Victorian Civil and Administrative Tribunal|2004-12-07

Challenger Property Nominees v Commissioner of State Revenue [2004] VCAT 2434 (7 December 2004)

Taxation List; transfer of land from retiring trustee to incoming trustee of private unit trust; part of a complex of arrangements where the unit trust with office building as sole asset has existing units redeemed and new units issued with a face value equivalent to the market value of the office building; redeemed unit holder receiving consideration from the issue of the new units; transfer of land from old trustee (associate of former unit holder to new trustee associate of new unit holders) initially assessed 'not chargeable'; subsequently assessed to ad valorem duty upon value of office building plus penalties and interest; transfer exempt from duty under section 33(3) Duties Act 2000

Respondent's notice of assessment (A139795) is varied so as to assess the subject transfer as exempt from duty.

Mr De Wijn QC and Ms Davies of counsel, instructed by Minter Ellison

Mr R. Boaden of counsel, instructed by the Solicitor for the Commissioner of State Revenue

1

Mobil House at 417 St Kilda Road, Melbourne was completed in 1991. It is rated as a landmark premium quality office building at 10 storeys with a net lettable area of 20,357.8 sq m. On 29 June 2002 the Australian Financial Review in a report by Mr Bret Foley said:

Financial services group Challenger International has swooped on another Melbourne property with the $73 million purchase of the Mobil building in St Kilda Road.

Challenger got the 20,000 square metre office tower in an off-market deal from Leighton Properties, which developed it in 1989. The 10-storey building is home to oil company Mobil, the Mayne Group and Suncorp Metway. It was sold on a passing income of about $6.3M, representing a yield of about 8.6 percent.

The property has been on the market for some time. Leighton Properties transferred the building at a value of $72.5M to Leighton Funds Management in May 1998 in preparation for a public float but the trust proposal was abandoned and it was offered for sale in late 1998.

2

The transaction which actually took place was rather more elaborate than the newspaper report would suggest. Challenger apparently acted upon a valuation prepared by Charter Keck Cramer dated 21 June 2002, valuing the building at $73m. A detailed account of the transaction as implemented appears in an appendix to these reasons. The appendix is drawn from the findings made by the respondent, Commissioner of State Revenue and recorded in his statement of this case upon its referral to the Tribunal.

3

For present purposes it is sufficient to note that the registered proprietor of the land and building was Leighton Funds Management Pty Ltd, as trustee of the 417 St Kilda Road Trust. Leighton Properties Pty Ltd was the holder of all the issued units in the trust in its capacity as trustee of the Leighton Office Trust. On 27 June 2002 arrangements were made whereby on the same day, pursuant to a subscription and redemption agreement two Challenger companies as trustees for two other trusts, subscribed for 36.5 million units each in the 417 St Kilda Road Trust. The units owned by Leighton Properties Pty Ltd were redeemed and Leighton Funds Management retired as trustee. Challenger Property Nominees Pty Ltd became the new trustee and the former manager, Leighton Property Funds Management Limited retired and was replaced by Challenger Property Management Pty Ltd.

4

On the same day a transfer of land in registrable form was executed by Leighton Funds Management Pty Ltd as transferor and Challenger Property Nominees Pty Ltd as transferee. The transfer was stamped 'not chargeable' by the Commissioner of State Revenue on 24 July 2002. In making this assessment the Commissioner considered declarations made 27 June 2002 by officers of both the transferor and transferee company. Both officers declared:

That the transfer of the property is made solely as a result of appointing a new trustee.

5

The result of these transactions was that Challenger companies were the trustee of the 417 St Kilda Road Trust, the manager of the trust and the holder of all issued units in that trust. Challenger companies had the whole beneficial interest in the building but no ad valorem stamp duty had been paid.

6

Whether as a result of the report in the Australian Financial Review or for some other reason, the Commissioner of State Revenue commenced an enquiry into the transaction. The investigation was allocated to Mr Alan Mak, a senior investigator employed by the State Revenue Office. Following lengthy investigations and consultations with the law firm then acting for the transferee, the Commissioner issued a Notice of Assessment under the Duties Act 2000 assessing duty on the transfer in the sum of $4,150,000.00 calculated at the rate of 5.5% on a considerational value of $73M plus a 25% penalty calculated at $1,003,750 plus interest from 27 June to 26 February 2003 in the sum of $343,252.80 yielding a total assessment of $5,362,002.80. Solicitors acting for Challenger Property Nominees (the transferee under the transfer) lodged an objection to the assessment. The Commissioner issued a determination dated 20 January 2004 disallowing the objection.

7

Challenger then requested that its objection be referred to this Tribunal for review.

8

Challenger was represented by Mr De Wijn, QC and Ms Davies of counsel. It contended that the initial assessment of the transfer had been correct and that the transfer had been executed 'solely as a result of appointing a new trustee' and was therefore exempt under section 33(3) of the Duties Act 2000. In any event, they said, the property transferred by the instrument of transfer No. AB465738S was a bare legal estate having only nominal value and so no ad valorem stamp duty should be charged upon it.

9

Mr De Wijn put the second contention in the forefront of his arguments. First, he noted that the Duties Act 2000 Chapter 2 imposed duty on transfers of dutiable property (section 7(1)(a)). According to section 10(1)(a)(i) dutiable property included an estate in fee simple in land in Victoria. He then referred to section 20 of the Duties Act which provides as follows:

(1) The "dutiable value" of dutiable property that is the subject of a dutiable transaction is the greater of -

(a) the consideration (if any) for the dutiable transaction (being the amount of a monetary consideration or the value of a non-monetary consideration); and

(b) the unencumbered value of the dutiable property.

