Fagridas v Commissioner of State Revenue
[2018] VSC 145
•29 March 2018
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL COURT
TAXATION LIST
S CI 2017 02335
| ATHANASIOS FAGRIDAS & ORS | Applicants |
| v | |
| COMMISSIONER OF STATE REVENUE | Respondent |
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JUDGE: | MACAULAY J |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 27 March 2018 |
DATE OF JUDGMENT: | 29 March 2018 |
CASE MAY BE CITED AS: | Fagridas v Commissioner of State Revenue |
MEDIUM NEUTRAL CITATION: | [2018] VSC 145 (First Revision 10 April 2018) |
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JUDICIAL REVIEW AND APPEALS – Application for leave to appeal pursuant to the Victorian Civil and Administrative Tribunal Act 1998 (Vic), s 148 – Question of law – Whether a particular finding of fact was open on the evidence – Whether Member erred in identifying and applying applicable legal test – Transfer duty – Exemption – No arguable error demonstrated – Leave to appeal refused – Duties Act 2000 (Vic), ss 17, 36A and 36C ‒ Ralara Pty Ltd v Comptroller of Stamps (Vic) (1992) ATC 2108, Shop, Distributive and Allied Employees Association v Commissioner of State Revenue (2005) 61 ATR 455 applied.
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APPEARANCES: | Counsel | Solicitors |
| For the Applicants | Mr D O’Dea, Solicitor | O’Dea Lawyers |
| For the Respondent | Mr C J Horan SC with Mr C Tran | State Revenue Office |
TABLE OF CONTENTS
Introduction......................................................................................................................................... 1
Background......................................................................................................................................... 2
Decision by VCAT........................................................................................................................ 6
Proposed grounds of appeal.......................................................................................................... 10
Did the trustee resolve to the distribute the land to the beneficiaries?.............................. 12
Did the transfer satisfy the requirements of s 36A to attract exemption from duty?........ 13
Did s 17 apply to avoid duty in respect of the transfer?....................................................... 16
Did VCAT err in not allowing an adjournment?.................................................................... 17
New arguments................................................................................................................................. 18
Conclusion......................................................................................................................................... 20
HIS HONOUR:
Introduction
A trustee of a discretionary trust defaulted under the terms of a mortgage it gave over land which it owned as trustee. The mortgagee sold the land for consideration of $1.9 million, exercising the statutory power of sale under s 77 of the Transfer of Land Act 1958 (Vic). Pursuant to a nomination clause, the named purchaser under the contract of sale nominated the beneficiaries of the discretionary trust as purchasers under the contract. The beneficiaries, as nominated purchasers, paid the consideration under the contract, the mortgagee transferred the land to the beneficiaries, and the transfer to them was registered with the mortgage having been discharged.
Importantly for this case, the beneficiaries also paid stamp duty on the transaction as assessed by the Commissioner of State Revenue under the Duties Act 2000 (Vic) (the Act).
Having done so, the beneficiaries, the applicants in this proceeding, then objected to the assessment of stamp duty on the basis that a different transaction to the one just described had occurred. The beneficiaries claimed that in fact what had occurred was simply that the trustee distributed an asset of the trust to them directly, independently of any sale for which there had been consideration paid. They maintained, in effect, the payment of $1.9 million to the mortgagee was merely a refinancing of the trustee’s mortgage. On that basis they say that no stamp duty was payable.
The Commissioner of State Revenue dismissed the objection. A Member of the Victorian Civil and Administrative Appeals Tribunal (VCAT) upheld the Commissioner’s decision. The beneficiaries have applied for leave to appeal to this Court against the VCAT decision pursuant to s 148 of the Victorian Civil and Administrative Appeals Tribunal Act 1998 (Vic) (the VCAT Act), an appeal which is confined to a question of law.
In applying for leave to appeal, the applicants seek to contend that the VCAT Member (the Member) erred in law by finding as a fact that the trustee had not made a distribution of the land to them as beneficiaries of the trust. Additionally, they say the Member erred by not finding that the exemption for duty allowed on the passing of property to beneficiaries of a discretionary trust under s 36A of the Act applied, either on its own terms or by having regard to s 36C of the Act.
Some additional grounds were listed in the proposed notice of appeal, but not addressed by the applicants in argument. Furthermore, two new arguments were sought to be raised on the application that were not argued below, not mentioned in the proposed notice of appeal and, in respect of one of them, not raised in any written outline of submission filed in advance of the application. For reasons given below, I will not allow those two new matters to be raised as grounds for seeking leave to appeal.
For reasons that follow, I would not give leave to appeal to the applicants on any of the grounds outlined in the proposed notice of appeal.
I will outline the background facts, explain VCAT’s decision, refer to the grounds of appeal and explain why those grounds have not been made out.
