This is an application made by the Applicant on 8 March 2016 under section 96 of the Taxation Administration Act 1996, for the review by the Tribunal of the Chief Commissioner of State Revenue's (for convenience, the Commissioner) determination dated 17 February 2016, disallowing an objection made by the Applicant to an assessment of stamp duty and interest made by the Commissioner.
The application was heard on Thursday 14 July 2016 by Senior Member A Verick. After that, but before Senior Member Verick delivered his decision, Senior Member Verick was unavailable to determine the matter. In accordance with the procedures prescribed under section 52 of the Civil and Administrative Tribunal Act 2013, the Tribunal was reconstituted on 19 October 2016 by the President, the Hon. Justice Robertson Wright. The Tribunal as so reconstituted comprises Senior Member A R Boxall.
The factual background to the dispute is quite complex, involving the acquisition by a joint venture comprising numerous venturers of several parcels of land in Milsons Point, the consolidation of these parcels' titles, the redevelopment of the land, the registration of a strata plan, a strata subdivision and the eventual partition between the venturers of the redeveloped property.
For purposes of this review, however, the relevant circumstances and events may be summarised as follows:
1. One of the venturers was the late Mrs Shirley Tina Wall (Mrs Wall), as trustee of the Shirley Wall Family Trust (the Trust).
2. The Trust was established on 1 August 2002, when:
1. Mr Ian Dawes, as settlor, and Mrs Wall, as trustee, executed a deed of settlement (the Original Deed) under which Mrs Wall declared herself as trustee of the Trust, on the terms set out in the Original Deed; the Original Deed in clause 1.10 defines the expression "the Trustee" as meaning the trustees from time to time of the Trust, and these reasons will adopt this terminology where appropriate;
2. Mr Dawes paid Mrs Wall the sum of $10, to be held by her on the trusts of the Trust.
1. The Trust was a discretionary trust under which the Trustee for the time being was authorised:
1. in its discretion to accumulate the income of the Trust or to distribute it to such of the Beneficiaries as in its discretion it determines, and in such amounts or proportions as in its discretion it determines; and
2. on the Vesting Date of the Trust - being, subject to the rule against perpetuities, 1 August 2072 - to distribute the corpus of the Trust to such of the Beneficiaries in being at that date as in its discretion it determines, and in such amounts or proportions as in its discretion it determines.
The Beneficiaries are defined to include a potentially large group of relatives by descent or marriage of Mrs Wall, and certain bodies corporate or trusts nominated by the Trustee or with which the relatives of Mrs Wall who are themselves Beneficiaries have a prescribed connection.
1. The Original Deed contained three relevant provisions:
1. The definition of "this Deed' in clause 1.4, which provided that references to "this Deed" in the Original Deed were to the Original Deed as amended from time to time;
2. clause 14, which allowed the trustee of the Trust subject to certain conditions to amend the terms of the Original Deed, and provided - subject to those same conditions - "… that nothing in this clause [ie clause 14] or any other provision of this Deed shall prevent the Trustee from changing the persons or legal entities who are within the definition of 'Beneficiary' or 'Beneficiaries' pursuant to this Deed"; and
3. clause 15, which conferred on Mrs Wall personally the authority by notice to remove any Trustee and/or to appoint a new or additional Trustee, subject to certain immaterial conditions.
1. On that same day, Mrs Wall, as trustee of the Trust, acquired an interest in certain real estate, being the real property represented by Folio Identifiers 1/72308 and B/437895.
2. The redevelopment took place, and eventually on 8 January 2010 a Deed of Partition was executed, under which relevantly those interests became interests in the real property represented by Folio Identifiers 15/SP83350 (Lot 15) and 16/SP83350 (Lot 16).
3. On 12 January 2011 Mrs Wall and the Applicant executed a Deed Appointing a New Trustee (the 2011 Deed), under which:
1. In exercise of her powers under clause 14, Mrs Wall amended the Principal Deed, by the inclusion in it of a new clause 22 in the following terms:
2. "The Original Trustee and the New Trustee and any future and past trustees are absolutely prohibited from being a beneficiary under the Trust Deed or from otherwise directly or indirectly benefiting under the Trust Deed and this clause will not be capable of amendment or revocation".
3. In exercise of her powers under clause 15 of the Trust Deed, Mrs Wall:
1. removed herself as Trustee; and
2. at the same time, appointed the Applicant as trustee of the Trust in her place;
1. the Applicant accepted that appointment; and
2. Mrs Wall acknowledged receipt of notice from herself effecting the change of Trustee.
1. The 2011 Deed was lodged with the Commissioner for stamping on or about 18 May 2011, and was marked "Not dutiable" by the Commissioner on or about 31 May 2011.
