Chief Commissioner of State Revenue v Scarfo (Rd)

[2011] NSWADTAP 57

Administrative Decisions Tribunal

New South Wales

Medium Neutral Citation:	Chief Commissioner of State Revenue v Scarfo (RD) [2011] NSWADTAP 57
Hearing dates:	5 August 2011
Decision date:	06 December 2011
Jurisdiction:	Appeal Panel - Internal
Before:	J Needham, Deputy President M Hole, Judicial Member C Bennett, Non-Judicial Member
Decision:	Appeal allowed
Catchwords:	Appeal - Duties Act - "in conformity with the contract" - meaning.
Legislation Cited:	Duties Act 1997 Interpretation Act 1987
Cases Cited:	Scarfo v Chief Commissioner of State Revenue [2010] NSWADT 288 Lake Victoria Ltd v. Commissioner of Stamp Duties (1949) 49 SR 262 Vickery v. Woods (1952) 85 CLR 330 Cooper Brookes (Wollongong) Pty Ltd v. FCT (1981) 147 CLR 297 Project Blue Sky Inc v. Australian Broadcasting Authority (1998) 194 CLR 355 Sharpe v. Chief Commissioner of State Revenue [2002] NSWADT 6 Trust Company of Australia Ltd v. Commissioner of State Revenue (2003) 77 ALJR 1010 Gardiner v. Heading [1928] 2 KB 284 Breen v. Williams (1996) 186 CLR 71 Seeley v. Mercantile Bank of Australia (1892) 18 VLR 485
Texts Cited:	Jacobs Law of Trusts (7th ed)
Category:	Principal judgment
Parties:	Chief Commissioner of State Revenue (Appellant) Sam Scarfo (Respondent)
Representation:	Counsel I Mescher, T Stack (Appellant) T Thawley (Respondent) Crown Solicitor for NSW (Appellant), Nescis, Solicitors (Respondent).
File Number(s):	109068
Decision under appeal	Citation: Scarfo v Chief Commissioner of State Revenue [2010] NSWADT 288 Date of Decision: 2010-11-22 00:00:00 Before: Revenue Division File Number(s): 106051

REASONS FOR DECISION

1. J. Needham, Deputy President; M. Hole, Judicial Member; C. Bennett, Non-Judicial Member:- This is an appeal from a decision from Mr J. Block, Judicial Member, on 22 November 2010 in Scarfo v. Chief Commissioner of State Revenue [2010] NSWADT 288. The Appellant, the Chief Commissioner of State Revenue, appeals on questions of law as set out in the Notice of Appeal. While the Commissioner sought leave to extend the appeal to the merits of the decision below, that application was not pressed on the Commissioner's decision and accordingly the appeal proceeded on questions of law alone.

The facts

1. The facts were not in contest on appeal. They were agreed before the learned Tribunal member. Accordingly, we set them out as they appeared in the decision below at paragraph [2]:-

1. On 24 November 2009, Stephen Charles Stone attended an auction of a property at 20 Fletcher Street, Bondi for and on behalf of Mr Sam Scarfo [the respondent in this appeal ] .

2. After successfully bidding at the auction, Stephen Charles Stone executed a Contract for Sale of Land in respect of the property. The vendors were Laura Gomez and Monica De Silva ("the Vendors"). The purchase price was $1,333,700.00.

3. Mr Stone paid the 5% deposit (namely $66,685) under the Contract. He was reimbursed that amount as follows:

(a) as to $64,600 by electronic funds transfer on 27 November 2009 from an account in the name of Scarfo Investments Pty Limited, (see Bank Statement annexed and marked "A", a company associated with the Applicant (see company search annexed and marked "B"), and

(b) as to the remainder, by way of cash from the Applicant to Mr Stone on 27 November 2009.

4. On 22 January 2010, Mr Stone executed a direction to the Vendors to prepare the Transfer in the name of the Applicant and executed a Statutory Declaration in which he indicated that he attended the auction for and on behalf of Mr Sam Scarfo.

5. On 16 February 2010:

(a) the Contract for the Sale of Land was stamped and duty was paid in the amount of $58,843.50;

(b) the Transfer was stamped under Section 18(3) of the Duties Act 1997 and stamp duty on the Transfer was paid in the sum of $10.00; and

(c) the sale of the property settled.

