MD COMMERCIAL PTY LTD (ACN 156 573 983) & AJ COMMERCIAL PTY LTD (ACN 156 573 992) Applicants and COMMISSIONER OF STATE REVENUE Respondent
[2019] VSCA 295
•13 December 2019
SUPREME COURT OF VICTORIA
COURT OF APPEAL
S APCI 2018 0149
BETWEEN
| MD COMMERCIAL PTY LTD (ACN 156 573 983) & AJ COMMERCIAL PTY LTD (ACN 156 573 992) | Applicants |
| and | |
| COMMISSIONER OF STATE REVENUE | Respondent |
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| JUDGES: | TATE, WHELAN and NIALL JJA |
| WHERE HELD: | MELBOURNE |
| DATE OF HEARING: | 25 October 2019 |
| DATE OF JUDGMENT: | 13 December 2019 |
| MEDIUM NEUTRAL CITATION: | [2019] VSCA 295 |
| JUDGMENT APPEALED FROM: | [2018] VSC 560 (Croft J) |
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TAXATION AND REVENUE – Duty on transfers of dutiable property - Whether no duty chargeable on transfers of land as transfers made to trustees to be held solely as trustees for transferors – No change in beneficial ownership – Trust deeds prohibit variation to confer share or benefit on person other than transferor – Trust deeds require trustee to act as directed by beneficiary and confer powers on trustee to sub-divide and sell the property – Whether trust deed provisions inconsistent with requirement property be ‘held’ for transferor – Provisions not inconsistent – Duties Act 2000 s 35(1)(a) – Comptroller of Stamps v Yellowco Five Pty Ltd [1993] 2 VR 529, White Rock Properties Pty Ltd v Commissioner of State Revenue [2015] VSCA 77 applied – Commissioner of State Revenue v Victoria Gardens Developments Pty Ltd (2000) 46 ATR 61 explained and applied.
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| APPEARANCES: | Counsel | Solicitors |
| For the Applicant | Mr N A Kotros | Falcone & Adams |
| For the Respondent | Mr C J Horan QC with Mr D C Morgan | State Revenue Office |
TATE JA
WHELAN JA
NIALL JA:
Two brothers, Anthony and Matthew Fox, inherited a property in Pakenham (‘the Property’) from their mother. They each established a trust, with the two applicant companies respectively as trustees, and they each transferred their interest in the Property to one of the applicants. Each trust was established by a deed of trust. Each such deed required the trustee to act in accordance with the directions of the beneficiary. Each trust deed empowered the trustee, at the direction of or with the written consent of the beneficiary, to undertake a number of specified activities in relation to the subject matter of the trust including development, subdivision and sale of the Property.
Section 35(1)(a) of the Duties Act 2000 exempts duty on transfers made by a transferor to a transferee ‘to be held solely as trustee … of the transferor, without any change in the beneficial ownership of the property’.
Initially, the transfers from the two brothers to the applicant companies were each stamped as exempt from duty under s 35(1)(a). Some years later, following the development, subdivision and sale of some of the land, the Commissioner of State Revenue (‘the Commissioner’) determined that the transfers did not qualify for exemption under s 35(1)(a) and issued assessments accordingly. The applicants objected to those assessments. The objections were disallowed. The dispute was referred to the Victorian Civil and Administrative Tribunal (‘VCAT’) pursuant to s 106 of the Taxation Administration Act 1997 (Cth). The Commissioner’s position was upheld by VCAT.
By an originating motion the applicant corporate trustees then sought leave to appeal on a question of law under s 148 of the Victorian Civil and Administrative Tribunal Act 1998. The question of law was expressed as follows:
A transfer of land made ‘to a trustee or nominee to be held solely as trustee or nominee for the transferor, without any change in the beneficial ownership of the property’, is exempt from duty, pursuant to s 35(1)(a) of the Duties Act 2000 (Vic). Land in Pakenham was transferred by two brothers to the appellants as their bare trustees. There was no dispute that this transfer attracted the exemption, but for this fact: the beneficiaries were able to direct their trustees to sell the land to a third party, in which case the trustees were obliged to act accordingly. Was that fact — referred to by the tribunal as ‘the power of the trustees to sell the property to third parties …. with the direction of the beneficiary’ — ‘sufficient by itself to take the transfer outside the exemption’?
Croft J in the Trial Division delivered judgment on the originating motion.[1] He granted leave to appeal, but he dismissed the appeal.
[1][2018] VSC 560 (‘Reasons’).
The applicants now seek leave to appeal from Croft J’s decision on the following proposed grounds:
1.Power of sale: The primary judge should have answered the question of law before him in the negative, with the effect that the transfer of the Pakenham home by the brothers to the applicants solely as their trustees was exempt from duty under section 35(1)(a) of the Duties Act 2000 (Vic) notwithstanding the ability of the brothers as beneficiaries to direct their trustees in the future to sell the property rather than transfer it back to them.
2.The judge’s reasons: The primary judge in his reasons for judgment should not have simply adopted the Commissioner’s written submissions without engaging with the applicants’ arguments, particularly the applicants’ submissions in reply to the Commissioner’s submissions.
The Trust Deeds
The provisions of each of the trust deeds are relevantly identical.
Each trust deed begins with a declaration of trust in relation to the Property (clause 1).
