Beamish and Commissioner Of State Revenue
[2007] WASAT 274
•18 OCTOBER 2007
BEAMISH and COMMISSIONER OF STATE REVENUE [2007] WASAT 274
| STATE ADMINISTRATIVE TRIBUNAL | Citation No: | [2007] WASAT 274 | |
| STAMP ACT 1921 (WA) | |||
| Case No: | CC:1087/2007 | 15 OCTOBER 2007 | |
| Coram: | JUDGE J CHANEY (DEPUTY PRESIDENT) | 18/10/07 | |
| 8 | Judgment Part: | 1 of 1 | |
| Result: | Assessment confirmed and application dismissed | ||
| B | |||
| PDF Version |
| Parties: | LINDA ANNE BEAMISH COMMISSIONER OF STATE REVENUE |
Catchwords: | Stamp duty Contract for sale of land Whether "eligible conditional contract" Whether "general conditional contract" Contract "subject to due diligence" Whether objective criteria set out in the contract |
Legislation: | Stamp Act 1921 (WA), s 8, s 17 Taxation Administration Act 2003 (WA), s 26 |
Case References: | Nil |
Orders | 1. The Commissioner for State Revenue's assessment is confirmed.,2. The application for review is dismissed. |
JURISDICTION : STATE ADMINISTRATIVE TRIBUNAL STREAM : COMMERCIAL & CIVIL ACT : STAMP ACT 1921 (WA) CITATION : BEAMISH and COMMISSIONER OF STATE REVENUE [2007] WASAT 274 MEMBER : JUDGE J CHANEY (DEPUTY PRESIDENT) HEARD : 15 OCTOBER 2007 DELIVERED : 18 OCTOBER 2007 FILE NO/S : CC 1087 of 2007 BETWEEN : LINDA ANNE BEAMISH
- Applicant
AND
COMMISSIONER OF STATE REVENUE
Respondent
Catchwords:
Stamp duty Contract for sale of land Whether "eligible conditional contract" Whether "general conditional contract" Contract "subject to due diligence" Whether objective criteria set out in the contract
Legislation:
Stamp Act 1921 (WA), s 8, s 17
Taxation Administration Act 2003 (WA), s 26
(Page 2)
Result:
Assessment confirmed and application dismissed
Category: B
Representation:
Counsel:
Applicant : Mr P Dwyer
Respondent : Mr P Lochore
Solicitors:
Applicant : Mendelawitz Morton Commercial Lawyers
Respondent : State Solicitor's Office
Case(s) referred to in decision(s):
Nil
(Page 3)
Summary of Tribunal's decision
1 Mrs Beamish sought review of a decision by the Commissioner of State Revenue to impose penalty tax for late lodgement of a contract for the sale and purchase of land. She argued that a condition that the contract was "subject to due diligence by 30 September 2006" meant that the contract was a "general conditional contract" as defined by the Stamp Act 1921 (WA), so that a later lodgement date was permitted under the Act. If so, the contract would have been lodged within the time required by the Act.
2 The Tribunal noted, that under the Stamp Act 1921 (WA) a due diligence condition only made a contract into "a general conditional contract" where the results of due diligence enquiries "are to be measured against objective criteria set out in the contract". In this case there were no objective criteria set out in the contract, and satisfaction of the condition was entirely a subjective decision for the purchaser.
3 Accordingly, the contract was not a "general conditional contract", and the application was dismissed.
The issues for determination
4 On 4 August 2006, the applicant entered into a contract to purchase a property located at 132 Victoria Avenue, Dalkeith for a consideration of $13,875,000 (the contract). The land comprised a house on a single residential lot. The contract was a standard form contract for the sale of land by offer and acceptance published by the Real Estate Institute of Western Australia (Inc). Several special conditions were noted on the contract. The conditions relevant for present purposes were special conditions 6, 7 and 8 which read as follows:
"(6) The seller agrees to sign all applications for works and/or subdivision that the buyer requests within 14 days of presentation.
(7) The seller agrees to allow connection of services to any part of the lot for the purposes of subdivision at the purchaser's cost.
(8) This offer is subject to due diligence by 30 September 2006."
