STAMP DUTY - Change in capacity in which trustee of unit trusts held units in land rich landholder - Duties Act 2000, ss 76, 77, 78, 79 - Liability - Whether transaction a relevant acquisition - Meaning of 'beneficial entitlement' and 'obtains an interest beneficially' - Appeal dismissed.

COSTS - Offer of compromise - Whether award of costs on indemnity basis appropriate - House v The King [1936] HCA 40; (1936) 55 CLR 499, applied.

1 On 19 December 2008 a trial division judge ordered that the appellant, the Commissioner of State Revenue (the 'Commissioner'), repay the respondents, Landrow Properties Pty Ltd ('Landrow') and Heeni Pty Ltd ('Heeni'), the sum of $110,609,[1] mistakenly paid by the respondents under the Duties Act 2000 (the 'Act').[2] The judge also ordered that the Commissioner pay the respondents' costs on a party/party basis up until 17 October 2008, the date on which an offer of compromise was made by the respondents, and thereafter pay their costs on an indemnity basis. The Commissioner now appeals against those orders.

2 Two issues arise on the appeal. The first issue is whether a liability to pay duty[3] on the transaction described below arose under Part 2 of Chapter 3 of the Duties Act 2000 (as in force at 1 July 2005) ('Chapter 3'). The quantum of any duty which is found to be payable is not disputed. The second is whether his Honour erred in ordering the Commissioner to pay the respondents' costs on an indemnity basis, from the date of their offer of compromise.

3 The Commissioner alleges that the liability to pay duty arises under the 'land rich' provisions in Chapter 3. The purpose of these provisions is to prevent the use of private companies and unit trusts to reduce the rate at which stamp duty would otherwise be payable on transfers of land. In broad terms the legislation seeks to treat transfers of shares in 'land rich' private companies and transfers of units in 'land rich' unit trusts as equivalent to transfers of land for duty purposes.

4 The transaction said to give rise to liability to duty under Chapter 3 was as follows. Landrow was the trustee of the Rowland Egg Trust No 1 (the 'Egg Trust'), which was comprised of 60 units, all of which were held by Heeni. Under the terms of the Egg Trust:

7(a) The beneficial interest in the Trust Fund as originally constituted and as existing from time to time shall be vested in the Unit Holders for the time being.

...

8(a) Each Unit shall entitle the registered holder thereof together with the registered holders of all other Units to the beneficial interest in the Trust Fund as an entirely [sic] ...

...

10(c) No notice of any trust express implied or constructive need be entered in the register and the person from time to time entered in the register as the Unit Holder shall be the only person recognised by the Trustee as entitled to the Units registered in his name or to exercise the rights and privileges of the registered holder thereof pursuant to this Deed. No person need be recognised by the Trustee as holding any Unit upon any trust and the Trustee shall not be bound by or compelled in any way to recognise (even when having notice thereof) any equitable contingent future or partial interest in any Unit or any interest therein or ... any other rights in respect of any Unit except an absolute right to the entirety thereof in the Unit Holder ...

...

17(a) ... the Trust created by these presents shall commence on the date hereof and shall terminate on the Vesting Day unless it has been terminated prior to that date under the provisions of this Deed.

...

1. Upon the termination of the Trust ... the Trustee shall stand possessed of the Trust Fund in trust for Unit Holders and shall proceed as follows: -

...

(b) ... the Trustee shall from time to time and as soon as is practicable distribute in specie or in cash the assets of the Trust Fund to the Unit Holders proportionally to their [holdings] ... until the assets of the Trust Fund have been completely distributed ... .

1. The Trustee may at any time ... revoke add to or vary all or any of the trusts or powers or discretions hereinbefore declared ... but ... so that such new or other trusts powers discretions revocations additions or variation -

...

(c) shall not affect the beneficial entitlement to any amount set aside for any Unit Holder prior to the revocation addition or variation ...

5 Heeni was the trustee of three trusts: the Keith Rowland Trust No 1 (the 'Keith Trust'), the Derek Rowland Trust No 1 (the 'Derek Trust') and the Leonard Rowland Trust No 1 (the 'Leonard Trust'). It held its 60 units in the Egg Trust in three different capacities: 20 units as trustee of the Keith Trust, 20 units as trustee of the Derek Trust and 20 units as trustee of the Leonard Trust.

6 By a 'unit transfer certificate' dated 5 July 2005, Heeni, as trustee of the Keith Trust, acquired 20 units (the 'Units') in the Egg Trust from Heeni, as trustee for the Derek Trust, in consideration for the payment by the Keith Trust of $931,402.13. It was this transfer which is said to attract liability to pay duty under the land rich provisions. The Keith Trust is a discretionary trust with specified classes of objects of the trust and takers in default. Heeni is specifically excluded as an object of the discretionary trust.

7 In December 2006, following an investigation by the Commissioner, the respondents agreed to pay duty, interest and penalty tax in the agreed sum of $110,609, in relation to Heeni's acquisition of the Units as trustee of the Keith Trust. That sum was paid and the acquisition statement was lodged in January 2007. In the proceedings below, Landrow and Heeni successfully claimed that this amount was not payable under the land rich provisions and that they were therefore entitled to its repayment.

8 Under s 78 of the Act, liability to pay duty under the land rich provisions arises when a person makes a 'relevant acquisition'. Under s 79, a relevant acquisition is made when a person 'acquires an interest in a land rich landholder', that is of itself,[4] or by operation of provisions permitting aggregation of interests,[5] a significant interest.

9 Section 76 of the Act provides:

(1) A person has an 'interest' in a landholder if the person has a beneficial entitlement (otherwise than as a creditor or other person to whom the landholder is liable), whether directly or through another person, to a distribution of property from the landholder on a winding up of the landholder or otherwise.

(2) A person who, by virtue of sub-section (1), has an interest in a landholder has a 'significant interest' in the landholder if the person, in the event of a distribution of all the property of the landholder immediately after the interest was acquired, would be entitled to -

(a) in the case of a private unit trust scheme - 20% or more of the property distributed; or

(b) in the case of a landholder other than a private unit trust scheme - 50% or more of the property distributed.

10 Section 77 of the Act provides:

(1) A person acquires an interest in a land rich landholder if the person obtains an interest beneficially**,** including if the person's interest increases, in the landholder regardless of how it is obtained or increased.

