Commissioner of State Revenue v Lend Lease Funds Management Ltd
[2011] VSCA 182
•21 June 2011
SUPREME COURT OF VICTORIA
COURT OF APPEAL
S APCI 2009 3849
| COMMISSIONER OF STATE REVENUE |
| Appellant |
| v |
| LEND LEASE FUNDS MANAGEMENT LTD |
| Respondent |
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| JUDGES | MAXWELL ACJ, TATE JA and PAGONE AJA |
| WHERE HELD | MELBOURNE |
| DATE OF HEARING | 21 October 2010 |
| DATE OF JUDGMENT | 21 June 2011 |
| MEDIUM NEUTRAL CITATION | [2011] VSCA 182 |
| JUDGMENT APPEALED FROM | Lend Lease Funds Management Ltd v Commissioner of State Revenue [2009] VSC 360 (Mandie J) |
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TAXES AND DUTIES – Dutiable transaction – Exemptions – Transfer of estate in fee simple – Managed investment scheme – Custody agreement – Whether transferor as custodian held property on trust for responsible entity – Termination of custody agreement – Transfer to responsible entity – Whether transfer made ‘solely because of … change in trustees’ – Duties Act 2000 (Vic) ss 7, 10, 33(3).
TAXES AND DUTIES – Dutiable transaction – Dutiable value of property transferred –Nature of proprietary interest transferred – Whether ‘bare legal title’ – Duties Act 2000 (Vic) ss 20, 22(2), 22(3).
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| APPEARANCES: | Counsel | Solicitors |
| For the Appellant | Mr R A Brett QC with Mr C P Young | Solicitor for the Commissioner of State Revenue |
| For the Respondent | Mr A C Archibald QC with Mr M C Hines | Freehills |
MAXWELL ACJ:
The first part of this appeal concerns the applicability of an exemption from duty under s 33(3) of the Duties Act 2000 (Vic) (the ‘Act’). Under that provision, a transfer of dutiable property is exempt from duty
if the Commissioner is satisfied that the transfer is made solely –
(a)because of the retirement of the trustee or the appointment of a new trustee, or other change in trustees; and
(b)in order to vest the property in the trustees for the time being entitled to hold it.
The subsection has two limbs, both of which must be satisfied if the exemption is to be applicable. The first limb directs attention to the reason for or, more accurately, the cause of the transfer of the property. The second limb directs attention to the purpose of the transfer. (I will refer to paragraph (a) as the ‘first limb’ and to paragraph (b) as the ‘second limb’.)
The transaction in question was the transfer to the respondent (‘Lend Lease’) of an estate in fee simple, that being dutiable property for the purposes of the Act.[1] The appellant Commissioner decided that the exemption was inapplicable. His (delegate’s) statement of reasons concentrated on the first limb and, in particular, on the phrase ‘solely because of’. The Commissioner was not satisfied that the transfer of the property had been made ‘solely because of’ the retirement of one trustee and the appointment of another.
[1]Section 10(1)(a)(i).
Because the applicability of the exemption depends upon the Commissioner’s state of satisfaction, it was for Lend Lease to persuade the primary judge that it was not reasonably open to the Commissioner to arrive at that decision.[2] The primary judge upheld the appeal by Lend Lease. In his Honour’s view, the only conclusion reasonably open to the Commissioner was that the transfer was exempt. In the circumstances of the case, his Honour found, the Commissioner was bound to be satisfied of the matters set out in s 33(3).
[2]Commissioner of State Revenue v Victoria GardensDevelopments Pty Ltd (2000) 46 ATR 61, 72-3 [29] (‘Victoria Gardens’), citing Corporation of the City of Enfield v Development Assessment Commission (2000) 199 CLR 135, 150, 158.
I would allow the Commissioner’s appeal from that decision. For reasons which follow, I consider that the exemption provision could have no application, as there was no ‘change in trustees’ within the meaning of that phrase as used in the first limb. Alternatively, even if it were concluded that such a change had taken place, it was well open to the Commissioner not to be satisfied that the transfer of the property was made ‘solely because of’ that change.
In the second part of these reasons, I deal with the question of dutiable value.
The circumstances of the transfer
The transferor of the property was the registered proprietor, Trust Company of Australia Limited (‘TCAL’). TCAL became the registered proprietor in 1998 when it purchased the property in its capacity as trustee of the Homemaker Retail Property Trust (the ‘HRP Trust’). Under the trust deed for the HRP Trust, TCAL as trustee held the property on trust for the unitholders of the HRP Trust.
In April 2000, the HRP Trust was registered as a managed investment scheme under Chapter 5C of the CorporationsLaw.[3] At that time, TCAL retired as trustee and another company, Homemaker Retail Management Pty Ltd (‘HRML’), became the responsible entity of the registered scheme. Under a ‘Custody Agreement’, HRML appointed TCAL as ‘custodian’ of the assets of the HRP Trust. The duties of TCAL as custodian included holding assets of the trust on behalf of HRML as responsible entity.[4] As custodian, TCAL was entitled to a stipulated annual fee for its services.
[3]Corporations Act 1989 (Cth) s 82 (‘Corporations Law’).
[4]Clause 4.1(b) of the Custody Agreement.
At the end of 2001, there was a takeover of the HRP Trust. The acquirer was Lend Lease,[5] in its capacity as the trustee and responsible entity of the General Property Trust, also a registered managed investment scheme. On 19 September 2001, Lend Lease entered into an Implementation Deed with HRML. The recitals set out the background to the deed:
B.[Lend Lease] has presented a proposal to HRML under which [Lend Lease] will become the holder of 100% of the shares in HRML in its personal capacity and 100% of the units in [the HRP Trust] in its capacity as trustee of [the GEM Commercial Property Trust] on certain terms and conditions.
C.The purpose of this deed is to set out how [Lend Lease] and HRML propose to implement the Proposal and the terms and conditions that apply to it.
[5]Then named GPT Management Ltd.
On 19 November 2001, HRML obtained orders in the Supreme Court of New South Wales approving a scheme of arrangement between HRML and its ordinary shareholders. Then, on 27 November 2001, all of the units in the HRP Trust were transferred to Lend Lease, in its capacity as trustee and responsible entity of the GEM Retail Property Trust.
On 28 November 2001, HRML retired as responsible entity of the HRP Trust and Lend Lease was appointed to that role. Lend Lease thereupon assumed the rights and obligations of HRML under the Custody Agreement, as if Lend Lease had originally been a party to it.[6] In that capacity, Lend Lease directed TCAL to transfer title to the property to Lend Lease. The direction was expressed to apply to ‘all the property of [HRP Trust] currently held by TCAL’. A schedule to the direction listed twelve properties, of which the property the subject of these proceedings was the only one located in Victoria. (It appears that Lend Lease subsequently directed TCAL to execute a contract of sale of one of the other properties, disposing of it to a third party.)
[6]Corporations Act 2001 (Cth) ss 601FS, 601FT.
On 18 December 2001, in compliance with the direction from Lend Lease, TCAL executed a transfer instrument to transfer the property to Lend Lease. Under the heading ‘Consideration’, the transfer stated:
Pursuant to a direction dated 28 November 2001 from [Lend Lease] as responsible entity of the [HRP Trust] … to [TCAL] as custodian of the [HRP Trust].
On 12 December 2001, by deed, Lend Lease and TCAL terminated the Custody Agreement. Although the Agreement provided for 60 days’ notice of termination, TCAL agreed to termination on short notice ‘provided that TCAL is paid its custody fees for the full 60 days’. It was expressly provided that Lend Lease entered into the agreement ‘solely in its capacity as responsible entity and trustee of [HRP Trust]’.
Was there a ‘change in trustees’?
It was common ground on the appeal that, for so long as TCAL held the property pursuant to the Custody Agreement, it did so as trustee for the responsible entity of the HRP Trust (first HRML and then Lend Lease). In Trust Company of Australia Limited v Commissioner of State Revenue (Qld),[7] Gummow and Hayne JJ described the effect of such a custodianship arrangement as being that the custodian held the legal title to the relevant land on trust for the responsible entity which, in turn, was trustee of the equitable title in favour of the investors.
[7](2003) 77 ALJR 1019, 1023–4.
Their Honours’ description was adopted by both parties to the appeal. It exposes the sui generis nature of the trust here in issue (which may be referred to conveniently as the ‘custodianship trust’). It was not a trust for the benefit of unitholders. It was a trust for the benefit of the responsible entity, which in turn held the equitable title on a separate and distinct trust for the benefit of the unitholders.
The decision by Lend Lease to terminate the custodianship arrangement with TCAL was explained in a letter from the solicitors for Lend Lease to the Commissioner, as set out in the statement of reasons:
It was [Lend Lease’s] practice not to appoint custodians in respect of trusts for which it was either the responsible entity or trustee, as the fees payable to any such custodian were regarded as an unnecessary business expense.
A fuller explanation was given in an affidavit by the company secretary of Lend Lease, as follows:
Prior to becoming Trustee, [Lend Lease] decided that it would seek to become the responsible entity of [the HRP Trust] rather than employing an external trustee as responsible entity. [Lend Lease] made this decision on the basis that becoming the responsible entity of [the HRP Trust] would minimise duplication of administrative processes between the [Lend Lease] and any external trustee.
[Lend Lease] also decided that it would also be logical to terminate the Custody Agreement with TCAL in order to ensure that all custodian responsibilities and processes were undertaken internally by [Lend Lease].
[Lend Lease] had various systems and processes in place which allowed [Lend Lease] to undertake internally the role and duties that TCAL had previously undertaken. These systems included:
(a)a dedicated custodial/compliance officer whose role was to administer the various custodian relationships within [Lend Lease’s] business; and
(b)a specific space dedicated as a fire rated storage facility for documents.
Although the custody fees required to be paid to TCAL by [Lend Lease] were relatively minimal, from an administrative perspective, [Lend Lease] decided that it was not commercially sensible to pay a custody fee to TCAL to administer the trust assets given that [Lend Lease] itself had the systems and processes in place to administer the trust assets. As such, [Lend Lease] determined to internalise the custodian process and therefore, sought to have the custodian relationship with TCAL terminated.
Both before the trial judge and on appeal, the Commissioner submitted that there was no ‘change in trustees’ of the kind contemplated by s 33(3)(a). According to the submission, the custodianship trust was simply terminated. The trust which had existed up to that point – of which TCAL was trustee and the responsible entity was the beneficiary – came to an end upon the revocation of the Custody Agreement and the direction to TCAL to transfer the property.
The trial judge rejected this argument. His Honour considered that the Commissioner’s submission took
an unduly restrictive approach to the interpretation and application of s 33(3) of [the Act]. The evident purpose of the provision is to exempt from duty transfers made solely for the purpose of giving effect to mere administrative changes affecting trusts such as the retirement of a trustee or the appointment of a new trustee and I think that the words ‘or other change in trustees’ should be given an expansive interpretation in order to cover other administrative changes effecting a change in the person or persons carrying out trustee functions.[8]
[8]Lend Lease Funds Management Ltd v Commissioner of State Revenue [2009] VSC 360 (Mandie J), [41] (‘Reasons’) (emphasis added).
His Honour continued:
I think that the better view is that there was a change in trustees in a wider sense compatible with the purpose of the statutory provision. That is because TCAL ceased to be a trustee – that in itself involved a ‘change in trustees.’ Further, the appellant, as responsible entity, while an existing and continuing trustee, took over the custodial role formerly vested in TCAL and there was thereby a ‘change in trustees’ in relation to that aspect of the trustee function.[9]
[9]Ibid [43].
