Commissioner of State Revenue v Rojoda Pty Ltd
[2019] HCATrans 214
[2019] HCATrans 214
IN THE HIGH COURT OF AUSTRALIA
Office of the Registry
Perth No P26 of 2019
B e t w e e n -
COMMISSIONER OF STATE REVENUE
Appellant
and
ROJODA PTY LTD
Respondent
BELL J
GAGELER J
KEANE J
NETTLE J
EDELMAN J
TRANSCRIPT OF PROCEEDINGS
AT CANBERRA ON THURSDAY, 7 NOVEMBER 2019, AT 9.45 AM
(Continued from 6/11/19)
Copyright in the High Court of Australia
BELL J: Yes, Mr Solicitor.
MR THOMSON: Thank you, your Honour. Can I just tie up a few loose ends that arose out of yesterday? You may recall that I referred to a passage from the Privy Council’s decision in Cameron v Murdoch in which the Privy Council expressed the view that the fiduciary relationship between a surviving partner and the estate of a deceased former partner is not equivalent for all purposes to a relationship with a trustee in a cestui que trust; that was at page 287 of the ALJR reports.
I should have mentioned when I took your Honours to that passage that this observation was based upon Lord Hatherley in Knox v Gye and that was an observation which the Privy Council interpreted as approved in Chan v Zacharia and what was said by his Honour Justice Deane at page 194. With respect, it is suggested in the respondent’s submissions at paragraph 73 that Justice Deane came to a different view, we would say that, at least, the view that we have suggested is one that is consistent with the interpretation of the Privy Council in Cameron v Murdoch that Justice Deane preferred the view of the Lord Chancellor who was dissenting in Knox v Gye.
It may be helpful if I take your Honours to what was said by the Lord Chancellor in Knox v Gye, and then show you what Justice Deane said. The relevant passage is in the reports that have just been handed to your Honours at pages 678 to 679 and the Lord Chancellor said, starting at the base of page 678:
I confess, my Lords, that I thought it was an elementary principle of law that the partnership which at Law survives to the surviving partner, which carries to him at Law the whole interest in the partnership assets, which, treating him as a joint tenant, vests the whole of the partnership estates in him, was always subject to the doctrine of a Court of Equity, that in Equity the interest of a partner in the partnership is that of tenancy in common as between the two partners: so that the executors of a deceased partner have an interest in those assets which the surviving partner alone can get at, and that the surviving partner alone having a legal interest in the property, there arises, necessarily, a right, as between the executors of the deceased partner and him, to insist upon his holding those assets, which he so collects, according to the partnership interest, or subject to the share which the executors of the deceased partner, in right of their testator, are entitled to claim . . . The executors of the deceased partner have a right to a sale of every portion of the partnership property, so completely are they held to be in a fiduciary position, so completely are the assets, including the plant or houses, the machinery or stock in trade, or whatever the description of property may be that comes into the hands of the surviving partner by right of his survivorship at law, and which are all vested in that surviving partner by right of his survivorship at law, held to be property in all of which, whether they are chattels of the partnership, or estates of the partnership, the executors of a deceased partner have an interest commensurate with the extent of the share of their testator. They have a right, therefore, to have that property so disposed of that it may be applied under the direction of a Court of Equity, according to the equitable rights between the partners.
Now, we think that that is consistent with the ‑ ‑ ‑
EDELMAN J: I mean, the issue in Knox v Gye was the dispute which had existed up to that point as to whether there was any particular right that a partner had during an extant partnership that could devolve, for example, by will.
MR THOMSON: Yes. And as I said previously, clearly equity recognises that you can have an interest that devolves by will, but does not mean that you have a fixed and specific interest equivalent to that of a beneficiary under a bare trust. The relevant passage which approves that in Chan v Zacharia is on page 194, which is tab 17 of the joint book of authorities in volume 3. And starting about a third of the way down the page, Justice Deane, with whom Justices Brennan and Dawson agreed, states that:
It is now established, under the general law as reinforced by the provisions of Partnership Acts and in the absence of overriding provisions of a particular partnership agreement . . . that the legal representative of a deceased partner has “an unascertained interest in every single asset of the partnership, and it is not right to regard him as being merely entitled to a particular sum of cash ascertained from the balance sheet of the partnership as drawn up at the date of his death” . . . In that regard, subsequent elucidation of partnership law has confirmed that the “convincing reasoning” of Lord Hatherley L.C. in his dissenting speech in Knox v. Gye should be accepted as correct . . . Notwithstanding the strictures of authorities as eminent as Lord Westbury and Sir Frederick Pollock . . . there is neither metaphor nor inaccuracy in the description, in the ordinary case, of a partner or of surviving a partner as a trustee of a particular item of partnership property which is legally vested in his name but the “beneficial interest” in which “belongs to the partnership” –
Now, as I explained yesterday, the interpretation that has been put on that, at least by the Privy Council in Cameron v Murdoch, was that it does not mean that there is a relationship of trustee and cestui que trust for all purposes which reflects the point that we were making previously that it is not the same as the equitable – sorry, it is not the same as having an interest as a beneficiary under a bare trust. That point is developed by reference to all of these cases in the decision of the New South Wales Court of Appeal in Sze Tu v Lowe which is found behind tab 34 of the joint book of authorities, volume 4.
I should just mention that special leave to appeal was sought with Sze Tu v Lowe and it was refused by your Honour Justice Gageler and Justice Gordon. However, it is fair to say that a review of the special leave hearing does not seem to suggest that these points were debated in the special leave application. If you go to page ‑ ‑ ‑
EDELMAN J: Which tab was that?
MR THOMSON: Tab 34 ‑ ‑ ‑
EDELMAN J: Thank you.
MR THOMSON: ‑ ‑ ‑ of volume 4 of the joint book of authorities. If you go to page 339 of the report, which is on page 987 of the joint book, the question that was in issue in this case was about whether partners who had seven children had interest in real estate properties which had been purchased using partnership funds without their consent. And so there was an analysis of the interest of partners in partnership property, antecedent questions of constructed trust and so on.