Each deed then provides that the trustee covenants that it will hold, transfer, and deal with the Property and any income and other rights which may accrue (collectively then referred to as ‘the Trust Fund’) ‘in such manner as the Beneficiary may from time to time direct’ (clause 2(a)). The ‘Beneficiary’ in each case is the relevant brother. The trust deed then provides (clause 2(b)):
So long as the Property shall remain registered in the name of the Trustee the Trustee will at all times act in accordance with the directions of the Beneficiary.
Clause 3 of each trust deed provides that the trustee is appointed as the Beneficiary’s attorney for the purpose of effecting, if deemed desirable by the Beneficiary, a transfer to the Beneficiary ‘or to a purchaser from the Beneficiary’.
Each trust deed provides that in addition to the powers otherwise conferred by law, the trustee has a number of designated powers which may be exercised only ‘at the direction of and with the written consent of the Beneficiary’. These powers include the power to invest; to borrow money, with or without security; to give security for the repayment of borrowings; to hold, develop and sell any real property; and to subdivide any land which may be subject to the trust (clause 6 — the power to sell is in sub-clause 6(g) and the power to sub-divide is in sub-clause 6(h)).
Each deed provides that the deed may be varied with the consent of the Beneficiary, subject to two provisos, one of which is (clause 7(a)):
Provided that the variation must not confer any share or benefit on any person other than the Beneficiary.
Reasons
The primary judge referred to the principles applicable to appeals under s 148 of the VCAT Act, outlined the relevant factual background, summarised the provisions of the deeds of trust, and set out the provisions of s 35 of the Duties Act in full.
The judge then turned to the effect and application of the legislative provisions. In that context he referred to three Victorian appellate court decisions which were central to the submissions made to him, and to the submissions made to us. The three decisions are Comptroller of Stamps v Yellowco Five Pty Ltd,[2] Commissioner of State Revenue v Victoria Gardens Developments Pty Ltd[3] and White Rock Properties Pty Ltd v Commissioner of State Revenue.[4]
[2][1993] 2 VR 529 (‘Yellowco Five’).
[3](2000) 46 ATR 61 (‘Victoria Gardens’).
[4][2015] VSCA 77 (‘White Rock’).
Croft J concluded that the outcome reached by VCAT, that the transfers were not exempt, was an outcome ‘clearly mandated by the authorities, and by those three decisions in particular’.[5]
[5]Reasons [32].
After quoting from Yellowco Five, the trial judge said:
The reasoning contemplates that any change in beneficial ownership, howsoever effected, will mean that the exemption cannot apply. In the present case, the transferor had a discretion to produce a change in the beneficial ownership by directing a sale (whether of the whole property, or of subdivided parts of it). It could only be said that the property was to be held without any change in beneficial ownership for so long as the transferor did not exercise that discretion.[6]
[6]Ibid [37].
After quoting from Victoria Gardens and from White Rock, the judge said:
In my view, clauses 6(g)–(h) of the Deeds of Trust make plain that the trustees’ obligations in the present case go further than simply to hold property for the respective transferors. The trustees’ obligations extend to the development of the land, and the sale of some or all of the trust property when directed to do so. The decision in Yellowco Five shows that the exemption is concerned with possibilities. One possibility in the present cases (which in fact occurred) is that the trustee would subdivide, develop and sell some or all of the land. That possibility denies the exemption, both because the trustees’ obligations extend beyond holding the land and because the terms of the trust contemplate changes in the beneficial ownership of some or all of the property during the subsistence of the trust.[7]
[7]Ibid [42].
In these passages the primary judge held that the exemption did not apply because the trust deeds’ provisions provided for a ‘change of beneficial ownership’ upon a sale; and because the trust deeds’ provisions meant that the trustees’ obligations went beyond simply ‘holding’ the property for the transferor.
The primary judge also said that the ‘obligations’ to develop, sub-divide and sell in clause 6, and the express contemplation of a transfer by sale to persons other than the transferor in clause 3, meant it could not be said that the property was transferred ‘to be held’ solely as trustee for the transferor without any change in beneficial ownership.[8]
[8]Ibid [44].
Finally, the judge said that the arrangements were such that a ‘new trust’ had been created comprising a ‘trust fund’ that included a 50 per cent legal interest in the land together with income and proceeds from the land and any other investments. The judge said each of the interests in the land were ‘impressed’ with the equitable interests of each of the brothers, and that ‘it may no longer be strictly correct to describe the brothers as the “beneficial owners” of the subject land’. The primary judge said the land had become part of a trust fund, the composition of which could change, and that it was ‘implicit’ in the arrangements that the two trustees and the two beneficiaries would be required to act together in exercising many of the powers conferred by the trust deeds, particularly in relation to the ‘contemplated’ subdivision, development and sale of the land.[9]
[9]Ibid [46].
The three appellate decisions
Yellowco Five was a decision of the Appeal Division of the Supreme Court of Victoria (prior to the establishment of the Court of Appeal). At the relevant time the applicable exemption was to be found in a schedule to the Stamps Act 1958. Exemption 18 in that schedule read:
Any instrument for the conveyance of real property which is made by the transferor to a trustee or nominee to be held solely as trustee or nominee of the transferor without any change in beneficial ownership or made by way of retransfer to such transferor.