2. No steps were taken to cause the interests in land described in paragraph 4(6) above to be recorded in the name of the Applicant, as the new Trustee, until after Mrs Wall's death, which occurred on 4 October 2012.
3. Two Applications to Record New Registered Proprietor, recognising the change of trustee from Mrs Wall to the Applicant, were executed by the Applicant:
1. The first, relating to Lot 16 (the Lot 16 Application), was executed on 26 June 2014, and lodged with the Commissioner for stamping on that date.
2. The second, relating to Lot 15 (the Lot 15 Application), was executed on 13 March 2015, and lodged with the Commissioner for stamping on that date.
1. On 19 August 2015 the Commissioner informed the Applicant that he was not satisfied that section 54(3) of the Duties Act 1997 applied so as to allow the two Applications to be charged with fixed duty of $50 each, as transfers consequent upon the retirement of a trustee, rather than with ad valorem duty as dutiable transactions. The Commissioner indicated that he had two reasons for this view:
1. First, he was not satisfied that Lots 15 and 16 were pre-existing trust property of the Trust.
2. Secondly, he was of the view that it remained open to the Trustee of the Trust under clause 14 of the Original Deed to vary clause 22 which had been inserted by the 2011 Deed, with the consequence that section 54(3)(b) of the Duties Act 1997 was not satisfied.
1. On 24 August 2015, the Commissioner issued a Notice of Assessment to the Applicant, imposing ad valorem duty of $4,790 on the Lot 15 Application, together with late payment interest of $92.68. The Applicant paid the amounts so assessed on 26 August 2015.
2. On 4 September 2015, the Commissioner issued a Notice of Assessment to the Applicant, imposing ad valorem duty of $64,140 on the Lot 16 Application, together with late payment interest of $6,327.68. The Applicant paid the amounts so assessed on 23 September 2015.
3. On or about 25 September 2015 the Commissioner remitted the premium interest included in the two assessments, in an aggregate amount of $5,089.03.
4. Subsequently, the Applicant lodged an objection to these assessments, to which on 17 February 2016 the Commissioner responded to the following effect:
1. He was satisfied on the balance of probabilities that the interests held by the late Mrs Wall in Lots 15 and 16 were held by her as trustee of the Trust.
2. Nonetheless, he remained of the view that the relationship between Clause 22 of the 2011 Deed and clause 14 of the Principal Deed was such that the condition in section 54(3)(b) of the Duties Act 1997 was not satisfied, and in consequence that the Lot 15 Application and the Lot 16 Application were subject to ad valorem duty.
3. There was no basis for remitting the market rate component of interest charged in respect of the duty assessed.
1. On 8 March 2016, as outlined above, the Applicant applied to this Tribunal for a review of the Commissioner's determination dated 17 February 2016.
Since:
1. the Commissioner now accepts, as set out in his letter of 17 February 2016, that the interests held by the late Mrs Wall in Lots 15 and 16 were held by her as trustee of the Trust;
2. the only Trustee following the 2011 Deed was the Applicant, so that the first of the three cumulative conditions in section 54(3) of the Duties Act 1997, namely that set out in section 54(3)(a), is satisfied; and
3. both the Applicant and the Respondent accept, as their respective counsel indicated, that neither the Lot 15 Application nor the Lot 16 Application formed part of a scheme referred to in section 54(3)(c) of the Duties Act 1997, so that that the third of the cumulative conditions in section 54(3) is also satisfied,
it follows that the only matter in issue in this review is whether the second cumulative condition in section 54(3), namely the condition in section 54(3)(b), is satisfied. The relevance of these conditions is that if all three of them are satisfied, the Lot 15 Application and the Lot 16 Application may each properly be stamped with fixed duty of $50 each, as transfers consequent upon the retirement of a trustee, rather than with ad valorem duty as dutiable transactions. Conversely, if any one of them is not satisfied, the relief from ad valorem duty provided for in section 54(3) is not available.
There are no cases specifically considering the interpretation of these provisions; at least, counsel for both parties were unable to identify any. The decision in Oates Properties Pty Limited & ors v Commissioner of State Revenue [2003] NSWSC 596 concerns an application to rectify a deed, where the deed of which rectification was sought amended a trust deed by inserting a clause which attempted to satisfy the conditions of section 54(3)(a) and (b).
In OSR Revenue Ruling DUT 037, however, the Commissioner offers some guidance as to how he applies these provisions:
1. In paragraph 6 of the Ruling, the Commissioner sets out his understanding of the purpose of sections 54(3)(a) and (b), which is that "… the new or continuing trustees cannot be existing beneficiaries of the trust and can never become beneficiaries of that trust …".
