Rubino Investments Pty Ltd as trustee for the Rubino Family Trust v Chief Commissioner of State Revenue

[2018] NSWCATAD 133

Civil and Administrative Tribunal

New South Wales

Medium Neutral Citation:

Rubino Investments Pty Ltd as trustee for the Rubino Family Trust v Chief Commissioner of State Revenue [2018] NSWCATAD 133

Hearing dates:

24 May 2018

Date of orders:

27 June 2018

Decision date:

27 June 2018

Jurisdiction:

Administrative and Equal Opportunity Division

Before:

R Hamilton SC, Senior Member

Decision:

(1)   The Application is dismissed.

 (2)    The respondent’s assessments are confirmed.

Catchwords:

TAXES AND DUTIES- stamp duty- nominal duty on transfer to new trustee- s 54(3) Duties Act- necessity for pre-existing, continuing trust estate- necessity of continuity of beneficial ownership- onus of proof- exemption from duty for transfer to rectify consequences of fraudulent conduct or to reverse transfer declared void or voidable- s 65(24) Duties Act- what was relevant fraudulent conduct- what is a declaration of void or voidable-pre-incorporation declaration of trust

Legislation Cited:

Duties Act 1997 (NSW)
Taxation Administration Act 1996 (NSW)

Cases Cited:

Commissioner of State Revenue v Victoria Gardens Developments Pty Limited [2000] VSCA 233
Rubino v Pineview Property Holdings Pty Ltd [2016] NSWSC 904; [2016] NSWSC 1780
Sportscorp Pty Ltd v Chief Commissioner of State Revenue [2004] NSWSC 1029

Category:

Principal judgment

Parties:

Rubino Investments Pty Ltd as trustee for the Rubino Family Trust (Applicant)
Chief Commissioner for State Revenue (Respondent)

Representation:

Counsel:

 

Mr Robison (Applicant)
Mr Mescher (Respondent)

 

Solicitors:

  Essey Legal (Applicant)
Crown Solicitors Office (Respondent)

File Number(s):

17/224981

Publication restriction:

Nil

REASONS FOR DECISION

1. This case involves a claim for nominal duty, or an exemption from duty, for a transfer of two properties located in Galston, NSW. The Chief Commissioner has imposed ad valorem duty on the transfers.

2. The Rubino family had been engaged in litigation concerning an earlier transfer of the Galston properties to a company called Pineview Property Holdings Pty Ltd (Pineview). Allegations of fraud were made in relation to the transfer of the land to Pineview and the subsequent mortgaging of that land to the Bank. His Honour Justice White decided the case of Rubino v Pineview Property Holdings Pty Ltd [2016] NSWSC 904.

3. Following His Honour’s decision, the properties were transferred by Pineview to a newly formed trust estate, the Rubino Family Trust. The taxpayer has been assessed to duty on the unencumbered value of the properties (Chapter 2, Duties Act 1997 (DA)).

4. The taxpayer claims that the transfer should be liable to only $50.00 duty pursuant to s 54(3) DA (which deals with transfers to a new trustee on the retirement of a trustee, or the appointment of a new trustee), or alternatively that the transfer should be exempt from duty under s 65(24)(a) DA (which deals with transfers to rectify the consequences of fraudulent conduct or to reverse a transfer where a court has declared the transfer to be void or voidable).

Jurisdiction

5. The Chief Commissioner has assessed the applicant to stamp duty at ad valorem rates on a consideration of $3.7 million. The taxpayer has objected pursuant to s 86 of the Taxation Administration Act 1996 (NSW) (TAA). The objection, having been disallowed by the Commissioner has been referred to the Tribunal pursuant to 96 TAA. The tax payer has the onus of establishing its case before the Tribunal (s100(3) TAA). The Tribunal stands in the shoes of the Commissioner and has the powers set out in s 101 TAA.

The Facts

6. Mr and Mrs Rubino Senior were the registered proprietors of the subject land at Galston. In late 2011 or early 2012 Mr and Mrs Rubino Senior transferred the subject properties to Pineview. The main purpose of the transaction was to obtain financial accommodation required at that time by Mr and Mrs Rubino Senior. It was anticipated that Pineview would mortgage the properties to the Bank to obtain a certain amount of loan funds. In fact much more was obtained from the Bank by way of loan and diverted into the pocket of a Mr Dimitriou (a financial advisor who organised the transaction). Litigation was instituted when the details of the transaction were revealed, resulting in Justice White’s abovementioned decision in mid-2016.