6. On 23 February 2010, the Office of State Revenue advised that an audit was being conducted. The solicitors for the Applicant provided requested information on the same day.

7. On 25 February 2010, the Chief Commissioner wrote to the Applicant's solicitors and advised them that the Transfer did not fall within Section 18(3) of the Duties Act and issued the assessment the subject of this application, in the name of the Applicant requiring the payment of $58,843.50.

8. On 20 April 2010, the Applicant's solicitors lodged an objection to the assessment on behalf of the Applicant.

9. On 1 June 2010, the Chief Commissioner disallowed the Applicant's objection.

10. On 16 July 2010, the Applicant filed the Application for Review seeking a review of the Chief Commissioner's decision to assess him as being liable for payment of duty with respect to the Transfer.

[ italics added ].

The decision

1. The issue determined by the learned Tribunal member, from which this appeal was taken, was whether s 18(2) of the Duties Act applied to the transfer, and whether the transfer was made "in conformity with the contract for sale" or not. The learned Tribunal member found that the transfer was indeed in conformity with the contract for sale, and that for that reason, the transfer was made in favour of an undisclosed principal and by reason of s 18(2) the duty was a minimal one.

1. Those questions arose out of the interpretation by the learned Tribunal member of the provisions of s 18 of the Duties Act . That section provides (relevantly):-

18. No double duty

1) If a dutiable transaction is effected by more than one instrument, one instrument is to be stamped with the duty payable on the dutiable transaction and each other instrument is chargeable with duty of $50.

Note. Instrument includes a written statement.

2)The duty chargeable in respect of a transfer of dutiable property made in conformity with an agreement for the sale or transfer of the dutiable property is $10 if the duty chargeable in respect of the agreement has been paid.

3)The duty chargeable in respect of a transfer of dutiable property that is not made in conformity with an agreement for the sale or transfer of the dutiable property is $10 if:-

a)the duty chargeable in respect of the agreement has been paid, and

b) the transfer would be in conformity with the agreement if the transferee was the purchaser under the agreement, and

c) the transfer occurs at the same time as, or proximately with, the completion or settlement of the agreement, and

d) at the time the agreement was entered into, and at the completion or settlement of the agreement:

i) the purchaser under the agreement and the transferee under the transfer are related persons, except as provided by subparagraph (ii), or

ii) if the purchaser purchased as a trustee, the transferee and the beneficiary are related persons.

...

1. The learned Tribunal member found that Mr Stone "was acting as agent of an undisclosed principal" (par [11]). The approach taken by the learned Tribunal member was that:-

a) the contract and the transfer were each subject to duty, unless they come within the exempting provisions of s 18;

b) the applicant's submission that the transaction was in fact a single transaction encapsulated in more than one document, and thus exempted by reason of s 18(1) failed, due to the finding in (a) above (see par [20]);

c) the exemptions in subs-s 18(3) did not apply as the applicant and Mr Stone were not "related persons" as defined in the Duties Act (see par [24]);

d) the provisions of s 18(2) did apply to exempt "double duty" on the contract and the transfer, because the transfer was, in the light of the decisions of Lake Victoria Ltd v. Commissioner of Stamp Duties (1949) 49 SR 262 and Vickery v. Woods (1952) 85 CLR 330 when read in the light of the principles of statutory interpretation outlined in Cooper Brookes (Wollongong) Pty Ltd v. FCT (1981) 147 CLR 297 and Project Blue Sky Inc v. Australian Broadcasting Authority (1998) 194 CLR 355, "in conformity with" the contract;

e) accordingly, the applicant was entitled to succeed in that the application of an exemption pursuant to s 18(2) of the Duties Act was the "correct and preferable decision" (see par [34]).

1. In summing up, the learned Tribunal member said:-

"It is my opinion that the law as to an agent for an undisclosed principal is such that the undisclosed principal is in fact in this particular situation the purchaser, and so that a transfer to the undisclosed principal does comply with s 18(2). In summary then my finding is that the Applicant does not succeed under either of s 18(1) or s 18(3) but he does succeed under s 18(2). (see par [37]).