2. In the same paragraph, he outlines the approach which he will take in deciding whether the provisions of a trust instrument are adequate to satisfy the requirements of sections 54(3)(a) and (b):
"There is no set form of words required to preclude either a continuing or new trustee from becoming a beneficiary under a trust. The Chief Commissioner will be satisfied that this is the case where the terms and conditions of the trust deed and any variation thereto provide that the new or continuing trustee is prohibited from being or becoming a beneficiary under the trust and where this condition is irrevocable".
The difference between the Applicant and the Respondent goes to whether the provisions of (and the interrelationship between) clauses 14 and 22 of the Trust Deed are such as to establish that the Applicant cannot become a beneficiary under the Trust, for purposes of section 54(3)(b). In essence, the matter is one of divergent constructions of clauses 14 and 22:
Clause 14 provides as follows:
"The Trustee may at any time and from time to time by written or oral resolution or Deed revoke add to or vary all or any of the provisions contained in this Deed (including this clause), as varied altered or added to by any previous variation alteration or addition, provided always that:
1. no such variation alteration or addition may be in favour of or for the benefit of the Ineligible Beneficiaries or result in any benefit to the Ineligible Beneficiaries; and
2. no such variation alteration or amendment shall affect the beneficial entitlement to any amount set aside for any beneficiary prior to the date of the variation alteration or addition;
subject always to paragraphs (a) and (b) of this clause, nothing in this clause or any other provision of this Deed shall prevent the Trustee from changing the persons or legal entities who are within the definition of 'Beneficiary' or 'Beneficiaries' pursuant to this Deed".
The term "Ineligible Beneficiaries" is defined in clause 1.7 of the Trust Deed. It is limited to the Settlor of the Trust, Mr Ian Dawes, his legal personal representative and his children, and is therefore of no relevance to the matters in issue in this application.
Clause 22 is as follows:
"The Original Trustee and the New Trustee and any future and past trustees are absolutely prohibited from being a beneficiary under the Trust Deed or from otherwise directly or indirectly benefiting under the Trust Deed and this clause will not be capable of amendment or revocation".
The expressions "Original Trustee" and "New Trustee" are defined in the 2011 Deed as, respectively, Mrs Wall and the Applicant. These expressions are not specifically incorporated into the Trust Deed by the 2011 Deed, but in the context of the amendments to the Original Deed effected by the 2011 Deed this minor drafting lapse is, in my view, unimportant, since the meaning of the two expressions is perfectly clear even without the express importation into the Trust Deed of the defined terms.
The Commissioner's position, as set out in his Determination of Objection dated 17 February 2016 and articulated on his behalf by Mr Balafoutis, both orally and in his written submissions, is that:
1. There is a conflict between clauses 14 and 22.
2. This is because:
1. Clause 22 provides that "… this clause will not be capable of amendment or revocation"; while
2. Clause 14 provides that "… nothing in this clause or any other provision of this Deed shall prevent the Trustee from changing the persons or legal entities who are within the definition of 'Beneficiary' or 'Beneficiaries' pursuant to this Deed".
1. It therefore remains open to the Trustee, in reliance on those words in clause 14, either:
1. to provide that the Applicant is a Beneficiary; or
2. to include an express provision that clause 14 prevails over clause 22.
The Applicant has three broad lines of argument:
1. As a matter of normal principles of contractual construction (which, as appears to be common ground between the parties, are equally applicable to deeds as to agreements not under seal), clause 22 is the dominant provision. This is because it deals with a specific circumstance, namely the establishment and entrenchment of a prohibition against the Trustee (or any successor as Trustee) becoming a beneficiary, while clause 14 deals with the more general topic of amendments, and under ordinary principles of contractual construction the more general provision must be read as subject to the more specific one in relation to the circumstances which the specific provision addresses. In support of this axiomatic principle of construction, counsel for the Applicant referred the Tribunal to Chapmans Limited v Australian Stock Exchange Limited (1996) 67 FCR 402 and to Belvino Investments No 2 Pty Limited v Australian Vintage Limited [2014] NSWSC 978.
2. Recital G to the 2011 Deed, which provides as follows:
"The parties wish to ensure that the Original Trustee and the New Trustee will not be entitled to any direct or indirect benefit or interest in the Trust",
may be used to elucidate the intentions of the parties, which should inflect the interpretation of clauses 14 and 22. In this regard, counsel for the Applicant referred the Tribunal to Ellis v Dariush-Far [2007] QCA 398.
