scenario 2 were sourced from the loan facility with the ANZ. Mr Potter contended that, under Scenario 2, it would be commercially rational to apply the earnings in later years to reduce that debt rather than incur additional tax obligations by continuing to distribute dividends at the same level they were distributed from 2007 onwards in the "real world". 342According to Mr Potter, under Scenario 2, Holdings, having incurred greater costs in funding additional dividends in FY05 and FY06, would tend to pay out less dividends in future years. If it were otherwise then the nature of the businesses being compared would be different. Under Scenario 2, for the business to continue to generate the same level of profits as were actually generated, it would need to generate a higher rate of internal return on its lesser assets in the medium to long term consonant with the events that transpired. According to Mr Potter this would violate the very assumption upon which the exercise was being conducted. This was explained in Mr Symond's written submissions as follows: "... the funding needs of the business in the alternative scenario would 'converge' with the real funding needs of the business. That is, the hypothetical company, having incurred greater costs in funding additional dividends to cover tax paid by its owner in earlier years, will tend to pay out less in future years such that its cost of capital is the same." 343Mr Potter also noted that the level of dividends distributed in FY07 and FY08 appeared to coincide with the amount Mr Symond needed to meet his liabilities under the Deed, an event that would not have occurred under Scenario 2. There is no evidence that the declaration of any dividends in those years was motivated by Mr Symond's need to discharge his obligations under the Deed. However Mr Symond submitted that this coincidence illustrated how under Scenario 2 the payment of the two dividends in FY07 could have been avoided without impacting upon Mr Symond's personal financial position. 344For reasons I will explain and at the risk of repetition, it is important to appreciate the underlying justification for Mr Potter's conclusion that the tax benefit was only temporary, namely that the making of distributions by the company in earlier years affects the level of distributions in later years. Thus in cross examination Mr Potter stated: "WITNESS POTTER: That is the point of my analysis in the hypothetical analysis. I say that by paying taxes earlier the company doesn't have the resources to pay the higher dividends and higher taxes later." (emphasis added) "WITNESS POTTER: No. I think the outcome of the analysis is that, because I say it unwinds, the benefit unwinds, that really, other than the timing of cash differences over the period, at the end of the day, the total distributions out of the company hypothetically is the same as the total distributions of the company in the actual case. So it would be the same. I'm not saying the hypothetical company is worse off, I believe, other than because it is paid with dividends earlier, until it is unwound there is a capital or cost of capital." (emphasis added) 345Thus according to Mr Potter the benefit is said to unwind because over a period of time the total distributions out of the company in the actual case and the hypothetical case should be the same. 346Ms Jones considered that Mr Potter's analysis involved him assuming what he sought to demonstrate, namely that the tax benefit was only temporary. She pointed to the level of profits that were in fact earned over the period and noted how they could have accommodated the distribution under Scenario 2 of the same level of dividends actually distributed in the "real world" during the period 30 June 2007 to 30 June 2012. She also noted that Holdings did not have any dividend policy and there was no other evidence as to the basis or motivation of Holdings in declaring dividends in the years that it did. Accordingly she considered that there was no reason why the distribution of extra dividends in early years under Scenario 2 would have affected the distribution of dividends in later years. Ms Jones pointed to Mr Potter's modelling which suggested that, for the tax benefit to have dissipated by 30 June 2012, then under Scenario 2 no dividends could have been distributed subsequent to 30 June 2006. She stated that this was unrealistic. Benefit of Restructure - Consideration 347In my view this exercise must be undertaken in part at a level of principle and then in part by an interrogation of the mathematical modelling put forward by Mr Potter. As I will explain, that modelling reveals that there are indeed some permanent differences arising from the timing of the dividend distribution. 348It must be remembered that the comparison that must be undertaken involves accommodating both the tax liabilities that Mr Symond and Holdings have incurred from time to time, and considering the nature and value of his shareholding in Holdings from time to time. In theory Mr Symond's shareholding in Holdings is no different to any other asset. If he cannot derive profit in one form or another from his ownership of it, it is worthless. At its simplest and leaving aside liquidations and the ability to structure arrangements such as salaries or management fees, the owner of a company such as Mr Symond can only realise his wealth out of his ownership of the company in two ways, either by the distribution of profits in the form of dividends or by way of sale to a third party. In theory the latter is to be taken to be a realisation of the former. 349Provided the tax environment does not alter in a given period, as between a company and its 100% owner the realisation of profits at an earlier point in time as opposed to a later point should not make any difference to the owner's financial position. Thus take a simple example where one person owns company A and another owns company B and it is assumed that both companies have the same underlying performance over three years. Assume company A distributes profits in the form of dividends over the first three years and company B does not, and compare the position of A and B at the end of that period taking into account their shareholdings. Between company A and its owner there will have been a combined cash leakage in tax payments representing the 30% tax paid by the company and the further 18.5% paid by the owner, assuming a marginal rate of tax of 48.5% and that the dividends are fully franked. The remaining 51.5% of profits will have been distributed to the owner. Company B will pay 30% of its profits in tax, but the remaining 70% will be retained. At the end of the three years the owner of company A will have retained 51.5% of the distributed profits and maintain 100% ownership of company A. The owner of company B will have not received any profits but will have a company that has higher retained profits and cash than company B. 350All other matters being equal, and in particular assuming no change in the tax rates concerning either dividends or capital gains, the net position of the two owners at the end of the three year period is still the same. The owner of company A has profits in his hand but owns a company worth less than company B. Tax payments may have been made by the combination of company A and its owner, but they are merely the cost of converting the company's profits into personal wealth for the owner. 351This analysis does not change if the owners of the two companies both have loan accounts and the owner of company A uses the balance of the dividend payments to pay down their account balance, but the owner of company B does not. Provided the interest rate accruing on the loans (if any) is the same, and leaving aside any differences arising from the rate of return generated by the company compared with the interest rate charged on the loan, then the combined net position of the two companies and the owners at the end of the three year period should be no different. 352The question of whether the payment of dividends earlier rather than later yields a timing difference depends on a series of factors, including the rate of earnings derived by the owner of company A on their receipt of the balance of the dividends after tax and the rate of earning by company B on the retained earnings. In this case Mr Potter's calculations of the temporary benefit of the later payment of dividends to Mr Symond utilises the rate of return that Holdings could derive on the dividends that were not paid out in the events that transpired as compared with Scenario 2. As under Scenario 2, the balance of the dividends received by Mr Symond was to be used to repay his loan account. Mr Potter's calculations do not appear to have attributed any rate of earnings by Mr Symond in respect of his receipt of part of the earnings. 353The carrying forward of the above example into the medium to long term illustrates the difficulties with Gadens' position. If the owner of company B does not determine at some future point to convert profits either by distributing dividends or selling part or whole of the company then they are in effect rendering their company worthless. Further if the two owners were from year three to continue to draw the same level of profits into the foreseeable future, then the starting assumption of relevantly identical businesses would be destroyed. If there is in effect a permanent and ongoing difference in the level of profits being drawn out of the two businesses that started out the same together, then that can only be as a result of one of the companies generating a higher rate of return on fewer resources compared with the other. There is no warrant for that approach either at a theoretical or practical level in this case. 354This was demonstrated by that part of the cross examination of Ms Jones which tested her contention that the relevant benefit Mr Symond derived from acting in accordance with Gadens' advice was a permanent benefit: "PAYNE: But what do know, don't we, Ms Jones, is that when we look at the period from 2004 to date, what you have modelled in the hypothetical world is a [different] level of distributions than has in fact occurred? WITNESS JONES: Yes, that's correct." 355The cross examination continued to probe the two companies that Ms Jones compared, the one in the so called "real world", and that considered by Ms Jones in addressing Scenarios 1, 2 and Beath Scenario 3 (the "hypothetical world"). Ms Jones ultimately agreed: "PAYNE: What I'm asking you for your consideration is as a valuer in those circumstances, do you agree with me that you have assumed a company in the hypothetical world which is worth less than the company in the actual world? WITNESS JONES: In those circumstances, yes." 356At a level of principle and all other matters being equal, the distribution of the profits of a company to its 100% owner at a particular point in time does not effect a loss or a gain to the owner's net position compared with a distribution at a later point in time. However the qualification "all other matters being equal" embraces a series of factors including the need for the tax environment to be the same at the two points in time at which the distribution occurs and the effective rate of earnings derived by the individual owner on their receipt of profits to be the same as that earned by the company on retained earnings. 