N1175

PAPUA NEW GUINEA
[IN THE NATIONAL COURT OF JUSTICE]

APP. 219 of 1990

BETWEEN:

J.H. RAYNER (MINCING LANE) LIMITED
Appellant

AND:

THE CHIEF COLLECTOR OF TAXES
Respondent

WAIGANI: SHEEHAN, J
1991: 18 JULY

Appeal from Income Tax Review Tribunal - Interpretation of Statutes - Meaning of "Associated person" - when words of a statute are clear and unambiguous there is no room for departure from them unless they lead to totally anomalous or irrational results, defeating the whole purpose of the Act.

CASES CITED:

The following cases were cited in this decision.
Wemay -v- Kepas Tumdual [1978] PNGLR 173
Mairi -v- Alkan Tololo and Ors [1976] PNGLR 125
Cape Brandy Syndicate -v- IRC [1921] 1KB 647
A-G -v- Earl of Selbourne 1902 1KB 396
Cooper Brookes (Wollongong) Pty Ltd -v- Federal Collector of Taxes 1981 147CLR 297
Stock v Frank Jones (Tipton) Ltd 1978 1ALLER 948
R v Bloxham 1982 1ALLER 582
R v West Yorkshire Coroner 1982 3All E.R. 1098

Mr P.R. Payne for the Appellant
Mrs J. Weigall for the Respondent

DECISION

J.H. Rayner (Mincing Lane) Limited, the appellant, seeks to overturn the decision of the Income Tax Review Tribunal made against the company on the 20th of October 1990. That decision upheld a determination of the Chief Collector of Taxes disallowing an objection by the appellant company, to an assessment. 

As stated by the Income Tax Review Tribunal in the opening paragraph of its decision:

"the question in issue is whether, in each of the four(4) years ended 31 December 1983 to 1986 inclusive, income tax was payable at a rate of 10% as contended by the tax payer company, or at 30% as assessed by the Chief Collector of Taxes on royalties derived from Papua New Guinea in each of those years".

Rayner the appellant tax payer liable under the assessment, is a non-resident and wholly owned subsidiary of Berisford P L C, another non-resident company which has invested in the PNG company, Kopi International Ltd. Through Pauline Marie B.V. another of its subsidiaries, Berisford holds a 25% shareholding in Kopi International. The appellant Rayner, provided "Management Services, Expertise and Market Intelligence" for Kopi International. 

It is the tax payable on the fees for those services (acknowledged to be royalties under the PNG Income Tax Act) which is the subject of this dispute. The Tribunal has upheld the Commissioners assessment of 30%. Rayner contends the rate should only be 10%.

The interpretation of the Chief Collector of Taxes of the relevant Income Tax Act provisions, stands or falls on whether the tax payer is what s 7 of the Act calls an "associated person" in relation to Kopi International, the company paying the royalties. 

Section 7 of the Income Tax and Dividend (Withholding) Tax Rates Act states:

"Section 7 Rate of Tax payable in respect of royalties.

The rate of tax imposed by this Act upon income to which s 4(c) (other then assessable income from mining operation or assessable income from petroleum operation) of the Income Tax Act applies is - 

(a) 	where the recipient is an associated person - 30% of the assessable income; or 

(b) 	where the recipient is not an associated person - 10% of the assessable income or 48% of the taxable income which ever is the lesser".

The Tribunal found no definition of "associated person" in the Rates Act. The only definition approximating the phrase lies in s 4(1) of the Income Tax Act itself. This is the interpretation section of the Act and commences as follows:

"4. Interpretation

[Definition] 

In these Act, unless the contrary intention appears - 

"Associate in relation to a person (in this definition referred to as the tax payer) means - 

(a) 	.................

(b) 	

(i) 	............

(ii) 	............

(iii) 	............

(iv) 	another person where either

(a) 	the tax payer company is, or its directors are accustomed or under an obligation to act as directed by that person or that person and another or other persons; or 

(b) 	that person, or he and his associates (as defined) is or are able to control more than 50% of the voting rights in the tax payer company; or 

(v) 	another company where either 

(a) 	the other company or its directors is or are accustomed or under an obligation to act as directed by the tax payer company and/or its associates (as defined); or 

(b) 	the tax payer company and/or its associates is or are able to control 50% of the voting rights in that other company; or 

(vi) 	a person who is an associate of the other person referred to in (iv) above. (emphasis added).

After considering the above subsection of the definition in detail and reviewing the history and structure of Kopi International, the Tribunal concluded that no one of (b)(iv) or (b)(v) or (b)(vi), on its own, could be relied to constitute the appellant as an "associated person" of Kopi International. At paragraph 41 of the decision the Tribunal states:

"41 Accordingly, unless the scope of sub-para (b)(v) can be extended by reference to some other provisions in the definition, International would not have been an associate of an tax payer company during the years in dispute".