The appellant's grounds of appeal

1. The appellant rested his submissions on the decision in Lake Victoria Ltd v. Commissioner of Stamp Duties and the meaning of the statutory phrase "in conformity with an agreement". It was submitted that there were two methods by which s 18(2) enabled exemption under the Act: firstly, that the transfer is made to the purchaser under the agreement (which was referred to as "Limb 1 of Lake Victoria") or, secondly, if the contract provides that the transfer is to be made not to the purchaser under the agreement, but to some other person, and is in fact made to that other person ("Limb 2 of Lake Victoria").

1. It was submitted that the learned Tribunal member erred in finding that, despite the fact that the respondent was not identified or disclosed in the contract, the statutory intent of s 18 was to prevent "double duty" and so a transfer to him as an undisclosed agent fulfilled the requirements of Limb 2 of Lake Victoria. It was submitted that this approach was consistent, not only with the decision in Lake Victoria itself, but also inter alia with:-

a) the Full Court of the Supreme Court of NSW in Vickery v. the Commissioner of Stamp Duties (1951) 51 SR (NSW) 79 at 84;

b) Sharpe v. Chief Commissioner of State Revenue [2002] NSWADT 6 at [28] and [29];

c) various decisions of VCAT; and

d) the majority of the High Court in Trust Company of Australia Ltd v. Commissioner of State Revenue (2003) 77 ALJR 1010

1. It was submitted that should an undisclosed purchaser be entitled to an exemption under s 18(2), it would leave little, or no, work for s 18(3) to do. In addition, s 18(3) assumes that if a transferee is not the purchaser identified in the agreement, then the transfer is not "in conformity with the agreement".

1. The appellant submitted that the "undisclosed principal" application to s 18(2) opened the door to fraudulent uses of the "no double duty" provisions, by as assertion, after the fact, that an unrelated third-party was in fact an undisclosed principal and should be entitled to the duty exemption, when in fact the transaction was an on-sale of property which would otherwise be the subject of duty.

1. The appellant's submissions were in effect a short point; that the learned Tribunal member erred in finding that the words "in conformity with" had a wider meaning than a person identified or named on the face of the contract. The law of undisclosed principal, it was submitted, was irrelevant for the proper construction of the words "in conformity with" the contract. The error, it was submitted, occurred in paragraphs [12] to [15] of the below decision.

1. Further it was submitted that the learned Tribunal member erred in paragraphs [30] and [33] in construing the words "in conformity with" by reference to the heading, which reads "No double duty". While the heading is part of the Act (see s 35(1)(a) of the Interpretation Act 1987) the provision is not, it was submitted, a "general exempting provision from the imposition of duty" which would necessitate a wide interpretation.

The respondent's submissions

1. The respondent, in his Amended Notice of Reply to Appeal, asserted that there was no error in the interpretation of s 18(2), and said by way of an informal Notice of Contention that if he were wrong in that assertion, then there was an error in excluding the operation of s 18(3).

1. The respondent submitted that:-

a) the learned Tribunal member correctly interpreted the relevant sub-section by reference to its statutory purposes, that being the avoidance of imposition of double duty, and in order to do that did not need to have recourse only to the heading of the section. The use he made of the section was consistent with that of the late Justice Hill, who wrote, in the commentary to s 18:-

"Section 18 of Ch 2 expresses the fundamental policy of the legislation that, in respect of any particular dutiable transaction to which the Chapter relates, duty will be payable once and once only".

the transfer was in conformity with the agreement for sale, because the contract for sale was one between the vendors and Mr Scarfo - see Gardiner v. Heading [1928] 2 KB 284 at 290, on the basis of an undisclosed principal being a party to a contract between the principal and the vendor (in this case). The contract was in conformity with the agreement between the parties, on which duty had been paid; accordingly, the correct amount of duty payable was $10 on the transfer.

b) the appellant's reading of an identified or identifiable transferee was a gloss on the words of the statute; the statute itself contains no such requirement.

