Cymtow Pty Ltd as trustee for Stanavacs Trust; Lanlex No 127 Pty Ltd as trustee for TBH Family Trust; Cybir Pty Ltd v Chief Commissioner of State Revenue

Judgment (7 paragraphs)

[1]

Background

The decisions under review are all concerned with the Respondent's assessment of the Applicants for surcharge land tax under section 5A of the LTA.
There is no dispute that in respect of all relevant land tax years each Applicant: 1. owned (within the meaning of section 3 of the LTMA), 2. land which was residential land (within the meaning of section 2A of the LTA), and 3. did so, in the case of Cymtow Pty Ltd, as trustee for the Stanavacs Trust; in that of Lanlex No 127 Pty Ltd, as trustee for the TBH Family Trust; and in that of Cybir Pty Ltd, as trustee for the Hardin Hunters Hill Trust , the name of which was changed on 8 June 2017 to the Cybir Trust [7] .
There was, equally, no debate that each of the three trusts was at all material times a discretionary trust for purposes of section 5D of the LTA. The correctness of this consensus is apparent from: 1. Clauses 3 and 4 of the Deed of Settlement dated 3 December 1999 for the Stanavacs Trust [8] (the Stanavacs Trust Deed), which confer of the trustee of that trust the discretion to distribute respectively income or capital of the trust to one or members from time to time of a very widely defined group of beneficiaries; 2. Clauses 2 and 5 of the deed of settlement dated 19 March 1997 for the TBH Family Trust [9] (the TBH Trust Deed), which confer of the trustee of that trust the discretion to distribute respectively income or capital of the trust to one or members from time to time of a very widely defined group of beneficiaries; and 3. Clauses 3 and 4 of the Discretionary Trust Deed dated 15 September 2005 for the Hardin Hunters Hill (now Cybir) Trust [10] , (the Cybir Trust Deed), which confer of the trustee of that trust the discretion to distribute respectively capital or income of the trust to one or members from time to time of a very widely defined group of beneficiaries.
It was common ground that: 1. Each beneficiary of each of the trusts had a substantial interest in the relevant trust, because of the operation of the definition of foreign person (and its associated interpretative rules) imported into the LTA via the Duties Act from the Foreign Acquisition and Takeovers Act 1975 (Cwth); and 2. If the pool of beneficiaries of the trusts were limited so as to exclude persons who were not Australian citizens then, subject to compliance with the transitional provisions set out in clause 66 of Schedule 2 to the LTMA, the effect of section 104J(2)(a) would be to ensure that none of the trustees were foreign persons for purposes of surcharge land tax.