7. An appeal was lodged and a stay was sought. His Honour Justice Brereton has crisply summarised Justice White’s factual findings in the substantive litigation in the stay decision [2016] NSWSC 1780 which I gratefully adopt:

10.   Mr and Mrs Rubino Snr owned two properties at Galston, and one at Arcadia where their son Frank and his wife Lee lived. The properties were subject to mortgages to the ANZ Bank, and they were in danger of losing their properties. They had also owned a property at Cooranbong, and the Dimitriou parties had previously facilitated an arrangement by which the Cooranbong property was sold, at a price acceptable to the ANZ Bank, to a neighbour on an understanding that the Rubinos would be able to repurchase it. In respect of the Galston and Arcadia properties, there was a farm debt mediation with the ANZ Bank which resulted in an agreement which would enable the Rubinos to retain one of the Galston properties, and also the second if ANZ were paid $1,050,000. However, the Rubinos encountered difficulties in raising funds to pay out ANZ, and enlisted the assistance of Mr Dimitriou and his companies to do so. Two short-term loans were arranged for that purpose; one of them was from Ms Huybers of $570,000, for which she was to be repaid $580,000. Mr Dimitriou had a connection at ANZ, and the scheme was to refinance the short-term loans through ANZ; however, the financial position and record of the Rubinos rendered it very unlikely that they would be able to raise funds. Accordingly, Mr Dimitriou developed a scheme whereby the Galston properties would be acquired in name by Pineview, in which the sole director and shareholder would be Ms Huybers, but which would hold the properties on trust for the Rubinos.

11.   Mr Russo, solicitor, was retained by the Rubinos to obtain release of title deeds from their former solicitors, which were thereafter used to effect the transfer of the properties to Pineview. The properties were transferred to Pineview, and funds were borrowed on their security from ANZ; but the Dimitriou parties procured loans considerably in excess of what was required to payout the short-term lenders. A total of just over $2 million was borrowed and received on behalf of Pineview (as trustee for the Rubinos), of which nearly $1.3 million was retained by the Dimitriou parties. Ms Huybers was not repaid her $580,000, but it – or most of it – was reinvested by the Dimitriou parties through another Dimitriou entity Defined Property Investments Pty Ltd in companies associated with one Mr Sanna.

12.   Mr Rubino’s executor and Mrs Rubino brought proceedings against ANZ (which were settled), against Mr Russo alleging that he was negligent in releasing the certificates of title, and against the Torrens Assurance Fund, complaining that they had been defrauded of their properties and tricked into signing the transfers; they did not sue the Dimitriou parties. White J held that Mr and Mrs Rubino, by their authorised agent Frank Rubino, were aware of and willing participants in the scheme whereby the property would be transferred to Pineview but held on trust for them. His Honour also dismissed the claim against Mr Russo.

13.   Pineview sued the Dimitriou parties to recover the funds borrowed from ANZ in excess of what had been applied to discharge of the short-term loans or otherwise for the benefit of Pineview. Ms Huybers sued for the $580,000 which she had advanced as a short-term loan but had not been repaid from the ANZ refinance.

14.   The judgment in favour of Ms Huybers for $535,151.62 comprises equitable compensation for the loss of $580,000 which it was found ought to have been repaid to her from the proceeds of the refinance with ANZ, but were intercepted and diverted by the Dimitriou parties, in breach of fiduciary obligation, and instead (at least in large part) invested, without her authority, in an advance to Sanna; less a set-off for a total of $44,848.38 which was accepted by the trial judge as having been paid by them to or for the benefit of Ms Huybers.

