Victoria Gardens Development Pty Ltd v Commissioner of State Revenue M5/2001

[2001] HCATrans 664

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Melbourne  No M5 of 2001

B e t w e e n -

VICTORIA GARDENS DEVELOPMENT PTY LTD

Applicant

and

COMMISSIONER OF STATE REVENUE (in his capacity as Comptroller of Stamps)

Respondent

Application for special leave to appeal

McHUGH J
GUMMOW J

TRANSCRIPT OF PROCEEDINGS

AT MELBOURNE ON FRIDAY, 14 DECEMBER 2001, AT 12.00 PM

Copyright in the High Court of Australia

MR J.W. DE WIJN, QC:   If it please the Court, I appear for the applicant with my learned friend, MR M.R. PEARCE.  (instructed by Freehills)

MR G.A.A. NETTLE, QC:   May it please the Court, I appear with my learned friend, MR P. FOX, for the respondent.  (instructed by the Solicitor for the Commissioner of State Revenue)

McHUGH J:   Yes, Mr de Wijn.

MR DE WIJN:   If it please the Court, this case raises for the Court’s consideration, we think for the first time in this context, the phrases “beneficial ownership” and “change in beneficial ownership” which it is submitted are fundamental to the laws concerning everyday commerce and the levying of taxation, both at the State and the federal level.

GUMMOW J:   That is putting it a bit wide, is it not?  I understand why you say that.

MR DE WIJN:   Your Honour, we have handed up to your Honours a ‑ ‑ ‑

GUMMOW J:   We are really in the land of exemptions (18) and (23), are we not?

MR DE WIJN:   With respect, your Honour, yes and no.  The term is “change of beneficial ownership” and we have handed up to your Honour a schedule where the term “change of beneficial ownership” is used in legislation, for example, in the Income Tax Assessment Act to do with capital gains tax, both in section 160M and in the new provision, the capital gain depends on there being a change in beneficial ownership and precisely the same phrase is used.  If it please the Court, we say that that phrase, “change in beneficial ownership” is used in this type of legislation because in this type of situation, stamp duty, income tax, corporate law, the law is usually concerned with what we might describe as commercial reality and substance, rather than, on the other hand, what might be described as fine distinctions pertaining to equity law or the technical doctrine of conversion.

If the Court pleases, the phrase “beneficial ownership”, in our submission, is one concerned with substantive incidence of ownership as a practical matter of common sense and, in our submission, the law requires for there to be a change of beneficial ownership, a substantive change of ownership from A to B or X to Y or whatever be the case and the provisions in the Income Tax Assessment Act I have already drawn your Honours’ attention to is a classic example.  The same applies in relation to exemption (18) which, of course, finds its place in the new Duties Act and the in the New South Wales new Duties Act in exactly the same terms.  In the new Duties Act it is at section 35 and the New South Wales Act I think 64, I think, 66.

GUMMOW J:   I have to say this to you, at the moment I cannot see where Justice Batt went wrong in any respect.

MR DE WIJN:   Well, your Honour, can I take your Honour to that in a moment.  We say the error that Justice Batt made was to equate beneficial ownership with equitable interests.

GUMMOW J:   As distinct from?

MR DE WIJN:   As distinct from adopting a practical common sense view as to ‑ ‑ ‑

GUMMOW J:   That being what?

MR DE WIJN:   Being looking at the incidence of ownership.  We say that ‑ ‑ ‑

GUMMOW J:   Incidence of ownership determined by what legal principle?  Excluding equity principles?

MR DE WIJN:   No, your Honour, commercial common sense.  We say that what the parties did in this case was use their ownership of the assets in a particular way.  They were seeking to exploit or use their assets.  They were enjoying the incidence of ownership in a particular way.

GUMMOW J:   This is a taxing statute.

MR DE WIJN:   It is a taxing statute and, as Justice Batt held, your Honour, the transfer to the ‑ ‑ ‑

GUMMOW J:   It is a taxing statute dealing with dealings in property.

MR DE WIJN:   It deals with dealings in property and is intended, as one will see from exemption (18), to tax what we might describe as real transfers, substantive transfers.  What happened in this case was, as Justice Batt correctly held, that there was a transfer to a trustee “For ease of administration”.  They are his Honour’s words.  They are at the bottom of page 121 to 122 and as a result of the transfer for ease of administration, an additional assessment of stamp duty is being made, in this case in the sum of $3.5 million.  But, on any view, the ultimate sale by the trustee to the end users will have or will, of course, attract stamp duty.  This is a case where simply by choosing to transfer land to a nominee or a trustee in the circumstances of this case to enable each of the parties to develop their land and sell it, an additional amount of stamp duty is being paid.

In truth and in substance, there is only one real, one substantive transfer, that is the transfer to the ultimate beneficial owner and we say it is entirely for this purpose that exemption (18) in corresponding provisions in other enactments looks to the concept of beneficial ownership or change in beneficial ownership.