It was argued before the Tribunal and again before this Court that such a course, such as extension, was not open to the Tribunal. As the decision records, counsel for the tax payer argued that since: 

"All the definitions in s 4(1) are subject to the qualification that they apply "unless the contrary intention appears". Having a gone to the length to which the legislature has gone in defining "associate" and to the explicit categorisation of the parties who may answer that description, it is not difficult to conclude that the legislature has demonstrated a contrary intention..... (emphasis added).

In any case counsel for the appellant submitted that the exhaustive definition surely shows the legislature intended that in determining "an associate", "Company" means company and "Person" means person. Any other reading of the definition, it was submitted only leads to a nonsensical result. Counsel contended that proper interpretative construction required, that where there appears any conflict between and general and specific provisions, it must be the specific that prevails.

Counsel for the appellant also relied on the maxim of interpretation, expressio unius, exclusio alterius which translates as, use of specific words excludes the use of any other or more general words. 

Wemay -v- Kepas Tumdual 1978 PNGLR 173 and SR No. 6 of 1984, 90, PNGLR 31 were cited by counsel confirming that it is the actual words of a statute that must be looked at first. 

In Wemay's case Wilson, J states at p. 176:

"The fundamental rules for the interpretation of statutes applies in this case viz that the statutes should be construct according to the intention expressed in the act itself. If the words of the statute are themselves precise and unambiguous, then no more is necessary than to expound those words in their ordinary and natural sense. The words themselves are generally the best intention of the legislature".

Counsel also referred this Court to Mairi -v- Alkan Tololo and Ors 1976 PNGLR 125 where the Supreme Court confirmed that Taxing Acts should be construed strictly. At p. 139 of that case there is a summary of long recognized authoritative statements that call for Courts to follow the precise wording of taxing statutes and not to alter or supplement them by words of their own to better effect the intention of Parliament. It is said in that decision: 

"We think it incumbent upon the Court to follow a well trodden path of an interpretation. This path suggests that for the imposition of a charge upon the subject to be legal, a clear and unambiguous intention must be shown in a statute .....".

The Court went on to quote a well know passage from Rowlett, J. in Cape Brandy Syndicate -v- IRC [1921] 1KB 647.

"In an Taxing Act one has to look at what is clearly said. There is no room for intendment. There is no equity about a tax. There is no presumption as to a tax. Nothing is to be read in, nothing is to be implied, one can only look fairly at the language used". 

And again from A-G -v- Earl of Selbourne 1902 1KB at 396 where Collins MR said:

"if the case is not brought within the words of statute, interpreted according to their natural meaning and; and if there is a case which is not covered by the statute so interpreted, that can only be remedied by legislation and not by any attempt to construe the act benevolently in favour of the (State)".

The Tribunal acknowledged (para 46) the force of the expressio unius argument and that it:

"supports the view that the express reference in (b)(v) to "an other company" excludes recourse to other sub-paragraphs of the definition which deals with other parties which may be associates of a tax payer".

It also acknowledged (para 47) that in going beyond the strict reading of sub-para (b)(v) and relying on an amalgam of that sub-paragraph with (b)(iv) and (b)(vi) that could itself lead to anomalies.

However the Tribunal was much struck by the argument for the Commissioner "that unless it permissable to go beyond (b)(v), the definition of "associate" is ineffective to catch the most obvious example of a taxpayer company being an associate of another company, namely, where the taxpayer company is wholly own subsidiary of that other company".

Reluctant to accept this conclusion the Tribunal sought assistance from Cooper Brookes (Wollongong) Pty Ltd -v- Federal Collector of Taxes 1981 147CLR 297 where Gibbson, ACJ says at p. 304:

"There are cases where the result of giving words or their ordinary meaning maybe be so irrational that the Court is forced to the conclusion that the draftsman has made a mistake, and canons of construction are not so rigid as to prevent a realistic solution in such a case".

The majority in that case then went on to find there was an anomaly in the statute then under review, warranting such an interference.

Likewise, the Tribunal decided in this matter that there is an anomaly in the definition of "associate" in the Income Tax Act. At para 52 of its decision The Tribunal says:

"In my opinion the words of the definition of "associate", when read in their context and having regard to the definition of "person" and the declaration in s.4(9) of the Act, are far from clear and unambiguous. For that reason I think I am justified on what has been said in Cooper Brookes in trying to give effect to what I discern to be the intention of the legislature. I appreciate that the fact that, literally interpreted, the definition of "associate" would not apply to a subsidiary/parent relationship, is a slender reed on which to hand a departure from literal interpretation and one that may well be counter balanced by Mr Hack's point about sub-para (b)(v) being rendered unnecessary. Each of those points however only serves to underline, in my view, the ambiguity of the definition. I would prefer, of course, to have some judicial guidance as to the interpretation of the definition and I readily confess that I am far from certain that I have reached the correct conclusion".

