The Commissioner of Stamps v MSP Nominees Pty Ltd and Sharrard Pty Ltd No. Scgrg-96-1686 Judgment No. 6197 Number of Pages 6 Stamp Duties (1997) 68 Sasr 266

[1997] SASC 6197

IN THE FULL COURT OF THE SUPREME COURT OF SOUTH AUSTRALIA

DOYLE CJ, MATHESON AND OLSSON JJ

Stamp duties - what transactions or instruments are liable - Unit Trust - redemption of units - whether redemption liable to stamp duty - whether redemption is "transfer" as defined - whether redemption of units at the request of a unit holder can be described as a surrender by that unit holder of the beneficial interest previously held. Stamp Duties Act, 1923 s24(4), s71(3),(4) and (15), referred to. Read v Commonwealth (1988) 167 CLR 57; Costa and Duppe Properties Ltd v Duppe [1986] VR 90, applied.

ADELAIDE, 3 June 1997 (hearing), 13 June 1997 (decision)

#DATE 13:6:1997

Representation

Appellant:

Counsel: Mr B M Selway QC (Solicitor-General) with Dr N A Manetta

Solicitors: Crown Solicitor's Office

Respondents:

Counsel: Mr J M Wilkinson

Solicitors: Cowell Clarke

Order: appeal allowed.

DOYLE CJ

Introduction

1. This is an appeal against a decision by a judge of this Court. By his decision the judge allowed an appeal, by case stated under s24(4) of the StampDuties Act ("the Act"), against a decision by the Commissioner of Stamps.

2. The point at issue before the judge, and on appeal from him, is whether stamp duty is payable upon the Register of Unit Holders ("the Register") kept for the purposes of a Unit Trust ("the Trust").

Facts

3. The Respondent, MSP Nominees Pty Ltd is the trustee of the Trust. The Trust appears to be a unit trust of the usual kind.

4. The position of each unit holder in such a Trust is summarised by Mason CJ, Deane and Gaudron JJ in Read v The Commonwealth (1988) 167 CLR 57 as follows (at 61-62):

"A unit holder thus has a beneficial interest in the assets of the Trust, a right to have the Trusts executed in accordance with the Deed, and a right to proportionate distribution of the proceeds representing the assets of the Trust Fund upon termination of the Trust. The extent of the unit holder's beneficial interest at any given time is that proportion which his or her units bear to the total number of units issued." 5. While each unit holder has a proprietary interest in all of the assets of the trust, it is the case, as Brooking J said in Costa & Duppe Properties Pty Ltd v Duppe [1986] VR 90 at 96 that:

"...no unit-holder can claim to have any particular asset appropriated to his share or transferred to him otherwise than in accordance with the Deed." 6. It was common ground before the judge that the Trust was a "unit trust scheme" as defined in s4 of the Act.

7. When the Trust was first constituted there were three unit holders. They were Budget Investments Pty Ltd ("Budget"). Sharrard Pty Ltd ("Sharrard") and Galaxy Homes Pty Ltd ("Galaxy"). The trust property at all material times comprised cash, land and buildings, being the assets of a business known as "Acacia Roofing Tiles".

8. When the Trust was first constituted, the unit holdings were as follows: Budget 750,000 units at $1.00 each (30% of the issued units) Sharrard 1,250,000 units at $1.00 each (50% of the issued units) Galaxy 500,000 units at $1.00 each (20% of the issued units) 9. Unit certificates were issued to and held by each unit holder. There was a Register of unit holders. Each unit holder also held shares in the trustee.

10. Clauses 34 and 35 of the Trust Deed provide as follows: "REDEMPTION OF UNITS

34. 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 derived by dividing the total number of units issued into the value of the Trust Fund determined in the manner provided for by clause 36 hereof but otherwise on such terms and conditions as the Trustee shall in the Trustee's absolute discretion think fit.

(b) Appropriate any part of the Trust Fund in its then actual state of investment in or towards the satisfaction of any liability on the redemption of any Units as is provided for by sub-clause (a) hereof or in satisfaction of the interest of any Unit Holder in the Trust Fund and any such appropriation shall be final and binding on all persons claiming under the trusts hereof.

35. The redemption of any Unit by the Trustee under Clause 34 hereof shall notwithstanding any other provision hereof cancel such Unit and all right title and interest both legal and beneficial therein and the Trustee shall forthwith record such cancellation in the register of Unit Holders." 11. Pursuant to cl 34 Budget requested the trustee to redeem all of its units. The trustee agreed to do so. That decision is recorded in Minutes of a meeting of the Directors of the trustee on 17 January 1992. Budget and the trustee agreed that the value of the units was $686,000. Budget was paid that amount.

