MRC Developments Pty Ltd v Chief Cmr of Land Tax

[1995] HCATrans 377

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Sydney   No S71 of 1995

B e t w e e n -

MRC DEVELOPMENTS PTY LTD

Applicant

and

CHIEF COMMMISSIONER OF LAND TAX

Respondent

Application for special leave to appeal

DAWSON J
GAUDRON J
McHUGH J

TRANSCRIPT OF PROCEEDINGS

AT SYDNEY ON FRIDAY, 15 DECEMBER 1995, AT 11.38 AM

Copyright in the High Court of Australia

MR T.E.F. HUGHES, QC:   May it please the Court, I appear with my learned friend, MR J.T. GLEESON, for the applicant, the plaintiff below.  (Instructed by Freehill Hollingdale & Page)

MR R.F. EDMONDS, SC:   May it please the Court I appear for the respondent Commissioner.  (Instructed by I.V. Knight, Crown Solicitor for the State of New South Wales)

DAWSON J:   Mr Hughes.

MR HUGHES:   Your Honours, what I propose to do is to invite attention to the salient features of this case that can be gleaned from the papers with a view to emphasising those which, in our submission, would dispose the Court to grant special leave.  I begin by saying that the statutory provisions considered in both the courts below - the trial judge and the Court of Appeal - define a measure of relief from a land tax of widespread incidence by reference to a particular criterion.

That criterion is that in the case of land owned by a home unit company, which MRC was, limited by shares, the issued shares are owned by persons each of whom by virtue of his shares has an exclusive right to occupy a part of a building erected on the land.  Second, we draw attention to the fact that such a criterion of relief is not of singular or unique application.

Annexed to the statement of the argument are provisions of the land tax legislation of other States.  In New South Wales, your Honours, the present land tax legislation defines the relevant entitlement to relief in substantially the same terms as the terms in which the Act stood in the relevant tax year, which was 1990.  The criterion of application for relief under the present legislation is embodied in the use of the words “because of that share ownership” rather than “by virtue of his shares”.  That appears from section 21A of the Land Tax Management Act of 1956.  That section is set out in document 2 attached to the respondent’s submissions.

DAWSON J:   Do you see any difference in the phraseology or in the meaning of ‑ ‑ ‑

MR HUGHES:   No, we do not.  Indeed, they are equivalent terms and that is a matter of some relevance, in our submission, in relation to the consideration of special leave.  In Victoria, your Honours, the Land Tax Act 1958, section 6A uses as the relevant words, “by virtue of his ownership of shares”. That provision is set out at tab 3 of our special leave argument. In Queensland, see the Land Tax Act 1915‑1989, if I may invite your Honours, section 11C, the relevant words are exactly the same as in the New South Wales Act, “by virtue of his shares”. That appears from tab 4 of the papers.

In South Australia the relevant section is section 4(2) of the Land Tax Act 1936 and the expression there is, “by virtue of their shareholdings in the company” as descriptive of the unit‑holder.

DAWSON J:   Your point is they are all really the same thing?

MR HUGHES:   They are all really the same.  In Western Australian there is an exact equivalence and this is in, I think, tab 6.  The exact expression used is, “by virtue of his shares in the body corporate”.  It is therefore, in our respectful submission, correct to say that the questions of interpretation decided in this case by the two courts below have a definite potential for general application.

The next significant point, in our submission, is that in each of the judgments below it was accepted before the primary judge, if I may interpolate it, by concession or, at least, it was at this point that the contrary argument was not oppressed.  It was accepted that the reference to shares owned in section 3A(2)(b) includes the equitable ownership of shares.  Once that proposition be accepted, we would go on to say it must follow that the expression “by virtue of his shares” in the relevant section of the New South Wales Act cannot be restricted to a right of exclusive occupation which is, to quote the words of his Honour Mr Justice Powell in the Court of Appeal, “incident of or attached to the shares themselves”.  That statement is recorded at application book page 22, line 60.

