MSP Nominees and Anor v Comm of Stamps

[1998] HCATrans 296

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Adelaide  No A44 of 1997

B e t w e e n -

MSP NOMINEES PTY LTD and SHARRARD PTY LTD

Applicants

and

COMMISSIONER OF STAMPS

Respondent

Application for special leave to appeal

GLEESON CJ
GUMMOW J

TRANSCRIPT OF PROCEEDINGS

AT ADELAIDE ON FRIDAY, 14 AUGUST 1998, AT 9.30 AM

Copyright in the High Court of Australia

MR B.W. WALKER, SC:   May it please the Court, I appear with my learned friend, MR B.M. COWELL, for the applicant.  (instructed by Cowell Clarke)

MR B.M. SELWAY, QC, Solicitor-General for the State of South Australia:   If it please the Court, I appear with my learned friend, DR N.A. MANETTA, for the respondent.  (instructed by the Crown Solicitor for the State of South Australia)

GLEESON CJ:   Yes, Mr Walker.

MR WALKER:   Your Honours, the commercial, because fiscal consequences of the decision have been referred to in the application book, come from an approach which is said to be a reading in ordinary English of words which sometimes do and sometimes do not have legal art to their meaning.

GLEESON CJ:   What is the practical significance of the issue in this case, Mr Walker?

MR WALKER:   The practical significance is to impose a fiscal disadvantage on the redemption of units in a unit trust but probably the consequences, depending upon the way in which the decision at its highest level of principle would be applied in other statutes, will be either uncertainty or the application of fiscal consequences on the transfer of legal title to beneficial owners of other trust property apart from units in unit trusts.

GLEESON CJ:   Does the significance of holding that a redemption is a surrender extend beyond South Australia?

MR WALKER:   Yes, for the reasons set out in the affidavit in support.  The reason why that emerges can be seen very quickly from the reasons, in particular, the application book, page 23.  In his Honour’s conclusions, the Chief Justice starts in the second paragraph, about lines 7 by emphasising what removes pure localism from the issue by emphasising that what his Honour is about to do is a process of reading “matter” as a matter of ordinary English.

And then two paragraphs further down, line 12 or thereabouts, there is at the heart of his reasons a statement which, for the reasons set out in the affidavit in support, concerning other comparable provisions in other States, a statement of supposed principle which, in our submission, is not only

wrong but which threatens the consequences to which I have referred.  The Chief Justice said:

To my mind, the redemption of units at the request of a unit holder can be described as the surrender by that unit holder -

and then a critical phrase, a surrender “of the beneficial interest previously held”.  In our submission, this is an inversion of the proper analysis, as a matter of trust and equity law.  It has an intensely practical consequence, of course, that by that reasoning, it is, for South Australian purposes, regarded as a transfer.  It might for other States purposes be regarded as a conveyance.  In our submission, the error in commercial terms has considerable consequences.  The error is one which flies in the face of, in our submission, the appropriate analysis as a matter of trust law of what actually happens upon what is called a redemption.  Whether the redemption is at the request of a unit holder or not is probably immaterial.

GLEESON CJ:   Yes, thank you, Mr Walker.  Yes, Mr Solicitor.

MR SELWAY:   Your Honours, we say that there are two issues confused in the applicant’s case.  The first issue is that all that has occurred here is that the applicant has received its entitlement and that, one can see in some of the analysis in the interstate statutes, and I will come to that in a moment.  The second issue is that what has occurred is not a receipt of an entitlement but a redemption.  Because of that confusion, we say, the applicant’s argument fails to distinguish between the two steps.  We say that when the two issues are separated the confusion disappears and the case becomes clear and it also then becomes clear that this judgment has no application beyond South Australia.

The applicant says that it has only received its entitlement pursuant to the distribution and when, in fact, this trust has not been distributed.  What has occurred is what is described in the trust deed as a redemption, a buying out for a price of the entitlement for the unit.  We say that is the first bit of the analysis which we say is in error and I will come in a moment to the way it is applied in respect of interstate statutes.

