Commissioner of Stamp Duties (NSW) v Pendal Nominees Pty Ltd

Paragraph (2)(a) of Declaration of Trust imposes ad valorem duty on:

Any instrument declaring that any property vested or to be vested in the person executing the instrument is or shall be held in trust for the person or persons or purpose or purposes mentioned therein

The person made primarily liable for the duty is: "The person declaring the trust or the person directing the declaration of the trust." The Commissioner contends that, by reason of the share sale deed, the first respondent Pendal Nominees Pty. Ltd. ("Pendal") declared a trust and that the second respondent B.T. Australia Ltd. ("B.T.A."), originally called Ord-B.T. Co. Ltd., directed the declaration of the trust. It follows, in the Commissioner's submission, that ad valorem duty is payable pursuant to par. (2)(a).

The facts, so far as a recital is necessary to a determination of this appeal, are as follows. On 1 December 1976 B.T.A. executed a deed of trust which established a fund known as the Ord-B.T. Property Trust, later known as the B.T.A. Property Trust. The beneficial interest in the fund was divided into units, to be issued to unit holders, and B.T.A. declared that it "shall hold the Fund upon trust for the Unit Holders subject to and upon the terms of this deed": cl. 4. By cl. 29(j) of the trust deed, B.T.A. was empowered to "cause all or any of the assets constituting the Fund to be vested in a nominee of the Trustee to be held by such nominee upon the trusts of this deed; and for all purposes of this deed investments vested in a nominee of the Trustee shall be deemed to be investments or property held by the Trustee".

Clause 10 vested authorized investments in B.T.A. By cl. 10(4)(ii) such investments, other than land, were deemed to vest in B.T.A. as soon as transfers in favour of B.T.A. or its nominee had been delivered to it or to the nominee. By cl. 30(b) B.T.A. declared that it held the fund "as trustee for the Unit Holders entitled thereto upon the terms of this deed". By cl. 30(d) B.T.A. covenanted that "any nominee of the Trustee will duly observe and perform the covenants and obligations of this deed in the same manner as is required of the Trustee".

Pendal was at material times a wholly-owned subsidiary of B.T.A. and was the company ordinarily used by B.T.A. to hold assets of the trust as its nominee. Pendal is not mentioned in the trust deed. On 28 June 1983 B.T.A., Pendal and other companies executed a deed whereby B.T.A. agreed to buy all the shares in Suburban Centres (Seven Hills) Pty. Ltd. ("Seven Hills"). The deed expressly identified B.T.A. as buying the shares in its capacity as trustee of the B.T.A. Property Trust. It is this share sale deed with which the litigation is concerned. The respondents do not dispute that ad valorem stamp duty was appropriately charged on the deed for the reason that it was an agreement for the sale of shares: see s. 41(1) of the Act. However, the Commissioner assessed the deed to further ad valorem stamp duty upon the basis that it was also a declaration of trust in respect of those shares and so fell within par. (2)(a) of Declaration of Trust in the Second Schedule. That further assessment was challenged by the respondents.

By the terms of the share sale deed R.D.C. Holdings Ltd. ("R.D.C.") agreed to sell all its shares in Seven Hills to B.T.A. The purchase price, $7,936, 791, was to be paid by B.T.A. to R.D.C. on completion. By cl. 1.4: "R.D.C. shall on completion deliver to B.T.A. transfers of the Seven Hills Shares in favour of P.N. and P.N. shall hold such shares as nominee for B.T.A." P.N. is of course Pendal. B.T.A. and other parties to the deed gave various warranties but none was given by Pendal. Clause 9 acknowledged that the deed had been entered into "with the intention that the benefit of the covenants, agreements, obligations and warranties" given by various contracting parties "shall enure to and the provisions thereof shall be enforceable by B.T.A. (in its capacity as trustee of the B.T.A. Property Trust), P.N. (both for itself and as nominee for B.T.A. in its capacity as trustee of the B.T.A. Property Trust) ".

In contending that the share sale deed constituted a declaration of trust, the Commissioner pointed in particular to cl. 1.4. The scope of the dispute was narrowed somewhat by agreement between the parties that the question for determination by Hunt J. was whether the share sale deed fell within the statutory description given by par. (2)(a), not whether it amounted to a declaration of trust according to the general law: see Tooheys Ltd. v. Commissioner of Stamp Duties (N.S.W.) [41] . In the courts below the Commissioner did not challenge the proposition that provisions in a document which do no more than record an obligation which is in any event imposed by operation of general law do not attract duty: see Mullett v. Huchison [42] ; Lawrance v. Boston [43] ; Annandale v. Pattison [44] . Before this Court the Commissioner submitted that there was no principle consistent with the language of the Act that stamp duty is not attracted to a document which does no more than record an obligation in any event imposed by operation of general law. He did, never the less, concede that an instrument recording an obligation imposed by operation of the general law that was accessory to the leading or principal object of the instrument would not be liable to duty. This exclusion from liability arose, not because the obligation was imposed by the general law but because there was no distinct matter within the meaning of s. 17. Having regard to my view of the matter discussed below, it is unnecessary to express an opinion as to the correctness of the respondents' proposition that duty is not attracted to a document which does no more than record an obligation in any event imposed by operation of the general law. Finally, within the area of agreement, the parties accepted that no other document existed whereby Pendal was nominated by B.T.A. to hold the shares as its nominee or whereby Pendal declared that it did so as trustee.