(2) In determining the dutiable value of dutiable property, there is to be no discount for the amount of GST (if any) payable on the supply of that property.

10

He noted that there was no monetary consideration for the transfer and change of trusteeship. The transfer consideration is stated as 'an entitlement in equity'. He said that the value of a bare legal estate was a purely nominal sum. He relied upon an affidavit of Andrew John Duguid, a certified practising valuer and director of M3 Property (Vic) Pty Ltd to that effect. He submitted that the outstanding equitable interests of the unit holders and the entitlement of the newly appointed trustee, Challenger, under section 45(4) of the Trustee Act 1958 meant that the outgoing trustee, Leighton Funds Management Pty Ltd, owned nothing of value.

11

As to the entitlements of the unit holders to a proprietary interest, not only in the trust fund as a whole but in each of its assets, he referred to the decision of the High Court in Charles v Federal Commissioner of Taxation ([1954] HCA 16; 1954) 90 CLR 598; Costa & Duppe Properties Pty Ltd v Duppe [1986] VicRp 9; [1986] VR 90; Arjon Pty Ltd v Commissioner of State Revenue (2004) ATC 4018, 4026.

12

He said that these outstanding interests could not be characterised as encumbrances and therefore section 20 of the Duties Act did not require them to be ignored. He referred to Commissioner of State Revenue v Bradney Pty Ltd (1996) 96 ATC 5130 where he submitted O'Bryan J held that for the purposes of the provision corresponding to section 20 of the Duties Act in the Stamps Act 1958 the word 'encumbrance' meant a mortgage or charge and did not include a lease.

13

Mr De Wijn submitted that the Court of Appeal had rejected a contention put by the Commissioner that for the purposes of calculating dutiable value of land one should exclude from the calculation any diminution in the full value of the land by reference to equitable interests and reduce the total value of land for duty purposes only by outstanding legal interests. He referred to Vopak Terminals Australia Pty Ltd v Commissioner of State Revenue (2004) ATC 4154.

14

Next, Mr De Wijn submitted that the transfer was executed solely because of the retirement of one trustee and the appointment of another so as to meet the requirements for the section 33(3) exemption provided by the Duties Act. He said that it was wrong for the Commissioner to conclude, as he did, that the transfer was executed for the purpose of giving effect to a sale based upon a consideration of the wider transaction.

15

Mr De Wijn said that trustees retire for a variety of reasons. A corporate trustee may be insolvent; a natural person trustee may become ill or wish to live abroad. In each case he said the transfer executed to change trusteeship was executed for the purpose of changing trusteeship. Section 33(3) required a consideration of the purpose for which the transfer was executed not the purpose for which the trusteeship was changed. In the present case, he accepted that once the beneficial interest in the unit trust was under the sole control of Challenger companies, Challenger would prefer a trustee which was 'in the family' and that Leighton would probably prefer not to carry the burdens of trusteeship for the benefit of another corporate group. These matters, he said, were however, no different from the sort of reasons why in other contexts already described, trustees retire and are replaced.

16

More generally, Mr De Wijn pointed out that Chapter 2 of the Duties Act 2000, the chapter under which the present assessment was made, specifically excludes from its purview transactions taking the form of the issue or redemption or cancellation of units in a unit trust scheme (Section 7(1)(b)(ii) and (vii)). These matters were dealt with in Part 2 of Chapter 3 which makes specific provision for duty upon acquisitions of interests in certain landholders, treating unit trusts for these purposes as 'private corporations' (see Section 71 of the Act). It appears in the present case that no assessment was made under these provisions because for the purposes of the Act an acquisition is only a 'relevant acquisition' if it entailed the acquisition of a majority interest (see Section 79) in the relevant unit trust. Here it will be recalled that two separate companies acquired 50% of the units, neither of which constituted the acquisition of a majority.

17

Mr De Wijn also referred to the decision of the High Court of Australia in Commissioner of State Revenue v Pioneer Concrete (Vic) Pty Ltd [2002] HCA 21; [2002] 209 CLR 651. There land constituting a former quarry was sold and the matter in dispute was the assessment of duty on the transfer of land. Contractual arrangements providing for tipping rights were retained and the contention by the taxpayer was that the dutiable value of the land should be diminished by reference to the existence of those tipping rights. The Commissioner contended that the dutiable value of the transfer was the entire unencumbered value of the land. The High Court accepted the Commissioner's contention. Mr De Wijn said that the explanation for this determination was that the tipping rights were not proprietary interests in land and merely contractual entitlements and obligations. He said that the proprietary interests of the unit holders here stood in contradistinction to the tipping rights in Pioneer, the one being proprietary and the other one being merely contractual.

18

Mr Boaden of counsel appeared on behalf of the Commissioner. He recited the history of the matter and noted that further enquiry disclosed that the Commissioner

Incorrectly calculated the interest, as a result of treating interest as accruing from the date of the dutiable transaction evidenced by the transfer rather than three months after that date. As a result the amount of interest payable on the Assessment has been reduced from $343,252.80 to $213,272.40. Accordingly the total amount payable under the assessment has been reduced to a revised total of $5,232,022.40 comprising duty of $4,015,000 penalty duty of $1,003,750 and interest of $213,272.40.

19

Mr Boaden said the Commissioner's assessment was otherwise properly made because the transfer of land was a transfer of dutiable property under section 10(1)(a)(i) of the Duties Act 2000 being a transfer of an estate in fee simple in land in Victoria and there was no relevant exemption available.

20

Mr Boaden dealt first with the exemption originally accorded to the transfer under section 33(3) of the Act. He noted that it was a reproduction of Exemption 23 under heading VI of the Third Schedule to the Stamps Act 1958. According to Mr Boaden, the Commissioner was not satisfied and the Tribunal should not be satisfied that the transfer was executed solely because of the retirement of an existing trustee:

rather the purpose of the transfer was to complete the arrangement for the disposal of the legal and beneficial ownership of the property, and for it to be transferred to a new trustee who would hold it on trust for the two new beneficial owners.

