JWW Nominees Pty Ltd & Ors v the Treasurer & Anor No. Scciv-02-824

JWW NOMINEES PTY LTD & ORS v THE TREASURER & ANOR
[2003] SASC 201

Miscellaneous Appeal
Gray J
Introduction

This is an appeal against the decision of the Treasurer disallowing an objection against the assessment of the State Commissioner of Taxation.
The issue to be determined is whether stamp duty totalling $702,000.58 on five instruments of transfer of units in a unit trust was correctly assessed.
The appellants were the transferors and transferees of the units in the unit trust. The transferors were entities controlled by members of the Weinert family. The transferees were members of a syndicate represented by a solicitor Garrick Gray.
The transfer of the units represented part of a wider transaction. The broad commercial undertaking involved the change of control of underlying lease-hold interests (“the underlying assets”) of the trust. The value of the underlying assets was said to be of the order of $15,000,000.00. The substantive dispute between the parties concerned the value of the units for stamp duty purposes.
Stamp duty is levied on instruments[1] not on underlying transactions to which they give effect. In DKLR Holding Co (No 2) Pty Ltd v Commissioner of Stamp Duties (NSW)[2] Mason J observed:
It is a fundamental principle of the law relating to stamp duties that duty is levied on instruments, not on the underlying transactions to which they give effect ... [I]n the case of a conveyance the statutory command is that it attracts duty on the property conveyed; in the case of the declaration it attracts duty on 'the property comprised therein'. Consequently the issues are: (1) What was the property conveyed by the transfer?; and (2) What was the property comprised in the declaration? The decision on these issues hinges on the interpretation of the two instruments, that is, on the description given by them of the relevant estate or interest as applied to the facts of the case. It is a matter of ascertaining what is the property with which each instrument deals, according to its terms.
We cannot substitute for the issues preserved by the statute a different issue having no foundation in the statutory provisions. Nor can we substitute for the property which the parties have chosen by their instruments to convey and make the subject of a declaration of trust the interest in property which in a practical sense represents the alteration in [the transferor's] position brought about by the combined operation of the two instruments.
[1] Section 4 of the Stamp Duties Act 1923 SA - Instrument is defined in section 2 of the Act to include every written document.
[2] (1981-1982) 149 CLR 431 at 449. This statement was recently approved in Commissioner of State Revenue v Pioneer Concrete (Vic) Pty Ltd [2002] HCA 43
Extrinsic evidence may be used to determine the real nature of a transaction to which instruments relate. In Commissioner of Stamp Duties (Qld) v Hopkins[3] Latham CJ observed:
...in many cases the courts have heard extrinsic evidence in order to determine the real nature of the transaction to which the instrument relates and to ascertain the amount of duty payable... It is true that, as has often been said, the Stamp Duty Acts impose duties upon instruments and not upon transactions. It is obvious that you can stick a stamp or impress a stamp upon an instrument, but not upon a transaction. But, in order to determine whether an instrument is dutiable, it is nevertheless necessary to ascertain the legal operation of the instrument, i.e., to determine the nature of the transaction which it accomplishes. Thus, for example, if a person purported to make a conveyance or settlement of land in which he had no interest whatever, the instrument would not be dutiable as a conveyance or settlement, because it would not produce any legal effect whatever in relation to the property with which it purported to deal. ...
In the first place, I consider the instrument in itself independently of any extrinsic evidence and ask what would be the legal operation of the instrument if fully executed. The instrument recites an intention of the father to transfer certain property to the son to be held by him upon the trusts mentioned therein. It does not contain any agreement (either with the son or with the proposed beneficiaries) to settle the property, but only states an intention to do so. If the father had changed his mind and had refused or merely failed to transfer the property to the son, neither the son nor the proposed beneficiaries (who were volunteers) could have compelled him to do so. It is a common practice for an intending settlor to execute a deed containing or referring to an agreement to settle property owned by him and declaring the intended trusts thereof, the property to be transferred upon or immediately after the execution of the deed: ... Such a document does not itself settle any property, but, as an agreement to settle property, it would be a settlement within the meaning of the Act. The instrument now in question cannot be brought within the Act as being an agreement to settle property.
