McKinnon Wallace Holdings Pty Ltd v Commissioner of State Revenue
[1998] VSCA 59
•8 October 1998
SUPREME COURT OF VICTORIA
COURT OF APPEAL Not Restricted No. 4256 of 1998
MCKINNON WALLACE HOLDINGS PTY. LTD.
Appellant
v
COMMISSIONER OF STATE REVENUE (IN HIS
CAPACITY AS COMPTROLLER OF STAMPS)
Respondent
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JUDGES: TADGELL, PHILLIPS and CHARLES, JJ.A. WHERE HELD: MELBOURNE DATES OF HEARING: 7 and 8 SEPTEMBER 1998 DATE OF JUDGMENT: 8 OCTOBER 1998 MEDIA NEUTRAL CITATION: [1998] VSCA 59
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STAMP DUTY - Conveyance on sale - Contract for sale of equitable interest in land - Contract completed without an instrument of transfer - Whether vendor was "a trustee of a trust" and whether the property "becomes an asset of the trust" upon completion of the contract of sale - Whether duty payable under special statutory provision: Stamps Act 1958 s.64A(3), Heading VI(A).
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APPEARANCES: Counsel Solicitors For the Appellant Mr B.J. Shaw Q.C. and Corrs Chambers Westgarth Mr P. Fox For the Respondent Mr G.A.A. Nettle Q.C. and Solicitor for Commissioner Mr R.R. Boaden of State Revenue
TADGELL, J. A.:
I have had the advantage of reading in draft the reasons prepared by Phillips, J.A. I am in complete agreement with them and would therefore allow the appeal.
PHILLIPS, J.A.:
This is a case involving what appears to be a deliberate scheme to avoid stamp duty. If so, it is a scheme which, though sophisticated, may have been met by answering legislation even before we have been required to rule upon its success or failure. What is involved is the alleged application of s.64A(3) of the Stamps Act 1958 to events occurring on 11 June 1997. Section 64B is another section operating in a similar area but because it did not come into operation until 2 December 1997, it is a section with which we have no concern at all in this case and nothing in this judgment should be thought to bear upon it.
The appellant, McKinnon Wallace Holdings Pty. Ltd. ("McKinnon Wallace") was given notice of assessment to duty in the sum of $3,327,500 under Heading VI(A) of the Stamps Act. The notice, which was dated 11 December 1997, declared it to be a default assessment under s.33 of the Act, in the amount of stamp duty "that should have been paid had a statement been lodged in accordance with s.64A(3)(d) of the Stamps Act". The amount claimed having been paid, McKinnon Wallace then objected to the assessment, claiming that no duty was payable. The objection was disallowed by notice of decision dated 20 January 1998 and thereupon McKinnon Wallace requested the Commissioner, under s.33B of the Act, to treat the objection as an appeal to the Supreme Court and cause it to be set down for hearing. The hearing of the appeal was referred by a single Judge to the Court of Appeal under s.17B of the Supreme Court Act 1986 and leave was given under subs.(3)(a) on 17 April 1998.
The dispute between McKinnon Wallace and the Commissioner centres on the land in certificate of title Volume 10158 Folio 494 of which the two registered proprietors are Halberton Pty. Ltd. and Davidson Hughes Developments Pty. Ltd. (“Davidson Hughes”). The two co-proprietors are also partners, with others, in a joint venture in which that land figures. Halberton Pty. Ltd. and the joint venture are of no immediate relevance: the transactions presently at issue concern the interest of Davidson Hughes as one of the two registered proprietors. Prior to the events about to be mentioned Davidson Hughes was holding that interest as bare trustee for McKinnon Wallace which itself was holding the beneficial interest as trustee (and it may be assumed an active trustee) of Capital City Investment Trust.
McKinnon Wallace's beneficial interest in the land was the subject of a very formal offer to sell made by McKinnon Wallace on 30 April 1997 to Trust Company of Australia (“Trust Company”) acting as trustee (again it may be assumed an active trustee) of Tooronga Trust. The terms of the offer, which was in writing, provided that it was open to acceptance by the payment of a deposit of $250,000 on 30 April and, upon that payment being made (as it was), a contract of sale came into existence, without further writing, in the form annexed to the offer. Provision was made in the contract for settlement on 11 June 1997 by the payment of $56,992,000 by the purchaser to the vendor, subject to adjustment depending upon whether or not a transfer was required from Davidson Hughes. The contract was settled as planned, the money paid and notice was given by the purchaser in writing that no transfer was required, at least for the time being.