The bench was constituted by Fullagar, Tadgell and JD Phillips JJ. They each delivered separate judgments.
The relevant factual background can be briefly stated. The owner of a residential property, a Mr Mapperson, contracted to sell the property to a company controlled by him and his wife. The company entered into a trust deed with Mr Mapperson, the vendor. The deed established a unit trust. The first and only unitholder, at the date of the transfer and at the date of the relevant proceedings, was Mr Mapperson.
The focus of attention at the Administrative Appeals Tribunal, before Southwell J at first instance,[10] and before the Appeal Division, was on clause 5 of the unit trust deed. It provided that the trustee could at any time ‘with the prior written consent of all the unitholders issue additional units upon such terms as the trustee thinks fit’.
[10](1991) 92 ATC 4086.
The Administrative Appeals Tribunal determined that the transfer was exempt under Exemption 18, as did Southwell J at first instance. The judges in the Appeal Division were unanimous in allowing an appeal from that determination, although their reasons were separately expressed.
Fullagar J held that the words ‘to be held’ in Exemption 18 ‘introduce an element of futurity necessitating an inquiry whether, immediately upon the conveyance, the trustee-transferee is seen to hold the land for the future in the capacity only of trustee for the transferor’.[11] Fullagar J considered that the answer to that question in the case before him was a negative one.[12] Whilst it was true that the only unitholder immediately after the conveyance was the transferor, the unit trust deed provided for the introduction of additional unitholders. Fullagar J addressed that issue as follows:
Pending an exercise of the joint power, it is true that Mr Mapperson was the only beneficiary pointed out by the trust deed. At a point of time one instant after execution of the conveyance, it could be said that the land is held for Mr Mapperson solely, but in my opinion it could not be said that the land is to be held for Mr Mapperson solely. The situation where the land is to be held for Mr Mapperson solely can be achieved by Mr Mapperson forever releasing his power of jointly appointing with the trustee, or ensuring that his power can never henceforth be exercised of joining with the trustee in an appointment by ‘consenting’, but still that release is necessary before it can be said that the sole capacity in which the land is ‘to be held’ by the trustee is as trustee for the transferor and no other.[13]
[11]Yellowco Five [1993] 2 VR 529, 531.
[12]Ibid 532.
[13]Ibid 532.
Tadgell J considered that the exemption looked to both the result of the execution of an instrument of transfer and the reason for the result.[14] He emphasised that there were two relevant phrases: ‘[t]o be held solely as trustee or nominee of the transferor’, and, ‘without any change in beneficial ownership’. The first phrase suggested that it was not enough merely that there should happen to be no change in beneficial ownership achieved by the instrument. He considered that the words meant that there was a requirement for ‘constancy in beneficial ownership’ which was referable to the circumstance that the subject property was to be held solely as trustee of the transferor.[15]
[14]Ibid 533.
[15]Ibid 534.
Tadgell J then asked the question whether the trust deed in the case before him produced the result that the beneficial interest was to be held by the transferee solely as trustee for the transferor. In his opinion it did not, because the transferor was always entitled under the terms of the unit trust deed to cause the transferee to hold the beneficial interest in the subject property not solely as trustee for the transferor but as trustee for the transferor and others, those others being additional unitholders introduced pursuant to the provisions of the unit trust deed.[16]
[16]Ibid.
Thus, although the instrument of transfer did not achieve a change in beneficial ownership, in Tadgell J’s opinion the conveyance was not one made by the transferor ‘to be held solely’ as trustee for the transferor and the exemption was accordingly not satisfied.[17]
[17]Ibid 535.
J D Phillips J considered the terms of the trust deed. He referred to the preamble, as had the primary judge, and set out the provisions of clause 3 regulating the trustee’s capacity to deal with the ‘trust fund’ and ‘net income arising from it’, as well as the provisions of clause 5 dealing with the introduction of new unitholders.[18]
[18]Ibid 537–8.
J D Phillips J addressed the location of the word ‘solely’ within the relevant exemption, concluding that it was placed where it was so as to emphasise that the transferee must take only as trustee or nominee and not otherwise.[19] J D Phillips J considered that, taken as a whole, the phrase ‘solely as trustee or nominee for the transferor’ imported a requirement of exclusivity.[20] He observed that the Comptroller of Stamps rested his argument upon this expression, contending that the present case was one in which the class of persons for whom the property was to be held was ‘capable of expansion’.[21]
[19]Ibid 538–9.
[20]Ibid 539.
[21]Ibid.
In substance, J D Phillips J accepted the Comptroller’s argument. He held that when the question was asked for whom the property was ‘to be held’, the answer was ‘the unitholders from time to time’.[22] J D Phillips J observed that the expression ‘to be held’ must mean ‘to be held thereafter’ and that, according to the provisions of the trust deed, the property was to be held thereafter for the unitholders from time to time.[23] J D Phillips J observed:
The respondent can then succeed only if it could be demonstrated that, [the vendor] being the only unitholder at the time of the transfer, any change in the identity of the unitholders was not open on the terms of the trust deed.[24]
[22]Ibid 542.
[23]Ibid 543.
[24]Ibid.
In this respect he reflected the observation made by Fullagar J that the vendor could only succeed if he were to forever release his power to join with the trustee in introducing new unitholders.
