White Rock Properties Pty Ltd v Commissioner of State Revenue

IN THE SUPREME COURT OF VICTORIA

Not Restricted

AT MELBOURNE
COMMERCIAL AND EQUITY DIVISION
COMMERCIAL COURT
TAXATION LIST

No 5622 of 2013
No 5623 of 2013
No 5625 of 2013

BETWEEN:

WHITE ROCK PROPERTIES PTY LTD (ACN 074 522 320)	Appellant
v
COMMISSIONER OF STATE REVENUE	Respondent

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JUDGE:	ROBSON J
WHERE HELD:	Melbourne
DATE OF HEARING:	8 and 9 April 2014
DATE OF JUDGMENT:	1 July 2014
CASE MAY BE CITED AS:	White Rock Properties Pty Ltd v Commissioner of State Revenue
MEDIUM NEUTRAL CITATION:	[2014] VSC 312	FIRST REVISION: 4 July 2014

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STATE REVENUE DUTIES – Three blocks of land held in common by five sets of trustees held under a will - Under the terms of each trust established under the will the trustees were entitled to enter into a partnership in dealing with the trust property – The five sets of trustees entered into a partnership agreement with each other to develop and sell the land - Under the terms of the partnership agreement, the land was transferred to the appellant (the Agent) to act as agent for the partners (the five sets of trustees) - The Commissioner assessed each of the transfers of the land to the Agent to duty - Appeal by the Agent against the assessments - Whether transfers exempt from duty under s 35(1) Duties Act 2000 (Vic) – Whether land transferred “held solely” for transferors – Whether transfers exempt under s 33 Duties Act 2000 (Vic) – Whether new trust created by the transfers - Whether the transfers were liable to be assessed at nil value – Appeal dismissed - Duties Act 2000 (Vic), s 33 and s 35(1)(a), Taxation Administration Act 1997 (Vic), s 106.

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APPEARANCES:	Counsel	Solicitors
For the Appellant	H M Symon QC with N A Kotros	Maddens Lawyers
For the Respondent	P H Solomon QC with C J Horan	Solicitor for the Commissioner of State Revenue

Cases referred to:

CGU Insurance Ltd v One.Tel Ltd (In Liq) (2010) 242 CLR 174; (2010) 268 ALR 439.

Chief Commissioner of Stamp Duties v ISPT Pty Ltd (1998) 45 NSWLR 639.

Commissioner of State Revenue v Challenger Property Nominees Pty Ltd (2006) 63 ATR 65; [2006] VSC 203.

Commissioner of State Revenue v Lend Lease Funds Management Ltd [2011] VSCA 182; (2011) 33 VR 204.

Commissioner of State Revenue v Pioneer Concrete (Vic) Pty Ltd (2002) 209 CLR 651; (2002) 192 ALR 56.

Commissioner of State Revenue v Victoria Gardens Development Ltd (2000) 46 ATR 61.

Comptroller of Stamps (Vic) v Howard-Smith (1936) 54 CLR 614; [1936] ALR 198.

Comptroller of Stamps v Hutchins [1985] VR 599

Comptroller of Stamps v Yellowco Five Pty Ltd [1993] 2 VR 529.

DKLR Holding Co (No 2) Pty Ltd v The Commissioner of Stamp Duties (1982) 149 CLR 431.

Herdegen v Federal Commissioner of Taxation (1988) 84 ALR 271.

Lend Lease Funds Management Ltd v Commissioner of State Revenue [2009] VSC 360; (2009) 77 ATR 374.

Perpetual Trustee Co Ltd v Commissioner of State Revenue (2000) 44 ATR 273.

Schalit v Joseph Nadler Ltd [1933] 2 KB 79.

Shop, Distributive and Allied Employees Association v Commissioner of State Revenue [2005] VSC 484; (2005) 61 ATR 455.

Trust Company of Australia Ltd v Commissioner of State Revenue [2003] HCA 23; (2003) 197 ALR 297.

Vopak Terminals Australia Pty Ltd v Commissioner of State Revenue [2004] VSCA 10; (2004) 12 VR 351.

TABLE OF CONTENTS

Introduction............................................................................................................................... 1
The will and testamentary trusts................................................................................................ 2
The evidence of Mr Brian Rooney.............................................................................................. 3
The Partnership Agreement....................................................................................................... 4
Section 35 of the Act.................................................................................................................. 7
Comptroller of Stamps v Yellowco Five Pty Ltd......................................................................... 8
Commissioner of State Revenue v Victoria Gardens Development Ltd.................................... 11
The competing constructions of s 35(1)(a) of the Act............................................................... 13
The Commissioner’s arguments in support of his construction................................................ 15
White Rock’s submissions on s 35(1)(a)................................................................................... 23
Does the exemption in s 35(1)(a) apply?................................................................................... 28
Section 33(3) of the Act............................................................................................................ 29
Relevant authorities.................................................................................................................. 30
Consideration of s 33(3) of the Act........................................................................................... 35
Discussion of s 33(3)................................................................................................................ 38
Transfers of nil value................................................................................................................ 40
Discussion of nil value.............................................................................................................. 45
Conclusion............................................................................................................................... 45

HIS HONOUR:

Introduction

White Rock Properties Pty Ltd (White Rock) appeals against three assessments made by the Commissioner of State Revenue under the Duties Act 2000 (Vic) (the Act) of duty payable under the Act on transfers to White Rock of three blocks of land at Warrnambool.

Under the will of Francis Ferris Rooney, who died on 14 June 2008, five discretionary testamentary trusts were created. On 1 February 2013, the trustees of each of the testamentary trusts, as partners, and White Rock, as ‘agent’, entered into a partnership agreement. Also on 1 February 2013, pursuant to the partnership agreement, each of the five trustees transferred their interest in each of the three blocks of land to White Rock.

On 10 May 2013, the Commissioner issued notices of assessment in respect of duty payable under the Act on each of the three transfers. On 6 June 2013, White Rock objected to the assessments on the ground that the transfers were exempt under s 35(1)(a) of the Act. On 7 August 2013, a delegate of the Commissioner determined that the transfers were not exempt under s 35(1)(a) of the Act and disallowed the objections.

On 1 October 2013, White Rock requested that the Commissioner treat the objections as an appeal and cause them to be set down for hearing in this Court pursuant to s 106 of the Taxation Administration Act 1997 (Vic) (TAA).

On 11 October 2013, White Rock informed the Commissioner that White Rock would seek to raise two new grounds of appeal and the Commissioner agreed to White Rock doing so. The two new grounds of appeal are:

(a) that the transfers were exempt from duty under s 33 of the Act; and

(b) that the transfers involved the transfer of legal title only with a nil or nominal value for duty purposes.

The appeals raise the following three issues for determination:

(a) Were the transfers of land to White Rock exempt under s 35(1)(a) of the Act (as transfers to a trustee or nominee without any change in the beneficial ownership of the property);

(b) Were the transfers exempt under s 33(3) of the Act (as transfers made solely because of a change in trustees); and

(c) Was the dutiable value of the dutiable property transferred only a nil or nominal value?

For the reasons given below, I find that each of the transfers were not exempt under s 35(1)(a) of the Act. I find that each of the transfers were not exempt under s 33(3) of the Act. I find that the dutiable value of each property transferred was not nil or nominal. Accordingly, I dismiss the appeal.

The will and testamentary trusts

Clause 4 of the will of Francis Ferris Rooney, deceased, provided for the creation of five trust funds:

(1) the Kevin Rooney Trust – of which the testator’s son Kevin Rooney and daughter Dorothy Rooney are trustees;

(2) the Dorothy Rooney Trust – of which Dorothy Rooney and the testator’s son Brian Rooney are the trustees;

(3) the Brian Rooney Trust – of which Brian Rooney and the testator’s son Bernard Rooney are the trustees;

(4) the Bernard Rooney Trust – of which Bernard Rooney and the testator’s niece Catherine Riordan are the trustees; and

(5) the Catherine Riordan Trust – of which Catherine Riordan and Brian Rooney are the trustees.

Following the death of Francis Ferris Rooney on 14 June 2008, and pursuant to a devise made by clause 3.3 of the will, the executors of his estate transferred the lands to the trustees of each of the testamentary trusts as tenants in common in equal shares. Those lands were 92-93 Harrington Road, Warrnambool, 75 Rooneys Road, Warrnambool, and White Rock Road, Warrnambool. The transfers were registered on 13 February 2009. After the transfers, the five sets of trustees held a one fifth interest in each of the three properties at law. At equity, the five beneficiaries had a one fifth interest in each of the three properties.

The evidence of Mr Brian Rooney

Mr Brian Rooney deposed that following the transfer of the land to the trustees, the trustees traded as a common law partnership. He says that on 6 May 2011 Kevin Rooney, Dorothy Rooney, Bernard Rooney, Catherine Riordan and he had a family meeting to discuss the future of the partnership. The issues of primary concern at that point were the consequences following the death of a trustee and changes in family structure.

Mr Brian Rooney deposed that on 12 May 2011, Dorothy Rooney, Bernard Rooney, he and Mr Gordon Forth, who is described as a consultant/academic, attended at the offices of Maddens Lawyers with a view to formalising the partnership by entering into a partnership agreement, having regard to the following specific issues:

(a) the age of the trustees of the trusts;

(b) the illiquid nature of the trust assets held by the partnership;

(c) the potential for a partner to call for the dissolution of the common law partnership; and

(d) the onerous requirement that the consent of all partners/trustees was required each time a decision was made by the partnership.

On 1 February 2013, the trustees of the testamentary trusts as ‘partners’ and White Rock as ‘agent’ entered into a written partnership agreement.

Pursuant to the partnership agreement, transfer of land documentation was signed on 1 February 2013[1] which transferred the blocks of land from the individual trustees to White Rock. The consideration stated in each transfer of land instrument was ‘entitled in equity’.[2]
[1]Mr Rooney’s affidavit gave the date as 23 December 2008 but the exhibited transfers were dated 1 February 2013.
[2]The Land Victoria Lodging Book Section 1 – General Information under the heading of “Non-Monetary Considerations” provides - as an example of considerations for a transfer to trustees or to change trustee on retirement of an existing trustee or appointment of a new trustee (i.e. no beneficial ownership passing) - “the transferee(s) being entitled in equity.”