The Tribunal's analysis: the effect of the 4 February 2020 instruments

The importance of the 4 February 2020 instruments lies in clause 66(3) of the transitional provisions for the State Revenue Legislation Further Amendment Act 2020 [14] . If it can be demonstrated that the effect of those instruments was to amend any of the Stanavacs Trust Deed, the TBH Trust Deed or the Cybir Trust Deed ensure that no person who was not an Australian citizen was or could have been a beneficiary of the relevant trust immediately before the commencement of the State Revenue Legislation Further Amendment Act 2020 on 24 June 2020 [15] , then that trust would fall within the safe harbour of clause 66(3). It would do so solely by satisfying what is described in section 5D(3)(a) of the LTA as the no foreign beneficiary requirement, that "no potential beneficiary of the trust is a foreign person".
The First Hardin Declaration establishes that: 1. In February 2020 a communication in the following terms was executed by Mr Hardin and Ms Carolyn Bain: 04 February 2020 To Whom it may concern. This letter is to notify that the trust deed Stanavacs Trust is amended to exclude beneficiaries who are not Australian citizens effective immediately. [Signature] Signed Carolyn Bain [Signature] Signed Christian Hardin; 1. In February 2020 a communication in the following terms was executed by Mr Hardin and Ms Carolyn Bain: 04 February 2020 To Whom it may concern. This letter is to notify that the trust deed TBH Trust is amended to exclude beneficiaries who are not Australian citizens effective immediately. [Signature] Signed Carolyn Bain [Signature] Signed Christian Hardin; and 1. In February 2020, Mr Hardin and Ms Bain were both directors of Cymtow and Lanlex.
The Second Hardin Declaration establishes that: 1. In February 2020 a communication in the following terms was executed by Mr Hardin and Ms Carolyn Bain: 4th of February 2020 To Whom it may concern. This letter is to notify that the trust deed Cybir Trust is amended to exclude beneficiaries who are not Australian citizens effective immediately. [Signature] Signed Carolyn Bain [Signature] Signed Christian Hardin; and 1. In February 2020, Mr Hardin and Ms Bain were both directors of Cybir.
Clause 32(1) of the Stanavacs Trust Deed [16] provides that ".. the Trustees for the time being may at any time and from time to time by deeds revocable or irrevocable revoke add to or vary all or any of the Trusts herein contained ...", subject to certain conditions.
Clause 14 of the TBH Trust Deed [17] provides that "The Trustee may at any time and from time to time by written or oral resolution or Deed revoke add to or vary all or any of the provisions contained in this Deed ...", subject again to certain conditions. These conditions are that no such variation: 1. ... may be in favour of or for the benefit of the Ineligible Beneficiaries or result in any benefit to the Ineligible Beneficiaries; or 2. ... shall affect the beneficial entitlement to any amount set aside for any Beneficiary prior to the date of the variation alteration or addition. The Ineligible Beneficiaries are defined in clause 1 of the TBH Trust Deed [18] as being the Settlor (a Mr Michael Higgins), the Trustee and any undischarged bankrupt.
Clause 16 of the Cybir Trust Deed [19] provides: 1. In clause 16.1, that "With the consent of the Appointor, the Trustee may amend this Deed ... in any way except: 1. It may not amend clause 2.5, clause 2.6(a), 5.3(a)(ii) or clause 16.1; 2. It may not change the entitlement of any person to any capital or income appointed, paid or applied for the benefit of that person"; and 1. In clause 16.2, that "An amendment to this deed may be made in whatever manner and form the Trustee and Appointor consider appropriate (including a resolution of the Trustee) and need not use writing or a deed unless so required by law".
The amendment regimes thus fall into two categories, at least so far as the form of amendment is concerned. On the one hand, amendments to the TBH and Cybir Trust Deeds need not take the form of deeds and may, for example, be in the form of written resolutions of the relevant trustee. On the other, amendments to the Stanavacs Trust Deed must take the form of a deed.
In the Tribunal's view, the 4 February 2020 instrument for the Stanavacs Trust is clearly not in the form of a deed for the reasons set out below. It cannot therefore operate as an effective amendment to the Stanavacs Trust Deed because it fails to comply with the relevant formal requirements of Clause 32(1) of the Stanavacs Trust Deed. It is not a deed for the following reasons: 1. A deed is an instrument that is given particular legal status by satisfying certain technical legal formalities [20] , being traditionally that the deed be in writing on paper, vellum or parchment, sealed and delivered. 2. These requirements have evolved, as one recent commentator notes: "And the common law requirements, while longstanding, have not remained immutable. In particular, over time delivery and sealing have changed from a physical action and a physical seal to requirements that can be satisfied respectively by intention and by the writing of a symbol or words. Under statute, different requirements apply in different jurisdictions when deeds are executed by individuals, by companies and by foreign corporations". [21] 1. One particular area of evolution has been in relation to the execution of deeds by Australian incorporated companies, such as Cymtow. Section 127(3) of the Corporations Act 2001 provides that: A company may execute a document as a deed if the document is expressed to be executed as a deed and is executed in accordance with subsection (1) or (2). 