12. Budget then transferred its shares in the trustee to Sharrard for a consideration of $30,000.

13. In the Register of unit holders kept by the trustee, adjacent to the entry recording Budget as a unit holder, an entry was made as follows: "Redeemed 17/1/92".

14. The only documents evidencing the redemption were the Minutes and the entry.

15. Later, Galaxy gave notice to the Trustee requesting it to redeem Galaxy's units. That was done at an agreed value of $481,289.00. Galaxy was paid that amount. The redemption was evidenced by Minutes of a Directors' meeting on 21 April 1992 and by an entry in the Register "Redeemed 21/4/92". Galaxy transferred its shares in the Trustee to Sharrard for a consideration of $20,000.

16. Section 71 of the Act deals with instruments chargeable as conveyances operating as voluntary depositions inter vivos. Sub-section (3) and ss(4) provide as follows: "(3) For the purposes of this Act, the following instruments shall, subject to this section, be deemed to be conveyances operating as voluntary dispositions inter vivos:

(a) an instrument to which subsection (4) applies effecting or acknowledging, evidencing or recording, any of the following transactions:

(i) a transfer of property to a person who takes as trustee; or

(ii) a declaration of trust; or

(iii) a transfer of a beneficial interest in property subject to a trust or a potential beneficial interest in, or in relation to, property subject to a discretionary trust,

whether or not any consideration is given for the transaction; or

(b) an instrument to which paragraph (a) does not apply, being a conveyance that is not chargeable with duty as a conveyance on sale.

(4) This subsection applies to any instrument that relates to land, a marketable security or a unit under a unit trust scheme, or an interest or potential beneficial interest in land, a marketable security or a unit under a unit trust scheme." 17. "Transfer" is defined in ss(15) as follows: "'transfer' means -

(a) transfer, assure or vest property (including a potential beneficial interest in, or in relation to, property) to or in any person, whether legally or equitably and whether or not subject to registration, the issue of a certificate of title or other similar requirement; or

(b) surrender or renounce a beneficial interest or potential beneficial interest in, or in relation to, property; or

(c) surrender to the Crown any lease or other interest in land in order that the Crown may grant to a person other than the surrenderor a lease of, or other interest in, the same land or any part of the same land;"

The Commissioner's decision

18. The Commissioner assessed the Register, as written on in the manner described, to duty. He attributed a value of $506,740.00 to the Budget units. He attributed a value of $286,610.00 to the Galaxy units.

19. In each case the basis of the assessment was the same.

20. The Commissioner found that the redemption of units was a transfer of property as defined in s71(15). He found that it was a voluntary disposition of property by virtue of s71(3)(a)(iii) and s71(4). He found that the Register fell within the opening words of s71(3)(a), that is, that at the least it evidenced a transfer. On that basis he assessed the Register to duty under s5 of the Act.

21. In the case of the Budget units, the value that he attributed to the units was 30% of the net value of the trust assets. At the time of redemption Budget held 30% of the issued units in the trust. In the case of the Galaxy units, the value that he attributed to the units was 28.571% of the net value of the trust assets. At the time of the redemption of the Galaxy units, that was its percentage of the issued units in the trust. Its percentage of the units had increased to 28.571% by virtue of the cancellation of the Budget units.

22. There is no issue in relation to the value attributed by the Commissioner. It is not necessary to go into the dutiability of the transfers of the shares in the Trustee or into the question of penalty duty.

The Decision Appealed From

23. The reasoning of the judge below was as follows.

24. First, that because Budget and then Galaxy each received the full value of the units redeemed, neither redemption increased the value of the interest or the value of the units of the remaining beneficiaries (or remaining beneficiary, after the Galaxy redemption). That was because after each redemption the remaining unit holders held the same number of units as before, and because the value of the trust assets fell by the value of the units redeemed. In short, the value of the units remaining after each redemption was not altered by the redemption.

25. Secondly, as a consequence of what has just been stated, nothing was transferred to the other unit holders by the redemption of units.

26. Thirdly, the redemption did not involve a surrender or renunciation of Budget's or Galaxy's beneficial interest in the trust property. Budget and Galaxy each acquired, by the act of redemption "the beneficial interest in the trust property to which it was entitled, namely the value of the units redeemed....". This was to be contrasted with a true surrender or renunciation of a beneficial interest. In such a case the beneficiary forwent his entitlement to the whole or part of the trust property, increasing pro tanto the beneficial interest of the remaining beneficiaries. In such a case the surrender could be understood as a transfer by one beneficiary to another.

27. Fourthly, he concluded that stamp duty is not payable on a redemption if the unit holder receives full value for the units redeemed.