357In this case, there are two matters that constitute a change in the relevant tax environment over time that had the effect of partially making the difference in payments a permanent one, namely the reduction in Mr Symond's marginal rate and the absence of sufficient franking credits to enable the 2005 and 2006 dividends to be fully franked. I will deal with each in turn. 358First, the calculations accompanying the various tables seemed to reflect a change in the top marginal rate for the year commencing 1 July 2007 from 48.5% to 46.5%. If an owner of a company can avoid declaring dividends until a year when their marginal rate has decreased, then that avoidance can effect a permanent benefit for them from the delay. In effect the cost of extracting profits from the business has declined between the two times under comparison. 359Second, as I have stated above, under Scenario 2 Holdings did not have sufficient franking credits as at 30 June 2005 and 30 June 2006 to enable the dividends noted in the table in [279] to be fully franked. Hence under that scenario Mr Symond would have paid $10,212,979.00 in tax on his receipt of $39,499,783.00 in grossed up dividends, which is an effective rate of 25.85%. Had they been fully franked he could expect to have paid only 18.5% or $7,307,459.80. The ability to defer the declaration of a profit to a subsequent year when franking credits have been earned and are available to be distributed is a circumstance that can yield a permanent difference in tax leakage as the owner of a company seeks to realise the profits the company has earned. 360As explained by Mr Potter in the passages from his evidence that I have extracted above at [344], the assumptions which underlay this comparison lead to the conclusion that it is the level of distributions which should be taken to even out over time and not the after tax consequence for the shareholder. In other words I accept that the assessment is one that requires that Holdings be taken to distribute the same net amount over time under Scenario 2 as was distributed in the events that transpired so that a comparison of the cost of extracting that amount can be undertaken. However, Scenario 2 requires that all dividends be distributed in the years that Mr Symond was building his home even if there were insufficient franking credits available to make them fully franked. When that is coupled with the exigencies of Mr Symond's need for funds to build his house, it meant that under Scenario 2 he would have been required to adopt the inefficient expedient of declaring partially unfranked dividends at a time when his marginal tax rate was higher than it was in later years, namely FY05 and FY06. This was not required in the events that transpired. 361Mr Potter's suggested date by which the entire benefit from the adoption of the Restructure suggested by Gadens would be unwound was towards the end of 2012. He prepared a table which was included in his and Ms Jones' joint report under the tab "Restructure benefit - SC 2 - Potter" which sought to map how the entire benefit could be unwound. He determined that for the entire tax benefit to be unwound and thus for Mr Symond to pay the same amount of tax under Scenario 2 as he did by reason of the Restructure, Holdings would have had to not declare any dividends in the period from 30 June 2008 to 30 June 2012 compared with the grossed up dividends of $107,394,971.00 that were in fact declared. Mr Potter explained that he was not suggesting that was in fact what would have happened: "I'm not saying there wouldn't be any dividends paid whatsoever. I think I'm saying a few things happened over the period that suggests that's a reasonable proxy. One is the dividend in 07/08 was largely the same or pretty close to the amount used to pay the settlement to the tax office. So there is no indication Mr Symond needed that dividend from the company. The second point was that in October 08 there was 33 per cent of the company sold, and another 47 per cent in late 2012. Finally I would expect that, with the diminished networking capital in the business, there would be a reduction in the dividends paid. So if you take all those things into account, and then unwind of [sic] the benefit by about now - I think my model is 2012 - it is about right with all those events." 362This approach was subject to trenchant criticism by Gadens as illustrating how unrealistic a period this was to adopt. However for present purposes what it illustrates is that Mr Potter's modelling departed from his underlying rationale as explained in the extracts from his evidence set out above in [344]. What Mr Potter modelled was the period of time a reduced level of dividends would have to be paid over to eliminate the tax benefit to Mr Symond of not paying $10,212,979.00 in extra tax on dividends received in FY05 and FY06 under Scenario 2. However, to be consistent with the rationale for his approach Mr Potter should have modelled the reduced level of tax Mr Symond would have paid under Scenario 2 had the level of distributions by Holdings been the same in a specified period; ie he should have modelled the two scenarios on the basis he put forward in his evidence, namely that "the total distributions out of the company hypothetically [was] the same as the total distributions of the company in the actual case". Instead he modelled the matter on the basis that the tax paid by Mr Symond was the same. To that extent, Ms Jones was correct in stating that Mr Potter ultimately assumed what he sought to prove. 363The difference between those two approaches in this case was reasonably dramatic. It is illustrated by the fact that on Mr Potter's modelling the tax benefit from adopting Gadens' advice involving the non payment of $10,212,979.00 extra tax on net dividends of $30,555,367.00 could only be unwound by Holdings declaring $90 million less in net dividends in later years. 364As best as I can ascertain that differential has come about because of three factors. The first is the lower marginal rate in force throughout much of the period after 30 June 2006 that I have referred to earlier. The second is the fact that the original tax liability of $10,212,979.00 under Scenario 2 would have come about from the distribution of only partially franked dividends because the implementation of Scenario 2 would have required Mr Symond to adopt a tax inefficient means of distributing income in those years. The third is that the sale of one third of Mr Symond's shareholding to CBA in October 2008 meant that on Mr Potter's approach a proportionally higher level of dividends needed to be withheld after that time to eliminate the benefit in subsequent years. For the reasons already given, the first two matters yield a permanent benefit to Mr Symond from the adoption of the Gadens' structure. I address the third below. 365I consider that the proper approach requires that, in comparing the events which transpired with Scenario 2, it is the amount distributed by Holdings that should be the same over a specified period of time and not the amount of tax paid by Mr Symond. To give effect to the former respects the fundamental assumption behind the whole exercise of modelling the same business in the "real world" and Scenario 2. It means that over a period that same business distributes the same amount of cash to its shareholders. It thus enables a measurement of the cost of extracting the same level of net profit out of Holdings under Scenario 2 compared with the events that transpired. In the end result Ms Jones' approach involves the business in Scenario 2 distributing greater amounts than the business in the "real world". Mr Potter's approach involves it distributing less. I consider that it should be the same. 366Subject to what follows I consider that the proper approach is to assess the extent of the benefit accruing from the adoption of the structure proposed by Gadens on the basis that under Scenario 2 and in the period after 30 June 2006, the net dividends that would have been distributed would have been $30,555,367.00 less than those in fact distributed. The tax consequences for Mr Symond of receiving that lower level of distributions should then be compared with the payment of $10,212,979.00, being the tax paid on the partially franked dividends for FY05 and FY06, and which he would have had to pay under Scenario 2. 367Two issues that remain to be considered are the relevance of the sale of one third of Mr Symond's shareholding in Holdings to the CBA in 2008 and the period of time over which this reduced distribution of dividends should be taken to have occurred. 368In relation to the first matter, as a matter of valuation theory a sale of a one third interest in a company represents the realisation of the profits that Mr Symond expected to receive from the business in the future. The differences in the tax regime for capital gains compared with dividend income could be expected to be accommodated by an adjustment of the value attributed to the one third interest (ie the purchase price). The profits that Mr Symond could have expected to have received in the future included the "retained" dividends earned prior to 2008 compared with those that were (hypothetically) distributed during FY05 and FY06 under Scenario 2. 369Hence, at a theoretical level, the value of the right to receive one third of the extra dividends that would have been distributed under Scenario 2, but that were "retained" in the events that in fact transpired, was realised by Mr Symond on the sale of a one third interest in Holdings in October 2008. These dividends should have been subject to taxation in his hands, thus mitigating at least part of the benefit he obtained from not paying tax on dividends distributed in FY05 and FY06. Thus, at this theoretical level, one third of so much of the "benefit of the Restructure" as was referable to the lack of any necessity for Mr Symond to pay tax on the distribution of $30,555,367.00 in dividends was dissipated by October 2008. 370However, I was not presented with any evidence as to the purchase price paid by CBA, much less any evidence from which it could be concluded that the price paid did or did not represent the then present value of one third of profits expected to be received by shareholders in the future including retained profits, assuming that was possible. This means that I cannot conclude that one third of the notional tax benefit that Mr Symond derived from Holdings not distributing dividends of $30,555,367.00 for FY05 and FY06 was dissipated on the sale of one third of his shareholding in Holdings to the CBA in November 2008. This conclusion means that a further aspect of the benefit from the Restructure was permanent. This is so because the assessment under Scenario 2 of the reduction in tax payable by Mr Symond in subsequent years flowing from the lower level of dividend distributions, as compared with that in the events that took place, must take into account the fact that he had only had a two third shareholding from November 2008. 371In relation to the second matter noted in [367], namely the timing of the lower level of distribution flow under Scenario 2, in the two years prior to the acquisition of a one third shareholding by CBA in October 2008, Holdings distributed net dividends of $15 million on the back of very strong profit performance. Overall between 30 June 2007 and 30 June 2011 Holdings distributed $67,976,480.00 in net dividends, and it distributed a further $22,000,000.00 for the year ended 30 June 2012. It also earned in excess of that level of profits in those years. According to Ms Habib, Holdings did not have a dividend policy and there is nothing to suggest any particular dividend policy was applied by Holdings. However, it is apparent that it was neither retaining nor distributing all profits. Subject to one matter there is nothing to suggest that the distribution of the level of profits that in fact occurred was driven by any particular need of any of the shareholders. The one matter of exception is the level of dividends distributed in FY07 and FY08 which occurred prior to and perhaps in anticipation of Mr Symond's payments to the ATO, which satisfied an obligation he would not have had to address under Scenario 2. 