The absence of a transfer is better understood in the light of the company structure. At the outset, Davidson Hughes was the wholly owned subsidiary of Conhud Pty. Ltd. which itself was, and is, the wholly owned subsidiary of Hudson Conway Ltd. Hudson Conway also owned all the issued capital of McKinnon Wallace. On the other side of the transaction, Trust Company was, and is, a wholly owned subsidiary of Union Trustee Co. (Canberra) Ltd. At settlement of the contract of sale on 11 June, Conhud Pty. Ltd. transferred all the shares in Davidson Hughes to Union Trustee Co. (Canberra) Ltd., duty being duly paid on that transfer. Thus, whereas before the settlement of the contract of sale, Davidson Hughes (the registered proprietor of a half interest in the land) and McKinnon Wallace (the beneficial owner of that half interest) were wholly owned, directly or indirectly, by Hudson Conway Ltd., after settlement on 11 June 1997, Davidson Hughes (still the registered proprietor of a half interest in the land) was the wholly owned subsidiary of Union Trustee Co. (Canberra) Ltd., as was also Trust Company (the new owner of the beneficial interest in that half interest, having taken by purchase from McKinnon Wallace). A new joint venture agreement was entered into to recognise the change in beneficial ownership of the interest in land of which Davidson Hughes remained the registered proprietor.
It is the contention of the Commissioner that by virtue of the foregoing a trust arose in respect of the subject matter of the sale by McKinnon Wallace to Trustee Company which had the effect of bringing s.64A(3) into operation. Before setting out that subsection, however, I note that the assessment issued to McKinnon Wallace in reliance upon s.64A(3) was not the first assessment issued by the Commissioner in respect of the transaction. On 16 May 1997, the solicitors for Trust Company had sought the opinion of the Commissioner under s.32(1) of the Act with respect to, inter alia, the offer and the contract. By notice dated 21 October 1997 given to Trust Company, the Commissioner assessed duty in the sum of $3,327,500 as payable, under s.32 of the Act, in respect of a "transfer of land". This was apparently upon the footing that either the offer to sell or the contract, or both, amounted to the transfer of an interest in land which was dutiable as a conveyance on sale. Objection to this assessment was made by Trust Company and, by letter dated 11 December 1997, the Commissioner withdrew that assessment. In its place the default assessment issued to McKinnon Wallace, as already mentioned, in reliance upon s.64A(3).
Section 64A(3) of the Stamps Act reads thus:-
"(3) Where - (a) real property is vested in a person; and
(b) that person is a trustee of a trust; and
(c) the real property becomes an asset of the trust -
the person shall, not later than 14 days after the real property
becomes an asset of the trust -(d) furnish to the Comptroller of Stamps a statement in the prescribed form accompanied by a statutory declaration setting out the prescribed particulars; and
(e) pay to the Comptroller of Stamps as stamp duty on the statement a sum equal to the amount of stamp duty that would have been payable if the real property had been conveyed by an instrument of conveyance to the person as trustee of the trust by another person."
As will appear, the Commissioner now argues that, upon completion of the contract of sale between McKinnon Wallace and Trust Company, McKinnon Wallace as vendor became trustee of the subject matter of the sale for Trust Company as purchaser. That was not, however, the Commissioner’s position when the assessment issued to McKinnon Wallace on 21 October 1997. According to the notice of decision dated 20 January 1998, the Commissioner claimed that a trust arose "on payment of the deposit on 30 April 1997”, from which point "a vendor of real property under a binding and specifically enforceable contract holds the real property on sale for the purchaser: Lysaght v. Edwards [1876] 2 Ch.D. 499”. Before this appeal came on for hearing the Commissioner must have abandoned that position; for, according to the Commissioner’s Outline of Argument when filed, the relevant trust was said to have arisen, not on payment of the deposit on 30 April, but on 11 June 1997 when the sale was completed. Prior to 11 June, Davidson Hughes was registered proprietor of an equal share with one other in the land in question and after 11 June, Davidson Hughes, though differently owned, remained the registered proprietor of that share. Before 11 June, that share was held on trust for McKinnon Wallace who, as beneficial owner thereof, on 11 June completed the sale of that equitable interest to Trust Company. At that point, says the Commissioner - and this was disputed by McKinnon Wallace on the appeal - a trust arose of the equitable interest in the hands of McKinnon Wallace, a trust of which McKinnon Wallace was trustee and Trust Company the beneficiary, with the result that s.64A(3) was called into play and justified the assessment that was made thereunder.
