Brambles, Hedgehogs and Foxes
RTF - 153 KBAustralasian Tax Teachers Association Conference, Melbourne
"The fox knows many things, but the hedgehog knows one big thing". Archilochus[1]
Karl Llewellyn used the metaphor of a bramble bush from a nursery rhyme for his introductory lectures to law students about the study of law.[2] A bramble bush, like the law, is a rough prickly shrub. In the nursery rhyme it was a wondrous wise man who scratched out both his eyes when he jumped into the bramble bush but had them scratched back in again by jumping into another one.[3] It is significant in the nursery rhyme that the man was wise but it is not clear whether he was wise before jumping into the bramble bush and losing his sight, or only when he jumped back in to regain it.
Llewellyn's metaphor was an important aspect of the message the jurist wished to give to his eager new young law students in his first lecture that it was worthless to study law as the study only of rules. He told his students in the first lecture:
We have discovered in our teaching of the law that general propositions are empty. We have discovered that students who come eager to learn the rules and who do learn them, and who learn nothing more, will take away the shell and not the substance. We have learned that rules alone, mere forms of words, are worthless.[4]
Llewellyn urged his law students to look not only at the rules but also at what they did. The Bramble Bush remains a useful metaphor to remind us of the complexity of law and of the need to immerse oneself in the complexity of the law to gain an understanding of what the rules do and of what they are meant to do. What is important about the academic study of law, and in turn the most significant contribution that tax academics can make to the study of tax jurisprudence, is to understand what the rules do in the workings of a complex society, and how they interact with differing interests.
Isaiah Berlin used another metaphor in an influential paper, when he took a line from an ancient Greek poet, that a fox knows many things, but a hedgehog knows one big thing, to divide thinkers between those who see things through a single central vision, one system, and those who pursue many ends, often unrelated and even contradictory, but related to no moral aesthetic principle.[5] Ronald Dworkin later used the same metaphor to argue that value is one big thing that unifies many things which appear in conflict.[6] The metaphor of hedgehogs and foxes is also useful to refer loosely to the different approaches judges and academics respectively bring to tax jurisprudence: the judge, the fox, compelled to pursue many things, often unrelated from each other and at times contradictory; the academic, the hedgehog, able to explore one big thing deeply with the purity of a unifying vision.
Metaphors should not be taken too far[7], but they can help to focus upon an important aspect of the relationship between the academy and the judiciary in the application and development of law; including tax law. A judge comes to an issue when it is presented for the first time in a case requiring an answer in a dispute between competing adversaries with an interest in a particular outcome, irrespective of the broader issues or considerations. The judge in that context may know many things, but may know nothing about the one big thing in the prickly shrubs that requires resolution. The academic, in contrast, who has thought about that one big thing, may not have focused upon the matter in dispute, but may have thought deeply about the issue, and will have done so independently of the parties. The value to the judge of what the academic can say about the issue is significant both before and after judicial decision. The judge can learn much from the academic about the consequences of different interpretations that may be available, and about how different interpretations may come to be applied. The analysis by academics of judicial decisions can help inform subsequent decisions and the development of policy.[8]
It may be useful to recall some of the basic differences between the academy and the judiciary, and of their common goals, to understand how much the latter benefits from the former. The work of the academic is important to that of a judge in many ways. It is the academic who gives the first, and often most deeply lasting, impression to those who become lawyers, including the judges, about the way they think about the law. Judges were law students once and in that capacity were deeply influenced about how they think of the law that they become called upon to apply. The judges of the future are amongst those who are being taught today and whose views are being formed today by those who teach them. Academics are those who also form the views of those who first apply the law before any dispute comes to the court for resolution by a judge. The application of the law is mostly not done by courts or judges, but by the teams of practitioners whose advice is sought and acted upon. They are the ones who are most likely to be applying the rules learnt from their teachers with the understanding that they gave to their students about what the rules do and are supposed to do. It is also the practitioners who appear in court on behalf of clients and who seek to persuade the judge for an outcome in line with the understanding of the rules they learned first from their teachers or read in their teachers' scholarly works.