With great respect, I do not think that the statutory language is capable of being read in this way. Although the phrase ‘other change in trustees’ is of potentially broad application, its scope in s 33(3) is determined by the context in which it appears. The importance of context was emphasised in Victoria Gardens.[10] The Court was there concerned with an earlier manifestation of the same exemption, couched in essentially identical terms, as follows:
Any instrument for the conveyance of real property where the Comptroller of Stamps is satisfied that the instrument is made solely in consequence of the appointment or retirement of any trustee or other change in trustees and in order to vest the real property in the trustees for the time being entitled to hold the real property.[11]
[10]Victoria Gardens (2000) 46 ATR 61, 63 [5].
[11]Stamps Act 1958 (Vic), Schedule 3, Heading VI, Item 23 (emphasis added).
A unanimous court (Batt JA, with whom Ormiston and Chernov JJA agreed) held that, read in context, the words ‘the appointment … of any trustee’ applied only to the appointment of a new trustee to perform a pre-existing trust, and did not extend to the appointment of a trustee to perform a newly created trust.[12] In explaining this conclusion, Batt JA said:
Clearly, the expressions ‘the … retirement of any trustee’ and ‘other change in trustees’ can only apply where there is a pre-existing trust. It is true that in an appropriate context the expression ‘the appointment … of any trustee’ may include the appointment of a first trustee of a new trust[13] … [But here] the word ‘other’ in the expression ‘or other change in trustees’ shows that the earlier word ‘appointment’, linked as it is with the word ‘retirement’ by a single definite article and a disjunctive conjunction, is limited to an appointment constituting a change in trustees. The word ‘appointment’ in effect noscitur a sociis. The words ‘the trustees for the time being’ in the second or purpose limb of the exemption point with clarity in the same direction as the words ‘other change in trustees’ in the first or result limb.[14]
[12]Ibid 71–2 [27]. Batt JA noted that the same view had been expressed by the Full Court in Comptroller of Stamps (Vic) v Hutchins [1985] VR 599, 611 and by Hansen J in Perpetual Trustee Co Limited v Commissioner of State Revenue(Vic) (2000) 44 ATR 273, 286 (‘Perpetual’).
[13]His Honour here referred to DKLR Holding Co (No 2) Pty Ltd v Commissioner of Stamp Duties (NSW) (1982) 149 CLR 431, 452–3 (Mason J) (‘DKLR’).
[14]Victoria Gardens (2000) 46 ATR 61, 72 [27] (emphasis added) (citations omitted).
The concluding remark in this extract is, with respect, a salutary reminder that s 33(3) must be read as a whole. In particular, as counsel for the Commissioner argued, the language of the second limb operates to limit the scope to be given to the phrase ‘other change in trustees’ in the first limb.
That limit arises in the following way. To satisfy the second limb, the transfer in question must vest the property ‘in the trustees for the time being entitled to hold it’. The phrase ‘the trustees for the time being’ can only mean the trustees of the trust in respect of which the relevant ‘change of trustees’ has taken place, being the trustee(s) in office after the change. It follows that the exemption cannot have application where a trust is terminated, since in that event there are no ‘trustees for the time being entitled’ to the property the subject of the transfer. That the transferee might hold the property on a different trust would not, of course, suffice.
The custodianship trust came to an end
There cannot, I think, be any question but that the custodianship trust, of which TCAL was trustee at the time of the transfer, thereupon came to an end. As earlier discussed, it was a sui generis trust created by – and confined to – the custodianship arrangement. TCAL as custodian held the legal title as trustee for Lend Lease as the sole beneficiary. On the termination of the custodianship, that trust ceased to exist. There was no ongoing relationship of trustee and beneficiary between TCAL (or any other trustee) and Lend Lease. Indeed, the very purpose of the termination of the custodianship arrangement was to procure that result.
Certainly Lend Lease could not be viewed as having been substituted for TCAL as the trustee of the custodianship trust. As Lend Lease did not require a custodian, that trust ceased to exist. Thereafter, legal title to the property was vested in Lend Lease as trustee for the unitholders. There could be no ‘trustees for the time being’ of the custodianship trust, and hence s 33(3) could have no application to the transfer.
The submission for Lend Lease in support of the judge’s conclusion was put in two alternative ways. The primary submission was that the custodianship arrangement did not create a separate trust. The custodian was to be viewed as an additional trustee of the trust for unitholders, the principal trustee being the responsible entity, Lend Lease. On this argument, the custodian trustee ‘assumes functions, has authority to and does assume functions within the trust [for unitholders].’ The custodial role performed by TCAL ‘was always a part of the trust in favour of the unitholders’, and had merely been delegated for the time being to TCAL under s 601FB(2) of the Corporations Act 2001 (Cth). Upon termination of the Custody Agreement, the delegation ceased. Where there had formerly been two trustees, there was now only one, and this was a ‘change in trustees’ in a pre-existing trust.
According to Lend Lease’s written submission, the argument for the Commissioner
confuses the termination of the Custody Agreement with the taking over by the responsible entity of the custodial role. There was no cessation or alteration of the terms of the trusts on which the land was held. A trust entails various duties or obligations; here the custodial duty or obligation performed by TCAL remained after cessation of the Custody Agreement; that role was merely transferred from one trustee to another. Before the transfer, TCAL had precisely the same duty to keep custody of the scheme property as, after the transfer, [Lend Lease] had. The trust was one and the same. To regard the circumstances as involving two wholly separate trusts (presumably with different settlors), as submitted by the appellant, would be both artificial and inaccurate.
In my opinion, this submission is legally unsound. It erroneously treats as a single trust two quite distinct trusts of the property. In the first trust (the custodianship trust), TCAL was the legal owner of the property and held the legal title for a single beneficiary, Lend Lease. The second trust (the trust on which Lend Lease held the property following the transfer) was altogether different. The legal ownership of the property had changed, as had the identity of the beneficiaries. Now Lend Lease was the legal owner of the property, and the unitholders were the beneficiaries.
The alternative argument for Lend Lease proceeded on the assumption that the custodianship arrangement did give rise to a discrete trust, which came to an end upon the termination of the custodianship. It was submitted that s 33(3) was nevertheless engaged because ‘the transfer has gone to a trustee which is performing functions under a continuing, pre-existing trust.’ The pre-existing trust was said to be either the property trust itself or ‘a continuing form of a special function trust’.[15] This latter notion was based on the fact that, following the transfer, Lend Lease was to perform what had previously been the separate custodianship functions.
[15]Before the trial judge, Lend Lease characterised TCAL, in its capacity as custodian, as a ‘special function trustee’: Reasons, [38].
This argument must also be rejected. For reasons given earlier, there is no relevant ‘change in trustees’ within the meaning of s 33(3)(a) when a trustee ceases to hold office upon the cessation of the trust. The fact that the trustee of a different trust (whether pre-existing or not) thereafter assumes functions previously performed by the trustee of the now-terminated trust does not alter that conclusion.
‘Solely because of’
My conclusion that there was here no ‘change of trustees’ within the meaning of s 33(3)(a) means that the exemption was incapable of applying. On this view, no occasion arose for the Commissioner to consider why the transfer took place.
As noted earlier, however, that was the very issue on which the Commissioner’s decision turned. The ‘solely because of’ issue was fully argued before the primary judge, and again on the appeal, and it is therefore appropriate to deal with it. What follows proceeds on the assumption, contrary to the conclusion I have reached, that the transfer of the property was made because of a ‘change in trustees’ and ‘in order to vest the property in the trustees for the time being entitled to hold it’.
As noted earlier, the two limbs of s 33(3) pose quite distinct questions. The first limb question concerns the cause of the transfer: ‘Was the transfer made solely because of the change in trustees?’ The second limb question concerns the purpose of the transfer: ‘Was the transfer made solely for the purpose of vesting the property in the trustees for the time being?’[16]
[16]In Victoria Gardens (2000) 46 ATR 61, 72–3 [29], Batt JA referred to the two limbs as, respectively, ‘the consequence limb’ and ‘the purpose limb’.
Argument on the appeal concentrated on the first limb question, and it is that question to which the authorities are directed. The question for consideration is whether the Commissioner ought to have been satisfied that the transfer had been made solely because of the change in trustees. The trial judge concluded that it had, and that the Commissioner was bound to be so satisfied. His Honour said:
When [Lend Lease] decided, for various business reasons, to terminate the Custody Agreement with TCAL and did so, that termination necessitated the transfer of the land by TCAL to [Lend Lease]. It seems to me that the Commissioner was therefore bound to be satisfied that the transfer was made solely because of the change in trustees and in order to vest the land in the trustees for the time being entitled to hold it.[17]
[17]Reasons, [44].
This conclusion accorded with the submission advanced on behalf of Lend Lease, maintained on appeal, that the answer to the first limb question was to be found in the decision to terminate the Custody Agreement. That termination necessitated the change of trustees, so it was said, and the transfer of the property was made ‘solely because of’ that change.
As developed in argument by senior counsel for Lend Lease, the essential elements of the submission were as follows:
·the termination of the custodianship arrangement was a purely administrative act, done for the reasons of administrative convenience or ‘business efficiency’ which the company secretary had identified;[18]
·the decision by Lend Lease to ‘bring the custodianship function in-house’ was a unilateral and voluntary decision, not the subject of any agreement with the vendor or of any other legal obligation;
·the transfer occurred after the takeover had been completed and had no connection with the transfer of the beneficial interests in the trust property; and
·hence, although the takeover provided the occasion or opportunity for this step to be taken, the transfer was causally independent of the commercial transaction.
[18]See [17] above.
Senior counsel emphasised that the transfer was not a step in ‘effectuating the underlying commercial transaction’. The change of trustees (and associated transfer) was not something Lend Lease needed to do in order to complete the takeover. It was an optional step. The takeover would have been complete, and effective, whether the custodianship arrangement was maintained or terminated. ‘There was nothing to prevent the responsible entity from leaving the arrangements as they were.’ As it was put in oral argument,
the transfer is only occasioned by reason of the circumstance that the custodial function had been outsourced. So it’s elective, it’s voluntary, it’s without consideration, it’s administrative, it’s auxiliary, it’s incidental, and, if relevant, inessential to the takeover and the ongoing operation of the managed investment scheme.
It is not in dispute that the termination of the Custody Agreement was a planned step in the implementation of the takeover of the HRP Trust by Lend Lease. So much appears from a document entitled ‘Homemaker Retail Property Trust – Completion Steps’, prepared by the solicitors for Lend Lease in October 2001. The document set out, in chronological order, 31 numbered steps to be taken both before and after the ‘Completion Date’ (stated to be 28 November 2001). The sequence included the following relevant steps:
26 Terminate Custody Agreement
…
30 Transfer properties from TCAL to [Lend Lease].
According to the document, Lend Lease was responsible for step 26, and both Lend Lease and TCAL were responsible for step 30.
It was not suggested by counsel for Lend Lease that those transactions were outside the proper scope of the Commissioner’s inquiry. It was for Lend Lease to satisfy the Commissioner that the commercial arrangements, and the other steps in the sequence, were causally irrelevant to the transfer.
For his part the Commissioner accepted that, if the circumstances did involve a ‘change in trustees’, that change was one of the operative causes of the transfer of the property. But that did not conclude the question whether the transfer was made ‘solely because of’ that change. In order to answer that question, it was submitted, it was necessary ‘to consider the overall transaction including the commercial arrangements and “various business reasons” surrounding the transfer and the background to them.’ According to the Commissioner’s written submission:
Here, the takeover of the [HRP Trust] by Lend Lease was in fact a highly orchestrated and detailed scheme by which Lend Lease was to acquire all of the interests in [HRP Trust] and appoint itself as responsible entity without a custodian. Considered in that context, there plainly were other factors that led to the transfer and there were reasonable grounds for the Commissioner so to be satisfied.
In my opinion, the Commissioner’s submissions should be upheld. In order to explain that conclusion, it is necessary first to refer to the authorities which govern the approach to be taken.