Mr Brian Rooney deposed that by entering into the partnership agreement and the transfers, the trustees did not intend to change the beneficial ownership of the land. Rather, the trustees intended to have White Rock, the Agent, hold the land solely for them.

The Partnership Agreement

The recitals to the partnership agreement state that the partnership had been conducted as a common law partnership since the death of Francis Ferris Rooney on 14 June 2008, and that the partners had agreed to ‘formalise’ or ‘formally record the terms of the partnership’.

The land (as defined above) formed the initial capital of the partnership (clause 8), and the business of the partnership was defined as ‘conducting the business of the development and sale’ of the lands, together with such other business as the partnership may subsequently undertake (clause 3.2 and the first schedule).

The partners are the trustees appointed of the trusts, created by the will. Each of the five trustees as a partner under the partnership agreement holds a one fifth interest in the capital of the partnership (clause 9). Each of the trustees of each of the trusts was allocated one hundred units, which reflects the tenancy in common in equal shares created by the devises in the will. The five sets of trustees are each described as partners (first schedule).

By clause 4.1, the partners appointed White Rock (referred to as the Agent) to manage the business of the partnership as their agent. The partnership agreement confers significant powers and active duties on White Rock as ‘agent’, including powers to develop and deal with the lands.

Under clause 4.2, the Agent is authorised ‘to manage all of the business and undertake all transactions and do all things the partners can do’ in respect of the lands, including the conferral of specific authority under clause 4.3 to sell or develop the lands ‘at any time in the absolute discretion of the Agent’ and to borrow against the security of the partnership assets.

Clause 4.4 confers on the Agent a wide range of general powers set out in annexure A. All of these powers were conferred on White Rock with immediate effect from 1 February 2013, even if their potential exercise might occur in the future.

The making of decisions by White Rock was regulated and limited in certain respects by clause 5 of the partnership agreement. Most decisions require only an ordinary resolution of the partners, but some, such as increasing external borrowings, require a special resolution, and some require a unanimous resolution of the partners.

Under clause 6.1, each partner is entitled to hold one share in the capital of the Agent and to nominate one person to be a director of the Agent, and to continue to hold that share and have that representative remain as a director for so long as the partner remains a member of the partnership.

In the first instance, the partners agreed that the Agent should only have three directors, and that they should initially be Dorothy Rooney, Brian Rooney and Bernard Rooney.

The Agent is entitled to reimbursement of expenses incurred in managing the partnership and to be paid such management fees as the Agent and the partners may from time to time agree upon (clause 6.3).

Under clause 6.4, the partners could remove the Agent and appoint a new agent. White Rock submits that the power to remove the Agent also gave the partners the power to bring the agency to an end and the ability to call for the transfer of the lands back to the trustees as partners under the agreement.

Under clause 7.1, the Agent is to conduct the business of the partnership and administer the partnership as if it was the full beneficial owner of the partnership business.

Clause 15 provides for the retirement and admission of a partner to the partnership. Provision is made for a retiring partner to be paid out and the making of valuations for that purpose. The partnership agreement recognises that the retirement of a partner or the admission of a partner would create a new partnership. White Rock contends that the trust created by the partnership/agency agreement and the landholding of the Agent must come to an end on the termination of the partnership because the Agent is appointed by the partnership as it existed at this point. White Rock submits that upon termination by operation of law the partners could call for a re-transfer of the land as White Rock would no longer have authority to hold the land.

White Rock contends that the partnership agreement was an arrangement for the development of the land as permitted and contemplated under the will, in particular in clause 4.6.25 of the will.

White Rock says that there are four important features of the partnership agreement in light of the will. First, that the trustees of the pre-existing trusts of the will have delegated to the Agent some of their functions as trustees of those trusts and that the Agent took the land on behalf of the trustees of those pre-existing trusts.

Secondly, the trustees of the trusts of the will retained their rights and their responsibilities to the ultimate beneficiaries of the testamentary trusts. The Agent did not assume fiduciary obligations to the ultimate beneficiaries on its own account.

Thirdly, in giving the Agent the powers to develop and sell the lands the trustees of the testamentary trusts did not give the Agent powers they did not themselves have.

Fourthly, the partnership agreement did no more than establish administrative arrangements for the conduct of the will and so did not effect a change in the beneficial ownership of the land.

White Rock says that under the partnership agreement, the trustees of the testamentary trusts were not giving up property rights. If a partner retired from the partnership, the partnership would be terminated. The partner did have a right to payment but that did not involve the trustees giving up a property right. White Rock says that was an administrative arrangement. The partners, instead of appointing a new agent, could call for a re-transfer of the property, if they so wished. White Rock says that in those circumstances the trusteeship of the Agent would come to an end.

White Rock says that there is nothing in the partnership agreement that would prevent a partner from forcing a partition.

I now turn to the first ground of appeal, which is based on s 35(1)(a) of the Act.

Section 35 of the Act

Section 35 of the Act provides:

Transfers to and from a trustee or nominee
(1)      No duty is chargeable under this Chapter in respect of—
(a)       a transfer of dutiable property that is made by the transferor to a trustee or nominee to be held solely as trustee or nominee of the transferor, without any change in the beneficial ownership of the property; or
(b)      a declaration of trust by a trustee or nominee referred to in paragraph (a) under which the dutiable property referred to in that paragraph is held on trust solely for the transferor, without any change in the beneficial ownership of the property; or
(c)       a transfer made by way of re-transfer of dutiable property referred to in paragraph (a) to the transferor, without any change in the beneficial ownership of the dutiable property, if no person other than the transferor has had a beneficial interest in the property between the transfer to the trustee or nominee and the retransfer.

(2) A reference in subsection (1) to a change in beneficial ownership of dutiable property does not include a reference to the creation of a trustee’s right of indemnity from the property.
(3) This section applies whether or not there has been a change in the legal description of the dutiable property.
Example
An example of a change in the legal description of dutiable property is the issuing of new certificates of title of land following a subdivision of the land.

White Rock contends that each property was to be held solely for the transferors and that there was no change in the beneficial ownership of the properties. The Commissioner contends that under the terms of the transfers the properties were not to be held solely for the transferors but that the powers of the transferee enabled it to develop and sell the properties. Before considering the opposing contentions, it is useful to consider the relevant authorities on the construction of s 35(1)(a).

Comptroller of Stamps v Yellowco Five Pty Ltd[3]

[3][1993] 2 VR 529 (Yellowco Five).

The immediate predecessor of s 35(1)(a) of the Act was exemption (18) of the Stamps Act 1958 (Vic) (Stamps Act), Third Schedule, Heading VI and sub-section (B), that provided:

Any instrument for the conveyance of real property which is made by the transferor to a trustee or nominee to be held solely as trustee or nominee of the transferor without any change in beneficial ownership or made by way of re-transfer to such transferor.

The application of exemption (18) was considered by the Full Court in Yellowco Five. The head note provides a useful summary of the facts. M, the sole unit holder in a unit trust, sold land to Y the trustee of the unit trust. Under the trust deed, the trustee had the power to issue additional units with the prior written consent of all the unit holders. The comptroller of stamps assessed the transfer for stamp duty. M contended that the transfer was wholly exempted from duty pursuant to exemption (18).

The Administrative Appeals Tribunal upheld M’s objection to the assessment. On appeal to the Supreme Court of Victoria, the Comptroller’s appeal was dismissed. The Comptroller successfully appealed to the Full Court constituted by Fullagar, Tadgell and JD Phillips JJ.

Fullagar J held that the language of exemption (18) made three severable requirements for a conveyance to come within the exemption.[4] He said that “first the conveyance effected by the instrument must be a conveyance of the property to a trustee or nominee.” Secondly, he said that “the property conveyed is to be held solely as trustee or nominee of the transferor.” Thirdly, he said that “the property conveyed is to be held without any change in beneficial ownership.”[5]
[4]Ibid, 531.
[5]Ibid.

His Honour held that “the words “to be held” introduce an element of futurity necessitating an enquiry whether immediately upon the conveyance, the trustee-transferee is seen to hold the land for the future in the capacity only of trustee for the transferor.”[6]
[6]Ibid.

In the case before him, under the deed the trustee-transferee had the power to admit further unit holders. Thus immediately upon transfer the trustee held the property for M but it could not be said that the land was to be held for M solely. Fullagar J said the exemption required:[7]

those who would seek its protection to establish that, forthwith upon the conveyance, it does not appear that the land is to be held by the trustee upon any trusts other than a trust solely for the transferor. In my opinion the respondent fails to establish that situation, by reason of the subsisting trusts of the trust deed.

[7]Ibid, 532. (Emphasis added).

Fullagar J said that he was aware that the construction that he had given to exemption (18) gave little scope to the exemption.

Tadgell J construed the words to be held similarly to Fullagar J. He said that the trust deed in the case before him did not require the transferee to hold the beneficial interest solely as trustee for the transferor, as further unit holders could be admitted. Tadgell J held that this interpretation was supported by the concluding words of exemption (18) “or made by way of re-transfer to such transferor.” His Honour said that these words could not apply unless there had been a transfer of property to a trustee or nominee to be held by the transferee solely as trustee or nominee of the transferor without any change in beneficial ownership and then a re-transfer to the transferor.[8] His Honour said that the words to be held add the requirement that “there be no change in the beneficial ownership achieved by the instrument of transfer.”[9] Tadgell J agreed with Fullagar J that exemption (18) had a very narrow scope of operation.
[8]Ibid, 534.
[9]Ibid, 535.

JD Phillips J did not agree that the exemption should be divided into three requirements. His Honour said that the exemption should be read as a composite expression “requiring (so far as relevant) that the conveyance or transfer of real property be made to a trustee to be held solely as trustee for the transferor without any change in beneficial ownership.”[10] JD Phillips J adopted a similar interpretation to Fullagar and Tadgell JJ. He said that it was necessary to identify how the property is to be held in consequence of the transfer.[11] He said that in the case before him the property was to be held for unit holders from time to time according to the trust deed. JD Phillips J said that “to be held” meant “to be held thereafter”.[12]
[10]Ibid, 541.
[11]Ibid, 542.
[12]Ibid, 543.

JD Phillips J said that exemption (18) required the Court to look at the terms upon which the property is to be held and this takes one directly to the terms of the trust instrument which itself made provision for the issue of extra units.