We submit that the reasoning of the Court of Appeal amounts to saying that the expression refers only to rights of exclusive occupancy conferred by the constitutive documents of the company or to legal rights otherwise annexed to shares, for example, under section 196 of the Corporations Law and that section is annexed to our papers in which the argument is set out.

DAWSON J:   But once you interpret the phrases by meaning “by virtue of his shares” as meaning by virtue of his beneficial ownership of the shares, you still have to find some necessary connection between the beneficial ownership and the occupancy, and what is said against you here is that it was the agreement which gave rise to the occupancy.  Beneficial ownership of the shares was merely the occasion for the agreement.

MR HUGHES:   That is the reasoning against us but it is reasoning that ignores a very arguable proposition, namely that the phrase “by virtue of his shares” does not mean just by virtue only of his shares, particularly when one is dealing with equitable ownership.  It is sufficient, in our submission, that the ownership of the shares, in this case the beneficial ownership of the shares, is a causative factor, not necessarily the only causative factor, giving rise to the right of exclusive occupancy.

DAWSON J:   But it is not, is it, because absent the agreement you have nothing?

MR HUGHES:   No, but the agreement plus the beneficial ownership combined ‑ ‑ ‑

DAWSON J:   Well, you could make the agreement for exclusive occupancy without the beneficial ownership of the shares presumably.

MR HUGHES:   You may, but in this case the beneficial ownership of the shares, your Honour, was integral to, indeed, was the substratum of the agreement.

DAWSON J:   It was the occasion.

MR HUGHES:   It was a causative occasion.  That is the argument.

DAWSON J:   But all occasions are causative.

McHUGH J:   You want to apply the “but for” test.

MR HUGHES:   Well, it can be applied in particular ‑ ‑ ‑

McHUGH J:   I know, but that is what you really want to apply.

MR HUGHES:   That is, with respect, a fair way of putting it but we would say that, once the beneficial ownership of shares is recognised as being within the framework of section 3A(2)(b), it must follow that the right of exclusive occupancy therein referred to can arise from the combined effect of beneficial ownership and a contractual obligation of the company incurred in relation to that beneficial ownership.  It is impossible, indeed, to conceive a situation in which equitable ownership of shares in a home unit company can give of itself a right to occupancy which is solely attached to the shares.

GAUDRON J:   But ordinarily provision is made in the articles of such a company for occupancy rights.

MR HUGHES:   That is so and, indeed, your Honour, there are statutory provisions both in the New South Wales Code and in the Corporations Law which recognise that if provision is made in the memorandum or articles of a home unit company for an exclusive right of occupancy, that will not be an unauthorised reduction of capital.  The inference that one gets from those statutory provisions, one of which is annexed to our papers, is that there may be - and we say there are - other ways in which a company can recognise a beneficial owner of shares contractually as entitled to exclusive occupancy by virtue of his shares as an integral factor in the arrangement.  What we would say ‑ ‑ ‑

DAWSON J:   Can I just interrupt you for a moment?

MR HUGHES:   Yes, your Honour.

DAWSON J:   The question of whether it was beneficial ownership only made any difference was not really ever agitated, was it?  It was assumed by the court in its judgment and the question was answered a different way.

MR HUGHES:   That is so.  The question was ‑ ‑ ‑

DAWSON J:   Raised.

MR HUGHES:    ‑ ‑ ‑ raised and the Court of Appeal assumed that the trial judge was correct in interpreting “owner” in the section as including a beneficial owner.

DAWSON J:   That troubles me a little but you tell me, I suppose, that I cannot give any weight to that.  It is no longer open in this Court.

MR HUGHES:   It is no longer open in this Court, we would venture to suggest.  The point about beneficial ownership being within the framework of the section was not argued below.  There may have been - I was not there - a tendency on the part of the revenue in the Court of Appeal to move back from that position because they seem to suggest that the relief was available under the particular paragraph of section 3A only if the right of occupancy arose by virtue of membership of the company, but that is ‑ ‑ ‑

DAWSON J:   That is understandable assuming that there is no difference between beneficial ownership and legal ownership.