The authorities
The approach to interpreting and applying the ‘solely because of’ requirement was authoritatively laid down by Hansen J in Perpetual.[19] (At the time, the phrase used in the exemption was ‘solely in consequence of’, but it was common ground that the subsequent change of language was immaterial.) The analysis in Perpetual is authoritative because it was endorsed, and applied, by this Court in Victoria Gardens,[20] where Batt JA said: ‘I respectfully agree with what Hansen J said in Perpetual as to the meaning and significance of the word “solely” in the exemption’.
[19](2000) 44 ATR 273.
[20](2000) 46 ATR 61, 72 [28] (citation omitted).
Batt JA cited those pages of the report of Perpetual which contain the key paragraphs of Hansen J’s reasons. Those paragraphs should be set out in full:
In my view the purpose of the exemption is clear. It is to exempt from stamp duty a transfer of real property given in the context of a change of trustee of a pre-existing trust in order to vest the real property of the trust in the name of the trustee for the time being. In such a case the transfer is not given in consequence of a sale or other disposition of the real property for valuable consideration. In such circumstances it would be unreasonable to charge the instrument of transfer to duty. The beneficial interest has not changed. There has been a mere change in the registered proprietor (in a case such as the present which concerns land under the Transfer of Land Act 1958) consequent upon and because of the change in the office of trustee and the need for the trust property to be conveyed into the name of the trustee for the time being.
It is also clear why the legislature has considered it appropriate to use the word ‘solely’ in conjunction with the words ‘in consequence of’. It aids in the achievement of the purpose. It does that by confining the operation of the exemption to instruments solely of the type described. The Oxford Dictionary includes as meanings of the word ‘solely’: (a) a single person or thing, without any other; without aid or assistance; (b) only, merely, exclusively. In its common understanding in its present context the word ‘solely’ in conjunction with the words ‘in consequence of’ means that the exemption will apply only if the instruments of transfer were executed in consequence of the change in trustee and in order to vest the real property of the trust in the name of the new trustee and not in consequence of any other factor. The object is to protect the revenue when an instrument of transfer is the consequence of another factor or factors. The use of the word ‘solely’ indicates the extent of the legislature's concern in that regard. If the word ‘solely’ had not been used, the question would merely have been whether the transfers were a consequence of the change of trustee in the sense of it being sequential or following on from it. It would not matter if the transfers were also a consequence of another factor or factors. In my view however this construction, which was contended for by Perpetual, cannot stand in face of the qualifying word ‘solely’. The expression ‘solely in consequence of’ requires that for the exemption to apply it must be established, as a matter of fact, that the transfer of real property of the trust was executed only in consequence of a change of trustee and in order to vest the real property of the trust in the name of that new trustee. The consequence is that the legislature has imposed a rigorous test of a factual nature which a taxpayer must surmount for the exemption to apply.
It would be artificial and contrary to the breadth of the ‘solely in consequence’ test, and the nature of the inquiry thus raised, to conclude, as Perpetual submitted, that the inquiry in this case should commence with the deeds of change of trustee and exclude from consideration as the possible source of a relevant factor the immediately preceding acts constituted by the Offer and the Agreement and the commercial arrangements they embody or the background they provide. Perpetual’s submissions require that the ordinary and natural meaning of the word ‘solely’ be disregarded and, in effect, that the word be read down to the extent that it has no practical effect. In my view there is no warrant in the plain language of the exemption or any other provision of the Act or the Schedule, or any necessary intendment to be found therein, that would require or justify the exemption to be read in the way suggested by Perpetual. Nor in my view does any apprehended difficulty or uncertainty in operation of the exemption require or justify such an approach or a reading down of the exemption.
For the reasons I have mentioned it seems clear why the exemption has been expressed as it has. While allowing for a legitimate exemption the legislature has sought to protect the revenue by the imposition of a factual test designed to meet the merits of cases as they may arise and restrict the operation of the exemption to cases in the specified category. The test imposed requires the ascertainment of the facts and circumstances relevant to the issue and a determination whether the instruments of transfer were executed solely in consequence of the change of trustee and in order the vest the real property of the trust in the name of the new trustee.[21]
[21]Perpetual (2000) 44 ATR 273, 286–7 [53]–[56] (emphasis added).
For completeness, the following additional paragraphs should be included, as they further elucidate his Honour’s view as applied to the circumstances of the case before him:
Perpetual’s approach would negative the breadth of the task which in this case is to consider whether as a matter of fact the instruments of transfer were executed solely in consequence of the change of trustee and in order to vest the real property of the trust in the name of the new trustee. If it had been the intention of the legislature that the factual inquiry thus raised should be confined to the terms of the instrument, if any, by which the change in the office of trustee was made, it would have been easy for that to have been stated. Reasons come readily to mind why the legislature did not take that course and so limit the breadth of the inquiry under the exemption. In my view acceptance of Perpetual's submission would constitute a fetter or limitation upon inquiry under the exemption which not only is not warranted by, but is contrary to, the plain meaning and intendment of the exemption.
I consider also that some sort of reality check is appropriate having regard to the circumstances of the transaction effected between the parties on 1 April 1997. What occurred was a series of steps which included a sale by the vendors of their interest in Shoppingtown’s real estate for $147 million and by which, in the result, the vendors’ full estate in fee simple passed to PT as to the equitable estate by way of the constructive trust and as to the legal estate to Perpetual as trustee for PT by way of the instruments of transfer. Whether or not there was between each step, from the Offer to the execution of the instruments of transfer, a mere moment of time or, for some practical reason or other, a somewhat longer period, the fact is that what happened was a pre-planned, highly organised series of steps to the effect mentioned. The line drawing suggested by Perpetual seems artificial and removed from the reality of the parties' own actions.
…
The correct inference in my view is that the parties, in particular PT as the purchaser and the party liable for all stamp duty payable in respect of the agreement (cl 25), chose by these means to implement the agreement of sale and transfer the vendors' fee simple interest in possession to the purchaser. The obvious inference is that the purpose was to avoid stamp duty.
…
In the result I am of the view that Perpetual’s submission must fail. When regard is had to the transactions of 1 April, the appointment of Perpetual as new trustee is seen as but one factor in consequence of which the instruments of transfer were executed. The change of trustee was but a step in the overall transaction of sale and the transfer of title and thereby full ownership to the purchaser. It was the means by which that part of the agreement was implemented. It cannot, in my view, in logic or commonsense, be divorced from all the other attendant circumstances and held to have been the sole reason or event in consequence of which the instruments of transfer were executed. For these reasons I hold that in the circumstances the exemption was not applicable. I add that if the question is in fact whether it was open to the Comptroller to make the assessments on the basis impugned by Perpetual, the answer is that it was.[22]
[22]Ibid 288–9 [58]–[60], [62] (emphasis added).
Several points emerge clearly from this illuminating analysis. First, the exemption has a specific and narrow purpose, which is to exempt from duty a transfer of property made necessary by a change of trustee of a pre-existing trust. In the circumstances contemplated, Hansen J said, there is no change of beneficial interest and
a mere change in the registered proprietor … consequent upon and because of the change in the office of trustee and the need for the trust property to be conveyed into the name of the trustee for the time being.[23]
As this Court made clear recently in Sandhurst Holdings (Australia) Ltd v Commissioner of State Revenue (Vic),[24] a key consideration when the applicability of an exemption is in issue is whether its application to the case at hand advances the statutory purpose.
[23]Ibid 286 [53].
[24](2009) 25 VR 59, 72 [59]–[64].
Secondly, the word ‘solely’ was used in order to ‘aid in the achievement of the purpose’. By its use, the legislature ‘has imposed a rigorous test of a factual nature which a taxpayer must surmount’. The taxpayer must satisfy the Commissioner that the transfer was made ‘in consequence of the change in trustee … and not in consequence of any other factor.’[25] The stringency of the test is ‘designed to … restrict the operation of the exemption to cases in the specified category.’[26]
[25]Perpetual (2000) 44 ATR 273, 286– 7 [54].
[26]Ibid [56].
Thirdly, in order to determine whether the taxpayer has satisfied the test, a broad inquiry into the surrounding circumstances is required. Hansen J said that
[i]t would be artificial and contrary to the breadth of the solely in consequence test, and the nature of the inquiry thus raised, to … exclude from consideration as the possible source of a relevant factor the immediately preceding acts … and the commercial arrangements they embody or the background they provide.[27]
[27]Ibid [55].
Fourthly, and of particular importance to the present case, the analysis in Perpetual provides no support for the ‘essential step’ approach contended for by Lend Lease, to which I now turn.
An ‘essential step’?
As already noted, much is made by Lend Lease of the fact that the termination of the custodianship arrangement was an optional step. It was ‘not a necessary consequence’ of the takeover of the HRP Trust that Lend Lease should take over the functions previously performed by TCAL as custodian. Thus, although the commercial setting of the takeover provides ‘context’ for the transfer of the property, the lack of a necessary connection between the takeover and the transfer means that there was no causal link between them. In the language of s 33(3)(a), it could not be said that the transfer was made ‘because of’ the commercial arrangements. On the contrary, it is said, the lack of a necessary connection means that the Commissioner was bound to conclude that the transfer was made ‘solely because of’ the change of trustees.
In my view, there is no warrant for such a limitation on the causal analysis, either in the language of the exemption or in Hansen J’s exposition of its scope and purpose. As Perpetual[28] makes emphatically clear, a broad factual inquiry is called for. All of the surrounding circumstances must be examined. The first limb being concerned with causation, a commonsense approach must be adopted.[29]
[28]Perpetual (2000) 44 ATR 273, 289 [62].
[29]See generally March v E & M H Stramare Pty Ltd (1991) 171 CLR 506.
The very notion of ‘essential’ or ‘necessary’ steps in a transaction is itself of doubtful validity. Very often, parties to a transaction will have available to them a number of alternative ways of structuring the transaction, and the particular mode of implementation adopted will depend upon the commercial objectives sought to be achieved. In such circumstances, it will usually be correct to describe the parties as having ‘chosen’ a particular approach or structure. Thus, in Bishop Square Ltd (formerly Purinv (Hatfield) Ltd) v Commissioners of Inland Revenue,[30] in a passage set out by Hansen J in Perpetual,[31] Millett LJ said, ‘[t]he declaration of trust and the transfer were the instruments by which the parties chose to implement their bargain’.[32] In the same way, Hansen J concluded that the parties to the transactions there in issue ‘chose by these means to implement the agreement of sale and transfer the vendors’ fee simple interest in possession to the purchaser’.[33]
[30][1998] STC 305 (‘Bishop Square’).
[31]Perpetual (2000) 44 ATR 273, 283-4 [45].
[32]Bishop Square [1998] STC 305, 313.
[33]Perpetual (2000) 44 ATR 273, 288-9 [60].
Of course, once binding contractual obligations are assumed, performance by a party bound will no longer be ‘voluntary’. But it must not be overlooked that the party will ordinarily have had a choice as to whether or not to enter into a contract and, if so, on what terms. This point is well illustrated by Victoria Gardens, which concerned a joint venture to consolidate several parcels of land for development and sale. Each of the respective landowners held its parcel of land on trust. Together, they entered into a joint‑venture agreement under which they agreed to transfer their respective parcels to the newly appointed joint‑venture trustee. It was also a term of the agreement that the respective portions of land would be made available irrevocably for the purposes of the development.[34]
[34]Victoria Gardens (2000) 46 ATR 61, 66 [14]–[15].
The Court noted that the landowners had agreed to make these transfers ‘for ease of administration’.[35] Thus, although each assumed a contractual obligation to transfer land, they had chosen this particular approach for reasons of administrative convenience. There was no suggestion that the transfers to the joint venture trustee were essential to the effectuation of the development plan, nor that this was the only means by which the land could have been made available for development.
[35]Ibid 65 [11].