Commissioner of State Revenue v Victoria Gardens Development Ltd[13]

[13](2000) 42 ATR 61 (Victoria Gardens).

The next case concerning exemption (18) that the parties referred to was Victoria Gardens. The relevant facts are conveniently summarised in the head note. Three owners of six separate lots of land (which now are part of the Victoria Gardens shopping centre in Richmond) transferred their land to the taxpayer to be developed and sold by a joint venture. The land was held by the taxpayer on trust for the owners. Three instruments of transfer were executed, each accompanied by a statutory declaration that the transfer did not change the beneficial ownership of the land. The parties executed a trust deed, and entered into a joint venture agreement (JVA) for the development of the whole land.

Under the JVA the transferors were to be paid with the market value of their land progressively as it was developed and sold. Clause 6 of the JVA regulated distributions of cash and profit from sales of the land and provided that each party was entitled to be paid for its portion of the land from cash distributions in a precise manner set out in clause 6.2.

Clause 2 of the JVA provided that the transferors were not entitled to a transfer back of their land and were only entitled to payments for their transfer in accordance with the JVA. Clause 2.3 provided for the price to be paid to the transferors and specified that their entitlement was payable only in accordance with clause 6.

The Commissioner assessed the three transfers as being dutiable with ad valorem conveyance duty. The taxpayer objected on the grounds that exemptions (18) and/or (23) applied to each of the three transfers. The Commissioner disallowed the objection. The trial judge allowed the appeal but the Court of Appeal allowed an appeal by the Commissioner holding that neither exemption (18) nor (23) applied. At this stage, I will consider the claim that exemption (18) applied.

On the appeal to the Court of Appeal, the Commissioner argued that by transferring the lots of land there was an immediate change in beneficial ownership as the land was irretrievably in a new trust and could never come back in specie to the respective transferors.

Batt JA (with whom Ormiston and Chernov JJA agreed) summarised the arguments of the Commissioner and the taxpayer as follows:[14]

What counsel for the appellant described as the "central point" of his argument, by which he said he “stood or fell”, was that by the transferors' transferring their parcels of land to the Land Trustee in the context of the two documents, there was an immediate change in beneficial ownership. The land was irretrievably in a new trust. It could never come back in specie to the respective transferors. Their only rights referable to land were to receive a cash distribution. In the circumstances the land transferred to the trustees was held on trust for all three beneficiaries (the transferors) collectively, that is, they were equitable tenants in common[15] of all the parcels, so that there was a change in the beneficial ownership of each parcel. Although the appellant did not challenge the primary judge's understanding of how clause 6.2 operated (which his Honour set out in some detail, for it formed the basis of his decision relating to the fifth transfer), it followed from the "central point" that the appellant parted company with his Honour on the first question which he posed for himself under exemption (18), namely, whether there was a change in beneficial ownership upon the transfer’s taking effect. Implicit, if not explicit, in this "central point" was, in the case of each parcel of land transferred, the consequence that, since it was now held on trust for all three companies and not discretely and exclusively for the transferor of it, the parcel was not held, or to be held, solely as trustee of the transferor, as required by exemption (18).
For the respondent it was argued that the JVA merely reflected the manner in which each beneficial owner sought to enjoy or exploit its beneficial ownership of the assets.

[14]Ibid, [35]-[36].

[15]With (in the event) no precise shares.

Batt JA held that for two reasons none of the transfers fell within exemption (18). As to the first reason he said:[16]

First, whilst the transfers, although not to a nominee, are to Victoria Gardens as a trustee, the real property transferred by them is not “to be held” as trustee of the respective transferors, but rather is to be developed and sold or otherwise disposed of, or at least possibly sold or otherwise disposed of (for it might be retained or leased). The exemption does not require the trustee to hold the real property perpetually, for it contemplates at least the possibility of re-transfer either when the trust has run its pre-ordained course or at the request of the transferor. But it does, as it seems to me, require that the trust be one to hold the real property on trust for the transferor. As Yellowco Five shows, the exemption is very limited. To my mind, especially if the first limb of the exemption is read as a composite expression, these transfers for massive development and realisation purposes are simply not of the type which the exemption is designed to encompass. As I have said, the trust here is not a trust for sale, but it is immediate and binding, there being no outstanding legal interest or intervening equitable estate; and I should have thought that a trust for sale, as defined, is not within the exemption since it was a trust, not to hold, but to sell.

[16]Victoria Gardens, [38]. (Citations omitted).

Secondly, and independently of the first reason, his Honour held that the overall effect of the trust deed and the JVA was that each piece of land was, on transfer, not held on trust for the transferor alone, that is, is not held or to be held “solely as trustee …of the transferor.” His Honour referred to the terms of the JVA that the transferor was not entitled to a re-transfer of the land. His Honour said that the transferor could not assign, mortgage or charge the land transferred without consent. After analysing the terms of the JVA, Batt JA concluded that all three transferors had an interest in all the land transferred as tenants in common in equity, collectively.[17]
[17]Ibid, [40].

The competing constructions of s 35(1)(a) of the Act

The Commissioner submits that the exemption is only enlivened in respect of a transfer of dutiable property that is made by the transferor to a trustee or nominee to be held solely as trustee or nominee of the transferor, without any change in the beneficial ownership of the property. The Commissioner submits that powers given to White Rock included powers to sell, develop, borrow and grant security. The Commissioner says that on the facts of the present case, the requirements of the exemption under s 35(1)(a) are not satisfied. He says that the lands were not transferred to White Rock ‘to be held solely as trustee or nominee of the transferor’ as required by s 35(1)(a). Rather, the Commissioner argues that White Rock was appointed as Agent to conduct the business of the partnership, including the development and sale of the lands. The Commissioner contends that as was the case in Victoria Gardens, White Rock was appointed to do more than simply ‘hold’ the lands ‘solely’ for the partners. The Commissioner says that White Rock was not a bare trustee or nominee, but was given active powers and duties in relation to the business of the partnership.

The Commissioner contends that the exemption may only be enlivened if the dutiable property transferred is “to be held”, that is “to be held thereafter”,[18] by the transferee as trustee or nominee of the transferor. The Commissioner says that this requires the dutiable property to be held and thus not developed, subdivided and sold.
[18]Yellowco Five, 543, per JD Phillips J.

The Commissioner says that to ascertain how the property is “to be held” requires an examination of the terms upon which the dutiable property was transferred. The Commissioner argues that the terms upon which the property was transferred provided for the property not to be held but to be developed and sold and accordingly, the exemption is not enlivened.

The Commissioner treats “held” as the retention of the property in the form in which it was transferred and as not including property to be converted into another form by being developed and sold. The Commissioner submits that the exemption contemplates a bare trust where the trustee does not have active powers.

White Rock rejects the Commissioner’s construction of s 35(1)(a). White Rock says that the phrases in s 35(1)(a) ‘to be held solely as trustee or nominee of the transferor’ and ‘without any change in the beneficial ownership of the property’, when read together in the context of the other parts of the section and in the context of the Act as a whole, impose two distinct requirements. The first requirement looks to the capacity in which the transferee takes the property and the second looks to the effect of the transfer.

White Rock says that the first limb has been satisfied as White Rock has taken the property to hold solely in the capacity of trustee of the transferors. As to the second limb, White Rock says that the effect of the transfer is that there is no change in the beneficial ownership of the property. White Rock contends that the exemption does not require the transferee to hold the property as a bare or passive trustee. White Rock says that the power of the transferee to sell or develop the property does not disqualify the transfer of the property from exemption.

The Commissioner’s arguments in support of his construction

The Commissioner contends that s 35 is a provision that deals with ‘bare trusts’ and relies on Shop, Distributive and Allied Employees Association v Commissioner of State Revenue[19] where Hollingworth J referred to s 35 as a provision dealing with ‘bare trusts.’
[19][2005] VSC 484, [24].

In relation to the distinction between ‘bare’ and ‘active’ trusts, the Commissioner refers to Chief Commissioner of Stamp Duties v ISPT Pty Ltd;[20] Herdegen v Federal Commissioner of Taxation;[21] and CGU Insurance Ltd v One.Tel Ltd (In Liq).[22]
[20](1998) 45 NSWLR 639 (ISPT), 651 (Mason P).
[21](1988) 84 ALR 271 (Herdegen), 281-282 (Gummow J).
[22](2010) 242 CLR 174, 182.

In ISPT, Mason P of the New South Wales Court of Appeal examined the nature of a ‘bare trust.’ His Honour said that “the nature of a ‘bare trust’ remains a matter of continuing academic controversy. The presence of active duties of management has generally been regarded as the touchstone of the distinction between an active and a bare trust: Schalit v Joseph Nadler Ltd; Restatement of the Law of Trusts; Herdegen.”[23]
[23]ISPT, 651. (Citations omitted).

In Herdegen, Gummow J in the Federal Court of Australia examined the meaning of “bare trust” in the Taxation (Unpaid Company Tax) Assessment Act 1982 (Cth). The head note accurately summarizes his Honour’s finding that “The term is used…in its modern sense as meaning a trust under which the trustee or trustees hold property without any interest therein, other than that existing by reason of the office and the legal title as trustee, and without any duty or further duty to perform, except to convey it upon demand to the beneficiary or beneficiaries or as directed by them, for example, on sale to a third party.”[24]
[24]Herdegen, 272.

The Commissioner submits that the current s 35(1)(a) is couched in similar terms to the predecessor exemption (18) under the Stamps Act.

The Commissioner submits that in Yellowco Five the Court held that the exemption did not apply to a transfer of land from the sole unit holder in a unit trust to the trustee of that unit trust. Under the relevant unit trust deed, the trustee had power to issue additional units with the prior written consent of all unit holders. The Court held that because further unit holders could be introduced the land was not “to be held solely as trustee or nominee of the transferor without any change in beneficial ownership.”

The Commissioner says that Fullagar J concluded that the words “to be held” introduced an ”element of futurity”, and that the power to issue additional units (akin to a joint power of appointment) meant that it could not be said that the land was ‘to be held’ solely as trustee of the transferor.