21

Mr Boaden traced the cash flows which occurred at settlement on 27 June 2002. The money paid by the two Challenger companies on the subscription for new units was payable to the trustee of the 417 St Kilda Road Trust, the transferor under the transfer. As a matter of mechanics, it directed that the cheque be made payable to the outgoing unit holder whose units were being redeemed. The trustee he said received the consideration for the sale in exactly the same way as a vendor of a house which is heavily mortgaged to a mortgagee bank receives the purchase price under the contract of sale even although directing that the relevant bank cheque be made payable and be delivered to the mortgagee bank to discharge its mortgage and enable the vendor to make title.

22

He referred to a decision of Hansen J in Perpetual Trustee Company Limited v Commissioner of State Revenue [2000] VSC 177; (2000) 44 ATR 273, 286-7 [53] - [54] where His Honour stated, inter alia:

The expression 'solely in consequence of' requires that for the exemption to apply it must be established, as a matter of fact, that the transfer of real property of the trust was executed only in consequence of a change of trustee and in order to vest the real property of the trust in the name of the new trustee.

23

He also referred to a decision of the Court of Appeal, Commissioner of State Revenue v Victoria Garden Developments Pty Ltd [2000] VSCA 233; (2000) 46 ATR 61, 72 at [28] where Batt JA with whom the other two members of the court, Ormiston and Chernov JJA agreed, specifically approved what Hansen J had said in the Perpetual Trustee case. In the Perpetual Trustee case according to Mr Boaden, a vendor company entered into an enforceable contract of sale thereby making it a bare trustee for the purchase of company. The transfer was taken to another company to hold as trustee for the purchaser company. In those circumstances his Honour concluded that the exemption did not apply. At [59] [2000] VSC 177; (2000) 44 ATR 273, 288, his Honour referred to the arrangements as a 'pre-planned, highly organised series of steps ...'. He also spoke of the need for a 'reality check'. Mr Boaden then took me to the detail of the documents giving effect to the transactions in the present case. Each step was laid out in the subscription and redemption agreement. There was a special settlement agenda prepared. This case, he submitted, exhibited the very same 'pre-planned, highly organised series of steps' that were found in the Perpetual Trustee case. He described the whole process as 'an elaborate dance'.

24

According to Mr Boaden in the Victoria Gardens' case, where owners of adjoining parcels of land entered into a joint venture agreement to develop the land as one site, they transferred the parcels to a trustee and became equitable tenants in common, hence the beneficial interest in each individual parcel was changed. Therefore said Mr Boaden, Batt JA concluded that the transfer was not made solely in consequence of the appointment of a trustee.

25

According to Mr Boaden the present transaction is similar. He said all of the steps needed to be looked at together and 'the purpose behind the transfer must be recognised as being more than merely the replacement of the trustee of the trust'. He referred to the judgment of Millett LJ (as he then was) in Parinv (Hatfield) v Inland Revenue Commissioner [1998] STC 305, 313.

26

According to Mr Boaden the true purpose of these arrangements could be seen from a passage at page 36, part 7.7 of the valuation by Charter Keck Cramer which referred to the acquisition transaction as proceeding 'without the requirement for stamp duty to be paid' which enhanced, according to the valuation, the investment return on the purchase. He referred again to the need for a 'reality check' as advocated by Hansen J in the Perpetual Trustee's case. He noted that the property was valued at $73m, being the identical sum which was subscribed for units by the two subscriber companies. He noted that the subscription and redemption agreement referred to these companies as the 'first purchaser' and 'second purchaser'. The nomenclature he said 'revealed that the instrument of transfer was giving effect to a 'purchase' and is doing more than just replacing the trustee of a trust (cf Trust Company v CSR (Qld) [2003] HCA 23 at [36] - [37]'. He also noted that in pursuance of the obligation created under clause 9.3 of the Subscription and Redemption Agreement, Leighton Funds Management Pty Ltd executed a vendor statement under section 32 of the Sale of Land Act and paragraph 9.3 of the Subscription and Redemption Agreement provided that the purchaser companies, that is the one subscribing for the units in the unit trust would have the benefit of the rights of a purchaser under section 32 of the Sale of Land Act 1962 in relation to that statement. The delivery of this section 32 statement was shown as Step 8 in the Completion Agenda prepared for the settlement of 27 June. Mr Boaden noted that paragraph 3.3b of the Subscription and Redemption Agreement provided for the purchasers as beneficial owners to be entitled to 'all income'. This he said was the equivalent of a purchaser of land becoming entitled on possession to the rents and profits of the land.

27

He noted that the redemption price paid to Leighton for the redemption of its units was the market value of the property as assessed by the value. The total effect of the steps taken on 27 June 'was to complete the purchase of the property'.

28

Next, Mr Boaden turned to the contention that the value of the property conveyed by the transfer should be treated as either nil or a nominal amount only. To this he said that what was conveyed by the transfer was 'the full fee simple estate in the land'. Section 20 of the Duties Act 2000 he said required calculation of duty based on the consideration or the unencumbered value of the dutiable property whichever is the highest.