1. (1961) 105 C.L.R. 602, at p. 611. 2. (1828) 7 B. & C. 639, at pp. 641-642 [108 E.R. 861, at p. 862]. 3. (1851) 7 Ex. 28, at p. 35 [155 E.R. 842, at pp. 844-845]. 4. (1829) 9 B. & C. 919 [109 E.R. 342].

Hunt J. concluded that, by its terms, cl. 1.4 was a statement by both R.D.C. and Pendal of the obligations imposed upon them and that in consequence there was a declaration of trust by Pendal. But, in his Honour's view, the clause did no more than record an obligation that was in any event imposed upon Pendal by operation of the general law. This conclusion, his Honour said, was enough to take the document outside the description given by par. (2)(a).

The Court of Appeal approached the matter somewhat differently. Kirby P. and McHugh J.A. agreed with the judgment delivered by Mahoney J.A. Having explored a number of matters, Mahoney J.A. concluded that cl. 1.4 of the share sale deed fell, not only within par. (2)(a), but also within par. (3)(b) of the head of charge Declaration of Trust. Paragraph (3) reads:

Any such instrument as aforesaid by which (a) or (b) the trusts declared are the same trusts as those upon or subject to which the same property was conveyed to the person declaring the trust by an instrument duly stamped with ad valorem duty under this Act or (c) In those circumstances nominal duty of $10 is imposed and the person primarily liable is the person declaring the trust. It was common ground between the parties that where an instrument falls within pars. (1) or (2) of Declaration of Trust and also within par. (3) the consequence is that duty is imposed only in accordance with the latter.

Mahoney J.A. concluded that the relevant documents "were executed and exchanged and settlement took place on the same occasion" and that in those circumstances "the intention or expectation was that the shares were to be vested in P.N.". It followed that the shares were property "to be vested" within par. (2)(a) of Declaration of Trust: see D.K.L.R. Holding Co. (No. 2) Pty. Ltd. v. Commissioner of Stamp Duties (N.S.W.) [45] . His Honour further held that the shares were to be held in trust for B.T.A., hence there was a "person mentioned therein" in terms of par. (2)(a).

Mahoney J.A. rejected an argument that the share sale deed fell within par. (1) which imposes nominal duty on: "Any instrument declaring that a person in whom property is vested as the apparent purchaser thereof holds the same in trust for the person or persons who have actually paid the purchase-money therefor." He did so because Pendal, being the person declaring the trust, was not the purchaser of the shares. But Mahoney J.A. upheld a submission that cl. 1.4 of the share sale deed fell also within par. (3)(b), on the ground that the shares were transferred to Pendal "by an instrument duly stamped with ad valorem duty under this Act". He considered that ad valorem duty had been paid because the shares were conveyed and that the duty paid was "appropriate to a conveyance and/or transfer of shares".

In this Court the Commissioner challenged the decision of the Court of Appeal that cl. 1.4 of the share sale deed fell within par. (3)(b) of the head of charge Declaration of Trust in the Second Schedule to the Act. The Commissioner submitted that, at the time the instrument became chargeable as a declaration of trust under par. (2)(a), the property had not been conveyed to the person declaring the trust. Additionally, it was argued that at no time was the instrument by which the property was conveyed stamped with ad valorem duty as required by par. (3)(b). In opposing the appeal Pendal argued, by notice of contention, that the Court of Appeal was in error in concluding that cl. 1.4 operated as a covenant by Pendal to hold the shares when transferred to it as nominee for B.T.A. and in not finding that, where duty is charged upon an instrument having a particular description, no charge for duty arises unless and until all parties have executed the instrument or there has been an exchange of counterparts. It was further said that the Court of Appeal erred in holding that the person for whom Pendal was to hold the shares in trust was B.T.A. and not the beneficiaries under the trust deed and in holding that Pendal was not a person "in whom property is vested as the apparent purchaser thereof" to which par. (1) of the relevant part of the Second Schedule applied. Finally it was said that the Court erred in not finding that the agreement by Pendal to hold the shares as trustee did no more than record an obligation which was in any event imposed upon it by operation of the general law and accordingly that the deed was not liable to ad valorem duty as a declaration of trust.