The Commissioner says that significantly for White Rock’s argument in the present case, Fullagar J made it clear that this conclusion would follow even if the words “without any change in beneficial ownership” related back to the making of the conveyance rather than to the words “to be held”:[25]

But whether or not the words “without any change in beneficial ownership” relate back to the earlier words “to be held” – as I think they do – or whether they relate back to the even earlier word “made”, I am clearly of opinion that the words “to be held” introduce an element of futurity necessitating an enquiry whether, immediately upon the conveyance, the trustee-transferee is seen to hold the land for the future in the capacity only of trustee for the transferor. Is that the position, so far as appears? And in my opinion the circumstances of the present case require a negative answer to that enquiry; the land is instantly held for the future in something more than the capacity merely of trustee for the transferor.

[25]Yellowco Five, 531-532.

Fullagar J said that in order for the exemption to apply, it was necessary “to establish that, forthwith upon the conveyance, it does not appear that the land is to be held by the trustee upon any trusts other than a trust solely for the transferor”.[26] Fullagar J held that the power under the trust deed to appoint additional unit holders in the future prevented that situation from being established.
[26]Ibid, 532.

The Commissioner says that Tadgell J also relied on the effect of the words ‘to be held solely as trustee or nominee of the transferor’. His Honour rejected a submission that the exemption applied ”if, upon an instrument’s taking effect, the transferee holds the subject property as trustee or nominee of the transferor alone, and no one else”, and did not accept the exemption involved simply ”a comparison of the beneficial ownership of the subject property immediately before and immediately after the instrument of transfer takes effect”.[27]
[27]Ibid, 533.

The Commissioner also relied on the following aspects of Tadgell J’s judgment. Tadgell J considered that it was ”not enough merely that there should happen to be no change in the beneficial ownership achieved by the instrument”, but rather ”the formula selected appears to me to require the constancy in beneficial ownership to be referrable to the particular circumstance that the subject property is “to be held solely as trustee or nominee of the transferor”, and this in turn required ”an examination of the terms on which the transferee took the transfer as trustee, as disclosed by the trust deed”.[28]
[28]Ibid, 534.

The trust deed in that case did not produce the result that the land was to be held by the transferee solely as trustee of the transferor, because the transferor was entitled by the terms of the deed to cause the transferee to hold the land as trustee for the transferor and others.

The Commissioner also relied on the following aspects of the judgment of JD Phillips J. His Honour noted that the terms of the exemption directed attention not just to the circumstances in existence at the time of the transfer, but what was to happen thereafter.[29] He considered that the word ‘solely’ meant that the transferee must take only as ‘trustee or nominee’ and not otherwise (as opposed to meaning ‘as trustee or nominee for the transferor alone’).[30]
[29]Ibid, 538.
[30]Ibid, 538-539.

JD Phillips J approached the exemption as a ‘composite expression’. The question was not one of ‘for whom the property was being held at the time of the transfer’; rather, to determine how the property is “to be held” as a result of the transfer, the Court must look at the instrument of transfer and the trust set forth in the relevant deed which spelled out the obligations of the trustee in relation to any property held by him thereunder.[31] Accordingly, the land was to be held upon trust for the unit holders from time to time. Accordingly, as at the time of transfer, it could not be established that the property was to be held after the transfer without any change in beneficial ownership.[32] An analogy could be drawn with the situation of ”a transfer by A to a trustee upon trust for A and such other persons as A may from time to time appoint”[33] – in such circumstances, the terms of the trust are such that the property would not be held solely as trustee of the transferor.
[31]Ibid, 541-542.
[32]Ibid, 543.
[33]Ibid, 544.

The Commissioner submits that in Victoria Gardens, former exemption (18) was held by the Court of Appeal to be inapplicable to transfers of land to the trustee of a trust established for the development of the land by a joint venture. The land had been transferred by each of the joint venturers to the trustee to hold on trust subject to the terms of the JVA and trust deed.

The Commissioner relied on the following principles from the judgment of Batt JA, with whom Ormiston and Chernov JJA agreed. Batt JA concluded that the transfers did not fall within exemption (18) for two reasons.

(a)First, ”the real property transferred by [the transferors] is not “to be held” as trustee of the respective transferors, but rather is to be developed and sold or otherwise disposed of, or at least possibly sold or otherwise disposed of (for it might be retained or leased)”. While the exemption did not require the trustee to hold the property perpetually, it did require that “the trust be one to hold the real property on trust for the transferor”. Batt JA acknowledged that the exemption was ‘very limited’, as shown by the decision in Yellowco Five, and was not designed to encompass transfers for development and realisation purposes, or even a trust for sale.
(b)Second, Batt JA held the effect of the JVA was that each piece of land was not held on trust for the transferor alone (i.e. each individual joint venturer), and was not held or to be held solely as trustee of the transferor.[34]

[34]Victoria Gardens, [39]-[41]. (Emphasis added).

The Commissioner submits that on its commencement (1 July 2001), s 35(1) of the Act was relevantly identical to exemption (18) of the Stamps Act, albeit reflecting the change from an instrument-based regime to a regime in which duty is imposed on transactions.[35]
[35]Section 35(1) originally provided: ‘No duty is chargeable under this Chapter in respect of a transfer of dutiable property (other than marketable securities) that is made by the transferor to a trustee or nominee to be held solely as trustee or nominee of the transferor without any change in the beneficial ownership of the dutiable property or made by way of re-transfer to the transferor.’

The Commissioner says that this was consistent with the legislative object of replacing the Stamps Act with a statute ‘drafted in contemporary language and modern style’ which adopted an approach ‘to reflect the policy underlying the Stamps Act, rather than to introduce significant changes to the taxation base or to rates of duty’.[36]
[36]Victoria, Parliamentary Debates, Legislative Assembly, 5 October 2000, 943-944 (John Brumby, Treasurer).

The Commissioner submits that it can be assumed that the Parliament intended that the scope of the exemption under s 35(1) as originally enacted would reflect the judicial interpretation of exemption (18) in Yellowco Five and Victoria Gardens.[37]
[37]It should be noted that the Act received Royal Assent on 28 November 2000, prior to the decision of the Court of Appeal in Victoria Gardens which was handed down on 12 December 2000. Nevertheless, the substantive provisions of the Act did not commence operation until 1 July 2001.

The current form of s 35(1) was introduced by s 8 of the State Taxation Acts Further Amendment Act 2008 (Vic) (2008 Amending Act) in order to ‘clarify the scope’ of the exemption.[38] As stated in the Explanatory Memorandum (omitting an accompanying example):
[38]See Explanatory Memorandum, State Taxation Acts Further Amendment Bill 2008, 10-11; see also Victoria, Parliamentary Debates, Legislative Assembly, 29 October 2008, 4326-4327 (Tim Holding, Minister for Finance, Workcover and the Transport Accident Commission.

Section 35 is concerned only with transactions which arise in the course of a property being placed into and removed out of, a bare trust by the owner of the property (“the transferor”). Under this bare trust arrangement, there must be no change in the beneficial ownership and the transferor, as the beneficiary, must retain the entire beneficial interest in the property.
Accordingly, subsection 1 clarifies that the exemption is available only where—
·a transferor transfers their dutiable property to a trustee or nominee, to hold on bare trust for the transferor; or
·the declaration of trust establishes the bare trust relationship between the trustee or nominee and the transferor; or
·the re-transfer of the dutiable property by the trustee or nominee, back to the transferor is to the transferor absolutely; and
·the bare trust relationship has been sustained whilst the property was held on trust.

The Commissioner submits that White Rock’s case depends on the 2008 Amending Act having brought about a significant change to the pre-existing law (that is, the scope of both exemption (18) and s 35(1) in its original form).

The Commissioner submits that, however, contrary to White Rock’s submissions, the amendments to s 35(1) made by the 2008 Amending Act do not displace the interpretation adopted in Yellowco Five and Victoria Gardens.

The Commissioner submits that s 35(1)(a) remains in substantially the same terms as the former s 35(1). The only differences are the addition of a comma before the phrase ‘without any change in the beneficial ownership of the property’, and the relocation of the concluding alternative (‘or made by way of re-transfer to the transferor’) to a discrete paragraph being s 35(1)(c).

The Commissioner says that the addition of a comma is far too slight a foundation on which to support any drastic change in the scope of the exemption. The Commissioner contends that in any event, the comma does not do the work that is attributed to it in White Rock’s submissions. The decisions in Yellowco Five and Victoria Gardens rested primarily on the effect of the words ‘to be held solely as trustee or nominee of the transferor’ (which are unchanged), and Fullagar J in Yellowco Five emphasised that it did not matter to the interpretation whether the words ‘without any change in beneficial ownership’ related back to the words ‘to be held’ or (as White Rock suggests is the effect of the comma) to the making of the conveyance or transfer.

The Commissioner says that similarly, the relocation of ‘re-transfers’ from s 35(1)(a) to a separate paragraph does not itself alter the meaning of the former exemption. While Tadgell J and (to a lesser extent) JD Phillips J in Yellowco Five each referred to the concluding words dealing with re-transfers. The Commissioner submits that this was at its highest no more than a ‘cross-check’ which provided support for the interpretation that was independently reached on the interpretation of the principal exemption.

The Commissioner says that the current s 35(1)(c) continues to provide analogous support to the construction of s 35(1)(a) in accordance with Yellowco Five and Victoria Gardens. The Commissioner says that contrary to White Rock’s submissions, s 35(1)(c) does not throw any new light on the words ‘without any change in beneficial ownership’ as used in s 35(1)(a) because, as noted above, it makes no difference whether or not those words ‘attach’ or relate back to the transfer.

The Commissioner submits that in so far as the textual differences in s 35(1)(a) give rise to any ambiguity, there is nothing in the extrinsic material to the 2008 amendments (regarding the 2008 Amending Act) which supports any legislative intention or policy to alter the scope of the exemption. In particular, there is nothing to suggest any legislative intention to change the prevailing interpretation given to the exemption in Yellowco Five and Victoria Gardens.

The Commissioner says that on the contrary, both the Explanatory Memorandum and the Second Reading Speech emphasised that the exemption was regarded as being applicable to transactions involving property being placed into and removed from a ‘bare trust’ arrangement under which the transferor retains the ‘entire beneficial interest’ in the property.[39]
[39]See paragraph 79 above.

