Commissioner of State Revenue v Politis
[2004] VSC 126
•20 April 2004
| IN THE SUPREME COURT OF VICTORIA | Not Restricted | |
AT MELBOURNE
COMMERCIAL AND EQUITY DIVISION
VICTORIAN TAXATION APPEALS
No. 8321 of 2003
| COMMISSIONER OF STATE REVENUE | Applicant |
| v | |
| ANGELA POLITIS and POLITIS INVESTMENTS PTY LTD | Respondents |
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JUDGE: | NETTLE J | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 7 April 2004 | |
DATE OF JUDGMENT: | 20 April 2004 | |
CASE MAY BE CITED AS: | Commissioner of State Revenue v Politis | |
MEDIUM NEUTRAL CITATION: | [2004] VSC 126 | |
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Transactions Duty – Transfer of dutiable property – Sub-sales of land – Contract of sale of land between vendor and first purchaser – Novation by cancellation of contract of sale and entry by vendor into second contract of sale with transferee – Transfer of land from vendor to transferee pursuant to second contract of sale - Whether as a result of novation transferee acquired directly or indirectly the whole or part of rights or interest of first purchaser under first contract of sale – Duties Act 2000, s. 31.
Words And Phrases – “acquired directly or indirectly”.
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APPEARANCES: | Counsel | Solicitors |
| For the Applicant | Mr S.G. O’Bryan, SC | Solicitor to the Commissioner of State Revenue |
| For the Respondents | Mr P.W. Lithgow | Costanzo Lawyers |
HIS HONOUR:
This is an application pursuant to s. 148 of the Victorian Civil and Administrative Tribunal Act 1998 for leave to appeal from the decision of the Tribunal of 15 August 2003 to reduce to $10,720 an assessment to duty issued to the respondents under s. 31 of the Duties Act 2000. The question involved is said to be of such general importance that the hearing of the application for leave to appeal has been treated as the hearing of the appeal itself.
The facts
The second respondent, Politis Investments Pty Ltd, was incorporated on 9 October 1995 and by deed of settlement dated 1 January 1996 was constituted as trustee of the N & A Politis Trust No. 2.
Prior to 28 March 2002, Nicholas and Angela Politis were directors of Politis Investments Pty Ltd, and appointors of the N & A Politis Trust No.2.
On 28 March 2002 Mr and Mrs Politis resigned as directors and appointors and were replaced in both capacities by Con, George and Steven Politis.
By contract of sale of land dated 29 June 2002 (“the first agreement”) Vittorio Orlando Mirasco agreed to sell to the first respondent, Angela Politis, or her nominee the land situate at 53 Janet Crescent Bundoora at a price of $251,000. The first agreement provided that the price should be payable by a deposit of $21,500 upon the signing of the contract and by payment of the balance at the expiration of thirty days from the date of the contract, namely, 29 July 2002 or earlier by agreement. Mrs Politis paid the deposit of $21,500 on the signing of the contract.
By deed of cancellation dated 24 July 2002 between Vittorio Mirasco and Angela Politis the first agreement was “cancelled” and on the same day Vittorio Mirasco entered into a new contract with Politis Investments Pty Ltd (“the second agreement”) to sell the land to that company at the same price of $251,000 upon which the deposit was taken to have been satisfied by the payment of deposit made Mrs Politis on 29 June 2002 under the original contract.
Although the second agreement was left undated, the parties appear to have intended at the time of its execution that the day of sale be treated as 29 June 2002 (as it had been under the first agreement). The second agreement had the original vendor’s statement attached to it and the statement of goods signed by the vendor treated the second agreement as being dated 29 June 2002.
By notice of assessment dated 28 August 2002, No. A133049, the Commissioner assessed Mrs Politis and Politis Investments Pty Ltd to duty under s. 31 of the Duties Act 2000 on the basis of both the value of the property the subject of the first agreement and the value of the real property transferred to Politis Investments Pty Ltd.