1. Sections 127(1) and (2) allow for the execution of documents by a company either by the signatures of the company's directors or a director and secretary, or by the affixation of its common seal witnessed by the company's directors or a director and secretary. 2. The difficulty with Cymtow's execution of its 4 February 2020 instrument is that while the instrument may well have been signed by two directors, there is neither: 1. compliance with the legal formalities traditionally required as a matter of general law in order to create a deed, even in the attenuated form in which they may now operate; signature of the instrument by two directors may amount to execution in accordance with section 127(1) of the Corporations Act), but it falls short of the modern general law requirements for a deed - there is no reference to either sealing or delivery in a manner sufficient to indicate that the instrument is executed so as to take effect as a deed; 2. compliance with the requirements of section 127(3) of the Corporations Act , that the instrument be expressed to be a deed; the instrument is entirely silent on this point, and in consequence must fall outside the safe harbour for the execution of deeds by Australian incorporated companies provided by section 127(3); nor 3. any discernible intention that it be executed or operate as a deed.
In consequence, the 4 February 2020 instrument for the Stanavacs Trust cannot because of its formal deficiencies be effective to amend the Stanavacs Trust Deed so as to exclude foreign persons, within the meaning of section 5D of the LTA, from being beneficiaries of that Trust.
The 4 February 2020 instruments for the TBH Trust and the Cybir Trust do not suffer from that formal deficiency. Their respective trust deeds both allow amendment by means of written resolutions of the trustee, and although the instruments do not describe themselves as resolutions, nonetheless in the Tribunal's views they are readily so characterizable. This is because: 1. they have been apparently signed consistently with section 127(1) of the Corporations Act 2001, and it may thus be assumed in accordance with section 129(5) of that Act that they have been duly executed by Lanlex or Cybir, as the case may be; and 2. they record unambiguously a determination by the relevant trustee company that the beneficiaries of the trust are henceforth not to include persons who are not Australian citizens. That, however, is not the end of matters.
Clause 16 of the Cybir Trust Deed requires that in making an amendment to the trust deed the trustee must only do so with the consent of the Appointor. According to clause 1 of, and the Schedule to, the Cybir Trust Deed [22] , the Appointor is Mr Bruce Hardin. That gentleman has not endorsed his consent on the 4 February instrument, nor is there any evidence as to whether he provided his consent in any other way. The Second Hardin Declaration refers to certain discussions in early 2020 between the directors of Cybir (of whom Mr B Hardin was one) but does not provide any evidence as to whether Mr B Hardin so consented. Cybir's failure to demonstrate that Mr B Hardin consented (as required by the Cybir Trust Deed) to the amendment purportedly effected by the 4 February instrument means that it has not discharged the burden of proof imposed on it under section 100(3) of the TAA, to demonstrate that Cybir's 4 February 2020 instrument was effective to exclude non-Australian citizens from participation as beneficiaries in the Cybir Trust.
As noted above, each of the TBH and Cybir Trust Deeds condition the trustee's power of amendment on the amendment having no effect on the entitlement of a beneficiary to any amount "set aside for" that beneficiary (TBH Trust) or "appointed, paid or applied for the benefit of " that beneficiary (Cybir Trust). There was no evidence provided as to whether (and if so how) these conditions were satisfied in relation to TBH's and Cybir's respective 4 February 2020 instruments. There thus remain two unanswered questions: 1. Were there in fact any such beneficiaries who were not Australian citizens? 2. If so, what was the effect of their existence on the amendment purported to be made by the relevant 4 February 2020 instrument? At least two possible answers can be proposed to the second question: first, that the amendment was entirely ineffective, because it failed to protect their position as required by the relevant condition, or alternatively that the amendment was effective generally, but not in relation to that limited class of non-citizens. In each case, however, non-citizen beneficiaries of the relevant kind would remain as beneficiaries.
In neither case was there any evidence as to how these questions were to be answered. The result is that the Tribunal has no factual basis on which to conclude that the effect of the two 4 February 2020 instruments was unimpaired by reason of a failure to satisfy these conditions to their effectiveness. The Applicants' failure to provide this evidence means that they have not discharged the burden of proof imposed on them, to demonstrate that their respective 4 February 2020 instruments were on the balance of probabilities effective to exclude non-Australian citizens from participation as beneficiaries in the TBH and Cybir Trusts.

