Appellant v Respondent

Appellant v Respondent - [2006] VSC 203 - VSC 2006 case summary — Zoe

1 In June 2002, a valuable commercial property at 417 St Kilda Road, Melbourne, known as Mobil House, was transferred to the respondent ("Challenger") by Leighton Funds Management Pty Ltd ("the old trustee"). The transfer is a transfer of dutiable property, so it attracts duty under the Duties Act 2000 ("the Act") unless a relevant exemption operates.

2 Challenger says that the transfer is exempt from duty under s.33(3) of the Act, because the property was transferred to it solely because of its appointment as a trustee. The Commissioner of State Revenue disputes that the transfer is exempt and says that the purpose of the transfer was to complete certain arrangements for what was effectively a sale of the property.

3 The transfer was one of a number of related transactions, all of which took effect on the same day and in accordance with a detailed settlement schedule. There is no factual dispute as to the rather complex background against which the transfer was executed, the key elements of which are as follows.

4 On 16 September 1997, Leighton Property Funds Management Limited ("the old manager") and the old trustee executed a trust deed which created the 417 St Kilda Road Trust ("the trust"). The trust deed appointed the old trustee as trustee, and the old manager as manager, of the trust. Under the trust deed, the trustee had very limited powers, and the manager had extensive powers including "full and complete" powers of management and sale. The trust deed also contained provisions for the allocation and redemption of units in the trust.

5 On 21 May 1998, the old trustee, in its capacity as trustee of the trust, became the registered proprietor of the property.

6 Prior to 27 June 2002, all of the 72,500,000 units in the trust ("the old units") were beneficially owned by Leighton Properties Pty Ltd ("the old unit holder"), and held by the old trustee in its capacity as trustee of the Leighton Office Trust.

7 In late April 2002, Challenger Managed Investments Pty Ltd ("Challenger Investments"), as the manager of the Challenger Howard Property Trust, instructed Charter Keck Cramer to value the property for the purpose of a proposed prospectus. At that time, the property was described as an asset which Challenger Investments proposed to acquire. On 21 June 2002, Charter Keck Cramer assessed the current market value of the property as $73,000,000. Their valuation report commented that the investment performance of the property would be improved by the fact that a sale of the property would proceed "without the requirement for stamp duty to be paid".

8 On 24 June 2002, the old trustee executed a vendor's statement under s.32 of the Sale of Land Act 1958 ("SLA") in respect of the property ("the s.32 statement").

9 On 27 June 2002, the settlement day, a number of agreements were executed or became effective in the following sequence:

[22]

"57. Finally, I turn to the exemption under section 33(3). Here the Commissioner's contention was that the purpose of the transfer should be seen in a wider context as merely a step in what [the Commissioner] described as the 'elaborate dance' to avoid stamp duty. I accept that there was a purpose of avoiding stamp duty. The structuring of the acquisition of the units in the [trust] in two 50% tranches by separate companies is clearly calculated to avoid the land rich corporation provisions of the [Act] by avoiding the acquisition by any party of a majority interest (cf section 79 of the [Act]). All of the steps taken at settlement can properly be characterised as [the Commissioner] did characterise them as 'an elaborate dance.' Nevertheless, do these matters prove that the transfer here was for any purpose other than the retirement of one trustee and the appointment of another? The most obvious objectives of this scheme or 'dance' could have been attained and were in fact attained without a change of trusteeship. According to the settlement agenda (which is relied upon by the Commissioner) whilst the deed of appointment and retirement of trustee were to be executed prior to the settlement itself they were not to become effective until after Step 1 which entailed the delivery of the $73m cheque to [the old trustee] with the cheque being payable at its direction to the [old unit holder], and the issue of the new $73m units to the [new unit holders]. The minutes of the outgoing trustee's directors redeeming the old units and issuing the new ones were to be tabled as Item 4. All of those steps were to be taken by the old trustee and presumably before it left office. Therefore the purchase and sale of the beneficial interest in the building had been fully effectuated before the retirement of the old trustee and the appointment of the new one. As previously noted since the duties of the trustee under the trust deed are largely passive ... with all management responsibility being vested in the manager, it would have been possible for the outgoing trustee to remain in office performing that role for Challenger. One may infer that Challenger preferred 'one of its own family' to be trustee and Leighton preferred to have no further involvement in a unit trust in which it had ceased to have a beneficial interest. These considerations it may be supposed explain why the trusteeship was changed but the change in trusteeship and therefore the transfer was not an essential step to effectuate the sale.