29

The first step in analysis was, he said, the identification of the estate or interest in real property that was conveyed or transferred. He referred to Commissioner of State Revenue v Pioneer Concrete (Vic) Pty Ltd [2002] HCA 21; [2002] 209 CLR 651, 664 [38] in the joint judgment of Gleeson CJ, Gummow, Kirby and Hayne JJ. Mr Boaden noted that in that case the High Court was considering the equivalent in the now repealed Stamps Act 1958 of section 20 of the Duties Act, namely section 63(3)(b)(i)(B). This sub-paragraph set the dutiable value of real estate at:

The sum of the amount for which the real property or property and the amount for which [any chattels included in the transfer of real property] might reasonably have been sold if they had been sold, free from encumbrances, in the open market on the date of the sale.

Once it is accepted that the real property to be valued is an estate in fee simple in the land referred to in the relevant certificates of title, unqualified by any exception or reservation, or any other outstanding proprietary interest, then it follows that the exercise required by par (B) is a determination of the amount for which such an estate might reasonably have been sold if it had been sold, free from encumbrances, in the open market on the date of the sale. The determination of such an amount is a familiar task, to be carried out in accordance with the principles stated in Spencer v The Commonwealth [(1907) [1907] HCA 82; 5 CLR 418, 432]. The subject of the valuation is the unencumbered estate in fee simple. In determining the value there is no warrant, either in the language of the statute or in principle, for departing from the hypothetical inquiry as to the point at which a desirous purchaser and a not unwilling vendor would come together. The purpose of making the inquiry hypothetical is to isolate the value of the estate or interest to be transferred from factors that are extraneous to the purpose for which such a value is to be ascertained. To introduce into the exercise a special condition for which, on a particular occasion, a particular vendor chose to stipulate, and to which a particular purchaser chose to agree, is to depart from the statutory requirement, which is to determine the value of that which was transferred. It is, rather, to value the net benefit which the transaction conferred upon the purchaser. It is to treat stamp duty as a tax on a transaction.

31

Mr Boaden said that applying the principles stated by their Honours, the fee simple estate in the land might have been sold for $73m. That was the value placed upon it by Charter Keck Cramer

and that value provided a measure of the amount to be paid to acquire the purchaser units, and provide the funds to redeem the vendor units. That is the unencumbered value of the dutiable property, namely 417 St Kilda Road.

32

Mr Boaden noted that the High Court had excluded for the purposes of calculating the dutiable value of the land in the Pioneer case the diminution in sale price created by the vendor's retaining to itself and related parties certain 'tipping rights' into a disused quarry. Mr Boaden concluded that what was transferred by this transfer was the fee simple interest in the land previously vested in Leighton Funds Management Limited now vested in Challenger Property Nominees Pty Ltd.

33

He submitted alternatively that if in accordance with section 20 of the Duties Act 2000 attention were focused on the consideration for the dutiable transaction, the price which the purchasers paid was $73m:

It was this payment which 'moved' the transfer of the beneficial interest in the property from the original trustee to the new trustee holding for the two purchasers.

34

He referred to Archibald Howie Pty Ltd v Commissioner of Stamp Duties (NSW) (1948) 77 CLR 148, 152; Chief Commissioner of State Revenue v Dick Smith Electronic Holdings Pty Ltd [2003] NSWCA 265 at [9] - [10].

35

In any event said Mr Boaden, this was not a case of a bare legal title. He referred to the judgment of Gzell J in Sportscorp v Chief Commissioner of State Revenue [2004] NSWSC 1029 [75] - [82]. The proper analysis he said was that a trustee was the full owner of property but was bound to hold the land for the benefit of the cestui que trust. He referred to the judgment of Hope JA in DKLR Holding Co (No. 2) Pty Ltd v Commissioner of Stamp Duties [1980] 1 NSWLR 510, 519. Finally, he said that if contrary to his primary submission, the dutiable value of the land was diminished by the interest of the unit holders, that diminution should not be given effect to. He relied upon Section 22 of the Duties Act 2000 which provides as follows:

(1) The "unencumbered value" of dutiable property is the amount for which the property might reasonably have been sold in the open market -

(a) in the case of a transfer of dutiable property on a sale of the property - at the time the contract of sale was entered into;

(b) in any other case - at the time the dutiable transaction occurred -

free from any encumbrance to which the property was subject at that time.

(2) In determining the amount for which land or goods might reasonably have been sold free from encumbrances, there must be disregarded subject to sub-section (3), any interest, agreement or arrangement (other than an encumbrance) granted or made in respect of the land or goods, that has the effect of reducing the value of the land or goods.

(2A) A reference in sub-section (2) to an interest includes a reference to an equitable interest that -

(a) was created before the time of the transfer of the land or goods; and

(3) An interest, agreement or arrangement referred to in sub-section (2) is not to be disregarded if the Commissioner is satisfied that it was not granted or made as a part of an arrangement or scheme with a collateral purpose of reducing the duty otherwise payable on the transfer of the land or goods.

(4) In considering whether or not he or she is satisfied for the purposes of sub-section (3), the Commissioner may have regard to -

(a) the duration of the interest, agreement or arrangement before the transfer; and

(b) whether the interest, agreement or arrangement has been granted to or made with an associate, a related corporation or a trustee of the transferor or transferee; and

(c) whether there is any commercial efficacy to the granting of the interest or the making of the agreement or arrangement other than to reduce duty; and

(d) any other matters he or she considers relevant.

(5) In computing for the purposes of this Chapter the unencumbered value of any marketable securities of a company, there must be disregarded any provision in the constitution of the company which, or the operation of which, restricts or would restrict the sale or disposition or reduces or would reduce the unencumbered value of the marketable securities, and the marketable securities are to be valued as if no such provision existed.

(6) Despite anything to the contrary in this section, the Commissioner may adopt as the unencumbered value of any marketable securities of a company the net benefit that, in the opinion of the Commissioner, the holder of the marketable securities would receive after payment of all income taxes in respect of the marketable securities in the event of the company being voluntarily wound up at the time the dutiable transaction occurred, whether or not any such winding up was intended or contemplated at that time.