MR HUGHES:   Yes.

DAWSON J:   Nevertheless, what is said is this right did not go with the shares.

MR HUGHES:   Yes.  We submit that if one looks at the terms of the agreement the beneficial ownership of the shares was integral to the substratum of the contractual arrangement expressed in the agreement.  What we want to say further, if I may just develop the point, is that the parties to the agreement, the relevant terms of which are set out in the judgment of the primary judge, recognise the existence of the obligation, that is the personal obligation wrapped up in beneficial ownership, as the necessary substratum of the agreement.

What we would press upon the Court for its consideration is another factor and it is this.  We submit there is an unbreakable tension - breakable only in this Court if I may say so, your Honours - between the acceptance by the Court of Appeal of equitable ownership as a factor in the application of section 3A(2)(b) and the refusal to follow the necessary consequences of that acceptance.  An exclusive right of occupancy dependent upon the equitable ownership of shares can never be attached to the shares themselves.  The tension, if we may say so, is ‑ ‑ ‑

GAUDRON J:   They may derive from, in a sense.

MR HUGHES:   Yes.  That is good enough we say to attract the operation of that phrase “by virtue of” or “by reason of”.

GAUDRON J:   The question in this case is whether your occupancy rights could be said to derive from the shares ‑ ‑ ‑

MR HUGHES:   Exactly.

GAUDRON J:    ‑ ‑ ‑ or from the agreement.

MR HUGHES:   Or both.

GAUDRON J:   Or both, yes.

MR HUGHES:   And we say both.

DAWSON J:   Well, it certainly does not derive from the shares alone, does it?

MR HUGHES:   No, and it does not have to if one pays regard to the authorities there are, and I am not going to take up time going to them but we have referred to them in the application book.  The tension is accentuated by the omission of the Court of Appeal to deal with the case of Kaypyb which is on our list.  That case was cited in the primary judge’s judgment and in argument on the appeal.  The importance of that case is that Mr Justice Mahoney, in dealing with the immediately neighbouring paragraph of (2)(b) which is a paragraph which your Honours can read in the document which is tab 2 to the book setting out the argument.  It is a paragraph which deals with relief from the whole incidence of land tax:

where land is jointly owned and, e.g., “the ownership of an interest in the jointly owned land gives the owner of the interest an exclusive right to occupy a residential unit situated on the jointly owned land”:

Now, we would say that what Mr Justice Mahoney had to say at page 4,086 of that case has relevance and is of assistance in considering the meaning of (2)(b) because what his Honour said in that case is that joint ownership cannot of itself confer a right of exclusive occupancy.  He points out that an agreement which is based on the substratum of joint ownership is necessary to enliven the relief expressed in paragraph (a).  That approach, we say, can be applied to section 3A ‑ ‑ ‑

DAWSON J:   Perhaps joint ownership carries you half‑way, does it not, because it gives you a right to occupancy?

MR HUGHES:   It gives you a right to joint occupancy, yes.  It is a little different but ‑ ‑ ‑

DAWSON J:   It is very different, is it not?  You would say not.

MR HUGHES:   We would say not.  It is arguable.  The approach of Mr Justice Mahoney can be applied by parity of reasoning.  We submit that for all the reasons we have endeavoured to give, this case raises in a potentially general statutory setting an important question as to the interaction of equitable and legal ownership of contractual rights in relation to shares in home unit companies and that it is a question of sufficient general importance to warrant a grant of special leave.

DAWSON J:   Thank you, Mr Hughes.  The Court need not trouble you, Mr Edmonds.

The Court is of the view that there is insufficient reason to doubt the correctness of the conclusion reached by the Court of Appeal to warrant the grant of special leave.  Special leave is accordingly refused.

MR EDMONDS:   Costs, your Honour.

DAWSON J:   Mr Hughes, do you have anything to say?

MR HUGHES:   I cannot resist that.

DAWSON J:   With costs.

AT 11.57 AM THE MATTER WAS CONCLUDED