Fairey Australasia v Commissioner of Stamp Duties No. Scgrg-94-1151 Judgment No. S6734

[1998] SASC 6734

FAIREY AUSTRALASIA v COMMISSIONER FOR STAMP DUTIES

Appeal

LANDER J

This is an appeal against an assessment made by the Commissioner of Stamp Duties on 15 March 1994. The Commissioner assessed the duty payable on a Memorandum of Transfer dated 4 March 1994 in the sum of $74,830.00. The facts relating to the transfer are not in dispute.

The Facts

On 4 April 1978 the Housing Trust as lessor entered into a 16 year lease agreement with Mardango Pty Ltd (Mardango) as lessee. On 18 December 1980 the Housing Trust granted to Mardango by deed an option to purchase the land during the term of the lease. The cost of exercising the option diminished annually over the term of the option from $835,000 in the first year of the term to $113,659 in the final year of the term. On 9 August 1988 Mardango executed a deed by which it assigned the benefit of its option to purchase the land to the appellant for $2,091,110.  That assignment was stamped as a conveyance with ad valorem duty of $82,478.

The option was exercised by the appellant and the memorandum of transfer from the Housing Trust to the appellant was lodged shortly after on 4 March 1994. It is agreed between the parties that for stamp duty purposes no distinction should be drawn between the date of the exercise of the option and the date that the memorandum of transfer was lodged for registration.

The appellant’s submission is that the respondent Commissioner should have assessed the transfer of the property at the date of the grant of the option to purchase (18 December 1990), and not at the date of the registration of the memorandum of transfer (4 March 1994). The market value of the property at the date of the grant of the original option purchase is agreed by the parties as being $835,000. The benefit of the option was assigned to the appellant for $2,091,110.  The respondent Commissioner assessed stamp duty upon the basis of a conveyance for that consideration and imposed ad valorem duty of $82,478.

The appellant’s case was that the original lessee (Mardango), to whom the Housing Trust had granted the option, was a purchaser from the Housing Trust of that property.  The appellant, it was argued, by acquiring the benefit of that option from Mardango was a sub purchaser of Mardango’s interest.  That sub purchase had been acquired by the acceptance of the assignment on 9 August 1988 and the appellant had paid ad valorem duty upon the instrument assigning Mardango’s interest to the appellant.  The memorandum of transfer from the Housing Trust to the appellant was, it was submitted, a conveyance of the same property.

The Appeal

It is the appellant’s submission that in those circumstances the transfer should be governed by s68(5) of the Stamp Duties Act. Section 68(5) provides:

“Where a subpurchaser takes an actual conveyance of the interest of the person immediately selling to him, which is chargeable with ad valorem duty as a conveyance for the consideration moving from him and is duly stamped accordingly, any conveyance to be afterwards made to him of the same property by the original seller shall be chargeable with ad valorem duty as a conveyance for the consideration for the sale to the original purchaser.”

Section 60A(1) of the Act provides:

“Subject to subsection (2), a reference in this Act (other than in Part 4) to the value of property conveyed or transferred is a reference to the market value of the property -

(a)     in the case of a conveyance on sale - as at the date of the sale; or

(b)     in any other case - as at the date of the conveyance …”

To come within s68(5) a number of requirements must be met; there must be an immediate purchaser; the sale by the purchaser to the sub purchaser must be chargeable with ad valorem duty and stamped accordingly; and there must be a further conveyance of the same property by the original seller to the sub purchaser.

The appellant cannot come within s68(5) unless it can be said that the granting of a lease and an option to purchase the property to Mardango made that company a purchaser. Put simply, can it be said that the option to purchase made Mardango a purchaser? Of course, it must be a purchaser of the same property as was conveyed by the Housing Trust to the appellant. If it purchased a lesser or different interest than was conveyed to the appellant then the sub section does not apply. What was conveyed to the appellant was the whole of the land. That conveyance was after the exercise by the appellant of the option to purchase. The sub section can only apply if by the grant of the option to purchase Mardango was a purchaser of the same interest as the appellant received by way of conveyance from the Housing Trust.

The appellant argued that Mardango was a purchaser because the option to purchase the land was a conditional contract of sale and, as in any conditional contract of sale, had thereby acquired a conditional equitable estate. It was submitted that in these circumstances Mardango was a purchaser and that s68(5) recognised the purchaser of an equitable estate.

A contract between a vendor and purchaser for the sale of property gives to the purchaser an equitable interest in the property prior to registration of any conveyance of the property to the purchaser. On the basis that an option to purchase real estate is a conditional contract for the sale and purchase of property, the appellant submitted that the optionee (in this case Mardango) acquired an equitable interest upon the grant of the option. The respondent’s submission was that the right gained on the grant of the option was not an equitable interest akin to the equitable interest acquired by a purchaser before conveyance. The respondent argued that the interests obtained cannot be the same in both cases because the optionee gains a more limited interest being a different interest in that the optionee has a right to specific performance but only on exercise of the option. That is to be compared with the equitable interest of a purchaser obtains on the signing of a contract for sale and purchase. I shall stand over the question of whether an option to purchase is a conditional contract or an irrevocable offer and consider first the appellant’s argument that in any event there was a sale and purchase of equitable interests which are sufficient to invoke s68(5) of the Act.