Background
On 20 May 1980 the Michalakas Family Trust was established by deed.[1] The trustee was Anikk Pty Ltd (Anikk) and one of the specified beneficiaries was Betty Michalakas.
[1]Application Book (AB) G195.
Anikk purchased the land at 738 Station Street, Box Hill (the Land) on behalf of the trust in 1982.[2] In time, Betty Michalakas married Athanasios Fagridas and, together, they had a son George Fagridas. As husband and son of Betty respectively, Athanasios and George became general beneficiaries of the trust in accordance with its terms.
[2]AB G265.
On 24 February 2012, Anikk mortgaged the Land to Principled Mortgage Investments Limited (PMI) to secure an advance of $1,560,000.[3]
[3]AB G269, AB G239.
By 10 October 2012, Anikk was in default under its mortgage to PMI and PMI made a demand for the amount then owing.[4] PMI entered into possession of the Land as mortgagee and on 4 October 2013 entered into a contract of sale to sell the Land for $1.9 million to Arvaia Pty Ltd and/or nominee.[5] Arvaia Pty Ltd was trustee for Fagridas Trust Number 9. Settlement was due to take place on 28 October 2013, but settlement was ultimately extended to 7 March 2014 by a deed of variation made between vendors and purchaser in March 2014.[6]
[4]AB G407.
[5]AB G283.
[6]AB G305.
Meanwhile, on 12 October 2013, Arvaia Pty Ltd had exercised its right under the contract to nominate substitute purchasers. It nominated Betty Fagridas (nee Michalakas), Athanasios Fagridas and George Fagridas (the Fagridas family) as purchasers[7] who, of course, were beneficiaries of the trust which had mortgaged the land to the vendor, PMI.
[7]AB G338.
On 16 December 2013 the Fagridas family members each executed documents titled ‘Duties Form 6A – Transactions Treated as Sub-sales of Land Statutory Declaration’.[8] By those forms each member of the Fagridas family declared themselves to be the transferees of the property, the purchaser to have been Arvaia Pty Ltd, the vendor to be PMI, and their status as purchasers to have been brought about by the nomination of Arvaia Pty Ltd under the contract of sale with PMI.
[8]AB G341, AB G357, AB G377.
On 7 March 2014 the vendor, PMI, and the Fagridas family executed a transfer of land.[9] The transfer of land expressly described PMI as a mortgagee exercising a power of sale conferred by s 77 of the Transfer of Land Act. The consideration was recorded to be $1,900,000 as stated in the contract.
[9]AB G313.
Based upon that transaction, the Commissioner assessed stamp duty pursuant to the Act at $104,500.[10] Payment of that sum was made, but the Fagridas family immediately lodged an application for a refund. In due course, after some exchanges with the State Revenue Office, a letter of objection was lodged on 20 June 2014.[11] By that letter, prepared by lawyers MA Legal, the Fagridas family sought an exemption from duty pursuant to s 36A of the Act. In support of that claim, their lawyers set forth the following history:
[10]AB D55.
[11]AB D59-66.
1.Our clients are each beneficiaries of the Michalakas Family Trust (the trust) and the trustee of the Trust is Anikk Pty Ltd, the previous registered proprietary [sic] of the Property.
2.Anikk Pty Ltd at all times whilst registered proprietary [sic] held the Property as trustee for the Trust, and particularly our clients who resided at the Property as their principal place of residence.
3.Anikk Pty Ltd mortgaged the Property to Principled Mortgage Investments Limited as security for a loan, however defaulted on the mortgage repayments.
4.Principled Mortgage Investments Limited wrote to Anikk Pty Ltd in 2012 and 2013, demanding payment from Anikk Pty Ltd.
5.As Anikk Pty Ltd continued to default on payments, Principled Mortgage Investments Limited determined to exercise its power to sell the property to satisfy the debt.
6.As Anikk Pty Ltd was unable to obtain further finance to prevent the mortgagee sale of the property, it determined to transfer the property to our clients, who would be able to obtain refinancing.
7.Our clients entered into negotiations with Principled Mortgage Investments Limited and it was agreed that they would pay the sum of $1,900,000 to satisfy Principled Mortgage Investments Limited and discharge the mortgage.
8.On this basis, our clients obtained financing from National Australia Bank and other sources to pay the $1,900,000 to take possession and title of the property.
9.At no point was any money paid to Anikk Pty Ltd in consideration for the transfer of the property to our clients and all payments were made for the discharge of the mortgage.[12]
[12]AB D61-D63.
On 19 December 2014, a delegate of the Commissioner notified the Fagridas family in writing of his decision to disallow the objection.[13] In disallowing the objection the Commissioner wrote as follows:
In the present matter, the exemption in s 36A of the Act will not apply for the reasons set out in Ralara[14] and SDAEA[15] and more particularly because s 36A(1)(e) of the Act has not been satisfied. Section 36A of the Act has not been satisfied because the Fagridas Family did not receive the Land in their capacity as beneficiaries of the Michalakas Family Trust. Rather, the Land transferred to the Fagridas Family in their capacity as purchasers under a contract of sale, meaning that they did not receive the transfer of the Land ‘qua beneficiary’ as required by s 36A of the Act.