J D Phillips J referred to an argument put by the respondent trustee that, if the Comptroller’s approach were adopted, the exemption would never be called into play because:
Even in the case of a trust solely for A, it is always open to A to sell his interest with the result that the trust property must thereafter be held for the purchaser, not A.[25]
[25]Ibid 543.
J D Phillips J said that the answer to this submission was to be found in the terms of the trust document. He said:
If, according to those terms, the property is to be held for the transferor, then that is an end to the matter. It is the obligation of the trustee which requires examination and that can be determined only according to the terms of the trust document. The difficulty for the respondent in this case is that the trust deed, when examined, makes provision for the issue of further units and thus for the dispersion of the beneficial ownership among others than the transferor.[26]
[26]Ibid 543.
A similar submission was put by the respondent trustee to the effect that the vendor’s capacity, as sole unitholder, to terminate the trust under the rule in Saunders v Vautier[27] was significant. J D Phillips J said that the fact that the vendor had that capacity did not ‘affect the terms on which the property is to be held, so long as the trust exists’. That was the relevant issue. J D Phillips J said:
The fate of the property if the trust were ended seems to me irrelevant to the operation of the Exemption (18).[28]
[27](1841) 4 Beav. 115.
[28]Yellowco Five [1993] 2 VR 529, 544.
Before moving to Victoria Gardens, two matters in relation to Yellowco Five might be noted.
First, on our reading of their reasons, Fullagar and J D Phillips JJ would have found that the exemption did apply if the power to introduce additional unitholders had not existed or had been released. It seems to us that, implicitly, Tadgell J’s reasoning is also consistent with that conclusion as the capacity to introduce additional unitholders was the sole basis upon which he determined the matter.
Secondly, the relevant judgments do not set out the full terms of the unit trust deed. What is set out (for example, the provision about ‘income’) seems to indicate that the trustee had the kinds of powers typically to be found in such deeds. The trustee did not fail because of the existence of such powers.
Victoria Gardens concerned a very substantial development project in Richmond. Three owners of six separate lots of land agreed to join together to develop their combined holdings in a single development project by building retail, commercial, industrial and residential premises in stages over a period. The parties entered into a joint venture agreement and a trust deed. The three landowners transferred their land to trustees. The purpose of the transfers was to enable and facilitate the development project provided for by the joint venture agreement.
One of the issues raised by these transactions was whether the three transfers fell within Exemption 18, as previously referred to. A judge in the Trial Division held, in substance, that they did. The matter came before the Court of Appeal on this, and certain other issues. In the Court of Appeal, Batt JA, with whom Ormiston and Chernov JJA agreed, upheld an appeal by the Commissioner, concluding that the transfers did not fall within Exemption 18.
Batt JA analysed at some length the relevant provisions of the trust deed and the joint venture agreement. For present purposes, his critical conclusion was that the transferors had given up their previous rights and had agreed instead to the rights to which they were entitled under the joint venture agreement.[29]
[29]Victoria Gardens (2000) 46 ATR 61, 74–5 [33].
Batt JA said that the Commissioner’s argument, upon which he ‘stood or fell’, was that there had been a change in beneficial ownership because the land had been irretrievably transferred to a new trust where the only rights the transferors had were to receive a cash distribution in accordance with the joint venture agreement. Further, the Commissioner argued that under the trust deed and the joint venture agreement the land, which had previously been held separately, was held on trust for all three transferors, not discretely and exclusively for the particular transferors in relation to their particular parcels of land.[30]
[30]Ibid 76 [35].
Batt JA concluded that the Commissioner was correct in his analysis of the position as to why Exemption 18 did not apply. This was Batt JA’s second reason why the Commissioner succeeded.[31] Each piece of land was not held on trust for the transferor alone, and the beneficial interest in the land had changed. The joint venture agreement had ‘converted’ the previous rights in land into rights to money. Thus, the particular land the subject of each transfer was not held solely on trust for that transferor, and the beneficial ownership had changed.
[31]Ibid 77–8 [39].
As indicated, this was Batt JA’s second reason for holding that Exemption 18 did not apply. It constituted an acceptance of the argument put by the Commissioner, being the submission upon which he ‘stood or fell’ as set out by Batt JA. Batt JA, however, also gave another reason why Exemption 18 did not apply. He described this as the first reason, and he explicitly stated that the second reason (as described above) applied disregarding the first reason entirely.
Batt JA’s first reason was as follows:
First, whilst the transfers, although not to a nominee, are to Victoria Gardens as a trustee, the real property transferred by them is not ‘to be held’ as trustee of the respective transferors, but rather is to be developed and sold or otherwise disposed of, or at least possibly sold or otherwise disposed of (for it might be retained or leased). The exemption does not require the trustee to hold the real property perpetually, for it contemplates at least the possibility of re-transfer either when the trust has run its pre-ordained course or at the request of the transferor. But it does, as it seems to me, require that the trust be one to hold the real property on trust for the transferor. As Yellowco Five shows, the exemption is very limited. To my mind, especially if the first limb of the exemption is read as a composite expression, these transfers for massive development and realisation purposes are simply not of the type which the exemption is designed to encompass. As I have said, the trust here is not a trust for sale, but it is immediate and binding, there being no outstanding legal interest or intervening equitable estate; and I should have thought that a trust for sale, as defined, is not within the exemption since it was a trust, not to hold, but to sell.[32]
[32]Victoria Gardens (2000) 46 ATR 61, 77 [38].