The Tribunal's analysis: whether certain dealings in December 2019 between a representative of the Applicants and the Respondent were such as to modify or limit the rights of the Respondent to assess the Applicants with surcharge land tax in respect of the 2017, 2018, 2019, 2020 and 2021 land tax years

There are two essential elements to this aspect of matters: 1. The first is that in oral communications on 16 December 2020 between the Applicants' accountant and bookkeeper, Mr Upadhyay, the Applicant agreed to extend the deadline for amending the trust deeds for the Trusts so as to comply with the requirements of section 5D of the LTA from 31 December 2020 to 15 January 2021; and 2. The second is that the Respondent's conduct in communicating with Mr Upadhyay on 16 December 20920 was such that it should now extend the time for making the relevant amendments or remit the surcharge tax assessed or write off the Applicants' liabilities for the tax so assessed.
The Applicants' agent, Dr Leighton-Daly, articulated the second strand in a more subtle and sophisticated way, to which these reasons will return below.
The starting point is the legislation. As noted above, the transitional provisions are found in in Clause 66 of Part 34 of Schedule 2 to the LTMA, and provide relevantly in paragraph (2)(a) of that Clause that: (2) If the trustee of a discretionary trust is liable in that capacity as a foreign person for surcharge land tax in respect of the 2017, 2018, 2019 or 2020 land tax year - (a) the trustee is exempt from that land tax if the terms of the trust have been amended, before payment of the land tax is due and before midnight on 31 December 2020, so that the trust prevents a foreign person from being a beneficiary.
The legislation requires the relevant amendments to have been made "before midnight on 31 December 2020". This is a precise cut-off time, and the legislation does not provide any discretion to the Respondent or any of its officers to extend or otherwise vary that date on a case-by-case basis. Hence, even if the Respondent's officers had agreed to such an extension, they had no legislative basis for doing so and any such purported extension would have had no legal effect.
In any event, the evidence provided does not support the proposition that the Respondent's officers agreed to an extension: 1. In the Upadhyay Declaration, Mr Upadhyay recounts his conversation on 16 December 2019 with an officer of the Respondent as follows: I said words to the effect: "I am the accountant/bookkeeper for Cymtow Pty Ltd and Lanlex No 127 Pty Ltd I would like to apply for an extension until 15th of January 2021 to lodge the foreign beneficiary amendments to the trust deeds for Cymtow Pty Ltd and Lanlex No 127 Pty Ltd." The male officer said: "What is the reason for the extension?" I said, "Our lawyer is not available to draft the amendments as he is on holiday" The male officer said: "Okay. I approve the extension to 15 January 2021. The documents will have to be prepared and lodged by then otherwise land tax will be payable". 1. Mr Upadhyay then observes that from this conversation he drew the conclusion that "...Revenue granted an extension to prepare and lodge the amendments to the trust deeds on or before 15 January 2022". 2. The Respondent's Client Notes for the Stanavacs Trust and the TBH Trust [23] each include a file note made on 22 December 2020 by an officer of the Respondent, which records a conversation as follows with Mr Upadhyay: "VIJAY (accountant) Phone ********** req extension for upload of TRUST DEED/AMENDMENT to 15.01.2020 (Code:flext01)". 1. The Cybir Section 58 Documents include at Tab 12 the Respondent's Client Notes in relation to Cybir, but do not record a similar conversation. This is consistent with the Upadhyay Statement, which refers only to a conversation about the Stanavacs and TBH Trusts. 2. Mr Upadhyay's account of his request and the corresponding Client Notes are consistent, in that all that was requested was an extension until 15 January 2021 to lodge the amendment documents. 3. Where they differ is in relation to the response provided by the Respondent's officer. The Client Notes indicate that the response was limited to the time by which the relevant amendments could be lodged with the Respondent by uploading them; the Upadhyay Declaration suggests that it was couched in terms which encompassed not only the lodgement of the relevant amendments, but also their making.
The Tribunal notes the document which appears at Tab 2 of the Respondent's Tender Bundle in Applications 2021/00353198 and 2021/00353212. This is an email dated 29 March 2022 from the Applicants' agent in response to a request dated 28 March 2022 to Mr Upadhyay from the Respondent for copies of file notes, memoranda, correspondence and emails concerning Mr Upadhyay's conversations in December 2020 with the Respondent's officers about Lanlex and/or Cymtow. The email discloses that Mr Upadhyay wished to comply with the request, but that he ".. has no documents to produce".
The Client Notes are a contemporaneous record of the conversation between the Respondent's officer and Mr Upadhyay, whereas the Upadhyay Declaration was made some 16 months later, by which stage recollections are likely to have faded and may have been inadvertently coloured by subsequent events, including the very dispute to which they relate. There is, as noted in [41] above, no other contemporaneous record of discussions. As the only such record, the Tribunal places more reliance on the Client Notes than on the Upadhyay Declaration. This is not to suggest that the Tribunal doubts Mr Upadhyay's frankness or honesty; rather the issue is simply that later recollections are for the reasons suggested above inherently less reliable than contemporaneous records.