The kind of interest a grant of an option to purchase creates was considered by the Full Court of this Court in Epic Feast v Mawson KLM Holdings & Ors (unreported, Full Court of the Supreme Court of South Australia, Judgment No. S6616, delivered 9 April 1998). In that case the Court considered the priorities of competing equitable interests. Debelle J, (with whom Matheson and Prior JJ agreed), held that “an option to purchase land gives the grantee an equitable interest in the land.” Debelle J cited with approval Laybutt v Amoco Australia Pty Ltd (Supra) and Barba v Gas & Fuel Corporation (Vic) (1976) 136 CLR 120. In the latter case Gibbs J held (at 137):

“I have discussed in Laybutt v Amoco Australia Pty Ltd the different views that have been expressed as to the nature of an option to purchase, but whichever view be accepted it is clear that an option to purchase gives the grantee an equitable interest in the land. In London and South Western Railway Co v Gomm Jessel MR said:

“The right to call for a conveyance of the land is an equitable interest or equitable estate.  In the ordinary case of a contract for purchase there is no doubt about this, and an option for repurchase is not different in its nature.  A person exercising the option has to do two things, he has to give notice of his intention to purchase, and to pay the purchase money; but as far as the man who is liable to convey is concerned, his estate or interest is taken away from him without his consent, and the right to take it away being vested in another, the covenant giving the option must give that other an interest in the land.””

Gibbs J continued:

“The equitable interest so created is a contingent interest which will become an absolute interest when the contingency is fulfilled: Griffith v Pelton [1958] Ch. 205, at p.225; Du Sautoy v Symes [1967] Ch. 1146, at p.1163. It was held in Morland v Hales and Somerville (1910) 30 NZLR 201 that the equitable interest which passes to the grantee when an option is granted prevails over the rights of a person who, after the grant of the option but before its exercise, has contracted to purchase the land without notice of the existence of the option.”

It is clear from those decisions that whether an option to purchase land is a conditional contract or an irrevocable offer, the option itself creates an equitable interest in the land over which it is granted.

Notwithstanding that the grant of the option in 1980 created an equitable interest in the property, it does not necessarily follow that stamp duty should be assessed at the time of the grant. For s68(5) to apply Mardango must be a purchaser under the section and the appellant a sub purchaser. As I have said Mr Michael Manetta, who appeared for the appellant submitted that the notions of seller, purchaser and sub-purchaser found in s68 must be wide enough to encompass those notions in equity. I am prepared to assume that s68 would include a seller, purchaser and sub-purchaser of an equitable interest.

However, for s68(5) to apply there must be a seller and purchaser on the original sale. For the section to apply Mardango must be a purchaser. Even if an equitable interest in the land came into existence on the creation of the option in 1980, it does not follow that Mardango became a purchaser at this time. Gibbs J in Laybutt v Amoco (supra), after holding that an option to purchase is a conditional contract, said that an option “gives the grantee the right, if he performs the stipulated conditions, to become the purchaser” (At 76).

Indeed, Mardango never became a purchaser at all.  Mardango could only have become the “purchaser” of the property if it had agreed to purchase the property, and it could only do that by exercising its option to purchase. Mardango did not ever exercise the option to purchase and therefore never became a purchaser. Because it did not elect to exercise the option there was never any point of time when Mardango become bound to purchase the property.

As I am of the opinion that Mardango was never a purchaser under s68(5) then it follows that the appellant could never became a sub-purchaser on the assignment of the option to purchase. At best the appellant in taking this assignment of the option to purchase was the purchaser of an option to purchase or the purchaser of a conditional contract.

It follows from this that the Housing Trust only became a seller on the exercise of the option by the appellant.

Even if the option is viewed as a conditional contract there is no actual sale until the option is exercised.  The debate over whether an option is to be correctly described as a conditional contract or an irrevocable offer is long standing and no closer, it seems, to being resolved. It was conceded by the respondent that there was authority for the proposition that an option to purchase land is in the nature of a conditional contract: see Laybutt v Amoco Australia Pty Ltd (1974) 132 CLR 57 at 75-76 per Gibbs J. However it is not necessary for the purpose of this appeal to decide whether an option is a conditional contract or an irrevocable offer and I expressly refrain from doing so.

I need not decide that point because even if it is assumed that an option is in the nature of a conditional contract giving rise to an equitable interest in the land, that would not amount to a sale under s68(5) of the Act. The nature of options to purchase is discussed in Farrands, The Law of Options, Law Book Co, Sydney, 1992 at p19-20:

“It has been suggested by numerous commentators that different conclusions result as to the date of the formation of the final contract in question depending on the character of the option as either an irrevocable offer or a conditional contract; under the conditional contract approach, it is arguable that date of the contract could be the date of the grant of the option, whereas under the irrevocable offer approach the date of the final contract would be the date of acceptance upon the elementary principle of the law of contracts that a simple contract dates from the time of the acceptance. … From a stamp duty viewpoint the relevant taxing point is the acquisition of a relevant asset; under either approach the asset acquired upon grant of the option is the chose in action held by the grantee entitling the grantee to exercise the option. But the acquisition of the asset the subject of the option does not occur for stamp duty purposes until the option is exercised, irrespective of the characterisation of the option as an irrevocable offer or a conditional contract of sale.”

The equitable interest created in Mardango on the grant of the option by the Housing Trust cannot be characterised as a sale for stamp duty purposes under s68(5). Because the option was not exercised by Mardango it did not acquire the property as such and only possessed an equitable right to specifically enforce a sale of the property if there was an election to exercise the option. It was therefore never a purchaser.

The grant of the option to purchase is not a sale under s68(5), the Housing Trust is not an original seller, nor is Mardango an original purchaser, and nor is the appellant a sub-purchaser under the section.

For these reasons I dismiss the appeal.