The main judgment is that of Justice Gleeson and if you go to page 339 and paragraph 113, he starts by setting out the relevant provisions of the Partnership Act. Your Honours will notice that section 20 of the Partnership Act (NSW) and subsections (1) and (2) are the direct correspondent of sections 30(1) and (2) in the Partnership Act (WA). If I can then take you to paragraph 117 over the page, Justice Gleeson starts in the second line of that paragraph:
it is said that, once particular property is characterised as “partnership property” for the purposes of the partnership legislation, it is, for that reason alone, held upon trust and is trust property accordingly. The contention is derived from statements in decided cases to the effect that partnership property, the legal title to which is held by one partner, is impressed with a trust for the partnership. One such statement is found in the joint judgement of Kitto, Taylor, Menzies, Windeyer and Owen JJ in Carter Bros v Renouf (1962) 111 CLR 140. The court referred at 163 to the question of whether property acquired in the name of one only of the partners “was acquired as partnership property, and therefore upon trust for the partnership”, so that “the purchasing partner is a trustee of the property for the firm”.
Statements such as this imply that characterisation of particular property as partnership property has the consequence that it is trust property and that all partnership property must therefore be regarded as held upon trust.
The first step in assessing that proposition is to consider the nature of a partner’s interest in partnership property.
His Honour then analyses what was said in Henschke. He refers, as we have previously done, to Bolton and then Canny Gabriel and then to what was said by President McLure in Hancock Prospecting. In paragraph 122 his Honour reaches the conclusion, which is the one that we have advanced, that:
In the eyes of equity, therefore, a partner has an undivided interest in the whole of the partnership property. This interest is non‑specific and of a unique kind. It is the concomitant of the right of the partner to see the property applied only as partnership property may lawfully be applied and, on dissolution, to see any surplus remaining after payment of the firm’s debts distributed to the partners according to their respective shares in the partnership.
Statements to the effect that particular property, by virtue of its being partnership property, is “held in trust for the partnership” do not mean that the property is trust property or property held upon trust. Any applicable concept of “trust” is analogical or metaphorical and arises from the circumstance that, as Duff J put it in Boyd v Attorney‑General of British Columbia . . . the property is “dedicated to the purposes of the partnership” and held “in trust for such purposes”. The allied notion that, in cases of insolvency, partnership property is held on “trust for partnership creditors was explained by the Supreme Court of the United States, in Hollins v Brierfield -
I do not need to read that passage but it gives the context of the analogy. Then, he goes on and says, as we have said, in paragraph 124:
This is an example of the use of “trust” terminology in a way to which reference was made in Commissioner of Taxation of the Commonwealth of Australia v Linter Textiles . . . Gleeson CJ, Gummow, Hayne, Callinan and Heydon JJ there pointed to several instances in which analogical or metaphorical resort had been had to the language of trust when, in reality, no trust exists. Reference was made to In re Oriental Inland Steam Company . . . where the property of a company subject to winding up was said by Mellish LJ at 560 to be subject to a “trust for the benefit of all the creditors” and by James LJ at 559 to be “clearly trust property” – a proposition squarely rejected in Linter Textiles itself. Reference was also made to Clay v Clay . . . where at [41] it was noted that descriptions of company directors as “trustees” were “at best . . . metaphorical because property of the company was not vested in the directors”.
In both Linter Textiles and Clay v Clay, the High Court referred to the observation of Lord Westbury in Knox v Gye . . . that, upon the death of one of two partners and dissolution of the partnership accordingly, the partnership estate accrued to the survivor (the entitlement of the representative of the deceased being to an account); and the survivor, although frequently called a “trustee”, was not in truth a trustee, because he did not hold property exclusively for the benefit of a cestui que trust. Lord Westbury endorsed a remark of Lord Mansfield that “nothing in law is so apt to mislead as a metaphor” –
So all of that is really an analysis by the New South Wales Court of Appeal of the same propositions that we have advanced based on the same cases, that the nature of the trust interest that a partner has in partnership assets is only metaphorical in the sense that has been described, and is not the equivalent of the beneficiary of a bare trust.
EDELMAN J: Is there any difference between the interests that a partner has in an ongoing partnership in the trust asset ‑ in the partnership assets ‑ and the interest that objects of a discretionary trust have in the assets of the trust other than that the objects of a discretionary trust have got a power, collectively, to bring the trust to an end under Saunders v Vautier? Other than that distinction, is there any difference?
MR THOMSON: I think that there is probably not.
KEANE J: What about the interest of the creditors?
MR THOMSON: I was about to say that the purpose of the partnership, though, is to carry on a business and that is not the purpose of a discretionary trust.
EDELMAN J: Well, it could have a discretionary trust where the purpose of the trust is to continue a business.
MR THOMSON: You could, but it is not always ‑ ‑ ‑
EDELMAN J: And the assets would move in and out and pay to creditors as they come in, or go out.
MR THOMSON: Yes. You could, but it is not necessary that a discretionary trust carry on a business; it is necessary that a partnership carry on a business. And in terms of the interest of the creditors, the creditors have rights enforceable in both instances against the relevant owner of the legal property, which is then, they have rights of indemnity.
In neither case is there a proper ‑ sorry, in neither case are the interests of the beneficiaries the same as a beneficiary under a bare trust. And really, that is all that we have to establish to say that there was a change by reason of the 2013 deeds, because the proposition that is advanced is that it was always the same as the interest of a trustee under a bare trust while a partnership, after dissolution, and after the 2013 deeds. So that is really the very‑ ‑ ‑
EDELMAN J: In a sense, the debate about whether you call it a trust or not, from your point of view, it is just a debate about language ‑ ‑ ‑
MR THOMSON: Yes.
EDELMAN J: ‑ ‑ ‑ because even if this were called a trust, or said to be sufficiently alike to be like a discretionary trust, you say what has happened here is there is a declaration of a fixed trust.
MR THOMSON: Precisely. And that is accepted, that after the 2013 deeds, the interest of the beneficiaries were equivalent to that of a beneficiary under a bare trust, so the question is how did that come to that position?
Can I just make this point also about the internal/external perspective argument? In a sense, internal and external perspectives are a fancy way of trying to distinguish between different situations but, in reality, the reason why you distinguish between different situations is because the nature of the obligations needs to be ascertained for different purposes.