8. The judgment in favour of Pineview for $1,276,389.29 reflects the moneys found to have been received by the Dimitriou parties from ANZ ($1,990,551), for which it was found that they were liable to account to Pineview, less allowed set-offs in respect of moneys applied to meet proper liabilities of Pineview and the $44,848.38 paid to or for the benefit of Ms Huybers. It includes and to that extent duplicates the $535,151.62 awarded to Ms Huybers, the judge having observed that Pineview would have to give credit for any amount repaid to Ms Huybers. His Honour Justice White in the substantive decision made a number of important findings relevant to this duty dispute. His Honour made the following findings [2016] NSWSC 904 at:

10. The Rubinos say that this was done without their knowledge. They say that Dimitriou acted as a de facto director of Pineview, or in any event as Pineview’s agent, and that he and Winiata caused them to be deprived of their estate as registered proprietors of the Calderwood and Pine Valley properties by fraud. The fraud lay in their being induced to sign a transfer of the properties in favour of Pineview without their appreciating that that was the effect of the document they signed. They also say that they were deprived of their interest by Pineview’s then mortgaging the properties to the bank to secure loans totalling $2,000,720. What they say they were expecting was that Dimitriou would arrange a bank loan sufficient to repay $1,050,000 to the provider of the short-term funds together with whatever interest or other reward was properly payable to those lenders. According to Frank Rubino, it was not until February 2013 that he learned that the Calderwood and Pine Valley properties had been transferred to Pineview and that the ANZ Bank had mortgages over them for over $2 million (Frank Rubino [323]).

11.   For the reasons which follow I reject that claim. At all times Mr and Mrs  Rubino  relied on Frank  Rubino  to act for them in attempting to save the Pine Valley and the Arcadia properties. I have concluded that, contrary to his denials, Frank  Rubino  was aware that finance was to be raised by Pineview’s becoming the registered proprietor of the properties and borrowing moneys on security of them. The properties were to be held by Pineview on trust for Mr and Mrs  Rubino , or possibly their grandchildren, and the loan was to be serviced by the Rubinos. This arrangement was entered into because it was thought that Mr and Mrs  Rubino  could not themselves borrow the funds to discharge the ANZ Bank’s mortgage over Pine Valley, nor to discharge its mortgage over Arcadia. Mr and Mrs  Rubino  were in their 80s. They were pensioners. Other trading companies of the Rubinos had been placed in liquidation. Their three sons were either bankrupt or about to become so….

20.   Dimitriou’s conduct was unconscionable and fraudulent. The principal victim was Huybers, not the Rubinos. The Rubinos were not deprived of their land by fraud. They may have been defrauded to the extent the land was encumbered beyond what Frank  Rubino  on behalf of his parents had agreed to. But that was not the case the plaintiffs advanced ….

210.   I conclude that Frank  Rubino  knew and consented to the transaction whereby the Galston properties were transferred to Pineview so that Pineview could use them as security for money it would borrow from the ANZ Bank. I think it likely his parents were aware of at least this much. How much more Frank  Rubino  knew is unclear. He knew that more money was borrowed than was required to discharge the advance of $1,050,000 and interest, and that at least enough money to pay a deposit on the purchase of Arcadia was also borrowed. He may well not have known the extent of the borrowing Dimitriou had arranged. But that is not the case of fraud the plaintiffs have raised.

211.   For these reasons the fraud case alleged by the plaintiffs against Pineview fails.

212.   Pineview admitted that it held the Galston properties on trust for the plaintiffs “pending [scil. subject to] the repayment of advances made to both of them.” (Pineview defence paras 14 and 15.) The plaintiffs have not accepted that they were the beneficiaries of a trust. But they were. I do not accept that the Galston properties are held by Pineview on trust for Huybers or the plaintiffs’ grandchildren. No executed trust deed in favour of the grandchildren has been produced.

(Underlining added)

9. Following the decision of Justice White the son of Mr and Mrs Rubino Senior, Mr F Rubino Junior, arranged for the creation of the Rubino Family Trust.

10. In his affidavit of 7 December 2017 Mr Rubino Junior explained to the Tribunal the background to the creation of the Rubino Family Trust. He said (affidavit par 2) that Mr Dimitriou had advised that a new trust should be created for the Rubino family and that the properties at Galston should be transferred to it, that Pineview would be the trustee of that trust and that he, Mr Dimitriou, would attend to the paperwork.

11. Mr Rubino Junior went on to say that when he enquired about Mr X about progress in implementing the proposal and the paperwork he was given answers designed to suggest that all was arranged and that he need not worry (pars 4 and 5). It is enough to say that there was nothing in the evidence to suggest the family trust (which I shall call the 2012 “Trust”) had been created other than Mr Rubino Junior’s belief that it had. There was no document produced, and no corroborating or extraneous evidence to support the claim that a new family trust for the Rubino family had been created in 2012 by Mr Dimitriou, nor anything specific as to its beneficiaries, its terms etc.