(2) Without limiting sub-section (1), a person may acquire an interest in a land rich landholder in the following ways -

(a) the purchase, gift, allotment or issue of a unit or share;

(b) the cancellation, redemption or surrender of a unit or share;

(c) the abrogation or alteration of a right pertaining to a unit or share;

(d) the payment of an amount owing for a unit or share.

(3) To remove any doubt, it is declared that an acquisition by way of transfer of units or shares is not necessary to acquire an interest in a land rich landholder.

11 Section 3(1) of the Act defines 'entitled' to mean 'beneficially entitled'.

12 In the proceedings below there was no dispute that the Egg Trust was a 'land rich landholder' within the definition in s 71 of the Act. The learned judge said that:

It is common ground that, as a result of the transaction, Heeni 'acquired' the said interest in the [Egg Trust] the latter being a land rich landholder. The only question is whether Heeni obtained that interest 'beneficially'. The plaintiffs say that it did not obtain the interest beneficially but the Commissioner says that it did.[6]

13 It is no longer necessary for the Commissioner to show that this is the case, because amendments made in 2007 to s 77 of the Act,[7] provide that a person who takes an interest as a trustee is now to be treated as obtaining it beneficially.

14 The learned trial judge held that the respondents were not liable to duty because:

(a) it was not sufficient for Heeni to have an interest within s 76(1) as a consequence of the transaction.[8] For the acquisition to be a relevant acquisition within s 78, Heeni had to obtain an interest beneficially as was required by s 77(1). It did not do so, because when it obtained the Units in the Egg Trust, it did so as trustee for the Keith Trust beneficiaries; [9]

(b) even if s 76 applied, s 76(1) required Heeni to have a beneficial entitlement.[10] Although Heeni was entitled to participate on a notional termination of the Egg Trust, it did not acquire a beneficial entitlement in Units because these were held on the terms of the Keith Trust; and

(c) neither the objects of the Keith Trust nor the takers in default (the 'Keith Trust beneficiaries') had a 'beneficial entitlement to a distribution on a notional winding up [of the Egg Trust] either directly or through [Heeni]'.[11]

15 The grounds of appeal challenged his Honour's findings that neither Heeni nor the Keith Trust beneficiaries acquired an interest in the Egg Trust. Grounds 7, 7A and 7B, which concerned the alleged acquisition of a beneficial interest by the objects of the Keith Trust, were not pursued on the hearing of the appeal. Thus the sole question for resolution on this appeal is whether Heeni's acquisition was a relevant acquisition within Chapter 3.

16 Grounds of appeal 1 to 6B alleged that his Honour erred in finding that Heeni's acquisition of the Units was not a relevant acquisition within s 78 of the Act. These grounds were as follows:

1. The learned judge erred in holding that, following the transaction, Heeni did not hold an interest in the Unit Trust within the meaning of ss 76 and 77 of the Act.
2. The learned judge erred in holding that, following the transaction, Heeni did not have a 'beneficial entitlement (otherwise than as a creditor or other person to whom the landholder is liable) ... to a distribution of property' from the Unit Trust on a winding up of the Unit Trust or otherwise within the meaning of s 76(1) of the Act.
3. The learned judge erred in holding that, following the transaction, Heeni had not acquired an interest in the Unit Trust within the meaning of s 77(1) of the Act.
4. The learned judge erred in holding that, following the transaction, Heeni had not obtained 'an interest beneficially ... in the landholder' (the Unit Trust) within the meaning of s 77(1) of the Act.

4A. Without limiting paragraphs 1 to 4 inclusive hereof, the learned judge erred:

(1) in limiting the questions in issue to the meaning of the words 'beneficial' and 'beneficially' in ss 76(1) and 77(1) respectively without reference to their place within compound expressions in those enactments, and without reference to their full statutory context and purpose;

(2) in holding that the amendments effected by the State Taxation Acts Amendment Act 2007, which were intended to 'clarify' (and not alter) the intended application of the Act to trustees, were of no assistance to the proper construction of the Act to the facts here.

(1) in construing sections 76 and 77 of the Act to hold that they impose a 'double requirement' to be met by Heeni in order to decide whether, following the transaction:

(a) it was a person who held an 'interest' in the Unit Trust within the meaning of s 76(1) of the Act;

(b) it was a person who acquired an 'interest' in the Unit Trust within the meaning of s 77(1) of the Act;

(2) in holding that Heeni failed to meet one or other of the double requirements of s 76 and s 77 of the Act, and therefore that Heeni was not, following the transaction:

(a) a person who held an 'interest' in the Unit Trust within the meaning of s 76(1) of the Act;

(b) a person who acquired an 'interest' in the Unit Trust within the meaning of s 77(1) of the Act.

5A. Without limiting paragraph 5 above:

(1) the learned judge erred in holding that sections 76 and 77 imposed a 'double requirement' when, on their proper construction, those sections address the same subject matter, namely the relevant 'interest' in the landholder for the purposes of Chapter 3 of the Act;

(2) accordingly the learned judge erred in holding that even if Heeni had an interest under s 76(1), it did not satisfy the purported second requirement in s 77(1) and thereby negated the conclusion that Heeni held an 'interest' within the meaning of s 76(1) of the Act.

1. The learned judge erred in holding that by reason of its capacity as trustee of the Keith Trust, Heeni, following the transaction:

(1) was not a person who held an 'interest' in the Unit Trust within the meaning of s 76(1) of the Act;

(2) did not have a 'beneficial entitlement (otherwise than as a creditor or other person to whom the landholder is liable) ... to a distribution of property' from the Unit Trust on a winding up of the Unit Trust or otherwise within the meaning of s 76(1) of the Act;

(3) was not a person who acquired an 'interest' in the Unit Trust within the meaning of s 77(1) of the Act;

(4) was not a person who had obtained 'an interest beneficially' in the Unit Trust the meaning of s 77(1) of the Act.