Thus, Batt JA considered these arrangements, involving ‘immediate and binding’ obligations for ‘massive development and realisation’, were not ‘of the type which the exemption is designed to encompass’, because they did not meet the requirement in the exemption that the property is to be ‘held’ as trustee for the transferor. He said the arrangements were not a trust for sale, but, it seems to us that in the passage quoted he suggested that the immediate and binding character of the obligations in that case made the position analogous to a trust for sale.
We turn then to the decision in White Rock.
Five testamentary trusts were created by a will. Each trust held a one-fifth interest, as a tenant in common with the other four, in three blocks of land. The testamentary trustees entered into a partnership agreement with each other as partners, and appointed a company, White Rock Properties Pty Ltd, as the agent of the partners. The partnership agreement provided that the three blocks of land would be the initial capital of the partnership. The ‘partnership business’ which White Rock Properties Pty Ltd was to manage was ‘the business of the development and sale’ of the land. The testamentary trustees executed transfers of the three blocks of land to White Rock Properties Pty Ltd. The issue was whether those transfers fell within the exemption in s 35(1)(a) of the Duties Act.
This Court held that they did not for three reasons. They were:
·The first reason of Batt JA in Victoria Gardens applied because the land was transferred not to be ‘held’ but rather to be developed and sold.[33]
·Batt JA’s second reason in Victoria Gardens applied because, by virtue of the arrangements that were made, a new trust had been created of which White Rock Properties Pty Ltd was the trustee and each particular parcel of land was no longer held on behalf of the transferors of that land.[34]
·The provisions of the partnership agreement provided for the introduction of new partners, by virtue of which the exemption did not apply as the beneficiaries could change, as in Yellowco Five.[35]
[33]White Rock [2015] VSCA 77 [103].
[34]Ibid [104].
[35]Ibid [105].
In White Rock this Court expressly rejected submissions that Batt JA’s first reason in Victoria Gardens was obiter and should not be applied, or was to be confined to circumstances of ‘massive’ development.[36] The Court held that what Batt JA had said about the first reason did form part of the ratio decidendi,[37] and that the relevant part of Batt JA’s first reason was not his observation about the ‘scale’ of the development but rather his observations about the expression ‘to be held’.[38]
[36]Ibid [87] .
[37]Ibid [101].
[38]Ibid [103].
The Court in White Rock referred to s 35(2) of the Duties Act (which provides that a change in beneficial ownership does not include the creation of a trustee’s right of indemnity) and s 35(3) (which provides that the section applies whether or not there is a change in the legal description of the property) and said:
We accept that sub-ss 35(2) and (3) envisage that s 35(1) can apply notwithstanding that during the time that a trustee holds the trust property as legal owner, activities such as a subdivision may result in a new title to the property being issued to the trustee, and notwithstanding that the trustee may incur expenses in respect of which it will be entitled to indemnity from the trust property. These matters go to the meanings of ‘beneficial ownership’ and ‘dutiable property’ and do not affect the question of whether the relevant property is transferred to a trustee ‘to be held solely as trustee … of the transferor’.[39]
[39]Ibid [99].
Submissions
In relation to proposed ground 1, the applicants submitted that the sole issue raised was whether it was correct to conclude that ‘a potential for the property to be transferred in the future to a third party’ meant that the relevant exemption did not apply.
In relation to Batt JA’s first reason in Victoria Gardens it was submitted that the critical component of that reason was the fact that the trustees in that case were under obligations, ‘immediate and binding’, to develop the land and likely to sell it. It was submitted that, similarly, in White Rock, the trust was not one ‘to hold’ but ‘to develop and sell’. It was submitted that neither decision was authority for the proposition that the mere possibility of a sale in the future precluded the application of the exemption. It was submitted that in this case there were no immediate and binding duties of the kind addressed in Batt JA’s first reason in Victoria Gardens, nor was it a trust to develop and sell as in White Rock.
Otherwise, the applicants submitted that the reasons why the exemption had not applied in Yellowco Five, Victoria Gardens, and White Rock, did not exist in this case. Here, there was no change in beneficial ownership consequent upon the transfers (unlike in Victoria Gardens and in White Rock) and clause 7(a) of the trust deed precluded the possibility of the introduction of new beneficiaries (unlike in Yellowco Five and in White Rock). As to any possible future sale, it was submitted that J D Phillips J in Yellowco Five had made it clear that the possible disposition of the trust property was irrelevant because it did not affect the terms upon which the trust property was to be held for so long as the trust existed.
Apart from the authorities, it was submitted that there were five reasons why the mere possibility of a future sale did not preclude application of the exemption. These reasons were:
(1)Whilst it might be said that a property is not ‘to be held’ because it is to be sold, it is another thing to say it is not ‘to be held’ because ‘it might be sold’.
(2)There is no rational distinction between the possibility of a third party transfer and the possibility of a re-transfer to the beneficiary. Neither possibility means that the property is not ‘to be held’ for the transferor.
(3)It is accepted that the scope of the exemption is limited, but on the approach adopted in this case it could virtually never apply.
