Commissioner of State Taxation v Dadeeton Pty Ltd

[2004] HCATrans 483

[2004] HCATrans 483

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Adelaide  No A22 of 2004

B e t w e e n -

COMMISSIONER OF STATE TAXATION

Applicant

and

DADEETON PTY LTD

Respondent

Application for special leave to appeal

GUMMOW J
HEYDON J

TRANSCRIPT OF PROCEEDINGS

FROM ADELAIDE BY VIDEO LINK TO CANBERRA

ON FRIDAY, 19 NOVEMBER 2004, AT 1.58 PM

Copyright in the High Court of Australia

MR C.J. KOURAKIS, QC, Solicitor‑General for the State of South Australia:   If the Court pleases, I appear with my learned friend, MR D.J. MACKINTOSH, for the applicant.  (instructed by Crown Solicitor for the State of South Australia)

MR S. WALSH, QC:   May it please the Court, I appear with my learned friend, MS F.M. STEVENS, for the respondent.  (instructed by Phillips Fox)

GUMMOW J:   Yes, thank you.

MR KOURAKIS: If the Court pleases, section 71(5)(d) of the Stamp Duties Act (SA), like similar provisions in all the States bar Queensland and the Territories, exempt or impose nominal stamp duty on instruments transferring property for the purpose of effectuating the retirement of a trustee, or the appointment of a new trustee. The question here is whether a transfer of property that extinguishes the trust by merging the beneficial and legal interest can in any sense be said to retire a trustee.

Put simply, the applicant contends that the very concept of “retirement” implies the continued existence of the position, or the office, from which the person has retired.  Accordingly, extinguishment of a trust or instruments that extinguish a trust leave no room for the concept of a retirement, the position of trustee having been extinguished, of course, with the trust.

Your Honours, section 71(5)(d) can be found in our book of documents. It is about the tab down the – along the middle of the page, under Stamp Duties Act, and your Honours will find amongst those extracts at page 29, 71(5)(d) about a third of the way down.

Your Honours will see that there is nothing about the text of subparagraph (d) that suggests anything other than the ordinary meaning of the word “retirement”.  Indeed, the context of that subparagraph suggests very strongly that “retirement” does not include the extinguishment of the trust and, therefore, the position of the trustee.  That is because subparagraph (e) exempts from stamp duty instruments which affect the transfer of property from the trust “to a person who has a beneficial interest in the property”, but only if further stringent criteria are met; that is, that the instrument under which the beneficial interest is held is stamped, and the property went into trust pursuant to an instrument that was also stamped.

If subparagraph (d) has the extended application found by the majority of the Full Court, then those further limitations on the exemption in subparagraph (e) will have little work to do.  Instead of relying on the exemption in subparagraph (e), it will be said that the transfer of all the beneficial interest to all the beneficiaries affects the retirement of a trustee and, therefore, the exemption in subparagraph (d) can simply be relied on.

GUMMOW J:   What do you say about the alternative route that Justice Debelle referred to at page 27 of the application book, paragraph ‑ ‑ ‑

MR KOURAKIS:   Your Honour, in our submission, that conflates two very different trusts.  Your Honours, Pickering was the trustee of an abalone trust, under which his job was effectively to work it and hold the abalone harvested on trust, and for that he was paid some 25 per cent of the gross takings.  The Edmunds Family Trust, on the other hand, had many other active duties.  It was a discretionary family trust.  The trustee of that trust had the duty to distribute income and capital in such proportion as in his or her uncontrolled discretion he saw fit, had the powers of investment, carrying on business, leasing trust assets for that purposes.  So it was a very different trust.

Essentially, the error, in our submission, at page 27 is to conflate two very different trusts.  The fact that, as a result of Justice Lander’s orders, the abalone trust was transferred to Dadeeton, that then held it on trust for the Edmunds Family Trust, is not the replacement of Pickering with Dadeeton as trustee of the abalone trust.  If that had been the case there would have been a retirement and an appointment of a new trustee, but that was not the effect of the orders.

Your Honours, can I just go back to page 26, the first route that his Honour Justice Debelle…..travelled.  Your Honours, in paragraph 30, but in the second part of that, his Honour seems to be saying that the purpose of Justice Lander’s orders was to remove Pickering as a trustee in the sense that, because of his breach of trust, Pickering was always liable to be removed, and a new trustee could easily have been appointed.

Your Honours, so much can be accepted, but that is not the course that Justice Lander took.  Rather, because Dadeeton was the sole beneficiary with an absolute and indefeasible beneficial interest, and because Dadeeton was calling for the transfer to it of the authority, pursuant to both the trust deed and no doubt pursuant to the rules in Saunders v Vautier, Justice Lander transferred the property to the beneficiary Dadeeton, rather than adopt the course of replacing Pickering with another trustee of the abalone trust.

Now, your Honours, of course, if that course, which his Honour Justice Debelle appears to refer to on page 26, was taken, and the newly appointed trustee of the abalone trust then, in accordance with the wishes of Dadeeton, transferred the legal title to it, then that transfer, the instrument affecting that transfer, would have been liable to duty.  His Honour Justice Debelle’s complaint seems to be that effectively what this was all about was the replacement of Pickering with another trustee of the abalone trust, that should be exempt, but in effect if that was the course that had been taken the ultimate transfer back to the trust would in any event have been liable to stamping.