6A. Without limiting paragraph 6 hereof, the learned judge first held (correctly) that:

(1) Heeni had an 'entitlement' to the distribution of property on a notional winding up of the landholder (the Unit Trust) within the meaning of s 76(1) both before and after the transaction (Reasons [7]); and

(2) that, as a result of the transaction Heeni acquired the interest in the landholder (the Unit Trust) within the meaning of s 77(1) (Reasons [10]);

but then erred in rejecting

(i) the description of that entitlement as 'beneficial' (per s 76(1)); and

(ii) that Heeni had obtained the interest 'beneficially' (per s 77(1))

on the grounds that the means by which Heeni obtained and held its interest in the landholder, namely as a unit holder in the landholder (the Unit Trust) in respect of its trust property (land), and thus as a beneficiary of that trust, was to be displaced or negated by reason of Heeni's capacity as trustee of a different trust (the Keith Trust) in respect of different property (units in the Unit Trust).

6B. Without limiting paragraphs 6 and 6A hereof, the learned judge erred in seeking to support his finding that Heeni did not have an 'interest' within the meaning of s 76(1) of the Act by holding that a shareholder in a private company landholder (in contradistinction to a landholder which was a unit trust scheme, as here) was not a 'beneficiary' of a trust and therefore could not on that basis have a 'beneficial entitlement ...' within the meaning of s 76(1). That holding overlooks the operation of s 77(2) which refers indifferently to a unit or share as the means of acquiring an interest in a landholder for the purpose of s 77(1).

[t]he learned judge erred in holding that the respondents were entitled to a refund of duty paid under the Act in relation to the transaction.

18 Because the grounds are repetitive we discuss them together.

19 Counsel for the Commissioner submitted that s 76(1) of the Act applied. Under the terms of the Egg Trust, Heeni had an interest entitling it to a distribution of property on a winding up of the trust (otherwise than as a creditor or other person to whom the landholder is liable). This was a significant interest because it entitled Heeni to 20 per cent or more of the property of the Egg Trust.[12]

20 It was submitted that the trial judge had erred by reading the words 'beneficial entitlement' in s 76(1) as if they stood alone, rather than as if they referred to 'a beneficial entitlement ... to a distribution of property from the landholder' on the winding up of the Egg Trust. In his reasons,[13] his Honour referred to the decision of Gibbs J (as he then was) in White v Commissioner of Stamp Duties,[14] to the effect that the word 'beneficially' meant for the person's own benefit, in contradistinction to an entitlement as a trustee. It was submitted that White was distinguishable because the beneficial entitlement to which s 76(1) referred meant Heeni's right to share as a beneficiary in the distribution of property, as a beneficiary of the Egg Trust. The fact that Heeni did so as a trustee under the Keith Trust had no relevance to the operation of s 76.

21 It was further submitted that s 77, which explains how an interest may be 'acquired', did not impose any additional requirement for the acquisition to be a relevant acquisition within the land rich provisions, but simply referred to the interest held by Heeni immediately following the acquisition under s 76(1). Section 77(1) focussed on the manner of acquisition of the interest and did not qualify the nature of the interest acquired under s 76(1). Heeni obtained its interest beneficially under s 77(1) because it took as a beneficiary of the Egg Trust. This was said to be supported by the definitions of 'unit' and 'unit trust scheme' in s 3(1) which are as follows:

'unit' in a unit trust scheme means -

(a) a right or interest (whether described as a unit or a sub-unit or otherwise) of a beneficiary under the scheme; or

(b) a right to any such right or interest -

...

'unit trust scheme' means any arrangements made for the purpose, or having the effect, of providing, for persons having funds available for investment, facilities for the participation by them, as beneficiaries under a trust, in any profits, income or distribution of assets arising from the acquisition, holding, management or disposal of any property whatever pursuant to the trust.

22 Counsel for the Commissioner submitted that Heeni had a right as a beneficiary under the scheme and was therefore a beneficiary of that scheme. It therefore acquired a 'beneficial entitlement' in the units transferred to it.

23 Counsel for the Commissioner also relied on the Federal Court's decision in Federal Commissioner of Taxation v Totledge Pty Ltd.[15] In that case, a provisional liquidator was paid income from a trust established to run a business. It held the income on trust for the benefit of creditors. The Federal Court held that the provisional liquidator was a beneficiary of the business trust for the purposes of the Income Tax Assessment Act 1936 (Cth),[16] despite the fact that it received the income as a trustee. Counsel submitted that Heeni was in a similar position to the provisional liquidator in Totledge.

24 Counsel for the appellant further submitted that nothing in the history of Chapter 3 detracted from this interpretation of ss 76 and 77. Further, it derived support from other sections in the legislation.

25 The land rich provisions in their original form were introduced by amendments made to the Stamps Act 1958 (the 'Stamps Act') by the Taxation Acts Amendment Act 1987. The Explanatory Memorandum accompanying the Taxation Acts Amendment Act 1987 explained that Parliament's purpose was to 'close a significant loop-hole whereby conveyance duty is avoided through the use of company shares and unit trusts'.[17]

26 Under the 1987 amendments to the Stamps Act, a person who acquired shares in a corporation that was a landholder, which amounted to a 'majority interest' or a 'further interest', was liable to pay duty at the higher rate applicable to conveyancing transactions.[18] Under s 75K of the Stamps Act, as so amended, a person acquired an 'interest' or a 'majority interest' in a corporation, if the person's shareholding would entitle that person, if the corporation were wound up after the shareholding was acquired, to 'participate (otherwise than as a creditor or other person to whom the corporation was liable) in a distribution of the property of the corporation' on a winding up. Section 75(1) defined 'entitled' as meaning 'beneficially entitled'.

27 Under s 75N(3) of the Stamps Act, these provisions applied to a private unit trust scheme as if the scheme were a corporation, as if the acquisition of units in the scheme were the acquisition of shares in the corporation and as if the reference to winding up of a corporation were a reference to the termination of a unit trust scheme. As counsel for the Commissioner observed, s 75K, when read in combination with s 75N, is similar in terms to s 76 of the Act.