If you are ascertaining the nature of the equitable obligation for one purpose, it may be necessary to understand the nature of that obligation in more detail than if you are ascertaining it for a different purpose so that if you have to ascertain it for the purposes of rights of partners inter se then you may have to state it with greater precision compared to whether or not you have to understand the nature of the equitable obligation for the purposes of determining jurisdiction in a case like Gray’s Case.
So, really, to fasten upon the language of internal and external perspective is a little bit misleading, in our submission, because really what you are doing is you are simply asking what is the nature of the obligation for a particular purpose and you sometimes need to understand the nature of the obligation in greater detail for one purpose compared to a different purpose. It might be that it is convenient to call some purposes an external perspective and other purposes an internal perspective, but in a sense that masks perhaps the different purposes for which the question can be asked.
That emphasises our point that this is always the same obligation and that the way you view it and the extent to which you need to understand the nature of the obligation depends upon the purpose for which the question is asked. It is not that there is a different obligation for one purpose and another purpose.
So we would make the submission that perhaps the idea of an internal/external perspective and using that nomenclature can be beguiling because really the question is about asking for what purpose do we have to understand the nature of the obligation and to what extent and in what detail do we have to understand the nature of the obligation?
GAGELER J: Mr Solicitor, there is a passage in a report of the English Law Commission that uses this language of internal/external perspective and refers to the passage in the judgment of Lord Justice Hoffmann, as he then was, that you took us to yesterday. The suggestion there is that really ties, I think, with Knox v Gye, that when this distinction is drawn what is really being spoken about is, on the one hand, an interest of each partner in each partnership asset as a tenant in common in the partnership shares, that is, the external perspective and the internal perspective is a limitation that arises by virtue of the contract between the parties on the realisation of that share.
Now, it may be that this is not the way the case is being put against you but I had understood the case being put against you – that you are, in effect, dealing with in anticipation at the moment – I had understood it to be that this deed only speaks to the first of those levels, that is, this deed is not in any way speaking to the absence of such restrictions on realisation as exist by virtue of the continuing operation of the partnership deed. It merely confirms the tenancy in common in the partnership shares. Now, you deal with that by saying it is just a declaration of bare trust. I suppose that is your entire answer.
MR THOMSON: Yes, that is one answer. Another answer is that, for what purpose is the question asked and the purpose here is that it is asked to determine the incidence of taxation. We do not understand how it is that, for the purposes of determining that question, somehow the Commissioner is put on the external rather than inside the internal perspective to understand the nature of the obligation because we submit that the nature of the obligation is essentially the same and it depends on the purpose for which the question is asked.
NETTLE J: Just as it was in Henschke?
MR THOMSON: Precisely. Can I then deal with the conversion agreement? In order to deal with that, first, your Honours will appreciate that by reason of the respondent’s reply submissions the only basis upon which it is suggested that there has been an agreement to convert the interests of the partners into separate and divisible specific interests is by reason of the proper interpretation of the 2013 deeds. It is not suggested that there was an antecedent agreement. That is now accepted in terms of the respondent’s reply submissions.
May I make the observation that, therefore, the argument about a conversion agreement is antithetical to the primary position that has been advanced, that there was never any need for a conversion because, in substance, there was always a fixed and specific interest. So, in substance, the argument about a conversion agreement proceeds from the basis that their primary legal position is wrong and that the parties misapprehended that and that they made an agreement to convert.
Now, we say that there is a difficulty about this agreement being advanced at this point – and I need to take you through the appellant’s further materials to show your Honours why. I can do that fairly quickly. If you go first to page 141, your Honours will see that this is the initial objection against the assessment for taxation and there are four grounds that are stated in the objection on pages 141 to 142. None of those grounds mentions a conversion agreement and, rather, they state in ground 2, starting at the end of the second line:
The former partners were beneficially entitled to the properties in their partnership shares prior to the dissolution of the Partnerships, and remain beneficially entitled to the properties in the same shares following the dissolution of the Partnerships. All that has happened is that prior to the dissolutions of the Partnerships they held their proportionate beneficial shares in the properties as partners in a partnership, and after the dissolutions of the Partnerships they held those same proportionate beneficial shares in the properties as former partners in a former partnership. There is no transfer of the properties.
Now, that is consistent with the primary ground that is advanced. It is, as I said, antithetical to the idea that there was a conversion agreement. There is nowhere in this objection any reference to a conversion agreement.
If your Honours then move to page 153. On that page and the following page, there is a preliminary view expressed by the Commissioner upon the objection. Unsurprisingly, because it was not raised, there is no preliminary view expressed about a conversion agreement.
If you then go to page 157, this is the response to the preliminary view, and again there is no reference to a conversion agreement and if you look specifically at the bottom of page 159 going into page 160 it says in the last line of page 159:
In clause 3 in each Deed, Mrs Maria Scolaro simply confirms the existence of the trusts that have always existed over the properties since they were acquired, with the exception of the interest of the deceased partners, which is discussed below.
Again that is consistent with the primary argument that has been advanced and no reference to a conversion agreement. And then you have a determination of the objection at page 165 and again, unsurprisingly, there is no reference to a conversion agreement in that. The idea of a conversion agreement was not advanced before the State Administrative Tribunal. It was advanced as an afterthought by way of an amendment before the Court of Appeal but the Court of Appeal did not determine it and it has now been raised by the notice of contention.
In effect what the conversion agreement does is it says, well, if we happen to be wrong about our primary argument then there was in fact a different dutiable transaction, that is, a conversion agreement, that could have been assessed, but has not been assessed, because we did not raise it and in those circumstances you were wrong to subject us to duty in the way that you have subjected us and we escape that duty because we now raise, at the last stage, a different dutiable transaction which you cannot now assess. Now, with respect, they should not be able to escape liability in that form.
EDELMAN J: How did the Court of Appeal deal with the raising of this argument?