Similarly, s 36A(1)(e) of the Act has not been satisfied because the transfer of the Land was part of a sale of the Land under there [sic] exists consideration for the transfer. In the present matter, you have admitted that the Fagridas Family purchased the land from PMI for $1.9 million, but nevertheless submitted the exemption in s 36A of the Act should apply because ‘At no point was any money paid to Anikk Pty Ltd in consideration for the transfer of the Property to our clients and all payments were made for the discharge of the mortgage’.
Consideration for stamp duty purposes was defined by Dixon J in Archibald Howie Pty Ltd v Commissioner of Stamp Duties (New South Wales) (1948) 77 CLR 143 as ‘the money or value passing which moves the conveyance for transfer’. This definition was accepted by the Court of Appeal in Comptroller of Stamps v Buckland [1959] VR 517 as being wide enough such that it is not necessary that the consideration should move from the transferee to the transferor. It is sufficient if there was consideration which moved the transfer. In the present matter, the consideration was the payment of the $1.9 million to PMI which moved the transfer to the Fagridas Family. Although the economic effect of what occurred may be equivalent to a refinancing of the mortgage, the courts (see, for example, Prime Wheat Association Limited v Chief Commissioner of Stamp Duties (1997) 42 NSWLR 505) have stressed that liability for duty must be determined by reference to the actual transaction implemented and not by reference to its ‘economic equivalence’. As such, the Commissioner’s view is that the transfer of land to the Fagridas Family was correctly brought to duty.[16]
[13]AB D69.
[14]A reference to Ralara Pty Ltd v Comptroller of Stamps (Vic) (1992) ATC 2108.
[15]A reference to Shop, Distributive and Allied Employees Association v Commissioner of State Revenue 61 ATR 455.
[16]AB D72.
From that decision, the Fagridas family sought a referral of the matter to VCAT.
Decision by VCAT
Mr James Michalakas, the sole director of Anikk until December 2012, gave evidence on behalf of the Fagridas family before the Member at VCAT. The hearing took place on 8 May 2017. About two months earlier, on 14 March 2017, Mr Michalakas had filed a witness statement.[17] In it he stated that:
[17]AB E115.
On or about October 2012 Anikk recognised it could no longer meet the repayments of the loan and that the property would be ceased [sic] by the mortgagee and sold. Trustee resolved to distribute the property to the beneficiaries.
After the distribution was declared, but before the distribution could be implemented against the legal title, the Mortgagee took possession of the property under the terms of the mortgage.
Anikk informed the mortgagee that the beneficiaries were the beneficial owners of the property and that the beneficiaries were attempting to refinance the mortgage. On this basis the trustee requested that the mortgagee postpone exercising their power of sale until the beneficiaries had obtained finance, at which point the beneficiaries would refinance the mortgage.
Anikk further informed the mortgagee that should the beneficiaries be successful in refinancing the loan, the property should be transferred to the beneficiaries as they were the beneficial owners of the property, to which the mortgagee agreed.
The mortgagee, however, stated that the only way they would give effect to the transfer was by executing the document titled ‘Contract of Sale of Real Estate’.
The trustee protested that because the beneficiaries were the beneficial owners of the property, a simple transfer would suffice and that the transfer did not need to be documented using the ‘Contract of Sale of Real Estate’ document.
The mortgagee did not understand the implications of the ‘Contract of Sale of Real Estate’ document and insisted that transfer using this document was the only way to give effect to the transfer and allow the refinancing of the mortgage.
NAB, the incoming mortgagee, requested that stamp duty be paid to it so that the transfer would not be held up due to the stamp duty not being paid if requested by the Office of State Revenue.[18]
[18]AB E116.
At the hearing Mr Michalakas obtained leave to rely upon a further affidavit. That affidavit exhibited what he described to be printouts of pages from his electronic journal typed by him on 10 September 2012 and 26 September 2012 which he had only recently found. He explained that he prepared notes of tasks he intended to complete each and every day. By reference to those notes, he gave oral evidence at the hearing that on 10 September 2012 he had decided to transfer the Land out of Anikk to the Fagridas family. He was cross-examined extensively about that evidence, the meaning of those notes and the circumstances in which they were made.
The decision of VCAT was published on 22 May 2017.[19]
[19]Fagridas v Commissioner of State Revenue [2017] VCAT 755 (VCAT Reasons).