28 The provisions dealing with the acquisition of interests in land rich corporations and private unit trust schemes were carried over into Parts 1 and 2 of Chapter 3 of the Act. The Explanatory Memorandum accompanying that Act said that Part 2 of Chapter 3

charges duty on the acquisition by a person of interest consisting of certain shareholdings in a private company, or on the unit holder in the unit trust scheme, whose property in either case consists of landholdings to a defined extent. Duty is charged at the general rate for a dutiable transaction under Chapter 2, rather than the rate applicable for a transfer of shares or units.[19]

29 Under s 71 of the Act a private corporation was defined as including a private unit trust. Section 76 set out the meaning of 'interest' and 'majority interest'. It provided that a person 'has an interest in a private corporation if the person has an entitlement (otherwise than as a creditor or other person to whom the corporation is liable) to a distribution of property from the corporation on a winding up of the corporation or otherwise'.[20] As was the case under the Stamps Act, 'majority interest' was defined as an interest entitling the person 'in the event of distribution of all the property of the corporation immediately after the interest was acquired, to more than 50% of the interest distributed'.[21]

30 Section 77 sets out the ways in which an interest in a 'land-rich private corporation' may be acquired, in similar terms to the current provision in s 77(2).

31 Section 76 did not refer to a 'beneficial entitlement' but only to an 'entitlement' and s 77 did not require that the interest be obtained beneficially. However, as under the Stamps Act, 'entitled' was defined as 'beneficially entitled'.[22]

32 The Act was amended by the State Taxation Acts (Tax Reform) Act 2004, which was drafted in a less complex manner than the earlier provisions. That Act introduced the word 'beneficial' before the word 'entitlement' in s 76(1) and the word 'beneficially' after the words 'obtains an interest' in s 77(1). The Explanatory Memorandum did not indicate any reason for the insertion of those words, although it said that s 77(1) 'states the interest must be acquired beneficially but can be acquired by any means'.[23]

33 In Mr Brumby's Second Reading Speech accompanying the Bill, the then Treasurer commented that:

the rules for calculating the duty on high-value property transactions conducted through private companies and trusts are to be revised in light of current business practices, which have the effect of reducing taxation liabilities ...

The fundamental basis of stamp duty is that changes in beneficial ownership in land, however achieved, are subject to a conveyance duty. For reasons of equity and revenue protection, it is essential that duties are applied equitably and effectively. The amendments to the land-rich tests will ensure that an appropriate amount of tax is collected on all transactions in property involving land.[24]

34 Counsel submitted that the history of these provisions indicated that an acquisition of units in a private unit trust was always intended to be caught by the land rich provisions. The addition of the word 'beneficial' in s 76(1) and the word 'beneficially' after the words 'obtains an interest' in s 77(1) by the 2004 amendment did not effect any change, because the definitions applicable to the land rich provisions in the Stamps Act and in the Duties Act 2000, as first enacted, had provided that 'entitled' means 'beneficially entitled'.[25]

35 Counsel for the Commissioner also referred to State Taxation Acts Amendment Act 2007 which amended s 76(1) and s 77(2) of the Act.[26] In s 76(1) the words 'an entitlement' was substituted for 'a beneficial entitlement'.

36 Sub-ss (2AA) and (2AB) were inserted after s 77(2) of the Act. Sub-section (2AA) provides that:

Without limiting sub-section (1) a person is taken to obtain an interest beneficially if the person obtains the interest as trustee of a trust.

37 Counsel for the Commissioner submitted that these amendments to ss 76 and 77(1) were intended to clarify the operation of these provisions, rather than to alter their effect. In support of that submission he relied on s 1 of the State Taxation Acts Amendment Act 2007 which provided that its purpose was to 'amend the Duties Act 2000 to clarify the land-rich duty provisions' and the Explanatory Memorandum, which referred to the amendment of s 77 as clarifying the operation of the provision.[27]

38 Finally, counsel for the Commissioner submitted that ss 85 and 89K of the Act reinforced the fact that a trustee could 'obtain an interest beneficially in the landholder under s 77(1)'. In particular, he submitted that s 85(1)(b) would be redundant, if this were not the case. That sub-section exempts from the land rich provisions the acquisition of an interest in a person's capacity as:

(i) a receiver or trustee in bankruptcy; or

(ii) a liquidator; or

(iii) an executor or administrator of the estate of a deceased person ...[28]

Counsel submitted that those provisions were included because otherwise persons taking shares or units on trust in any of the above circumstances would be caught by s 76. He further submitted that s 89K of the Act, which defines a 'qualified investor' in a unit trust scheme, contemplated that a trustee could be a 'qualified investor'.

39 Counsel for the respondents submitted that the submissions made by counsel for the Commissioner ignored the relationship between ss 78 and 79, which provided for the payment of duty on the acquisition of interests in private unit trusts, and the definitions contained in ss 76 and 77.

40 His contention was that when the sections were read together they meant that:

a relevant acquisition is made (ss 78 and 79) where the person obtains an interest beneficially (s 77(1)) which interest is a beneficial entitlement to a distribution of 20 per cent or more of the property of the landowner unit trust to which the person would be beneficially entitled (ss 76(2) and 3(1)) on a winding up or otherwise (s 76(1)).

41 It followed that, the question was whether Heeni 'obtained' the interest in the Egg Trust beneficially. It did not do so, it was said, because it took that interest as a trustee.

42 The flaw in the Commissioner's submission was said to be that it focused entirely on Heeni's right to participate in the distribution of the property held by the Egg Trust on its winding up, but ignored the capacity in which Heeni acquired its interest, which was as a trustee for the Keith Trust. The reference to a 'beneficial entitlement' in s 76 and to obtaining an interest 'beneficially' in s 77 had an accepted legal meaning and the Court should not depart from that meaning.[29]

43 Counsel for the respondents said that his Honour had correctly said in his reasons that:

when s 77(1) ... speaks of a person obtaining an interest 'beneficially', the legislature intended to import that well-recognised concept of obtaining the relevant benefit for itself and not for the benefit of others. Indeed, it is difficult to identify any alternative construction that gives the word 'beneficially' any work to do. If the interest is obtained by a trustee, it is not obtained for the benefit of the trustee but for the benefit of others. It is therefore not obtained 'beneficially' and the trustee has not thereby 'acquired' an interest within the meaning of s 77(1). Accordingly Heeni did not acquire an interest within the meaning of ss 77 and 79 of the Duties Act.[30]

44 Further, even if s 76(1) were regarded as the governing provision, it was not sufficient to establish that Heeni was a beneficiary under the Egg Trust because s 76(1) required it to have 'a beneficial entitlement'. The fact that Heeni took as a beneficiary of the Egg Trust did not mean that it had a 'beneficial entitlement' under s 76(1).[31] Heeni had acquired its interest in two capacities - as a beneficiary under the Egg Trust and as a trustee of the Keith Trust. By 'looking through' to the terms of the Keith Trust it was apparent that Heeni was bound by the terms of that trust. Section 76(2) defines a 'significant interest' as being determined 'in the event of a distribution of all the property of the landholder immediately after the interest was acquired'. Since Heeni acquired the units on trust for the Keith Trust beneficiaries, it did not have a beneficial entitlement to them. Nor did it 'obtain an interest beneficially' under s 77(1).