MR THOMSON: They just deferred it. Well, they did not deal with it at all because they said that they found – that they accepted the primary argument. If you go to paragraph 36 to 37 of the decision of President Buss and Justice Beech at pages 88 to 89 of the core appeal book, you will see that it says that:
The parties conducted the proceedings before the Tribunal and the appeal on the basis that if, contrary to the Commissioner’s first two propositions, cl 3 of the 2013 Deeds merely acknowledged or recorded an existing obligation of Maria that had arisen under the general law, no duty was payable. After hearing of the appeal, following a request for supplementary submissions from the court, it emerged that the parties do not agree on the path by which that result is reached. The appellant contends in supplementary submissions that a mere acknowledgement or record of a pre‑existing –
I apologise, that was a different afterthought that was raised by the ‑ there is another ‑ I apologise, there is another passage ‑ ‑ ‑
BELL J: At paragraph 40 on page 90, their Honours deal with the grant of leave to amend in order to raise that, the conversion agreement point.
MR THOMSON: Yes, that is right.
NETTLE J: Is that governed by the Taxation Administration Act? Does the State have one like the Commonwealth with those provisions?
MR THOMSON: It certainly has a Taxation Administration Act; I am sorry, I am not sure ‑ ‑ ‑
NETTLE J: That is to say, that the taxpayer is ordinarily confined to the grounds of objections taken in his objection, unless the court otherwise allows.
MR THOMSON: I think that is so. I will just ‑ yes, that is correct.
KEANE J: So the court would not have had jurisdiction to entertain this contention, in any event.
MR THOMSON: Yes. And we say, just as a matter of fairness, it cannot be raised at this point because of the reasons that I have explained, because effectively it leads to the escaping of duty by raising a different dutiable transaction in substitution for one that they have never ‑ that they have always advanced. But can I deal with it as a matter of substance, if your Honours wish, or I can deal with it in reply, if you prefer.
BELL J: If it be the case that the taxpayer is confined to the grounds of objection, what is the necessity to deal with it?
MR THOMSON: I am content to accept that, except there are substantive reasons why it cannot be accepted as well, and as I say, I can deal with those in reply.
BELL J: In reply, I think.
MR THOMSON: Yes, thank you. And then all that leaves ‑ and, of course, we have set out the proper construction of the relevant provisions in our written submissions as well.
BELL J: Yes.
MR THOMSON: That leaves only the question of section 78. As I have said previously, we do not see that as being separately engaged. If I happen to be wrong about that, then I will deal with that in reply also.
BELL J: Thank you, Mr Solicitor.
MR THOMSON: Thank you.
BELL J: Yes, Mr Dharmananda.
MR DHARMANANDA: Could I just, before I forget, address the last point about the nature of the jurisdiction of the Tribunal? And I will come back to dealing with the conversion argument. If your Honours have the core appeal book, please turn up page 26 in the decision of the Tribunal. And your Honours will see that the Tribunal has reproduced section 27 of the Tax Administration Act ‑ sorry, the State Administrative Tribunal Act 2004, on which the Tribunal gets its jurisdiction, and your Honours will see that in 27(3):
The reasons for decision provided by the decision‑maker, or any grounds for review set out in the application, do not limit the Tribunal in conducting a proceeding for the review ‑
And subsection (2) provides for:
the correct and preferable decision
to be made. And so we say there was jurisdiction. And the other point is the point that the learned presiding judge raised with my learned friend in paragraph 40 of the Court of Appeal’s judgment. Leave was in fact granted for those grounds of appeal ‑ amended grounds of appeal – to be relied on, and the court, recognising that it ought to deal with every issue said, in this case, it would not provide reasons for the conversion, with respect to the conversion argument, having already found in our favour with respect to the primary argument put below.
NETTLE J: So leave was granted to argue the existing pre‑existing or conversion argument?
MR DHARMANANDA: It was granted, yes, your Honour.
BELL J: Was there consideration of - the question as I understood the Solicitor’s response to Justice Nettle’s question, it was that under some provision of the Taxation Administration Act the taxpayer is confined in the review to the grounds of objection and I am not sure that section 27 of the State Administrative Tribunal Act gets you over that point if it is a good point.
EDELMAN J: Section 27 is just a general provision, is it not?
MR DHARMANANDA: In our submission, when I have looked at this point, I will look at it and tell your Honours more precisely but my recollection of the Taxation Administration Act is it does not have the limit that my learned friend has put.
BELL J: Well, it might be important to ascertain the position in that respect since if it be as we have been told the circumstance that the Court of Appeal without argument on the point granted leave and then found it unnecessary to deal with the matter may not really assist you very much.
MR DHARMANANDA: Yes, and I will come back to that.
BELL J: Yes, all right.
MR DHARMANANDA: It is always a little bit awkward to start in the middle of somebody else’s argument, but may I start where I had wished to start?
BELL J: Yes.
MR DHARMANANDA: Your Honours, may I say the critical issue in this appeal is whether the former partners already had a sufficient interest in the partnership lands when the 2013 deeds were made. That issue, in our submission, must be considered by reference to whether a dutiable transaction of a dutiable property arose by reason of each of the clauses 3 of those two deeds.
In our submission, it is necessary and fundamental to focus on the legislation. Under the Duties Act, a declaration of trust is dutiable only if dutiable property is the subject of the declaration and I am going to take your Honours to the Act pretty shortly. To qualify as dutiable property, relevantly, there had to be an interest in land declared to be held on trust. Because the former partners already had, in our submission, an interest in all partnership property, the partnership lands, even when legal title was held by Anthony and Maria, Maria could not and did not declare a trust over dutiable property. No new proprietary interest in land was created by clause 3 of those two deeds. We submit that the confirmation of trust did not give rise to a new specific and fixed interest in land to trigger a dutiable transaction when the two Acts, the Duties Act and the Partnership Act, are considered.
I need to go directly to the legislation. Can I first take your Honours to the Duties Act and that is in the joint appeal book volume 1, tab 3, page 11, if your Honours are working from that. Can I go to section 10? Can I take it, your Honours, that I do not have to give you the joint book of authority page numbers, or would you like them?
BELL J: I think we are all working off the Act.
MR DHARMANANDA: Okay, so I do not need to read those page references. Section 10, your Honours:
Duty is imposed on dutiable transactions.