Further, the document itself does not transfer any property to any person. It does not itself affect the right or title of any person to any property. The document states that the father, described as the settlor, declares that the son shall hold the property upon certain trusts, but it does not in itself (i.e. apart from the extrinsic fact of transfer of the property) give any rights to any person in respect of the property.
Extrinsic evidence was tendered by the appellants on the hearing of the appeal. In the reasons that follow I have identified the use made of that evidence in determining the real nature of the transaction to which the instruments of transfer relate.
Background Circumstances
[3] (1945-46) 71 CLR 351 at 360-361 see also Rich J at 369 and Dixon J at 378
Victoria Square Shopping Centre Pty Ltd (“the trustee”) was the trustee of the unit trust known as the Victoria Square Shopping Centre Unit Trust (“the unit trust”). The units in the trust were held by other trust companies representing the interests of different members of the Weinert family. Historically the Weinert family had control of the underlying assets.
A decision had been taken by the Weinert interests to dispose of the underlying assets of the trust. However a cash buyer could not be found. In February 1997 discussions commenced between the Weinert interests and Garrick Gray. As earlier observed Mr Gray was a solicitor who represented a syndicate interested in acquiring the underlying assets. The discussions continued during March and April 1997 and then developed into detailed negotiations. Ultimately an agreement was reached in July 1997. Settlement occurred in October 1997.
The syndicate sought substantial vendor finance. However the Weinert interests were not prepared to negotiate on this basis. At an unspecified date, probably in or about May 1997, a solicitor for the Weinert interests discussed a possible restructure of the trust with Mr Gray. The proposed restructure involved a draw down by the trustee on a bill facility granted by a Weinert related company and the use of those funds to make a capital distribution to the unit holders in the unit trust. It was proposed that the total capital distribution be an amount equal to the value of the underlying assets. This would leave the trustee with a debt to the grantor of the bills. The trustee would in turn have a right of recourse against the underlying assets.
The restructure proposal was of particular interest to the syndicate. It offered the opportunity for the syndicate to gain control of the underlying assets by taking a transfer of the units at a nominal value. There would also be a transfer of the shares in the trustee to the syndicate. The syndicate would in this way take on the obligation to repay the debt owed by the trustee to the grantor of the bills.
The syndicate was only prepared to continue negotiations on the condition that the proposed restructure proceed and be implemented at or before the settlement of any agreement. All further negotiations were conducted on this basis.
Negotiations progressed and in June 1997 agreement was reached. Documents recording the terms of agreement were executed (“the agreement”). For present purposes it is sufficient to outline the effect of the agreement. The syndicate agreed to acquire the units in the unit trust and the shares in the trustee. The debt owed by the trustee to the related Weinert company was to be satisfied at settlement. By this means the Weinert interests were able to transfer control of the underlying assets and in exchange receive the agreed consideration. The syndicate arranged finance primarily through external borrowings and to a limited extent through vendor finance from the Weinert interests.
Settlement of the agreement took place in October 1997. The delay was occasioned at least in part by the need to attend to requirements of an external financier. The external financier was concerned about the exposure of the syndicate to stamp duty. Ultimately the external financier’s concerns were met when a supplementary deed was entered into in October 1997. This supplementary deed recorded the agreement of the Weinert interests to contribute up to $300,000 in the event of there being a substantial assessment of stamp duty.
Following settlement, the instruments of transfer of the units were lodged for stamping. Each transfer disclosed a consideration of $15.00 reflecting a value of $1.00 a unit. It was contended by the appellants that the instruments were dutiable and that the value of each unit at the time of transfer was $1.00.
The Commissioner took a different view. He considered that the real value of the units was to be assessed having regard to the value of the underlying assets in the trust. He assessed duty on that basis at $702,000.58.
It was the Commissioner’s contention that he was entitled to disregard agreements and arrangements which had the effect of reducing the value of property being transferred. This contention raises the need to consider the terms of sections 60A and 70 of the Stamp Duties Act 1923 (SA).
The appellants submitted that sections 60A and 70 on their proper construction did not apply to the wider dealings between the parties and that the Commissioner should assess duty on the instruments of transfer on the basis of the disclosed consideration of $15.00.