An important aspect of the academic's contribution to jurisprudence, and to the development of future generations of lawyers, is in analysing the predictability of what judges will do when faced with a dispute. Predictability is one of the fundamental pillars of the law and was an important aspect of legal training that was touched upon by Llewellyn in his first lecture to his law students. In speaking about the role of lawyers advising business clients, Llewellyn explained that the lawyer was interested "in anticipating what the courts might do and in shaping [the] client's conduct to [the] client's desire in view of that anticipation".[9] Predictability is central to the application of the law and is central also to the importance of the dialogue between the academy and the courts.
The academy and the courts seek predictability by their common adherence to the judicial method of decision making. Both assume that correct outcomes can be achieved by recourse to objective criteria independently of the subjective will, or disposition, of the individual decision maker. Sir Owen Dixon described the judicial method to an American audience in 1955 as follows:
The Court would feel that the function it performed had lost its meaning and purpose, if there were no external standard of legal correctness. With us in Australia appeals are argued at length in open court and written briefs are not filed. The argument is dialectical and the judges engage in the discussion. At every point in the argument the existence is assumed of a body of ascertained principles or doctrines which both counsel and judges know or ought to know and there is a constant appeal to this body of knowledge. In the course of argument there is usually a resort to case law, for one purpose or another. It may be for an illustration. It may be because there is a decided case to which the Court will ascribe an imperative authority, if the Court has established by its practice a distinction between persuasive and imperative authority. But for the most part it is for the purpose of persuasion; persuasion as to the true principle or doctrine or the true application of principle or doctrine to the whole or part of the legal complex which is under discussion.[10]
Sir Owen's description is fundamentally true also of the process, expectations and assumptions that we have today. It mirrors the discipline of law taught by the academy and scholars who, like tax judges, have common recourse to pre‑existing, known and objective criteria to decide disputes and to articulate the law. In tax law we all have recourse to the provision of tax legislation enacted by parliament, and to the substantial existing jurisprudence around that legislation, to resolve disputes, to articulate the law and to develop legal principles. The provisions, and applicable jurisprudence, are to be understood and applied upon their own terms independently of the personal whim or subjective fancies of those who are to apply them.
There will, however, sometimes be a challenge to understanding those provisions and to giving them meaning enriched by learning and by mutual recourse to objective measures. Words in statutes are not mere words found in a dictionary and their meaning as used in legislation may need to be made clear[11]. The words are the legislature's means of conveying concepts which often have deep and complex meanings in disciplines which are unknown to the judge who must apply them. Those of us tasked to interpret the law, and those who affect and effect its judicial application, are typically not trained in accounting, economics, sociology, sciences, tax law, or even have much commercial experience. We are essentially lawyers who typically come to the interpretation and application of tax law without the depth of understanding that comes with the "hedgehog's" close analysis of the big thing which the words used in the legislation were intended to convey and which was no doubt thought be someone to have been conveyed. The lawyer's general approach, indeed, is that the terms of legislation should be understood by an ordinary reader and not by one who is versed in a special field of knowledge or discipline. There is, however, a tension when giving meaning to the words of a statute, and when articulating the law generally, between the policy expressed in the view that laws should be understood by an ordinary reader and the policy that the meaning of the laws is to be found in discerning the objectives to be achieved by the words used to achieve them.[12] The High Court has frequently observed that the task of statutory interpretation begins with, and must end with, the words in the statute,[13] without adoption of a preconceived view of what meaning the words may have been intended but had failed to express. In Federal Commissioner of Taxation v Unit Trend Services Pty Ltd (2013) 250 CLR 523 it was said in a joint judgment at [47]:
As French CJ, Hayne, Crennan, Bell and Gageler JJ said in Federal Commissioner of Taxation v Consolidated Media Holdings Ltd: "This Court has stated on many occasions that the task of statutory construction must begin with a consideration of the [statutory] text." Context and purpose are also important. In Certain Lloyd's Underwriters v Cross French CJ and Hayne J said:
"The context and purpose of a provision are important to its proper construction because, as the plurality said in Project Blue Sky Inc v Australian Broadcasting Authority, '[t]he primary object of statutory construction is to construe the relevant provision so that it is consistent with the language and purpose of all the provisions of the statute' … That is, statutory construction requires deciding what is the legal meaning of the relevant provision 'by reference to the language of the instrument viewed as a whole', and 'the context, the general purpose and policy of a provision and its consistency and fairness are surer guides to its meaning than the logic with which it is constructed'." (emphasis of French CJ and Hayne J)
(Footnotes omitted).