1. Recital G would operate to establish an estoppel by convention against the Applicant, preventing it from amending the Trust Deed so as to make itself a beneficiary of the Trust. In support of this proposition, counsel for the Applicant refers to National Westminster Finance NZ Ltd v National Bank of New Zealand Limited [1996] 1 NZLR 548, Franklins Pty Limited v Metcash Trading Limited (2009) 76 NSWLR 603, Ewing International LP v Ausbulk Limited (No 2) [2009] SASC 381, and Aplum Wealth Financial Services Pty Limited v Frankland River Olive Co Limited (2008) 66 ACSR 594.
In response, the Respondent argues that:
1. Clauses 14 and 22 were each targeted to specific situations, such that there was no room as between them for the principle to operate, that the more specific provision prevails over the more general. Both were specific within their respective scopes of operation. In this regard, counsel for the Respondent referred the Tribunal to Jubilee Properties Pty Limited v Parkview Farm [2014] NSWSC 563.
2. There is no scope to have recourse to Recital G to construe clauses 14 and 22, since the recitals to a deed cannot cut down operative words that are clear and unambiguous. Counsel for the Respondent looked to Canty v Paperlinx Australia Pty Limited [2014] NSWCA 309 as support for this proposition.
3. The estoppel argument is flawed in at least four respects, and should not succeed. These flaws are:
1. An estoppel by convention based on a recital in a deed depends on the recital stating assumed specific facts: Eslea Holdings v Butts (1986) NSWLR 175. The Respondent says that Recital G states the wishes of the parties, but not an assumed state of affairs.
2. It is a requirement of an estoppel by convention that the parties proceed on an underlying assumption of fact, law or both of sufficient certainty to be enforceable: GEC Marconi Systems Pty Limited v BHP Information Technology Pty Limited (2003) 128 FCR 1. No recital gives rise to such an assumption, the Respondent argues.
3. It is a requirement of an estoppel by convention that the proponent has acted in reliance on the assumption being regarded as true and binding: GEC Marconi Systems Pty Limited v BHP Information Technology Pty Limited (2003) 128 FCR 1. There is, the Respondent says, no evidence of any such reliance.
4. It is a requirement of an estoppel by convention that the proponent would suffer detriment if the other party were allowed to resile from the assumption: GEC Marconi Systems Pty Limited v BHP Information Technology Pty Limited (2003) 128 FCR 1. There is no evidence that the appointment of the Applicant as a Beneficiary would cause Mrs Wall to suffer any detriment.
In my view, the matter is purely a matter of construction of the Trust Deed in accordance with the normal principles of contractual construction, and can be determined without regard to either the effect of Recital G or the possibility of there being an estoppel by convention. I do not, therefore, consider it either necessary or appropriate to express any view on those two matters or the arguments made on them by either party.
On the question of construction, my view is that the Applicant has the better of the argument. I consider that clause 22 of the Trust Deed is a specific provision, and that in accordance with normal principles of contractual construction it must be read as prevailing over clause 14, which is a provision of general import, in relation to those matters which clause 22 addresses. The consequence is that, in my view, the Respondent should properly have concluded that the condition set out in section 54(3)(b) was satisfied.
The flaw in the Respondent's position is, in my respectful view, encapsulated in paragraph 26 of his counsel's written submissions:
1. Counsel for the Respondent there states, relevantly, that "The concluding words of clause 14 …. resolve the conflict between clauses 14 and 22. The concluding words give the trustee the power to change the persons who are beneficiaries and expressly provide that this power prevails over 'any other provision of this Deed'".
2. This, with respect, is not correct, since those concluding words do not confer any power on the Trustee to do anything. Rather, it is the first few lines of clause 14, up to the words "provided that", which confer on the Trustee a general and (subject to the proviso set out in paragraphs 14(a) and (b)) plenary authority to amend - or, more precisely, to revoke add to or vary - the Trust Deed.
3. The plain and ordinary meanings of the words which confer this authority are such that it encompasses (subject to the provisos in sub-paragraphs (a) and (b)) not only amendments to the definition of Beneficiaries, but also amendments to other definitions in clause 1 of the Trust Deed, and to the operative provisions of the Trust Deed.
4. The balance of clause 14 does two quite distinct things:
1. first, the section which begins with the words "provided always that" and ends at the end of paragraph 14(b) is a proviso which cuts down in certain limited respects which are not relevant for present purposes the authority granted under the first part of clause 14; and
2. secondly, the concluding words of clause 14, beginning with the words "subject always to paragraphs (a) and (b)" do not confer any power on the Trustee nor do they expand or limit the powers conferred by the preceding provisions of the clause; rather, they merely restate in more specific terms one particular element of the general authority already conferred on the Trustee under the preceding provisions of clause 14. They are not an independent or supplementary conferral of power on the Trustee.