45 Counsel for the respondents submitted that the view advanced by the Commissioner required the Court to ignore the words 'beneficial entitlement' in s 76(1) and '[obtain] an interest beneficially' in s 77(1). Further, it required the Court to make the improbable assumption that there was no intention to change the meaning of the legislation by inserting those provisions in the 2004 amendment of the Act and by removing those words in the 2007 legislation.

46 The court should not disregard the plain words of the legislation, but should interpret ss 76 and 77 consistently with the approach in Alcan (NT) Alumina Pty Ltd v Commissioner of Territory Revenue (Northern Territory),[32] where Hayne, Heydon, Crennan and Kiefel JJ warned that '[f]ixing upon the general legislative purpose of raising revenue [carries] with it the danger that the text [does] not receive the attention it deserves'.[33]

Conclusion on the application of the land rich provisions

47 The single question raised by grounds of appeal 1 to 8 is whether Heeni's acquisition of the units as a trustee for the Egg Trust means that the acquisition was not a 'relevant acquisition' within s 78 of the Act. That question must be resolved by interpreting the relevant sections of the Act in light of the overall context of the provisions, and their legislative purpose and history. In CIC Insurance Limited v Bankstown Football Club Limited[34] Brennan CJ, Dawson, Toohey and Gummow JJ said:

the modern approach to statutory interpretation (a) insists that the context be considered in the first instance, not merely at some later stage when ambiguity might be thought to arise, and (b) uses 'context' in its widest sense to include such things as the existing state of the law and the mischief which, by legitimate means such as those just mentioned, one may discern the statute was intended to remedy. Instances of general words in a statute being so constrained by their context are numerous. In particular ... if the apparently plain words of a provision are read in the light of the mischief which the statute was designed to overcome and of the objects of the legislation, they may wear a very different appearance. Further, inconvenience or improbability of result may assist the court in preferring to the literal meaning an alternative construction which, by the steps identified above, is reasonably open and more closely conforms to the legislative intent.[35]

48 The Explanatory Memoranda and Second Reading Speeches accompanying each iteration of the legislation make it clear that the 'mischief' to which the land rich provisions are directed is the avoidance of duty on land transfers through the use of shares and units in private unit trusts.

49 If the respondents' submissions are accepted, s 76(1) of the Act does not apply in any case where a trust is imposed on the holder of shares in a land rich private company or of units in a unit trusts, even though the company or unit trust structure was used to avoid the payment of stamp duty at the higher rate applicable to conveyancing transactions. This would undermine the purpose of the provisions. Further, if, as the judge below held, the Keith Trust beneficiaries are not caught by s 78 of the Act because, as objects of a discretionary trust, they did not have an equitable interest in the units which Heeni held in the Egg Trust,[36] the opportunity for avoidance is further enhanced.[37] These consequences support the view that the legislation should be interpreted to cover Heeni's acquisition of the units in the Egg Trust.

50 Although acceptance of the respondents' submissions undermine the purpose of the land rich provisions, we have reluctantly reached the view that Chapter 3 of the Act cannot be interpreted in the manner submitted by counsel for the Commissioner. Our reasons are as follows.

51 First, it is trite law that legislation must be interpreted as a coherent whole and in a manner which, so far as possible, gives meaning to all the words it uses. In Project Blue Sky Inc v Australian Broadcasting Authority,[38] Mc Hugh, Gummow, Kirby and Hayne JJ said that:[39]

The primary object of statutory construction is to construe the relevant provision so that it is consistent with the language and purpose of all the provisions of the statute. The meaning of the provision must be determined 'by reference to the language of the instrument viewed as a whole'. In Commissioner for Railways (NSW) v Agalianos,[40] Dixon CJ pointed out that 'the context, the general purpose and policy of a provision and its consistency and fairness are surer guides to its meaning than the logic with which it is constructed'. Thus, the process of construction must always begin by examining the context of the provision that is being construed. A legislative instrument must be construed on the prima facie basis that its provisions are intended to give effect to harmonious goals. Where conflict appears to arise from the language of particular provisions, the conflict must be alleviated, so far as possible, by adjusting the meaning of the competing provisions to achieve that result which will best give effect to the purpose and language of those provisions while maintaining the unity of all the statutory provisions. Reconciling conflicting provisions will often require the court 'to determine which is the leading provision and which the subordinate provision, and which must give way to the other'. Only by determining the hierarchy of the provisions will it be possible in many cases to give each provision the meaning which best gives effect to its purpose and language while maintaining the unity of the statutory scheme.

Furthermore, a court construing a statutory provision must strive to give meaning to every word of the provision. In The Commonwealth v Baume[41] Griffith CJ cited R v Berchet[42] to support the proposition that it was 'a known rule in the interpretation of Statutes that such a sense is to be made upon the whole as that no clause, sentence, or word shall prove superfluous, void, or insignificant, if by any other construction they may all be made useful and pertinent'.

52 It follows that ss 76 and 77 must be read alongside ss 78 and 79, which provide that a liability to pay duty arises when a person acquires a significant interest in a land rich landholder. (We do not overlook the fact that s 79 does not specifically require the interest to be acquired beneficially).