372Given the level of profits that were distributed, it strikes me as artificial to conclude that the level of profits that were in fact distributed by Holdings in the period up to 30 June 2011 was not at least in part attributable to the profits earned in 2005 and 2006. As I have stated, under Mr Potter's model the tax benefit of pursuing the Restructure dissipated if no profits were distributed between 2008 and 2012. However that was in circumstances where in excess of $90 million in dividends had to be withheld to dissipate the tax paid on the notional grossed up dividends that had been distributed under Scenario 2. For the reasons I have already outlined I consider that this overstates the position. When the undeclared amount in question is only the net figure of $30,555,367.00 distributed under Scenario 2 in FY05 and FY06, then 30 June 2011 strikes me as a realistic end point for undertaking the measurement referred to in [365]. 373The amount of net dividends that were in fact distributed between 30 June 2007 and 30 June 2011 was $67,976,480.00. In one sense it follows from this that I am finding that $30,555,367.00 would have been distributed over FY05 and FY06 under Scenario 2, and that it is likely that only a further $37.4 million in net dividends would have been distributed in the period 30 June 2007 to 30 June 2011. That figure represents the difference between those that were in fact distributed from 30 June 2007 up to and including 30 June 2011, and those that were hypothetically distributed under Scenario 2 in the period 30 June 2005 to 30 June 2006 to enable Mr Symond to borrow funds to build his house. However, this aspect of the matter is only an attempt to place a value on that aspect of the tax benefit from the Restructure that I consider is truly temporary and not permanent. A calculation of that amount requires the determination of the time period over which the temporary aspect would have dissipated. This is all hypothetical. It is driven by my conclusion that principle requires the matter to be assessed on the basis that the dividends distributed by the business under Scenario 2 will, or should over a period, equal those that were in fact distributed. What is ultimately being measured is the cost to the shareholder of that distribution. What then remains is the exercise of an evaluative judgment as to the appropriate period over which that measurement should be made. I have identified a seven year period from 30 June 2004 to 30 June 2011. The chosen period of seven years is necessarily imprecise and a number of factors could make that time period shorter or longer. It seems to accord with a business cycle appropriate to a business like the Aussie business. It does not lead to anything like the dramatic result of there being no dividends distributed in any period, as Mr Potter's assessment did. The lost opportunity on the part of Mr Symond to pursue a tax compliant method of withdrawing funds from the business was a valuable thing. It was what he paid for. In such a case the necessary lack of precision in assessing the value of the opportunity does not relieve the Court of determining the quantum of the loss or damage suffered by a party such as Mr Symond (McRae v Commonwealth Disposals Commission (1951) 84 CLR 377 at 411 to 412 per Dixon and Fullagar JJ). Benefit of the Restructure - the Calculation to be Performed 374It follows that there will need to be a recalculation of the reduction in Mr Symond's taxation liability under Scenario 2 that would have resulted from the distribution of $30,555,367.00 less in net dividends than was in fact distributed in the period up to and including 30 June 2011. This recalculation, including the differences in timing of payments of tax (and earnings as per Mr Potter's analysis), will yield a figure which is to be deducted from the extra tax payable under Scenario 2. It will diminish the amount referable to the benefit of the Restructure noted in Ms Jones' table, but increase the amount shown in Mr Potter's table. The resulting figure for the benefit of the Restructure will represent those aspects of the benefit of the Restructure which are permanent, namely the timing differences and the matters I have described at [364] and [370]. 375The recalculation of this amount should first accommodate a proportionate reduction in the dividends distributed on 30 June 2007 and 30 June 2008 equivalent to yielding the amount of the settlement sum paid to the ATO in Mr Symond's hands (because under Scenario 2 Mr Symond would not have to pay that amount), and then a proportional reduction of the remaining net dividends in those years and for the period after the sale to the CBA up to 30 June 2011. They are all to be treated as though they were fully franked. These calculations will need to accommodate Mr Symond's 100% shareholding up to October 2008 and his two thirds shareholding thereafter, as well as any changes in his marginal rate over that period. 376The parties will need to bring in calculations to reflect these findings. Loss of Franking Credits 377As I have stated, part of the settlement with the Commissioner involved the deduction from Holdings' franking account in the amount of $5,014,286.00 (see [155]). 378The nature of franking debits and the franking account maintained by a company was explained by Gageler J in Mills v Federal Commissioner of Taxation [2012] HCA 51; 87 ALJR 53 at [12] to [13] as follows: "The imputation system in Pt 3-6 of the ITAA 1997 partially integrates the income tax liabilities of Australian corporate tax entities and their Australian members. The main object of the Part is expressed to be 'to allow certain *corporate tax entities to pass to their *members the benefit of having paid income tax on the profits underlying certain *distributions'. Other objects of the Part are expressed to be to ensure that the imputation system it establishes is not used 'to give the benefit of income tax paid by a *corporate tax entity to *members who do not have a sufficient economic interest in the entity' or 'to prefer some members over others when passing on the benefits of having paid income tax' as well as to ensure that 'the *membership of a corporate tax entity is not manipulated to create either of [those] outcomes'. An asterisk is used in the 1997 Act to indicate that the relevant term is defined elsewhere. By operation of Pt 3-6 of the ITAA 1997, every corporate tax entity has a 'franking account', which is 'used to keep track of income tax paid by the entity, so that the entity can pass to its members the benefit of having paid that tax when a distribution is made'. A corporate tax entity, if not a mutual insurance company and if not acting in a capacity of trustee, is a 'franking entity'. The franking account of a franking entity that satisfies an Australian residency requirement for an income year typically receives a 'franking credit' when the entity pays income tax or receives a franked distribution in respect of the year, and typically receives a 'franking debit' when the entity receives a refund of tax or franks a 'frankable distribution'. Distributions and non-share dividends are frankable distributions unless they fall within one of a number of specified categories of 'unfrankable distributions', the object of which is 'to ensure that only distributions equivalent to realised taxed profits can be franked'. Part 3-6 of the ITAA 1997 applies to a non-share equity interest in the same way as it applies to a membership interest, and it applies to an equity holder in an entity who is not a member of the entity in the same way as it applies to a member of the entity. A franking entity franks a distribution by allocating a franking credit to it in which case the amount of the franking credit is to appear on a statement that accompanies the distribution. As a general rule, an amount equal to the franking credit on the distribution is included in the member's or the equity holder's assessable income and the member or equity holder is entitled to a tax offset equal to the same amount. In some cases, the member or equity holder needs to satisfy an Australian residency requirement for the general rule to apply." (references omitted) 379By way of elaboration of the operation of an entity's franking account, s 200.15 of ITAA1997 describes the account in the following terms: "The franking account (1) A franking account is used to keep track of income tax paid by the entity, so that the entity can pass to its members the benefit of having paid that tax when a distribution is made. (2) Each corporate tax entity has a franking account. (3) Typically, a corporate tax entity receives a credit in the account if the entity pays income tax or receives a franked distribution. A credit in the franking account is called a franking credit. (4) Typically, a corporate tax entity receives a debit in the account if the entity receives a refund of tax or franks a distribution to its members. A debit in the franking account is called a franking debit." (emphasis added) 380Thus the purpose of the franking account is to enable the entity to pass to its members the benefit of the tax already paid by the entity. Further, each franking credit forms part of a pool of credits in the franking account which is credited and debited during the life of the corporate tax entity. It is from that pool that such credits are distributed to shareholders. It is only in the simplest of examples that it might it be possible to identify some franking credits distributed in one period as referable to a particular amount of profit earned in another. In the judgment of the Full Court of the Federal Court in Mills v Federal Commissioner of Taxation [2011] FCAFC 158; 198 FCR 89 at [28] Edmonds J noted that: "[i]n none of the provisions of Div 205 is there a tracing of franking credits to any particular fund of profits or any particular source of profits". Although his Honour was in dissent in the Full Court of the Federal Court nothing in the majority's judgment was at variance with that statement and, in any event, the result in the Full Court in Mills was overturned by the High Court's judgment noted above. 381Consistent with these provisions, Holdings maintained a ledger recording the various entries in its franking account. However a franking account is not an accounting concept but is instead a creature of statute. Absent any internal ledger maintained by Holdings, it would still exist by operation of the ITAA 1997 and its balance at any time would be ascertainable by applying the legislation to the events as they unfolded. That said, the ledger maintained by Holdings records that Holdings first accrued a franking credit in March 2005 arising from the processing of its FY05 tax return. 