The Member noted that the applicants argued they were entitled to a refund of the duty they paid on the transfer for two reasons. First, that the transfer of land transaction was exempt from duty under s 36A of the Act on the basis that the Land had passed to beneficiaries of a discretionary trust and that all relevant conditions for the exemption were satisfied. Secondly, it was argued that the assessable transaction was the trust distribution and not the transfer of land made pursuant to the contract of sale. In other words, it was argued that duty was assessed on the wrong transaction.
Dealing first with the claim for exemption under s 36A of the Act, the Member first set out the relevant parts of the section which are in these terms:
36A Property passing to beneficiaries of discretionary trusts
(1) No duty is chargeable under this Chapter in respect of a transfer of dutiable property that is subject to a discretionary trust (the principal trust) to a beneficiary of the trust if—
(a)the duty (if any) charged by this Act in respect of the dutiable transaction that resulted in dutiable property becoming subject to the principal trust has been paid or the Commissioner is satisfied that the duty will be paid; and
(b) the beneficiary—
(i) was a beneficiary [when the property became subject to the principal trust]; or
(ii) became a beneficiary after the relevant time by reason of [becoming a spouse or relative of a Specified Beneficiary]; and
(c) the transfer is—
(i) to the beneficiary absolutely; and
(ii) . . .
…
(e) The Commissioner is satisfied that the transfer is not part of a sale or other arrangement under which there exists any consideration for the transfer.
The Member reviewed the evidence given by Mr Michalakas about the alleged trust resolution made in September 2012 finding that the ‘[e]vidence concerning the distribution resolution should not be accepted’.[20] The Member was suspicious of the late emergence of the ‘journal’ entries, considered Mr Michalakas’ evidence about their meaning was ‘result driven’ (meaning, I infer, interpreted to produce the result that was desired rather than being a reliable account of their true meaning when written) and otherwise found the journal entries to be inconclusive and ambiguous.
[20]VCAT Reasons [19].
Having rejected the evidence of the alleged trust resolution and given reasons for his finding, the Member nevertheless proceeded to deal with the argument for exemption as if such a resolution had been made. He concluded that even if a resolution had been made, there was no proper basis for the exemption being granted under s 36A. His reasoning was as follows:
24.A necessary element of the applicants’ exemption claim under s36A of the Duties Act was that the dutiable property transferred be received by the transferee as beneficiary. In Ralara Pty Ltd v Comptroller of Stamps (1992) 24 ATR 1133 at [5]-[20] GAA Nettle so found in relation to the predecessor provision of s36A,[3] when sitting as a member of the Administrative Appeals Tribunal of Victoria. Any transfer to a beneficiary for the purposes of the exemption must be qua beneficiary.
25.The transfer of land upon which duty was assessed was made by PMI as “Mortgagee or Annuitant”. The “Land (volume and folio)” is described as the land. The “Mortgage or charge number under which power of sale is exercised” describes the mortgage referred to in paragraph 2. Operative words of the document record that:
The mortgagee or annuitant being the proprietor of the mortgage or charge described in exercise of the power of sale conferred by the Transfer of Land Act 1958 transfers the estate and interest of the registered proprietor in the land described for the consideration expressed . . .
26.The Contract of Sale, as varied, refers to the applicants as the “Purchaser” and witnesses that the land is sold in consideration of the purchaser paying the sum of $1.9m to the vendor.
27.Neither the Transfer nor the Contract of Sale which preceded it refer to a transfer to the applicants in their character as beneficiaries of the Trust. Trust beneficiary character is irrelevant in instruments like the Transfer where the counterparty is a stranger to the trust. The Contract of Sale is incongruous in the light of the trust distribution which the applicants say had occurred in 2012. The refinancing character of the Transfer advanced by Mr Cartland was not persuasive.
28.I do not find that the Transfer was a transfer to the applicants as beneficiaries of the Trust.
29.The final condition of the Duties Act paragraph 36A(1)(e) exemption is that the Commissioner is satisfied that the Transfer is not part of a “sale or other arrangement under which there exists any consideration for the transfer”. The Transfer gave effect to the Contract of Sale and that the consideration for that sale was stated to be $1.9m. Prima facie, the existence of the Contract of Sale between PMI as vendor of the land and the applicants as purchasers meant that the no sale condition has not been satisfied.
30.Mr Carland for the applicants argued that the Contract of Sale was really a refinancing instrument and as such within the Duties Act trust exemption extending provision in s36C.
31.No proper basis was suggested for why the Tribunal should ignore the plain words of the Contract of Sale with its statement that the $1.9m consideration moved the transfer. The fact that the applicants could assert that they were equitably entitled to the land did not mean that PMI as mortgagee was not entitled to insist on the $1.9m payment as the price of its agreement to transfer the land. Any trust relationship between Anikk and the applicants was res inter alios acta where PMI as mortgagee was concerned.
32.Terms of Duties Act s36C do not assist the applicants to obtain the s36A exemption. Section 36C is not a separate exempting provision. Instead, s36C provides that the Commissioner must not deny an exemption under ss36, 36A or 36B for the reason that a trust beneficiary becomes a transferee of land as a part of defined refinancing activities.