The foregoing is a sufficient description of the agreement and arrangements between the parties to allow an examination of section 60A and section 70. Later in these reasons it will be necessary to identify and discuss in more detail the wider documentation giving effect to the transaction.
Section 60A
Section 60A(4a) of the Stamp Duties Act provides:
Where an interest, agreement or arrangement (granted or made on or after 7 January 1997) in respect of property has the effect of reducing the value of the property, the Commissioner may, for the purposes of assessing the duty payable on a conveyance of the property, disregard the existence of the interest, agreement or arrangement unless a person liable to pay the duty satisfies the Commissioner that the interest, agreement or arrangement—
(a) was granted or made for a purpose other than reducing the value of the property; and
(b) was not granted or made in favour of the transferee or a person related to the transferee.
Counsel for the Commissioner submitted that an agreement or arrangements had been made after 7 January 1997 with respect to the units in the unit trust and that the agreement or arrangements had the effect of reducing the value of the units in the unit trust. Accordingly it was argued that the Commissioner’s statutory discretion contained in section 60A(4a) to disregard the existence of the agreement or arrangements for the purposes of assessing the duty payable on the transfer of the units had been enlivened.
Counsel for the Commissioner submitted that on the evidence proferred by the appellants, the transferees had specified a condition precedent to the entry into further negotiations. It was necessary that the proposed restructure take place so that the value of the units in the trust would be reduced. An agreement or arrangement existed with respect to property that had the effect of reducing the value of the property.
Counsel for the Commissioner then submitted that the discretion remained enlivened as neither the transferors nor transferees, being persons liable to pay the duty, had satisfied the Commissioner that the agreement or arrangements was made for a purpose other than reducing the value of the property. It was also said that they had failed to satisfy the Commissioner that the agreement or arrangements had not been made in favour of the transferees. The matters referred to in sections 60A(4a)(a) and (b) had not been established.
Had the restructuring not occurred, the units at the time of transfer would have reflected the underlying value of the assets of the trust. Those assets would not have been subject to the trustee’s right of indemnity with respect to the debt arising as a result of the draw down on the bill facility. The restructuring substantially reduced the value of the units. The transferees did not provide the real consideration for control of the underlying assets directly through the payment of consideration for the units. Instead the transferees took on the obligation to discharge the debt to the Weinert related entity company with respect to the bill facility at settlement. The discharge of that debt effected the transfer of the real consideration for control of the underlying assets.
Counsel for the appellants submitted that there was no agreement or arrangements within the meaning of section 60A (4a) of the Act in respect of the units. It was said that it was the decision of the trustee to make a capital distribution which had the effect of reducing the value of the units. It was contended that this transaction should be characterised as a partial satisfaction of the claims of each unit holder and not a reduction in value. This submission is without substance. The suggested characterisation, even if correct, does not answer the substance of the Commissioner’s submission. The agreement or arrangements in respect of the units, however characterised, had the effect of reducing the value of the units. This was the direct effect of the agreement or arrangements.
The appellants further submitted that the trustees’ decision to make a capital distribution in any event was not an agreement or an arrangement. It was said that the decision and its implementation were merely acts of the trustee under the terms of and consistent with the unit trust deed. The difficulty with this submission is that it overlooks the real nature of the transactions to which the instruments related. The syndicate would not proceed to continue to negotiate for purchase unless the proposed restructure formed part of the agreement, and further, unless the restructure was implemented prior to settlement. The acts of the trustee were more than mere acts under and consistent with the terms of the unit trust deed. The acts of the trustee were undertaken so that agreement could be reached and transfer of control of the underlying assets could take place. A partial satisfaction of the claim of unit holders may have occurred. However the value of the units was reduced. The units had a greater value before the capital distribution than after.
Counsel for the appellants further submitted that, even if there was an agreement or arrangements that had the effect of reducing value for the units, it was clearly made for a purpose other than reducing the value of the property. The purpose was to distribute capital to the unit holders. This was said to be a permissible commercial purpose that only incidentally had the effect of reducing the value of the units.
This submission fails to have regard to one of the matters of which the Commissioner needs to be satisfied pursuant to section 60A (4a). The appellants had to satisfy the Commissioner that the agreement or arrangements were not made in favour of the syndicate. As earlier observed, the restructure was a pre-condition of the syndicate. The restructure had to be implemented at the request of the syndicate.