However, the task of understanding the objectives achieved by the words adopted in legislation is undertaken by judges looking at the words and in doing so they may have insufficient understanding of the broader context within which those words had a meaning to those who gave them expression in legislation.
The depth of knowledge an academic can bring to resolving ambiguities in legislation can be significant. There is much ambiguity in language[14] and the language used in tax law is no exception. Ambiguity can arise in many ways. It may be in grammatical or verbal text, but it can "extend to circumstances in which the intention of the legislature is for whatever reason, doubtful".[15] Principle based drafting, conferral of taxing powers by unconfined and open discretions, or by taxing provisions requiring determinations of what is relevant to the case, are all occasions in tax law which may contain ambiguity that may require consideration of text and context for resolution. The text and context of the legislation must be where the judge starts and ends in construing legislation, but context is to be understood "in its widest sense to include such things as the existing state of the law and the mischief which, by legitimate means […], one may discern the statute was intended to remedy".[16] The relevance of the mischief in statutory interpretation has a long history. In Heydon's Case[17] it had been said in 1584:
…for the sure and true interpretation of all statutes in general (be they penal or beneficial, restrictive or enlarging of the common law), four things are to be discerned and considered: First. What was the common law before the making of the Act. Second. What was the mischief or defect for which the common law did not provide. Third. What remedy the parliament hath resolved and appointed to cure the disease … Fourth. The true reason of the remedy; and then the office of all the judges is always to make such consideration as shall supress the mischief, and advance the remedy, and to suppress subtle inventions and evasions for continuance of the mischief, and pro privato commodo, and to add force and life to the cure and remedy, according to the true intent of the makers of the Act, pro bono publico.[18]
Judge Richard Posner, writing about Justice Cardozo, observed that law "ought to be guided by consideration of the effects of its decisions, rules, doctrines, and institutions on social welfare"[19] and in those effects should be found the mischief to which the laws were directed. The Acts Interpretation Act 1901 (Cth)[20] expressly requires that preference be given to that interpretation of legislation that best achieves the purpose or object of the Act, whether or not that purpose or object is expressly stated, and in doing so reference may be had to certain extrinsic material.[21] It is perhaps in the task of exploring and explaining context that the academic can be most useful to the judge and to the development of the law, because the academic, as hedgehog, can give valuable insight into the context in which legislative expressions are found and in which they need to be applied. The knowledge which the judge, unaided, will bring to the task of discerning the purpose and object of a provision is likely to be less fully informed than that of the academic. And that seems to be increasingly the case as the need increases for tax provisions to give effect to, and therefore to be interpreted as informed by, broader conceptions of business and economics than mere application of rules.