33.In this appeal, the Commissioner does not deny the applicants’ Duties Act s36A exemption claim for any reason associated with mortgages or re-financing. Section 36C is inapplicable for this reason.
34.Further, none of the Duties Act s36C alternative refinancing conditions has been satisfied by the applicants. On evidence before the Tribunal each of the paragraph 36C(1)(a), 36C(1)(b) and s36C(3)(b) conditions is inapplicable.
35.Reference to the Duties Act s36C alternative refinancing conditions is made out of completeness. The Tribunal was not taken to the mortgage instruments in detail. Nor was the Tribunal taken to evidence relative to the satisfaction of s36A conditions s-s36A(2) — payment of duty on transfer of the land to the trust — and paragraph 36A(1)(b) — being a beneficiary at the relevant time.[21]
[21]VCAT Reasons [24]–[35].
The Member turned to what was described as the ‘wrong transaction claim’ evidently based on s 17 of the Act. He rejected that argument as well in the following terms:
36.The applicants made what was variously described as a “double duty” or “wrong transaction” claim. The theory of this was as follows. “The passage of ownership starting with Anikk and ending with the beneficiaries constitutes a single transfer”. Both the trust distribution resolution and the Transfer were “dutiable instruments . . . [T]he Resolution is the first dutiable instrument which will attract duty.” The resolution should have been stamped and the Transfer denoted with “a statement of the amount and the date of payment of the duty” pursuant to Duties Act s17. Instead, the Transfer was wrongly stamped.
37.The claim is misconceived. It is irrelevant that the applicants may have also incurred a duty liability in a transaction with Anikk involving the same land. Only one transaction has been assessed to duty. I do not find that the Transfer was wrongly stamped.[22]
[22]VCAT Reasons [36]–[37].
Proposed grounds of appeal
In the draft notice of appeal filed in support of the application, the applicants propose the following five grounds:
1.VCAT erred in law and incorrectly found that there was not a trust distribution. The reasons why the appeal ought to be allowed and an exemption of duty be allowed is that a distribution from the trust to the beneficiaries was made.
2.VCAT erred in law and incorrectly found that the transfer was not exempt under [s 36A] and/or under [s 36C] (the Refinance Rule) and/or under s 18 [presumably, s 17] of the Duties Act 2000 (Vic). The reasons why the appeal ought to be allowed and an exemption of duty be allowed is that a distribution from the trust to the beneficiaries was made.
3.VCAT erred in law and incorrectly did not remit stamp duty. VCAT erred of law and should of [sic] interpreted the law to allow a remission of stamp duty under the Duties Act 2000 (Vic). The reasons why the appeal ought to be allowed and an exemption of duty be allowed is that a distribution from the trust to the beneficiaries was made.
4.VCAT erred in law and incorrectly did not allow an application to delay the hearing, as further key documents were found, to give both parties time to consider those documents and prepare submissions, of which delay was agreed by both parties. The reasons why the appeal ought to be allowed is that both parties agreed to extend the time. The reasons why the appeal ought to be allowed and an exemption of duty be allowed is that a distribution from the trust to the beneficiaries was made.
5.VCAT erred in law and should of [sic] found with reference to the listed cases and legislation:
…[a list of numerous cases and provisions of legislation followed].
In substance, I discern four proposed grounds of appeal. They are that the Member erred in law, first, by finding that the trustee had not resolved to distribute the Land to the beneficiaries; secondly, by not exempting the transfer to the beneficiaries from duty under s 36A (on its own terms or by applying s 36C); and thirdly, by not properly applying s 17. Those three grounds are contained within numbered grounds 1 and 2 above. The fourth proposed ground, numbered ground 4, is a complaint about a refusal of an adjournment. It was not addressed in argument but I will briefly deal with it below.
Numbered ground 3 does not appear to be a separate ground but might express a consequence should any of the other grounds be upheld. Numbered ground 5 was unintelligible but at best may be understood as a list of legal authorities claimed to support the previous grounds.
Before turning to each of the proposed grounds of appeal, I should set out the legal test the applicants would need to satisfy for a successful appeal against the Member’s decision.
An appeal from VCAT under s 148 of the VCAT Act is confined to an appeal on a question of law. It is settled that questions of law upon which such an appeal may proceed include:
(a) whether a tribunal has identified the relevant legal test;
(b) whether a tribunal has applied the correct legal test;
(c) whether there is any evidence to support a finding of a particular fact; and
(d) whether the facts as found will fall within the statute properly construed (including whether the factual findings of a tribunal can support the legal description given to them).[23]
Did the trustee resolve to the distribute the land to the beneficiaries?