Your Honours, Booth v Ellard, the English case referred to by Justice Batt was a classic example.  That was a case where some 11 or 12 family members put their shareholdings in a private company, into a trust, transferred the shareholdings to a trustee - I think there were some 12 family members involved - and they agreed to significant restraints.  The shareholders could not dispose of their shares unilaterally and the trustee could sell their shares, I think, with a 75 per cent consent.  The Court of Appeal in England held that a somewhat similar exemption to exemption (18) applied.  In that case the Inland Revenue Commission sought to treat the transfer to the trustee as a disposition for capital gains tax purposes and the exemption was held to apply because, as a matter of truth and substance, there was no real disposal.  For present purposes, I just wish to take the Court to the concluding paragraph in the decision of Lord Justice Oliver in Booth v Ellard, it is at tab 2 of the book of authorities where his Lordship says this:

In my judgment, therefore, the learned judge reached the correct conclusion, and I would dismiss the appeal.  I do so with the more satisfaction since the result seems to me to be in accordance with the common sense and commercial reality of the matter.  This was no more than a shareholders’ voting agreement carried out through the medium of a trust, and it would seem capricious and unreasonable to tax these shareholders on a wholly illusory gain simply because of the technical machinery which they chose to adopt to effect an end which involved no quantitative alteration in their separate individual beneficial entitlements.

If the Court pleases, we say that it is equally applicable in this case.  This was a case where, for ease of administration in the development and sale of the property, each of the three owners transferred the land to a trustee and ‑ ‑ ‑

GUMMOW J:   It seems to me that their desire for ease of administration would have been better exercised if they had acted with an appreciation of the legalities of what they were doing and got legal advice accordingly.  Then they come along later and say, “Oh, this is an uncommercial result”.  These are people who have legal advice readily available to them.

MR DE WIJN:   Your Honour, as a matter of substance, no one could say, with respect, that there was any substantive change in ownership.  The question is whether one interprets the phrase “beneficial ownership” and “change in beneficial ownership” by reference to strict equitable principles and interest in law or whether one adopts a what we would submit is a commercially sensible approach to the provision to ‑ ‑ ‑

GUMMOW J:   All I can say to you is that when I was solicitor, provisions in the New South Wales Act like exemptions (18) and (23) were etched on practitioners’ minds dealing with conveyancing matters of this sort.

MR DE WIJN:   Your Honours, can I take the Court to the errors that the Court of Appeal made.  First, we say the principal error was to substitute for the test of beneficial ownership a different test, that is, find technicalities of equitable interest and rather than looking at the practical commercial reality of the situation.  Justice Batt, with respect, did this at pages 142 to 143 of the decision, bearing in mind that the phrase in the exemption is “beneficial ownership”.  At 142 at line 22 his Honour looked at clause 6.2 of the agreement which was, of course, a provision in the agreement dealing with the ultimate division of the moneys that might come in from the ultimate purchasers.  His Honour said:

For a correct appreciation of the operation of the JVA, it is necessary to decide whether clause 6.2 is merely a contractual provision as to the manner in which a transferor’s money entitlement is to be paid or is a substantive provision bearing on the transferors’ entitlement in equity –

your Honour, we say that is asking the wrong question.  The question is, has there been a change in beneficial ownership?  Beneficial ownership, we say, looks to the real incidence of ownership ‑ ‑ ‑

GUMMOW J:   “Real” as determined by what legal criterion?

MR DE WIJN:   Sorry, your Honour?

GUMMOW J:   “Real” is a metaphor for something.  “Real” as determined by what legal principle?

MR DE WIJN:   It is determined by the incidence of ownership, the fruits of ownership.

GUMMOW J:   Ownership being what?

MR DE WIJN:   Ownership being the right to enjoy the fruits and deal with the property.  That is exactly what the parties were doing in this case.  They were choosing to make available this land and develop it for the end purpose of sale or lease or whatever might be the end purpose.  They were using the property in this particular way.  Through this joint venture was the way in which they were enjoying their ownership of the property, rather than transferring it.  Transferring it to who?  Clearly not transferring it to the trustee.  This is stamp duty legislation designed to tax transfers, or in capital gains tax point of view, tax disposals where there is a change in beneficial ownership.  One asks a change from who to who?  There was no change from anyone to anyone in this case.

The error then, we say, is compounded at page 143 where his Honour Justice Batt, although accepting that the right to have the money divided under clause 6.2 did not strictly fall within any of the established doctrine of conversions, then went on to say, it is “as” if “converted into money” rights.  So his Honour is there, we would submit, creating a sort of quasi doctrine of conversion and we would say the law is quite clear that there are established categories of conversion and this is not a case where you can say it is not an established category, but it is as if.  So the two ‑ ‑ ‑

GUMMOW J:   Is that essential to his Honour’s reasoning?