The second issue is whether the process by which that entitlement is given up is properly described as a redemption or a surrender.  If I could quickly take the Court to clause 34 of the trust deed which is - the trust deed is not set out in the application book but at page 19 of the application book in the judgment of Chief Justice Doyle, clause 34 is set out, and your Honours will see that:

The trustee may in the Trustee’s absolute discretion:

(a)  At the written request of a Unit Holder redeem all or any of the Units of the Unit Holders at a price of not more than the value of the quotient -

Now, there are two steps in that process described in the trust deed as “redemption”.  The first one is a request by the unit holder; the second one is a decision by the trustee.  The question under the South Australian statute is not whether this is a redemption - it may or may not be - the question is, is it also properly described as a “surrender”?  What Chief Justice Doyle said, and we say correctly, is that the word “surrender” means an action by a person, in effect, unit holder holding the units giving up those units.  It is their action.  Because of the way clause 34 operates - - -

GLEESON CJ:   Giving up - - -?

MR SELWAY:   Your Honour, it can be giving up because the definition itself in the Act - - -

GUMMOW J:   It is a definition of “transfer”, is it not?

MR SELWAY:   Yes, your Honour, it is.  The definition of “transfer” in section 71, at page 23 of the Act - - -

GUMMOW J:   And it has three disjunctive paragraphs.

MR SELWAY:   Yes, your Honour, 71(3)(a), and then your Honours can see at the conclusion of that paragraph it says, “whether or not any consideration is given to the transaction”.  So, your Honours can see that consideration is not an essential element of whether there has been a surrender or not, simply on the terms of the statute.  We would have said, in ordinary parlance, a person who surrenders a lease - - -

GLEESON CJ:   Does the meaning of the word “surrender” take any colour from the adjacent word “renounce”?

MR SELWAY:   It could, your Honour.  We would not see either of those words as being terms of art.  The idea of renunciation, one would accept, would normally carry a connotation of no consideration, whereas “surrender” may have more of a connotation of consideration but we would not have said that either words were terms of art and we would have said, in terms of the clear terms of the statute and the use of the word “surrender” in other contexts without consideration, that consideration is not an essential element of a surrender.

GUMMOW J:   “Surrender” appears in (c) as well.

MR SELWAY:   Yes, your Honour.

GUMMOW J:   Why was that necessary?  Why is it necessary to have (c)?  Paragraph (c) would not otherwise fall within (b)?

MR SELWAY:   On the assumption that (b) is limited to beneficial interest and (c) is of a lease.

GUMMOW J:   Yes.

MR SELWAY:   What we say, your Honours, is that properly construed, given the terms of that clause and it requiring a positive act of the unit holder to bring it into operation, it can properly be described as a “surrender”.  Now, if the clause had not made such provision and, for example, left it entirely in the trustee’s discretion, then this may be another matter but given the terms of clause 34 we say that there is an act by the unit holder calling into play the, if you like, giving up of the units.

GLEESON CJ:   That expression “giving up”:  was stamp duty levied when the trust was brought into existence on the trust instrument?

MR SELWAY:   I must say I do not know, your Honour, but certainly some of the transfers in and out of the trust could well have been levied to stamp duties.  But the argument that this somehow or other has some fiscal connotation seems to us to misunderstand the nature of stamp duty.  To give a simple example:  if two persons transfer two pieces of land to each other, stamp duty is payable on both of those transfers.  If one person sells land to another for cash, stamp duty is only payable on the transfer of the land.  If two people transfer cash to each other of the same amount, no stamp duty is payable.  But the net wealth effects in each of those, except for the stamp duty effect, is the same.  Stamp duty does not attach to a fiscal consequence, it attaches to documents relating to a transaction.  Now, what we say here ‑ ‑ ‑

GLEESON CJ:   You are pushing at an open door with that proposition, Mr Solicitor.

MR SELWAY:   I think that is right, your Honour, but we say, fundamentally, for example, Justice Debelle, the error in his judgment, is that he has seen the whole thing in a wealth consequence, a fiscal consequence, whereas, in actual fact, the thing needs to be analysed in terms of what is this transaction.

GUMMOW J:   What was the instrument here?

MR SELWAY:   The instrument here was a minute recording the deletion of the units.

GLEESON CJ:   I thought it was an entry in a trust register.

MR SELWAY:   And an entry in a trust register.  I think his Honour said there were two records that recorded this particular transaction.  We do not argue that but for these provisions those two instruments would not themselves have been stampable because they would not themselves have been a conveyance, and that is the reason why section 71 is there.