12. Mr Rubino Junior went on to say in his affidavit (par 6) that in September 2016 he was involved in instructing Mr Shute (an accountant) concerning the failure by Mr Dimitriou to produce a trust deed for the 2012 “Trust”. He said that Mr Shute stated that a trust deed could be created to record the terms of the 2012 “Trust” using the firm’s standard discretionary trust deed and that the beneficiaries of the trust should be all the members of the family including various named individuals. Mr Rubino Junior said that they required a trustee separate and distinct from their ‘previous issues’ and the applicant was chosen (par 7).

13. Mr Shute produced a trust deed to create the Rubino Family Trust Estate and settled $10.00 on the trustee. The date of execution of the deed was according to the First Schedule 1 October 2016 (I shall call this the 2016 Trust). The trustee was specified in the Third Schedule to be the taxpayer here Rubino Investments Pty Ltd (Rubino Investments). Unfortunately Rubino Investments had not yet come into existence by incorporation at that time. Rubino Investments was registered with ASIC on 10 October 2016 and thereby became incorporated.

14. The properties were transferred 7 weeks later to Rubino Investments as trustee for the Rubino Family Trust (on 28 November 2016). The transferor was Pineview. Consideration for the transfers was stated to be $3.7million (in accordance with valuations). Stamp duty was assessed on the transfers from Pineview to Rubino Investments at ad valorem rates and those assessments are the subject of these proceedings.

Legislation

15. The provisions of s 54(3) DA read as follows:

(3) Duty of $50 is chargeable in respect of a transfer of dutiable trust property to a person (other than to a licensed trustee company, a special trustee, a trustee of a self managed superannuation fund or a trustee of a special disability trust) as a consequence of the retirement of a trustee or the appointment of a new trustee if the Chief Commissioner is satisfied that, as the case may be:

(a) none of the continuing trustees remaining after the retirement of a trustee is or can become a beneficiary under the trust, and

(b) none of the trustees of the trust after the appointment of a new trustee is or can become a beneficiary under the trust, and

(c) the transfer is not part of a scheme to avoid duty that involves conferring an interest, in relation to the dutiable trust property, on a new trustee or any other person (whether or not as a beneficiary) so as to cause any person to cease holding the whole or any part of a beneficial interest (or potential beneficial interest) in that property.

If the Chief Commissioner is not so satisfied, the transfer is chargeable with the same duty as a transfer to a beneficiary under and in conformity with the trusts subject to which the property is held, unless subsection (3A) applies.

16. The provisions of s65(24)(a) DA read as follows:

(24) Fraudulent or void transactions No duty is chargeable under this Chapter on the following:

(a) a transfer of dutiable property to a person if the Chief Commissioner is satisfied that the transfer is made to rectify the consequences of fraudulent conduct by another person or to reverse a transfer of dutiable property that has been registered under a law of the State or the Commonwealth and that has been declared by a court to be void or voidable.

The Submissions

17. The applicant submitted that s 54(3) DA applies as it is a transfer from Pineview (as a trustee) to Rubino Investments as trustee of the Rubino Family Trust which should be treated as a transfer as a consequence of the appointment of a new trustee.

18. The applicant submitted in the alternative that the transfer was to rectify the consequences of fraudulent conduct; or possibly pursuant to a court declaration that the transaction was void or voidable.

19. The respondent submitted that s 54(3) required there to be a trust pre-existing the transfer to which a new trustee is appointed and that there should be a continuity of beneficial ownership of the trust property so that the trust is the same continuing trust throughout. Reliance was placed on the decision of the Victorian Court of Appeal in Commissioner of State Revenue v Victoria Gardens Developments Pty Limited [2000] VSCA 233 which held to this effect on a very similar equivalent in the Victorian Duties Act; and on the decision of Gzell J in Sportscorp Pty Ltd v Chief Commissioner of State Revenue [2004] NSWSC 1029 at par [68].