Despite the absence of any ‘necessary’ connection between the transfers and the development project, the Court of Appeal had no hesitation in rejecting the taxpayer’s argument on causation. After expressing agreement with Hansen J’s analysis in Perpetual, Batt JA said:
When regard is had to [the relevant provisions] of the [joint venture agreement] in particular it cannot, in my opinion be said that the instruments of transfer were made solely as a consequence of the appointment [of the joint venture trustee] or solely for the requisite purpose, those requirements being cumulative. Rather, as [the trial judge] held, they were made to give effect to the provisions of the [Agreement].[36]
The decision in Commissioner of State Revenue v Challenger Property Nominees Pty Ltd[37]
[36]Ibid 72 [28].
[37](2006) 63 ATR 65 (‘Challenger’).
In the appeal, Lend Lease relied on the analysis of Hollingworth J in Challenger. In that case, her Honour concluded that the s 33(3) exemption was applicable and that Perpetual and Victoria Gardens were distinguishable. It was submitted for Lend Lease that this Court should likewise view those decisions as distinguishable, for the reasons which her Honour gave.
Like the present case, Challenger concerned the transfer of a valuable commercial property. Her Honour found that the transfer was ‘one of a number of related transactions, all of which took effect on the same day and in accordance with a detailed settlement schedule.’[38] After describing the sequence of steps, her Honour said:
The undoubted commercial effect of this carefully planned sequence of transactions was that the legal and beneficial ownership and control of the property changed hands from the Leighton group of companies to the Challenger group of companies for $73,000,000.[39]
[38]Ibid 67 [3].
[39]Ibid 68 [10].
Before the change of ownership, the land was held by the (Leighton) transferor as trustee of a unit trust. On the day in question, the following relevant transactions took place, in sequence:
·companies associated with the Challenger group subscribed for new units in the unit trust, for a subscription price equal to the market value of the land;
·the existing units in the trust were cancelled;
·the transferor retired as trustee of the trust; and
·the (Challenger) transferee became trustee of the trust.
The Commissioner, relying on Perpetual[40] and Victoria Gardens,[41] determined that the exemption was not applicable. On an application for review, the Victorian Civil and Administrative Tribunal (‘VCAT’) set aside the Commissioner’s decision and determined that the exemption was applicable. Hollingworth J dismissed an appeal from VCAT’s decision.
[40](2000) 44 ATR 273.
[41](2000) 46 ATR 61.
Addressing the first limb question, her Honour said:
The additional requirement in s 33(3) that the transfer be ‘solely’ because of the relevant change of trustee imposes a rigorous factual test of causation. Here, the VCAT member was quite correct in saying that the question asked by the provision is: ‘Is the only purpose of the transfer to give effect to the change of trusteeship?’
…
The VCAT member pointed out that there will always be a reason for a change of trustee, and gave as examples the promotion of the commercial interests of the incoming trustee, relief from personal burdens for the outgoing trustee, or an acknowledgement by the outgoing trustee that it has lost the confidence of the beneficiaries or unit holders under the trust. Challenger offered further examples, including the replacement of a trustee due to illness, bankruptcy or absence from the jurisdiction. The VCAT member observed that if one were required to look at the reason for the change of trustee, then no transfer of land would ever fall within the exemption.
The VCAT member accepted Challenger’s submission that the proper approach is not to ask ‘why did the trustee resign?’ and say that that is the purpose of the transfer; rather the question is, ‘is the only purpose of the transfer to give effect to the change of trusteeship?’ That is clearly the right question to ask.[42]
[42](2006) 63 ATR 65, 72 [30], [33]–[34] (emphasis added).
With great respect, the question that had to be addressed was a different one. As the Commissioner contended on the appeal, what was in issue was the first limb’s causation requirement – that the transfer have been made ‘solely because of’ the relevant change of trustee. Yet the VCAT member had addressed – and only addressed – the second limb question, concerning the purpose of the transfer. Contrary to VCAT’s view, the question which need to be addressed was the causation question posed by the first limb: ‘Why did the transfer take place?’
Her Honour considered the decision in Perpetual to be ‘entirely distinguishable’. In her Honour’s view, the difference relevant to the present issue was as follows:
[In Perpetual] the transfer was made pursuant to and in order to complete a contract of sale. Given that fact, it is unsurprising that Hansen J held that the transfer was not made ‘solely because of’ the change of trustee; it was clearly also made because of a contract of sale which required it to be made.[43]
(In Challenger, it seems, the sequential steps were not governed by any binding contractual obligations.)
[43]Ibid 76 [54].
There were, in her Honour’s view, two ‘critical findings of fact’ in the case before her. The first was that the change in the beneficial interest in the property – by the issue of the new units and the redemption of the old units – was complete before the change of trustees and the transfer of the property occurred. The second was as follows:
Since the duties of the trustee under the trust deed are largely passive, with all management responsibility being vested in the manager, it would have been possible for the old trustee to have remained in office performing that role for Challenger. That is to say, it was not an essential requirement of the wider transaction that there in fact be any change of trustee or any transfer.[44]
[44]Ibid 77 [62].
For reasons already given, the authorities do not support the ‘essential requirement’ test which her Honour applied. But, even if that test had been appropriate, it would have afforded no basis for distinguishing either Perpetual or Victoria Gardens. For, as noted earlier, the transaction steps in those cases were just as much a matter of choice as were the steps in Challenger, notwithstanding that they were embodied in contractual terms.
Conclusion
It may be accepted that Lend Lease was under no legal obligation to terminate the Custody Agreement. Nor was that a necessary step in the effectuation of the takeover of the HRP Trust. But, plainly enough, Lend Lease determined upon this particular mode of implementing the takeover. From the outset, it had been decided that the ‘completion steps’ should produce a particular result, namely, that all of the properties which before the takeover were vested in TCAL should, after the takeover, be vested in Lend Lease. The termination of the custodianship and the transfer of the 12 properties (including the property in issue here) were necessary to secure that result. The ‘change in trustees’ was not an end in itself. It was a means to that end.
Unsurprisingly, as the company secretary explained, this step was governed by the commercial interests of Lend Lease, as was every other aspect of the takeover plan. The saving of custodianship fees was doubtless a minor consideration in the overall scheme, but it was nevertheless judged to be a step worth taking and one which needed to be included in the transaction plan.
In those circumstances, in my view, it is wholly artificial to separate the change of trustees (and the transfer of property) from the other constituent elements of the takeover plan. As the ‘Completion Steps’ document makes clear, they were all part of an integrated whole. To adopt Hansen J’s phrase, the transfer cannot ‘in logic or commonsense be divorced from all the other attendant circumstances’.[45] Moreover, circumstances such as these are far removed from what Parliament had in contemplation when enacting the exemption, as described by Hansen J in Perpetual.
[45](2000) 44 ATR 273, 289 [62].
In the end, of course, it is immaterial what conclusion I would have come to at the end of the factual inquiry. The issue for determination in this proceeding was whether it was reasonably open to the Commissioner to reject the taxpayer’s contention that the transfer was made ‘solely because of’ the change of trustees. For the reasons I have given, I consider that it was well open to him to do so.
In view of my conclusion that the exemption under s 33(3) is inapplicable, it is necessary to consider the question of dutiable value.
Dutiable value
Whereas the Stamps Act 1958 (Vic) imposed duty ‘on instruments, not on transactions’,[46] the Act charges duty on transactions.[47] In the present case, as noted earlier, the dutiable transaction was the transfer by TCAL to Lend Lease of its estate in fee simple.
[46]Commissioner of State Revenue (Vic) v Pioneer Concrete (Vic) Pty Ltd (2002) 209 CLR 651, 663 [34] (‘Pioneer’).
[47]Section 7.
The determination of dutiable value is governed by Part 2 of Chapter 2 of the Act. Section 20 provides as follows:
(1)The dutiable value of dutiable property that is the subject of a dutiable transaction is the greater of –
(a)the consideration (if any) for the dutiable transaction …; and
(b)the unencumbered value of the dutiable property.
Although it is the transaction and not the instrument which now attracts duty, the approach to be taken to dutiable value in a case such as the present is essentially the same. What was said by the High Court in Pioneer concerned the Stamps Act 1958 (Vic) but the language remains applicable to the present case with only minor adaptation, as follows:
[L]iability to duty arises because the dutiable [transaction] transfers an estate or interest in real property, and it is by reference to the value of that which is transferred that duty is imposed.[48]
[48]Pioneer (2002) 209 CLR 651, 663 [34].
Now, as previously, the question is: ‘What was the property conveyed by the transfer?’[49] The parties propounded quite different answers to this question. The Commissioner contended that the Court need look no further than the instrument of transfer itself, in which TCAL as transferor identifies the estate being transferred as ‘all its estate in fee simple’. Noting that ‘an estate in fee simple’ is the relevant class of dutiable property under s 10(1) of the Act, the Commissioner made the following submission:
The Parliament could not have laid down in simpler terms the nature and extent of what is to be valued. The estate in fee simple is, of course, the largest estate known to the law and it is that estate that Parliament has declared is to be valued.
[49]Ibid [35], citing DKLR (1982) 149 CLR 431, 449 (Mason J).
Lend Lease, on the other hand, invoked the accepted principle that
in some cases it may be necessary to look outside the instrument of conveyance or transfer in order to identify the property conveyed by the instrument.[50]
As at the date of the transfer, TCAL held the legal estate on trust for Lend Lease which, in turn, held the equitable interest on trust for the unitholders. Legal and equitable title having been thus separated, so it was said, the only property which TCAL had to transfer to Lend Lease was the ‘bare legal estate’ in the land.
[50]Pioneer (2002) 209 CLR 651, 666 [41].
Lend Lease’s contention succeeded before the trial judge, who expressed his conclusion in these terms:
The question is what was the nature of the estate in fee simple held by TCAL, as registered proprietor, that it transferred to [Lend Lease]. In my opinion TCAL, from the time that it retired as responsible entity and was appointed custodian by HRML, held the land as bare trustee for the responsible entity. It was entitled only to the legal estate in fee simple. That is what TCAL transferred to [Lend Lease]. HRML, and its successor [Lend Lease], was probably entitled to the equitable estate in fee simple in the land. That view is supported, I think, by the authorities to which I have referred.[51] But irrespective of who may be identified as the beneficial owner or owners of the land, it seems to me that TCAL had only a legal estate in fee simple to transfer.
I do not think that evidence is required (although there was some evidence) to support the conclusion that the bare legal estate in the land had a nil value and I so conclude.[52]
[51]His Honour had earlier referred to CPT Custodian Pty Ltd v Commissioner of State Revenue (Vic) (2005) 224 CLR 98 and, in particular, to the High Court’s consideration of the decision in Glenn v Federal Commissioner of Land Tax (1915) 20 CLR 490.
[52]Reasons, [57]–[58].
Challenging this conclusion on the appeal, the Commissioner submitted that TCAL ‘was able to, and did, dispose of the whole of the estate in fee simple in the land’. He relied on the decisions of the High Court in DKLR and Pioneer. In each of those cases, the Court concluded that the property transferred by the relevant instrument was an unqualified estate in fee simple, notwithstanding the existence of a relevant interest in the land.
As senior counsel for Lend Lease correctly pointed out, however, neither decision is directly in point here. In Pioneer, the fee simple estate was held to be unqualified because the third party rights in question were contractual in nature.[53] In the present case, the interest of Lend Lease as beneficial owner is proprietary in nature. In DKLR, the fee simple estate was held to be unqualified because the relevant equitable interest only came into existence after the transfer was complete (by virtue of the transferee declaring itself trustee of the property for the transferor).[54] In the present case, as discussed earlier, the equitable interest held by Lend Lease came into existence well before the transfer, at the time when TCAL was appointed custodian.
[53]Pioneer (2002) 209 CLR 651, 666 [41].
[54]DKLR (1982) 149 CLR 431, 443 (Gibbs CJ), 460–1 (Mason J).