[23]Cosmopolitan Hotel (Vic) v Crown Melbourne Limited (2014) 45 VR 771, 783-784 [48]-[49] (Warren CJ), 805-806 [167]-[168] (Whelan JA with whom Santamaria JA agreed).
The applicants made no attempt to identify any legal error in the Member’s finding of fact which they would seek to impeach. At most, they would wish to debate whether the evidence given by Mr Michalakas by reference to his journal notes of 10 and 26 September 2012 should have persuaded the Member to accept that the alleged resolution had been made by Anikk. Whether or not the Member found Mr Michalakas’s evidence persuasive was entirely a matter for him. He saw and heard the evidence being given, and he had regard to the notes. The nature and state of the evidence was not such that the only conclusion open to the Member was to find that a trust resolution had been made by the corporate trustee to distribute the Land to the three members of the Fagridas family. Far from it. There is no error of law in making a finding of fact that was open to be made on the evidence.
To the extent that the applicants might be taken to have argued that the Member wrongly applied s 53(1) of the Property Law Act 1958 (Vic) (the requirement of writing for a disposition of an interest in land), that argument is readily disposed of. First, the Member said that he had heard no argument on the matter and merely noted it as an issue that might have been raised, but plainly he rested his conclusion on the finding of fact just discussed. Secondly, to the extent the applicants attempted to deal with the point by raising s 53(2), alleging the existence of a constructive trust and arguing that the Member erred by not concluding in the applicants’ favour because s 53(1) did not apply, I deal with that argument below. Essentially, I refuse leave to raise that new argument. In any event, the argument proceeds from a premise that is wrong in law and it is also irrelevant because, as stated, the Member did not rely on s 53(1) in making his decision.
Not having advanced any argument why the Member made an error of law in making the factual finding impugned, I would not give the applicants leave to appeal on this ground.
That conclusion is enough to dispose of the entire application. In order to succeed on an appeal against VCAT’s decision and have the Commissioner’s decision set aside, the applicants must satisfy two requirements. First they must show that the transfer of the Land to themselves was made pursuant to a decision by the trustee, Anikk, to do so. Secondly, assuming they establish a decision on the part of the trustee to transfer of the property to them, they must next satisfy the requirements of s 36A to attract the exemption for passing trust property to beneficiaries or otherwise show why the transfer did not attract duty assuming it was accepted to be a transfer at the behest of the trustee.
The failure by the applicants to establish a decision by the trustee to transfer the Land to them destroys the underpinning necessary to advance the remaining grounds of appeal. Not having established any proper basis for challenging the Member’s factual finding that the trustee did not decide to pass or transfer the property to them, the applicants could not succeed on any of their proposed grounds of appeal.
Although consideration of the remaining proposed grounds of appeal is strictly unnecessary, for the sake of completeness I will consider each of them briefly.
Did the transfer satisfy the requirements of s 36A to attract exemption from duty?
The terms of s 36A are set out at [23] above. As is immediately apparent from the opening words of the section, the exemption applies to a ‘transfer of…property that is subject to a discretionary trust…to a beneficiary of the trust’. It has been held that this provision (or its statutory predecessors) requires that the transfer to the beneficiary must be a transfer to him or her in his or her capacity as a beneficiary of the trust, not simply that the transferee happens to be a beneficiary of the trust.[24] In my view that construction is, with respect, plainly correct and I adopt it.
[24]Re Ralara Pty Ltd and Comptroller of Stamps (Vic) (1992) 24 ATR 1133 [18], [20] (‘Ralara’); Shop, Distributive and Allied Employees Association v Commissioner of State Revenue (2005) 61 ATR 455 [43], [44] (‘SDAEA’).
The applicants made no attempt to grapple with the construction of s 36A nor did they refer to the principles discussed in either Ralara or SDAEA (the first of which was relied upon by the Member). On the facts as rehearsed above, the transfer of the property was not a transfer to the applicants in their capacity as beneficiaries of the Michalakas Family Trust. It was a transfer to them in their capacity as purchasers under a contract of sale in which the vendor was the mortgagee in possession of the property selling pursuant to a statutory power of sale.
The Member held that the transfer was not made to the beneficiaries in their capacity as beneficiaries[25] and that, accordingly, on its proper construction, s 36A did not apply. The applicants have not demonstrated any arguable basis for challenging that conclusion.
[25]VCAT Reasons [28].
A second and independent reason why s 36A was held not to apply was that the transfer was part of a sale under which consideration was given for it. It is a condition of the exemption that the transaction is not part of such a sale: s 36A(1)(e). The applicants’ argument before VCAT, repeated on the application for leave to appeal, was that despite the form of the transaction being a sale, in substance it was a refinancing transaction coupled with a transfer by the trustee to the beneficiaries. It was submitted that the payment of $1.9 million was not consideration for a purchase, but a refinancing of the PMI mortgage. Implicit in this submission, perhaps, is an assertion that PMI was acting as agent for the trustee in passing the property to the beneficiaries and that the contract of sale was some sort of device to carry out that instruction.[26]
[26]A suggestion to which I return below in connection with my discussion of the applicants’ attempts to raise new arguments on the application for leave to appeal.
