A Raptis & Sons Holdings P/L v CSD [1997] QCA 228

At all material times, the issued capital of Palperra consisted of two fully paid $1.00 shares. Mr Nikiforides was the registered holder of one such share and Mrs Nikiforides was the registered holder of the other. Each of Mr and Mrs Nikiforides entered into a materially identical deed dated 4 June 1993 with the appellant, A. Raptis & Sons Holdings Pty Ltd. Material provisions of those deeds are set out in the joint reasons for judgment of Derrington and Byrne JJ. The description, "option deed", which the parties gave to those instruments is not determinative of their character,[4] which, in the absence of any suggestion of a sham, is determined by the legal effect of the agreed terms.[5] No different answer is required by a doctrine that substance prevails over form in revenue cases.[6] At least where there is a general provision aimed at revenue avoidance,[7] revenue must be calculated by reference to the legal nature and effect of a document or transaction, not its commercial or practical consequences.[8] That is not to dispute that the commercial or practical consequences of a document or transaction may be material to its legal nature and effect because of the language in which the material legal test is stated. Thus, for example, the decisions to which Derrington and Byrne JJ. refer support a conclusion that the commercial or practical consequence of a document or transaction may mean that there has been a "disposition" according to the ordinary meaning of that word.[9] However, where that is so, the reason is not because the commercial or practical consequence of a document or transaction which is not a disposition equates or approximates the commercial or practical consequences of a document or transaction which is a disposition, but because the document or transaction is in its legal nature and effect a disposition.

Subject to the definitions of "disposition" and "share" in sub-s. 56C(1), I am unable to perceive how a document or transaction which does not involve a change in the identity of the shareholder can be a "disposition" of a "share". Apart from any extended statutory definition, a share in a company is the shareholder's conglomeration of rights and obligations against and to the company and other shareholders as determined by the applicable legislation and the memorandum and articles of association of the company.[10] It is not suggested that the appellant has been substituted for Mr and Mrs Nikiforides in those respective relationships with Palperra and each other. Rather, the instruments which the Commissioner has assessed to ad valorem conveyance duty define the respective rights and obligations between the appellant and Mr Nikiforides in the one case and, in the other, between the appellant and Mrs Nikiforides. In my opinion, there has been no disposition by Mr and Mrs Nikiforides of their shares in Palperra to the appellant according to the ordinary meaning of "disposition" and "share" even accepting, as I do, that "disposition" is a word of very wide meaning. It is to my mind of critical significance that Mr and Mrs Nikiforides remain the shareholders in Palperra.

Sub-section 56C(1) provides that, for the purposes of that section, "disposition", in relation to a share, "includes - (a) a transfer or other disposition (including any declaration of trust, settlement or agreement to dispose) of the share ...", subject to a qualification which is not presently material. Further, the same sub-section provides that, for the purposes of s. 56C, "share" "includes an interest in a share". The Commissioner submitted that, since each of Mr and Mrs Nikiforides had granted the appellant an option to acquire his or her share, each had agreed to dispose of that share. The force of that submission lies in the circumstance that each is obliged to transfer the share which he or she holds to the appellant at its request for $1.00. Another argument advanced for the Commissioner is that the appellant has an equitable interest in each share because of its rights against each of Mr and Mrs Nikiforides.

It is unnecessary for me to consider the first of those alternatives because I am of opinion that the second is correct. The received view in Australia today is that a person who is entitled to equitable relief to enforce or protect rights in respect of property has an equitable interest in the property commensurate with the equitable relief available.[11] Given the circumstances, namely an issued capital of only two shares and the rights which the appellant obtained in respect of each share by each deed, there is no doubt but that it could have secured registration of the shares in return for the payment of $1.00 each to Mr and Mrs Nikiforides. Since the appellant can obtain the respective shares of Mr and Mrs Nikiforides for an outlay of $1.00 in each case, the value of its interest is substantially equivalent to the value of the share.