For its part, Lend Lease relied on the decision of this Court in Vopak Terminals Australia Pty Ltd v Commissioner of State Revenue (Vic).[55] There, as here, the Court had to consider the approach to dutiable value where a fee simple estate was transferred. As explained in more detail below, the Court held that the estate transferred was qualified, for valuation purposes, by a pre-existing equitable interest vested in a third party. The submission for Lend Lease was that the reasoning in Vopak was directly applicable to the present question and must (unless we were persuaded that the decision was plainly wrong) be viewed as rendering the trial judge’s conclusion on this aspect of the matter unimpeachable.
[55](2004) 12 VR 351 (‘Vopak’).
Central to the submission for Lend Lease was the proposition that the market value of TCAL’s legal title to the land would have been reduced to nothing because the beneficial interest in the land was vested elsewhere – in Lend Lease as the beneficiary under the custodianship trust. According to the argument, if TCAL as custodian trustee had ‘gone into the marketplace’ and offered to sell the whole of its interest in the land
nobody would have paid anything for the transfer, because the equitable estate was already with [Lend Lease] as the responsible entity [and beneficiary].
In my opinion, for reasons which follow, this way of approaching the question of dutiable value is erroneous. As already noted, what is required is to identify the property conveyed by the transaction. That, in turn, requires the identification of any interest which alters, or qualifies, the nature of the property transferred. It is quite wrong to approach the issue by asking whether the particular interest would affect the price which a purchaser would pay. So much was made clear by the decision of the High Court in Pioneer,[56] to which I now turn.
[56](2002) 209 CLR 651.
The decision in Pioneer
A was the owner of land which it agreed to sell to Pioneer. It was a term of the contract of sale that A reserved to itself certain rights in relation to the tipping of waste on portions of the land (the ‘tipping rights’). Pioneer as the new owner of the land was contractually bound to permit A to exercise the tipping rights. According to valuation evidence, the existence of those rights reduced the market value of the land from $7.14 million to $1.73 million.[57]
[57]Ibid 659 [18].
On the taxpayer’s appeal to this Court,[58] it was held that the tipping rights had to be brought to account in the valuation exercise. This was said to be so because the vendor (A) was willing to sell the land only subject to those rights. In the view of Tadgell JA (with whom Batt and Chernov JJA agreed), there was nothing in the relevant provisions of the Stamps Act1958 (Vic)
to require that the concept of a hypothetical sale in the ‘open market’ should disregard the basis on which the vendor successfully offers to sell, save that any encumbrance is in any event to be disregarded.[59]
[58]Pioneer Concrete (Vic) Pty Ltd v Commissioner of State Revenue (Vic) (2001) 3 VR 667.
[59](2001) 3 VR 667, 678 [17].
The High Court allowed the Commissioner’s appeal from that decision. The Court held that, because the tipping rights did not qualify the nature of the estate transferred, they were irrelevant to valuation for stamp duty purposes:
The tipping rights rested in contract. So long as the land was vested in A, there were no separate tipping rights; they were merely an aspect or incident of A’s rights of ownership. When the land was transferred to Pioneer the provisions of the contract of sale … subjected Pioneer to contractual obligations to A … but they did not create any proprietary interest which qualified its title to the land. And they did not qualify A’s title to the land on the date of the sale, which is the time to which [the statute] directs attention.[60]
Further:
Once it is accepted that the real property to be valued is an estate in fee simple in the land referred to in the relevant certificates of title, unqualified by any exception or reservation, or any other outstanding proprietary interest, then it follows that the exercise required by [the statute] is a determination of the amount for which such an estate might reasonably have been sold if it had been sold, free from encumbrances, in the open market on the date of the sale.[61]
[60](2002) 209 CLR 651, 666 [41] (emphasis added).
[61]Ibid 667 [44] (emphasis added).
As these extracts make clear, the only interest which is relevant to the present enquiry is an interest which qualifies the transferor’s title to the land which it is transferring. Since the tipping rights did not qualify the title, it was immaterial that their existence substantially reduced the price actually paid for the land.
The joint judgment in Pioneer referred, by way of contrast, to two instances where a proprietary interest had been held to qualify the transferor’s title. The first was the decision of the House of Lords in Stanyforth v Commissioners of Inland Revenue.[62] In that case, as explained in the joint judgment in Pioneer:
[A] deed of partial resettlement of certain estates contained a power of revocation and new appointment. The House of Lords considered that in ascertaining the value, on a sale on the open market, of the property transferred or conveyed, it was necessary to consider the property ‘with all its incidents, including provisions for defeasance either in whole or in part, powers vested in persons not controlled by the vendor to create charges taking precedence of the property sold, and so forth’. The power of revocation contained in the deed affected the nature, and therefore the value, of the subject matter of the conveyance or transfer.[63]
[62][1930] AC 339 (‘Stanyforth’).
[63]Pioneer (2002) 209 CLR 651, 665 [39] (emphasis added).
The second example was the decision of the High Court in Chief Commissioner of Stamp Duties (NSW) v Buckle,[64] which the joint judgment in Pioneer explained in these terms:
[T]he dutiable instrument was a supplemental deed varying a deed of settlement under a discretionary trust. In identifying, for valuation purposes, the interests vested by the supplemental deed, the Court held that they must reflect the structure created by the deed of settlement, and accepted the argument that the property conveyed by the supplemental deed, which comprised certain beneficial interests in remainder, was to be valued taking into account liabilities which were incidents of the underlying trust property. The Court decided that, in valuing the interest of beneficiaries vested by the supplemental deed, there was no ‘encumbrance’ which the statute required to be disregarded; the trustee’s right to be indemnified out of the assets bound by the trust was a right conferred by law and was a prior proprietary interest to that of the beneficiaries rather than an encumbrance upon that interest.[65]
[64](1998) 192 CLR 226.
[65]Pioneer (2002) 209 CLR 651, 666 [42] (emphasis added).
It is the High Court’s decision in Pioneer, rather than this Court’s decision in Vopak, which supplies the answer to the present question. For, as appears from the authorities considered in the next section, the interest of a beneficiary under a trust, although proprietary in nature, does not qualify the trustee’s title. The trustee holds an unqualified estate in fee simple. Where – as here – there is a transfer of trust property by trustee to beneficiary, it is the entire property which is transferred, not a ‘bare legal estate’ in the property.
Vopak, on the other hand, did not concern the equitable interest of a beneficiary under a trust. As will appear, the case concerned the equitable interest of a third party, which did qualify the transferor’s title.
Transfer of legal title by trustee to beneficiary
The contention that a transfer of property from trustee to beneficiary conveys only the ‘bare legal title’ to the property is not new. The Commissioner pointed to a series of decisions, both in Australia and abroad, where such a contention was advanced. On every occasion, however, the contention failed, the court holding that the equitable interest of the beneficiary did not qualify the trustee’s legal title.
The starting-point is the decision of the House of Lords in Oughtred v Inland Revenue Commissioners.[66] In that case, the property transferred was a parcel of shares. The transferee was the purchaser under an oral contract of sale of a reversionary interest in the shares. The submission advanced was that:
the disputed transfer transferred nothing beyond a bare legal estate, because, in accordance with the well-settled principle applicable to contracts of sale, between contract and completion the [transferee] became under the oral agreement beneficially entitled in equity to the settled shares, subject to the due satisfaction by her of the purchase consideration, and accordingly the entire beneficial interest in the settled shares had already passed to her at the time of the execution of the disputed transfer, and there was nothing left upon which the disputed transfer could operate except the bare legal estate.[67]
[66][1960] AC 206 (‘Oughtred’).
[67]Ibid 238–9.
The House of Lords rejected this contention. Lord Jenkins (with whom Lord Keith agreed[68]) said:
The constructive trust in favour of a purchaser which arises on the conclusion of a contract for sale is founded upon the purchaser’s right to enforce the contract in proceedings for specific performance. In other words, he is treated in equity as entitled by virtue of the contract to the property which the vendor is bound under the contract to convey to him. This interest under the contract is no doubt a proprietary interest of a sort, which arises, so to speak, in anticipation of the execution of the transfer for which the purchaser is entitled to call. But its existence has never (so far as I know) been held to prevent a subsequent transfer, in performance of the contract, of the property contracted to be sold from constituting for stamp duty purposes a transfer on sale of the property in question. Take the simple case of a contract for the sale of land. In such a case a constructive trust in favour of the purchaser arises on the conclusion of the contract for sale, but (so far as I know) it has never been held on this account that a conveyance subsequently executed in performance of the contract is not stampable ad valorem as a transfer on sale. Similarly, in a case like the present one, but uncomplicated by the existence of successive interests, a transfer to a purchaser of the investments comprised in a trust fund could not, in my judgment, be prevented from constituting a transfer on sale for the purposes of stamp duty by reason of the fact that the actual transfer had been preceded by an oral agreement for sale.
In truth, the title secured by a purchaser by means of an actual transfer is different in kind from, and may well be far superior to, the special form of proprietary interest which equity confers on a purchaser in anticipation of such transfer.
This difference is of particular importance in the case of property such as shares in a limited company. Under the contract the purchaser is no doubt entitled in equity as between himself and the vendor to the beneficial interest in the shares, and (subject to due payment of the purchase consideration) to call for a transfer of them from the vendor as trustee for him. But it is only on the execution of the actual transfer that he becomes entitled to be registered as a member, to attend and vote at meetings, to effect transfers on the register, or to receive dividends otherwise than through the vendor as his trustee.[69]
[68]Lord Denning delivered separate reasons for concurring in the result.
[69]Oughtred [1960] AC 206, 240.
The decision of the New Zealand Court of Appeal in Farm Products Co-Operative (Tararua) Ltd v Inland Revenue Commissioner (NZ)[70] also concerned the dutiability of a transfer of shares. In that case, the transferee had exercised an option to purchase the shares. The terms of the option provided that, upon its exercise:
[70](1969) 1 ATR 85 (‘Farm Products’).
(a) the vendors would transfer the shares to the transferee to be held on trust for the vendors; but
(b) such transfers would not operate to pass any beneficial interest in the shares.
The members of the Court of Appeal rejected the taxpayer’s argument that the transfers merely transferred the ‘bare legal estate’ in the shares. The Court assumed that the beneficial interest in the shares could, as proposed, be retained by the vendors,[71] but held that this did not affect the identification of the property transferred. Turner J said:
I have no doubt at all that what was conveyed [by the instrument of transfer] was the shares. This is what the transfer says was transferred, and it is therefore the value of the shares with which s 65 is concerned. It seems to me meaningless to speak of the transfers as transferring the ‘bare legal estate’ in the shares or of valuing this ‘bare legal estate’. The shares were property. They were transferred. He who takes a transfer or conveyance of the legal estate in property takes a transfer or conveyance of that property. The property of which he takes a transfer or conveyance may be the subject of equitable interests vested in equity in another. But this does not affect the position at law; and at law he becomes the proprietor of the property of which he has taken a transfer or conveyance. It is the value of the property transferred on conveyance which determines assessment, and this is unaffected by the existence of any outstanding equitable interest.[72]
[71]Cf DKLR (1982) 149 CLR 431.
[72]Farm Products (1969) 1 ATR 85, 89–90 (emphasis added).
McCarthy J said:
The property here transferred was shares. [The transfer] entitled the transferees to be registered as proprietors of those shares without qualification as far as the company was concerned. It is the value of the property transferred, and not the value of a particular proprietary right or equity in that property, which determines the amount of duty. I can find nothing in the language of the section which would justify the Court in taking any other view.[73]
Stating that support for this view was to be found in the views of the majority in Oughtred,[74] his Honour set out the extract from the speech of Lord Jenkins which appears in paragraph [91] above.
[73]Ibid 93–4 (emphasis added).
[74][1960] AC 206.