53 Both s 76 and s 77 support the operative provisions in ss 78 and 79. The heading to s 76 indicates that its purpose is to define 'an interest' and a 'significant interest' for the purposes of s 79. Similarly the heading to s 77 shows that the purpose of s 77 is to define how an interest may be 'acquired'. Section 76(1) uses the verb 'has' in the context of a beneficial entitlement, whilst s 77(1) uses the verb 'acquires', which it defines as 'obtaining an interest beneficially'. When the sections are read together we consider that they support the conclusion that ss 78 and 79 only apply to an interest in a land rich landholder if that interest is obtained beneficially. In other words, we would accept the submission of counsel for the respondents as to the inter-relationship between the sections. We therefore consider that the trial judge correctly found that:

ss 76 and 77 appear to impose a double requirement. An 'interest' is defined by s 76(1) in terms of a notional beneficial entitlement but the interest, as so defined, is required to be obtained 'beneficially' by s 77 (1). So that even if the Commissioner's submissions about the meaning of s 76(1) are correct, the provisions of s 77 (1) must also be satisfied.[43]

54 Our second reason for rejecting the Commissioner's submissions is that their acceptance would deprive the amendments made to ss 76 and 77(1) of the Act by the State Taxation Acts (Tax Reform) Act 2004 of any meaning.

55 Counsel for the Commissioner submitted that the amendments were intended to clarify, rather than alter, the operation of the legislation. According to that analysis neither the amendments made to the Act in 2004, nor the later amendments made in 2007, achieved any change in the operation of the legislation.

56 The amendments made in 2004 included the insertion of the word 'beneficial' before 'entitlement' in s 76(1) and the addition of a new s 77(1) which provided that:

A person acquires an interest in a land rich landholder if the person obtains an interest beneficially, including if the person's interest increases, in the landholder regardless of however it is obtained or increased. [Emphasis added.]

The earlier version of s 77 provided that an interest in a land rich private corporation could be acquired in a number of different ways, and was virtually identical to the current provision in s 77(2). The addition of s 77(1) by the amendments made in 2004 therefore goes well beyond clarifying the effect of the previous provision.

57 We cannot accept counsel for the Commissioner's submission that these words are otiose and were not intended to change the meaning of the provisions. It may be argued that the new s 77(1) was simply intended to pick up the reference to a 'beneficial entitlement ... to the distribution of a property from the landholder on a winding up of the landholder or otherwise' in s 76(1). However, as the trial judge said, this argument gives no meaning to the word 'beneficial' in s 76(1) and does not account for its addition to s 76(1) in the 2004 amendment.

58 Thirdly, whilst the words 'beneficial entitlement' in s 76(1) refer to an entitlement to 'a distribution of property from the landholder, on the winding up of the landholder or otherwise', there is nothing in this section or in other sections in Chapter 3 to suggest that the 'beneficial entitlement' to a distribution means something different from the normal meaning of a beneficial entitlement to such a distribution.

59 In that context we note that s 7(1)(vi) of the Act provides that a dutiable transaction includes 'a change in beneficial ownership of dutiable property'. Although that is a different expression from the words 'beneficial entitlement' in s 76(1), it again indicates a distinction between a personal entitlement and an entitlement as a trustee. In Trust Company of Australia Ltd v Commissioner of State Revenue,[44] Mandie J (as he then was) observed that:

The question is: what is meant by 'beneficial ownership' in the Act? Some commentators, writing about the use of the term in tax legislation, have pointed out that 'beneficial ownership' is not necessarily the same as holding a 'beneficial interest' or having an entitlement to an 'equitable interest' [citation omitted]. Nevertheless the cases[45] at least support a presumption that when the words 'beneficial ownership' are used the legislature has in mind the distinction as described by Lord Diplock in the above quoted passage, that is, a technical reference to an entitlement in equity.[46]

60 The same must apply to the expression beneficial entitlement. Undoubtedly a revenue or other statute may use words or concepts differently from the way they are used under the general law. But there is no indication in the Act that the concepts of 'beneficial entitlement' and 'obtaining an interest beneficially' were intended to have a meaning specific to the legislation. As the trial judge said, it is trite law that a person who takes property on trust does not acquire a 'beneficial entitlement' to the trust property or 'obtain an interest beneficially'.

61 The definition of 'unit' in s 71 as 'a right or interest (whether described as a unit or a sub-unit or otherwise), of a beneficiary under the scheme; or any right to such right or interest' does not modify the requirement in s 76(1) that the right be a 'beneficial entitlement' to a distribution on winding up.

62 The Commissioner submitted that if the person acquiring an interest as a trustee is not caught by s 76(1), there would be no need for the exemption provision in s 85(1)(b). Section 85 (1)(b) provides that:

(1) An acquisition by a person of an interest in a landholder is an exempt acquisition -

...

(b) if the interest was acquired in the person's capacity as -

(i) a receiver or trustee in bankruptcy; or

(ii) a liquidator; or

(iii) an executor or administrator of the estate of a deceased person; or ...

63 The trial judge's interpretation of s 76 and s 77 does not make s 85(1)(b) redundant. Section 85(1)(b) is not concerned only with persons acquiring property in the capacity of trustees. Although it refers to a trustee in bankruptcy, it also exempts acquisitions of interests by persons in their capacity as liquidators, receivers and executors or administrators.

64 An executor or administrator is not a trustee until the estate is fully administered.[47] Nor can the position of a liquidator or a receiver be equated with that of the trustee of property.[48] The legislative drafters of s 85(1)(b) may well have thought necessary to clarify the status of persons holding the above positions, even if those who acquire units in the capacity of trustees are otherwise excluded from the operation of ss 76 and 77.

65 Counsel for the Commissioner also relied on s 89K. This section defines various terms for the purposes of Division 7 of Chapter 3, which provides for registration of certain unit trust schemes. Registration is relevant to the extent of liability under the land rich provisions.[49] Section 89K defines 'qualified investor' in a unit trust scheme as a person who holds units in the unit trust scheme in a number of specified capacities, including as:

(a) as trustee of a complying superannuation fund that has no less than 300 members;

(b) as trustee of a complying approved deposit fund that has no less than 300 members;

(c) as trustee of a pooled superannuation trust;

(d) as trustee of a public unit trust scheme; ...

66 Presumably counsel for the Commissioner relied on this section because it impliedly supports an interpretation of ss 76(1) and 77 which catches trustees. However when s 89K is read in the context of all the sections relating to registration of unit trust schemes (other than private unit trust schemes) we are not persuaded to take a different view on the meaning of ss 76(1) and 77(1).