Derrington and Byrne JJ. have noted that, during the hearing, the appellant accepted that the assessments the subject of the appeal were proper if s. 56C applied to the deeds. In the circumstances, it is unnecessary to consider the interaction of sub-ss. 56C(8) and (8A).[12] On this occasion, it is para. (a) of the latter provision which is material. While it is by no means clear to me what is meant by "value" in that provision, there is no reason to doubt that in the present case the respective shares of Mr and Mrs Nikiforides each represented half of the value of the total issued capital of Palperra or that the interest in each share which the appellant acquired was approximately the same proportion of the total issued capital of Palperra.

I would answer the questions in the case stated as follows:

JOINT REASONS FOR JUDGMENT - DERRINGTON AND BYRNE JJ

Palperra Pty Ltd is the trustee of a discretionary trust. In 1993 its issued capital consisted of two fully-paid $1 shares. By two materially identical deeds dated 4 June 1993, the two shareholders, Mr and Mrs Nikiforides, each of whom was registered as the holder of one share, granted an option to purchase the shareholding. The appellant, a party to both deeds, was the grantee. Each option was expressed to "remain open for acceptance" for 99 years. The stated consideration was $1. $1 was also the price payable for the share in the event of exercise of the option.

Based on the unencumbered value of the trust assets located in Queensland, each "option deed" (as the instruments were styled) was eventually assessed to ad valorem duty of $412,987.50. These reassessments were founded on s.56C of the Stamp Act 1894. This case stated pursuant to s.24 of the Act involves a consideration of the significance of s.56C for the instruments.

"... an instrument effecting or evidencing a disposition in relation to a share in a company to which this section applies shall be chargeable with duty, ... calculated as if it were a conveyance free of encumbrances of a prescribed undivided share in all of the trust property held by the trustee ...".

Palperra was a company to which the section applied, and so the main question is whether the option deeds effect or evidence such a "disposition".

"Disposition" is "an ordinary English word of very wide meaning": Ward v. Commissioner of Inland Revenue [1956] UKPC 4; [1956] AC 391, 400 per Lord Morton of Henryton, delivering the advice of the Privy Council (Its origin may be Scottish: re Mal Bower's Macquarie Electrical Centre Pty Ltd (in liquidation) [1974] 1 NSWLR 254, 257). In Rose v. Federal Commissioner of Taxation [1951] HCA 68; (1951) 84 CLR 118, Dixon, Fullagar and Kitto JJ spoke (at 123) of "disposition" and "dispose of" as being "expressions of the widest import". And in Henty House Pty Ltd (in voluntary liquidation) v. Federal Commissioner of Taxation [1953] HCA 54; (1953) 88 CLR 141, Williams ACJ, Webb, Kitto and Taylor JJ (at 153) said that the words "disposed of" "are not technical words. They mean disposed of in a commercial sense. Similar words in other Acts have been given a very wide meaning in suitable contexts." See also Worcester Works Finance Ltd v. Cooden Engineering Co Ltd [1972] 1 QB 210 at 218C.

Pertinent among the many dictionary meanings given to disposition are "bestowal, as by gift or sale" (The Macquarie Dictionary, 2nd Rev ed (1987), p.520), "the getting rid, or making over, of anything; relinquishment" (Webster's New International Dictionary, 2nd ed (1941), p.752), "to make over, or part with as by gift, sale or other means of alienation, alienate or bestow" (Century Dictionary cited in MacPherson v. London Loan Assets Ltd & Royal Bank of Canada [1931] OR 109 at 115), and "the parting with, alienation of, or giving up property" (Black's Law Dictionary, 6th ed (1990), p.471); cf Roache v. Australian Mercantile Land & Finance Co Ltd (No. 2) [1966] 1 NSWR 384 at 386.

In s.56C "disposition" bears no narrow meaning. To the contrary, in the context of s.56C the word is of very considerable reach, extending to circumstances which it would not ordinarily comprehend. "`Disposition' in relation to a share" is not restricted to arrangements involving the transfer or creation of proprietary rights. The expression is defined by s.56C(1) to include:

"(a) a transfer or other disposition (including any declaration of trust, settlement or agreement to dispose) of the share; or

(c) the redemption, surrender or cancellation of the share; or

(d) the variation, abrogation or alteration of a right pertaining to the share with respect to voting, whether at meetings of the company or the directors or otherwise;

whether or not the disposition is documented or evidenced or recorded in writing but does not include a disposition by which the personal representative of a deceased person disposes of a share to a beneficiary in the administration of the estate of the deceased person."