Your Honours, we say that on that basis the case only involves the meaning of the word “surrender” in South Australia and, in particular, in the context of this particular trust deed and how it operates.  We say in respect of the interstate provisions that the land rich provisions in all States, as we understand it, use both words “surrender” and “redemption” and that can be seen, for example, in section 75(1) of the Victorian Act.

GUMMOW J:   So what follows from that?

MR SELWAY:   Simply that there is no dispute in this case that whatever happened this was a redemption or, at least, as we understand the argument.  That being the case, whatever happens, the land rich provisions in all States would apply in this circumstance, assuming that we had a land rich trust or company involved.

The provisions, I think they are called “Clayton’s contract provisions” - in all relevant jurisdictions - not all jurisdictions have a Clayton’s contract clause - the relevant requirement is merely a change in the beneficial ownership and we would say, on any view, that has occurred in this case, whether or not it is a surrender or a redemption.  Again, if I could just - - -

GLEESON CJ:   A change in the beneficial ownership of what?

MR SELWAY:   If I could perhaps take your Honours to the Queensland Act which, I think, is No 3 in the materials, section 54AB(1)(a), third line:

a person obtaining an estate or interest in any real property in Queensland or any land in Queensland held under a lease -

and then under 54AB(1A):

For the purposes of subsection (1), a person is deemed to have obtained an estate or interest in property of the kind specified in subsection (1) where -

(a)  that person acquires an estate or interest, vested or contingent, in a trust the trustee of which owns an estate or interest, vested or contingent, in that property - - -

GLEESON CJ:   I am looking at the wrong - 54AB(1B), is that right?

MR SELWAY:   No, your Honour, (1A).  Your Honour will see subsection (1) gives the general application which is to:

a person obtaining an estate or interest in any real property in Queensland -

and 54AB(1A) extends it to beneficial interests.

GLEESON CJ:   What is the point you make about that?

MR SELWAY:   Well, merely that, again, the question of surrender in South Australia has no obvious application in these provisions even though in clause 12 of the reply and in the affidavit filed it is suggested that this case does have some application in these circumstances, and we say, no, it does not.  The consequence, we say, if one looks at the interstate statutes, is that the meaning of “surrender” in the South Australian Act has no obvious application at all anywhere else.  Everywhere else either uses, in the relevant provisions, “surrender” and “redemption”, in which case it falls within the provisions or what we are really talking about is a change in beneficial ownership, and that comes back to the point that we made at the start that there seems to be some confusion on the applicant’s case that what this case is really about is a distribution of a trust in any circumstances.

GLEESON CJ:   Are you just saying that what is involved here does involve a change in beneficial ownership?

MR SELWAY:   Yes, your Honour, there is a change in beneficial ownership in respect of - - -

GLEESON CJ:   That is what I wanted to ask you:  beneficial ownership of what?

MR SELWAY:   Of the unit trust held by MSP Nominees.

GLEESON CJ:   Of the unit trust?  You said there is a change in beneficial ownership and what I am interested to know is what is the property in which the beneficial ownership changes?

MR SELWAY:   Your Honours, at the end of the redemption process that has occurred here there is merely one owner left, that is to say, one holder of the unit trust.  Prior to that occurring, there were three holders of the unit trusts and we say there has been a change in beneficial ownership.

GLEESON CJ:   Of what?

MR SELWAY:   I take your Honour’s point:  merely of the ownership of the units, I take your Honour’s point.

GUMMOW J:   Yes, that is the point.  Now, do you say that if the unit structure was such that the unit holder was absolutely entitled and could call for - put a trust to an end - put an end to the trust and that a Saunders v Vautier situation would be surrender?

MR SELWAY:   No, your Honour, we would say that in that circumstance there was neither a surrender nor a redemption.  There would be a distribution.

GLEESON CJ:   What is the critical difference here?

MR SELWAY:   The continuation of the trust and the exercise of the discretion.  There has not been a distribution of this trust.  The trust exists and goes on.  What has happened is a party has had its interest purchased out.

GUMMOW J:   I think this discussion is showing there are some difficult and interesting questions which have not been fully explored in the judgments below.

MR SELWAY:   Well, I cannot take the matter any further than to make the submissions we have made.

GLEESON CJ:   Thank you, Mr Solicitor.  In this case there will be a grant of special leave to appeal.  We will adjourn to reconstitute.

AT 9.47 AM THE MATTER WAS CONCLUDED