20. The respondent submitted that s 54(3) was inapplicable because:

• the applicant had not met the burden of proof that this was the same trust as an earlier trust (the alleged 2012 “Trust”) or the trust found by White J, so therefore the Rubino Family Trust of 2016 was a new trust;

• alternatively, that the Rubino Family Trust could not be the same trust as that found by Justice White as the only beneficiaries of that trust as found by Mr Justice White were Mr and Mrs Rubino Senior, and that the terms of the 2016 Trust were different from those of the trust found by Justice White;

• alternatively, that the Rubino Family Trust had not been validly created as it was settled before the trustee had come into existence so there could not be a valid appointment of a new trustee.

21. The respondent further submitted that s65(24) DA did not apply because:

• this transfer was not to rectify the fraudulent conduct identified by Justice White (being the excessive borrowing against the security of the properties by for the private benefit of Mr Dimitriou); and

• Justice White had specifically found that the transfer to Pineview was not fraudulent.

Consideration

Section 54(3) DA

22. The authorities relied on by the Chief Commissioner firmly establish that the nominal duty on appointment of a new trustee requires the prior existence of a trust which remains “the same trust” before and after the appointment.

22. As I apprehend the taxpayer’s argument it was to the effect that either there was an earlier family trust created in 2012 by Mr Dimitriou as “promised” by him and that the 2016 Rubino Family Trust settled by Mr Shute on 1 October 2016 reflected the provisions of Mr Dimitriou’s 2012 “Trust”; or that effectively the 2016 Trust was the replacement of the trust found by Justice White.

23. Without any documentary evidence of the creation of Mr X’s 2012 “Trust” and in the absence of any corroborating evidence of the existence of the 2012 “Trust”, I am of the view that the taxpayer has failed to carry its onus of proof. I am unable to be satisfied on the balance of probabilities that an earlier family trust estate, on the same terms as that created in 2016 had come into existence in 2012.

24. Justice White found that Pineview did hold the properties in Galston on trust for Mr and Mrs Rubino Senior. However the transfers here were not transfers to a substitute trustee for Pineview of that same trust. The transfer was to the trustee of a trust estate with a widely defined class of beneficiaries.

25. It is also not necessary, given my decision on the onus of proof issue, to consider the Chief Commissioner’s argument that the Rubino Family Trust was not validly created, because the trustee had not been incorporated at the time of settlement of the trust. I asked for some additional submissions on this issue from the parties, and although interesting I did not find them persuasive.

26. It seems to me that even if the intended trustee had not been incorporated at the date of the settlement, nevertheless the party executing the trust deed on behalf of the intended trustee prior to its incorporation becomes a trustee of the settled sum upon receipt, and holds the sum on trust. The corporate trustee (here Rubino Investments) would ordinarily step into the place of the pre-incorporation trustee upon registration with ASIC and the ratification in some manner of the trust relationship.

27. In the present situation in any case the trustee had been incorporated before the transfers the subject of this dispute were executed and I infer knew the capacity in which it accepted the transfers.

Section 65(24)

29. I agree with the Chief Commissioner’s argument that this transfer was not to rectify the relevant fraudulent conduct. Justice White held specifically that the transfer by Mr and Mrs Rubino Senior to Pineview was not fraudulent (see pars 20 and 212 of the judgment of White J).

30. If the transfer to Pineview had been found to be fraudulent then a transfer back from Pineview to Mr and Mrs Rubino Senior alone may have satisfied s 65(24).

31. A transfer back to a trust would need to involve the closest scrutiny as it seems to me that the transfer would ordinarily need to restore the pre-existing beneficial interests in the property which had been affected by the fraudulent conduct by restoring the status quo ante.

32. The fraudulent conduct found and identified by Justice White was the excessive borrowing by Mr Dimitriou for his own benefit using the properties as security. The transfer of the properties to the newly formed Rubino Family Trust does not rectify that fraudulent conduct.

33. Nor does this transfer flow from the Supreme Court declaring any transfer to be void or voidable. Although in my view a formal ”declaration” may not be necessary, a clear finding that an earlier registered transfer was void or voidable is required. Nothing of that nature is to be found in the decision or orders of Justice White in Rubino v Pineview.

Orders

1. The Application is dismissed.

2. The respondent’s assessments are confirmed.

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I hereby certify that this is a true and accurate record of the reasons for decision of the Civil and Administrative Tribunal of New South Wales.

Registrar

Decision last updated: 27 June 2018