58. I accept [Challenger's] submission that whenever one trustee resigns and another trustee is appointed there is a wider agenda. The items on that agenda may include the promotion of the commercial interest of the incoming trustee, relief from personal burdens for the outgoing trustee, an acknowledgement by the outgoing trustee that it has lost the confidence of the beneficiaries or unit holders under the trust etc. In one sense then no transfer of land given in any of these circumstances might be said to have been given other than 'solely' because of the retirement of a trustee or the appointment of a new trustee and to vest the trust property in the new trustee; but no such analysis is appropriate in the examples I have given. [Challenger] submitted that the proper approach is not to ask 'why did the trustee resign?' and say that that is the purpose of the transfer, rather the question is, 'is the only purpose of the transfer to give effect to the change of trusteeship?'

59. As [Challenger] submitted Perpetual Trustee Co Limited v Commissioner for State Revenue [2000] VSC 177; (2000) 44 ATR 273 is an example of a transfer which changed a trusteeship but also had another purpose and effect. It will be recalled that it was submitted that the transfer of land from the vendor under a contract to a nominee for the purchaser was solely in consequence of the retirement of a trustee on the basis that the specifically enforceable contract rendered the vendor a trustee for the purchaser and the nominee for the purchaser was merely a newly appointed trustee. Hansen J accepted a submission by the Commissioner that the so called change in trustee, if it could properly be so characterised, entailed the carrying into effect of the contract of sale. [Challenger] observed that the obligation of a vendor under a contract for the sale of land was to convey to the purchaser or as the purchaser nominated. He referred to Vickery v Woods [1952] HCA 7; (1952) 85 CLR 336, 343 per Dixon J.

60. In my view, the exemption under section 33(3) is made out. I vary the Commissioner's assessment so as to show the transfer as exempt from duty."

[29]

30 The additional requirement in s.33(3) that the transfer be "solely" because of the relevant change of trustee imposes a rigorous factual test of causation. Here, the VCAT member was quite correct in saying that the question asked by the provision is: "Is the only purpose of the transfer to give effect to the change of trusteeship?"

31 The Commissioner does not really dispute that this is the correct question to ask. Rather, there is a dispute as to the matters to which regard may be had in answering that question. Both sides agree that whenever one trustee resigns and another is appointed there must be a reason for the change of trustee, a broader context which was described as a "wider agenda". However, they disagree as to whether one should ignore that wider agenda for the purposes of s.33(3).

32 The Commissioner argues that, in determining whether a transfer is made "solely because of" a relevant change of trustee, regard should be had to the "wider agenda", to the entirety and effect of all of the transactions which occurred on 27 June 2002, which the Commissioner characterised as "a sale".

33 The VCAT member pointed out that there will always be a reason for a change of trustee, and gave as examples the promotion of the commercial interests of the incoming trustee, relief from personal burdens for the outgoing trustee, or an acknowledgement by the outgoing trustee that it has lost the confidence of the beneficiaries or unit holders under the trust. Challenger offered further examples, including the replacement of a trustee due to illness, bankruptcy or absence from the jurisdiction. The VCAT member observed that if one were required to look at the reason for the change of trustee, then no transfer of land would ever fall within the exemption.

34 The VCAT member accepted Challenger's submission that the proper approach is not to ask "why did the trustee resign?" and say that that is the purpose of the transfer; rather the question is, "is the only purpose of the transfer to give effect to the change of trusteeship?" That is clearly the right question to ask.

35 The Commissioner says that one has to be able to look at the commercial effect of all of the transactions in order to give effect to the presumed policy behind the exemption. The Commissioner argues that the clear policy behind the exemption is that no duty should be payable where there is a "mere" change of trustee, necessitating a transfer of legal title, and no change of beneficial ownership. In those circumstances, the property continues to be held on the same trusts for the same beneficiaries and there has been no disposal which should properly attract duty.

36 Whilst it is appropriate to look at the context in which the transfer occurred, including the background to the trustee's resignation and appointment of the new trustee, to perform some sort of "reality check"[6], it is nevertheless necessary to analyse what happened from a legal point of view. The courts have stressed that liability for duty must be determined by reference to the actual transaction implemented and not by reference to its "economic equivalence." As Gleeson CJ observed in Prime Wheat Association Ltd v Chief Commissioner of Stamp Duties[7]:

[33]

39 An examination of the reasons below shows that the VCAT member understood the general principles as enunciated in Perpetual Trustee, and correctly distinguished it on the quite different facts of that case, which will be discussed in the next section of my reasons.

40 In Commissioner of State Revenue v Victoria Gardens Developments Pty Ltd[11], the Court of Appeal agreed in general terms with what Hansen J said in Perpetual Trustee as to the meaning and significance of the word "solely"[12].