Then, can I take your Honours first to section 15(a), where your Honours will see that:
Any of the following property is dutiable property –
and:
(a)land in Western Australia –
is what we are concerned with, and then take your Honours back to section 3(a), where there is an inclusive definition of “land” and your Honours will see in paragraph (a) that it includes:
any estate or interest in land –
In our written submissions we had referred to the Interpretation Act for that same conclusion, but that conclusion can be found in the Duties Act itself. Now, relevantly, your Honours, only dutiable property can be the subject of a dutiable transaction. That is made clear, if your Honours now to go to section 11 of the Act, and 11(1)(a) provides that a “dutiable transaction is:
(a)a transfer of dutiable property –
11(1)(b), a dutiable transaction is:
an agreement for the transfer of dutiable property, whether conditional or not –
and then 11(1)(c), a dutiable transaction is:
a declaration of trust –
and importantly:
over dutiable property –
Then skipping over a few, if your Honours then go to 11(1)(i), a dutiable transaction is also:
a partnership acquisition –
I need to go to other provisions of the Act to explain what is a partnership acquisition, but before going to those provisions it is apparent that section 11 makes a transaction dutiable only if in each case, relevantly, an interest in land is transferred, agreed to be transferred or created.
A partnership acquisition, I am coming to the partnership acquisition provisions directly, is a transaction that is treated as a transaction relating to land only if the partnership holds an interest in land. The provisions of the Duties Act proceed on the basis that the partnership, that is, the partners as a group, hold an interest in partnership property, particularly partnership land.
That idea of “hold” is connected to the idea that we say emanates from partnership law, which has been the subject of discussion over the last two days, particularly the external perspective, as it is put in shorthand. But I will hesitate to use that without making sure that my position on that issue is clear.
Can I take your Honours to section 9, which defines “partnership acquisition” as having the meaning in section 72 and then take your Honours to section 72. Section 72 provides that a partnership acquisition occurs when a person acquires a partnership interest, but only “in a partnership that holds” an interest in land. Section 75(1) provides that:
A person acquires a partnership interest if a partnership is formed or the person’s partnership interest increases.
Putting that shortly, section 74, your Honours, makes it plain that:
a partner’s partnership interest is to the greater of ‑
the partner’s capital or the losses “the partner is required to bear”. Sections 76 and 77 in effect provide that “The dutiable value of a partnership acquisition is” either the consideration paid or “the unencumbered value . . . of the dutiable property”.
As we have submitted, to be dutiable property, the partnership must hold an interest in land. The Duties Act is not concerned with levying duty over a partnership acquisition unless the partnership holds land and there is a change in the proportion of ownership. The Duties Act is concerned to levy duty under partnership acquisition by reference to the value of any change in the partner’s interest in land held by the partnership as partnership property.
As we have submitted, the Duties Act proceeds, therefore, on the footing that the partnership as a whole holds the dutiable property, not, for example, section 72 in the second line, where the word “holds” is used:
partnership that holds –
(a) land ‑
And then 77(1)(a), where it provides:
For the purpose of section 76(b), the value of a partnership interest in the subject of a partnership acquisition is the total of the following amounts –
(a) in respect of the dutiable property held by the partnership ‑
The Duties Act recognises that the partnership, consisting of all the partners in the partnership, hold an interest in the partnership property. The Duties Act does not treat a partner who may happen to hold the legal title to any partnership property differently from all of the other partners. So the focus is on the partnership property held for all of the partners.
That focus, in our submission, reflects the position under the law, to which I will come later, but as a matter of principle all of the partners have an interest in partnership property at all relevant times for the purposes of the Duties Act and the manner in which it imposes duty. That is the first point about why it is important to focus on the legislation and the fact that you have to have a declaration of trust of a dutiable property over some interest in land that had to be created by reason of clause 3 for there to be duty.
If we are right, and all partners had an interest as tenants in common, then nothing changed under clause 3. It was not as if there was a declaration of trust individually to each individual partner, there was a declaration of trust holding a trust, if it arose, with respect to all partners and successors as hands in common. Nothing changed. That is our primary point. Carrying on with the Act, because there are more provisions that matter, can I take your Honours to section 26(1)(a). Your Honours will see that it provides that, subject to the chapter:
duty is chargeable ‑
(a) by reference to the dutiable value of a dutiable transaction ‑
And then section 27 effectively provides that:
Unless otherwise provided . . . the dutiable value of a dutiable transaction is ‑
putting it shortly:
(a) the consideration for [it] . . .
(b) the unencumbered value of the dutiable property ‑
In short, if that is “greater than the consideration”. So, the focus for the levy of duty is the value of the dutiable property. The focus here must be on the value of the land interest that is the subject of the transaction. If no land or no interest in land is in truth transferred, agreed to be transferred, created or acquired, no duty would be payable. If no valuable land interest is moved, if I can use that neutral word for a moment, or created by the transaction, there is no dutiable property, nor any dutiable value.
NETTLE J: But that is all agreed, is it not? They are pushing on an open door on that front. The question is whether or not the deed resulted in the creation of new equitable interests in favour of the former partners and their successors.
MR DHARMANANDA: The question, your Honour, is whether anything that occurred involved a declaration with respect to a land interest. That is the focus. The point we are making is if a relevant land interest was always held by all partners and there was no change in that land interest, then there is no declaration of trust which is dutiable.
EDELMAN J: To come out – just out from the complications of partnership then, would your submission mean that if land is held on a discretionary trust for persons A, B and C and persons A, B and C and the trustee agree to collapse the discretionary trust and declare a fixed trust for persons A, B, C and D, there would be no duty payable.
MR DHARMANANDA: If D comes into it there could be duty payable because of D coming into it but if it is A, B and C then there are other provisions of the Act dealing with changes in trusteeship of that nature where if there is no change in beneficial ownership then there is no duty payable.
EDELMAN J: The example, then, if you keep persons A, B and C the same, the change is a change from persons A, B and C being objects under a discretionary trust to being beneficiaries under a fixed trust, but you say that would not be a dutiable transaction.
MR DHARMANANDA: Yes, we do because the inquiry is, relevantly, is there dutiable property that has moved.
EDELMAN J: How does that bit fit with 15(b) where 15(b) focuses not upon a land in Western Australia but on a right?