Section 31
So far as is relevant for present purposes, section 31 of the Duties Act 2000 provides that:
"31. Sub sales of land
(1) If—
(a)a person ("the vendor") agrees to transfer any dutiable property referred to in section 10(1)(a) or (d) ("the agreement") to another person ("the first purchaser") (whether or not the agreement provides for that other person to nominate another person as purchaser); and
(b)the transfer executed by the vendor transfers the whole or any part of the property not to the first purchaser but to another person ("the transferee") who has acquired, whether directly or indirectly, the whole or any part of the rights and interest under the agreement of the first purchaser in the property—
the transfer is not chargeable with duty in respect of the transfer from the vendor to the transferee but is separately and distinctly chargeable with duty in respect of—
(c)the value of the property in the agreement (whether or not the agreement has been discharged by performance, novation or agreement or has otherwise ceased to exist); and
(d)the value of the property transferred to the transferee; and
(e)if the transferee did not acquire those rights and interest directly from the first purchaser, the value of the property in each other transaction or agreement as a result of which the rights and interest of the first purchaser in the property were acquired.
(2)For the purposes of sub-section (1), the value of the property is—
(a)if there was a consideration for the agreement or transaction in respect of which duty is chargeable—
(i)that consideration; or
(ii)the amount for which the property might reasonably have been sold if it had been sold, free from encumbrances, in the open market on the date of the agreement or transaction in respect of which duty is chargeable—
whichever is the greater; and
(b)in any other case, the amount for which the property might reasonably have been sold, free from encumbrances, in the open market on the date of the agreement or transaction in respect of which duty is chargeable.
(3)…
(4)…
(5)…
(6)For the purposes of this section but without limiting the ways in which a person may be taken to acquire the rights and interest of another person in property, a person who has rights or an interest in property ("the first person") acquires the rights and interest of another person ("the second person") in that property if, as a direct or indirect result of an agreement, arrangement or understanding involving those persons (with or without other persons)—
(a)the second person acquires rights or an interest in the property; and
(b)the rights or interest of the first person in the property are increased.
(7)…”
The question for decision
The question which the Tribunal posed for decision was “whether the rights acquired by (Politis Investments Pty Ltd) under the second agreement are within the terms of the law acquired directly or indirectly under the first agreement” (my emphasis). By “the terms of the law” the Tribunal evidently meant the terms of the general law, as opposed to any particular statutory conception of the direct or indirect acquisition of rights. Thus and not surprisingly the Tribunal answered the question which it had set for itself, as follows:
“I think that what happened was that the rights of the vendor were extinguished when the cancellation came into affect (sic); I think the second purchaser acquired rights, of exactly the same description and value, but they are not the same rights, and if they are not the same rights they cannot be said to have been acquired directly or indirectly from that first agreement.”
If the Tribunal were correct in the formulation of the question, the answer which it gave would also be correct. What occurred on 24 July 2002 constituted a novation of the contract of 29 June 2002 and it is trite law that a novation denotes the rescission (scil. the termination) of one contract and the creation of another under which acts that were to be performed by the parties to the original contract in accordance with their rights and obligations under the original contract are to be performed by the parties to the new contract in accordance with their rights and obligations under the new contract.[1] Hence, as a matter of general law, it follows that the rights acquired by Politis Investments Pty Ltd under the second agreement could not have been the rights of Mrs Politis under the first agreement.
[1]Scarf v Jardine (1882) 7 App Cas 345 at pp. 351 and 356; Vickery v Woods (1952) 85 CLR 336 at p.344; Re United Railways of Havana [1960] Ch 52 at pp.84-5 and 88 ; Olsson vDyson (1969) 120 CLR 365 at pp.388-9; Chitty, The Law of Contract, 17th Ed at [1488]; Cheshire and Fifoot’s Law of Contract, 8th Aust Ed. at [8.46]
In my opinion, however, the Tribunal was not correct in the formulation of the question. Section 67A of the Stamps Act 1958 - the precursor to s. 31 of the Duties Act - was enacted in 1994 to overcome the decision of the Administrative Appeals Tribunal in Re Innvale Pty Ltd and Comptroller of Stamps[2]. Given that the decision was based in the general law[3], and that the statute was directed to overcoming its effect, the question which called for decision was not “whether the rights acquired by (Politis Investments Pty Ltd) under the second agreement (were) within the terms of the law acquired directly or indirectly under the first agreement” but rather whether they were so acquired within the terms of s. 31[4].