The approach of the House of Lords in Oughtred has been applied in Victoria to cases like the present, where there is a transfer by trustee to beneficiary of an estate in fee simple. First, in Extra Nominees Pty Ltd v Comptroller of Stamps (Vic),[75] Member Nettle[76] was considering the dutiability of a transfer of land, the transferee of which already had a beneficial entitlement to a 25 per cent interest in the land. Having concluded that there was no applicable exemption, Member Nettle dealt with a submission on behalf of the transferee that
because the transfer the subject of the reference purported to transfer that which was already as to 25 per cent beneficially vested in the [transferee] the transfer was to that extent a nullity and therefore not dutiable.[77]
He rejected this submission:
The transfer was not a nullity even if the units were to some extent already beneficially vested in the [transferee]. It was a transfer of real property and duty is charged upon such a transfer in accordance with Heading IV [in the third Schedule to the Stamps Act 1958], whether or not the transferee has some beneficial entitlement to the land the subject of the transfer, unless there is an applicable exemption: cf Oughtred v IRC.[78]
[75](1990) 21 ATR 3664 (‘Extra Nominees’).
[76]Now Nettle JA of this Court.
[77]Extra Nominees (1990) 21 ATR 3664, 3671 [32].
[78]Ibid 3671–2 [34] (emphasis added) (citations omitted).
Subsequently, in Perpetual,[79] Hansen J came to the same conclusion. That case concerned the dutiability of several instruments of transfer of property, each of which identified the estate and interest of the transferor being transferred as ‘all its estate in fee simple’. The transfers were made pursuant to an agreement under which the transferee (PT Limited) agreed to purchase the vendors’ respective interests for a price which it paid upon execution of the agreement. The vendors thereupon became constructive trustees of their respective interests for the transferee, and the instruments of transfer conveyed the fee simple estate to the purchaser as beneficiary of the constructive trusts.
[79](2000) 44 ATR 273.
As Hansen J noted, the argument for the transferee was essentially the same as that advanced, unsuccessfully, in Oughtred. The submission was that, by the time the instruments of transfer were executed, PT was already entitled to the full beneficial interest in the property, which accounted for ‘the full value of the property’. That being so, it was argued, all that was left for the transfers to convey, and all that they did convey, was the bare legal interest, which had a nil value.
Hansen J rejected the argument. He referred first to a passage from the judgment of Hope JA in the New South Wales Court of Appeal Decision in DKLR Holding Co (No 2) Pty Ltd v Commissioner of Stamp Duties (NSW)[80] which (as will appear) has been repeatedly cited in decisions on this point. Hope JA said:
An unconditional legal estate in fee simple is the largest estate which a person may hold in land. Subject to qualifications arising under the general law, and to the manifold restrictions now imposed by or under statutes, the person seised of land for an estate in fee simple has full and direct rights to possession and use of the land and its profits, as well as full rights of disposition. An equitable estate in land, even where its owner is absolutely entitled and the trustee is a bare trustee, is significantly different. What is, perhaps, its essential character is to be traced to the origin of equitable estates in the enforcement by Chancellors of ‘uses’ or ‘trusts’ …
[A]lthough the equitable estate is an interest in property, its essential character still bears the stamp which its origin placed upon it. Where the trustee is the owner of the legal fee simple, the right of the beneficiary, although annexed to the land, is a right to compel the legal owner to hold and use the rights which the law gives him in accordance with the obligation which equity has imposed upon him. The trustee, in such a case, has at law all the rights of the absolute owner in fee simple, but he is not free to use those rights for his own benefit in the way he could if no trust existed. Equitable obligations require him to use them in some particular way for the benefit of other persons.
…
In illustrating his famous aphorism that equity had come not to destroy the law, but to fulfil it, Maitland [in his Lectures on Equity] said of the relationship between legal and equitable estates in land: ‘Equity did not say that the cestui que trust was the owner of the land, it said that the trustee was the owner of the land, but added that he was bound to hold the land for the benefit of the cestui que trust. There was no conflict here.’[81]
[80][1980] 1 NSWLR 510.
[81]Ibid 518–519 (emphasis added).
Hansen J also referred to what was said by G N Williams J as a member of the Full Court of the Queensland Supreme Court in O’Sullivan v Commissioner of Stamp Duties.[82] In that case, as in the present, there was a transfer by trustees of land held by them on trust to beneficiaries who, at the date of the transfer, were absolutely entitled to the full beneficial interest in the land.[83] The judge at first instance held that the trustees ‘had no more than the bare legal estate to convey.’[84] The appeal to the Full Court turned on a question of jurisdiction, and only G N Williams J considered the correctness of the trial judge’s conclusion. His Honour’s remarks, accordingly, were obiter but they have been viewed subsequently as a correct statement of the law.
[82][1984] 1 Qd R 212 (‘O’Sullivan’).
[83]See O’Sullivan v Commissioner of Stamp Duties (Qld) (1983) 14 ATR 299, 301.
[84]Ibid 302.
G N Williams J said:
It was asserted by the [trustees] that the transfers in question were transfers of the ‘bare legal estate’ only. I cannot accept that proposition. By definition, a trust is an equitable obligation, binding the trustee to deal with property in respect of which he has either legal title or control, for the benefit of a beneficiary. The obligation is not only one in personam, but also one which is affixed to the property in question. Where there is a ‘bare trust’, and the beneficiary is sui juris, the beneficiary may put an end to the trust by requiring the trustees to transfer the trust property to him. Against that background it is not unusual for lawyers to say that the equitable estate is vested in the beneficiary. But it must not be overlooked that at law the fee simple in land, being trust property, is vested in the trustee, and when the trustee conveys the property to the beneficiary, thereby putting an end to the trust, he conveys the fee simple to him. Particularly where the land is subject to the Real Property Act there can be no transfer of a bare legal interest as such … [85]
His Honour then cited the passage from the judgment of Hope JA in the New South Wales Court of Appeal decision in DKLR Holding Co (No 2) Pty Ltd v Commissioner of Stamp Duties (NSW)[86] set out above, describing it as ‘perhaps the best summation of the position’, and concluded in these terms:
Thus it follows that in this case the [trustees] were conveying more than a ‘bare legal interest in land’; they were conveying the ownership of or the fee simple in the land.[87]
[85]O’Sullivan [1984] 1 Qd R 212, 229–30 (emphasis added).
[86][1980] 1 NSWLR 510.
[87]O’Sullivan [1984] 1 Qd R 212, 230.
In Perpetual, Hansen J also referred to ReTransphere Pty Ltd[88] where, in a quite different legislative context, McLelland J was concerned with the nature of the interest of a person in property which he holds on trust for other persons. His Honour said:
It is important to recognise the true nature and incidents of legal and equitable estates in property subject to a trust. They are clearly and succinctly described in the judgment of Hope JA in DKLR … What is significant for present purposes [in Hope JA’s exposition] is the imprecision of the notion that absolute ownership of property can properly be divided up into a legal estate and an equitable estate. An absolute owner holds only the legal estate, with all the rights and incidents that attach to that estate. Where a legal owner holds property on trust for another, he has at law all the rights of an absolute owner but the beneficiary has the right to compel him to hold and use those rights which the law gives him in accordance with the obligations which equity has imposed on him by virtue of the existence of the trust. Although this right of the beneficiary constitutes an equitable estate in the property, it is engrafted on to, not carved out of, the legal estate.[89]
In this respect, it is always necessary to keep in mind that the causation question expressed in the first limb of s 33(3) must be: ‘Why did the transfer take place?’ and not ‘Why did the change of trustees take place?’. The former question invites consideration of the context in which the transfer has taken place, including an appreciation of whether there were other steps within a commercial transaction that were still required to be taken before the legal effect of the transaction was achieved. This is to be compared with the latter question which might invite consideration of a myriad of factors by way of explanation for the retirement or removal of a trustee that are irrelevant to the question of the imposition of duty (for example, was the existing trustee made a bankrupt, found guilty of a criminal offence, or did he become certifiable by reason of mental instability?).[128]
[128]See Commissioner of State Revenue v Challenger Property Nominees Pty Ltd (2006) 63 ATR 65, 72 [34] (Hollingworth J).
To my mind, this case is not to be assimilated to those cases in which the transfer occurs from the trustee of one trust to a trustee of a newly created trust. There is nothing to suggest that the vice identified in the line of authority culminating in Victoria Gardens is to be found in the circumstances of this case. While the test applied by the Victoria Gardens line of authority cannot be a substitute for the statutory language in s 33(3), nevertheless it is a powerful consideration that the circumstances of this case are distinguishable from what was considered in that line of authority to be circumstances that disqualified the transaction from the protection of the exemption.
In my opinion, the trial judge was correct in his conclusion that the Commissioner was bound to be satisfied that the transfer was made solely because of a change in trustees and in order to vest the land in the trustees for the time being entitled to hold it. The Commissioner’s failure to be satisfied that the transfer was exempt from duty under s 33(3) of the Act was based upon a mistake of law. Had he discharged his function according to law, he ought to have reached the required state of satisfaction.[129]
[129]Avon Downs Pty Ltd v Federal Commissioner of Taxation (1949) 78 CLR 353, 360; Commissioner of State Revenue v Victoria Gardens Developments Pty Ltd (2000) 46 ATR 61, 72-3 [29]; Kolotex Hosiery (Australia) Pty Ltd v Federal Commissioner of Taxation (1975) 132 CLR 535.
The dutiable value question
The question of the dutiable value of the transfer of the Maribyrnong property only arises if, contrary to the conclusions I have reached, the transfer is not exempt. Hypothetically, this may be because, for one reason or another, the circumstances of the transaction held to be disqualifying in Victoria Gardens are considered to be similarly present here. For example, it may be that the ‘solely because of’ requirement is considered not to be met. However, acknowledging that the exemption question may be answered favourably to the Commissioner does not entail that an entirely different conception is to be adopted of the legal arrangements established upon the trust deed and the Custody Agreement.
If the transfer of the Maribyrnong property was a dutiable transaction, the duty could only be payable on the transfer of the whole of the interest TCAL, as custodian, had. The sum of that interest was no more than the holding of the legal title, as the High Court recognised in Trust Company of Australia Ltd v Commissioner of State Revenue(Qld).[130] Before the transfer, the equitable interest in the Maribyrnong property lay with the responsible entity, the trustee of the scheme trust (first HRML and later Lend Lease): Trust Company of Australia Ltd v Commissioner of State Revenue (Qld).[131] In the unusual circumstances surrounding the transfer, the equitable title had been separated out, to be held on trust by an entity distinct from the custodian. This affected the nature, and thus the value, of what could be transferred.[132] All that could be transferred by the custodian, and all that could be commanded by a hypothetical sale in the open market,[133] was the value of the legal or registered title alone, the equitable title remaining at all times constant and fixed in the hands of the responsible entity and scheme trustee.
[130](2003) 77 ALJR 1019, 1024 [29].
[131]Ibid [29].
[132]Commissioner of State Revenue v Pioneer Concrete (Vic) Pty Ltd (2002) 209 CLR 651, 665 [39].
[133]Ibid 667 [41].
There was no assignment here of the equitable interest from the scheme trustee. As Dixon J said in Comptroller of Stamps (Vic) v Howard-Smith:[134]
A voluntary disposition of an equitable interest may take one of at least three forms. It may consist of an expression or indication of intention on the part of the donor that he shall hold the equitable interest vested in him upon trust for the persons intended to benefit. In that case he retains the title to the equitable interest, but constitutes himself trustee thereof, and, by his declaration, imposes upon himself an obligation to hold it for the benefit of others, namely, the donees.
In the second place, the disposition may consist of a sufficient expression of an immediate intention to make over to the persons intended to benefit the equitable interest vested in the donor, or some less interest carved out of it. In that case communication to the trustee or person in whom the legal title to the property is vested is not required in order effectually to assign the equitable property. Notice to the trustee may be important to bind him to respect the assignment and in order to preserve priorities. But it is not a condition precedent to the operation of the expression of intention as an assignment. Nor does it appear necessary that the intention to pass the equitable property shall be communicated to the assignee. What is necessary is that there shall be an expression of intention then and there to set over the equitable interest, and, perhaps, it should be communicated to someone who does not receive the communication under confidence or in the capacity only of an agent for the donor.