MR DE WIJN:   Well, there were two grounds, the one is the “to be held” ground which I will come to in a moment, but the dealing with beneficial ownership ‑ ‑ ‑

GUMMOW J:   No, the notion of conversion.

MR DE WIJN:   Well, it was the first point.  His Honour then has several fall-back arguments, but the notion of conversion, with respect, was central because he says, “Go to clause 6.2 which is the clause for dividing up the ultimate proceeds of sale” and then he says that although it does not fall within the established doctrines of conversion, it is “converted into rights to money”.  Then the second leg to the argument and we say the further mistake, where his Honour goes on and says:

Further, equitable ownership –

as opposed to beneficial ownership, we say that is a mistake –

is always commensurate with the right to relief in a court of equity –

Well, that again, we say, is mistaking equitable interests with equitable ownership in the first place, and then with beneficial ownership.  So there are three slides and, in our submission, it is clear that the three beneficiaries of this trust would have been able to obtain equitable relief to protect their interests in the land, if that is the relevant test.

Then the next fall-back provision is at about the middle of page 143, where his Honour Justice Batt says:

I conclude that, if the transferors’ rights in land are not to be treated as converted into money –

so that shows that is his Honour’s principal way of describing the change in beneficial ownership, he says if that is wrong –

at any rate all three transferors have an interest in all the land transferred as tenants in common in equity collectively, provisionally in the shares or proportions which the price to which they respective are entitled as set out in Annexure B bears to the total price there set out.

Now, the “price” is simply a method dividing up the end proceeds of sale.  It was not a contract of sale and the mistake, again, is to regard the technical equitable interest that each of the transferors may or may not have and equate that to beneficial ownership.  In fact, we have handed up to the Court a list of all the provisions in the various documents which make it abundantly clear that the intention of the parties is not to change beneficial interest.  The trust deed itself is abundantly clear.  If I could take the Court to court book page 2, the recitals, paragraph A:

The JV Agreement requires Land Trustee to declare that it holds the Marpine Land, the SDA Land the Taras Land –

they are the three parcels –

on trust for the respective beneficial owners thereof subject to the terms of the JV Agreement.

In clause 2.1 on the next page:

The Land Trustee hereby declares that it holds the Land on trust for the respective Land Holding Parties subject to the terms of the JV Agreement and of this Deed.

That language is repeated throughout the documents and handed up to the Court in three pages of references where those references repeat themselves throughout the documents.

Then at footnote 40 - after the first fall-back provision of Justice Batt, footnote 44 at page 143, his Honour expresses a second fall-back provision at the bottom of the page:

Another possible view is that, if rights in the land are not to be treated as converted into money, it is the joint venturers who alone are interested in the land, as tenants in common in equal share in equity.

With respect, on no view could that be right.  There were three owners transferring land and the trust made it clear that the land was being held for each of them separately.

So, if the Court pleases, we say that the fundamental error the Court made was to substitute for the correct statutory test of beneficial ownership, a test of equitable interests in land and, with respect, to get that wrong because the principal basis for the court’s reasoning was that the interest in the land was converted into money, notwithstanding it did not fall into any of the established categories of conversions.

His Honour Justice Batt’s reason for disposing of Booth v Ellard, we say, were clearly wrong.  He said that was a case concerned with disposal and that is precisely the sort of situation we have.  The second reason given by Justice Batt for holding that the exemption did not apply was that the land was “not ‘to be held’”, that is at line 39 on page 141.  His Honour held that it did not satisfy the “to be held” part of the exemption because the land was going to be developed and sold.  The suggestion of the words “to be held” is limited to situations where the trustee is to do nothing other than be a passive trustee leaves the exemption with no work to do at all, with respect, or very limited work.  The suggestion at page 143 that the exemption did not apply to a transfer for “massive development and realisation purposes” we say just simply approaches the question in the wrong way, especially whereas his Honour held the transfer was made for ease of administration.

This is a case where the documents express a clear intention that each of the beneficiaries are to maintain their respective interests in the land, to maintain their beneficial ownership and is a case where we say the joint venturers or the beneficial owners were merely using or enjoying their ownership in a particular way, not changing it, and that is the crux of the case.  This is a case where, in a normal commercial transaction where, for ease of administration, land is vested in the trustee, double duty is imposed and where no one would, with respect, seriously say that there was a real sale or a real change in ownership until the end sale to the third party.