MR DHARMANANDA: The same analysis would apply in that. The inquiry will be has there been a shift in right sufficient for there to be a dutiable property.
EDELMAN J: Why is there not a shift in right? They have gone from merely being objects under a discretionary trust to having a fixed entitlement in the asset held on trust.
MR DHARMANANDA: In our submission, if there is that change then there may be duty payable but the case is not put that way in this case. This case is all about an assertion that there has been movement of dutiable property, namely, an interest in land.
NETTLE J: What is said against you is that the old equitable chose in action of due administration of each partner was extinguished, and in its place there was erected a fixed specific beneficial interest in the land the subject of the chose. That, it is said, is sufficient to come within declaration of trust, and thus to be exigible.
MR DHARMANANDA: In our submission, and I need to develop this by reference to the Partnership Act as well, but in our submission, to respond to your Honour Justice Nettle’s question directly, in our submission when one considers the two things that are occurring whenever there is a partnership and partnership interest it is the two things that Justice Gageler raised with my learned friend.
When one considers the restraint, because it is a business, because there are creditors, that constraint does not - its existence or the lack thereof goes to the question of land interest. It is a constraint on each individual partner being able to deal, whilst the partnership is going, with respect to the partnership property that they own as tenants in common, like with all the other partners.
NETTLE J: Is that consistent with Henschke?
MR DHARMANANDA: In our submission it is, and I will come to Henschke as well.
GAGELER J: Do you say, looking at clause 3 of the deed, what it declares on the day it comes into operation is exactly the position that existed the day before it came into operation, and that it has nothing to say about the partnership agreements which continued operation?
MR DHARMANANDA: There are two points, your Honour. It has nothing to say about a movement in land, using “movement” neutrally again. Secondly, it does have something to say about what the parties decided was going to happen with respect to their partnership and that, one has to go to the recitals and then clause 1 in particular.
That is an important point, and it is a point that Justice Nettle raised with my learned friend yesterday. It goes without saying, and it is the law under the Act and also under the agreement, if there is a dissolution you sell everything, surplus goes – you pay the creditors and then the surplus is received by the partners.
But that is precisely what they decided, agreed would not happen. They agreed instead that it was all owned, and they repeat, and I will come to this, owned and owned and owned, beneficially, beneficially, beneficially, in their umpteen recitals and then they say in clause 1, we are going to continue to hold it on trust. There is no more sale; the implied trust for sale is gone. I will come back to that, your Honour. Can I keep going through the Duties Act. Can I take your Honours to section 119 and your Honours will see 119 defines “new trustee” as:
a trustee appointed in substitution for a trustee or a trustee appointed in addition to a trustee –
and then section 119(3) provides that:
Nominal duty is chargeable on a transfer, or agreement for the transfer, of dutiable property –
(a)to a trustee as a consequence of the retirement of a trustee or the appointment of a new trustee –
and the words go on. But, in effect, it provides that:
Nominal duty is chargeable on a transfer, or agreement for the transfer, of dutiable property –
(a)to a trustee as a consequence of . . . the appointment of a new trustee –
in effect, if there is no change in beneficial interest. So the focus is, is there movement in beneficial interest and there are other provisions of the Act that deal with the same concept.
NETTLE J: So presumably the transfers from Maria Scolaro to Rojada were nominal duty?
MR DHARMANANDA: Correct, your Honour, and that is why they have not fixated upon clause 4 to levy us with ad valorem duty.
NETTLE J: Right. No one is relying on this provision in relation to the deeds insofar as it is said that they constituted new fixed specific trusts, are they?
MR DHARMANANDA: No, your Honour, but I am seeking to describe the structure of the Act and what its focus is.
NETTLE J: Very well.
MR DHARMANANDA: So if there is no shift in beneficial interest, a change in legal title is not dutiable at the applicable rates. One last provision ‑ a couple more provisions. Can I take your Honour to section 139(2)(a) and (b), which as your Honours would be familiar, in effect provide that “a transfer, or agreement for the transfer”, or “a declaration of trust over dutiable property” is chargeable only with nominal duty to the extent that it effects:
a distribution in the estate of a deceased person; and
(ii) there is no consideration –
that passes. Now, there is an interesting point that your Honours should notice, section 139(2)(b), which is dealing with the declaration of trust, proceeds on the basis that there can be a declaration of trust that effects a ‑ to use the word used by the statute ‑ “a distribution” of the “estate of a deceased person”.
So the schism between creation and transfer is actually noticed by the Parliament but it says, if there is a distribution which idea entails movement, even though that is by creation, whatever that might mean, there is only nominal duty payable. It goes back to the issue that Justice Nettle raised with my learned friend about paragraph 28 of Henschke: something goes, something else is replaced that is in effect a conveyance.
EDELMAN J: Well, the distribution from the estate of a deceased person would be a conveyance.
MR DHARMANANDA: That is the point ‑ ‑ ‑
EDELMAN J: It is a transfer of usually legal title.
MR DHARMANANDA: The point I am making, your Honour, is that that idea if contrasted with declaration of trust, is it a movement and a creation, and if it is such a thing, that idea sits conformably with the view taken in paragraph 28 of Henschke, to which I will return. That is that our section 78 argument, contrary to what my learned friend put, is not a backstop which does not work if we are wrong about our first two points. It works because what it does do is to say the logic of this Act, whatever happens, however it happens, if there is no proportionate change in partnership interests, no duties should be payable. That is why I am dwelling on it.
BELL J: Given that the Act makes specific provision in relation to declarations of trust over dutiable property in the context of the distribution of an estate of a deceased person, how does it strengthen your argument in relation to the provision respecting declarations of trust over dutiable property in 11(1)(c). We have here a specific exception in the case of the treatment of the distribution of a deceased’s estate.
MR DHARMANANDA: I think the argument we are making about 11(1)(c) is not dealing with distributions of deceased estates as such but the broader point about what is the nature of a partnership – what is the nature of partner to property and whether there is at all times a land interest in this case, property interest held by all partners such that no known declaration of renewed interest could be created.