In the third place, the intending donor for whom property is held upon trust may give to his trustee a direction requiring him thenceforth to hold the property upon trust for the intended donee.
[134](1936) 54 CLR 614, 621–2.
None of the three methods of the assignment of the equitable title occurred here. Nor had any other method been adopted by which the scheme trustee assigned the equitable title it held to the custodian.
The history of the arrangements between TCAL and Lend Lease are relevant. The source of any interest TCAL had in the Maribyrnong property sprang from the Custody Agreement; at no time was TCAL the scheme trustee, nor could it have been, given the stipulation of s 601FC(2) of the Corporations Act. It thus never held, nor could hold, the scheme property on trust for scheme members. TCAL never had at law all the rights of an absolute owner in fee simple. The interest it held was always confined to that which was conferred upon it as a custodian or custodian-trustee holding the legal estate on trust for the scheme trustee. The equitable title held by the responsible entity, the scheme trustee, inhibited or impaired TCAL’s title.[135]
[135]Vopak Terminals Australia Pty Ltd v Commissioner of State Revenue (2004) 12 VR 351, 381 [74].
In my opinion, the relationship between TCAL and Lend Lease has the result that the equitable interest was a relevant outstanding proprietary interest which was carved out from the Maribyrnong property in a manner that exhausted the whole of its value[136] and which left only the bare legal estate to be transferred. As Pagone AJA observes, this is not to commit the fallacy of treating equitable interests as exceptions or reservations, or other encumbrances, impressed upon that which is in fact transferred. It is to acknowledge that the subject of the transfer could not, logically or legally, be more than the interest TCAL held.
[136]Ibid 381 [74].
Had the relationship between TCAL and Lend Lease exhibited the orthodox character of a trustee and beneficiary relationship, I would have agreed with the extensive analysis undertaken by Maxwell ACJ on the dutiable value question; the interest of a beneficiary under a standard trust, although proprietary in nature, does not qualify the trustee’s title. However, the relationship between TCAL and Lend Lease was not the orthodox one between a trustee and beneficiary; rather, it was a special or sui generis relationship between a custodian-trustee and a scheme trustee, the scheme trustee being the responsible entity of a managed investment scheme. That sui generis relationship had the result, as the High Court recognised in Trust Company of Australia Ltd v Commissioner of State Revenue, of separating out the equitable and legal title so that the equitable title was held on trust by the scheme trustee with the custodian-trustee holding no more than the bare legal estate. In my opinion, in determining the value of what was transferred,[137] the transfer of the legal
estate in fee simple from the custodian-trustee to the scheme trustee was of nil value for duty purposes. The trial judge was correct in that conclusion.
[137]Commissioner of State Revenue v Pioneer Concrete (Vic) Pty Ltd (2002) 209 CLR 651, 663 [34]; DKLR Holding Co (No 2) Pty Ltd v The Commissioner of Stamp Duties (NSW) (1982) 149 CLR 431, 449.
PAGONE AJA:
The Commissioner of State Revenue (the ‘Commissioner’) appeals from a decision made in the trial division that a transfer of property was exempt from duty under s 33(3) of the Duties Act 2000 (Vic) (the ‘Act’). The Commissioner also challenges the alternative conclusion of the trial judge that any dutiable value on the transfer was nil.
The Act charges duty upon a transfer of dutiable property.[138] An estate in fee simple in Victoria is dutiable property for the purposes of the Act.[139] The dutiable value of dutiable property is the greater of the consideration for the dutiable transfer and its unencumbered value.[140] On 18 December 2001 Trust Company of Australia Limited (‘TCAL’) transferred all of its estate in fee simple in the land known as Highpoint Homemaker Centre to the respondent (‘Lend Lease’).[141] At the time TCAL was the custodian trustee of the land under a custody deed made by agreement with Christie Retail Management Limited which subsequently changed its name to Homemaker Retail Management Ltd (‘HRML’). On 4 November 1997 a trust deed had been executed establishing a unit trust know as the Homemaker Retail Property Trust (‘HRP Trust’). That deed had been approved by the Australian Securities Commission under the corporations law then in force. TCAL was the first trustee and HRML was the manager. On 12 April 2000 the HRP Trust was registered as a management investment scheme under Chapter 5C of the Corporations Law.[142] At that time TCAL retired as trustee and HRML became the responsible entity
of the registered scheme. It appointed TCAL as the custodian under the custody agreement made between HRML as responsible entity and TCAL as the custodian.
[138]Act s 7(1)(a).
[139]Ibid s 10(1)(a)(i).
[140]Ibid s 20.
[141]At the time named GPT Management Limited.
[142]Corporations Act 1989 (Cth) s 82 (‘Corporations Law’).
On 27 November 2001 the unit holders of HRP Trust resolved to approve the acquisition of all of their units by General Property Trust (‘GPT’) or an entity controlled by GPT. GPT was also a registered managed investment scheme listed on the Australian Stock Exchange. On 28 November 2001 HRML retired and Lend Lease (then named GPT Management Limited) was appointed as responsible entity of HRP Trust. On the same day Lend Lease, in its capacity as responsible entity of HRP Trust, directed TCAL by notice in writing to transfer to it all of the property of HRP Trust then held by TCAL. This was made pursuant to a decision by Lend Lease that it would seek to become the responsible entity of HRP Trust rather than employ an external trustee as responsible entity. It also decided to terminate the custody agreement with TCAL to ensure that all custodian responsibilities and processes were undertaken internally by Lend Lease. On 12 December 2001 Lend Lease terminated the custody agreement and on 18 December 2001 TCAL transferred the subject land to Lend Lease. Consideration for the transfer was stated to be ‘pursuant to a direction dated 28 November 2001 from [Lend Lease] as responsible entity of the [HRP Trust] … to [TCAL] as custodian of the [HRP Trust]’.
A Section 33(3) Exemption
Lend Lease contended, and the trial judge accepted, that the transfer was exempt from duty pursuant to s 33(3) of the Act. That section provides:
33(3)No duty is chargeable under this Chapter in respect of a transfer of dutiable property to a person other than a special trustee if the Commissioner is satisfied that the transfer is made solely—
(a)because of the retirement of a trustee or the appointment of a new trustee, or other change in trustees; and
(b)in order to vest the property in the trustees for the time being entitled to hold it.
The Commissioner contended that the exemption did not apply because the section can have no application where the transfer terminates a trust and because the transfer was not made solely because of the retirement of a trustee or the appointment of a new trustee or other change in trustees.
There is no doubt that no duty would have been payable had no transfer occurred. The status quo could have been maintained with TCAL continuing to be the custodian pursuant to the custodian agreement without any duty being or becoming payable. There is also no suggestion that the transfer, or any of the transactions, were effected to avoid the imposition of duty upon any party. Indeed, it is clear that the exemption could easily and quite properly have been engaged by a simple transfer of the subject property from TCAL to any other company within or connected to the Lend Lease group to act as custodian.
The Commissioner, however, contended that the exemption did not apply on its terms to the particular transfer because the section contemplates a change of trustees to a continuing trust and that, as the Commissioner argued, in this case the effect of the transfer was to terminate the trust which had been created in the custodial agreement. In my view the trial judge correctly rejected this submission.[143]
[143]Lend Lease Funds Management Ltd v Commissioner of State Revenue [2009] VSC 360, [40]–[44] (Mandie J).
The subject land transferred on 18 December 2001 was held upon the trust created by the HRP Trust. Clause 9.5 of that trust permitted the trustee, with the consent of the manager, to authorise any person or persons to act as the trustee’s delegate ‘to hold title’ to any asset or to exercise any discretion within the trustee’s power. TCAL was the first trustee of HRP Trust and held the subject land under that trust but ceased to be the trustee when the HRP Trust was registered as a managed investment scheme under Chapter 5C of the Corporations Law on 12 April 2000 and HRML became the responsible entity. The custody agreement made between TCAL and the responsible entity enabled TCAL to continue to hold title to the subject land. The HRP Trust permitted and expressly contemplated that the trustee could authorise a delegate to hold title to any asset of the HRP Trust and to appoint an agent to do any act, matter or thing on behalf of the trustee. The custody agreement gave effect to that power by providing for TCAL (which had previously held the subject land as trustee) to hold as custodian (on behalf of the trustee). Clause 4.1(b) of the custodial agreement required TCAL to hold the assets, including the subject land, ‘of the Trust’ (namely, of the HRP Trust), on behalf of the responsible entity. The custody agreement did not otherwise alter the terms upon which the subject land was held on trust pursuant to the HRP Trust.
It may readily be accepted that a clause such as that found in 4.1(b) of the custody agreement may be sufficient to create a trust relationship,[144] but the exemption in s 33(3) is broad enough to cover the change (if any) in trustee effected here which did no more than to extinguish the custodial obligation by which TCAL held the subject land pursuant to the HRP Trust on behalf of the unit holders. In Commissioner of State Revenue v Victoria Gardens Developments Pty Ltd[145] Batt JA (with whom Ormiston and Chernov JJA agreed) accepted that a like exception was intended to apply to transfers to a new trustee to perform a pre-existing trust. In that regard his Honour said:
It is convenient to take first the second exemption relied on. In my view, the primary judge was clearly correct in holding that, on 2 grounds, exemption (23) did not apply to any of the transfers. First, the exemption, in using the words ‘the appointment … of any trustee’, applies only to the appointment of a new trustee to perform a pre-existing trust and does not extend to the appointment of a trustee to perform a newly created trust. The Full Court so stated in the case of (for present purposes) an almost identically worded exemption under the then Heading IV(A) in Comptroller of Stamps v Hutchins, and Hansen, J so held in the case of the present exemption in Perpetual Trustee Co Ltd v Commissioner of State Revenue. It may well be correct, as the respondent submitted, that the Full Court's statement on the point was obiter since it was the second reason for holding the exemption in question inapplicable and the first reason had been introduced by the words, ‘it would be enough to say that …’. On the other hand, their Honours did introduce the second and presently relevant reason by the words, ‘But it should we think be said in addition that …’ and did conclude their consideration of the second reason with the words, ‘This is enough to dispose of the exemption’. Even if they were obiter, I would be strongly inclined to follow the Full Court's considered remarks unless I considered them clearly wrong. On the contrary, however, having considered the matter for myself, I am, if I may respectfully say so, in agreement with their Honours. Clearly, the expressions ‘the … retirement of any trustee’ and ‘other change in trustees’ can only apply where there is a pre-existing trust. It is true that in an appropriate context the expression ‘the appointment … of any trustee’ may include the appointment of a first trustee of a new trust and in particular a declaration by a person that the person will hold property as such trustee: DKLR Holding Co (No 2) Pty Ltd v Commissioner of Stamp Duties (NSW). But the legislative context there was quite different. Not only did the provision under consideration by the High Court not include a phrase such as ‘or other change in trustees’, but the subsection in question followed a subsection which dealt with the appointment of an additional trustee as well as of a new trustee. Moreover, the word ‘other’ in the expression ‘or other change in trustees’ shows that the earlier word ‘appointment’, linked as it is with the word ‘retirement’ by a single definite article and a disjunctive conjunction, is limited to an appointment constituting a change in trustees. The word ‘appointment’ in effect noscitur a sociis. The words ‘the trustees for the time being’ in the second or purpose limb of the exemption point with clarity in the same direction as the words ‘other change in trustees’ in the first or result limb. The respondent submitted that, since the relevant part of the judgment in Hutchins was obiter, it was open to this Court to consider another construction not advanced in Hutchins. This was that the exemption, or more accurately what I have called the first limb, should be treated as itself divided into 2 limbs, the first dealing with appointments to new trusts and the second dealing with retirements and other changes (including appointments of new trustees) to existing trusts. This was said to be supported in part by the consideration that otherwise the expression ‘other change in trustees’ would have no meaning. Having considered the construction put forward, I am of the view, even without reference to the inclination I have mentioned earlier, that it should not be accepted. The expression ‘other change’ does have meaning: at the least it covers the removal of a trustee. Moreover, the suggested construction severs the tightly bound expression ‘the appointment or retirement of any trustee’ and gives the expression ‘any trustee’ a sliding or varying denotation depending on the noun with which it is taken.[146]
These observations are consistent with the view accepted by the trial judge and the evident policy which the section expresses. In this case there was, at most, the removal of a trustee (TCAL as special trustee under the custody agreement) of a pre‑existing (and continuing) trust. It may be that the custodial duties assumed by TCAL created a special trust but its holding pursuant to the custodial agreement was of the land on behalf of the responsible entity as trustee of the pre-existing HRP Trust. The transfer was relevantly a change of trustee of that trust sufficient to come within the terms of s 33(3). It is a factual inquiry that is called for by s 33(3) and, in particular, a factual inquiry about whether the transfer was executed only in consequence of a change of trustee and in order to vest the real property of the trust in the name of the new trustee.[147] The reason for the change was fully explained by the evidence of the general counsel for Lend Lease, namely, to ensure that all custodial responsibilities and processes were undertaken internally by Lend Lease rather than to have the administrative inconvenience of an external custodian. Lend Lease had various systems and processes in place allowing it to undertake internally the role and duties which TCAL had previously undertaken. Those systems included a dedicated custodial/compliance officer whose role it was to administer the various custodian relationships within the Lend Lease business and a specific space dedicated as a fire rated storage facility for documents.
