Australian Securities & Investments Commission v Perpetual Trustee Co

1 This is an appeal from an order of a judge of the Court (Finn J) by which his Honour ordered that there be judgment for the first respondent (Perpetual) on an application filed by the appellant (the Commission). His Honour also ordered that there be judgment in favour of the appellant and the second and third respondents (the Snows and CP Co respectively) on cross‑claims against them by Perpetual. Those results followed from the way in which his Honour answered a question which he had ordered be determined as a separate preliminary issue. The question was: "Whether on the true construction of the Deed of Indemnity dated 14 June 1989 and in the events which happened [Perpetual] in its capacity as trustee of the Capital Property Trust was entitled under clause 6 of the Deed of Indemnity to enforce any obligation on the part of [the Snows and CP Co] to pay the stamp duty imposed upon [Perpetual] by notice of assessment dated 9 June 1992."

Background 2 The substance of the Commission's claim against Perpetual was that Perpetual had caused loss to the holders of units in a trust known as the Capital Property Trust (CP Trust) by failing to enforce against CP Co and the Snows rights which, the Commission contended, Perpetual had against them under a deed of indemnity. That failure, the Commission alleged, was a breach of trust. 3 The circumstances were these. Perpetual was throughout the period with which this case is concerned the trustee of the CP Trust. The CP Trust was a public unit trust and there were numerous unit holders. The manager of the CP Trust was Capital Property Management Ltd (CP Management) of which the Snows were shareholders and directors. 4 There was another trust, known as the T & G Trust. Until 14 June 1989 the trustee of the T & G Trust was CP Co (of which also the Snows were shareholders and directors). The ultimate beneficiaries of the T & G Trust, at the end of a somewhat complex chain, were members of the Snows' families and entities connected with them. By the time of the events giving rise to the proceeding under appeal, the only substantial property held by CP Co as trustee of the T & G Trust was a Crown lease of land in Canberra on which stood an office building known as the Advance Bank Centre (the AB Centre, an expression which we shall use indiscriminately to refer both to the Crown lease and to the building on it). 5 By May 1989 CP Co and the Snows had decided that the T & G Trust should be brought to an end and the trust property distributed to the beneficiaries. As part of that plan, they proposed that Perpetual, as trustee of the CP Trust, should acquire, at valuation, the AB Centre. No doubt that could have been done by arranging for CP Co, as trustee of the T & G Trust, to transfer the AB Centre to Perpetual, for an agreed price. Such a transfer, however, would have attracted very substantial stamp duty under the Stamp Duties and Taxes Act 1987 (ACT) (the Stamp Duties Act). Among the instruments on which ad valorem stamp duty is payable under the Stamp Duties Act is "a transfer or an agreement for transfer of a Crown lease": s 17(1)(b). 6 What was proposed instead was a series of transactions, substantially as follows. First, CP Co would retire as trustee of the T & G Trust and Perpetual would be appointed in its place; a request under s 138A of the Real Property Act 1925 (ACT) would then be lodged so that Perpetual would become the registered proprietor of the AB Centre; next, CP Management, as manager of the CP Trust, would make an investment proposal to Perpetual, proposing the acquisition for the CP Trust of the beneficial interest of the beneficiaries of the T & G Trust in the AB Centre. Such a proposal, as well, presumably, as being such as to satisfy Perpetual that it should be accepted having regard to the interests of the beneficiaries of the CP Trust, would require approval by resolution of the holders of units in the CP Trust. It required also the concurrence of the unit holder in the T & G Trust. If Perpetual accepted the proposal, the unit holder in the T & G Trust concurred and the unit holders in the CP Trust passed the necessary approving resolution, the acquisition of the beneficial interest in the AB Centre would be effected without further document, on payment of the agreed consideration. No doubt it was considered that such a transaction would give rise to a constructive trust, effectively vesting the entire beneficial interest in the AB Centre in the CP Trust unit holders (the legal title would, of course, already be vested in Perpetual, their trustee). The proposal did, however, contemplate a final document, a declaration of trust by which Perpetual would acknowledge that it held the AB Centre on trust for the CP Trust. 7 It is necessary to describe why it was thought that, if the AB Centre were acquired by that series of transactions, no ad valorem stamp duty would be payable. The Stamp Duties Act is traditional stamp duty legislation in the sense that, at least in relation to transactions of the kinds with which this case is concerned, it imposes duty on instruments not transactions. The instruments contemplated were a deed of appointment of trustee giving effect to the replacement of CP Co by Perpetual as trustee of the T & G Trust; a request under s 138A of the Real Property Act; and the deed of acknowledgment or declaration of trust. Of those documents, the last did not constitute, it was confidently believed, a transfer of a Crown lease (there being no other relevant head of duty); since legal title to a Crown lease passes upon registration of the appropriate instrument under the Real Property Act, the deed of appointment, not being a registrable instrument, was considered not to be a transfer (or, for that matter, an agreement for a transfer) of the AB Centre. The request under s 138A might well be regarded as a transfer but fell, it was believed, within the terms of an exemption from ad valorem duty. Section 18 of the Stamp Duties Act provided that: "Stamp duty is not payable on an instrument in respect of a conveyance of a kind specified in Schedule 1." 