It was on this reasoning that the Tribunal determined to use both sub-paragraphs, (b)(iv) and (b)(vi) in the definition of "associate" in conjunction with sub-para (b)(v) to determine whether a taxpayer is associate of an other company.

Having determined that there was an "association", the Tribunal then had to consider whether through any combination of those sub-paragraphs, the evidence in this case, showed that the taxpayer was obliged or accustomed to act as directed by any associate company. That is by either Pauline Marie, Berisford or Rayner.

The Tribunal accepted that on examination of the voting rights of the shareholders that Kopi International was not obliged to act as directed by any associate. On the question as to whether Kopi was accustomed to act as either any of its associates companies directed or wished; the Tribunal "formed the impression" that the PNG shareholders were content to "go along" with the wishes of the associate company. That impression coupled with one decision of the directorate of Kopi, (decided by casting vote of the chairman), made it difficult for the Tribunal to accept that the Kopi International would have been allowed to act independently of the wishes of Berisford. (para 59). The Tribunal therefore upheld the Commissioners assessment of a tax rate of 30%.

DECISION

When question arise as to the interpretation of an Act, the sole issue for the Court is to ascertain the true construction of a statute. There are of course, various rules of construction but these are not rules of law. There are aids only. 

The maxim expressio unius est exclusio alterious (to express one thing is to exclude another) is one such rule. It is an extension of another Latin maxim expressum facit cessare tacitum (to state a thing expressly ends the possibility that something inconsistent with it is implied). Both maxims may be seen as essentially statements that support the principle of following the literal and ordinary meaning of words in any particular statutes. They embody the principle that no inference is proper if it goes against the express words Parliament has used. [See Bennion, Statutory Interpretation (Butterworths) 1988 reprint p 843].

In Mairi V. Alkan Tololo and Ors, the Supreme Court determined that statutes imposing taxes or fees call for strict interpretation. In so doing it was following a rule of construction that is historic throughout Commonwealth jurisdictions. It was not establishing a rate of law.

All statutes must be construed to give effect to the intention of the legislature, as that intention is to be gathered from the language employed (and taxing statutes are not any different in this regard), Courts will always look for express and clear language in statutes which confer or take away legal rights; impose taxes or charges, or alter clearly established principles of law or indeed legislate with regards to the jurisdiction of Courts.

The Australian High Court and the English House of Lords have both made very strong statements against interfering with the plain and ordinary meaning of statutory provisions. That injunction is to be held paramount even if a statutory provision is seen on close examination (and depending on view point) to be "inadequate" or not totally "comprehensive" in some respect or another. 

Both Courts have however have left a door open to enable Courts to manufacture solutions where total irrationality or anomalous results will defeat the statute and the perceived intention of Parliament. It is within the jurisdiction of this Court to adopt that course too. But it must remembered that the overriding theme of the many decisions throughout Commonwealth Jurisdictions show the continuing emphasis on the need for Courts (and Tribunals for that matter) to be wary of supplying "solutions" to supposed statutory deficiencies: and reminding them that that is the function of the legislature.

The decision to assign additional words or to interfere with the actual wording of a statute is of course never lightly taken. The difficulty facing Courts is whether the solution to a perceived error anomaly or ambiguity is sufficiently clear to warrant the Court supplying a solution to ensure the intent of the act is not frustrated rather than draw attention to it for correction by legislation. In Cooper Brookes (Wollongong) Pty Ltd v Federal Collector of Taxes cited above, although confirming the general rule of following the words of an act, the decision was taken to correct what was seen to be ananomaly in the statute under review. In that case however the court was not unanimous and that, perhaps illustrates the difficulties in determining the point at which courts should refrain from supplying drafting alterations, and leaving correction to Parliament.

The difficulties in reaching a balance have been stressed in the leading English decision of the House of Lords in Stock v Frank Jones (Tipton) Ltd 1978 1ALLER 948. That decision confirmed by the House of Lords in R v Bloxham 1982 1ALLER 582 was also followed by the Court of Appeal in R v West Yorkshire Coroner 1982 3All E.R. 1098. While recognising the interpretive role of the courts it was emphasised that such a course is to be undertaken only in the most obvious of cases. 

In Stock v Janes there is a lengthy but telling passage from Lord Simon at page 953.