382From 1 July 2005 Holdings lodged PAYG forms on a quarterly basis. Thereafter franking credits accrued on quarterly basis if Holdings' PAYG return reported profit. The account was debited when franked dividends were distributed and when a full year's tax return was lodged and reconciled with the quarterly PAYG returns. At least in the period up to June 2010 fully franked dividends were recorded as having been declared on 28 June 2007, 6 July 2007, 19 December 2008, 22 January 2009, 29 October 2009 and 30 April 2010. The ledger records franking account balances on 30 June 2005, 30 June 2006, 30 June 2007, 30 June 2008, 30 June 2009 and 30 June 2010 of $9,887.00, $5,940,175.00, $15,316,251.00, $20,663,251.00, $19,357,091.00 and $13,975,038.00 respectively. The ledger records the deduction of $5,014,286.00 being made on 30 June 2010. This is inconsistent with the Deed and the deduction should be taken to have occurred as at the date the Deed was entered into. 383Mr Symond contends that the deduction of $5,014,286.00 from Holdings' franking account as a result of the settlement with the Commissioner caused compensable damage to him which should be valued at its full "face value" in the manner calculated by Mr Potter (see below). Three issues arise in respect of that contention. 384First, Mr Donaldson SC submitted that a comparison of Mr Symond's position in the events that happened with his position under Scenario 2, confirms that he has not suffered any loss as a result of the deduction of $5 million from Holdings' franking account. I have already described how, under Scenario 2, Holdings' franking credits would have been exhausted at the end of FY05 and FY06 as a result of Holdings distributing all the profit received from the AHLUT. In the events that transpired dividends were not declared in any of those years. In those circumstances it can be expected that the balance of Holdings' franking account in the events that transpired would exceed the balance of the franking account in Scenario 2 as at 30 June 2007. Hence, Mr Donaldson SC submitted that, even if the deduction of an amount from the company's franking account otherwise resulted in compensable loss to Mr Symond, he has not suffered any loss when comparing the franking account balance under Scenario 2 with that in the events that occurred. 385In a sense I have already addressed an aspect of this submission in my analysis of the "Benefit of the Restructure". I concluded that the depletion of franking credits for FY05 and FY06 had the result that part of the benefit Mr Symond derived from not receiving dividends under the Restructure in FY05 and FY06 was permanent rather than temporary (see [364] to [370]). I found that benefit should be calculated on the basis that the total net distributions out of Holdings for the period 30 June 2004 to 30 June 2011 under Scenario 2 was the same as in the events that occurred (at [366]). I identified the manner in which that distribution is to be assumed to have occurred (at [374] to [375]). 386When the comparison is undertaken in that manner, the submission of Mr Donaldson SC falls way. The deduction from the franking account of $5,014,286.00 represents a further adverse aspect of the "real world" when compared with Scenario 2. It might be that under Scenario 2 Holdings' franking account balance as at 30 June 2007 or early 2008 would have been less than in the events that took place. However, leaving aside the deduction of $5,014,286.00, by 30 June 2011 Holdings' franking account balance under Scenario 2 would have been restored to at least its level in the "real world", as less dividends were distributed in the period FY07 to FY11 under Scenario 2. In fact the franking account balance of Holdings under Scenario 2 would probably be greater by that time than in the events that transpired because by then the same level of net dividends would have been distributed but they would not all have been fully franked as they were in the events that transpired. 387The second issue is whether a deduction from Holdings' franking account effected a loss to Mr Symond and, if so, how should that value be assessed? It should be noted that the deduction was imposed prior to the sale of his one third interest to the CBA. 388Mr Donaldson SC submitted that Mr Symond had not suffered any loss because the evidence suggested that it was unlikely that Holdings would ever pay an unfranked dividend. This submission reflected Ms Jones' evidence. In her report Ms Jones stated that "no loss has been suffered whilst there are sufficient franking credits to distribute full franked dividends". She noted that Holdings' franking account would have only gone into debit as at 30 June 2008 if it had fully distributed all profits as at 30 June 2008, a circumstance she regarded as unlikely given the cash needs of the business and the then forthcoming sale to the CBA. She stated that she had no basis for verifying what she said was Mr Potter's assumption that the debit to Holdings' franking debit materially impacted CBA's purchase of 33% of Holdings. 389In cross examination Ms Jones conceded that the deduction of the franking credits meant that there was a loss to the shareholder of some value: "PAYNE: As a valuer, if a resident taxpayer and [sic] came to you and said as a valuer, Ms Jones, all things being equal this company in the actual world having $5 million less in its franking account than in the hypothetical world, you would tell them: Buy the hypothetical company, wouldn't you? WITNESS JONES: Yes. PAYNE: It's worth more? WITNESS JONES: That's correct, yes." 390In his reports Mr Potter sought to value the loss to Mr Symond occasioned by the deductions to the franking account. In his first report Mr Potter addressed the impact of the deductions to Holdings' franking account as a result of the settlement with the Commissioner under each of Scenarios 1 and 2. I am only concerned with the latter. He concluded that the loss of franking credits was a matter that was capable of affecting the free cash flow to shareholders and thus represented a loss of value. He also concluded that 33% of that lost value was crystallised by the sale by Mr Symond on 31 October 2008. He considered that the balance of the loss would crystallise at some future time, being the distribution of dividends to which franking credits did not attach or the sale of the remaining stake of his shareholding in Holdings. 391Mr Potter calculated the value to a shareholder of the lost franking credits as the difference in their tax position on the basis that they were a resident taxpayer paying tax at the highest marginal rate who received a dividend that was fully franked as compared with the same dividend that was wholly unfranked. In the case of the former, the shareholder would pay 46.5% of the grossed up dividend (ie the net dividend and the franking credit). In the case of the latter the shareholder would pay 46.5% of the net dividend. In the case of a franking credit of $5,014,286.00 he calculated the difference to the taxpayer as $2,582,357.00. At this stage I note that this amount assumes that all of the lost franking credits were or would have been distributed. Mr Potter regarded the uncertainty about the time frame over which that distribution would have occurred as being reflected in the absence of any allowance by him for pre-judgment interest. 392Mr Potter was cross examined on this topic as follows: "DONALDSON: You suggest in your reports that value attaches to franking credits or that a shareholder or a potential shareholder in a company would regard the availability of franking credits as valuable because of the capacity for those franking credits to facilitate the payment of a tax effective income stream. WITNESS POTTER: That's right the value of a business or asset is the extent to which it generates after tax income for a shareholder. DONALDSON: Any assessment of a potential purchaser of this company as to the value of the franking credits that were eliminated under the settlement with the ATO would depend upon that person's assessment of the likelihood that the reduction of the franking account would materially impact on the company's capacity to produce that tax effective income stream? WITNESS POTTER: I think that would be correct as a proposition. DONALDSON: The factors that such a person would have in mind in making that assessment would be the company's history in terms of the earning of profits and payment of tax? WITNESS POTTER: History is often used as a guide, yes. DONALDSON: And more particularly the extent to which franking credits have accumulated because the dividend policy of the company has resulted in dividends not absorbing the whole available franking credits? WITNESS POTTER: Yes, there are other factors I think that would be looked at. DONALDSON: Certainly in the case of this company it is evident, isn't it, that it has accumulated substantial franking credits between 2007 and 2012? WITNESS POTTER: It depends on the time horizon you would look at. If we're talking about a purchaser in 2008, I think they would have regard to an earlier history along the time frame of performance that the company had. If you are looking at a purchase today, I think you said 2007, you might limit, five years might be a bit short for such a large acquisition - sorry five years might be a bit short. You would look at history and the reason why I make that point is there is a history of losses going back in time for this company. DONALDSON: There has been a history of consistent profits since 2007? WITNESS POTTER: Sorry, looking at it today? DONALDSON: Yes. WITNESS POTTER: Today, yes. DONALDSON: And there's been a history of not distributing whole of that profit by way of dividend? WITNESS POTTER: That's correct. DONALDSON: And there's been a history accordingly of accumulating franking credits? WITNESS POTTER: That's correct. DONALDSON: And I'd suggest to you that any hypothetical purchaser looking today at this company would conclude that the likelihood of the company paying a dividend that it couldn't frank due to the state of its franking account was remote? WITNESS POTTER: Someone looking at it today might take that view but as I said earlier there are other ways to use franking credits shared by banks and things and [the] CBA exhibited a practice of doing that so one would argue franking credits are of value to [the] CBA." (emphasis added) 393This questioning moved from identifying the impact of a reduction of franking credits on the "likelihood" that the reduction of the franking account "would materially impact on the company's capacity to produce" a "tax effective income stream" to considering the "likelihood of the company paying a dividend that it couldn't frank". The latter is only one circumstance in which a deduction from the franking account balance could affect the former. It is a circumstance that could arise if Holdings returned to the level of results that prevailed in the period from the late 1990s to the early 2000s. Another circumstance that could affect the tax effective income stream is where the reduction in franking credits operates as a disincentive to declare dividends at a particular level, even though profits were being earned. 394Further, at the end of this passage Mr Potter adverted to the possibility of using franking credits to effect share buy backs, and pointed to the CBA as having used its franking credits in that way. It was suggested by Gadens that the ability of the CBA to utilise Holdings' franking credits for use in its own share buy backs could only occur if it owned 100% of Holdings (and thus presumably some form of consolidation could occur). Assuming the correctness of that proposition, it still means shares in Holdings represent a less attractive proposition to a potential purchaser of the entire company than they would if the same company had an additional $5,014,286.00 in franking credits. 