It is unnecessary to examine the contention advanced for the Commissioner of Stamp Duties that every option to buy a share must be an "agreement to dispose" of it within s.56C(1)(a). That larger question can be left for another day. Nor need consideration now be given to the many difficulties of interpretation to which the section potentially gives rise. Although there is plenty of scope for debate about the boundaries of the concept of "disposition..." in s.56C, on any tenable view of its impact the peculiarities of the particular instruments with which this appeal is concerned sufficiently indicate that s.56C applies here.

6.1 During the term of this Deed the following shall apply:-

(a) The Grantee shall be entitled to reasonable notice from the Grantor of all meetings of shareholders of the Company.

(b) The Grantor shall exercise all voting rights attaching to the shares of the Company as directed by the Grantee.

(c) The Grantor shall not apply for or vote in favour of the issue of any further shares in the Company not to [sic] issue any further shares without the consent of the Grantee.

6.2 For the purposes of securing to the Grantee his [sic] proprietary interests in the Share arising from this grant and of securing the performance by the Grantor of his obligations owed to the Grantee, immediately following the execution of this Option Agreement the Grantor shall irrevocably appoint the Grantee and each of its Directors his attorney for the following purposes on the Grantor's behalf:

(a) To receive notices of and to attend at meetings of shareholders of the Company.

(b) To propose resolutions or amendments to resolutions of shareholders of the Company.

(c) To vote, in the absolute discretion of the donee of the power, for or against resolutions or amendments to resolutions of shareholders of the Company.

(d) To execute any proxy form in favour of the donee of the power or any other person appointing a proxy of the donor of the power for the meetings of shareholders of the Company.

(e) To execute the transfers of shares and ancillary documents consequent or requisite upon the exercise of the option.

(f) To sign any instrument, document, notice or memorandum and to complete any blanks left therein and to perform any deed, matter, act or thing which in the opinion of the donee of the power ought be done, executed or performed to give effect to the option, the exercise of the option, and the proprietary rights of the Grantee and the Grantor's obligations referred to at the commencement of Clause 6.2.

6.3. The form and content of the Power of Attorney shall be as per ... the Deed of Assignment to which this Deed of Option is appended.

6.4. Because of the purposes specified in Clause 6.2, the Grantee shall indemnify the Grantor against all claims, demands, suits, proceedings and actions (including the costs and expenses thereof) and all other liability and loss in any way arising from the exercise by the Grantee of the powers conferred on the Grantee under the power of attorney."

When the deeds were signed the shareholders also executed the powers of attorney required to enable the appellant to exercise the rights anticipated by cl.6.2.

The grantors remain registered as the holders of the shares until the options are exercised. In the meantime, they continue to be exposed to such ethereal possibilities as any dividend or return of capital which the appellant might orchestrate, and to any surplus on a winding up. But the deeds and their complementary powers of attorney have passed to the appellant every valuable incident of ownership for at least about four generations. From the moment the deeds were created, there was no realistic prospect that the grantors would in future ever derive a benefit from, or be entitled to exercise any of the rights attaching to, ownership. By the obligations the shareholders assumed under these option deeds, they have, for all practical purposes, permanently divested themselves of every advantage the shares conferred; and pursuant to the deeds the appellant has effectively acquired them. In short, in "a commercial sense", as the High Court put it in Henty House, the deeds effect or else evidence a relevant "disposition".

The appellant, however, contends that an interpretation of s.56C that renders the instruments liable to ad valorem duty should be resisted because it would mean that duty will be payable again if ever the options are exercised. Implicit in the argument is the proposition that such an outcome is so unreasonable that it is unlikely to have been intended. The submission confronts the difficulty that s.56C is an anti-avoidance provision. Given its evident intent, it is difficult to attribute to Parliament an intention to avoid the imposition of duty on these artificial contrivances. It is scarcely to be presumed that the legislature would be discomforted by the prospect that instruments such as these may yet succeed in increasing the receipts to the revenue beyond the ordinary burden imposed by the Act upon the relinquishment of a share affected by s.56C.