[144]Trust Company of Australia Ltd v Commissioner of State Revenue(Qld) (2003) 77 ALJR 1019, 1024 [27], [29] (Gummow and Hayne JJ).
[145](2000) 46 ATR 61.
[146]Ibid [27] (footnotes omitted) (emphasis added).
[147]Perpetual Trustee Company Ltd v Commissioner of State Revenue (2000) 44 ATR 273, 287 (Hansen J).
The Commissioner next contended that s 33(3) did not apply to the transfer because any transfer was not ‘solely because of’ a retirement of a trustee or the appointment of a new trustee or other change in trustee but, rather, was a step in a wider commercial transaction that involved significant changes to the underlying interests of the trust. In that regard the Commissioner linked the transfer as a step in the takeover of HRP Trust by Lend Lease.
In Commissioner of State Revenue v Victoria Gardens Developments Pty Ltd[148] Batt JA (with whom Ormiston and Chernov JJA agreed) held that the transfer there in question did not come within the exemption because the instruments of transfer ‘were made to give effect to’ the provisions of a joint venture agreement. His Honour said:
Turning to the second ground for denying exemption, in my opinion the better view of the facts and documents is that the instruments of transfer were not made ‘solely in consequence of’ the appointment of the trustee (assuming, contrary to the first ground, that that includes appointment of a trustee to a new trust) or ‘solely’ (as I would read the exemption as requiring) ‘… in order to vest’ the real property in the trustee for the time being entitled to hold it. I respectfully agree with what Hansen, J. said in Perpetual Trustee Co as to the meaning and significance of the word ‘solely’ in the exemption. When regard is had to cll 2.1(a) and 2.2(a) of the JVA in particular it cannot, in my opinion, be said that the instruments of transfer were made solely as a consequence of the appointment or solely for the requisite purpose, those requirements being cumulative. Rather, as his Honour held, they were made to give effect to the provisions of the JVA.
That is sufficient to deal with this exemption. But I would record that I have considered it on a basis that is, strictly, too favourable to the respondent. For, as Hansen, J indicated in Perpetual Trustee Co, the exemption is so expressed as to require the satisfaction of the Comptroller as to the sole consequence and the sole purpose if it is to be applicable. Thus, the Comptroller having in para 14 of his reasons for decision expressed the view that the 3 transfers were not executed ‘solely in consequence of’ (as he expressed it) a change of trustee but to give effect, in substance, to the JVA, in strictness it was for the respondent to show, at any rate before the primary judge, that the Comptroller erred, in one of the ways identified by Dixon J in the oft-cited passage in Avon Downs Pty Ltd v FCT, in failing to be satisfied as to the consequence limb (and as to the purpose limb). But, since neither party directed argument to this point, I say no more about it.[149]
The facts in that case stand in stark contrast with those in this. In that case the transfers were truly a step in a joint venture agreement through which three owners of six separate lots of land sought to develop the land for commercial gain. The transfers were an incident of the wider commercial objective and not independent of the commercial objective. In this case the subject transfer was independent of the commercial objective and need not have taken place at all. It is true that the transfer occurred in the context of the takeover and that its steps were set out in the document detailing the steps of the takeover, but that context does not answer the relevant statutory enquiry called for by s 33(3) nor does the context make the transfer fall outside the policy which s 33(3) is designed to effect. The section calls for an examination of the causal relationship between the transfer and the change in trustees. It must be the change that explains the transfer. In this case it is the change of trustee which wholly and totally explains the transfer. It was solely the decision to remove TCAL as trustee which explains why the transfer occurred. No part of the context of the takeover in any way explains or bears upon the transfer beyond providing the commercial context in which that otherwise independent and unnecessary step was taken.
[148](2000) 46 ATR 61.
[149]Ibid 72, 73 [28]–[29] (footnotes omitted).
B Dutiable Value
It is not strictly necessary, but may be desirable, to consider the Commissioner’s challenge to the alternative views expressed by the trial judge concerning dutiable value if it had been necessary for his Honour to deal with those issues. The trial judge reasoned that any dutiable property transferred was the ‘bare legal estate’ in the land which his Honour said had a nil value for duty purposes.
Section 20 of the Act relevantly provides that the dutiable value of dutiable property is of the ‘unencumbered value of the dutiable property’. The dutiable property in this case was the transfer of an estate in fee simple. His Honour reasoned that the nature of the estate in fee simple held by TCAL as registered proprietor and transferred to Lend Lease was only to the legal estate in fee simple and not to the equitable estate over which it had no entitlement.[150] The Commissioner contended that this amounted to an impermissible valuation of a net benefit contrary to the High Court’s decision in Commissioner of State Revenue v Pioneer Concrete (Vic) Pty Ltd.[151]
[150][151](2002) 209 CLR 651 (‘Pioneer’).
In Pioneer the High Court had made clear that what is to be valued is the estate in fee simple unqualified by any exception or reservation and that in the process of valuation there was no warrant to take into account encumbrances that might affect the sale value. In the joint judgment Gleeson CJ, Gummow, Kirby and Hayne JJ said:
Once it is accepted that the real property to be valued is an estate in fee simple in the land referred to in the relevant certificates of title, unqualified by any exception or reservation, or any other outstanding proprietary interest, then it follows that the exercise required by par (b) is a determination of the amount for which such an estate might reasonably have been sold if it had been sold, free from encumbrances, in the open market on the date of the sale. The determination of such an amount is a familiar task, to be carried out in accordance with the principles stated in Spencer v The Commonwealth. The subject of the valuation is the unencumbered estate in fee simple. In determining the value there is no warrant, either in the language of the statute or in principle, for departing from the hypothetical inquiry as to the point at which a desirous purchaser and a not unwilling vendor would come together. The purpose of making the inquiry hypothetical is to isolate the value of the estate or interest to be transferred from factors that are extraneous to the purpose for which such a value is to be ascertained. To introduce into the exercise a special condition for which, on a particular occasion, a particular vendor chose to stipulate, and to which a particular purchaser chose to agree, is to depart from the statutory requirement, which is to determine the value of that which was transferred. It is, rather, to value the net benefit which the transaction conferred upon the purchaser. It is to treat stamp duty as a tax on a transaction.[152]
Observations to similar effect may be seen in DKLR Holding Co (No 2) Pty Ltd v Commissioner of Stamp Duties (NSW).[153] It is thus clear that the subject matter to be valued is not to be valued by reference to charges or other obligations upon the subject matter. On the other hand encumbrances upon the subject matter of a transfer is not to be confused with the excision of an estate or interest from the subject matter to be valued. It is one thing to exclude from the valuation of a thing something which might diminish its value and quite another thing to substitute the subject matter to be valued by something quite different from that which the parties actually transferred.
[152]Ibid 667 [44] (footnotes omitted).
[153](1982) 149 CLR 431, 449-50 (Mason J) (‘DKLR’).
In this case there can be no doubt that no part of the interest in the HRP Trust was transferred by TCAL to Lend Lease. Such transfer as had been effected in that trust had occurred by the takeover of the unit holding and the change in identity of the responsible entity of that scheme. At most TCAL was able to transfer its interest as special trustee by reason of being custodian under the custodian agreement. It was that which his Honour identified as the relevant subject matter for valuation for duty purposes on the hypothesis that he might be wrong about the application of s 33(3). Unlike the property considered in DKLR, in this case there was a severance of the legal and equitable interests in the land which TCAL held as custodian.
In Vopak Terminals Australia Pty Ltd v Commissioner of State Revenue[154] this Court held that the existence of an equitable interest enforceable against any holder of an estate ought to be taken into account if it has been carved out of the estate otherwise transferred. Ormiston JA (with whom Warren CJ and Buchanan JA agreed) said:
It may be accepted that an equitable interest strictly binds only the conscience of the holder of an estate or interest in land, but it is now too late to say that it does not constitute an ‘interest’ enforceable in the courts or that it should be distinguished or ignored when making a valuation of an estate or interest for the purposes of Heading VI. Counsel asserted that, where a conveyance or transfer was expressed to be of an ‘estate’ (in fee simple) in land, equitable interests could not qualify that estate or have a bearing on its value, largely again because they are not ‘carved out’ of the estate, so that the estate remains unimpaired for the purpose of valuation. But if both hypothetical vendor and purchaser could fairly take account of an equitable interest in fixing their price on sale, then surely it cannot be ignored because it is merely ‘impressed upon’ the estate. Certainly, if it amounted only to a personal equity or an obligation peculiar to the vendor not amounting to an interest, it must be ignored, but if it is an equitable interest enforceable against any holder of the estate by action or by use of the caveat procedure under the Transfer of Land Act, then it ought to be taken into account for that purpose. As the court emphasised in Pioneer Concrete, if interests are of a kind which would ‘reduce the amount for which the relevant real property, that is, the estate in fee simple in the land the subject of the certificates of title, might reasonably be sold free from encumbrances at the date of sale’, then they are fundamentally different from the personal contractual rights there considered. Although the High Court in the same paragraph said that the subsequent 1997 amendments, effected by the insertion of subss (3A), (3B) and (3C) of s 63, being there discussed, were not decisively relevant to the construction of the provisions of the Act then under consideration, they were in force at the time of the present sale in 1998 and were therefore part of both the statute and in particular of s 63 at the relevant time. Those provisions would point, at the very least, to a broad rather than a narrow, meaning of s 63 and of subpara (B) of subs (3)(b)(i) thereof.[155]
In my view, and with respect to the contrary view expressed by Gzell J in Sportscorp Australia Pty Ltd v Commissioner of State Revenue,[156] Vopak does support the proposition that, in an appropriate case, an instrument of transfer of land is to be assessed as a transfer of the bare legal estate if the beneficial interest in the land is held by the transferees. The analysis in Vopak requires the precise identification of that which the parties transferred by their instrument and not its diminution in assessable value by reference to encumbrances impressed upon that which is in fact transferred. In this case there can be no doubt that all that was being transferred was the totality of, and no more than, the entitlement of TCAL as custodian.
[154](2004) 12 VR 351.
[155]Ibid 381 [74] (footnotes omitted).
[156](2004) 58 ATR 1, 14 [77].
Accordingly I would dismiss the appeal.
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Lend Lease Funds Management Ltd v Commissioner of State Revenue [2009] VSC 360 [57]
(Mandie J).
20
14
0