395I regard the evidence of both Ms Jones and Mr Potter as confirming that the deduction of franking credits as at 30 June 2006 represented a loss of something of value attaching to the shares owned by Mr Symond. As conceded by Ms Jones, an investor who is a resident taxpayer would regard the shares in a company with a higher franking account as more valuable than an otherwise identical company with a lower franking account balance. The above discussion illustrates various reasons (or contingencies) that support that assessment. The higher franking account balance means that the shares are at least more attractive to a potential corporate purchaser who may want to acquire the whole company and distribute them. The higher franking account may make the company more inclined to distribute a higher level of dividends than would otherwise be the case. The higher franking account means that the company has more scope to distribute franked or partly franked dividends from existing profits even if losses are subsequently incurred. The circumstance that the company subsequently earns substantial tax profits and does not distribute all of its profits as dividends thereby acquiring a large franking account balance does not render the franking credits worthless. 396The remaining question is what value, if any, can be attributed to the deduction from Holdings' franking account as a result of the settlement with the Commissioner? 397Consistent with the approach noted above, Gadens pointed to the high level of profitability of Holdings in the period after the Deed which generated a significant level of franking credits, not all of which were used. Gadens submitted that the "overwhelming likelihood, on the basis of the available evidence, is that the company will never pay a dividend that it is unable to frank". 398I have referred above to the pooled nature of franking credits. Gadens' submission was to the effect that until the pool is drained or close to draining no loss is occasioned to the shareholder. Its approach in effect separates the credits lost by reason of the settlement with the Commissioner from the remaining credits earned by Holdings, and treats them as the last credits to be distributed. It means that their deduction does not represent any loss to the shareholder until the pool is about to drain but when it does that represents the full extent of the value in the hands of the shareholder. However, why should this be so? Why not treat the franking credits as being distributed on a first in first out or proportionate basis? Why discount the possibility that the dividend distribution would have been higher had more credits been available? Further, why assume that there is no possibility that Holdings will commence to incur losses but seek to distribute dividends? Are not all these potentialities as well as others reflected in the concession made by Ms Jones that, all other things being equal, shares in a company with $5,014,286.00 more in franking credits are more valuable than shares in another company without? 399I regard Gadens' approach as flawed for two reasons. First it is inconsistent with the pooled nature of franking credits. As I have stated, it attempts to compartmentalise the credits that would be available had they not been deducted by the Commissioner. Second, it seeks to apply a "but for" approach to determining the value that was lost by reason of the deduction to the franking account. In effect Gadens contends that the proper approach is to ask whether, but for that deduction, would or will Mr Symond receive some dividend that will instead only be partially franked or wholly unfranked? However, in Sellars v Adelaide Petroleum NL [1994] HCA 4; 179 CLR 332 at 355 the High Court stated: "However, in a case such as the present, the applicant shows some loss or damage was sustained by demonstrating that the contravening conduct caused the loss of a commercial opportunity which had some value (not being a negligible value), the value being ascertained by reference to the degree of probabilities or possibilities." (emphasis in original) 400I have already concluded that the loss of franking credits was something of value to a shareholder of Holdings. It follows that its assessment is to be undertaken by reference to the "degree of probabilities or possibilities". I have already referred to a variety of possibilities relevant to the assessment of the loss flowing from the deduction to the franking account. 401This brings me back to Mr Potter's description of the method for valuing franking credits. I have already described the contents of Mr Potter's first report dealing with this topic. In his second report Mr Potter responded to Ms Jones' report including the comments that I have noted above. He maintained that, had the franking account not been debited, Mr Symond would have attributed a greater value to the future cash flows of the business that he sold to the CBA in October 2008. Mr Potter referred to parts of the CBA's annual reports which indicate that it proposes to fully frank the dividends it declares. He also noted that companies have used franking credits to partially fund share buy backs and that the CBA had conducted three such buy backs between 1998 and 2004 utilising franking credits of approximately $1.2 billion. He also noted that the CBA derived profits from some sources that did not generate franking credits (eg offshore earnings) and thus, to distribute fully franked dividends utilising these profits, more franking credits were required. He concluded that the CBA had a significant appetite for franking credits and that it would attribute value to the franking credits in Holdings' franking account. 402In addressing the benefit of the Restructure I found that, in the absence of evidence concerning the sale to the CBA, it could not be assumed that retained profits were treated by it in any particular manner when determining the purchase price ([370]). Similarly, while I am prepared to infer that the CBA probably attributed some value to the franking credits, I am not prepared to infer that they attributed any particular value, much less full face value (as calculated by Mr Potter (see [391])), to Holdings' franking credits. 403In his second report, Mr Potter drew support for his contention that franking credits were a source of value to investors from what he stated were "leading valuation academics and practitioners". He referred to and annexed a joint article from Professor Bob Officer and Mr Neville Hathaway entitled "The Value of Imputation Tax Credits", and a chapter from the text "The Valuation of Businesses, Shares and Other Equity" by Mr Wayne Lonergan entitled "Imputation". He cited those authors as support for the proposition that franking credits have value. He also cited Professor Officer's and Mr Hathaway's article as support for the proposition that "franking credits are worth an amount that is equal to their face value". Having regard to their opinions, he adhered to the proposition stated in his first report that the lost value of the debited franking credits was $2,582,357.00, being their full face value with no allowance for pre-judgment interest to accommodate the uncertainty as to the timing of the loss flowing from the deduction to the franking account. 404Professor Officer's and Mr Hathaway's article identified three stages in the "life" of imputation credits. The first was their creation when company tax is paid. The second was their distribution when franked dividends are "paid" to shareholders. The third was their redemption when shareholders lodge their personal tax returns. They also noted that the personal taxation rate of the recipient shareholder was irrelevant to the value that should be attributed to imputation credits. The authors were able to determine on the basis of ATO data that, for the entirety of the Australian corporate sector for the period 1987/88 to 1999/2002, there was a distribution ratio of 71% for franking credits; ie for every $1 in franking credit that was generated 71c thereof was distributed to shareholders. They estimated that 40% of the distributed credits was ultimately redeemed by taxpayers. In addition the authors measured the value of imputation tax credits for listed companies by measuring dividend "drop offs", being the change in "value of a share price when stocks go ex-dividend". They observed that fully franked stock drop off more ex-dividend than unfranked stock. They determined that the stock market was valuing franking credits in respect of listed stock at "about 51% of [their] face value". 405Mr Lonergan was sceptical of the accuracy of this and other "drop off" analyses. He also explained the apparent discounting of the face value of the franking credit by the stock market as follows: "The marginal investor on the Australian sharemarket represents a mixture of Australian resident, tax exempt, and offshore investors. Accordingly, the gamma of the Australian investors will lie between zero and one. Various studies [including the study of Officer and Hathaway] have shown that the market value of imputation credits lies between 50 per cent and 82 per cent of their face value ..." 406Professor Officer's and Mr Hathaway's paper seeks to use the drop off value analysis to determine the impact of distributed franking credits on the market value of listed shares. In effect this approach addressed the second and third stages of the life of an imputation credit that they identified. Mr Lonergan identified the reasons why the share market does not attribute to distributed franking credits their full face value, namely the differing tax status of investors on the Australian share market. In the case of Holdings, the tax status of Mr Symond (and the CBA) is known, in that they are both Australian residents. Both would have no reason to attribute anything but face value to distributed credits. Thus, to this extent, I accept Mr Potter's evidence as to the value of distributed franking credits. 407However, this leaves the transition between the first and second stage of the life of an imputation credit noted by Professor Officer and Mr Hathaway, namely the distribution rate of earned franking credits. Professor Officer and Mr Hathaway considered the value of distributed franking credits, not the value to shareholders of earned franking credits. Their analysis demonstrates that the latter do not inevitably translate into the former, as Mr Potter appears to assume they do. It would follow from their analysis that, absent any evidence about a particular company, a shareholder or potential shareholder might at least start by treating each $1 in earned franking credits as representing 71c in distributed franking credits. 408Ms Jones' approach is to only treat the loss of franking credits as causing loss to the shareholders when the pool of franking credits is about to run dry, which she states has no likelihood of happening in the case of Holdings. By attributing to the shareholder the full value of the loss of the credits Mr Potter also assumes or asserts that they must run dry at some point. In my view the proper approach is to treat the diminution in the entire volume of the pool as what effected a loss to the shareholder and attempt to place a value on each credit in the pool. 409Over time a company will distribute franking credits that it earns at a particular rate, or at least an average will emerge. If a company whose shareholders are all resident taxpayers has a practice of distributing all profits as dividends then, as $1 in franking credits is earned at one point, it will translate to $1 in franking credits distributed to the shareholders at a later point. A loss of $1 to the franking account balance will translate to $1 less in franking credits being distributed to the shareholder. According to Mr Potter this would represent a loss of 51.5c in tax to a shareholder such as Mr Symond. If the company never distributes dividends, then a deduction in the franking account will occasion no loss to the value of the shares save for their reduced attractiveness to a potential suitor for 100% of the shares in the company. 