41 Several points may be made about the decisions in Perpetual Trustee and Victoria Gardens. In both cases, the exemption was not available because the expression "the appointment ... of any trustee" was held to apply only to the appointment of a trustee to a pre-existing trust not one newly-created; each case could have been disposed of on that basis alone. In both cases, the facts were significantly different from those here, as will be discussed shortly. Finally, nothing was said in those cases which would suggest that a court can ignore the proper legal characterisation of what occurred, in searching for the purpose of the transfer.

42 A construction of s.33(3) which results in the transfer being exempt is not surprising when one has regard to the structure of the Act as a whole at the relevant time. Chapter 2 of the Act applied to make dutiable a transfer of dutiable property and certain specified transactions which included "any other transaction that results in a change in beneficial ownership of dutiable property"[13]. However a change of beneficial ownership "as a result of the issue, transfer, redemption or cancellation of units in a unit trust scheme", was expressly excluded from liability to duty under chapter 2[14], and was dealt with in chapter 3.

43 Chapter 3 imposes duty on certain transactions that are not dutiable transactions under chapter 2 and contains what are commonly referred to as the "land-rich" provisions of the Act, which apply to private companies or private unit trusts that have substantial land holdings. Here, the trust would fit within the statutory definition of a "land-rich corporation". Division 3 of chapter 3 imposes a liability for duty when a "relevant acquisition" is made[15]. As at June 2002, a person who acquired by various means a majority interest in a land-rich corporation would have made a relevant acquisition[16] and been liable to duty.

44 In this case, the VCAT member correctly pointed out that the structuring of the acquisition of the new units in two 50% tranches by separate companies was clearly intended to avoid the acquisition by any party of a majority interest and thereby to avoid the land-rich corporation provisions. The definition of "relevant acquisition" has been recently expanded, so as not to require the acquisition of a majority interest, as will be discussed later in these reasons.

45 I agree with Challenger that the Commissioner's argument could lead to double taxation in some cases, including this one. If, as the Commissioner contends, one is entitled to say that one of the reasons for the transfer is the change of beneficial ownership of the trust under the subscription and redemption agreement, then duty could be imposed on the change of beneficial ownership under the land-rich provisions, as well as on the change of trustee by reason of the unavailability of the exemption.

46 For these reasons, the Commissioner has not demonstrated any relevant error in relation to the construction of s.33(3). I turn to consider the alternative arguments based on the application of the section to the facts.

Application of s.33(3)

47 As has already been mentioned, the Commissioner does not dispute any of the findings of fact which underlie the VCAT member's ultimate decision in relation to s.33(3). Whether the undisputed facts of this case fall within the relevant statutory description is essentially a question of fact, not law. It is a matter in respect of which minds can legitimately differ, involving a value judgment on the evidence. Questions as to causal link, such as whether one thing is the result of some other thing, are classic questions of fact[17].

48 In order to make good this ground of appeal as an error of law, the Commissioner accepts that he has to establish that the VCAT member arrived at a conclusion which was simply not open to him, one that no reasonable decision-maker could have arrived at.

49 The Commissioner's proposed notice of appeal alleges the VCAT member committed the following specific errors in applying s.33(3) to the facts:

[39]

52 The Commissioner submitted that the facts of this case exhibit the same sort of "highly organised series of steps" as the transactions in Perpetual Trustee. This transaction, the Commissioner submitted, was as much a disposal of dutiable property as any conventional conveyance of land.

53 It is necessary to consider the facts in Perpetual Trustee in some detail, to appreciate why that decision is entirely distinguishable. In that case, the Doncaster Shoppingtown shopping centre was owned by PT and 3 other entities. Unlike in this case, a contract of sale of the land and various other assets comprising the shopping centre was executed, pursuant to which PT agreed to buy the other 3 owners' interests for $147M. On the same day, PT paid the sum of $147M to the vendors, upon payment of which the vendors held their interest in the property on a constructive trust for the purchaser, PT. The vendors then resigned as trustee of the constructive trust and a new trustee, Perpetual, was appointed. The final step on the same day was the signing by the vendors of transfers of their respective interests in the land to Perpetual. Importantly, one of the terms of the contract of sale was that the purchaser could require the vendors to execute transfers of land.

54 This case differs significantly from Perpetual Trustee, in two main respects. As has already been mentioned, Hansen J held that the exemption was not available because there was no pre-existing trust, unlike here. Furthermore, in that case the transfer was made pursuant to and in order to complete a contract of sale. Given that fact, it is unsurprising that Hansen J held that the transfer was not made "solely because of" the change of trustee; it was clearly also made because of a contract of sale which required it to be made.

55 It is clear from the VCAT member's discussion of Perpetual Trustees that he also understood and appropriately distinguished that case.