(Page 4)
5 The contract was lodged for assessment of duty on 2 January 2007. On 8 January 2007, the Commissioner assessed duty at $742,950, and imposed a penalty for late lodgement pursuant to s 26 of the Taxation Administration Act 2003 (WA) but remitted all but $37,147 of the penalty, being 5% of the assessed duty. The penalty was remitted in accordance with cl 2.3 of Commissioner's Practice TAA 1.2, which provides that, if an instrument is lodged voluntarily, penalty tax will be remitted to 5% of the amount of duty if the instrument is lodged after one calendar month of the required lodgement date, but within four calendar months.
6 The applicant objected the assessment on the basis that the contract was both an eligible conditional contract as defined in s 6 of the Stamp Act1921 (WA) (Stamp Act) and a general conditional contract as defined in s 8(1)(l) with the consequence that it had been lodged within the requirements of the Act so that no penalty duty should have been imposed. The Commissioner dismissed the objection, and the applicant sought a review by the Tribunal.
7 The issue for determination is whether the contract is a general conditional contract for the purposes of s 8(1)(l).
Relevant Statutory Provisions
8 Section 17B of the Stamp Act requires that an instrument must be lodged with the Commissioner within two months after the date on which the instrument was first executed. If s 17B applies to the contract, then the last date for lodgement with the Commissioner was 3 October 2006. There are, however, specific provisions in the Act in relation to time for lodgement of certain types of conditional contract. In particular, s 17BA of the Stamp Act provides that if a "general conditional contract" does not become unconditional within one month of the date on which it was first executed, then it must be lodged within one month after the date on which the contract becomes unconditional, or within 12 months after the date on which the contract was first executed, whichever is earlier.
9 A "general conditional contract" is defined by s 8 of the Stamp Act. It is "an eligible conditional contract, completion of which is conditional on the happening of one or more" of certain specified events which are then enumerated in the section. One of those events, s 8(1)(l) is "the results of the making of due diligence enquiries by the purchaser where the results are to be measured against objective criteria set out in the contract."
(Page 5)
10 It is that provision which is relied upon by the applicant in this case for the assertion that the contract is a "general conditional contract".
11 To be a general conditional contract, a contract must be "an eligible conditional contract". "Eligible conditional contract" is defined in s 6(1) of the Stamp Act as follows:
"(1) An 'eligible conditional contract' is a contract for the sale of property where -
(a) completion of the contract is conditional on the happening of an event;
(b) the parties to the contract do not have control over the happening of the event, except to the extent that they are required under the contract to use their best endeavours to secure the happening of the event; and
(c) no other person who is related to a party to the contract has control over the happening of the events."
12 The applicant relied upon a statement of evidence of Mr Anthony Beamish, the applicant's husband, and a guarantor under the contract. He explained that, on initial inspection of the property, he and his wife saw potential to live in the existing house, and subdivide the remainder of the land, or alternatively to demolish the existing residence so as to produce a greater number of subdivided lots. Prior to entering into the contract, he had plans drawn up of different possible subdivision scenarios. The offer was then made and accepted, containing the provision that it was made "subject to due diligence by 30 September 2006". Mr Beamish said in his witness statement:
"If we were happy with the results of the due diligence enquiries within the time allowed for those enquiries then we would proceed with the contract.
If the results of the due diligence enquiries had been unfavourable, then we have the option of not proceeding with the contract at the end of the due diligence period."
(Page 6)
13 He did not identify the criteria that would be applied to determine whether the results of enquiries were favourable or unfavourable.
14 Mr Beamish undertook various enquiries to ascertain the possibilities for the land from the water and power authorities, the local government, and the Swan River Trust, which was a relevant decision-maker because the land abutted the Swan River. He also commissioned a valuation to compare the value of the property as a single lot with its potential value following subdivision.
15 The enquiries took some time, and in September 2006 an extension for completion of the due diligence enquiries was gained until 30 November 2006. On 30 November 2006, Mrs Beamish wrote to the vendor's real estate representative advising that she was satisfied "with our due diligence on the property" and advising that settlement would proceed. As things transpired, Mr and Mrs Beamish elected not to subdivide the property.