410If, on average over time, a company distributes half of its earned franking credits then, if $1 in franking credits is earned, it will translate to 50c in franking credits being distributed to the shareholders. A loss of $1 to the franking account balance will translate to a 50c reduction in the face value of the franking credits distributed to the shareholder (and an extra tax payment of 25.75c by a resident taxpayer paying the highest marginal rate). If the period of time is sufficiently long, then the determination of such an average rate may provide a reasonably good guide to an investor as to the appropriate value to attribute to the franking account balance: "[p]ast events are not a certain guide to the future, but in many areas of life proof that events have occurred often provides a reliable basis for determining the probability - high or low - of their recurrence" (Minister for Immigration & Ethnic Affairs v Guo [1997] HCA 22; 191 CLR 559 at 574). 411Such an approach would reflect the past incidence of a number of the possibilities that I have adverted to above. The circumstance that in a particular year or years the company made losses but still distributed profits is a matter that would tend to increase the rate at which earned franking credits were distributed. Similarly the use of franking credits as part of share buy backs would also tend to increase the distribution rate. Conversely, the circumstance that in a particular year or years a company made substantial profits but only distributed a small portion of them is a matter that would tend to decrease the rate at which earned franking credits were distributed. 412In the events that occurred, during the period 30 March 2005 to 30 June 2011 Holdings distributed $29,132,772.00 in franking credits. A calculation of the credits that it earned in the same period is not straightforward on the material available to me. I have adopted the approach of calculating 30% of the tax profit for the years up to 30 June 2010 and three quarters of the following year. This seeks to reflect the fact that Holdings was lodging quarterly PAYG returns and earning credits quarterly. It means that as at 30 June 2011 franking credits for the last quarter's profit for that year would not be available to distribute. This yields a figure of $80,716,845.00 in earned credits (30% of $269,056,153.00) and $75,702,559.00 after the deduction of $5,014,286.00. The distribution rate was 38.5% ($29,137,772.00 / $75,703,559.00). 413This analysis yields a figure for the distribution rate that in my view is too low for a number of reasons. First, it excludes the period prior to 2005 when losses were incurred. This is especially relevant if the matter is being considered from the perspective of the time of the settlement with the Commissioner when those losses would have been quite recent. Second, the last year that was partially included (2011) was very profitable for Holdings, yet the level of dividend distribution was the same as the previous year. Third, it takes no account of the possibility of CBA moving to 100% ownership and consolidating the franking credits. Bearing those matters in mind I consider that a distribution rate of 50% should be adopted. 414If this rate is applied to the value to Mr Symond of the deduction to the franking account as calculated by Mr Potter, it yields a figure of $1,291,178.50. Thus, I assess the value of the imposition of a $5,014,285.00 deduction to the franking account on his shareholding as $1,291,178.50. While this reasoning would ordinarily result in interest on that amount being allowed from the date of the Deed, I will defer that date to 1 January 2011 to accommodate the point addressed at [386]. That date approximates the time at which the balance of the franking account under Scenario 2 would have equated to the accounting balance in the events that transpired if no deduction had been made from the latter. 415The third issue arises from Mr Donaldson SC's submission that, assuming some value could be attributed to franking credits, a deduction to the franking account is only "an injury to the company affecting its value and is a reflective loss to shareholders that cannot be recovered in an action by a shareholder". In support of that submission Mr Donaldson SC cited Prudential Assurance Co Ltd v Newman Industries Ltd (No 2) [1982] Ch 204 at 222 to 223, Gould v Vaggelas [1985] HCA 85; (1984) 157 CLR 215 at 219 to 220 per Gibbs CJ, and Mercedes Holdings Pty Ltd v Waters (No 3) [2011] FCA 236 at [38] per Perram J. For the reasons that follow, I reject the submission. 416The so called principle of "reflective loss" is part of the common law of Australia. In Gould v Vaggelas at 219 Gibbs CJ stated that pursuant to that principle a party "cannot recover damages which are merely a reflection of a loss suffered by the company, [although] they may recover damages for the loss which they personally have suffered and which is separate and distinct from the loss suffered by the company". His Honour specifically cited Prudential Assurance Co Ltd with approval. In Chen v Karandonis [2002] NSWCA 412 at [34] to [53] Beazley JA (with whom Heydon and Hodgson JJA agreed) cited Prudential Assurance and the subsequent judgment of the House of Lords in Johnson v Gore Wood & Co [2000] UKHL 65; [2002] 2 AC 1. 417In Johnson at 35 to 36 Lord Bingham of Cornwall summarised the relevant principle as follows: "These authorities support the following propositions. (1) Where a company suffers loss caused by a breach of duty owed to it, only the company may sue in respect of that loss. No action lies at the suit of a shareholder suing in that capacity and no other to make good a diminution in the value of the shareholder's shareholding where that merely reflects the loss suffered by the company. A claim will not lie by a shareholder to make good a loss which would be made good if the company's assets were replenished through action against the party responsible for the loss, even if the company, acting through its constitutional organs, has declined or failed to make good that loss. So much is clear from Prudential Assurance Co Ltd v Newman Industries Ltd (No 2) [1982] 1 Ch 204, particularly at pp 222-223, Heron International [Ltd v Lord Grade [1983] BCLC 244], particularly at pp 261-262, George Fischer [(Great Britain) Ltd v Multi Construction Ltd [1995] 1 BCLC 260], particularly at pp 266 and 270-271, Gerber [Garment Technology Inc v Lectra Systems Ltd [1997] RPC 443] and Stein v Blake [[1998] 1 All ER 724], particularly at pp 726-729. (2) Where a company suffers loss but has no cause of action to sue to recover that loss, the shareholder in the company may sue in respect of it (if the shareholder has a cause of action to do so), even though the loss is a diminution in the value of the shareholding. This is supported by Lee v Sheard [1956] 1 QB 192, 195-196, George Fischer and Gerber. (3) Where a company suffers a loss caused by a breach of duty to it, and a shareholder suffers a loss separate and distinct from that suffered by the company caused by a breach of a duty independently owed to the shareholder, each may sue to recover the loss caused to it by breach of the duty owed to it but neither may recover loss caused to the other by breach of the duty owed to that other." (emphasis added) 418At 62 Lord Millett discussed the first and second of these propositions. At 66 to 67 his Lordship stated: "Reflective loss extends beyond the diminution of the value of the shares; it extends to the loss of dividends (specifically mentioned in Prudential Assurance Co Ltd v Newman Industries Ltd (No 2) [1982] Ch 204) and all other payments which the shareholder might have obtained from the company if it had not been deprived of its funds. ... On the other hand, [the shareholder] is entitled (subject to the rules on remoteness of damage) to recover in respect of a loss which he has sustained by reason of his inability to have recourse to the company's funds and which the company would not have sustained itself." (emphasis added) 419At 36 to 37 Lord Bingham applied these principles to the various heads of damage that had been pleaded by the appellant in that case. The appellant claimed that he and a company had jointly retained solicitors who then negligently conducted litigation on behalf of the company. The company compromised its claim against the solicitors and then the appellant sued them separately. It is unnecessary to describe his heads of damage in detail, but one is described as an "additional tax liability" which his Lordship described as a "personal loss" and stated "it would not [be struck] out". Of course a loss of a franking credit results in an additional tax liability to a shareholder. That said, the nature of the appellant's tax liability in Johnson was not discussed further. 420In this case the reflective loss principle can only be invoked if the "company", namely Holdings, has suffered loss and the shareholder, namely Mr Symond, has not "suffered [a loss] which is separate and distinct from the loss suffered by the company". I have described the nature of franking credits and the franking account above. Nothing in the ITAA1997 (or elsewhere) suggests that franking credits are an asset of the company that maintains the franking account. Franking credits are not listed as an asset on Holdings' balance sheet and it cannot buy or sell them. As I have stated, the franking account is a statutory concept which records the amount of tax credits that can be made available to shareholders. The ledger of Holdings recording franking credits and debits is merely a record reflecting the contents of that account. The debiting of the franking account does not involve the direct occasioning of loss to the company. Instead it results in the loss of amounts that the company "can pass to its members" (s 200.15(1) of ITAA1997). A deduction to the franking account represents a separate and distinct loss suffered by the shareholder(s) and not by the company. 421The chapter from Mr Lonergan's book that I have referred to includes a discussion of whether a positive franking account balance for a listed company makes the company more attractive to investors and thus may lower its cost of capital. He is sceptical of the latter contention on the basis that the size and level of foreign investor interest drives the cost of capital in this country, and such investors do not utilise franking credits. This scepticism appears unjustified in the case of Holdings, as its actual and likely investors are Australian residents. In any event, assuming that the presence of franking credits does lower the cost of capital for Holdings that does not mean that the company suffers a direct loss from the loss of franking credits. If anything it would only suggest that the company suffers its own form of reflective loss arising from the direct loss occasioned to the shareholders but not vice versa. Quantum - Summary 422It follows that the calculation of the loss and damage occasioned to Mr Symond as a result of Gadens' actionable conduct is to be determined in the following manner. 423First, by totalling the items listed in the first four rows of the table in [320], being the tax, penalties and GIC imposed by reason of the settlement reached with the Commissioner and the professional fees incurred, and updating the interest calculation on those amounts. 424Second, by deducting an amount for the cost of the extra advice concerning the FBTAA that I have referred to at [317] ($25,000.00) and the amount allowed for the possibility that further scrutiny beyond the 2005 review might have been necessary in relation to Mr Symond's FBT exposure ($75,000.00) (see [330]). 