Mr. Nettle Q.C. appeared with Mr. Boaden for the Commissioner on this appeal, and Mr. Shaw Q.C. with Mr. P. Fox for McKinnon Wallace and, as might have been expected, the argument before us about the nature of the rights arising on the sale of an equitable interest in land was highly sophisticated. Thus, focussing on the words "becomes an asset of the trust" in s.64A(3)(b), Mr. Shaw developed an argument that, because the subject matter of the contract of sale was itself an equitable interest in property, completion of the contract meant, not that the vendor became trustee for the purchaser of the vendor's interest in the property, but that that interest was effectively disposed of by the vendor to the purchaser. Upon the sale being completed, in the ordinary course the vendor does become constructive trustee for the purchaser of the subject matter of the sale; but where the subject matter is equitable property, the vendor becomes, in substance, a "middle man" whose very existence (the argument ran) can be ignored. Thus, where A holds the legal estate and B the beneficial interest, if B becomes bare trustee for C of the beneficial interest, A thereafter holds the legal estate in trust for C and there is no need to notice further the existence of B. So much, Mr. Shaw submitted, was established in Oughtred v. Inland Revenue Commissioners [1960] A.C. 206, particularly in the speech of Lord Radcliffe; see also In re Holt’s Settlement [1969] 1 Ch. 100 at 106 per Megarry, J. and Neville v. Wilson [1997] Ch. 144 at 157.
A great number of cases and writings were canvassed in argument by the one side or the other, and I mention Head v. Lord Teynhan (1783) 1 Cox Eq. Cas. 57; 29 E.R. 1061, Grainge v. Wilberforce (1889) 5 T.L.R. 436 at 437, In re Lashmar, Moody v. Penfold [1891] 1 Ch. 258 at 267, 270, Redman v. Permanent Trustee Co. of N.S.W. (1916) 22 C.L.R. 84 at 93-97, Chang v. Registrar of Titles (1976) 137 C.L.R. 177 at 181, 184-5, Corin v. Patton (1990) 169 CLR 540 at 578-579; Battersby, "Formalities for the Disposition of Equitable Interests Under a Trust" (1979) 43 The Conveyancer and Property Lawyer 17, Snell's Principles of Equity, (28th ed., 1982), p.104, Jacobs, Law of Trusts in Australia (6th ed., 1997) para [2312] and Pettit, Equity and the Law of Trusts (6th ed., 1989) p.73. Many of these Mr. Nettle sought to distinguish as bearing only upon the position when equitable property is assigned with immediate dispositive effect. He emphasised the requirements of s.53(1)(c) of the Property Law Act 1958 which, he said, required writing before any disposition of an equitable interest could be effective. Counsel did not dispute that if the vendor of an equitable interest in land were to complete the sale of that interest the vendor would cease to have any interest in the property and would cease to be constructive trustee thereof for the purchaser; rather he submitted that such a sale could be completed only by transfer in writing, which the parties had expressly foregone. Upon completion of the contract of sale in this instance McKinnon Wallace became constructive trustee of its beneficial interest in the land for the purchaser, which was notably different, he submitted, from the vendor's assigning that interest to the purchaser. If a vendor disposes of what he owns, he no longer holds it; but if the vendor becomes trustee of what he owns, he retains it albeit on trust for another. Mr. Nettle, too, relied upon Lord Radcliffe’s speech in Oughtred.
The point of difference between the two arguments is perhaps best encapsulated in Meagher, Gummow and Lehane, Equity: Doctrines and Remedies (3rd ed.) at p.218 where the effect of a contract for valuable consideration to assign property is considered. It is said, first, that such a contract gives rise to a constructive trust of the property, although at precisely what time is uncertain. The learned authors go on to say:-
"But it is clear, at any rate, that if there is a valid and enforceable contract for sale, if the purchaser has accepted title and if the purchase price has been paid then the vendor holds the property as constructive trustee, absolutely and indefeasibly for the purchaser: see generally Waters, The Constructive Trust (1964) at pp.74-143, and the cases there cited: see also [609].
The application of this principle to a contract to assign a purely equitable interest gives rise to considerable difficulty. If as a result of the application of the principle the vendor is trustee of the interest, absolutely and indefeasibly, for the purchaser, then has not the contract been completed and is not the interest vested in the purchaser? What further assurance is either necessary or possible? But if that is the result, does it follow that such a contract amounts to a disposition of a subsisting equitable interest so as to be ineffective, by reason of [in Victoria s.53(1)(c) of the Property Law Act], unless in writing signed by the vendor? Alternatively, is [s.53(1)(c)] inapplicable, because the assignment occurs by way of the creation of a constructive trust, by virtue of [s.53(2)]? See generally Waters, op cit, pp.108-16."