67 We accept that this interpretation of the land rich provisions as they stood prior to the 2007 amendments undermined their effect. However, as Nettle J (as he then was) observed in Commissioner of State Revenue v Viewbank Properties Pty Ltd:[50]

... taxing statutes are technical and frequently complex things and those who seek to take advantage of them, and even more those who seek to avoid them, must know that they will need to approach them accordingly. Despite developments in the law relating to the construction of taxing statutes - so that by and large one is now to approach their construction in the same way as any other statute - the starting point remains the plain natural and ordinary meaning of the words of the legislation and the discernment of the legislative intention from the terms of the legislation viewed as a whole ... But where the words of such a provision are clear, the mere fact that a liberal construction of the provision more closely accords with subjective perceptions of what is 'equitable' will rarely if ever be sufficient basis to depart from the plain and ordinary meaning of the language that has been employed. Absent a drafting mistake of the kind which underscored the decision in Cooper Brookes or absurd irrational or capricious results or the use of language which as a matter of natural and ordinary meaning permits of a multiplicity of possibilities, or perhaps extrinsic materials which make plain that the language employed simply fails to achieve the result which was intended, it is not permissible to depart from the plain and ordinary meaning of the words.[51]

68 It may be that the anti-avoidance provision in s 89I(2)(d) of the Act could be relied upon in order to deem a relevant acquisition to have been made by a person in the position of Heeni and to determine the extent of the interest acquired.

69 In making their submissions about the application of the land rich provisions of the Act, both parties adhered to what at the trial was common ground. As described by his Honour at paragraph [10] of his judgment, there was agreement that, as a result of the transaction evidenced by the unit transfer certificate of 5 July 2005, Heeni 'acquired' its interest in the Units which were transferred from the Derek Trust to the Keith Trust. In these circumstances, his Honour there held, '[t]he only question is whether Heeni obtained that interest "beneficially"'.

70 It is of course at least arguable that the common ground thus reached is inconsistent with the principles of equity. Before 5 July 2005, Heeni was - as between it and Landrow - the beneficial owner of those units. This position remained unchanged after 5 July. Before that date, Heeni held those units as a trustee (for, as it happened, the Derek Trust). Its status as trustee likewise remained unchanged after 5 July. Accordingly (the argument continues) there was no acquisition by Heeni of anything. Before, as well as after, 5 July, it remained both the beneficial owner and the trustee of the units in question. The only change was in the Trust on whose behalf Heeni held the 20 transferred units. This was, before 5 July, the Derek Trust; it thereafter became the Keith Trust.

71 There is, however, no need to consider the merits of this argument. Doubtless because of the common ground to which his Honour referred, the point was not taken either before this Court or below.

72 For these reasons we do not consider that grounds 1 to 8 are made out.

73 On 17 October 2008 the respondents made an offer of compromise pursuant to O 26 of the Supreme Court (General Civil Procedure) Rules 2005. They offered to compromise their claim by accepting payment from the Commissioner of the sum of $100,000 plus their legal costs. The respondents' offer amounted to a discount of 15 per cent of their claim. Counsel sought leave to appeal against the trial judge's order that the Commissioner be responsible for the payment of costs on an indemnity basis.

[t]he learned judge erred in ordering the appellant to pay the respondents' costs on an indemnity basis by reason of the appellant not accepting an offer of compromise dated 17 October 2008 given by the respondents under Order 26 of the Supreme Court (General Civil Procedure) Rules 2005, and, without limiting the foregoing, erred in holding that the said offer was a genuine offer of compromise in circumstances where it represented an approximate 20 per cent prospect of success by the Commissioner.

75 Leave to appeal was sought on two grounds. First, it was submitted that in deciding whether to order otherwise under r 26.08(2)(b) of the Supreme Court (General Civil Procedure) Rules 2005 (ie, to refrain from ordering indemnity costs), his Honour was required to take account of the Commissioner's obligation to treat all tax payers equally. This was said to be a consideration relevant to the exercise of the Commissioner's discretion as to whether or not to accept the offer of compromise made by the taxpayer. In support of that submission, counsel for the Commissioner relied on the decision of Cooper J in Pickering v Deputy Commissioner of Taxation[52] where his Honour referred to the statement of Lord Scarman in Inland Revenue Commissioners v National Federation of Self-Employed and Small Businesses Limited[53] that the revenue had a legal duty to treat taxpayers fairly and 'to use their discretionary powers so that, subject to the requirements of good management, discrimination between one group of taxpayers and another does not arise'.[54]

76 Secondly, counsel for the Commissioner submitted that the learned trial judge should not have accepted that the offer was a genuine offer of compromise. He disputed the assessment of the Commissioner's prospects of success as being approximately 15 per cent, given the trial judge's finding, inter alia, that the Commissioner's case was 'not hopeless'[55] and its submissions 'plausible'.[56]

77 Counsel for the respondents submitted that the Court should not grant leave to appeal against the exercise of the costs discretion. Counsel relied on Transport Accident Commission v O'Reilly,[57] where Ormiston JA observed that:

it has been accepted for many years that it is extraordinarily difficult to show that a court of first instance ... with wide discretionary powers has erred in the exercise of its powers to award costs, if there be some basis for making an order other than the conventional order ...[58] [Emphasis added.]

78 Counsel said that detailed submissions (both written and oral) were made at trial by both parties on the question of indemnity costs, and the matter was set down for a separate hearing to deal with issue of costs. His Honour had reserved judgment on the issue.

79 He submitted that the submissions made on behalf of the Commissioner did not explain why this Court should interfere with a trial judge's exercise of discretion on a matter of practice and procedure and did not identify any material error of fact or law in the judge's exercise of discretion. Further, orders requiring the payment of costs on an indemnity basis had been made by the Federal Court in cases where offers of compromise had been made to resolve disputes about taxation liability.[59] In Clark v Commissioner of Taxation[60] Greenwood J held that the fact that the public had an interest in resolving a question of law raised by the Commissioner was not a circumstance which justified depriving the taxpayer of indemnity costs from the date an offer of compromise was made.

80 In reply, counsel for the Commissioner pointed out that these cases were decided under Federal Court Rules 1979 (Cth), and there was no equivalent in those rules to the requirement in the Supreme Court (General Civil Procedure) Rules 2005 that the Court be satisfied that the compromise was genuine.