(4)It is significant that the word ‘solely’ is positioned where it is so as to apply to the term ‘trustee’ rather than to the term ‘to be held’.
(5)In the circumstances existing here, there was clearly no change in beneficial ownership but merely a change in registered proprietor. The applicants’ construction would better promote the underlying purpose of the statute.
It was submitted on behalf of the applicants that the exemption applies here, where the beneficial ownership was unchanged and could not change for the life of the trust.
The applicants submitted that the only matter relied upon at VCAT in contending that the exemption did not apply was the ‘so called’ power of sale. It was submitted that before the primary judge further matters had been advanced which the judge should not have entertained.
In relation to proposed ground 2, the applicants submitted that the judge’s reasons had constituted a ‘reproduction’ of the Commissioner’s submissions and had not adequately addressed the contentions made by the applicants in response.
The Commissioner submitted that the primary judge was correct to conclude that Yellowco Five, Victoria Gardens, and White Rock required a conclusion that the exemption did not apply in this case. It was submitted that the ‘critical parts’ of the trial judge’s reasoning were the parts which we have quoted or set out previously.
In the Commissioner’s written case it was submitted that the decision which is ‘central’ to the resolution of this case is Yellowco Five. The submission was that that decision stands for the proposition that the exemption will not apply in circumstances where ‘changes in the beneficial ownership would or might occur in the future, howsoever affected’. It was submitted that the possible issue of additional units was the circumstance of relevance in the particular facts of Yellowco Five but that that was ‘one way of changing the beneficial ownership, but it is not the only way’.
It was submitted on behalf of the Commissioner that the applicants’ submissions were an attempt to ‘re-open and re-argue’ the decisions in Yellowco Five, Victoria Gardens and White Rock.
Addressing the five matters relied upon in the applicants’ submissions (after the applicants had addressed the authorities), the Commissioner submitted in the written case:
·The first and fourth matters involve a challenge to the ‘element of futurity’ and the need to consider what ‘might’ occur in the future which had formed the basis for the reasoning in Yellowco Five.
·The second and third matters ignored the very limited scope of the exemption. It was submitted that the ‘core case’ to which the exemption can apply is where the trustee has no active powers or duties and the trustee simply ‘guards’ the property prior to its conveyance back to the beneficiary or ‘perhaps’ at the direction of the beneficiary. It was submitted that that circumstance is to be contrasted with the position here where what had been created was an ‘ambulatory’ trust fund with powers to invest, charge, lease, subdivide, develop and sell. It was submitted that the applicability of the exemption cannot depend upon whether a direction or consent has in fact been given at any particular point in time. The transfers in this case ‘involve more than just a mere change in registered proprietor’ because of the existence of a ‘range of powers and active duties’ which the trust deeds conferred on the trustee.
·It was submitted that the fifth matter relied upon by the applicants ignored the applicable binding authorities and ‘begs the question’ as to the underlying statutory purpose.
In relation to the adequacy of the judge’s reasons it was submitted that the reasons given were adequate but that in any event the ground was misconceived. If the judge’s conclusion was incorrect, the appeal would be allowed on proposed ground 1. If it was correct, proposed ground 2 would be irrelevant.
On one view at least, the submissions made by senior counsel for the Commissioner orally put the matter somewhat differently to the way in which the Commissioner’s case had been put in the written case and sought to uphold the primary judge’s conclusion on a more narrow basis than had been expressed by the primary judge.
The primary judge found, and the Commissioner’s written case contended, that the arrangements here did not attract the exemption because of the possibility of a change in beneficial ownership by reason of the existence of the power of sale, and because the arrangements did not meet the requirement that the transfer be one ‘to be held’ by the transferee solely as trustee of the transferor. In his oral submissions senior counsel for the Commissioner explained that the Commissioner did not rely on a potential change of beneficial ownership in the future, and it was contended that the primary judge had not relied on that circumstance. Senior counsel said:
So, this case turns upon the content and application of that separate and additional requirement that the property must be transferred to be held solely as trustee or nominee for the transferor.
A little later senior counsel submitted:
We haven’t relied, or we no longer at least rely in this appeal on the possible change in beneficial ownership in the future as being disqualifying and Justice Croft did not rely on that.
When questioned, senior counsel expressly confirmed that the Commissioner did not rely on a potential change in beneficial ownership as a consequence of sale, but rather contended that the power of sale denied the exemption because the property was not then ‘to be held’ solely for the transferor.
It was submitted on behalf of the Commissioner orally that the exemption required that the property was ‘to be held’, and that nothing else could be done with it or in relation to it, other than a transfer back to the transferor. It was submitted that the existence of powers and duties that go beyond ‘holding’ the property mean that the exemption cannot apply. Senior counsel explained that amongst such powers and duties might be matters that would encompass future changes affecting the beneficial ownership of the property, and it was submitted that Yellowco Five was an example of that. In this sense the requirement that the property is ‘to be held solely as trustee of the transferor’ is also concerned with future changes in beneficial ownership. Senior counsel submitted that the requirement concerning change in beneficial ownership was primarily directed at the ‘immediate consequence’ of the transfer which was not relevant to the appeal before us.