What is incontestible is that the court is a mediating influence between the executive and the legislature on the one hand and the citizen on the other. Nevertheless it is essential to the proper judicial function in the constitution to bear in mind: (1) that modern legislation is a difficult and complicated process, in which, even before a bill is introduced in a House of Parliament, successive drafts are considered ..... (2) that the bill is liable to be modified in a Parliament ..... whose members are answerable to the citizens who will be affected by the legislation; (a) ..... judge is not so answerable; (3) that in a society living under the rule of law, citizens are entitled t regulate their conduct according to what a statute has said, rather than by what it was meant to say or by what it would have otherwise said if a newly considered situation had been envisaged; (4) that (the letter should be given priority) between the letter and the spirit of the law ..... (5) that Parliament may well be prepared to tolerate some anomaly in the interest of an overriding objective; (6) that what strikes the lawyer as a injustice may well have seemed to the legislature as no more than the correction of a now unjustifiable privilege or as a particular misfortune necessarily or acceptably involved in the vindiction of some supervening general social benefit; (7) that the Parliamentary draftsmen knows what objective the legislative promotor wishes to attain, and he will normally and desirably try to achieve that objective by using language of the appropriate register in its natural, ordinary and primary sense; ..... (8) that Parliament ..... can ..... (rectify) by legislation; this is far preferable to judicial contortions..... of the law to meet apparently hard cases with the result that ordinary citizens and their advisers hardly know where they stand.

In regard to taxing statutes, (3) above constitutes a significant argument for strict construction.

Lord Scarman at p 955 of the same action goes on to comment:

"I wish, however, to add a few words of my own on the "anomalies" argument. Counsel for the appellants sought to give the words a meaning other than their plain meaning by drawing attention to what he called the "anomalies" which will result from giving effect to the words used by Parliament. If the words used be plain, this is, I think, a an illegitimate method of statutory interpretation unless it can be demonstrated that the anomalies are such that they produce an absurdity which Parliament could not have intended, or destroy the remedy established by Parliament to deal with the mischief which the Act is design to combat".

And again later on the same page:

"If the words of Parliament are plain there is no reason for the anomalies test, unless the consequences are so absurd, that without going outside the statute, one can see that Parliament must have made a drafting mistake .... But mere "manifest absurdity" is not enough: it must be an error (of commission or omission) which in its context defeats the intention of the Act".

The central theme of the rules of interpretation of statutes therefore remains, that words be given their normal and ordinary sense and that the meaning of statutes and their provisions are to be determined from the actual wording of the legislature. For all that this maybe hedged around by decisions which permit Courts to endeavour to ascertain the intention of Parliament in cases of anomalous or irrational results, these decisions do not in any way derogate from the principal rule. Departure from the clear and unambiguous wording may only be resorted to in plain and obvious cases where without correction the objectives of the act itself would be totally defeated.

That is not the case here. The simple fact of the matter is that the in the view of the Commissioner of Taxes, and the Tribunal, interpretation of the definition of "associate" in the Act does not include what they say is the most obvious example of a taxpayer company being associate of another, namely a wholly owned subsidiary. To the Commissioner of Taxes and to the Tribunal that renders the literal meaning of the words used "far from clear and unambiguous". 

That is simply is not so. There may have been a error of omission; it may have even have been a deliberate omission, but the fact that the Commissioner or the Tribunal thought that wholly owned subsidiaries should have been included does not make ordinary words anomalous. It certainly does not justify the strain on the wording of the statute that the Commissioner and the Tribunal were compelled to exercise, to justify the use of sub-paragraphs b(iv)(v) and (vi) in a way which was itself anomalous. When the prime rule of interpretation; to let the words used speak for themselves, is coupled with the historic refusal of Courts to apply 'corrections' to the supposed defects of taxing statutes the need to refrain from interfering in the what is plainly the legislative process is clear. 

It is obvious that the Tribunal was meticulous in considering all matters placed before it and undertook considerable research before reaching its decision. And, with great respect, the frankness displayed by the Tribunal when confronted with the difficulties of ascertaining the appropriate principles of interpretation illustrate a truly judicial approach. 

However the Tribunal itself recognised, that its departure from the literal interpretation to one using contradictory and anomalous terms was on shaky grounds. It is my view that too great a reliance was placed on subsidiary rules which "permit" interference with the actual written words, rather than on the first general rule of interpretation. This is what has lead the Tribunal into error, departing from plain and ordinary words in an endeavour to supply corrections for what it perceived to be an omission in the act; an omission that can not be said to totally irrational or anomalous but at worst merely an omission.

In the result the appeal is allowed and the determination of the Tribunal set aside.

-------------------------------------------------------------------------------------------------

Lawyer for the Appellant: Blake Dawson Waldron
Lawyer for the Respondent: Taxation Office