425Third, by deducting an amount for the benefit of the Restructure calculated in accordance with [374] to [375]. 426Fourth, by adding $1,291,178.50 together with interest from 1 January 2011, being the loss occasioned to Mr Symond by the deduction of $5,014,286.00 from Holdings' franking account. Apportionment 427Gadens pleaded that, if it was found liable, each of Abbott Tout, PwC, the "AHL Group" (being either synonymous with the Aussie group or at least part of it) and Mitchell & Partners was a concurrent wrongdoer with it, and its liability should be correspondingly reduced to what the Court considers "just" by the operation of s 35 of the CLA and s 87CD of the TPA. Its final submissions did not press so much of this claim as concerned the Aussie Home Loans Group. 428Five matters should be noted about the legislative provisions concerning apportionment. First, both parties' submissions appeared to accept that all of Mr Symond's causes of action were "apportionable claims" as defined in either s 34(1) of the CLA or s 87CB(1) of the TPA. In relation to the latter, this involved an assumption that the relevant apportionment legislation for the cause of action under former s 52 of the TPA was that found in Part VIA of the TPA, which was inserted with effect from 26 July 2004 by the Corporate Law Economic Reform Program (Audit Reform and Corporate Disclosure) Act 2004 (Cth). Part VIA applied to causes of action that accrued after that date (see Schedule 12, Item 1). Most of the misleading representations occurred prior to 26 July 2004, but presumably the parties acted on the basis that the loss or damage sued for crystallised after that time (Wardley). 429Second, the onus of demonstrating that any other party was a "concurrent wrongdoer" rested upon Gadens. Such a wrongdoer is a person who is "one of two or more persons whose acts or omissions (or act or omission) caused, independently of each other or jointly, the damage or loss that is the subject of the claim" (CLA, s 34(2); TPA, s 87CB(3)). 430Third, although not stated expressly, the definition of "concurrent wrongdoer" requires that the alleged concurrent wrongdoer be legally liable to the plaintiff (Hunt & Hunt Lawyers v Mitchell Morgan Nominees Pty Ltd [2013] HCA 10; 87 ALJR 505 at [47] per French CJ, Hayne and Kiefel JJ; and [90] to [91] per Bell and Gageler JJ). 431Fourth, the definition of "apportionable claim" also requires that there be a precise identification of the "damage or loss that is the subject of the claim" (s CLA, s 34(2); TPA, s 87CB(3)). "Damage" in this context does not refer to damages that are assessed and awarded. According to French CJ, Hayne and Kiefel JJ in Hunt & Hunt, it comprises the "injury and other foreseeable consequences suffered by a plaintiff" (at [24]). The dissenting judgment of Bell and Gageler JJ in that case does not suggest any difference in approach (see [93]). However, the difficulties in its application are illustrated by the facts in Hunt & Hunt. In that case the appellant solicitors had negligently failed to include a covenant to repay the amount lent in a mortgage that was registered over real property owned by an innocent party. Loans to the innocent party sought to be secured by the mortgage had been procured by the fraud of certain third parties. The lender failed to recover from the innocent party under the loan agreement because it was void, having been procured by fraud. It failed to recover under the mortgage because, even though it was registered, it only secured the debt under the void loan agreement and did not include a separate covenant requiring the innocent party to repay that debt. French CJ, Hayne and Kiefel JJ held that the solicitors and the fraudsters were concurrent wrongdoers vis-à-vis the lender, and the solicitor's liability was reduced accordingly. Their Honours characterised the injury to the borrower as its inability to recover the sum advanced (at [28]). This injury had two independent causes, the negligence of the solicitors and the fraudulent conduct of the third parties. In contrast, Bell and Gageler JJ characterised the injury as the borrower having "no security", a result which was not caused by the fraudulent conduct of the third parties. According to their Honours, this had the consequence that they and the solicitors were not concurrent wrongdoers (at [100]). 432Fifth, the test for apportionment under both the CLA and the TPA is the same, namely that the liability of a defendant who is a concurrent wrongdoer such as Gadens is limited to "an amount reflecting that proportion of the damage or loss claimed that the court considers just having regard to the extent of the defendant's responsibility for the damage and loss" (CLA, s 35(1); TPA, s 87CD(1)). In Mitchell Morgan Nominees Pty Ltd v Vella [2011] NSWCA 390 at [83], Giles JA noted the similarity of wording between these provisions and the language used in the statutes enabling contribution between joint tortfeasors and stated that: "The accepted application [of those provisions] ... 'involves a comparison both of culpability, ie of the degree of departure from the standard of care of the reasonable man ... and of the relative importance of the acts of the parties in causing the damage ...', and there must be a comparative examination of 'the whole conduct of each negligent party in relation to the circumstances of the accident': Podrebersek v Australian Iron & Steel Pty Ltd at 494 (citations omitted); see also (for example) Wynbergen v Hoyts Corporatioin Pty Ltd (1997) 72 ALJR 65 and Vinidex Tubemakers Pty Ltd v Thiess Contractors Pty Ltd [2000] NSWCA 67." 433Although his Honour stated that this approach may require modification in the case of a fraudulent as opposed to negligent wrongdoer (at [84]), that observation has no application in this case. The decision in Vella was the subject of the successful appeal to the High Court in Hunt & Hunt that I have already described. In that case only the judgment of French CJ, Hayne and Kiefel JJ touched upon the way in which liability should be apportioned as between concurrent wrongdoers, and their brief comment (at [58]) was consistent with the adoption of the approach of Giles JA, at least in the case of concurrent wrongdoers who are both negligent. Apportionment - Abbott Tout 434As noted above, with effect from January 2005 Messrs Seller and Rossetto moved to Abbott Tout. I have already described the relevant work undertaken by them on behalf of Mr Symond and the Aussie group in the period that followed (at [130]ff). Gadens contended that Abbott Tout was a concurrent wrongdoer and pointed to the failure of Abbott Tout via Mr Sellers to advise Mr Symond and those advising him of the risk of him incurring a tax liability by redeeming preference shares. 435In support of this contention Gadens pointed to parts of Mr Magid's first report which addressed the conduct of Abbott Tout. In this report, Mr Magid addressed the "deficiencies" in its letter of 13 May 2005 (responding to E&Y) (see [135]) and the advice said to have been given by Abbott Tout in conference in early August 2005 (see [137]). Consistent with other aspects of his evidence, Mr Magid stated that the advice was deficient "in that it did not include advice regarding the taxation risks arising in relation to those redemptions", ie the risks that I have discussed previously at [196] to [216]. Further he stated that Mr Symond should have been advised "to consider discontinuing or suspending redemptions of those redeemable preference shares pending completion of the ATO review". 436Mr Magid also discussed the position of Abbott Tout in his second report. He addressed a contention advanced in response to his first report that it would have weakened Mr Symond's bargaining position vis-à-vis the ATO if Abbott Tout had advised him to cease redemptions. He accepted that contention "[t]o [an] extent" and noted that a competent solicitor should have advised Mr Symond of the alternative courses of action and the risks attaching to them. However, he added: "6.5 Apart from that, in my view the position of Mr Symond in early 2005 in relation to what had already occurred to that point had placed him in a position of such high tax risk that the mitigation of the amount at risk by discontinuing or suspending redemptions of the redeemable preference shares at that time would have been an advantage which would have outweighed any increase in the likelihood of an adverse result because of the change being made. 6.6 In any event, in my view the likelihood at that point in time of an adverse result was already so high that any increase in that likelihood resulting from discontinuing or suspending redemption of the redeemable preference shares would not have been material. This is because, for the reasons given at section 3.9 through 3.12 of my First Report, the entire amount paid to Mr Symond upon the redemption or purported redemption of his redeemable preference shares in Holdings could have been included in his assessable income as a dividend. Discontinuing or suspending those redemptions would have reduced the amount so at risk. 6.7 Similarly, discontinuing or suspending the redemption of those redeemable preference shares would have reduced the amount at risk of being the subject of a determination under section 45C that they be taken to be unfranked dividends paid out of profits of Holdings and therefore assessable income of Mr Symond, a risk which existed for the reasons given in sections 3.14 through 3.23 of my First Report. 6.8 Finally, discontinuing or suspending redemption of the redeemable preference shares would have reduced the amount at risk of a determination under section 177F that some or all of the amounts paid upon those redemptions be included in Mr Symond's assessable income under the general anti-avoidance provisions of Part IVA, a risk which existed for the reasons given in sections 3.24 through 3.43 of my First Report. 6.9 It was because of the existence of those high risks that I reached the view, stated in section 8.8 of my First Report, that the settlement reached by Mr Symond with the ATO was reasonable. Those risks do not include the risk of an amount being assessable to Mr Symond as a deemed dividend under Division 7A." (emphasis added) 437Thus, Mr Magid opines that as at 2005 Mr Symond already had such a high exposure that any increase in the risk of scrutiny which would arise from ceasing redemptions was only marginal. In effect, Mr Magid considered that Abbott Tout should have recognised that Mr Symond was in a big hole and told him to stop digging. I accept Mr Magid's evidence concerning the conduct of Abbott Tout. 438Mr Donaldson SC submitted that Abbott Tout was "overwhelmingly responsible" for the circumstances that resulted in Mr Symond's assessment. He pointed to three matters. First, he submitted that Abbott Tout was aware, through the knowledge of Mr Seller, that a considerable quantity of RPS remained to be redeemed. Second, he submitted that Abbott Tout was aware that the ATO was reviewing Mr Symond's affairs and there was a real possibility the ATO could suggest that Division 7A or s 45B applied to render the redemptions assessable. Third, he submitted that Abbott Tout failed to take any steps to advise Mr Symond that those risks could be eliminated if he ceased redeeming the RPS and otherwise obtained funds through a loan from the AHLUT or another group entity on a commercial basis (thereby complying with the terms of s 109N of Division 7A). Mr Donaldson SC also noted that in 2005 "E&Y had repeatedly raised the prospect that the arrangement would come under ATO scrutiny". 