It has been a fundamental tenant of Australian tax law that it depends upon legal conceptions rather than upon accounting concepts, but increasingly tax legislation is informed by, and depends upon, an understanding of economics, commerce and perhaps other social disciplines. That, perhaps, was always implicit to a degree in a system of taxation that was based fundamentally upon the accountant's concept of periodical accounts of income and outgoings: the debits and credits of accounts. The jurisprudence that developed around what was "derived"[22] on the credit side, and what had been "incurred"[23] on the debit side, depended, however, ultimately upon legal conceptions rather than conceptions of business or economic equivalence. The difference between the approach taken by lawyers and accountants frequently matters because different fiscal consequences may flow from the legal form adopted to achieve economic outcomes. A contract, for example, to pay an amount can, depending on the legal form, be either a tax deductible interest payment or an after tax distribution of a share of profit.[24] A fee paid in connection with the ability to conduct a business may be a non‑deductible part of the price for the advantage enjoyed[25] or a deductible outgoing on revenue account.[26] The provision of funds in the books of account for a certain future outgoing may be treated as relevant by accountants to reflect the current year profit but is not allowed as a deduction until actually paid.[27]
The judge faced with the need to resolve disputes may be urged to allow form to govern the outcome, but mere analysis of form will not always provide a meaningful basis for decision because the same economic objective may sometimes be obtained through different forms of transactions with different fiscal consequences. A gain from an advance of money, for example, can be achieved by a requirement to pay interest on the amount obtained or by a requirement to pay at a later date a larger amount than was first obtained. In the first case the interest will be on revenue account, and will generally be taxable, but in the second case, the obligation to repay a higher amount than was obtained may give the same economic outcome as if interest had been paid but the obligation to pay a larger amount is not, in form, an obligation to pay interest. In Lomax v Peter Dixon and Son Ltd[28] Lord Greene MR observed:
In many cases, however, mere interpretation of the contract leads nowhere. If A lends B £100 on the terms that B will pay him £110 at the expiration of 2 years, interpretation of the contract tells us that B's obligation is to make this payment. It tells us nothing more.[29]
The £10 difference in the payment could be an accretion to capital or something in the nature of interest.[30] The defeasance of a debt may be an assessable gain or the cancellation of an obligation that had not yet arisen for discharge.[31] Whatever may be the correct fiscal answer in those situations, it is likely that there will be a need for consideration of matters more broadly than mere form or, even textual analysis, that may potentially be relevant to understanding the purpose and object of the provisions. The debt/equity classification rules is another attempt amongst many by the legislature to give effect by law to economic concepts.[32] The transfer pricing provisions enacted in 2012 contemplates taking into account OECD guidelines.[33] The more recently enacted diverted profits tax, with the corresponding additions to Part IVA,[34] also contemplates taking into account OECD guidelines to determine liability for Australian domestic tax.
Tax has no shortage of eminent Australian tax academics, and no shortage of a need for scholarly assistance for the judge.[35] Academics should not be reluctant to analyse and, if need be, to criticise, in the sense of analyse, evaluate and explain, judicial decisions if they go astray. There have been notable writings by academics in the past directed to causing judges, on the highest courts, to sit up and to pay attention. In the field of criminal law, Professor Glanville Williams chided the reasoning of the majority of the House of Lords in DPP v Stonehouse[36] in which the House of Lords had upheld the jurisdiction of a court over a criminal attempt which had been committed abroad. In a case note covering barely two pages Professor Williams rebuked the Court's reasoning on both main questions in the case.[37] The jurisdictional issue as answered by the majority was described by Professor Williams as being on a "faltering ground" after which the Professor said:
If our law is to have any pretentions to be a rational system, this will not do at all.[38]