The appellants’ submission as to purpose should also be rejected. The purpose of the Weinert interests was to dispose of control of the underlying assets and to distribute the proceeds to the Weinert family members through their family trusts. The agreement or arrangements entered into were designed to facilitate the disposal of the underlying assets to the syndicate. It is incorrect to suggest the agreement and arrangements only had an incidental effect in reducing the value of the units. The agreement and arrangements had a direct effect on reducing the value of the units. The appellants failed to satisfy either limb of the proviso to section 60A (4a).
This conclusion is supported by the evidence of the real nature of the transaction to which the instruments related. The transactional documents are evidence of the dealings between the parties. Inferences can be drawn from those documents and the sequence of events disclosed. During negotiations the issue of stamp duty arose. The plan for restructuring opened up an opportunity to substantially minimise stamp duty. The subsequent arrangements were designed and entered into to effect this purpose.
The awareness and significance of stamp duty is borne out by the independent financier’s documents. Those documents disclose that initially the financier was proceeding on the basis that the transferees did not have an exposure to stamp duty. Ultimately the transaction could only proceed when a supplementary deed was executed. As earlier observed this deed addressed the sharing of stamp duty between the transferors and the transferees in the event of there being a substantial assessment.
The Commissioner was entitled to disregard a number of agreements and arrangements pursuant to the terms of section 60A(4a). He was entitled to disregard each of the agreements and arrangements that effected a reduction in value. There were the agreements and arrangements that effected the restructure. It was agreed that even if the Commissioner did not act pursuant to section 60A(4a) this court was empowered to do so.
Section 70
Section 70 addresses the avoidance or evasion of stamp duty and provides:
(1) Subject to subsection (2), an instrument executed in order, either directly or indirectly, to avoid or evade the payment of the duty payable upon a conveyance on sale is void.
(2)Where a third party relying in good faith on an instrument that is void by virtue of
subsection (1) purports to acquire an interest in property subject to the instrument, the instrument shall, for the purposes of that transaction, be treated as valid, provided that it is duly stamped as a conveyance on sale.
Counsel for the Commissioner submitted, that the instruments that effected the restructure and in particular the instruments that gave rise to the indebtedness to the related Weinert company on the draw down of the bill facility were void within the meaning of section 70 of the Act.
Having regard to the findings and conclusions earlier in these reasons it is unnecessary to reach a conclusion on the application of section 70. However, as the application of section 70 has been argued it is appropriate to deal with the issue shortly. The capital distribution was a precondition to the agreement proceeding. The distribution cannot be viewed as something divorced from the agreement. It was an integral part of the agreement. It is reasonable to infer that the restructure and capital distribution were completed in an attempt to avoid the payment of a considerable sum of stamp duty. It would appear that even if the Commissioner could not rely on the provisions of section 60A (4a), it may have been possible to have treated the instruments giving effect to the restructure and capital distribution as being void pursuant to the terms of section 70.
Conclusion

There remains a subsidiary issue concerning the value of the underlying assets. On this issue the parties have resolved their differences. It has been agreed that the assessment should be amended. The appeal is to be allowed for this purpose. Otherwise the appeal is dismissed. The amended assessment is to be in the amount of $611,490.00.
The assessment of the Commissioner should be confirmed pursuant to section 98 of the Taxation Administration Act 1996 (SA) subject to the agreed reduction in the amount of the assessment.
The appeal seeking to set aside the assessment should be allowed for the limited purpose of reducing the assessment to the amount of $611,490.00.
JUDGMENT CITATIONS LISTED IN ORDER OF APEARANCE IN JUDGMENT
1 Section 4 of the Stamp Duties Act 1923 SA - Instrument is defined in section 2 of the Act to include every written document.
2 (1981-1982) 149 CLR 431 at 449. This statement was recently approved in Commissioner of State Revenue v Pioneer Concrete (Vic) Pty Ltd [2002] HCA 43
3 (1945-46) 71 CLR 351 at 360-361 see also Rich J at 369 and Dixon J at 378

[2003] SASC 201

4 July 2003