The applicant's contentions
16 The applicant contends that special condition 8 is sufficient by itself to satisfy the requirements of s 8(1)(l). She contends that it is a condition precedent to the buyer's performance. In written submissions, which were effectively repeated in oral submission, the applicant said:
"Had the results of the due diligence been unfavourable as far as the buyer was concerned, the buyer had the option of not proceeding with the purchase (see proof of evidence of Anthony John Beamish).
Further, this is the legal effect of the due diligence clause because, as a matter of law, a favourable outcome of the due diligence clause was a condition precedent to the buyer's performance of the contract.
It is submitted that the legal effect of this due diligence clause satisfies the requirement of s 8(1)(l) of the Stamp Act 1921 that there be objective criteria set out in the contract against which to measure the results of the due diligence enquiries."
17 When pressed at the hearing in relation to that submission, the applicant's counsel acknowledged that the criteria upon which the purchaser might be "satisfied" with the results of her enquiries were entirely a matter for her. While he acknowledged that the criteria for satisfaction were subjective, he submitted that the fulfilment of the condition was, at
(Page 7)
- the same time, objective. He argued that the objective criterion was the purchaser's satisfaction itself. He argued that a third party could ascertain whether or not the condition had been fulfilled by ascertaining whether the purchaser had notified her satisfaction with the enquiries to the vendor.
18 The applicant's argument does not bear analysis. Had s 8(1)(l) not contained the words "where the results are to be measured against objective criteria set out in the contract", then special condition 8 may have satisfied the requirements of a general conditional contract. However, the Stamp Act clearly requires that there must be objective criteria "set out in the contract." What is required is that a third party could identify whether or not the results of the due diligence enquiries satisfy the condition by reference to the results themselves, not to the purchaser's objective response to the results. In the present case, on the applicant's argument, she retained the discretion as to whether or not the condition was satisfied, regardless of the objective outcome of the enquiries.
19 The applicant also argued that the presence of the date by which the enquiries were to be completed also constituted an objective criteria. The date has, however, nothing to do with the measurement of the results of the making of the enquiries. The existence of the date by which the enquiries were to be complete does not satisfy the requirements of s 8(1)(l).
20 The applicant also relied upon the presence of special conditions 6 and 7 to give some content to special condition 8. She argued that those special conditions could only come into play if a decision to proceed with subdivision had been made, and thus it can be argued that special condition 8 must necessarily relate to satisfaction as to the potential of the land for subdivision. In my view, that argument takes matters no further. Special conditions 6 and 7 say nothing about the criteria which might lead to a decision by the purchaser to proceed with the purchase, or with subdivision. They merely impose obligations on the vendor which might come into play if, presumably as a result of satisfaction with the results of the enquiries made subject to the due diligence, the purchaser decided to proceed with subdivision. They add nothing to the lack of objective criteria by which the results of the enquiries need to be measured.
(Page 8)
21 It follows that, in my view, the contract clearly fails to meet the requirements of s 8(1)(l) of the Stamp Act, and the contract is not a "general conditional contract".
22 Although it is not necessary to go further, my view is that the contract is not a general condition contract for another reason, namely that it is not an "eligible conditional contract". That is because, to be an eligible conditional contract, the parties must not have control over the happening of the event upon which completion of the contract is conditional. The applicant's argument in these proceedings is that the satisfaction of the due diligence provision was entirely a matter for the purchaser in the light of her enquiries. It would seem that, regardless of the outcome of the enquiries, it was open to the purchaser to determine whether or not she was satisfied with those results. For that reason, the purchaser had control over the happening of the event, the event being the due diligence enquiries satisfying the purchaser. The requirement of s 6(1)(b) of the Stamp Act was not met.
23 Because the contract was not an eligible conditional contract, it was not capable of being a general conditional contract.
24 For those reasons, the application for review should be dismissed.
Orders
1. The Commissioner for State Revenue's assessment is confirmed.
2. The application for review is dismissed.
I certify that this and the preceding [24] paragraphs comprise the reasons for decision of the State Administrative Tribunal.
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JUDGE J CHANEY, DEPUTY PRESIDENT
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