28. Having so concluded, he rejected a submission that on redemption the unit holder whose units were redeemed surrendered a beneficial interest in the trust property. He rejected an alternative submission that because the effect of redemption was to "enlarge the interests of the remaining unit holders" the redemption constituted a transfer. He relied upon the fact that the value of the trust property had diminished.

Conclusions

29. In my opinion s71(3) is intended to expand the concept of "conveyance", which concept is the basis of s60 of the Act.

30. There is no reason to approach the terms used in s71(3) and s71(15) on the basis that they are used in a technical or narrow sense, except when the relevant word is a word with a well known legal or technical meaning. Although both "surrender" and "renounce" are used at times in a technical sense eg surrender a lease, renounce probate, they are not terms that are usually used only in those technical senses.

31. There is no difficulty or awkwardness in speaking of a surrender or renunciation of rights for valuable consideration.

32. To my mind, the redemption of units at the request of a unit holder can be described as the surrender by that unit holder of the beneficial interest previously held. The redemptions have terminated the beneficial interest in the trust assets previously held by Budget and by Galaxy. That has happened at their request. That looks to me like a surrender of their beneficial interest. By that I mean a surrender of a beneficial interest in the sense of giving it up or yielding it up.

33. It could be argued that implicit in the notion of surrender of a beneficial interest is an act by the holder of the interest which transfers or vests or yields up the beneficial interest. An analogy could be drawn with the surrender of a lease or the surrender of a life interest to the reversioner. Here, it was the act of the trustee that brought the beneficial interest of Budget and Galaxy to an end. Their request is a pre-condition to that act, but not the operative act. Much the same could be said in relation to the notion of renouncing a beneficial interest.

34. I acknowledge the force of that argument. In a case in which the redemption occurred without any request by or consent of the unit holder, it would be a strong argument that there was no surrender or renunciation.

35. But, as a matter of ordinary language, I have no great difficulty in describing a redemption upon request as a surrender of the beneficial interest held by the unit holder, it being surrendered in exchange for payment of its value.

36. In my respectful opinion the fact that Budget and Galaxy each received no more and no less than their entitlement, that is, the true value of their units, is neither here nor there. If a redemption on request can be regarded as a surrender of a beneficial interest, then a surrender occurs whether it is for the value of the interest or something less than the value of the interest.

37. In this respect, in my respectful opinion, the reasoning of the judge below fails to distinguish between the notions of value and of beneficial interest. The fact that a redemption does not alter the value of units does not establish that there has been no loss of a beneficial interest. The judge below said, referring to the holder whose unit was redeemed:

"...it acquired by the act of redemption the beneficial interest in the trust property to which it was entitled, namely the value of the units redeemed as determined by the trustees...." 38. In my opinion the true analysis is not that the redeemed unit holder acquired a beneficial interest. It lost (to use a neutral term) its beneficial interest in the trust property, and in exchange was paid the value of that interest by the trustee. It lost its beneficial interest because it, by its request to the trustee, offered or yielded it up and that was acted upon by the trustee.

39. Again, in my respectful opinion, in relation to the remaining unit holders the judge below failed to distinguish the notion of value and of beneficial interest. He said that nothing was transferred to the remaining unit holder because the monetary value of its interest remained the same. That last point is true, but it is equally true that it now has a greater proportionate interest in the trust assets. It may be that there was no transfer (I do not need to decide that), but it is the case that its beneficial interest in the trust fund was increased.

40. In my opinion the redemption of the units involved a termination of a beneficial interest previously held by a unit holder, and resulted in an increased (although no more valuable) beneficial interest on the part of the remaining unit holders.

41. In short, in my opinion the critical issue is whether a redemption, upon request, of a beneficial interest in a trust can be regarded as a surrender, even though no act on the part of the unit holder (other than the request) is involved in the cessation of the unit holder's beneficial interest.

42. I have no difficulty in concluding that the redeemed unit holder has (to use the same neutral term as before) lost its beneficial interest nor in concluding that that beneficial interest has been received (or acquired, in the passive sense) by the remaining unit holders.

43. As I have already explained, I consider that the transaction described above can be described as a surrender of a beneficial interest, for the purposes of s71(15).

44. Is this a result that Parliament could not have intended?

45. I am unable to discern any policy or rationale underlying s71 that leads to the conclusion that Parliament could not have intended this result. To the contrary, there are indications in the section that the aim is to ensure that duty is paid on or in respect of a transaction which involves a dealing with a beneficial interest, when ad valorem duty has not already been paid on an instrument as a result of which the disposing party acquired the interest disposed of.

46. It follows, in my opinion, that the appeal should be allowed, the judgment below should be set aside, and for it should be substituted an order that the appeal against the Commissioner's assessment be dismissed.

MATHESON J

47. I agree with the orders proposed by Doyle CJ and with his reasons.

OLSSON J

48. I agree.