The other main point in the case was said by the Professor to have been given an "even more unsatisfactory" answer.[39] The criticism, although pointed, gave reasons and explanations. It was a case note speaking directly to the judges in clear language for their attention. The purpose was not to provide a lengthy summary of an important case for readers who were not willing to read the full text of the decision, or even to read the headnote commonly found in published reports. The case note was, rather, written to explain to an audience including, if not especially, judges, why and how a leading academic thought that the highest court of England had made a mistake.[40]
There has been perhaps, however, in recent years, a tendency for academics, and perhaps for tax academics in particular, not to write for judicial consumption. Judge Posner wrote in 2016 that the paths of academics and judges have been increasingly diverging.[41] That may in part be because tax academics may not be writing with judges in mind as their audience. Richard Posner was critical of the usefulness to the judge of recent academic commentary saying:
The fundamental problem of academic commentary on the judiciary today is that academics are not judges and judges are not academics and that the gulf between these two branches of the legal profession have widened to a point at which academics (not all of course, and not always) write for each other on the issue that happened to interest the academic community and judges rightly feel that they're not part of the academic's intended audience.[42]
The same may be true of much writing by tax academics which may be more directed as description for a wider audience than analysis for the judicial consumer who could be influenced in the direction the law should take or in the resolution of ambiguities or uncertainties. There is, no doubt, an important role for description of the rules which at times appear bewildering in tax law. [43] Description alone may sometimes be a welcome sight producing clarity in what may otherwise appear as a jumble of words making little sense. But it is important also for there to be analysis of what the rules should be and of what they do. The academic is uniquely placed to make a meaningful contribution to the judicial application and development of the law by writing which is directed to the judge who may be looking to understand what the rules do and how they are supposed to do it. The same may be said about academic commentary on judicial decisions. It may, of course, be useful to have a clearer, or shorter, statement of what the court decided, than may be found in a published judgment; but there is also an important dialogue that may be had between the academy and the judiciary about what the judgment may mean or what the decision should have been and why.
It is likely that the need for tax academics to provide assistance to judges will be with us for some time. The legal academy is an important branch of the legal profession, and a frequently overlooked, but integral, part of the administration of justice. There are many more hedgehogs in the brambles of academia than in the brambles of the courts. The views of the academics are independent, informed and therefore important, and can be very influential in the law's development.[44]
* B.A. Dip. Ed., LL.B., (Monash), LL.M. (Cantab), LL.D. (Melb). Judge of the Federal Court of Australia; Professorial Fellow, Law School, University of Melbourne. The author thanks Professor David Fox, then a fellow of St John’s College, and Herbert Smith Freehills to make possible preparing of this lecture as a Herbert Smith visitor to Cambridge University during July 2017.
[1] Isaiah Berlin, The Hedgehog and the Fox: An Essay on Tolstoy's View of History (London, Weidenfeld and Nicolson, 1953), 3
[2] K.N. Llewellyn, Bramble Bush-Some Lectures on Law and Its Study, (New York: Columbia University of School of Law, 1930).
[3] There was a man in our town,
And he was wondrous wise:
He jumped into a bramble-bush,
And scratched out both his eyes -
And when he saw his eyes were out,
With all his might and main
He jumped into another bush
And scratched them in again.
[4] K.N. Llewellyn, Bramble Bush-Some Lectures on Law and Its Study, (New York: Columbia University of School of Law, 1930), 12.
[5] Isaiah Berlin, The Hedgehog and the Fox: An Essay on Tolstoy's View of History (London, Weidenfeld and Nicolson, 1953), 3
[6] Ronald Dworkin, Justice for Hedgehogs (Harvard University Press, 2011).
[7] See Berkey v Third Avenue Railway Co 155 NE 58 (1926), 61: metaphors "are to be narrowly watched, for starting as devices to liberate thought, they end often by enslaving it".
[8] Michael D'Ascenzo "Academia as an Influencer of Tax Policy and Tax Administration", 8th Queensland Tax Researchers Symposium, Brisbane, 3 July 2017.
[9] K.N. Llewellyn, Bramble Bush-Some Lectures on Law and Its Study, (New York: Columbia University of School of Law, 1930), 14-15.
[10] Sir Owen Dixon, Jesting Pilate, Law Book Co, (1965), 155-6.
[11] See MLC Limited v Federal Commissioner of Taxation (2002) 126 FCR 37, [31]: "…the task of construction is not one simply of taking each word used in a statute and applying the dictionary meaning of that word to arrive at a conclusion".
[12] See Commissioner of Taxation v Jayasinghe (2016) 247 FCR 40, [3]-[11].