[2](1989) 2 VAR 609
[3]ibid at pp.613-4
[4]See and compare Western Australia v Ward (2002) 76 ALJR 1098 at 1105 [2], 1108-1109 [16], 1110 [25], 1216 [588]; Boral Besser Masonry Ltd (now Boral Masonry Ltd) v Australian Competition and Consumer Commission (2003) 77 ALJR 623 [337]
Evidently, the statutory conception of direct or indirect acquisition of rights or interest is not confined to general law conceptions of the acquisition of rights or interest. One need go no further than the reference in s. 31(1)(c) (to the possibility of a contract of sale having been discharged by novation or agreement or of otherwise ceasing to exist) in order to see that the section is directed to something broader than merely assignments strictly so called. The proposition in s. 31(6) that a person shall be taken to have acquired the rights or interest of another in the circumstances there postulated also conveys an intention that the statutory conception of direct or indirect acquisition of rights or interest reach beyond the ambit of assignments strictly so called. Furthermore, inasmuch as s. 31(6) describes that sort of case as being without limit to the ways in which a person may be taken to acquire the rights and interest of another person in real property for the purposes of the section, the statutory conception of acquisition appears to be fairly broad. Clearly enough Parliament intended that the section extend to a number of different sorts of arrangements other than assignments. The question for present purposes is whether this case is one of them.
The meaning of s. 31
I take as the starting point that whatever may or may not be within the reach of s.31, it is apparent from the Second Reading Speech that the section was intended to apply to cases in which a purchaser having entered into an agreement for sale to the purchaser or nominee agrees to on-sell the land to a transferee and then directs the vendor to transfer the land directly to the transferee as the purchaser’s nominee. That was the paradigm at which the section was said to be directed; for as it was put by the Treasurer in the Second Reading Speech for the bill for the introduction of s.67 A of the Stamps Act 1958:
“The provisions which relate to sub-purchases of real property and the use of nominee clauses upon the purchase of real estate will be clarified. The amendment will prevent the use of nominee clauses as a device to avoid stamp duty.
However, the genuine use of a nominee clause to enable the purchase of real property on behalf of a family member, a family company or a company related to the purchaser will not be affected.”[5]
[5]Hansard, 10 November 1994 (Assembly) at p.1688
Plainly, however, under most nomination clauses the nominee would not acquire any rights as against the vendor, let alone the rights of the purchaser; for most nomination clauses constitute no more than a power in the purchaser to require the vendor to complete the contract by transfer of the land to the purchaser’s nominee [6]. In such cases the purchaser has rights as against the vendor to have the land transferred to the purchaser or to the purchaser’s nominee, at least upon payment of the purchase price. And the purchaser has an interest in the land, in the nature of an equitable fee simple (assuming that the contract provides for purchase of the fee simple), although of course that really means no more than that the contract is susceptible to an order for specific performance at the suit of the purchaser[7]. But the nominee does not acquire any rights as against the vendor, because the nominee is not privy to the contract [8]. And for the same reason, the nominee has no standing in equity to obtain an order for specific performance of the contract. He must sue in the name of the purchaser or join the purchaser as a defendant. Therefore, such if any interest as the nominee may have in the land is one which derives from the purchaser, and relevantly the most that can be said is that the nominee may acquire an interest in the land equivalent to that which the purchaser had or would have had under the contract of sale.
[6]Tonelli v Kommirra Pty Ltd [1972] VR 737 at p.739; Harry v Fidelity Nominees Pty Ltd (1985) 41 SASR 458; Salter v Gilbertson [2003] VSCA 1 at [17]
[7]Chang v Registrar of Titles (1976) 137 CLR 177 at pp.181, 184 and 190; cf Chan v Cresdon (1989) 168 CLR 242 at pp.252-3
[8]Coulls v Bagots Executor Trustee Co (1967) 119 CLR 460 at pp.477 - 479; Gadsden v Commissioner of Probate Duties [1978] VR 653 at pp. 657-8; cf. Beswick v Beswick [1966] 1 Ch 538 at p.553;
Some nomination clauses do result in the substitution of the nominee for the purchaser[9]. But even there the nominee would not acquire the purchaser’s rights under the contract. The substitution of the nominee for the purchaser would work a novation of the agreement, and as I have observed already that means that the acts that were to be performed by the parties to the original contract in accordance with their rights and obligations under the original contract would be performed by the parties to the new contract in accordance with their rights and obligations under the new contract. Once again, within the meaning of the general law, the nominee would not acquire any right or interest of the purchaser under the contract.