Senior counsel for the Commissioner was asked about specific provisions of the trust deeds and whether the existence of those provisions meant that it could not be concluded that the property was ‘to be held’ in the relevant sense. One of these provisions was the provision empowering the trustee to charge the land to secure borrowings. Senior counsel for the Commissioner, as we understood it, eventually took the position that such a provision may or may not be inconsistent with ‘holding’, but that the critical power here was the power to sell. Senior counsel said:
Strictly speaking, this case doesn’t necessarily turn on anything other than the power to sell.
As to the power to charge, senior counsel said:
There may be some things that the trustee can do that are consistent with the concept of the property being transferred ‘to be held solely’ and one might be the availability of a charge of the property to secure borrowing, but that might depend a little bit on looking at the trust deed as a whole and not just focusing on that one power.
A little later senior counsel confirmed that the Commissioner’s position was that, as a paradigm case, holding solely for the transferor ‘encompasses the trustee doing nothing more than guarding the property until directed to transfer it back or to transfer it to the purchaser from the beneficiary’.
Senior counsel for the Commissioner went through the provisions of the trust deeds in issue here, submitting that it was clear from those provisions that what was being done was to ‘set up an arrangement to facilitate an enterprise using the property’. It was submitted that this went beyond ‘holding’.
Another provision of the trust deeds raised with senior counsel for the Commissioner was the trustee’s capacity to acquire income from the property which would then become part of the trust fund. Senior counsel submitted that there was a danger in isolating one particular feature of the arrangement, but that otherwise the submission was that the existence of those provisions did mean that the trustee was doing more than simply ‘holding’ the property, as the trustee was generating income from the property. Later, he submitted that in many (if not all) cases, dealing with the property in a way to realise its income-producing potential may be doing more than what is contemplated under the exemption.
Addressing the terms of the trust deeds, senior counsel relied particularly upon the capacity to accrue income which would be added to the trust fund, and upon the powers in clause 6 of the trust deed, particularly clauses 6(g) and (h) concerning subdivision and sale. It was submitted that when the trust deed was read as a whole, after the transfers the trustees were to do ‘far more than hold the property solely for the transferor’.
Analysis
Dealing first with the primary judge’s reasons, he held that the exemption did not apply because:
·the trust deeds conferred on the transferor a discretion to produce a change in beneficial ownership by directing a sale (see [16] above).
·the trustees’ obligations, including the powers to subdivide and sell in clause 6 and to transfer to a purchaser from the beneficiary in clause 3, went beyond simply ‘holding’ the property for the transferor (see [17] and [19] above).
·a ‘new trust’ had been, or may have been, created as the land had become part of a ‘trust fund’, and it was ‘implicit’ that the beneficiaries and trustees would be required to act together (see [20] above).
Before us the Commissioner abandoned any discrete argument based upon a change, or possible future change, in beneficial ownership. The Commissioner founded his submissions, and sought to uphold the primary judge’s conclusion, on the contention that the property was not ‘to be held solely as trustee … of the transferor’.
In our opinion, senior counsel for the Commissioner was right to narrow his submissions in this way. This is not a case where a change in beneficial ownership by virtue of the transfer arrangements themselves (Victoria Gardens and White Rock), or by virtue of the possibility of the introduction of new beneficiaries (Yellowco Five and White Rock), precludes the application of the exemption. The trust arrangements here did not alter the beneficial ownership, either directly or indirectly. Each proprietary interest (1/2 interest as tenant in common) was still held for the respective transferor. The fact that the land formed part of a ‘trust fund’ did not alter the beneficial ownership of the land. There was no obligation placed upon the trustees which might be said to alter the beneficial ownership, even if it might be expected (or be ‘implicit’) that they would be required to act together. Clause 7(a) of the trust deeds expressly prohibited the conferral of any beneficial interest on any person other than the existing beneficiary by a variation to the trust deeds in the future.
Turning then to the issue of whether the properties were ‘to be held solely as trustee’ for the transferor brothers, in our opinion the Commissioner’s submissions seek to extend the principle in Batt JA’s first reason in Victoria Gardens, and this Court’s adoption of that principle in White Rock. The Commissioner’s primary submission is that almost any positive powers or duties provided for in the constituent trust document or documents will preclude the exemption. The trustee must be empowered to do no more than ‘guard’ the property. That goes further than what was said in Victoria Gardens or White Rock. Indeed, in White Rock this Court expressly accepted that sub-division by the trustee would not preclude the exemption.
In addition to this primary submission, the Commissioner also submits that, when the provisions of the trust deeds here are read as a whole, arrangements were being put in place which clearly go beyond what can properly be described as ‘holding’. In that respect the power to sell was particularly relied upon.
The applicants contend the Commissioner has progressively expanded the grounds upon which it is said that the property is not to be ‘held’ in the requisite sense. It is said that initially only the power to sell was relied upon. That may be so, but it was not suggested that the applicants suffered any prejudice as a consequence. All of the Commissioner’s contentions are founded on the authorities and the provisions of the trust deeds. The applicants responded to all of the contentions made without suggesting that any further evidence might have been led, or a different course taken, had the Commissioner’s relevant contentions been advanced earlier. We accordingly consider that the matter should be determined on the basis upon which it was argued before us. The relevant issues are issues of law as to the effect of the provisions of the trust deeds and the applicable statutory provision.