The validity of s.56C is also called into question. It is said to be beyond legislative competence on the footing that the selected nexus with Queensland has too remote a connection with the State to found an imposition on the options or on the appellant, which is said not to be resident in this State.

By s.56C(11), liability to pay the duty falls on both "disponor and disponee". Relevantly, s.56C applies to "a company which is the trustee of a trust and in that capacity ... owns property located in Queensland": see s.56C(2)(a). The charging provision, s.56C(8), so far as it is material to this appeal, only applies to trust property which is located in Queensland: see sub-s.(8B). The liability is therefore not dependent on some tenuous connection with the State.

Section 56C is quite unlike the legislation considered in Commissioner of Stamp Duties (NSW) v. Millar [1932] HCA 63; (1932) 48 CLR 618, upon which the appellant relied. In Millar a majority of the High Court considered that provisions purporting to include shares in a company, incorporated elsewhere, with no local register, but which carried on business within the territory, in the dutiable estate of a person, dying resident and domiciled out of the State, exceeded the powers of the State Legislature. Among the factors which appeared to Rich, Dixon, and McTiernan JJ to be decisive against a conclusion that the law was "for the peace, welfare and good government of New South Wales" was that the legislation sought to tax the entire value of the shares, although as their Honours said (at 632):

"The business in New South Wales of the company may be a small part of its whole undertaking. It may be a source of little profit or, indeed, of continual loss... What the Legislature fastens upon as the subject of taxation is the share, not the economic advantage derived by the connection with New South Wales. It does not supply the measure, the quantum, of tax by reference to the share and impose the tax so measured upon some act occurring or thing situate within its jurisdiction."

Millar is plainly distinguishable, which makes it inappropriate now to discuss the extent to which its authority may have been affected by considerations such as those mentioned in cases like Union Steamship Co of Australia Pty Ltd v. King [1988] HCA 55; (1988) 166 CLR 1; see, generally, D.G. Hill, "Constitutional Power and Extraterritorial Enforcement", [1996] UNSWLawJl 5; (1996) 19 UNSWLJ 45, 54-57.

During the hearing, it was accepted for the appellant that the reassessments were proper if s.56C applied to the option deeds.

[4] Radaich v. Smith [1959] HCA 45; (1959) 101 C.L.R. 209.

[5] Commissioner of Stamp Duties (N.S.W.) v. Pendal Nominees Pty Ltd [1989] HCA 19; (1989) 167 C.L.R. 1, 20-21.

[6] Australian National Airlines Commission v. Commissioner of Stamp Duties [1989]1 Qd.R. 246, 250.

[7] In this instance, s. 81 of the Stamp Act.

[8] John v. Federal Commissioner of Taxation [1989] HCA 5; (1989) 166 C.L.R. 417.

[9] See, for example, Rose v. Federal Commissioner of Taxation [1951] HCA 68; (1951) 84 C.L.R. 118, 123; Henty House Pty Ltd (In Voluntary Liquidation) v. Federal Commissioner of Taxation [1953] HCA 54; (1953) 88 C.L.R. 141, 153.

[10] Archibald Howie Pty Ltd v. Commissioner of Stamp Duties (N.S.W.) [1948] HCA 28; (1948) 77 C.L.R. 143.

[11] See Glenn v. Federal Commissioner of Land Tax [1915] HCA 57; (1915) 20 C.L.R. 490, 503, 504; New Zealand Insurance Co. Ltd v. Commissioner of Probate Duties [1973] VicRp 65; (1973) V.R. 659, 664, 666, 669, 670; Stern v. McArthur [1988] HCA 51; (1988) 165 C.L.R. 489, 522-523; Chan v. Cresdon Pty Ltd [1989] HCA 63; (1989) 168 C.L.R. 242, 252-253; cf. Swiss Bank Corp. v. Lloyds Bank Ltd [1979] 1 Ch. 548, 565. See also the explanation of the constructive trust as an equitable remedy in Muschinski v. Dodds [1985] HCA 78; (1985) 160 C.L.R. 583 at pp. 612ff and Baumgartner v. Baumgartner [1987] HCA 59; (1987) 164 C.L.R. 137, 148.