[9]Parland Pty Ltd v Mariposa Pty Ltd (1995) 5 Tas R 121; Salter v Gilbertson, supra at [18] and [19]
How then does one construe the terms of s.31 in order to accommodate such a case and yet give to the section the effect which it was said it was intended to have? The answer appears to me to be to construe the words “acquire…directly or indirectly, the whole or any part of the rights or interest of the first purchaser under the agreement” as embracing not only the acquisition directly or indirectly of the very rights or interest of the purchaser (as, for example, by direct assignment or indirectly by a chain of assignments) but also the acquisition directly or indirectly of equivalent rights or interest (as, for example, by nomination or novation or perhaps even by the acquisition of shares in a company which holds the rights or interest or by acquisition of an interest in a trust of which the trustee holds the rights or interest).
One way to that conclusion is to reason that there are such strong indications of an intention to embrace equivalent rights and interest (as there are in ss. 31(1) and (6)) that the drafter of the legislation must have supposed that “the whole or any parts of the rights and interest” included equivalent rights and interest.
An alternative or perhaps additional way of getting to the same result is by reasoning that the statutory conception of acquisition “directly or indirectly” is a multi-dimensional concept. Conceived of in that fashion, one of the dimensions reflects the linear distinction that exists between acquisitions directly from a purchaser, as by direct assignment, and acquisitions indirectly from a purchaser, as by a chain of assignments that extends from the purchaser at one end via one or more intermediaries to the transferee at the other. The other or another dimension reflects the juridical qualitative distinction that exists between acquisitions directly from a purchaser, as by assignment (whether linearly direct or indirect is irrelevant), and acquisitions indirectly from a purchaser, as by the acquisition howsoever of rights or interest that are not the rights of the purchaser but are in substance equivalent to those of the purchaser.
It may be that the latter approach puts too much emphasis on the expression “directly or indirectly” and assumes too much about the complexity of what the expression was intended to convey. But the words “directly or indirectly” are ordinarily taken as words of wide import when used in the context of a taxing statute[10], as well as in other contexts[11], and I see no reason to think that they were not intended as having a wide import in the context of s. 31.
[10]Smith v Federal Commissioner of Taxation (1987) 164 CLR 513; Hayes v Federal Commissioner of Taxation (1956) 96 CLR 47; Federal Commissioner of Taxation v Dixon (1952) 86 CLR 540; Catterwell v Wright (1991) 56 SASR 581
[11]See, for example, Wilcox v Clarke & Co (No2) (1896) 21 VLR 752; R v Commonwealth Court of Conciliation and Arbitration; Ex parte Federated Gas Employees’ Industrial Union (1951) 82 CLR 267; Ryan v Triguboff [1976] 1 NSWLR 588; Day v Rugala (1978) 33 FLR 208; Melville v Mutual Life & Citizens Assurance Co Ltd (1980) 47 FLR 201; Australian Alliance Insurance Co Ltd v Australian Pensioner Advisory Service Pty Ltd & Blake, Unrep, 28 June 1994, Ashley J
Another argument against the latter approach is that as a matter of syntax the words “directly or indirectly” appear to control the participle “acquired” and yet add nothing qualitative to it. Such an argument found favour with Lockhart J in Trade Practices Commission v Australian Iron & Steel Pty Ltd[12], with reference to the expression “directly or indirectly” in s. 50 of the Trade Practices Act 1974. Hence as his Honour said:
“28.The meaning of the words ‘directly or indirectly’ in sub-s. 50(1) was the subject of much argument before me. I find it a little curious that the words appear in the sub-section at all because I doubt if they add anything to what would otherwise be the construction of the sub-section. They do not appear in other sections in which one might expect to find them: for examples, ss. 47, 48, and 49 relating respectively to exclusive dealing, resale price maintenance and price discrimination. …
29.The language of s. 50 itself throws little light upon what constitutes a direct or indirect acquisition. Sub-sections (2A) and (2B) are irrelevant to this question for they simply deem certain corporations or bodies corporate to be associated with one another for the purpose only of widening the scope of corporate relationships on the question of dominance in the relevant market for goods and services.