The applicants sought to support this submission by reference to s 36C of the Act. That section relevantly provides:
36C Effect of certain mortgages on trust exemptions
(1)Despite section 21, the Commissioner is not to treat a transfer as part of a sale or arrangement for the purposes of section 36, 36A or 36B only because, at the time of or immediately after the transfer, the beneficiary or unitholder—
(a)gives a mortgage to secure the same or a greater amount as that outstanding under a mortgage to which the property was subject immediately before the time of the transfer; or
(b)assumes the liabilities under a mortgage to which the property was subject immediately before the time of the transfer—
if the Commissioner is satisfied that the giving of the mortgage or the assumption of liability is not part of a sale or other arrangement designed to take advantage of an exemption or concession under section 36, 36A or 36B (as the case requires).
(2) …
(3)Without limiting the ways in which the Commissioner may be satisfied for the purposes of subsection (1) or (2)(b), the Commissioner will be taken to be satisfied if—
(a)the mortgage was created at or before the time the property became subject to the principal trust or the unit trust scheme (as the case requires); or
(b)the mortgage was part of a genuine re‑financing of a mortgage referred to in paragraph (a); or
(c)the mortgage was created to secure borrowings that have been applied to the improvement of the property.
Section 36A(1) applies ‘despite s 21’ of the Act which, in turn, provides that consideration for the transfer of dutiable property is to include the amount or value of any encumbrance (including a mortgage) subject to which the property is transferred. Relevantly, s 36C(1) stipulates that the Commissioner is not to treat a transfer as ‘part of a sale’ (for the purpose of s 36A(1)(e)) only because the beneficiary gives a mortgage to secure the same or greater amount as that outstanding under another mortgage to which the property was subject immediately before the transfer. That command operates if the Commissioner is also satisfied the transfer is not part of a sale or agreement designed to take advantage of the exemption under s 36A. Sub-section (3) provides circumstances in which the Commissioner is taken to be so satisfied.
The first point to be made is that s 36C only addresses satisfaction of one condition of the exemption in s 36A (namely, the condition in s 36A(1)(e)). So, satisfying s 36C does not mean that the conditions for the exemption in s 36A are satisfied. In this case, satisfaction of the condition in s 36A(1)(e) would still leave unsatisfied the first requirement discussed above, namely that the transfer must be made to the beneficiary in his or her capacity as beneficiary.
Otherwise, there were evidentiary problems for the applicants in satisfying any of the applicable requirements in s 36C. They are concisely described in the respondent’s written submissions, which I adopt:[27]
Section 36C(l)(a) did not apply: the applicants gave a mortgage in favour of the National Australia Bank in the amount of $1,520,000,[28] but the mortgage in favour of PMI which was discharged secured a total amount of $1,855,873.[29] There was no evidence of the terms of any other mortgage covering the difference between these sums. Section 36C(l)(b) did not apply, because the applicants did not assume liability under the PMI mortgage. Rather, they discharged it through the application of the proceeds of sale which they paid to PMI. Section 36C(3)(a) and (b) did not apply, because the mortgage to PMI came into existence after the Property became subject to the Trust. Section 36C(3)(b) did not apply, because the mortgage in favour of the National Australia Bank was not part of any refinancing of the PMI mortgage. Rather, the mortgage in favour of the National Australia Bank was part of a scheme to discharge the PMI mortgage and purchase the Property from the mortgagee (PMI) which was about to exercise its power of sale.
[27]Respondent’s written submission dated 12 February 2018, [62].
[28]AB G391-394, G413-416.
[29]AB G409-412.
In my view there are insuperable hurdles at several levels for the applicants to successfully contend that s 36A applies, with or without reference to s 36C. In my view there is no reasonably arguable case on this ground and I would not grant leave upon it.
Did s 17 apply to avoid duty in respect of the transfer?
Section 17 of the Act relevantly provides:
17 No double duty
(1)If a dutiable transaction is effected by more than one instrument, one instrument is to be stamped with the duty payable on the dutiable transaction and each other instrument is to be denoted with a statement of the amount, and date of payment, of the duty.
…
No oral submission was advanced on this proposed ground at the hearing of the application although it was briefly referred to in the applicants’ written submissions.[30] In substance the applicants contend that there were two instruments effecting the one transfer: the resolution by Anikk to transfer the property to the applicants and the contract of sale ‘to discharge the existing mortgage over the Property and allow the transfer’.[31] The applicants next contend that the resolution is the first dutiable instrument that would potentially attract duty. Given it does not attract any duty because s 36A will apply to exempt it, they contend that no duty is to be applied on the second dutiable instrument (i.e. the transfer consequent upon the sale).