1. Had the draftsman of clause 14 been so inclined, he might have prefaced the concluding words with an expression such as "For the avoidance of doubt", in order to underline its quality as a guide to the interpretation of the authority already granted. That he did not, however, does not change matters. The choice of words in the concluding lines is significant: the provisions do not say that the Trustee may amend the definition of "Beneficiary" or "Beneficiaries", but rather they state that nothing elsewhere in clause 14 or in the Trust Deed prevents the Trustee from doing so. The provision is by its terms predicated on a pre-existing grant of authority and pre-empts arguments which might seek to limit the Trustee's authority under clause 14, but in doing so does not confer any authority that is not already given under the general authorisation contained in the first part of the clause.
2. Clause 22, however, is a provision which expressly and specifically prohibits any Trustee, present past or future, from being a Beneficiary, and expressly prohibits its own amendment or revocation. There is no question as to what it means, and in my view its specificity is such that it must prevail over:
1. the definition of Beneficiary, such that from the time at which the 2011 Deed took effect each of Mrs Wall and the Applicant ceased automatically to be a Beneficiary, just as any successor trustee who happened otherwise to fall within the definition of Beneficiary would be automatically excluded under clause 22 from the scope of that definition; and
2. the more general authority conferred on the Trustee under clause 14 to make amendments to the Trust Deed, including amendments to the definition of Beneficiary or Beneficiaries.
Moreover, any party with a sufficient interest in the Trustee's compliance with the Trust Deed would be entitled to exercise such rights as are open to it generally under the law of trusts to prevent a breach of clause 22 by the Trustee, or to enforce compliance by the Trustee with clause 22.
1. The Respondent placed some reliance in argument on Jubilee Properties Pty Limited v Parkview Farm [2014] NSWSC 563:
1. This case concerned a complex dispute between the beneficiaries of a trust involving the development of certain real estate by the trustee.
2. One particular issue was whether an amendment made to the trust instrument, in purported exercise of a general power conferred on the trustee to make amendments with the consent of the majority of unitholders, was effective to alter a clause of the trust deed which:
1. was prefaced by the words "Despite any other provision of this Deed", but
2. contained no specific restriction on its amendment or revocation.
1. Stevenson J dismissed the proposition, which he described as not having been pursued with great vigour, that the effect of these words was to render the relevant provision unamenable to alteration pursuant to the general power of amendment.
2. The Respondent sought in the context of the present dispute to draw from His Honour's decision support for the proposition that clause 22 is subordinate to the amendment power in clause 14. This, however, does not take into account the differences between, on the one hand, the clauses under consideration in Jubilee Properties Pty Limited v Parkview Farm and, on the other, those under consideration in this review. The amended clause in that case was, as set out above, merely prefaced by the words "Despite any other provision of this Deed", but without any words which prohibited or restricted amendments. In the present case, clause 22 explicitly states that "it will not be capable of amendment or revocation", a difference which must mean that the provisions at issue in Jubilee Properties Pty Limited v Parkview Farm are not analogous to those under review and in consequence that the decision in Jubilee Properties Pty Limited v Parkview Farm does not affect the proper construction of clauses 14 and 22.
In his submissions, counsel for the Respondent suggested that the decision in this matter may have a wider significance, since the 2011 Deed was based closely on a precedent disseminated by the Law Society of New South Wales which, he says, is widely used. That is a matter of no relevance to this decision, and was not something of which I took any account in reaching my decision. Indeed, since the decision turns principally on the construction of clause 14 of the Original Deed, it says little, if anything, about the precedent to which counsel referred.
What follows from these conclusions is that the Respondent was incorrect in assessing the Lot 15 Application and the Lot 16 Application with ad valorem duty, and was similarly incorrect in charging the Applicant with interest. Accordingly:
1. I revoke:
1. the assessment under the Duties Act 1997 of duty pursuant to the Duties Notice of Assessment issued to the Applicant on 24 August 2015 in relation to the Lot 15 Application; and
2. the assessment under the Duties Act 1997 of duty pursuant to the Duties Notice of Assessment issued to the Applicant on 4 September 2015 in relation to the Lot 16 Application; and
1. The assessments referred to in order 1 above are remitted to the Respondent to issue Duties Notices of Assessment which conform to the construction of the Trust Deed set out in these reasons for decision.
I hereby certify that this is a true and accurate record of the reasons for decision of the Civil and Administrative Tribunal of New South Wales.
Registrar
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Decision last updated: 19 January 2017