30.The words ‘directly or indirectly’ in sub-s. 50(1) plainly control the immediately preceding word ‘acquire’. They relate to the method of acquisition, not its subject matter. They do not qualify the nature or character of the shares or assets the acquisition of which is prohibited. This follows not only from the syntax of sub-s. 50(1) but from its evident purpose.
31.What is a ‘direct’ as opposed to an ‘indirect’ acquisition? A ‘direct’ acquisition is one by the corporation itself. An ‘indirect’ acquisition is an acquisition by someone on behalf of the corporation acting as agent, trustee or nominee: see S.A. Brewing Holdings Limited per von Doussa J. at 50,275; and cf. Milk Board v Echo Dairies Pty. Limited (1963) NSWR 1653 per Jacobs J. at 1665; Trade Practices Commission v Legion Cabs (Trading) Co-Operative Society Limited (1978) ATPR 40-092 per Franki J. at 17,905; Melville v Mutual Life & Citizens Assurance Co. Limited (1980) 31 ALR 649 per Lockhart J. at 655.”
[12](1990) 22 FCR 305 at p. 316; see also R v Manasseh [2002] NSWCCA 27 at[34] and [57].
But it has since been recognised that such an approach places an unduly restrictive interpretation upon section 50 of the Trade Practices Act and, just as importantly for present purposes, that it may offend the established principle of statutory construction that a court must strive to adopt the construction of a section which will give some effect to all the words it contains. In Trade Practices Commission v The Gillette Company [13] Burchett J said:
“23.With respect to the construction of s. 50, account must also be taken of the established general rule, to which Gibbs J referred in Beckwith v. The Queen (1976) 135 CLR 569 at 574, that ‘a court will adopt that construction of a statute which will give some effect to all of the words which it contains’. As was acknowledged in Australian Iron & Steel, a narrow meaning of the words ‘directly or indirectly’, as they are used in s. 50, leaves them entirely without effect. For the word ‘acquire’, as it must be construed by virtue of s. 4(4), in itself comprehends everything which Lockhart J suggests should be conceded to ‘indirectly’.
[13](1993) 45 FCR 366 at p. 376, after rejecting the analysis of Lockhart J in Australian Iron & Steel, and expressing a preference for views previously expressed Davies J in Australia Meat Holdings Pty Ltd v Trade Practices Commission.
The better view now therefore is that an “indirect” acquisition of shares within the meaning of s. 50 of the Trade Practices Act 1974 includes the acquisition of shares by a subsidiary of the acquirer, even though, of course, the shares in the subsidiary do not give the acquirer a legal or equitable interest in the shares acquired by the subsidiary.
Parity of reasoning affords support for the conclusion that the notion of direct or indirect acquisition of rights or interest within the meaning of s. 31 of the Duties Act includes the acquisition by the transferee of rights which are equivalent to the rights or interest of the purchaser. Whereas in the context of an anti-monopolisation legislation the evident purpose of a provision like s. 50 of the Trade Practices Act suggests that the notion of direct or indirect acquisition of shares includes the acquisition of shares by a subsidiary, so in the context of transactions duty legislation the evident purpose of an anti-avoidance provision like s. 31 of the Duty Act suggests that the notion of direct or indirect acquisition of the rights or interest of the purchaser includes the acquisition howsoever of rights or interest which are equivalent to those of the purchaser.
Of course, it cannot be that every acquisition of rights or interest equivalent to those of a purchaser attracts the operation of s. 31. Otherwise duty would be exigible under the section in cases where it was plainly not intended to apply, for example, in a case in which the contract of sale of land is rescinded for default and the vendor subsequently enters into another contract with an unrelated third party to sell the land to that party. In such a case the rights and interest acquired by the third party might be thought of as equivalent to the rights and interest of the defaulting purchaser under the original contract. But the section was not intended to apply in a case of that kind.