BELL J: We may be at cross‑purposes. It is just that taking us to a provision that deals specifically with the distribution following a declaration of trust in relation to a deceased estate does not necessarily seem to me to bear on the issue with which we are concerned.
MR DHARMANANDA: I understand, your Honour. I think the reason why I also need to address it is in our case because there are two deceased estates and because certain things did move by reason of that and that is what the 2013 deeds also deal with ‑ ‑ ‑
BELL J: But clause 3 does not, does it?
MR DHARMANANDA: Clause 3 comes after the preceding clauses which deal with the transmission ‑ ‑ ‑
BELL J: The preceding clauses were the subject of partial success on your objection.
MR DHARMANANDA: Because of 139.
BELL J: Yes.
MR DHARMANANDA: Yes.
BELL J: But the declaration in clause 3 is discrete, it does not ‑ ‑ ‑
MR DHARMANANDA: We say not discrete but I understand your Honour’s point and I think I have answered your Honour’s question. I am not using 139 as a way of getting around whatever 11(1)(c) entails on its terms. I am saying 11(1)(c) does not apply because no dutiable property was, in fact, transacted by reason of clause 3. Your Honour, may I then take your Honours quickly to section 78 and I am going to come back to section 78 at the end but may I mention it now.
BELL J: Mr Dharmananda, just so I understand, are you saying that we take from the treatment in 139(2)(b) something about the concept of the transfer or agreement to transfer of dutiable property in 78?
MR DHARMANANDA: No, the point I was getting – no, I understand.
BELL J: No, I am trying to understand the significance.
MR DHARMANANDA: Yes. The significance of the point I was making, your Honour, is that this, 139(2)(b) ‑ ‑ ‑
BELL J: Yes.
MR DHARMANANDA: ‑ ‑ ‑ is dealing with twin subject matter which might be treated as not good bedfellows, namely declaration of trust, which is traditionally treated as creating something without anything being transferred.
BELL J: Yes.
MR DHARMANANDA: And yet it is talking about giving effect to a distribution, which is a word which seems to convey something transferred.
NETTLE J: But you are not contending, just to make it clear, that 139(2)(b) applies to clause 3 of the deed for the A & MMR Scolaro Partnership, insofar as it declares trusts in favour of the JASCO Testamentary Trust, the RASCO Testamentary Trust and the DASCO Testamentary Trust?
MR DHARMANANDA: The Commissioner has already accepted that to the extent that clause 3 declares trusts ‑ ‑ ‑
NETTLE J: In favour of those ‑ ‑ ‑
MR DHARMANANDA: ‑ ‑ ‑ for those successors ‑ ‑ ‑
NETTLE J: You are home?
MR DHARMANANDA: We were home, we were home. So we do not need to contend, we have already won that point, your Honour. But that is why we won that point, because of 139(2)(b).
EDELMAN J: It is really just an analogy you are developing.
MR DHARMANANDA: It is.
EDELMAN J: Through the statute, broadly to say that by treating in 193(2)(b) a declaration of trust as though, contrary to the situation, the correct situation in law, it gives effect to a distribution rather than, as might correctly be expressed, it creates a new interest that did not previously exist.
MR DHARMANANDA: That is the point.
EDELMAN J: You then say that in 78(2), one should look at the word “transfer” in the same way and “transfer” could also involve the extinguishment and creation of a new interest.
MR DHARMANANDA: Precisely, your Honour, that is our point, insofar as it goes – yes.
EDELMAN J: That is the point that the appellant says you have not taken, or you were not going to take, but you say you are taking this point.
MR DHARMANANDA: We are taking this point, that is to say, because of our primary point it is very hard to conceptualise, if we are right about our primary point, how section 78 could ever be engaged because there would be, on our primary point ‑ ‑ ‑
NETTLE J: It just would not be. It would not be.
MR DHARMANANDA: Exactly, your Honour. So then putting that conceptual point out of one’s mind and saying assuming we are wrong about that, and assuming we are wrong about the conversion point as it is described, if the Commissioner is saying something happened pursuant to clause 3, we say that something that happened involved an agreement to transfer because of the combined effect of what the 2013 deed provides.
NETTLE J: The trouble you would face then is that it would be both a declaration of trust and a conveyance.
MR DHARMANANDA: The analysis we would ask the Court to adopt is the same sort of analysis as the Court engaged in in Henschke, namely the idea that something gets destroyed and something gets created because on the Commissioner’s case, assuming we are wrong about our first point, there is a land interest that is somehow a land thing – a land impediment has been removed. That removal - and then it is a much more fixed - perfect rights have been created under 3. We say that involves the conception of conveyance ‑ ‑ ‑
NETTLE J: I understand that you do.
MR DHARMANANDA: Yes.
NETTLE J: But it would also involve the conception of trust. It would be exigible as both. It still does not get you out of the mire, as it were.
MR DHARMANANDA: In our submission, if we are in the territory of conveyance we are within the protection of 78, even if the declaration is involved.
NETTLE J: Why should that be so? If it is a declaration of trust is that not the more specific provision and thus applicable?
MR DHARMANANDA: In our submission, the parliamentary intent around 78 is to make no duty payable if in truth there is no change in the proportion of interest held by partners.
NETTLE J: I see.
EDELMAN J: So 78(2) would bite, for example, if, putting aside partnership, if there were a trust in fixed interests for A, B and C, and a new trust was declared, with perhaps some minor variation, in identical interests, for A, B and C.
MR DHARMANANDA: If it were a partnership property, yes. For the document is in agreement and then the conceptual point, which I will not repeat, about whether it entails ‑ ‑ ‑
EDELMAN J: It is there to deal with that sort of problem, amongst others.
MR DHARMANANDA: Yes. It is there to make clear that the Commissioner is not intent on levying duty if, ultimately, there is no change at all in the proportionate interest held by all partners. Can I go now to the Partnership Act - can I take it that I do not have to give you the volume?
BELL J: Yes, I think so.
MR DHARMANANDA: Thank you. May I, please, first take your Honours to section 27, and that sets out the powers of partners. Every partner can bind the firm, and then section 27(d) provides that every partner can borrow money and secure it by relevantly mortgaging:
real estate . . . belonging to the firm.