36

Mr De Wijn in reply referred to section 109 of the Taxation Administration Act 1997 which limited the parties to their original grounds. Mr De Wijn said that the Commissioner's original grounds did not include reliance on section 22 of the Duties Act 2000 and that no leave had been granted for reliance to be placed upon that ground. In response Mr Boaden said that reliance on section 22 was made as a result of the applicant's contentions based upon the alleged dutiable value of the transfer. Mr Boaden said that if it were necessary to obtain leave to rely upon section 22 the Commissioner sought that leave.

37

A consideration of the applicant's primary contention based upon the dutiable value of the subject matter of the transfer requires an extended consideration of a number of authorities not least because Mr Boaden submitted with regard to one of them being a recent decision of the Court of Appeal that I should treat it as per incuriam by reason of an alleged misquotation from the joint judgment of the High Court in the Pioneer Concrete case.

38

According to Mr De Wijn the key to this issue is what he described as a 'trilogy' of cases. The first was Commissioner of State Revenue v Bradney (1996) ATC 5130; the second was Commissioner of State Revenue v Pioneer Concrete (Vic) Pty Ltd [2002] HCA 21; [2002] 209 CLR 651 and the third was the decision of the Victorian Court of Appeal earlier this year in Vopak Terminals Australia Pty Ltd v Commissioner of State Revenue (2004) ATC 415-4.

39

In Bradney the taxpayer contended that the 'unencumbered' value of the subject land should be diminished for duty purposes by reference to an existing 50 year lease. The Commissioner contended that the lease was an encumbrance and the requirement that the value of land be calculated on an unencumbered basis meant that the lease should be ignored. As previously noted O'Bryan J concluded that 'encumbrance' meant a mortgage or a charge and did not include a lease, hence the land was valued at a lower amount on the basis of the impact of the lease. In Vopak the subject land was enhanced by valuable fixtures some of which were subject to removal by the tenant under section 28(2) of the Landlord and Tenant Act 1958 and others of which were the subject of a removal entitlement held by a third party. The Court of Appeal, Warren CJ, Ormiston and Buchanan JJA held that the dutiable value of the land should be reduced to take account both of the interest of the purchaser under the asset sale agreement and of the tenant under section 28(2) of the Landlord and Tenant Act 1958. Part of the Commissioner's case according to Ormiston JA with whom Warren CJ and Buchanan JA concurred:

...was that the only qualifications on the estate or interest transferred which could be looked at by the commissioner or court for the purposes of S.63 [of the Stamps Act 1958 the equivalent of Section 20 of the Duties Act 2000] were either exceptions or reservations, or legal proprietary interests which qualified the title. (2004) ATC 4154, 4173 [68]

40

Later His Honour observed that the Commissioner distinguished between legal and equitable interest for the purpose of this dispute in that the first were 'carved out of the title' and that the second class of interest were merely 'impressed' upon it. The Commissioner referred to the judgment of Brennan J (as he then was) in DKLR Holding Co (No. 2) Pty Limited v Commissioner of Stamp Duties (NSW) [1982] HCA 14; (1982) 149 CLR 431, 474. Ormiston JA observed:

The distinction, important though it is is a matter of legal theory, cannot control the outcome of the present case. One is here concerned with what the High Court generically described in Pioneer Concrete as "proprietary interests". There is good reason in this day and age why both legal and equitable interests of this kind, if they bind and affect property rights and are not "mere equities" or personal rights, should equally have a bearing on what the hypothetical purchaser would pay for an estate or interest so bound and affected, and there is no reason why they should not, but for some observations in certain cases to which I must refer in due course. (2004) ATC 4154, 4175 [73]

41

The final case in the 'trilogy' is the Pioneer case in the High Court. In that case Amatek Limited sold a partly worked out quarry to Pioneer. The contract of sale included a clause stating that the sale was subject to Pioneer assuming liability for certain encumbrances and restrictions. Amatek retained tipping rights in part of the quarry and a right to extract sand from another part. The tipping rights were then assigned by Amatek to a related party. The question was whether the dutiable value for the purposes of duty under the Stamps Act 1958 should be reduced by the amount to which the special provisions in the contract depressed the value of the land. The High Court held that it should not be. The High Court noted that the arrangements described created contractual obligations only

...but they did not create any proprietary interest which qualified [Pioneer's] title to the land. And they did not qualify Amatek's title to the land on the date of the sale, which is the time to which [the relevant provision in the Stamps Act] directs attention.

42

The joint judgment also approved an example given by Mason J (as he then was) in the DKLR Holdings case [1982] HCA 14; (1982) 149 CLR 431, 450 to the effect that where a vendor sells Blackacre and enters into an immediate leaseback the dutiable value of Blackacre is its unencumbered value, not its value as affected by the leaseback. Their Honours were of opinion that the case before them was analogous with the hypothetical one considered by Mason J [2002] HCA 21; (2002) 209 CLR 651, 667 [43].

43

Mr De Wijn's submission was that the interests of the unit holder beneficiaries were as much outstanding proprietary interests as the interest of the tenant and the third party to remove fixtures in Vopak and the dutiable value of the estate here should be adjusted accordingly.

44

Mr Boaden however submitted that I should not treat Vopak as being authoritative on this point but rather should treat it as per incuriam. The reasoning in Vopak took as its hinge a passage from the joint judgment in Pioneer at paragraph 44. At [67] (2004) ATC 4154, 4173 Ormiston JA is shown as quoting the passage from [44] of the Pioneer Concrete case in the following terms:

Once it is accepted that the real property to be valued is an estate in fee simple in the land referred to in the relevant certificates of title, qualified [my emphasis] by any exception or reservation, or any other outstanding proprietary interest, then it follows that the exercise required by [sub-para] (B) is a determination of the amount for which such an estate might reasonably have been sold if it had been sold, free from encumbrances, in the open market on the date of the sale.