The Commissioner submits that the references to ‘bare trusts’ were shorthand for the limitations on the scope of the exemption imposed by the decisions in Yellowco Five and Victoria Gardens. The Minister noted in the Second Reading Speech that the amendments would ‘reduce the risk of the exemption being misused and will provide certainty for practitioners and taxpayers’,[40] which the Commissioner says is hardly consistent with an outcome that would broaden the scope of the exemption to cover the kinds of transactions addressed in cases such as Yellowco Five and Victoria Gardens.
[40]Victoria, Parliamentary Debates, Legislative Assembly, 29 October 2008, 4327 (Tim Holding, Minister for Finance, Workcover and the Transport Accident Commission). (Emphasis added).

The Commissioner submits that the facts relating to White Rock’s appointment as Agent, and the associated transfer of the lands to White Rock, demonstrate that under the partnership agreement, the lands were held by White Rock subject to a sophisticated trust under which White Rock was charged with responsibility for the development and sale of the lands on behalf of the partners. The Commissioner says that White Rock was far more than a ‘nominee’ of the partners or a mere custodian holding title to lands.

The Commissioner submits that the land became partnership property. Clause 8 of the partnership agreement provides that the capital of the partnership shall be deemed to be the assets of the partnership from time to time. Clause 8 further provides that the partners agreed that the initial capital of the partnership should be 75 Rooneys Road, White Rock Road, and 92-93 Harrington Road, that is, the lands devised under the will.

The Commissioner also relies on clause 23 that provides, inter alia, that in the event of the termination of the partnership by agreement or otherwise (subject always to clause 21) the provisions of the Partnership Act 1958 (Vic) concerning dissolution should apply.

White Rock’s submissions on s 35(1)(a)

White Rock disputes the Commissioner’s contention that the exemption does not apply in this case because the land transferred to the appellant as trustee or nominee was not ‘to be held solely as trustee or nominee of the transferor’, for the reason that White Rock was appointed to do more than simply “hold” the lands “solely” for the partners and that White Rock was given active powers.

White Rock says that s 35(1)(a) has two requirements, as there is a comma after the word ‘transferor’. The first requirement is that the property transferred is taken and held on trust for the transferor and no other. The second requirement of the section is that the transfer is made without any change in the beneficial ownership of the property.

White Rock says that the Commissioner does not argue that the lands were to be held by the Agent for anybody other than the trustees as partners under the partnership agreement. Neither does it appear that the Commissioner suggests that the transfer did effect a change in the beneficial ownership of the lands. White Rock submits that the Commissioner does not suggest that the Agent took any beneficial ownership by the transfer.

White Rock submits that the Commissioner is saying that, based on the previous authorities on the Stamps Act, the present exemption is to be read as dealing with the present effect of the transfer, due to the words “made without any change in the beneficial ownership.” Whilst the words “to be held solely as trustee or nominee for the transferor” are words to be read as preserving the beneficial ownership for so long as the trust exists.

White Rock concedes that there is a limited element of futurity encompassed in s 35(1)(a) in the sense that the property is to be taken and held on trust, that is, immediately taken and immediately held on trust. White Rock contends, however, that there is not an element of futurity in the sense that one looks forward and speculates and considers whether there might be a change of beneficial ownership beyond the point of the taking of the transfer.

White Rock submits that even if the section is read in that way, it does not matter in this case because the terms of the partnership agreement do not contemplate that the Agent will hold the land as trustee for anybody other than the transferors, and White Rock does not understand the Commissioner ’s submissions to contend that they do.

White Rock contends that the Commissioner’s construction of the words “to be held” is an odd construction having regard to the other exemption provisions of Part 5 of the Act. As an example, White Rock refers to s 33 that provides:

33 Change in trustees
(1)      In this section—
new trustee means a trustee appointed in substitution for a trustee or trustees or a trustee appointed in addition to a trustee or trustees;
special trustee means—
(a) a trustee company within the meaning of the Trustee Companies Act 1984;
(b)       a corporation constituted under the law of another State or a Territory that, in the Commissioner's opinion, corresponds to a trustee company referred to in paragraph (a);
(c)       the trustees of a fund that is a complying superannuation fund …

(3)      No duty is chargeable under this Chapter in respect of a transfer of dutiable property to a person other than a special trustee if the Commissioner is satisfied that the transfer is made solely—
(a)       because of the retirement of a trustee or the appointment of a new trustee, or other change in trustees; and
(b)       in order to vest the property in the trustees for the time being entitled to hold it.

White Rock says that s 33(3) is not concerned with the futurity effect of a change of trustees to an existing trust. White Rock says that to construe the words ”to be held” in s 35(1)(a) as preserving beneficial ownership in future would be to put the subsection out of step with the other exemptions. White Rock says that if a new partner is admitted the Act will bring that transaction to duty in any event because of the change in beneficial interest.

White Rock contends that the Commissioner’s argument amounts to a submission that s 35(1)(a) merely applies to a bare trust as opposed to an active trust where, as here, the Agent has powers of development and sale.

White Rock says that the exemption refers to a trustee or nominee. Whilst a nominee might do no more than merely hold the property transferred, a trustee might do more. The use of both nominee and trustee points against a construction limiting the section to a bare trust.

White Rock says that in construing s 35(1)(a) it is necessary to consider s 35 as a whole. White Rock says that the relevance of s 35(1)(b) is twofold. Firstly, it clarifies the work done by the word ‘solely’ in both s 35(1)(a) and s 35(1)(b): the trust must be for the transferor only or solely.[41] Secondly, White Rock submits that the identity of the beneficiary aside, one sees that the concern of both s 35(1)(a) and s 35(1)(b), whether that concern is put in the terms to be held… as trustee, as in the former case, or is held on trust, as in the latter case, is that the property is taken and held on trust.
[41]This was the Commissioner’s position in relation to the predecessor exemption, although that exemption was in materially different terms: see Yellowco Five, 538–9. Exemption 18 in Heading VI of the Third Schedule of the Stamps Act exempted:
Any instrument for the conveyance of real property which is made by the transferor to a trustee or nominee to be held solely as trustee or nominee of the transferor without any change in beneficial ownership or made by way of retransfer to such transferor.

White Rock says that if you read ‘to be held’ in s 35(1)(a) in the way the Commissioner contends, then that would give the exemption relating to a transfer a different operation to the exemption created by s 35(1)(b). White Rock says that the use of ‘is held’ in s 35(1)(b) points to the correctness of their construction of “to be held” in s 35(1)(a).

White Rock submits that the relevance of s 35(1)(c) concerns the words ‘without any change in the beneficial ownership of the dutiable property’. In s 35(1)(c) those words attach to the ‘re-transfer’: the re-transfer must be made without causing any change in beneficial ownership. White Rock says that those words have the same meaning in s 35(1)(a) and s 35(1)(b). That is to say, the words ‘without any change in the beneficial ownership’ where thrice appearing in s 35(1) should be read as imposing a requirement that the relevant transaction, be it the transfer, declaration of trust or re-transfer, occur without the beneficial ownership of the property changing.[42]
[42]This was the Commissioner’s initial view in relation to the (different) predecessor exemption: see Yellowco Five, 548. On appeal the case was decided by reference to the words ‘to be held solely as trustee or nominee of the transferor’, except that JD Phillips J appeared to rest his decision also on a contrary interpretation of the words ‘without any change in beneficial ownership’: Yellowco Five, 543 per JD Phillips J, 531 per Fullagar J, and 534 per Tadgell J.

White Rock submits that the words ‘to be held solely as trustee or nominee of the transferor’ are not made otiose by the interpretation of ‘without any change in the beneficial ownership’ that is advocated.[43] Without the former words, exempt would be, for example, a transfer from T1, who previously held the property solely as trustee for B, to T2, who was to hold on the same terms for B.
[43]Compare Yellowco Five, 538, 541 per JD Phillips J, and 533, 535 per Tadgell J.

White Rock submits that the relevance of s 35(2) and s 35(3) is that they indicate that the exemptions extend to ‘active’ trusts such as those where the trustee incurs liabilities (‘a trustee’s right of indemnity’) or undertakes subdivision activities (‘a change in the legal description of dutiable property’).

In summary, White Rock submits that the phrases in s 35(1)(a) ‘to be held solely as trustee or nominee of the transferor’ and ‘without any change in the beneficial ownership of the property’, read together, in the context of the other parts of the section, and in the context of the Act as a whole, impose two distinct requirements. The first requirement looks to the capacity in which the transferee takes the property and the second looks to the effect of the transfer.

White Rock says that the construction it contends for is consistent with the reasons given in Yellowco Five in respect of the previous exemption:

(a) Fullagar J described the inquiry as being “whether, immediately upon the conveyance, the trustee-transferee is seen to hold the land for the future in the capacity only of trustee for the transferor”[44].
[44]Yellowco Five, 531. (Emphasis added).

(b) Tadgell J too expressed his conclusion in terms of how the property was to be held by the transferee: “it was to be held by the transferee not solely as trustee of the transferor”.[45]
[45]Ibid, 534.

(c) JD Phillips J was not concerned with how the property was to be dealt with, and emphasised that the fact that the trust obligation owed by the trustee or nominee might end and ”the fate of the property if the trust were ended” were ”irrelevant”.[46]

(d) Victoria Gardens does not support the proposition that s 35(1)(a) can only apply to a ‘bare’ or passive trust. It only supports the proposition that the exemption did not apply in the circumstances of that case. The Court there accepted the Commissioner’s submission that the joint venture gave rise to an immediate change in the beneficial ownership of the land: each joint venturer exchanged a parcel of land owned individually for an equitable interest in the parcels collectively and a right to receive a cash distribution from the trustee in respect of all the parcels.[47] Importantly, the joint venture and the trust of the land in question were newly created “for massive development and realisation purposes”.[48]

[46]Ibid, 544.

[47]Victoria Gardens, [35]–[40].

[48]Ibid [38].

White Rock says that by contrast, in this case:

(a) there were pre-existing trusts in respect of the land that permitted, if not contemplated, its development (see, for example, clauses 4.6.14, 4.6.15 and 4.6.25 of the will);

(b) the trustees of those trusts, as partners, decided to make administrative arrangements in the exercise of their powers and duties;

(c) there was no exchange of land for a right to receive cash or a collective entitlement; and

(d) the appointed Agent took the land on terms reflecting and not altering the entitlements of the testamentary trustees as tenants in common in equal shares under the will.