But the section itself provides for the limitation that avoids those sorts of excesses. The section is in terms limited to cases of direct or indirect acquisition by the transferee of the purchaser’s rights or interest under the contract of sale. Taken in context I think that that must mean acquisition from the purchaser directly or indirectly of the purchaser’s rights or of rights equivalent to the purchaser’s rights.
What then does it mean to say that the section is confined to the acquisition from the purchaser of the rights or interest of the purchaser or the acquisition from the purchaser of rights or interest equivalent to those of the purchaser? Simply, I think, that the section is confined to cases in which the purchaser agrees to the transfer to the transferee of the rights or interest of the purchaser or agrees to the creation in favour of the transferee (or in favour of another from whom the transferee may then directly or indirectly acquire rights or interest) of rights or interest equivalent to those which but for the purchaser’s agreement would have inured under the contract of sale to the benefit of the purchaser .
Subject to that overriding limitation, I envisage that there would be an acquisition of rights or interest of the purchaser within the meaning of the section where and howsoever a purchaser might agree to the substitution for its rights or interest under the contract of equivalent rights or interest in favour of the transferee (or in favour of another from whom the transferee may then acquire rights or interest equivalent to those of the purchaser). Therefore and without attempting an exhaustive catalogue of the mechanisms that might be employed, I think that they would include a nomination clause in the original contract, an express agreement to amend the original contract, an amendment constituted of conduct, as by a direction to the vendor to transfer to the second purchaser in lieu of the first and compliance by the vendor with the direction, and also a novation.
I appreciate that a novation is in one sense different to the other mechanisms that I have mentioned. It involves the rescission and thus extinction of the original contract and of rights still inchoate at the time of rescission, whereas in the other cases mentioned, the purchaser’s rights and interest under the original contract of sale inure, notwithstanding that they may be altered or modified as a result of the mechanism in question, to inform the rights or interest acquired by the transferee. But in the context in which the section falls to be considered I do not see that as being a difference of significance. Regardless of whether the mechanism chosen is that of original agreement or amendment or novation, the result will be the same[14]. In each case the transferee will receive rights or an interest equivalent to those or that which would have inured to the purchaser under the contract of sale if the mechanism had not been activated. And while of course there is a difference of substance between the elements of original agreement, and amendment by further agreement, and novation, which for other purposes may be of critical importance, I do not accept that the operation of a tax avoidance provision directed to the imposition of duty upon nominee transfers was intended to vary according to distinctions of that kind. There is nothing in the text of the s.31 to suggest that it was so and as has already been seen the second reading speech bespeaks the contrary.
[14]Olsson v Dyson (1969) 120 CLR 365 at p.388-9, per Windeyer J
The application of s. 31
In this case the Deed of Cancellation had the same parties as the original contract of sale. It provided for the cancellation of the original contract of sale and for the deposit moneys paid under that contract to be held on trust until a new contract was executed with the transferee. It was executed simultaneously with the new contract of sale and a copy of the new contract of sale was attached to it as too was the original vendor's statement. In effect therefore, and by the express agreement of Mrs Politis, the deed achieved the substitution for Mrs Politis of Politis Investments Pty Ltd and the creation in favour of that company of an interest in the land equivalent to that which Mrs Politis would have held if the original contract of sale had been completed.
It follows in my opinion that the Deed of Cancellation effected the acquisition directly or indirectly by Politis Investments Pty Ltd of the rights or interest of Mrs Politis under the original contract of sale within the meaning of s. 31 and that the transfer executed by the vendor in favour of Politis Investments Pty Ltd attracted the operation of s. 31.
Conclusion
For the reasons given I consider that the Tribunal erred in its construction of s. 31 of the Duties Act and consequently in its conclusion that s. 31 did not apply to the facts of this case.
Subject therefore to anything counsel may wish to say, the orders I propose are that there be leave to appeal and that the appeal be allowed; that the Tribunal’s decision be set aside; and in lieu thereof that it be ordered that the assessment the subject of the appeal be affirmed.
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