The final exemption, the second point where we say leave should be granted is the exemption (23) point.  This was a case where the court held that the words “in consequence of appointment” were limited to appointment of a new trustee of an existing trust and, with respect, that is completely contrary to the decision of this Court in DKLR.  What, with respect, the Court of Appeal did or Justice Batt did was adopt the dissenting reasoning of Justice Brennan in DKLR where Justice Brennan held that a similar but not identical exemption in New South Wales only applied to the appointment of the new trustee of the existing trust.  A contrary view was taken by the majority and we would say they are substantially similar words for a significantly similar purpose to avoid double duty and we say this is a case where the exemption items are virtually the same as in DKLR and it is simply incorrect not to follow it.  For those reasons, if the Court please, we say the special leave should be granted.

McHUGH J:   Yes, Mr Nettle.

MR NETTLE:   May we hand up a small document to the Court.  Your Honour, that is a brief tabulation of the provisions of the Stamp Duties Act and Stamps Acts of the various States of the Commonwealth showing the broad-ranging difference in language between the provision of section 35 of the Victorian Duties Act which is second from left and more or less replicates exemption (18) which was the subject of the matter before the Court of Appeal, it having now been repealed and then the various Duty Acts, principally New South Wales, with section 56 which is third from the left and as, which you will see, is totally differently in content.  Next comes Queensland which is altogether different, not only in content, but also in conception.  Then Stamp Duties Act South Australia again very much different in content and language.   Some similarity with Western Australia, different ‑ ‑ ‑

GUMMOW J:   I think we have grasped your point.

MR NETTLE:   The point is it is submitted, your Honours, that this really is not a case for special leave.  It does not raise a question of general importance.  First, the transaction is extraordinary in the sense in which this Court used that expression in Australian Airlines v Commissioner of Stamp Duties.  Secondly, it is dependent very much as, of course, any question of stamp duty is on the language of the Act, not on broad-ranging conceptions of equitable principles or some other notion of beneficial interest, whatever that might be.  Thirdly, any decision which might be made upon this provision would, of course, not be relevant to any of the other provisions of the States Stamp Duties Acts to which we have referred and even less to things like Part III A of the Income Tax Assessment Act or the repealed Gift Duty Act 1921, being amongst the cavalcade relied upon by the applicant as demonstrating the need for determination of the expression “beneficial

interest” in order to base the application for leave.  Moreover, it is submitted and just as importantly, there is not the slightest ground for thinking that there is any error in what was said by the Court.

First, can I deal briefly with exemption (23) which is the second apparently point of importance to our learned friends.  It is true that the result which was reached was different to that which was reached by this Court in DKLR and the reason is that the language is different to the language of the provision with which this Court was concerned in DKLR, as was noted by the Full Court of the Supreme Court of Victoria in Comptroller of Stamps v Hutchins [1985] VR 599, especially at page 611, where their Honours noted the very significant differences between the language of the provision with which this Court was concerned in DKLR and the provisions of exemption (23).

GUMMOW J:   Yes, I think we understand that too.

MR NETTLE:   If the Court pleases.

McHUGH J:   I do not think we need hear you any more, Mr Nettle.

MR NETTLE:   May it please the Court.

McHUGH J:   Yes, Mr de Wijn.

MR DE WIJN:   If the Court pleases, just on the question of exemptions in other States, exemption 66 in the New South Wales Duties Act, section 66(4), is, it seems to us, precisely in the same terms:

No duty is chargeable under this Chapter on:

(a) a transfer of marketable securities . . . 

but only if –

I am excluding some words –

(v) there is no change in the beneficial ownership of the marketable securities –

and section 160M(1A) of the Income Tax Assessment Act 1936 says:

It is declared for the avoidance of doubt that, subject to paragraphs (3)(a) and (aa), a change in the legal ownership of an asset does not constitute a change in the ownership of the asset for

the purposes of this Part unless there is also a change in the beneficial ownership of the asset.

Precisely the same terms and that verbiage is repeated in the 1997 Act.  We say it is an important concept.  It does not go into areas of stamp duty and so, for those reasons, special leave should be granted.

McHUGH J:   Thank you, Mr de Wijn.

This case turned upon the construction of two documents in the factual background in which they did and were to operate.  Two points have been relied upon in support of a grant of special leave.  The first concerned the construction placed on the documents by the Court of Appeal.  One construction placed on the documents by the Court of Appeal may raise a question of principle that would warrant the grant of special leave to appeal, but the other construction that the Court of Appeal gave to the documents certainly does not.  In those circumstances, the first point is not a suitable vehicle for the grant of special leave to appeal.

The other point raised by the applicant was whether the decision of this Court in DKLR Holding Co (No 2) Pty Limited v The Commissioner of Stamp Duties (New South Wales) (1982) 149 CLR 431 was inconsistent with the decision of the Court of Appeal in this particular case. That point would not raise a special leave ground in itself. In any event, the enactment considered by this Court in DKLR Holding differs from that considered by the Court of Appeal in the present case.  Accordingly, special leave to appeal is refused and it must be with costs.

The Court will now adjourn to reconstitute.

AT 12.38 PM THE MATTER WAS CONCLUDED