An analysis of the speeches in Oughtred then follows.
Fortunately (if only because of the number of cases that were cited to us in this connection) there is no need, I think, to canvass the difficult and interesting questions which counsel raised. I am prepared to assume, against the appellant, that a constructive trust of the property came into existence upon completion of the contract of sale and that that was, as Mr. Nettle contended, different from an immediate disposition of the vendor's interest to the purchaser. None the less, I think that s.64A(3) had no application.
The words "real property" are defined in s.63 to include any estate or interest in real property, and so it might be said that before 11 June there was "real property" (in the expanded sense) vested in McKinnon Wallace, thus satisfying para.(a) of s.64A(3). (That was the beneficial ownership of the interest in land vested in Davidson Hughes as one of the two co-owners at law.) Before 11 June, McKinnon Wallace was also "a trustee of a trust", for it was trustee of the Capital City Investment Trust, but that is not relied upon by the Commissioner. The Commissioner asserts that on 11 June, a new trust came into existence upon completion of the contract of sale; it was a trust for the purchaser (Trust Company) of which McKinnon Wallace was the trustee, and the beneficial interest in land, hitherto in McKinnon Wallace, became at the same time "an asset of the trust". But to my mind that is to misread the section. In contrast to paragraph (c), paragraph (b) of s.64A(3)(b) does not speak of a person who “becomes” a trustee of a trust; the two paragraphs seem to be looking at different points in time. For the appellant it was submitted that paragraph (b) speaks of a trust in existence before the real property "becomes an asset of the trust", and I think that that is so. Thus, if an interest in real property is vested in A and then steps are taken whereby that interest in real property "becomes an asset of" a trust of which A is already trustee, s.64A(3) is called into play. It is not called into play where the real property in question is simply subjected to a trust which then and there comes into existence for the first time - which is what happened here. Had that been the intention, sub-s.(3)(b) and (c) could have been much more plainly expressed to that end. For example, instead of paras.(b) and (c) para.(b) might have required simply that “the real property becomes subject to a trust for another”. That is not what subs.(3) provides.
If it matters, that construction of s.64A(3) appears to be borne out by the explanatory memorandum which accompanied the Stamps and Business Franchise (Tobacco) (Amendment) Bill, the bill which became Act 10256 and which, by clause 9(1) inserted s.64A into the Stamps Act 1958 as from 10 December 1985. Section 64A was described as a whole very broadly by the Minister in his Second Reading Speech (Hansard, Legislative Assembly, 31 October 1985, p.1609):
"The Bill includes a provision deeming a dutiable land transfer to have taken place where there is a change in beneficial ownership of land without an instrument of transfer being executed. At present if this occurs there is no stamp duty payable. This result is achieved through the use of trustees who are beneficiaries. This is an anti-avoidance measure attacking a potentially costly abuse of the Stamps Act provisions to avoid duty on the transfer of property."
The reference to "the use of trustees who are beneficiaries" is not easy to understand, but having regard to sub-s.(1) of s.64A (and, if I am right, sub-s.(3) too), what was meant was probably the use of trustees who themselves assume the beneficial interest without any need for an instrument of transfer. Be that as it may, in the explanatory statement, the purpose and effect of clause 9(1) was explained more fully by reference to each of the three subsections of the new s.64A, So far as concerned subs.(3) the new measure was described as one which -
"... closes a loophole where a person decides to transfer property to a trust of which he is already a trustee. Again there is no instrument of transfer but beneficial ownership in the property passes. This amendment will require the same duty to be paid as would have been payable if a transfer had been executed."
As will be seen, counsel for the Commissioner seized upon the absence of any instrument of transfer; what matters for present purposes is the reference to "a trust of which [the would-be transferor] is already a trustee".
It was an important part of the argument put on behalf of McKinnon Wallace that, if the Commissioner was correct in applying s.64A(3) in a case like the present, the subsection must apply in the case of the ordinary, everyday sale of land upon completion of the contract of sale and pending registration of the transfer; for upon completion the vendor in such a case plainly becomes trustee for the purchaser of the land sold. If, in such a case, s.64A(3) applied, it would have extraordinary consequences, Mr. Shaw argued, in that the vendor would be liable for stamp duty upon the statement required to be lodged under s.64A(3), while the purchaser too would be liable for duty on the transfer handed over at settlement. Exemption (10) in Heading VI(A) would not apply, counsel said, to avoid the levying of duty thus twice; or if it did apply in one case or another, its application would be altogether adventitious.