56 Nor do the facts in the Victoria Gardens case provide any greater assistance to the Commissioner. In that case, three owners of adjoining parcels of land entered into a joint venture to develop the land as one site. The three parcels of land were transferred to a trustee, which held the land on trust for the purposes of the joint venture. The terms of the joint venture agreement did not allow the land to be returned to the three owners in specie, only the proceeds from the sale of their respective portion of the land. The Court of Appeal held that the transfers to the trustee effected a change in the beneficial ownership of each individual parcel of land. Accordingly, the court held that the transfers were not made "solely in consequence of the appointment of the trustee", rather they were made to give effect to the provisions of the joint venture agreement[19]. The court also held that the exemption was not available because of the absence of any pre-existing trust.

57 The Commissioner says that the present case involved no mere change of trustee. On the contrary, there was a wholesale change of legal and beneficial ownership of the property. The Commissioner points out that although the name of the trust remained the same, after the completion of the various transactions there was a different trustee and different beneficiaries. He says that this was effectively a sale of property on commercial terms between two arm's length parties and the transfer was made because of and in order to effect that sale.

58 The Commissioner relied in particular on the following matters to support the contention that the total effect of the steps taken on 27 June 2002 was to complete a purchase of the property:

[41]

59 The Commissioner's repeated references in written and oral submissions to the transaction as being one of purchase and sale, or to the land as having been sold, begs the question as to what in fact occurred.

60 The VCAT member made several critical findings of fact, the correctness of which was not challenged by the Commissioner. First, he held that the equitable and beneficial interest in the property ceased to be held by the old unit holder on 27 June 2002, and was thereafter held by the new unit holders. The means by which this was achieved was the issue of the new units and the redemption of the old units, not by the transfer. The change in the beneficial interest in the property had been fully effectuated before the retirement of the old trustee and the appointment of the new trustee.

61 The fact that the new unit holders received, as a matter of contract, the benefit of the rights of a "purchaser" under s.32 of the SLA in relation to the s.32 statement, does not detract from the finding that the beneficial interest in the property had been fully effectuated before the change of trustee.

62 The second significant finding was that, since the duties of the trustee under the trust deed are largely passive, with all management responsibility being vested in the manager, it would have been possible for the old trustee to have remained in office performing that role for Challenger. That is to say, it was not an essential requirement of the wider transaction that there in fact be any change of trustee or any transfer.

63 The VCAT member then asked himself the correct question: "why was the transfer executed?" He concluded that the transfer was executed merely to transfer the legal estate to the new trustee. In my opinion, it was reasonably open to the VCAT member to arrive at that conclusion. It cannot be said that no reasonable tribunal member could have arrived at that conclusion.

64 For these reasons, I am not satisfied that any relevant error has been demonstrated in relation to the application of s.33(3) to the undisputed facts of this case.

Are these questions of general importance?

65 Although the amount in dispute in this appeal is substantial, that is not sufficient of itself to justify the grant of leave to appeal.

66 The Commissioner says that leave should be granted because the issues raised are of general importance. If the VCAT decision stands, the Commissioner says that will lead to other people structuring transactions in a similar way, with enormous implications for revenue. Challenger disputes that and says that, by reason of recent changes to the land-rich provisions of the Act, this case is not of general importance.

67 As has already been mentioned, as the land-rich provisions stood as at 27 June 2002, the issue and redemption of units in this case did not fall within s.79 because no majority interest was acquired by the new unit holders.

68 No doubt this series of transactions was structured in the way it was having regard to what might be described as a "loophole" in the Act, as it was at the time. It seems to me that the hole has been substantially closed by the amendments made by the State Taxation Acts (Tax Reform) Act 2004, which took effect from 13 May 2004. The meaning of "a relevant acquisition" in s.79 has been changed from the acquisition of a "majority interest" to a "significant interest"[20]. An acquisition like the one by the new unit holders under the subscription and redemption agreement would be dutiable if it occurred under the new provisions. It is also significant that the amended legislation introduced broader anti-avoidance provisions, which apply to Chapters 2 and 3 of the Act.

69 Given the recent amendments to the land-rich provisions of the Act, the decision in this case in relation to s.33(3) is likely to be of limited interest in the future.

Conclusion

70 For these reasons, the Commissioner has not demonstrated either that there has been a relevant error by the VCAT member in relation to the s.33(3) exemption or that the question is of general importance. Accordingly, I propose to refuse the application for leave to appeal and to affirm the order of VCAT.

71 The decision as to exemption being upheld, there is no need to consider the valuation issue.

At a glance

Court

Decision date

Before

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Judgment (42 paragraphs)

Parties

Cases Cited (2)