[13] Alcan (NT) Alumina Pty Ltd v Commissioner of Territory Revenue (2009) 239 CLR 27, [47]; Thiess v Collector of Customs (2014) 250 CLR 664, [22].
[14] Roland Barthes, Criticism and Text (Continuum, 2007), 25-28; Umberto Eco, The Limits of Interpretation (Indiana University Press, 1990).
[15] Repatriation Commission v Vietnam Veterans' Association of Australia New South Wales Branch Inc (2000) 48 NSWLR 548, 577-78.
[16] CIC Insurance Ltd v Bankstown Football Club Limited (1997) 187 CLR 384, 408.
[17] (1584) 3 CoRep7; 76 ER 637.
[18] 76 ER 637, 638.
[19] Richard A. Posner, Cardozo: A Study in Reputation (University of Chicago Press, 1990), 36.
[20] Acts Interpretation Act 1901 (Cth), s 15AA.
[21] Acts Interpretation Act 1901 (Cth), s 15AB.
[22] Commissioner of Taxes (SA) v Executor Trustee and Agency Company of South Australia Ltd (1938) 63 CLR 108, 154-6; see also News Australia Holdings Pty Ltd v Commissioner of Taxation [2017] FCA 645.
[23] Hallstroms Pty Ltd v Federal Commissioner of Taxation (1946) 72 CLR 634, 646; see also Sharpcan Pty Ltd v Commissioner of Taxation (Administrative Appeals Tribunal, No. 2016/5781, 14 December 2017).
[24] See, for example, Macquarie Finance Ltd v Federal Commissioner of Taxation (2004) 210 ALR 501 (First Instance); (2005) 146 FCR 77 (Full Court).
[25] United Energy Limited v Commissioner of Taxation (1997) 78 FCR 169.
[26] Federal Commissioner of Taxation v Citylink Melbourne Limited (2006) 228 CLR 1; Cliffs International Inc v Commissioner of Taxation (1979) 142 CLR 140.
[27] Nilsen Development Laboratories Pty Ltd v Federal Commissioner of Taxation (1981) 144 CLR 616.
[28] [1943] KB 671.
[29] Ibid at 675
[30] See Coles Myer Finance Limited v Federal Commissioner of Taxation (1993) 176 CLR 640.
[31] See Federal Commissioner of Taxation v Unilever Australia Securities Ltd (1995) 56 FCR 152; Federal Commissioner of Taxation v Orica (1998) 194 CLR 500.
[32] Income Tax Assessment Act 1997 (Cth), Division 974.
[33] Income Tax Assessment Act 1997 (Cth), Division 815; see also Chevron Australia Holdings Limited v Commissioner of Taxation (2017) 345 ALR 570.
[34] Diverted Profits Tax Act 2017 (Cth); Income Tax Assessment Act 1936 (Cth), s 177A to s 177R.
[35] An interesting account of the development of legal academia in the United States may be found in Anders Walker "Bramble Bush Revisited: Llewellyn, The Great Depression and the First Law School Crisis, 1929-1939", 64 (2014) Journal of Legal Education 145.
[36] [1978] AC 55.
[37] Glanville Williams, Case Note, [1977] Cambridge Law Journal 226.
[38] Ibid, 226.
[39] Ibid, 226.
[40] See also Glanville Williams "Recklessness Redefined" [1981] Cambridge Law Journal 252; Glanville Williams "Criminal Law – The Mental Element in Murder" [1974] Cambridge Law Journal 200.
[41] See R. Posner, Divergent Paths, (Harvard University Press, 2016).
[42] R Posner Divergent Paths (Harvard University Press, 2016), 278.
[43] See Quadric Pty Ltd v Commissioner of Pay-Roll Tax (1992) 24 ATR 1159; Kivelos Nominees Pty Ltd v Commissioner of State Revenue (1997) 37 ATR 1025.
[44] See Michael D'Ascenzo "Academia as an Influencer of Tax Policy and Tax Administration", 8th Queensland Tax Researchers Symposium, Brisbane, 3 July 2017.