There can be no doubt that cl. 1.4 of the share sale deed imposed upon Pendal an obligation, once it accepted a transfer of the shares, to hold the shares as trustee for B.T.A. and to act at the direction of B.T.A. On acceptance the shares were then vested (or at any rate were to be vested) in Pendal. "Vested" looks to the case of a declaration of trust of property then vested in the person who declares the trust. "To be vested" looks to a declaration of trust, in advance of the vesting in the person who declares it, of property which, in the view of Mason J., with whom Stephen J. agreed, in D.K.L.R. Holding [46] , it is intended to make the subject of the trust. In the view of Gibbs C.J. and Brennan J. the words import mere futurity [47] . In the circumstances of the present case the distinction is of no real importance for the share sale deed clearly contemplated that Pendal would hold the shares on trust for B.T.A. Pendal did not assume an obligation to act at the direction of the unit holders. As Mahoney J.A. expressed it [48] :

The fact that B.T.A. itself held the shares subject to other equitable obligations or, as it was put, on trust for other persons, including itself, is not, for this purpose relevant. B.T.A. was, for the purposes of the trust declared, the cestui que trust. 1. (1982) 149 C.L.R., at pp. 456, 446. 2. (1982) 149 C.L.R., at pp. 439, 471. 3. (1987) 11 N.S.W.L.R., at p. 605; 19 A.T.R., at p. 721; 88 A.T.C., at p. 4035.

Paragraph (2)(a) of Declaration of Trust is therefore, in its terms, applicable to the share sale deed.

The Court of Appeal was right in concluding that par. (1) of Declaration of Trust was inapplicable. Pendal was not the purchaser of the shares nor was it the apparent purchaser. It was B.T.A. which answered those descriptions; the share sale deed identified it as the purchaser and as the entity which paid the purchase price. Further, the deed obliged Pendal to hold the shares as nominee for B.T.A. It may be noted that s. 73(1) of the Act excludes from liability for ad valorem duty as a conveyance various instruments, including:

(e) A conveyance whereby the apparent purchaser of property that is vested in him upon trust for the person who was the real purchaser and who has actually paid the purchase money therefor, conveys the same to the real purchaser.

As already mentioned, the Court of Appeal concluded that the share sale deed fell also within par. (3)(b) of Declaration of Trust and that as a consequence nominal duty only was payable. The reasoning which led the Court of Appeal to that conclusion is encapsulated in the following sentence from the judgment of Mahoney J.A. [49] .

The property was conveyed to P.N. by an instrument duly stamped with ad valorem duty under this Act. His Honour elaborated this statement by saying that ad valorem duty as on a transfer of the shares had been paid, presumably upon the share sale deed. He then noted that par. (3)(b) does not specify the nature of the ad valorem duty to which it refers. Nor does it specify the document or transaction in respect of which the ad valorem duty is to be paid. It was enough, therefore, if ad valorem duty had been paid upon the instrument even though the duty had not been paid in respect of the declaration of trust. Mahoney J.A. then concluded that in the present case "the ad valorem duty is paid because the property "was conveyed" and the duty is appropriate to a conveyance and/or transfer of shares". 1. (1987) 11 N.S.W.L.R., at p. 606; 19 A.T.R., at p. 722; 88 A.T.C., at p. 4036.

But, with respect to his Honour, that is not so. The shares were conveyed to Pendal by a form of transfer which was stamped with nominal duty of $1, being a transfer of property pursuant to an agreement for the sale of that property which itself had been stamped with ad valorem duty as a conveyance: see s. 41(4)(a) read with s. 41(1). That does not necessarily conclude the matter against the respondents. It may be, for instance, that if duty is paid in accordance with s. 41(4) on a conveyance made pursuant to an agreement stamped in accordance with s. 41(1), the conveyance may be regarded for the purposes of par. (3)(b) as stamped with ad valorem duty.

Before turning to that question, however, it is necessary to deal with a submission by the Commissioner that the trust declared by Pendal was not the same trust as that upon or subject to which the shares ("the same property") were conveyed to Pendal. The appropriate time at which the question must be answered, so the argument runs, is the time when the share sale deed was first executed by Pendal for that is when Pendal became liable for the payment of duty: s. 26 read with s. 38(1). But at that time the shares had not been conveyed and therefore the deed did not meet the relevant requirement of par. (3)(b). That submission should be accepted. Section 26 provides:

For the purposes of this Act an instrument is deemed to be first executed the first time that it is signed and sealed, or signed (as the case may be) by any party thereto. Section 38(1) renders every person primarily liable with respect to an instrument mentioned in the Second Schedule personally liable for the payment of the duty chargeable on the instrument "immediately upon the first execution thereof". Upon the first execution of the share sale deed Pendal therefore became liable for the payment of duty thereon. At that time the shares had not been conveyed; they were not conveyed earlier than delivery of a transfer of the shares to Pendal, an event which occurred on 28 June 1983. As Gibbs C.J. observed in D.K.L.R. Holding [50] , "the words "was conveyed" in par. 3(b) are deliberately used in the past tense, to refer to a conveyance made before the declaration of trust was executed". Here, at the time Pendal declared the trust in the share sale deed, that property had not been conveyed to it; hence par. (3)(b) could not apply. 1. (1982) 149 C.L.R., at pp. 442-443.