The applicants did not submit that this Court should reject Batt JA’s first reason in Victoria Gardens, or the relevant conclusion in White Rock, but rather submitted that the relevant principle is confined to a circumstance where the trustee is under immediate and binding obligations, not to ‘hold’, but to develop and realise the land. Here, no such immediate and binding obligations were provided for. There was nothing more than future possibilities.
The expression ‘to be held’ is important because, as was made clear in Yellowco Five, it introduces an element of ‘futurity’ (Fullagar J’s expression) and of ‘constancy’ (Tadgell J’s expression). Similarly, the word ‘solely’ is important because it confirms the element of ‘exclusivity’ (J D Phillips J’s expression).
But these expressions are without relevant meaning unless they are read with the words ‘as trustee … for the transferor’ and the words ‘without any change in beneficial ownership’.
Reading all the words together, as they were explained in Yellowco Five, the exemption will only apply where the transfer is such that, by the terms of the trust, both at the time of the transfer, and in the future for so long as the trust exists, the property will be held for the transferor, and for no-one else, as beneficial owner.
In Yellowco Five this fundamental requirement could not be met because additional beneficiaries could be introduced. In Victoria Gardens the requirement could not be met because the transfers themselves altered the beneficial interests. In White Rock the transfers altered the beneficial interests and there was the capacity to introduce new beneficiaries. The Commissioner does not contend, or no longer contends, that the applicants fail here for those reasons. The Commissioner contends that the applicants fail here, relying on Victoria Gardens and White Rock, because the trustees were not to ‘hold’ the property, they were to do more than that.
As indicated, it was not contended before us that Batt JA’s first reason in Victoria Gardens ought not be accepted as establishing a discrete separate requirement based upon the concept of ‘holding’. Given what was said in White Rock, it might be that such a contention would need to be addressed by a bench of five. If that issue does arise for consideration the question of whether Batt JA’s first reason is consistent with the analysis in Yellowco Five will need to be considered.
Accepting that there is an additional discrete requirement based upon the concept of ‘holding’, we would confine that requirement to the circumstance where there is a present obligation on the trustee to develop and realise the property, as contended by the applicants.
We have reached this conclusion for the following reasons:
(1)The Commissioner contends that Yellowco Five is the ‘central’ authority. We agree. Yellowco Five lends no support to the expansive construction of the concept of ‘holding’ contended for by the Commissioner. The determinative issue, as identified by all the judgments in Yellowco Five, was: for whom is the property to be held?
(2)The Commissioner’s primary contention that a trustee empowered to do anything more than ‘guard’ the property may not be ‘holding’ in the relevant sense cannot be accepted. Senior counsel resiled from the strictness of that contention when questioned on the power to charge. The contention that earning income from the property is inconsistent with ‘holding’, or would almost always be inconsistent with ‘holding’, from which senior counsel did not resile, cannot be accepted and is inconsistent with Yellowco Five where the receipt of income was specifically provided for in one of the provisions of the trust deed.[40] The Commissioner’s primary position is also inconsistent with this Court’s acceptance in White Rock that sub-division by the trustee would not preclude the exemption.
(3)Putting to one side the Commissioner’s ‘guarding’ contention, the Commissioner relied upon what was said to be the terms of the trust deeds read as a whole, and particularly the power to sell. As to the power to sell, in Yellowco Five, J D Phillips J expressly held that the possibility of sale by the beneficiary of the beneficial interest or the termination of the trust would not preclude the exemption. This was because what is critical is who is the beneficial owner ‘so long as the trust exists’; if according to the terms of the trust the property is to be held for the transferor ‘that is an end to the matter’; and, ‘[t]he fate of the property if the trust were ended’ is irrelevant. The power to sell the property raises the same considerations, in our opinion. The power to sell does not alter for whom the property is held. Its mere existence does not preclude the exemption, in our opinion. As to the contention that, reading the trust as a whole, arrangements were being put in place which go beyond ‘holding’, we can only say that we can see no justification in the words of the statute, in the authorities, or in principle, for extending the concept of ‘holding’ beyond what was expressly held to be the position in Victoria Gardens and White Rock, that is, where there is a present obligation to develop and realise the property. Such an obligation is not to be found in these trust deeds.
(4)Batt JA’s first reason in Victoria Gardens suggests that the circumstances that will fail to attract the exemption are those where the transfer is to a trustee on a trust for sale or a trust analogous to a trust for sale; that is, where the circumstances involve ‘considerations similar to those which would arise were there a trust for sale’.[41] Those circumstances do not arise here.
[40]Yellowco Five [1993] 2 VR 529, 537.
[41]Victoria Gardens (2000) 46 ATR 61, 75 [34].
The Commissioner rightly points out that confining the ‘holding’ requirement by reference to a present obligation potentially enables subversion of that separate requirement by the device of providing for an obligation in the future contingent on a specified event (such as a beneficiary direction). That may be so. If such a case were to arise, an enquiry as to the true nature and extent of the trustee’s obligation might be necessary, and there might then be occasion to re-consider whether there is a separate ‘holding’ requirement. However that may be, we do not consider that the separate ‘holding’ requirement (accepting that it exists) should be extended beyond what is expressly articulated in Victoria Gardens and White Rock.
Conclusion
In our opinion leave to appeal should be granted on proposed ground 1 and the appeal should be allowed.
It is unnecessary to address proposed ground 2.
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