81 The principle in House v The King[61] applies in deciding whether the trial judge erred in the exercise of his discretion relating to costs orders. We do not consider that there is any basis for setting aside his Honour's finding. The question is not whether we would have made the same costs orders as the trial judge, but rather whether it is demonstrated on appeal that 'some error has been made in exercising the discretion'.[62] In our view his Honour did not take account of irrelevant considerations or fail to have regard to relevant matters. He clearly took account of the Commissioner's role in collecting public revenue. Nor is the order so unreasonable as to suggest that his Honour must have erred in principle.

82 For these reasons we would refuse leave to appeal against the costs orders made by the trial judge.

[1] Together with interest under s 58 of the Supreme Court Act 1986.

[2] Landrow Properties Pty Ltd v Commissioner of State Revenue [2008] VSC 590, ('Reasons').

[3] The trustee of the landholder and the person who makes the acquisition are jointly and severally liable to pay duty under s 82.

[4] Duties Act 2000, s 79(1)(a)(i).

[5] Duties Act 2000, s 79(1)(a)(ii) and (iii). It is unnecessary to set out the aggregation provisions, since they were not relied on here.

[6] Reasons, [10]. The other question considered at trial was whether, even if Heeni did not acquire its interest beneficially, the objects of the power of appointment conferred on the trustees of the Keith Trust, or the takers in default under that trust did so.

[7] State Taxation Acts Amendment Act 2007, s 5(1), inserting s 77(2AA) in the Act.

[12] It was not disputed that if the acquisition was caught by s 76(1), the interest was 'significant' within s 76(2).

[14] [1968] Qd R 140 ('White'), 149-50 (Gibbs J).

[15] [1982] FCA 64; (1982) 60 FLR 149 ('Totledge').

[16] Under s 97 of the Income Tax Assessment Act 1936 (Cth) as it then stood.

[17] Victoria, Parliamentary Debates, Legislative Assembly, 20 August 1987, 451 (The Hon Robert Jolly, Treasurer).

[19] Explanatory Memorandum, Duties Bill 2000, 28-9.

[23] Explanatory Memorandum, State Taxation Acts (Tax Reform) Bill 2004, 17.

[24] Victoria, Parliamentary Debates, Legislative Assembly, 13 May 2004, 1316 (The Hon John Brumby, Treasurer).

[25] See Stamps Act 1958, s 75; Duties Act 2000, s 3.

[26] State Taxation Acts Amendment Act 2007, ss 4, 5(1).

[27] Explanatory Memorandum, State Taxation Acts Amendment Bill 2007, 2.

[28] Sub-sections 85(1)(c) and (d) provide for other exemptions.

[29] DPP (Vic) v Le [2007] VSCA 18; (2007) 15 VR 352, 364 (Maxwell P and Chernov JA), 367-8 (Neave JA agreeing on this point).

[31] In support of that proposition counsel relied on Commissioner of Taxation v Linter Textiles Australia Ltd [2005] HCA 20; (2005) 220 CLR 592, 612-613 [52] and [56].

[32] [2009] HCA 41; (2009) 239 CLR 27.

[35] Ibid 408 (Brennan CJ, Dawson, Toohey and Gummow JJ) (citations omitted).

[36] For discussion of the nature of the interests of objects of a discretionary trust, see Kennon v Spry [2008] HCA 56; (2008) 238 CLR 366, 386-7 (French CJ).

[37] As we have said, the latter issue was not pursued on appeal.

[38] [1998] HCA 28; (1997) 194 CLR 355.

[39] Ibid 381-2 (some citations omitted).

[40] [1955] HCA 27; (1955) 92 CLR 390, 397.

[41] [1905] HCA 11; (1905) 2 CLR 405, 414.

[44] (2007) 19 VR 111.

[45] See Wilcox v Smith (1857) Drew 40, 51; White v Commissioner of Stamp Duties [1968] Qd R 140, Commissioner of Taxation v Linter Textiles Australia Ltd (in liq) [2005] HCA 20; (2005) 220 CLR 592, 611-12, 614, 634-5.

[46] (2007) 19 VR 111, 126.

[47] Livingston v Commissioner of Stamp Duties (Qld) [1960] HCA 94; (1960) 107 CLR 411.

[48] Absent an order under s 474(2) of the Corporations Act 2001 (Cth), which permits a court to 'direct that all or any part of the property of the company vests in the liquidator', a liquidator does not become the legal owner of the property: Tool & Die Makers Pty Ltd (in liq) v JV Marine Motors Pty Ltd [1992] VicRp 16; [1992] 1 VR 266; Blacktown Concrete Services Pty Ltd v Ultra Refurbishing & Construction Pty Ltd (in liq) (1998) 43 NSWLR 484, 500-1. In Re Lemon Tree Passage & Districts RSL and Citizens Club Co-op Ltd (1987) 11 ACLR 796, Young J (at 798) observed that there is a 'very real distinction between a trustee, even a trustee in bankruptcy, and a liquidator'. A receiver's duty to account to the secured creditor does not have the result that the receiver is a trustee of the moneys collected in its capacity as receiver: Visbord v Federal Commissioner of Taxation [1943] HCA 4; (1943) 68 CLR 354, 369 (Latham CJ).

[49] Under s 76(2)(b) the threshold for the application of the land rich provisions is higher if the unit trust scheme is other than a 'private unit trust scheme'. Certain schemes fall outside this definition if they are registered under Division 7 of Part 2 of Chapter 3.

[50] [2004] VSC 127; (2004) 55 ATR 501.

[52] (1997) 37 ATR 41, 49.

[53] [1981] UKHL 2; [1982] AC 617.

[55] Landrow Properties Pty Ltd v Commissioner of State Revenue [2009] VSC 108, [9].

[57] [1998] VSCA 106; [1999] 2 VR 436.

[59] Counsel cited IFTC Broking Services Limited and Anor v Commissioner of Taxation [2010] FCAFC 31; Clark v Commissioner of Taxation [2010] FCA 415.

[60] [2010] FCA 415.

[61] [1936] HCA 40; (1936) 55 CLR 499.

[62] Ibid 505 (Dixon, Evatt and McTiernan JJ).