1. In relation to s 18(3), the respondent submitted that each of paragraphs (a) to (d) of that subsection are satisfied, on the basis of the definition of "related person" in the Dictionary to the Duties Act . That definition provides:-

related person means a person who is related to another person in accordance with any of the following provisions:

(a) natural persons are related persons if:

(i) one is the spouse or de facto partner of the other, or

(ii) the relationship between them is that of parent and child, brothers, sisters, or brother and sister,

(b) companies are related persons if they are related bodies corporate,

(c) a natural person and a private company are related persons if the natural person is a majority shareholder or director of the company or of another private company that is a related body corporate,

(d) a natural person and a trustee are related persons if the natural person is a beneficiary of the trust (not being a public unit trust scheme) of which the trustee is a trustee,

(e) a private company and a trustee are related persons if the company, or a majority shareholder or director of the company, is a beneficiary of the trust (not being a public unit trust scheme) of which the trustee is a trustee.

1. The respondent submitted that Mr Stone, the agent and Mr Scarfo, the respondent, were "related persons" by reason of the fiduciary duties Mr Stone, as an agent, owed to Mr Scarfo, his agent (see Breen v. Williams (1996) 186 CLR 71 at 82.2). Accordingly, Mr Stone held his interest as purchaser on trust for his principal, and thus, at the time the agreement was entered into, Mr Stone and Mr Scarfo were "related persons". The respondent concedes that Mr Stone "did not purchase "as a trustee". Thus, by way of example only, he did not purchase as a trustee of a resulting trust". The respondent relied on s 18(3)(d)(i) and not sub-paragraph (ii).

1. The respondent based this submission partly on what is submitted to be an obvious absurdity; that if Mr Scarfo's company had been the transferee, double duty would not be levied under s 18(3).

1. Finally the respondent submitted that as the object of the legislation was to avoid double taxation, the construction put forward by the Commissioner is contrary to that purpose and results in, rather than avoids, double duty.

The appellant's reply

1. The appellant submitted that it was clear that the definition of "related person" did not apply to the current fact situation and that the reasoning of the learned Tribunal member in paragraphs [21] to [23] of the decision were correct.

Consideration and conclusion

1. It seems to us that the decision of Lake Victoria Ltd v. Commissioner of Stamp Duties is one-half of the key to this appeal. The section under consideration by the Full Court of the Supreme Court of New South Wales (Jordan CJ, Street and Maxwell JJ) was the predecessor to s 18(2) and used the words "in conformity with the agreement". In that case, the parties agreed that the vendor would sell to the purchaser "or his nominee or nominees (all of whom are hereinafter included in the designation "the purchaser")".

1. In Lake Victoria it was held in that circumstances of a nomination of a person to take a transfer of the property, the conveyance was not "in conformity with the contract" and subsequently was liable to be charged with stamp duty on an ad valorem, rather than a nominal, basis.

1. The Full Court said (at 265):-

"If the vendor conveys by direction to any person other than the original purchaser the conveyance must set forth the consideration for any agreement leading to the conveyance and shall be liable to additional duty equal to the ad valorem duty on the conveyance ... Thus, if the contract provides for a conveyance to the purchaser, or not to the purchaser but to some other person, and ad valorem duty is paid, a conveyance to the purchaser or the person is not chargeable with ad valorem duty. But there is nothing in [the relevant sub-section] to exempt from full ad valorem duty an agreement for sale to a sub-purchaser or an agreement between the purchaser and a third party leading to a conveyance by the vendor to the third party at the purchaser's direction. A conveyance is not made in conformity with the agreement unless it is made to the purchaser, or if the agreement provides that it is to be made not to the purchaser but to some other person, to that other person."

1. The Full Court went on to say (later on p 265) that:-

"The present is not a case of an agent contracting to buy on behalf of an undisclosed principal who wishes to conceal the fact that he is in the market lest it should lead to a demand for an exorbitant price. It is unnecessary to consider what the position would be if, in such a case, the Commissioner sought to obtain ad valorem duty not only on the contract with the agent, but also on the conveyance to his principal".

1. The respondent, naturally, put the excision of the "undisclosed principal" from the Lake Victoria factual situation very strongly. The appellant met that with the decision in Vickery v. Woods , a decision of the High Court of Australia on appeal from the Supreme Court of New South Wales, a case in which the facts were more similar to those of the present case.