The answer given by counsel for the Commissioner was that s.64A(3) had no application save in cases where there was no instrument of transfer. (As defined in s.63, the word "conveyance" includes "transfer"). It was here that Mr. Nettle emphasised the words in s.64A(3)(e), referring to the duty payable "if the real property had been conveyed by an instrument of conveyance ...". He pointed also to the provisions made in sub-ss.(1) and (2) which, he said, also suppose that there is no relevant transfer; for the first imposes the duty “that would have been payable if an instrument [of transfer] had been executed”; and the second imposes duty if the disponor of property to another as trustee is himself appointed trustee in place of that other “before any instrument [of transfer] is executed”. Section s.64A(3) would not operate in respect of the ordinary sale of land because, in such a case, there was an instrument of transfer which was handed over by the vendor to the purchaser at the time of settlement. In this instance, the parties had deliberately avoided using a transfer; at all events, under the option given by the offer document, the purchaser had so far elected not to require delivery of a transfer - and so s.64A(3) was called into operation.
There are difficulties in the way of accepting this argument of Mr. Nettle's. First, s.64A(3)(e), in quantifying duty as the amount that would have been payable "if the real property had been conveyed by an instrument of conveyance ...", speaks of a "conveyance to the person as trustee of the trust by another person", that is, someone other than the transferor himself. That does not truly reflect the instrument of transfer which is supposedly avoided in the circumstances described in paragraphs (a), (b) and (c) of the subsection; for such a transfer must have been by the transferor, as the owner of both the legal and equitable estate, to himself as trustee. Nor is it the transfer (from vendor to purchaser) which the purchaser has so far elected not to require in the present case.
Further, if the Commissioner is correct in arguing that s.64A(3) applied upon the completion of the contract of sale in this instance because no transfer was used and in distinguishing the everyday case of a contract for the sale of land because a transfer is used, for how long is it relevant that a purchaser defers calling for the transfer? It was the submission of the Commissioner that once the circumstances attracting the application of s.64A(3) were in existence, liability arose under it by operation of law. If so, and if s.64(3) is called into play by reason of the purchaser’s election not to call for a transfer for the time being , what if the purchaser subsequently does call for an instrument of transfer? Is the operation of s.64A(3) then cancelled, retrospectively as it were; or, as I think counsel was disposed to put it, is the operation of s.64A in the meantime simply "bad luck" and the cost of attempting to indulge in avoidance schemes? Neither response seems to me to be an altogether satisfactory answer to the difficulty raised by Mr. Shaw.
In the end, however, there is no need to pursue that difficulty because the problem of distinguishing completion under the ordinary, everyday contract for the sale of land does not arise on the construction which I have already put on s.64A(3). Quite independently of that problem (if such it be), I think that s.64A(3) has no application to the sort of trust which arises only on completion of the contract. In my opinion s.64A(3) requires that there be a trust in esse before “the real property becomes an asset of the trust” and so it does not operate in this instance where the real property was said by the Commissioner to have become “an asset of the trust” only at the same moment that the trust itself came into being. It may well be, as I suggested at the outset, that the offer and the contract in this case are evidence of a highly sophisticated scheme to avoid stamp duty, but merit in the taxpayer is still not the criterion by which the construction of our statutes, even our taxing statutes, depends. We are constrained by the language used by Parliament; we cannot legislate for ourselves and, however purposive the construction of s.64A(3), I cannot read the words used as sufficient to impose duty on McKinnon Wallace as the Commissioner now claims. I should perhaps mention that both sides sought to call in aid A & G Lamattina & Sons Pty. Ltd. v. Commissioner of State Revenue (Vic.) (1996) 32 A.T.R 635 on the words “becomes an asset of the trust”, but that case is of no assistance because Byrne, J was there dealing with trusts already in existence.
On this appeal a further question was raised by McKinnon Wallace about the amount of the duty levied according to the Commissioner’s notice of assessment. The amount of that duty depended upon the amount of the consideration under the contract of sale and according to the appellant that had been misunderstood by the Commissioner. But the question does not arise if, as I think, no duty was payable and it need not be explored.
For the reasons I have given I would allow the appeal and set aside the assessment on the ground that no duty was payable under s.64A(3) and make such consequential orders as may be appropriate.
CHARLES, J. A.:
I agree with Phillips, J.A.
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