White Rock says that the Commissioner’s analysis is, superficially, confined to the partnership agreement to the exclusion of the pre-existing and continuing trusts of the will. White Rock submits that once the trusts of the will are attended to, the partnership agreement must be seen to be confined to administrative arrangements made to give effect to the trusts of the will and, importantly, administrative arrangements which do not affect the continuing beneficial ownership of the trustees of those trusts.

Does the exemption in s 35(1)(a) apply?

I accept the Commissioner’s submissions that the lands were not ’to be held’ solely as trustee or nominee of the trustees.

I accept the construction given to the words ’to be held solely as trustee or nominee of the transferor’ appearing in exemption (18) by the Court of Appeal in Victoria Gardens applies to the same words appearing in s 35(1)(a). I accept the submissions of the Commissioner that s 35(1)(a) was not intended to alter the width of the exemption to duty from that applying under exemption (18).

I am not satisfied that s 35(1)(a) was enlivened. Upon the transfers White Rock was no longer bound to ‘hold’ the trust property solely as trustee for the trustees under the testamentary trusts. I accept, as was said in Victoria Gardens that the property was “not to be held as trustees of the respective transferors, but rather [was] to be developed and sold or otherwise disposed of”.[49]
[49]Victoria Gardens, [38].

Accordingly, I reject this ground of appeal.

Section 33(3) of the Act[50]

[50]Set out above.

White Rock also claims that no duty is chargeable as s 33(3) has been enlivened by the transfers of the lands. White Rock contends that no new trust has been created by the partnership agreement and the transfer of the lands to the Agent. The Commissioner says that a new and separate trust was created and s 33(3) is not enlivened.

For the following reasons, I find that the trustees of the five trust trustees have created a new trust separate from the testamentary trusts.

Both parties accept that if the appointment of, and transfer of the lands to, White Rock as agent for the partners created a new and separate trust to the five testamentary trusts, then s 33(3) would not be enlivened.

White Rock contends that a new and separate trust was not created, but rather there was merely a division of responsibilities between White Rock and the trustees of the five testamentary trusts of the duties and powers of the trustees of the testamentary trusts under the testamentary trusts. The Commissioner, on the other hand, contends that a new and separate trust was created by the transfers of the land under which White Rock had active duties as trustee of the lands for the partners.

Relevant authorities

In Victoria Gardens, the Court of Appeal considered the application of exemption (23) of the Stamp Act, which is the predecessor of s 33(3) of the Act. Neither party suggested that any different construction should be applied to s 33(3) than was applied to exemption (23).

Batt JA (with whom Ormiston and Chernov JJA agreed) held that the exemption, in using the words ’the appointment of a new trustee’, applies only to ’the appointment of a new trustee to perform a pre-existing trust and does not extend to the appointment of a new trustee to perform a newly created trust.’[51]
[51]Victoria Gardens, [27].

As to the second requirement under exemption (23) that “the transfer is made solely … in order to vest the property in the trustee for the time being entitled to it”, Batt JA held that “it cannot…be said that the instruments of transfer were made solely as a consequence of the appointment or solely for the requisite purpose, those requirements being cumulative. Rather,…, they were made to give effect to the provisions of the JVA.”[52] The observations of Batt JA were approved and followed in Commissioner of State Revenue v Lend Lease Funds Management Ltd.[53]
[52]Ibid, [28].
[53] (2011) 33 VR 204 (Lend Lease). On appeal from Lend Lease Funds Management Ltd v Commissioner of State Revenue [2009] VSC 360.

Both parties relied on Lend Lease and submitted that it supported their respective cases on the application of the exemption.

At issue in Lend Lease was whether a transfer of dutiable property (the Maribyrnong land) was exempt from duty under s 33(3) the Act and whether no duty was payable as the dutiable value was nil, under s 20(1) of the Act. In Lend Lease, the majority found that there was no creation of a new trust by transferring title to a custodian trustee.

The head note sets out the relevant facts as follows. The trust deed of a unit trust established in 1997 contained a clause authorising the trustee to delegate its function, including the function of holding trust assets. On 12 April 2000, the trust was registered as a managed investment scheme under the Managed Investments Act 1989 (Cth). At that time, TCA Ltd (TCAL) retired as trustee and HRM Ltd (HRML) became the responsible entity (trustee) of the registered scheme. As scheme trustee, HRML entered into a custody agreement with TCAL, appointing TCAL custodian of the scheme and delegating to it the function of holding assets of the trust. One of these assets was the Maribyrnong land.

In 2001, Lend Lease Funds Management Ltd (the taxpayer) acquired the trust in its capacity as the trustee and responsible entity of another registered management investment scheme. Thereafter, HRML retired as responsible entity of the trust and the taxpayer was appointed to the role, following which the taxpayer directed TCAL to transfer to it all of the trust property held by it. This was done pursuant to a decision of the taxpayer to become the responsible entity of the trust and undertake all custodian responsibilities and processes internally. On 12 December 2001, the taxpayer, by deed, terminated the custody agreement and on 18 December 2001 TCAL, in compliance with the direction from the taxpayer as the responsible entity, transferred all its estate in fee simple in the Maribyrnong land to the taxpayer.

The Commissioner decided that the exemption under s 33(3) was inapplicable. The Commissioner’s delegate was not satisfied that the transfer of the Maribyrnong land was made ‘solely because of’ the retirement of the trustee and the appointment of another. Mandie J allowed the taxpayer’s appeal and the Commissioner appealed to the Court of Appeal.

It was held by Tate JA and Pagone AJA that the transfer was exempt under s 33(3) of the Act and alternatively, the dutiable value of the transfer under s 20(1)(b) of the Act was nil. Tate JA agreed with Pagone AJA that the transfer was exempt and agreed with Pagone AJA for the reasons he gave that the dutiable value was nil. Tate JA held that:

It follows from the line of authority in Comptroller of Stamps v Hutchins,[54] Perpetual Trustee Co Ltd v Commissioner of State Revenue,[55] and Commissioner of State Revenue v Victoria Gardens Development Pty Ltd,[56] that the exemption under s 33(3) extends only to the retirement of a trustee, or the appointment of a new trustee, or other change in trustees (e.g., the removal of a trustee), in relation to a pre-existing and continuing trust. It does ‘not extend to the that appointment of a trustee to perform a newly created trust’.[57] So too, it does not extend to a change in trustees consequent upon the termination of a trust and a transfer of property to a trustee of a different and separate trust. The clear implication from the Victoria Gardens line of authority is that the exemption does not so extend even if the different and separate trust pre-existed the change in trustees and continued after that change, and was in this sense a ‘continuing trust’. In my opinion, Maxwell ACJ is correct that if the circumstances of the case amounted to the termination of the trust of which TCAL was the trustee, and the assumption by Lend Lease, under a separate and distinct trust, of the functions previously performed by TCAL, the circumstances would not meet the description of a ‘change in trustees’[58] within s 33(3)(a) of the Act.[59]

[54][1985] VR 599 (Hutchins).

[55](2000) 44 ATR 273 (Perpetual).

[56]Victoria Gardens, [27] per Batt JA (with whom Ormiston and Chernov JJA agreed).

[57]Hutchins, 611.

[58]Nor would it meet the description of the retirement of a trustee, or appointment of a new trustee, within the meaning of s 33(3)(a).

[59]Lend Lease, [129].

Her Honour held, however, that in the matter before her the circumstances did not amount to the termination of one trust and the assumption of functions once performed by the trustee of the now terminated trust by the trustee of a different and separate trust. In her opinion, TCAL occupied a special or sui generis position pursuant to the custody agreement, albeit with the status of a trustee, a ’custodian-trustee.’ Under the relevant trust deed the trustee was authorised to delegate its functions, including its function to hold title as trustee, to the delegate, referred to as ’custodian.’ The functions that TCAL was to perform were functions of the scheme trustee that the scheme trustee had chosen to delegate or outsource in the exercise of its powers under the trust deed. Her Honour held that at all times the responsible entity remained trustee of the scheme trust and that TCAL was in substance the responsible entity’s delegate. Her Honour held that the delegation did not create a separate or distinct trust.

White Rock relies on Tate JA’s observations on the nature of the interest held by a custodian trustee on behalf of the responsible entity of a managed investment scheme. Tate JA held that the custodian only held the legal title and that the scheme trustee held the equitable interest in favour of the scheme members. Tate JA said:[60]
[60]Ibid, [145]-[149].

The Commissioner placed much emphasis upon clause 4.1 of the Custody Agreement, mentioned above, as the source of the creation of a distinct trust. Such a clause, whereby a custodian holds the assets of the trust on behalf of the responsible entity, was considered by the High Court in Trust Company of Australia Ltd v Commissioner of State Revenue (Qld).[61]Gummow and Hayne JJ observed that such custodian arrangements have particular consequences:[62]
The result in the present case appears to have been that TCA [the custodian] held the legal (i.e. registered) title to the Land on trust for Cromwell [the responsible entity] which, in turn was trustee of the equitable title in favour of the syndicate of investors whose moneys had funded the purchase of the Land.

The High Court recognised not only that the effect of a custody agreement, in the context of a managed investment scheme, is that the custodian holds, and holds only, legal title but also that the responsible entity holds the equitable title on trust for the unitholders. A consequence of a custody agreement, in the context of a registered managed investment scheme, is thus the separating out of legal and equitable title of the assets of the scheme trust so that the scheme trustee holds only the equitable title for the ultimate beneficiaries and the custodian holds, on the scheme trustee’s behalf, no more than the legal (i.e. registered) title to the trust assets. While the separation of the interests associated with the scheme trust means that the custodian acts as a trustee, the separation does not entail that a separate and different trust has been created.
Applying those principles, there was here only the one trust, the scheme trust, with only one trustee which had rights and responsibilities with respect to the ultimate beneficiaries, namely, the scheme trustee. By contrast, the custodian-trustee held bare legal title, had no capacity to acquire fiduciary obligations on its own account, and performed only administrative functions on behalf of, or as a delegate of, the scheme trustee. The recognition by the High Court that a custodian-trustee carries out some trustee functions does not entail, and the High Court did not so hold, that the result of a custody agreement is the creation of a distinct trust, separate from the scheme trust. A fortiori, it does not entail that a custody agreement involves the creation of a new and separate trust of the type that disqualified the relevant transfers from the exemption under s 33(3) in Perpetual Trustees and Victoria Gardens.
Here, the Custody Agreement had the effect that TCAL was to hold legal (i.e. registered) title of the Maribyrnong property on trust for the responsible entity. Insofar as this rendered TCAL a trustee, it can have made it no more than a custodian-trustee with a minimal property interest, the equitable title having been separated out and lying with the scheme trustee,[63] for there had been no assignment of the equitable interest.[64]
Clause 4.1 of the Custody Agreement thus did not create a discrete trust separate from the scheme trust; rather, it took the scheme trust and divided the interests to which the scheme trust gave rise. In particular, it provided that the legal title to the trust property that had vested with the scheme trustee, pursuant to clause 3.3 of the trust deed, was now to be held by the custodian, TCAL. It had the further effect of separating out equitable title from the legal title to be held by distinct entities, with the equitable title to be held on trust for the unitholders as the ultimate beneficiaries.