45

In the report of the proceeding in the Australian Tax Reports and in the print of the judgment appearing on Austlii the opening passage quoted from the High Court joint judgment reads:

Once it is accepted that the real property to be valued is an estate in fee simple in the land referred to in the relevant Certificates of Title, and qualified by any exception or reservation ... (my emphasis)

46

For the purposes of his reasoning his Honour emphasised the words 'any other outstanding proprietary interest'. For the balance of his judgment, he considered whether the claims to the fixtures could be regarded as such. He proceeded upon the basis that the High Court had regarded it as appropriate to reduce the dutiable value of land transferred by reference to 'any other outstanding proprietary interest'. Such a view of Pioneer is consonant with the Court drawing a distinction between proprietary interests on the one hand and merely contractual rights on the other, the latter being the matters relied upon to diminish the dutiable value in the Pioneer case. However, Mr Boaden pointed out that Ormiston JA appears to have misquoted what their Honours in the Pioneer case said in a very material fashion. The judgment as recorded in the Commonwealth Law Reports and if it matters, in the Australian Law Report and also in the Australian Law Journal Reports is as Mr Boaden quoted it in his submissions. See [30] above. It is the report in the Commonwealth Law Reports, the High Court's authorised reports, which sets out the authoritative text. The Federation Insurance Ltd v R Banks [1984] VicRp 42; [1984] VR 525, 541 per Brooking J (as he then was) and Fairman v Perpetual Investment Building Society [1923] AC 74, 79. Their Honours referred to the estate in fee simple being valued 'unqualified' by any other outstanding proprietary interests not 'qualified'. In the result, said Mr Boaden, I should treat Vopak as per incuriam on this point and not regard it as authoritative. He submitted that I was bound on this point to follow the joint judgment in the High Court. It is clearly a perilous exercise for even a trial level court, not to mention a mere tribunal, to declare a determination of the State's highest court per incuriam. It is clear however that Vopak does include a significant misquotation from the joint judgment in Pioneer and what is more that misquotation formed the foundation for the Court of Appeal's reasoning that followed.

47

Whether this leads to the conclusion contended for by Mr Boaden is however open to question.

48

First, the authority of Pioneer flows from the Court's determination and from the whole of its reasons, not from a single sentence shorn of its context. The statement in the joint judgment in its correct form as shown in the Commonwealth Law Reports taken alone is stark and if I may say so with the utmost respect, misleading. I doubt for instance that their Honours were meaning to suggest that if Blackacre were affected by an elaborate set of easement rights in favour of the adjacent land Whiteacre, which precluded Blackacre from being put to what would otherwise be its highest and best use, that that fact which would surely be relevant for all other valuation purposes in accordance with Spencer's case should be ignored for stamp duty purposes. Yet the easements as described would be as much an 'outstanding proprietary interest_'_ as the rights to remove fixtures in Vopak. Again, if the whole of the High Court's reasoning were summed up in this controversial sentence, why did their Honours take the trouble to analyse and characterise the tipping rights as contractual if they would have been equally irrelevant to the dutiable value of the quarry if they had been proprietary interests?

49

Mr Boaden who held the junior brief for the Commissioner in the Pioneer Concrete case said that the decision of O'Bryan J in Bradney was the subject of extensive discussion during the argument of Pioneer. If the controversial sentence were to be taken literally Bradney must be wrong because the lease in Bradney was surely an outstanding proprietary interest. The joint judgment referred to Bradney at some length. (2002) 209 CLR 668, 669 [47] - [50]. Their Honours did not directly endorse Bradney apart from noting that it stood in contradistinction to the hypothetical example of Mason J which they considered earlier entailing a sale and leaseback. In Bradney the 50 year lease pre-existed the conveyance. Had their Honours intended to state a general principle that all outstanding proprietary interests were to be have been ignored, one would have expected them in direct terms to overrule Bradney; but they did not.

50

The misquotation from Pioneer in Vopak is significant but not in my view so significant as to destroy the authority of Vopak.

51

Here the unit trust structure pre-existed the sales transaction. Therefore this stands in contradistinction from the hypothetical example considered by Mason J in the joint judgment in Pioneer and the facts of Pioneer itself. The reservation of contractual entitlements in Pioneer arose from the very sale transaction itself as a special condition in the contract.

52

Next, I turn to the argument which commended itself to Gzell J in Sportscorp and based upon the authorities to which he referred was pressed upon the Court of Appeal but rejected by it in Vopak. Whatever the historical basis for the distinction between legal and equitable rights being on the one hand 'carved out' and on the other hand 'impressed' upon a fee simple seems to me with respect casuistical. It does not appear for instance, whether for present purposes it would be necessary to draw any distinction between a legal lease and an equitable lease or a legal easement and an equitable easement. The judgment of O'Bryan in Bradney does not indicate whether the 50 year lease in that case was registered or not. If it was unregistered it would create an equitable lease only (Section 40 Transfer of Land Act 1958). It is the exception rather than the rule for leases to be registered in Victoria. Section 42(2)(e) of the Transfer of Land Act makes the interest of any tenant in possession an overriding interest; not just the interest of short-term tenants as in most other states. It would be bizarre in these circumstances if the dutiable value of the reversion depended on whether the lease was registered or not. In addition the transfer in the DKLR case (the reasoning in which was relied upon by Gzell J) entailed a transfer to a nominee by the legal and beneficial owner of the land. The transferor sought to retain the beneficial interest. It was in this context that Mason J postulated his example of a transfer and leaseback. Here neither transferor nor transferee had the beneficial interest in the land. Gzell J also made a very significant point at paragraph 77 where he said that if a transfer of a bare legal interest were to be treated as not attracting ad valorem duty upon the value of the land simply because of its nature as a bare legal estate, other exemptions to be found in various stamps legislation, such as exemptions of transfers from trustees to beneficiaries, transfers back from nominees and transfers from apparent purchaser to real purchaser of real estate would be otiose. On the other hand as Mr De Wijn has observed, the present assessment was attended by its own paradox. The transaction involving as it does a private unit trust appears to have its own special part set aside for it in the Duties Act and generally Chapter 2 purports to avoid involvement with it. Nevertheless, the present assessment on a private unit trust scheme purports to be made under Chapter 2.