[30]Submissions of the Applicants dated 19 March 2018, [31]–[36].
[31]Ibid [32].
This argument fails at numerous levels. First, the applicants have not established a basis for contesting the findings that there was no trust resolution and that s 36A does not apply to exempt the transaction from duty in the circumstances of the case. Secondly, in any event, the manner in which they say that s 17 would apply is simply misconceived for the reasons succinctly explained by the Member as extracted at [26] above. Although, the practical effect of the transfer was to divest Anikk of ownership of the land, it was the sale by PMI as mortgagee in possession that led to the transfer of the land to the applicants as nominees of the named purchaser in the contract of sale. That dutiable transaction was effected or evidenced by a single instrument, being the transfer of land. No question of double taxation arises.
I would not allow leave to appeal on this ground.
Did VCAT err in not allowing an adjournment?
Although a proposed ground of appeal (number 4) raises an issue concerning VCAT’s failure to allow an adjournment of the hearing to obtain ‘key documents’, no argument was advanced on the application either orally or in writing based upon such a ground. In those circumstances it is difficult to conclude there is any arguable case based upon it.
The respondent addressed the presumed argument in his written submissions.[32] In his oral submissions I was taken to the relevant evidence surrounding VCAT’s refusal to grant an adjournment on 5 May 2017[33] (being the Friday before the Monday on which the hearing was scheduled to take place). In rejecting the adjournment application the VCAT Member (not the same Member who heard and decided the application) gave brief reasons, namely that the applicants had not sufficiently explained how it came about that new material had been recently discovered or its relevance to the case. No further attempt was made to seek an adjournment before the Member who heard the case. No evidence is given now to show what further material might have been obtained (or has since been obtained) to demonstrate any prejudice suffered by the applicants in not having been given the opportunity to locate and produce such material to VCAT. In short, it is an argument that goes nowhere.
[32]Respondent’s written submission dated 12 February 2018, [67]-[71].
[33]AB G535.
If leave is sought to appeal based upon this ground, I would refuse it.
New arguments
Finally, the applicants sought to raise two further arguments that are not the subject of any proposed ground of appeal, and in my view do not arise out of the decision of VCAT in any event.[34] One of the arguments was foreshadowed in a revised written submission filed a week before the hearing of this application; the other was simply advanced for the first time at the hearing. I refuse leave to the applicants to rely upon either of them.
[34]CBL Insurance Ltd v Skordakis [2014] VSC 659, [84].
The first was advanced at paragraphs 10 - 10.9 of the revised written submission filed by the applicants on 19 March 2018. In essence it is that the sale by PMI to the applicants was void because it was an improper exercise of the power of sale. That, it is said, is demonstrated by the fact that the sale was not made at auction but by private sale, the property was not advertised, and no reasonable steps were taken to obtain a proper price.
It should be stated immediately that no evidence was given either before VCAT or before this Court of any of those alleged facts. Nor was the argument run before VCAT. Indeed, the premise for this new argument is in direct contradiction of the arguments put at VCAT as so far discussed, namely that the sale by PMI to the applicants was the means by which Anikk effected a transfer to them. Those are reasons enough not to countenance this argument on the application for leave to appeal.
The argument in any event lacks any obvious merit. Even if there was some impropriety with the sale, it has not been avoided by any of the parties to it. PMI is not a party to this proceeding and would have an interest in being heard on any argument that the sale was void. But the position for the applicants was not improved during oral argument. The applicants, through their legal representative, appeared to put the proposition that the sale by PMI was part of a scheme of theirs (and/or their trustee) designed to defeat the interests of the second and third mortgagees so that the applicants could take the property free of any such encumbrance, and for that reason was improper and void. Unsurprisingly, no evidence of such a scheme was ever put before VCAT and I disregard that submission.
The second ‘new argument’ raised on appeal was designed to demonstrate that in finding that no transfer resolution was made by Anikk to distribute the property to the applicants, the Member erred in law in so far as that finding was based upon a failure to meet the writing requirements under s 53(1) of the Property Law Act. I have already concluded that the Member did not base his factual finding on a failure to meet that writing requirement.
Even so, as I understand the proposition being put, it began with the contention that upon PMI taking possession of the Land as mortgagee, it became constructive trustee of the Land (or perhaps of the power of sale) in favour of Anikk. I need go no further with how that argument developed. The very first step is flawed. A mortgagee in possession is not trustee for the mortgagor.[35] Again, this argument was not advanced before VCAT, no findings were made in respect of it and it cannot be said that it arises out of the VCAT’s decision.
[35]MBF Investments Pty Ltd v Nolan [2011] VSCA 114 [65], [100].
As already stated, I refuse leave for either of the two new arguments to be relied upon in this application.
Conclusion
Leave to appeal must be refused.
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