[61](2003) 197 ALR 297.

[62]Ibid, [29].

[63]See further below, the dutiable value question.

[64]Comptroller of Stamps (Vic) v Howard-Smith (1936) 54 CLR 614 (Howard-Smith), 621-622.

Her Honour held that the transaction in effect undid the separation of the legal from the equitable title. Her Honour also held that the transfer was made solely because of a change in the identity of the entity performing the trust functions. Her Honour said that the legal steps giving effect to the commercial objective, being the takeover, had all been completed before the direction was given to transfer the Maribyrnong land. Her Honour said this stood in contrast to the circumstances in Victoria Gardens where the transfer was done as part of carrying out the commercial transaction.[65]
[65]Lend Lease, [152].

Her Honour said that the causation question expressed in the first limb of s 33(3) must be: “Why did the transfer take place?” and not “Why did the change of trustees take place?”[66] Her Honour said:[67]

The former question invites consideration of the context in which the transfer has taken place, including an appreciation of whether there were other steps within a commercial transaction that were still required to be taken before the legal effect of the transaction was achieved. This is to be compared with the latter question which might invite consideration of a myriad of factors by way of explanation for the retirement or removal of a trustee that are irrelevant to the question of the imposition of duty (for example, was the existing trustee made a bankrupt, found guilty of a criminal offence, or did he become certifiable by reason of mental instability?).[68]
[66]Lend Lease, [154].
[67]Lend Lease, [154].
[68]See Commissioner of State Revenue v Challenger Property Nominees Pty Ltd (2006) 63 ATR 65, 72 (Hollingworth J).

Consideration of s 33(3) of the Act

Under the partnership agreement, White Rock was appointed by the partners to manage the partnership business for the partners. The name of the business was The Rooney Family Partnership (ABN 23 776 477 657). The partnership business was defined as the business or businesses from time to time conducted by the partners as partners pursuant to the partnership agreement.

The partners appointed the Agent to manage the business of the partnership, as their agent, subject to the limitations and with the powers set out in sub-clauses 4.2 and 4.3 of the partnership agreement. The Agent was defined to mean the agent appointed under clause 4 (to which I have just referred) and such other person as may subsequently be appointed to that position.

Under clause 4.32 the Agent was authorised by the partners to manage all of the business (that is the business of the partnership) and do all things that the partners could do in respect of the three properties owned by the partnership.

Under clause 4.3, however, the power of the Agent to manage the business of the partnership was circumscribed. The Agent was given specific authority to sell or develop the three properties at any time and in the absolute discretion of the Agent, provided that without the express written consent of all of the partners, the Agent was not to sell the land at a price which was less than what had been determined by an independent valuer, not more than three months prior to the date of the sale.

Clause 4.5 provided that subject to any specific provision to the contrary in the partnership agreement, the Agent in the conduct of the partnership business and the administration of the partnership should have the powers and legal capacity of a natural person.

The decisions of the Agent were to be made by its board of directors by ordinary resolution.

Clause 5.2 provided that to the extent permitted by law, any director of the Agent may make a decision in the interest of the partner appointing him/her, without being required to have regard to the interests of the other partners individually.

Despite the general powers granted to the Agent under the partnership agreement, certain decisions were to be decided by ordinary resolution, special resolution or unanimous resolution of the partners and not by the Agent. An ordinary resolution of the partners was required for the execution of any contract or entering into of any commitment with a value of $200,000 per financial year, other than in respect of the of the three properties. A unanimous resolution was required, for example, for the provisions of any guarantees by the Agent to any third party.

The transfer meant that the agent could not only commit the trustees to a contractual dealing, it could also execute the dealing. The Agent therefore acquired new powers by reason of the transfer of legal title. Before the transfer, the Agent could commit the trustees to a contract for sale. The trustees may have decided against sale, and the prospective purchaser would have a remedy against them for breach of contract. After the transfer, the Agent could execute the sale, and if the trustees did not agree with that, their only remedy would be against the Agent for breach of trust and/or agency agreement.

The Commissioner contends that the transfer of the lands to White Rock constituted a new trust distinct and separate from the five testamentary trusts. The Commissioner says that under the new trust White Rock as the trustee had wide powers of management. He submits that those powers were greater than the powers of the individual trustees as White Rock could sell, develop, borrow and charge in circumstances where the individual trustees could not do so by themselves. For example, the Agent could agree to sell the land and enter into a contract to do so.

The Commissioner says that the powers of White Rock are different to those given to each of the trustees under the five trusts. The Commissioner says that the individual trustees could not exercise the power of sale, development, borrowing or charging without the consent of the other trustees. However, under the partnership agreement the trustees have, through combining their individual powers, created powers in White Rock greater than the powers the trustees individually held. Further, the Commissioner contends that the enlarged powers of White Rock extend over all the land, and not merely over the lesser interests in land held by the trustees of each trust, and thus constitute a new and distinct trust from each of the five trusts established under the will.

Under each of the trusts established by the will, the trustees had the power to enter into partnership with any persons on such terms and conditions as the trustees thought fit (clause 4.6.13). The trustees of each trust could also establish any trust or trusts or join in the promotion or establishment of any trust or trusts and do anything which a person not being a trustee is authorised or empowered to do under any law relating to or governing any such trust or trusts (clause 4.6.26).

Thus, the Commissioner submits, the trustee could establish a trust or join in the establishment of a trust. Thus, the trustee of each trust had the power to join with the trustees of the other trusts under the will to establish a separate trust. The Commissioner submits that is what the trustees have done under the partnership agreement with White Rock.

The Commissioner submits that the trust established under the partnership agreement was quite separate from the testamentary trusts established under the will, and in no sense could it be said that White Rock was appointed as a trustee of the testamentary trusts.

The Commissioner says that the transfers were not made solely in order to vest the lands in the trustees for the time being entitled to it but rather the transfers were made to give effect to the partnership agreement and (on the contention of White Rock) for associated reasons of administrative convenience.

The Commissioner says that the position in this case is similar to that in Victoria Gardens where the Court held that the transfers were made to give effect to the joint venture agreement (JVA).

In Victoria Gardens, a JVA was created and constituted with a new and separate trust under which the trustee was to carry out a joint venture agreement. The joint venturers surrendered their powers to call for a re-transfer of the land and agreed to accept monetary compensation instead. A new and separate trust was created from the trusts upon which the previous trustees had held the land.

White Rock disputes the contention that a quite separate trust from the testamentary trusts was established under the partnership agreement. White Rock says that the appointment of White Rock as the agent for the partnership was made under the terms of the testamentary trusts and to carry out the terms of the trusts.

Discussion of s 33(3)

Here, the testamentary trusts authorised the separate trustees to enter into partnership with each other. Under the partnership agreement the lands became partnership property of the trustees. In a division of responsibilities the trustees of the testamentary trusts as partners appointed White Rock as their agent to exercise some of the powers that the trustees had as partners. Tate JA, as referred to previously, said that the causation question in the first limb of s 33(3) must be: “Why did the transfer take place?” and not “Why did the change of trustees take place?” In this case, the trustees as partners of the partnership appointed an Agent to exercise some of their powers as partners and transferred the legal title to the Agent and doing so surrendered some of their powers to White Rock.

The transfer was to facilitate the administration of the partnership. That is the context in which the transfer took place. Tate JA, as referred to previously, said such a question invited consideration of the context in which the transfer had taken place including an appreciation of whether there were other steps within a commercial transaction that were still required to be taken before the legal effect of the transaction was achieved. In this case, there were no further steps to be taken. The delegation was merely to achieve administrative convenience of the partnership of the trustees under the testamentary trusts.

In my opinion, the transfer of title to White Rock occurred in order to create a new and separate trust.

The drafting of the will caused problems for the beneficiaries. It created five separate trusts with different permutations of trustees. It split the legal title to the lands in five. But for the good relations between the trustees, this situation would have presented difficulties in administering the trust property.

If the will had established one trust with five beneficiaries each holding equally, and one set of trustees, administration would have been facilitated. That way the trustees could have dealt with the lands without cooperating with another four sets of trustees.

After the lands were vested in the five sets of trustees, the trustees and beneficiaries (the same people) decided to remove the cumbersome nature of the five testamentary trusts, and focus their five individual titles in the one entity, who could deal with the lands without cooperating with another four sets of trustees.

Under the partnership agreement, the five sets of trustees merged their title, to create single titles in respect of each property. In my opinion, the effect of this was to vest the whole legal title in a new entity.

The new entity could deal with the land in ways that the individual trustees could not. The five sets of trustees acting together could do what the new entity could do, but the individual trusts created by the will could not.

When comparing the Agent’s powers to those of the five sets of trustees acting together, there is a difference. The five sets of trustees held as tenants in common at law. The Agent, on the other hand, held the whole of the legal title.

In my opinion, to resolve the structure established by the will, the trustees came together and created a new and separate trust. In doing so, they changed the nature of the legal title. The scheme superimposed a trust over all the existing trusts. The new trust held the whole of the legal title to the properties, and could deal with the properties without difficulty. Without the overarching trust, the trustees of the five trusts would have to agree and cooperate in every decision involved in development and sale.

In my view, Lend Lease can be distinguished. In that case, the responsible entity transferred property to a holding trust, a custodian. The custodian did not have any abilities or title or powers that the existing trustee did not have. In Lend Lease, the Court of Appeal only had to decide on the transfer from the custodian back to the responsible entity, and this was done in circumstances akin to retirement of the custodian (see [153]). Here, there is no retirement of a trustee, or circumstances akin to it.