53

These paradoxes may be yet another example of Oliver Wendell Holmes' famous aphorism that the life of the law has been experience and not logic.

54

It follows that the applicant makes good its case based upon the dutiable value of the properties being transferred by the subject transfer being nil or nominal.

55

Finally on this point, I should say something about section 22 of the Duties Act 2000. It was most regrettable that the applicant's counsel and I heard of the Commissioner's reliance upon section 22 in the dying minutes of the hearing. Mr Boaden noted that it was only the ground based on the dutiable value of the property conveyed which led the Commissioner to rely upon section 22. There was no direction that the parties file and serve statements of legal contention in advance of the hearing. It would have been possible however for the Commissioner without such a direction to have put both the Tribunal and the applicant on notice that this point would be raised; nevertheless with some hesitation I believe first, that leave is necessary for the Commissioner to rely upon section 22 but that in the circumstances such leave should be granted. This section allows the Commissioner to disregard interests, agreements or arrangements other than encumbrances in relation to land that has the affect of reducing the value of the land, however the arrangement is not to be disregarded:

if the Commissioner is satisfied that it was not granted or made as part of an arrangement or scheme with a collateral purpose of reducing the duty otherwise payable on the transfer of the land or goods.

56

The unit trust structure in the present case was made some years before the transfer. There is no evidence that this structure itself was part of the scheme which the Commissioner has identified. In my view the Commissioner and the Tribunal standing in his shoes in this review proceeding should be satisfied that the unit trust structure was not part of an arrangement or scheme with the collateral purpose of reducing the duty otherwise payable on this transfer.

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 Mr Boaden 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 units in the 417 St Kilda Road Unit Trust in two 50% tranches by separate companies is clearly calculated to avoid the land rich corporation provision of the Duties Act 2000 by avoiding the acquisition by any party of a majority interest (cf Section 79 of the Duties Act). All of the steps taken at the settlement can properly be characterised as Mr Boaden 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 the settlement itself they were not to become effective until after Step 1 which entailed the delivery of the $73m cheque to the outgoing trustee, Leighton Funds Management Pty Limited with the cheque being payable at its direction to the outgoing unit holder, Leighton Properties Pty Ltd and the issue of the new $73m units to the two Challenger companies. 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 (see Clauses 6 and 7 of the deed) 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 Mr De Wijn'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. Mr De Wijn 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 in trusteeship?'

59

As Mr De Wijn 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. Mr De Wijn 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.

1

On 16 September 1997 Leighton Funds Management Pty Ltd ('LFM') as trustee and Leighton Property Funds Management Limited ('LPFM') as manager executed a trust deed ('the Trust Deed') creating the 417 St Kilda Road Trust ('the Trust').

2

On 21 May 1998 LFM was registered as proprietor of the land at 417 St Kilda Road, Melbourne more particularly described in Certificate of Title Volume 9847 Folio 759 ('the Property'). The Property is the only asset of the Trust.

3

On 9 May 2002 the Constitution for the Challenger Howard Property Trust for 417 St Kilda Road, Melbourne ('the CHP Trust') was executed as a deed by Challenger Managed Investments Pty Ltd ('CMI') as Manger. Clause 19.2 provides that the principal Asset (defined as any real property which it is proposed in the initial prospectus for the CPH Trust to acquire or retain as an asset) shall be valued as the aggregate amounts of the purchase price specified in the contract of sale by which the Principal Asset is to be purchased on behalf of the CPH trust and any related acquisition costs.

4

On 21 June 2002 a valuation report prepared by CMI by Charter Keck Cramer ('the Valuation') gave the current market value of the property for first mortgage purposes as $73,000,000. The report commented that the fact that the sale of the Property 'will proceed without the requirement for stamp duty to be paid' improves the investment performance of the Property.

5

On 26 June 2002 the Constitution for the 417 St Kilda Road Holding Trust ('the B Trust') was executed as a deed by Guardian Trust Australia Limited ('GTA') as trustee.

6

On 27 June 2002 -

(a)

A subscription and redemption ('the Agreement') was entered into by LFM as trustees of the Leighton Office Trust ('the Head Trust') and as trustee of the Trust, Leighton Properties Pty Ltd ('LP'), CMI (in its capacity as responsible entity of the CPH Trust) as the first purchaser, GTA (in its capacity as trustee of the B Trust) as the second purchaser, LPFM as manager and Leighton Holdings Limited ('LH').

(b)

LFM as retiring trustee, LPFM as retiring manager, Challenger Property Nominees Pty Ltd ('CPN') as new trustee and Challenger Property Management Pty Ltd ('CPM') as new manager executed a deed of retirement and appointment relating to the Trust ('the Deed') and

(c)

LFM as transferor and CPN as transferee executed a instrument of transfer for the estate in fee simple of the property for a consideration expressed as 'an entitlement in equity' ('the Transfer').