Moreover, even if one accepts Mr Upadhyay's recollection that he was told that the amendments had to be "prepared and lodged" by 15 January 2021 in preference to the Client Notes, it does not follow that the Respondent's officer purported to grant an extension to the 31 December deadline which he had no authority to grant. Mr Upadhyay may, in the nuanced light of hindsight, interpret the expression in this way, but that is not what those words necessarily communicate, especially since small variations in stress, pause, emphasis and rhythm can produce quite different meanings. For example, "You must prepare the amendments, and lodge them by 15 January" carries quite a different meaning from "You must prepare the amendments and lodge them by 15 January". Mr Upadhyay did not provide oral evidence, so there was no opportunity for either the Respondent or the Tribunal to ask him further about the context and course of his conversation.
The Tribunal is not therefore satisfied that the Respondent's officer purported in his conversation with Mr Upadhyay to extend the deadline for making the relevant amendments (as distinct from merely lodging with the Respondent the amendments so made).
In any event: 1. There is no statutory power under the transitional provisions in Part 34 of Schedule 2 to the LTMA for the Respondent or any of his officers to extend on a case-by-case basis the 31 December 2020 deadline; it should be noted here that although under Clause 66(5) of Schedule 2 to the LTMA the Respondent has a discretion to extend the date for payment of surcharge land tax by a trustee, this discretion is only enlivened "if the terms of the trust have been amended before midnight on 31 December 2020", which is not the case here; 2. Neither the Respondent nor any of his officers has any discretion in administering the relevant legislation, in the absence of a clear statutory provision affording such a discretion [24] ; and 3. Neither the Respondent nor any of his officers is bound by any extension which he or they may have purportedly granted [25] .
Dr Leighton-Daly indicated in his submissions in reply and his oral submissions that the Applicant did not assert that the Respondent was estopped from making the assessments under review because of its alleged representation that an extension of the 31 December 2020 deadline had been granted. Rather, in reliance on the observation of Mason CJ in Attorney-General (NSW) v Quin (190) 170 CLR 1, at 22-23, that: In the cases in this Court in which a legitimate expectation has been held entitled to protection, protection has taken the form of procedural protection, by insisting that the decision-maker apply the rules of natural justice. In none of the cases was the individual held to be entitled to substantive protection in the form of an order requiring the decision-maker to exercise his or her discretion in a particular way, he said, to quote the Applicant's submissions in reply, that "... the applicant's case is not that the respondent is estopped but rather that the applicant is entitled to procedural fairness".
If one accepts the Applicant's position as to the tenor and effect of the conversations between Mr Upadhyay and the Respondent's officer (which the Tribunal does not), it must follow that the combined effect of the review applications and today's hearings is to afford to the Applicants precisely the entitlement claimed by Dr Leighton-Daly. This is because the Tribunal's function under Section 63(1) of the ADRA is "to decide what the correct and preferable decision is having regard to the material then before it", and in doing so to "… exercise all of the functions that are conferred or imposed by any relevant legislation on the administrator who made the decision"; that is to say, to review the merits of the original decisions under review in the rigorous context of a review application made under the TAA.
A further issue was raised by Cybir, which was that it had been particularly disadvantaged as compared to the other Applicants because the Respondent had not classified it in its records as the trustee of a discretionary trust. The consequence was that Cybir had not received on or about 15 October 2020 a letter from the Respondent, reminding Cybir of the deadline for making the relevant amendments.
The Tribunal is unconvinced that Cybir was relevantly disadvantaged, for several reasons: 1. As the various 4 February 2020 instruments demonstrate, Cybir's directors were aware of the legislative process that was then in prospect which would eventually result in the relevant amendments to the LTA and the consequent desire for Cybir to amend its trust deed; 2. As is apparent from Mr Upadhyay's declaration [26] , he was the accountant not only for Cybir but for the other Applicants, and received from the Respondent reminder letters concerning the impending deadline for amending their trust deeds; in view of his familiarity with all three trusts and their respective businesses, it is inherently implausible that neither Mr Upadhyay nor the directors of the Applicants (from whom, he states [27] , he receives instructions), having learnt of what was in store for the other Applicants, would not have realised that Cybir was in an identical situation; and 3. In any event, under section 12(1C) of the LTMA responsibility to furnish information concerning the trust status of land lies on the trustee when lodging its annual land tax return, not on the Respondent to seek it out: If land is the subject of a trust, the land tax return must also - (a) set out, or be accompanied by, such information in relation to the trust and the beneficiaries of the trust as may be required to complete the return, and (b) state the trustee's opinion as to whether the trust is a special trust.

At a glance

Court

Decision date

Source

Judgment (7 paragraphs)

Parties

Legislation Cited (3)

Cases Cited (6)

Cited By (2)