In this case, a new trust has been created and the trustee has greater title than the old trustees (individually) and can do things alone that the former trustees could not do alone. There was no pre-existing trust over the whole of the title to the three properties.

In my opinion, a new and separate trust has been created. Accordingly, I reject this ground of appeal.

Transfers of nil value

White Rock argues that the three transfers only transferred the legal title and not the equitable title as well and relies on Lend Lease. White Rock contends there was a carve out, that only the legal title was assigned and the value received by the Agent was nil or nominal.

The Commissioner contends that the dutiable property the subject of each transfer was the estate in fee simple held by the relevant partners as the registered proprietors of the lands. The Commissioner says that the equitable interest of the partners in the lands was ‘impressed upon’ and not ‘carved out’ of the estates in fee-simple.

In Lend Lease, Maxwell ACJ referred to a series of cases that established that the interest of a beneficiary under a trust, although proprietary in nature, does not qualify the trustee’s title. Maxwell ACJ said:[69]

As between trustee and beneficiary, the trustee as legal owner of the property has all the rights of ownership. In the case of land, it is the trustee which holds the estate in fee simple. The fundamental point of the Oughtred line of authority is that the fee simple estate of the trustee is not qualified or diminished in any way by the obligation of the trustee to exercise the rights of ownership in the interests of the beneficiaries. That is the sense in which their equitable interests are ‘impressed upon’, rather than ‘carved out of’, the estate. Put another way, the existence of the trust does not affect the nature of the proprietary rights embodied in the fee simple estate. It goes instead to the manner of their exercise.

[69]Lend Lease, [113].

In DKLR Holding Co (No 2) Pty Ltd v Commissioner of Stamp Duties (NSW),[70] Aickin J dealt with the argument that only a bare legal title was transferred where land was held on trust as follows:

A preliminary argument advanced on behalf of D.K.L.R. was that the transfer of the land to it by 29 Macquarie was effective to transfer only the "bare legal estate" and to leave remaining in 29 Macquarie the entire beneficial interest. It was said that immediately prior to the transfer 29 Macquarie held both the unencumbered legal estate and the entire equitable interest in that property and that all that it had done was to transfer the legal estate. In my opinion this argument is based upon a fundamental misconception as to the nature of legal and equitable interests in land or other property. If one person has both the legal estate and the entire beneficial interest in the land he holds an entire and unqualified legal interest and not two separate interests, one legal and the other equitable. If he first holds the legal estate upon trust for some other person and thereafter that other person transfers to him the entire equitable interest, then again the first-named person does not hold two separate interests, one the legal and the other the equitable estate; he holds a single entire interest - he is the absolute owner of an estate in fee simple in the land. The equitable interest merges into the legal estate to comprise a single absolute interest in the land. It is a fundamental principle of both the common law and of equity that the holder of an estate in fee simple cannot be a trustee of that fee simple for himself for what he holds is a single estate, being the largest estate in land known to the law.

[70](1982) 149 CLR 431 (DKLR), 463.

As discussed below, Tate JA held that she would have accepted the analysis of Maxwell ACJ on the dutiable value question that the interest of a beneficiary under a standard trust, although proprietary in nature, does not qualify the trustee’s title. Her Honour, however, found that in the Lend Lease case the relationship between TCAL and Lend Lease was not the orthodox one between a trustee and a beneficiary, rather it was a special or sui generis relationship between a custodian-trustee and a scheme trustee.

Tate JA held that if the transfer of the Maribyrnong land was a dutiable transaction, the duty could only be payable on the transfer of the whole of the interest held by TCAL as custodian. As discussed above, Her Honour had found that TCAL only held the legal interest as custodian for the trustee of the managed investment scheme, which held the equitable interest for the benefit of the members of the scheme. Thus in the unusual circumstances surrounding that case, all that could be transferred was the legal title. Her Honour said that initially, there had been no assignment of the equitable interest from the scheme trustee to the custodian. Her Honour cited Dixon J in Howard-Smith[71] where he said:

A voluntary disposition of an equitable interest may take one of at least three forms. It may consist of an expression or indication of intention on the part of the donor that he shall hold the equitable interest vested in him upon trust for the persons intended to benefit. In that case he retains the title to the equitable interest, but constitutes himself trustee thereof, and, by his declaration, imposes upon himself an obligation to hold it for the benefit of others, namely, the donees.
In the second place, the disposition may consist of a sufficient expression of an immediate intention to make over to the persons intended to benefit the equitable interest vested in the donor, or some less interest carved out of it. In that case communication to the trustee or person in whom the legal title to the property is vested is not required in order effectually to assign the equitable property. Notice to the trustee may be important to bind him to respect the assignment and in order to preserve priorities. But it is not a condition precedent to the operation of the expression of intention as an assignment. Nor does it appear necessary that the intention to pass the equitable property shall be communicated to the assignee. What is necessary is that there shall be an expression of intention then and there to set over the equitable interest, and, perhaps, it should be communicated to someone who does not receive the communication under confidence or in the capacity only of an agent for the donor.
In the third place, the intending donor for whom property is held upon trust may give to his trustee a direction requiring him thenceforth to hold the property upon trust for the intended donee.[72]

[71]Howard-Smith, 621-622.

[72]Lend Lease, [159].

Her Honour continued:

None of the three methods of the assignment of the equitable title occurred here. Nor had any other method been adopted by which the scheme trustee assigned the equitable title it held to the custodian.
The history of the arrangements between TCAL and Lend Lease are relevant. The source of any interest TCAL had in the Maribyrnong property sprang from the Custody Agreement; at no time was TCAL the scheme trustee, nor could it have been, given the stipulation of s 601FC(2) of the Corporations Act. It thus never held, nor could hold, the scheme property on trust for scheme members. TCAL never had at law all the rights of an absolute owner in fee simple. The interest it held was always confined to that which was conferred upon it as a custodian or custodian-trustee holding the legal estate on trust for the scheme trustee. The equitable title held by the responsible entity, the scheme trustee, inhibited or impaired TCAL’s title.[73]
In my opinion, the relationship between TCAL and Lend Lease has the result that the equitable interest was a relevant outstanding proprietary interest which was carved out from the Maribyrnong property in a manner that exhausted the whole of its value[74] and which left only the bare legal estate to be transferred. As Pagone AJA observes, this is not to commit the fallacy of treating equitable interests as exceptions or reservations, or other encumbrances, impressed upon that which is in fact transferred. It is to acknowledge that the subject of the transfer could not, logically or legally, be more than the interest TCAL held.[75]

[73]Vopak Terminals Australia Pty Ltd v Commissioner of State Revenue (2004) 12 VR 351 (Vopac), [74].

[74]Ibid, [74].

[75]Lend Lease, [160]-[162].

As mentioned above, her Honour focused on the special relationship that existed in that case. Her Honour continued:

Had the relationship between TCAL and Lend Lease exhibited the orthodox character of a trustee and beneficiary relationship, I would have agreed with the extensive analysis undertaken by Maxwell ACJ on the dutiable value question; the interest of a beneficiary under a standard trust, although proprietary in nature, does not qualify the trustee’s title. However, the relationship between TCAL and Lend Lease was not the orthodox one between a trustee and beneficiary; rather, it was a special or sui generis relationship between a custodian-trustee and a scheme trustee, the scheme trustee being the responsible entity of a managed investment scheme. That sui generis relationship had the result, as the High Court recognised in Trust Company of Australia Ltd v Commissioner of State Revenue, of separating out the equitable and legal title so that the equitable title was held on trust by the scheme trustee with the custodian-trustee holding no more than the bare legal estate. In my opinion, in determining the value of what was transferred, the transfer of the legal estate in fee simple from the custodian-trustee to the scheme trustee was of nil value for duty purposes. The trial judge was correct in that conclusion.[76]

[76]Lend Lease, [163].

Pagone AJA came to the same conclusion as Tate JA that the transfer had nil value. His Honour accepted that in this case, the equitable interest had been separated from the legal interest. After referring to the Commissioner of State Revenue v Pioneer Concrete (Vic) Pty Ltd and DKLR, [77] which had also been relied on by Tate JA, Pagone AJA said:

…It is thus clear that the subject matter to be valued is not to be valued by reference to charges or other obligations upon the subject matter. On the other hand encumbrances upon the subject matter of a transfer is not to be confused with the excision of an estate or interest from the subject matter to be valued. It is one thing to exclude from the valuation of a thing something which might diminish its value and quite another thing to substitute the subject matter to be valued by something quite different from that which the parties actually transferred.

In this case there can be no doubt that no part of the interest in the HRP Trust was transferred by TCAL to Lend Lease. Such transfer as had been effected in that trust had occurred by the takeover of the unit holding and the change in identity of the responsible entity of that scheme. At most TCAL was able to transfer its interest as special trustee by reason of being custodian under the custodian agreement. It was that which his Honour identified as the relevant subject matter for valuation for duty purposes on the hypothesis that he might be wrong about the application of s 33(3). Unlike the property considered in DKLR, in this case there was a severance of the legal and equitable interests in the land which TCAL held as custodian.[78]

[77]Commissioner of State Revenue v Pioneer Concrete (Vic) Pty Ltd (2002) 209 CLR 651 (Pioneer), [34]; DKLR, 449.

[78]Ibid, [176]-[177].

Pagone AJA referred to Vopak Terminals Australia Pty Ltd v Commissioner of State Revenue[79] where the Court of Appeal (Ormiston JA, with whom Warren CJ and Buchanan JA agreed) held that the existence of an equitable interest enforceable against the holder of an estate ought to be taken into account if it has been carved out of the estate or otherwise transferred.
[79]Vopak.

Discussion of nil value

In my opinion, the facts in this case do not give rise to special circumstances as were found in Lend Lease. Under the agency agreement, White Rock had the power to sell the land, if a certain minimum price was reached. The transfer to White Rock assumed that it would have full powers of ownership to sell the lands. In my opinion, the equitable interest was not carved out of the property interest transferred to White Rock.

I accept the Commissioner’s submissions that the transfer was not at nil value, but rather at the full value of the legal estate.

Conclusion

In my opinion, White Rock has failed to make good its objection to the assessments on the s 35(1)(a) exemption, the s 33(3) exemption and the nil value ground.

Accordingly I dismiss the appeal. I will hear the parties on costs.

[2014] VSC 312

1 July 2014