The respondents submit that the "leading and principal object" of the share sale deed for which it was dutiable was as an agreement for sale in which the shares were to be transferred from R.D.C. to Pendal. Clause 1.4, it was said, was merely accessory to that object and was not dutiable, falling within the words of Martin B. in Limmer Asphalte Paving Co. v. Commissioners of Inland Revenue [51] :

There is no better established rule as regards stamp duty than that all that is required is, that the instrument should be stamped for its leading and principal object, and that this stamp covers everything accessory to this object. That cl. 1.4 was merely accessory to the principal object of the share sale deed could be seen, the respondents argued, from the fact that it did no more than record an obligation already imposed by the general law. Being accessory to the principal object of the deed, cl. 1.4 was not a distinct matter within the meaning of s. 17 of the Act. Section 17(1) reads: Except where express provision to the contrary is made by this or any other Act, an instrument containing or relating to several distinct matters is to be separately and distinctly charged with duty in respect of each of such matters, as if each matter were expressed in a separate instrument. 1. (1872) L.R. 7 Ex. 211, at p. 217.

This submission must be rejected. Clause 1.4 constitutes a declaration of trust. There are therefore two distinct matters involved within the meaning of s. 17: an agreement for sale, and a declaration of trust. In this regard see the judgment of Sheppard J. in Farrar v. Commissioner of Stamp Duties [52] . In any event I do not think it right to say that cl. 1.4 imposes no obligation on Pendal which was not imposed on it by operation of general law, in other words that the clause merely recorded an obligation which otherwise existed. No doubt, a transfer to Pendal of the Seven Hills shares would, in the circumstances, require Pendal to hold the shares as trustee for B.T.A. But cl. 1.4 imposed an obligation on Pendal to take, and contained an undertaking by Pendal that it would take, the shares as nominee for B.T.A. The consequence is that cl. 1.4 imposed on Pendal an obligation that went beyond any imposed on it by the general law at the time the deed was executed. And, whatever B.T.A.'s obligations under the trust deed and whatever the position of a nominee of the trustee under that deed, it was by cl. 1.4 of the share sale deed that Pendal expressly undertook to hold the shares as nominee for B.T.A.

In the light of what has been said thus far it would follow that the appeal should be upheld. From the respondents' point of view that result can only be avoided if it be accepted that in truth the transfer of shares had been "duly stamped with ad valorem duty" because it was executed pursuant to an agreement which had been so stamped. There are difficulties in acceding to this view of the matter, not the least of which is that it fails to give effect to the language of par. (3) and indeed of the Act. The transfer of shares was duly stamped but it was not duly stamped with ad valorem duty. And the reason it was not so stamped is that s. 41(4)(a) exempted it from this form of duty. Section 41(4)(a) expressly provides that, in the circumstances with which it is concerned, the conveyance "shall not be chargeable with ad valorem duty". In the light of this express command, how can it be said that the transfer was duly stamped with ad valorem duty?

It may be argued that the share sale deed was itself a conveyance and that, it having been stamped with ad valorem duty, no further such duty is payable. Section 65 defines "conveyance" to include:

any transfer, lease, assignment, exchange, appointment, settlement, surrender, release, foreclosure, disclaimer, declaration of trust, and every other instrument (except a will) whereby any property is transferred to or vested in or accrues to any person Wide though the range of those words is, they generally carry with them the notion of the passing of the legal estate. The distinction between agreement for sale and conveyance is evident in the Act and in the Second Schedule. Here, a conveyance to Pendal was not effected by the share sale deed; it was effected by the transfer of shares which was stamped with nominal duty only. The share sale deed, the instrument stamped with ad valorem duty, was an agreement for the sale of shares to Pendal. But the declaration of trust contained in cl. 1.4 of that agreement was a declaration in respect of the legal estate passed to Pendal by transfer of the shares. And it was the legal estate in the shares which was, in the circumstances, the "property" to which par. (3)(b) of the head of charge Declaration of Trust referred. In consequence the share sale deed made with B.T.A. and others attracted ad valorem duty as an agreement for sale and the declaration of trust made by Pendal in regard to those shares, a distinct matter, attracted ad valorem duty on that declaration.