8 Included in the definition of "conveyance" in s 4(1) of the Stamp Duties Act was "… a transfer, assignment or grant of a lease of land" and "an agreement for a transfer, assignment or grant of a lease of land". Among the categories of conveyances specified in Schedule 1 was: "A conveyance: … (f) by way of a transfer or assignment of … a lease of land, being … [a] lease held on trust, where the transfer or assignment: (i) is made in consequence of the appointment or retirement of a trustee, or other change in the trustees, in order to vest the … lease … in the trustees for the time being entitled to hold it; and (ii) is not made in connection with a tax avoidance scheme." 9 Both "scheme" and "tax avoidance scheme" were defined in s 4(1) of the Stamp Duties Act. "Scheme" was defined in familiar and wide terms as: "(a) an agreement, arrangement, understanding, promise or undertaking, whether express or implied and whether or not enforceable, or intended to be enforceable, by legal proceedings; (b) a scheme, plan, proposal, action, course of action or course of conduct, whether unilateral or otherwise …" 10 That definition was then incorporated in the meaning given to "tax avoidance scheme": " '[T]ax avoidance scheme' means a scheme where the person who has, or 1 or more of the persons who have, entered into or carried out the scheme or a part of the scheme did so for the purpose of securing - (a) that an amount of stamp duty or tax would not be payable by a person, being an amount that would have been, or might reasonably be expected to have been, payable by the person; … if the scheme had not been entered into or carried out, or for purposes of which that purpose was the dominant purpose …" 11 The view was taken that the proposal would not be characterised as a tax avoidance scheme: particularly, that the s 138A request was an instrument made in consequence of the appointment of a trustee in order to vest the AB Centre in the new trustee and was not made in connection with a tax avoidance scheme. In using phrases such as "it was considered" and "the view was taken", we are referring to views confidently expressed by Mallesons Stephen Jaques, who then acted for CP Co and on whose advice, apparently, all parties were prepared to act. It may be that Sly & Weigall, who then acted for Perpetual, took a more cautious view. It will be necessary to consider those circumstances in more detail later. 12 The proposal as we have described it was put into effect in two stages. First, Perpetual replaced CP Co as trustee of the T & G Trust. By a deed of appointment dated 14 June 1989: "[CP Co] in exercise of the power given to it in clause 25(d)(ii) of the Trust Deed resolves to appoint as substitute trustee of the T & G Trust in place of [CP Co] [Perpetual] and declares that the estate and interest in the property of T & G Trust shall vest in [Perpetual] from the date of this deed." 13 On the same day an application was made under s 138A of the Real Property Act to have Perpetual registered as proprietor of the AB Centre. Subsequently, CP Management made a proposal to Perpetual as trustee of the CP Trust for the acquisition of the AB Centre. The proposal was amended several times. Ultimately it was put to a meeting of the unit holders of the CP Trust, who by resolution approved of it. The purchase price, $49.75 million, was paid. On 31 August 1989 Perpetual executed a declaration of trust, by which it acknowledged that it held the AB Centre as trustee of the CP Trust. 14 By a letter to Perpetual dated 9 June 1992 a delegate of the Commissioner for ACT Revenue assessed stamp duty and penalty tax as payable "in relation to the acquisition of [the AB Centre] by [Perpetual] as trustee for the Capital Property Trust". The stamp duty assessed was $2,721,765 and the penalty tax $3,180,029.75. Following some negotiation, the Territory Government Solicitor on 24 June 1992 wrote to Mallesons Stephen Jaques (by then, apparently, acting for Perpetual). The Government Solicitor confirmed "our verbal advice to you … that the assessment of stamp duty is based on the Deed of Appointment dated 14 June 1989". He also said that he had been instructed that the stamp duty assessed should be paid but that payment of the penalty tax "will not be pursued without written notification to you of my client's intent to do so". Perpetual paid the amount of duty assessed from funds which it held as trustee of the CP Trust. The Commissioner had purported to asses the duty against Perpetual as trustee of that trust, and s 22 of the Stamp Duties Act provided that the stamp duty payable on a transfer or assignment of a lease was payable by the transferee or assignee. There followed proceedings in the Administrative Appeals Tribunal and this Court concerning a challenge by Perpetual to the assessment. Ultimately those proceedings were compromised: the amount of duty paid was refunded to Perpetual together with an amount of interest; but the CP Trust remained out of pocket for a substantial amount of interest and legal costs incurred in relation to the assessment and the proceedings in the Tribunal and the Court.