1. In Vickery , the appellant purchased property purporting to act as agent for a company. The company had not been incorporated, and did not come into existence until two months after the contract. Dixon CJ, at 343, noted that the noting of the purchase as being "for Gunbar Pastoral Co" was sufficient to "indicate that the company is the intended transferee of the land". Vickery is authority for the fact that a proposed transferee identified on the contract results in a transfer "in conformity with the contract". At 343 Dixon CJ noted that in making the remarks set out in paragraph 22 above, "Clearly enough Jordan CJ was here speaking of a person identified in the contract as opposed to any nominee, but I am not inclined to think that it makes any difference if the identifiable person is a contemplated company yet to be clothed with legal personality".

1. That the cases of Lake Victoria and Vickery are authority for the proposition that for a transfer to be "in conformity" with the contract, the transferee must be a person identified in the agreement as the transferee, was accepted by Judicial Member Seve in Sharpe v. Commissioner for State Revenue (supra), at paragraphs [27] to [29].

1. It seems to us that the doctrine of undisclosed principal, and the contractual issues that arise from that relationship, do not assist the respondent in the way determined by the learned Tribunal member. The question of enforceability of the contract between them is one thing; the question of whether a transfer to a person unnamed and unidentified in the contract is quite another. The words "in conformity with" must be given their natural meaning, and where there are cases binding on this Appeal Panel which indicate that the transferee must be identified in the contract for the transfer to be in conformity with it, an inquiry into the contractual relationship between purchaser and transferee does not assist.

1. It is clear that the purposive approach of statutory construction does indeed require a statute to be interpreted with the purpose of Parliament in enacting it firmly at the forefront of the inquiry. However, the respondent seeks to have the words "no double duty" in the heading give to the words "in conformity with the contract" a much wider meaning than they would otherwise have. There is a perfectly sensible view that a transfer to a third party, unrelated on the face of the contractual relationship to the purchaser, is indeed a transfer to an unrelated third party and thus no "double" duty has been paid at all. On the face of the contractual documents, the transfer is a different transaction, and not in conformity with the contractual provisions between the vendor and purchaser.

1. We are of the view that s 18(2) does not exempt the transfer from duty.

1. As we have reached that view, we need to consider whether the learned Tribunal member erred in his construction of s 18(3). We do not consider that he did. The parties clearly did not fall within any of the Dictionary definitions in (a), (b), (c), or (e). That leaves definition (d), "a natural person and a trustee are related persons if the natural person is a beneficiary of the trust (not being a public unit trust scheme) of which the trustee is a trustee".

1. It is conceded that Mr Stone did not "purchase as a trustee", but noted that the operation of the law of undisclosed principal imposes fiduciary duties upon the agent. The respondent's submissions that an agent is necessarily a trustee were founded upon Seeley v. Mercantile Bank of Australia (1892) 18 VLR 485, and that case was cited as support for the proposition that a trustee receiving money as agent for a principal holds that money in trust and the normal indicia of trust relationships apply.

1. The learned authors of Jacobs Law of Trusts (7 th ed) note, in chapter 2 entitled "The Distinction between a Trust and certain other Legal Institutions" that "there has now developed a recognisable distinction between [the notions of trust and agency]" (par [210]). One of the significant differences is that, while the agent owes fiduciary duties to the principal, the agent usually only has the possession of property and not the title". Here, of course, the agent (Mr Stone) did not have title to the property; he merely had a contractual right to have the property transferred to him. Nor is there any evidence of any indicia of trust; for example, any intention to create a trust, or of the terms of the alleged trust.

1. Given the way that the matter below proceeded on the basis of agreed facts, and those facts did not include any matter which took the factual matrix beyond mere agency, there is nothing to point the Appeal Panel towards an affirmative finding of trust which would bring the purchaser and the transferee into the relationship of trustee and beneficiary.

1. Accordingly, the appeal is allowed.

1. The decision of the Chief Commissioner of 25 February 2010 to assess the transfer with ad valorem duty is confirmed.

1. There were no submissions that any costs order should be made.

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Decision last updated: 06 December 2011