Your Honours, the context of the transfer in this case, the factual circumstances can be gleaned – sorry, the orders of Justice Landers, to which I have referred, can be seen in the respondent’s ‑ ‑ ‑

GUMMOW J:   Well, he was concerned to unravel a fraud.  That is what the Federal Court ‑ ‑ ‑

MR KOURAKIS:   Yes.

GUMMOW J:   You say one consequence of unravelling the fraud is to generate some revenue for your Commissioner?

MR KOURAKIS:   Yes, and there appears to have been some resistance to that obviously, and it has been said to be unfair.  In our respectful submission, the plain words of the statute require it.

GUMMOW J:   Well, the word “retirement” is not all that plain.

MR KOURAKIS:   Your Honour, there is a real issue as to whether it includes an involuntary retirement, but in our submission here there was not just an involuntary retirement but an involuntary retirement effected by the extinguishment of the very position ‑ ‑ ‑

GUMMOW J:   I mean a trustee might become a lunatic.

MR KOURAKIS:   Yes.  Well, yes, and in those circumstances one can readily understand why one would read subparagraph (d) to include – to read the word “retirement” in subparagraph (d) to include removal for that reason.  Again though in this case, it was much more than that.  It was a case that involved the extinguishment of the entire trust.

Your Honours, in any event, before the Full Court we submitted that if the transfer here fell within subparagraph (d), that exemption was not available to the respondent because of the operation of section 71(6). Your Honours can see that on page ‑ ‑ ‑

GUMMOW J: Section 71(6). What is the relationship between (5) and (6); (5) opens subject to (6), does it not?

MR KOURAKIS:   Yes.  Subsection (5) exempts certain instruments from duty.  Subsection (5) removes that exemption if the circumstances there set out exist.

GUMMOW J:   Yes.

MR KOURAKIS: Your Honours, those circumstances – that is, the circumstances which would disentitle the taxpayer from the exemption – are that the taxpayer held a beneficial interest before taking the property, and that that property was then held on a further trust. The majority in the court below held that section 71(6) did not apply; the exemption remained because Dadeeton never held a beneficial interest before the transfer. They did not consider the question of whether Dadeeton took this property on a further trust. It was only because it was said that Dadeeton never held the beneficial interest that 71(6) was said not to apply. The reasoning for his Honour Justice Debelle on that question can be seen from page 27 of the application book under the heading of the 71(6); the reasoning commences there.

Your Honours will see at the beginning of paragraph 35 that Justice Debelle sets out the conclusion that “Dadeeton did not have a beneficial interest” before the transfer, before proceeding to give reasons for that conclusion.  Your Honours, on the next page at paragraph 38 your Honours will see that, as Justice Debelle records, the payment of the money that the orders of Justice Lander required was made to the solicitors for Pickering on 6 December 2000.

Over the page your Honours will see that Pickering, nonetheless after that payment, refused to execute the transfer, and on 21 December 2000 the transfer was executed by the registrar of the court.  We set out in paragraph 16 of our submissions, without taking your Honours to it, the undisputed fact that in fact the Director of Fisheries never consented to the transfer until 2 March 2001.  It appears from that simple chronology that the payment, which set aside the fraudulent deed and which revived Dadeeton’s beneficial interest, under the orders of Justice Lander, was made on 6 December 2000.  Plainly, even on the chronology on page 29, set out by his Honour Justice Debelle, and on our further fact, the transfer was not taken, not made until months later.  It is just incontrovertible that Dadeeton held a beneficial interest before the transfer ‑ ‑ ‑

GUMMOW J:   It strikes me that subsection (6) is concerned with a device, if you like, of creating a sub-trust.

MR KOURAKIS:   Yes, and your Honour, in our submission, the facts here fit that.

GUMMOW J:   I am not sure about that.

MR KOURAKIS:   It was a sub-trust here.

GUMMOW J:   A sub-trust is where A holds on trust for B and then B holds on trust for C.

MR KOURAKIS:   Yes.

GUMMOW J:   That is not what is going on here.

MR KOURAKIS:   Pickering held on trust here for Smoothpool and then Dadeeton, which in turn held on trust for the Edmunds Family Trust.  The duties were quite different.  There was no bare trust here.  Dadeeton’s duties were extensive under the Edmunds Family Trust.  If the Court pleases.

GUMMOW J:   We will take a short adjournment.

AT 2.11 PM SHORT ADJOURNMENT

UPON RESUMING AT 2.15 PM:  

GUMMOW J:   Yes, we do not need to call on you, Mr Walsh. 

The facts in this litigation were highly unusual, and it should be observed that they concern the unravelling, by court order, of a fraud. The case does not afford a suitable occasion for the consideration of the operation, in the ordinary course, of section 71(5)(d) and section 71(6) of the Stamp Duties Act 1923 (SA). Special leave is refused with costs.

We will adjourn to reconstitute. 

AT 2.16 PM THE MATTER WAS CONCLUDED