Now, partnership property can only be used for partnership purposes, but that does not mean that the partnership, being each of the partners, do not own the partnership property. In our submission, section 27 is premised on the footing that each partner in a partnership has power to grant an equitable mortgage over partnership land. The basis for that premise is, in our submission, an acceptance of the view that each partner has an interest in partnership land.
By force of the Partnership Act and the general law, partnership land is regarded as being held by partners as tenants in common, even where at law they hold as joint tenants, and we refer to that in our submissions at paragraph 39. Can I then take your Honours to section 29:
rights and duties of partners . . . may be varied by the consent of all the partners ‑
A partner cannot unilaterally deal with the partnership property in a manner that is not permitted by the Partnership Act. Because the partnership lands were partnership property, Maria did not have a right unilaterally to create any trust over those lands. Section 29 makes it plain that the partners’ rights and duties, including as to partnership property, cannot be changed unless all the partners consent or agree.
BELL J: Among other things, I understood the Solicitor’s response to this to be to say all the former partners or their successors in title were parties to the deed.
MR DHARMANANDA: I am going to come back to that but, yes, the Solicitor does say that and we accept that. That is a foundation for our agreement point for the purposes of section 78. They agree some things to happen, and not to repeat myself, the net result is if we are wrong about our first two points, they agree for something to move, they say that we declare a trust, that is, within 78. So, we embrace the Commissioner’s acceptance that Maria did not act unilaterally, and if she did not, the parties agreed – if the parties agreed, we are one step closer for 78 to be applicable.
NETTLE J: So, the focus is on 78 now really?
MR DHARMANANDA: No, no, your Honour, it is not. I am developing the primary point, but as I take your Honour through the Act, your Honour will see – I need to take your Honour through the provisions of the Act to make good the primary point. Can I then go to section 30(1) and it does a few things:
All property and rights and interests in property originally brought into the partnership stock, or acquired –
is called “partnership property”. Then, section 30(1), also in the last three lines expressly provides that the partnership property:
must be held and applied by the partners exclusively for the purposes of the partnership, and in accordance with the partnership agreement.
Two things, we submit, follow from 30(1). First, section 30(1) is the statutory source for the conclusion that partnership property is trust property held for the partnership by whomever has primary title. Secondly, section 30(1) is the statutory source of the constraint on each partner’s ability to deal with partnership property as if it were their own property. The constraint exists, of course, because a partnership is not a separate corporate personality. Each partner is bound to deal with partnership property so that the creditors of the partnership may be paid.
The constraint on each partner’s ability to deal with partnership property, in our submission, does not deny the fact that it is partnership property. Equally, the constraint does not deny the fact that each of the partners together have an interest in the partnership property regardless of who has primary title. In our submission, the mistake that the Commissioner makes is to treat the constraint as having the consequence that the partners did not at all times have an interest in the partnership lands.
The conclusion that partnership property is trust property is underlined by section 30(2). Section 30(2) expressly provides that partnership land devolves according to its nature and tenure and general law rules but, importantly:
in trust so far as necessary for the persons beneficially interested in the land under –
section 30. In our submission, the words of the last two lines of section 30(2) are clear and important. It is manifest that partnership land is held on trust. This is a real or true trust. It is not metaphorical in any sense. The reference to “persons beneficially interested in the land” is a reference to all of the partners. The partners, together, are beneficially interested in the land. The beneficial interest arises because of ‑ or to quote the word used in the section ‑ “under” section 30.
So considering sections 30(1) and (2) together, partnership property must be applied only for partnership purposes. But all of the partners have a beneficial interest in partnership property, particularly partnership land, at all times. Partnership property is held on trust, and that is a true trust. And contrary to what was put ‑ ‑ ‑
KEANE J: For the purposes of the partnership, do they include the payment of creditors?
MR DHARMANANDA: They do, your Honour.
KEANE J: So insofar as you say that it is a true trust, it is nevertheless a trust in relation to which the payment of creditors is an imposition on the interests of those beneficiaries – the partners as beneficiaries?
MR DHARMANANDA: It is, your Honour. In our submission, that does not affect whether the partners have an interest as tenants in common in the relevant partnership property.
EDELMAN J: In effect, they are trust creditors? The creditors of the trust become trust creditors, insofar as the assets are held on trust.
MR DHARMANANDA: Yes. And then that is why in Henschke the analogy is drawn, when dealing with a partner’s share – I will come back to that, why I put the point that way.
NETTLE J: How does that happen? The creditors have a right of recourse against the partners as individuals.
MR DHARMANANDA: They do, and the reason for that, your Honour, is because ‑ ‑ ‑
NETTLE J: Each of them are jointly and severally liable in contract, and jointly liable in tort.
MR DHARMANANDA: Yes, your Honour, and section 16 makes them jointly liable. But the reason, your Honour, that curiosity arises is because even though we speak as if the partnership is a separate person, it comes back to each individual partner having the responsibility and that is why it is the individual partner involved. But at the same time, each individual partner has a right – an interest in all partnership property. That is how we put it.
So there are two sides of ‑ there is right and liability. Because the partners are all personally liable, whenever land is held or any partnership property is held by – happens to be held as legal title holder by one, does not entail the conclusion that that one somehow peculiarly has it especially so that they can create an interest in another. That is our point.
EDELMAN J: This idea of a trust so far as necessary – this trust so far as necessary is not the same as the usual Anglo‑Australian trust where beneficiaries or the objects collectively of the trust can exercise Saunders v Vautier powers to collapse the trust and distribute the assets because that can be done without disillusion of the partnership.
So that if what happens is you transfer property into a partnership and then it is just simply distributed out to the partners, then because you have paid the duty on the way in you do not have to pay it on the way out. But there is no intention not to catch up a new transaction, which is a declaration of trust in respect of the partnership property.
So as a matter of policy we say that it does not apply to resettlements and in truth what has happened here is a resettlement for all of the reasons that we have been through. In substance we say that is the complete answer to section 78 and those are our submissions.
BELL J: Thank you. The Court will reserve its decision in this matter. The Court will adjourn until 10.00 am on Tuesday, 12 November.
AT 12:37 PM THE MATTER WAS ADJOURNED
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