7

The recitals to the Agreement provide that -

(a)

LFM is trustee of the Trust and is the owner of the legal estate in the Units in the Trust on behalf of the Head Trust;

(b)

LP is the beneficial owner of all of the Units in the Trust through its ownership of all the units in the Head Trust;

(c)

LFM is the registered proprietor of the Property and holds the Property in its capacity as the trustee of the Trust;

(d)

CMI and GTA (collectively 'the Purchaser') have each agreed to subscribe for 36,500,00 Units in the Trust other than the Vendor Units;

(e)

Upon payment of the Issue Price by the purchasers, the parties have agreed that the Trustee will;

(i)

Issue the Purchaser Units to the purchasers;

(ii)

Redeem and cancel all of the Units in the Trust (other than the Purchaser Units) for the Redemption Price.

(f)

LP, LPFM, LH and LFM have agreed to the transactions contemplated by the Agreement.

8

The relevant clauses of the Agreement which set out the terms and conditions for the subscription and redemption of the Units are as follows -

(a)

Clause 1.1 which defines

(i)

'Completion' as completion of the subscription and redemption of the Units in accordance with Clause 6 of the Agreement;

(ii)

'Date of Completion' as the date on which Completion occurs [being 2.30 pm on 27 June 2003];

(iii)

'Deed of Rental Guarantee' as the deed of rental agreement attached as Annexure A to the Agreement [this deed is a guarantee under which LP and LP will provide CPN with a specified amount of rent etc in the event that a key tenant of the Property does not exercise an option to renew for a further term.];

(iv)

'Issue price' as $73 million (exclusive of GST);

(v)

'Purchaser Units' as in respect of each of CMI and GTA 36,500,000 Units totalling 73,000,000 Units in the Trust;

(vi)

'Redemption price' as $73 million;

(vii)

'Units' as a unit in the Trust created and issued under the Trust Deed; and

(viii)

'Vendor Units' as Units in the Trust immediately prior to Completion occurring being 72,500,000 units.

(b)

Clause 2 which provides that the Purchasers hereby apply to LPFM and LFM for the issue of the Purchaser Units (on the terms and conditions of the Agreement) credited as fully paid to be issued for the Issue Price and that the application is deemed to be made and accepted on the Date of Completion;

(c)

Clause 3 which provides that the amount payable for the Purchaser Units is the Issue Price and payment of the balance of that price is required on the Date of Completion;

(d)

Clause 4 which provides that LFM (as trustee of the Head Trust) hereby applies to LPFM and LFM for the redemption of the Vendor Units registered in its name for the Redemption Price and that the application is deemed to be made and accepted on, and payment of the Redemption price is required on, the Date of Completion. On payment of the Redemption Price the Vendor Units will be cancelled;

(e)

Clause 6 which deals with Completion and provides that, among other things, the following actions shall occur on the Effective Date -

(i)

The Purchasers must deliver to LFM a bank cheque for the Issue Price;

(ii)

LFM must issue the Purchaser Units and deliver new unit certificates to the Purchasers;

(iii)

LFM must deliver to LFM the unit certificates for the Vendor Units;

(iv)

LFM must cancel the Vendor Units;

(v)

LFM must produce minutes of a meeting or resolution of the board of directors of the Trustee at which the directors passed resolutions (inter alia) to;

Approve the issue of and to issue the Purchaser Units at the Issue Price to the Purchasers; and

(vi)

LFM must deliver to the Purchasers (among other things);

Deeds of retirement for LFM as trustee of the Trust and LPFM as manager of the Trust;

Notices to each Tenant directing as to where rent payable under the leases should be paid;

Original certificate of title for the Property; and

Executed copies of all other documents reasonably required by the Purchasers to give effect to the transactions contemplated in the Agreement.

(vii)

The Purchaser must provide LFM with evidence as the appointment of a new trustee for the Trust subject to the retirement of LFM as trustee of the Trust;

(f)

Clause 9 by which the parties acknowledge and agree that CMI enters into the Agreement in its capacity as the responsible entity of the CHP Trust and that GTA enters into the Agreement in its capacity as trustee of the B Trust. Clause 9 also provides that LFM, LP, LPFM and LH each acknowledges and agrees that in addition to the rights of the Purchasers under the Agreement and at law, the Purchasers will have the benefit of the rights of a 'purchaser' under Section 32 of the Sale of Land Act 1962 in relation to the Section 32 Statement [which forms Annexure B to the Agreement]; and

(g)

Clause 22.1 by which the Purchasers agree to bear any Stamp Duty payable or assessed in connection with the Agreement and the matters contemplated by it.

9

Under the Deed LFM and LPFM retire as trustee and manager respectively of the Trust and appoint CPN and CPM as he new trustee and manager respectively of the Trust. Clause 3.2 of the Deed provides that each of the parties will without any further consideration sign, execute or deliver any document and will perform any other act which may be necessary or desirable to give full effect to the Deed.

10

On 27 June 2002 authorised officer s of LFM and CPN both made statutory declarations that the Transfer of Property was made solely as a result of appointing a new trustee, that LFM was acting on behalf of the unit holders of the Trust, CPN is acting on behalf of the unit holders of the same Trust and that the correct stamp duty was paid when the Property was first transferred to the trustee of the Trust.

11

On 24 July 2002 the Transfer was stamped as 'not chargeable pursuant to section 33-3' [of the Duties Act 2000 ('the Act')] by the State Revenue Office ('the SRO').

Challenger Property Nominees v Commissioner of State Revenue [2004] VCAT 2434

At a glance

Court

Decision date

Source

Judgment (72 paragraphs)

Challenger Property Nominees v Commissioner of State Revenue [2004] VCAT 2434 (7 December 2004)

Parties

Cases Cited (5)