439Mr Payne SC did not dispute these matters, but submitted that Mr Magid's conclusion about the high level of risk that Mr Symond was facing when Abbott Tout became involved meant that I could not be satisfied that the settlement he reached with the ATO would have been any different had Abbott Tout advised that the redemption of preference shares should cease. He submitted that, at best, Mr Symond "might have done a little bit better on penalties and interest if Abbott Tout [had advised Mr Symond to stop] redeeming". 440In my view Mr Payne SC's submission wrongly conflates the "damage or loss that is the subject of the claim" as referred to in s 34(2) of the CLA and s 87CB(3) of the TPA with the damages that are assessed and awarded in the proceedings (see Hunt & Hunt at [24] and [90]). The various liabilities imposed upon Mr Symond by the ATO's assessment are component parts of the damages that are otherwise recoverable by Mr Symond. However, consistent with the approach of French CJ, Hayne and Kiefel JJ in Hunt & Hunt at [24], the relevant "injury" suffered by Mr Symond and identified by Mr Magid was the (massive) exposure to a tax liability he acquired from redeeming preference shares over a three year period. When the "injury" is identified in those terms, then Mr Magid's opinion confirms that Abbott Tout's conduct "caused [at least some of] the damage or loss that is the subject of the claim" in these proceedings (CLA, s 34(2); TPA, s 87CB(3)). 441Mr Magid's opinion referred to the deficient advice given by Abbott Tout in May and August 2005. As Mr Donaldson SC noted, it was aware from February 2005 that the ATO was undertaking a review, and from April 2005 it received E&Y's queries. Based on Mr Magid's opinion, I identify 1 May 2005 as the date from which Abbott Tout became obliged to provide the advice he refers to. 442One matter relevant to assessing what "amount reflecting that proportion of the damage or loss claimed" that it is "just" should be attributed to Abbott Tout is the extent of Mr Symond's exposure that could have been avoided had Abbott Tout taken the steps identified by Mr Magid (and had Mr Symond acted on that advice). The evidence did not explore whether any steps could have been taken late in FY05 but before 30 June 2005 to document the monies that had been withdrawn in the financial year to that date by some method that did not involve the redemption of preference shares. In the absence of any suggestion to that effect I cannot proceed on the basis that that was possible. On that basis and having regard to the figures referred to in [129], it seems that approximately two thirds of the RPS had been redeemed by May 2005. Thus about two thirds of Mr Symond's exposure had arisen before the time I find that Abbott Tout should have intervened. 443Further, I consider that the extent of Gadens' responsibility for the exposure arising far exceeds that of Abbott Tout. Gadens conceived of the entire structure. Abbott Tout did not. Both orally and in writing Gadens gave very emphatic (and wrong) advice about the tax free status of the proceeds of the redemption of the preference shares. It was that advice that assuaged any concerns of Mr Symond and those who advised him. Abbott Tout's conduct was nothing of that kind. Instead, Abbott Tout was in the position of inheriting a client in an exposed position and not advising them to minimise their exposure. Gadens was responsible for that circumstance arising. To continue the analogy made above, Abbott Tout should have recognised that Mr Symond was in a big hole, but Gadens dug it in the first place. 444In my view the departure from the relevant standard by Gadens, and the consequences of it for Mr Symond, was far worse than that of Abbott Tout. I address the position of PwC and Mitchell & Partners next and conclude that they are not concurrent wrongdoers. Accordingly, in accordance with s 35(1) of the CLA and s 87CD(1) of the TPA, I consider that it is "just" that Gadens' liability be limited to an amount reflecting a proportion of 85% of the damage or loss claimed. Apportionment - PwC 445I have already referred to the fact that Holdings retained PwC sometime in either late 2006 or early 2007 and to the latter's subsequent involvement in the audit of Mr Symond's affairs (at [147] to [151]). Gadens submitted that, in view of its knowledge of Mr Symond's tax exposure and its receipt of the QC's advice referred to at [149], it was incumbent on PwC to advise Mr Symond to include the amount of redemptions he received in FY06 in the tax return that he lodged in May 2007 (see [149]). Gadens submitted that the penalties and GIC for which Mr Symond became liable would not have arisen had PwC advised Mr Symond to include the redemptions he received in FY06 in his tax return lodged in May 2007. 446Again, this submission appears to conflate the amounts sought to be recovered by Mr Symond with the "injury" he sustained (cf Hunt & Hunt at [24] and [40]). Leaving that aside, I am not satisfied that PwC has breached any legal duty that it owed Mr Symond for two reasons. First, on the limited material that was tendered concerning PwC's role, I am not satisfied that PwC did not canvass with either Mr Symond or one of his advisors the possibility of making the disclosure. 447Second, in any event, for the reasons agreed to by Mr Beath noted at [331], I am not satisfied that any duty it owed to Mr Symond required it to recommend disclosure of the redemption amounts received in FY06. PwC was retained to assist Mr Symond in difficult circumstances. It inherited a client who had acted on aggressive and wrong tax advice and had thereby acquired a very large tax exposure. Close scrutiny from and negotiations with the ATO were about to commence. As was agreed by Mr Beath, to have included the redemptions for FY06 in Mr Symond's tax return for that year would have led to those amounts becoming the starting point for the negotiations with the ATO about Mr Symond's exposure and not the end point. Considered prospectively as at May 2007, the inclusion of those amounts in the return might have been considered as a means of avoiding or minimising the imposition of some penalties and GIC, but it was at least reasonably open to a person in PwC's circumstances to conclude that would have been at the cost of an overall assessment that was most likely to be much greater than proved to be the case. Apportionment - Mitchell & Partners 448Gadens made the same allegation against Mitchell & Partners that it made against PwC in relation to the tax return for FY06 that was lodged in May 2007. I have referred to aspects of its role in [131], [137] and [146]. The reasons I have given for rejecting this aspect of Gadens' defence so far as PwC is concerned also apply to Mitchell & Partners. While Mitchell & Partners was not retained by Mr Symond at a late stage, like PwC it had no role in the provision of advice concerning or the implementation of the Restructure. In that sense both it and PwC were dealing with a quagmire of someone else's, namely Gadens', making. Contributory Negligence 449Although Gadens pleaded contributory negligence on the part of the Mr Symond, it made no submissions in support of that allegation. In any event it would follow from the findings that in so far as this pleading rests upon an assertion that in adopting the Restructure Mr Symond failed to take reasonable care for his own interests, this allegation cannot be supported. The defence also alleges that the terms of the settlement with the ATO somehow involved contributory negligence on Mr Symond's part, but this contention was not developed. In any event, the high level of expert advice that Mr Symond received in relation to that settlement and the finding I have made at [447] negates any such suggestion. My acceptance of the opinion of Mr Magid noted at [436] confirms that conclusion. Professional Standards Act 1994 450Gadens also pleaded that its liability was limited by the operation of the Professional Standards Act 1994. This was not pressed in its final submissions. The Settlement with Abbott Tout 451As I have stated Mr Symond settled his claim against Abbott Tout. I was informed that one part of that settlement involved a payment of $1.85 million to Mr Symond (which was not attributable to costs). At the time of the settlement a Deed was entered into between Mr Symond, Abbott Tout and Gadens relating to the manner in which that sum would be accounted for, bearing in mind the apportionment claim made by Gadens concerning Abbott Tout. The Deed was not tendered but by agreement the relevant part was read onto the transcript as recording a joint agreement between the parties on this topic to the following effect: "The deed provides: For the avoidance of doubt the liability of Gadens in the proceedings is to be determined as follows: (a) assess the quantum of the liability of both Gadens and Abbott Tout defendants (if any) to Symond without taking into account the effect of this Deed including the obligation to pay, the payment or receipt of the Abbott Tout settlement amount (the defendant's gross liability)." ... (b) apportion the defendant's gross liability between Gadens and Abbott Tout defendants and any other alleged wrongdoers referred to in paragraphs 61 to 76C of Gadens' defence filed 14 August 2012 in accordance with the principles applicable under the apportionment provisions referred to in paragraphs 55, 60, 66, 67, 75, 76, 76B and 76C of Gadens' defence filed 14 August 2012 and to determine the amount of Gadens' share of the defendant's gross liability (Gadens' gross liability). (c) deduct $1.85 million from the amount of the defendant's gross liability (the defendant's net liability) and (d) Gadens is liable to Symond for the lesser of the defendant's net liability or Gadens' gross liability." 452In relation to sub-clause (a), I have assessed the total quantum of liability of Gadens (and Abbott Tout), however the calculation of the amount must await the further calculations I have outlined in [422] to [426]. The outcome of that calculation will produce a figure for the "defendant's gross liability". 453In relation to sub-clause (b), the liability of Abbott Tout in respect of that loss will be 15% of the amount to be calculated. I have rejected the submission that there are any other "alleged wrongdoers". The figure for "Gadens' gross liability" will be 85% of the amount to be calculated. 454In relation to sub-clause (c), the "defendant's net liability" will be the figure yielded by the calculations noted in [423] to [426], less $1.85 million. 455In relation to sub-clause (d), Gadens will be liable for the lesser of Gadens' gross liability or the defendant's net liability. On my understanding of the likely outcome of the calculations it is probable that the latter will represent the amount of Gadens' liability. Further Progress 456Assuming that the outcome of the above calculations and steps is that an amount of damages is recoverable by Mr Symond against Gadens, then a verdict will be entered in his favour. As further calculations need to be undertaken, I cannot enter any final orders at this stage. The only order that I will make at this point is that the proceedings be stood over for further directions before me at 9.30am on 8 August 2013, with liberty to apply on one days' notice. In the meantime, the parties should confer as to the appropriate calculations, their respective positions on costs, and the final forms of order. I so order. ********** DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 19 July 2013