CITATION Fagridas v Commissioner of State Revenue (Review and Regulation) [2017] VCAT 755

1. Anikk Pty Ltd (Anikk) became the registered proprietor of land at 738 Station Street, Box Hill (land) on 24 September 1982. Appropriate duty on the transfer to Anikk was paid. The land was then held by Anikk as trustee of the Mikalakas Family Trust which was created on 20 May 1980 (Trust). The applicants are beneficiaries of the Trust.[1]
2. In about February 2012 Anikk mortgaged the land to Principled Mortgage Investments Pty Ltd (PMI) in consideration of a loan of $1.56m.
3. On 1 October 2012 Anikk defaulted in making mortgage repayments and thereafter PMI obtained a default judgement against Anikk and a warrant for possession of the land.
4. The applicants contend that in October 2012 Anikk as trustee resolved to distribute the land to the applicants in specie as beneficiaries of the Trust.
5. During 2013 PMI entered into possession of the land as mortgagee. By Contract of Sale dated 11 October 2013 PMI sold the land for $1.9m to Arvaia Pty Ltd as trustee of the Fagridas Trust No 9 "or nominee" (Contract of Sale).
6. On about 12 October 2013 Arvaia Pty Ltd nominated the applicants to be the substitute purchaser pursuant to the Contract of Sale. The Contract of Sale was duly completed.
7. A transfer of land whereby PMI as transferor transferred the land to the applicants as transferees was executed on 13 March 2014 (Transfer). Duty under the Duties Act 2000 (Duties Act) of $104,500 was assessed on the Transfer which the applicants paid.
8. In this appeal, the applicants say that they are entitled to a refund of the duty they paid on the transfer for two reasons. First, the transfer of land transaction was argued to be exempt from duty under s36A of the Duties Act. The land passed to the beneficiaries of a discretionary trust and all relevant conditions were satisfied. Secondly, the trust distribution and not the transfer was said to be the assessable transaction. Duty was levied on the wrong transaction.

1. Paragraph 7(1)(a) the Duties Act provides that duty is charged on a transfer of dutiable property. Exemptions and concessional rates of duty are set out in Division 1 of Part 5 of Chapter 2 of the Act.

1. The applicants claim an exemption from duty under the following provision.

36A Property passing to beneficiaries of discretionary trusts

(1) No duty is chargeable under this Chapter in respect of a transfer of dutiable property that is subject to a discretionary trust (the principal trust) to a beneficiary of the trust if -

• (a) the duty (if any) charged by this Act in respect of the dutiable transaction that resulted in dutiable property becoming subject to the principal trust has been paid or the Commissioner is satisfied that the duty will be paid; and
• (b) the beneficiary -
  • (i) was a beneficiary [when the property became subject to the principal trust]; or
  • (ii) became a beneficiary after the relevant time by reason of [becoming a spouse or relative of a Specified Beneficiary]; and
• (c) the transfer is -
  • (i) to the beneficiary absolutely; and
  • (ii) . . .
  • (iii) The Commissioner is satisfied that the transfer is not part of a sale or other arrangement under which there exists any consideration for the transfer.

1. The Trust is a discretionary trust within the definition of discretionary trust in Duties Act s-s36A(3). Paragraph (a) of the definition is applicable and the proviso is inapplicable.
2. Mr James Michalakas gave evidence for the applicants before the Tribunal. In answer to Mr Tran's question, he admitted that he was the brother of the female applicant and related to the other two applicants. Mr Michalakas said that at relevant times he was the sole director, the sole shareholder and the controller of the corporate trustee, Anikk.
3. Mr Michalakas explained that in October 2012 it was apparent to him that Anikk could not meet its commitments to pay mortgage instalments to PMI. The applicants would be better able to arrange new finance.
4. Mr Michalakas said that at this time Anikk as trustee of the Trust resolved to distribute the land to the applicants as beneficiaries. Transferring the property to the beneficiaries was an "option" available to the trustee, he said, since that the amount required to pay out the PMI mortgage was $1.9m and the value of the property at that time was $2m according to a Whitehorse City Council valuation. It was important, Mr Michalakas said, that the $100,000 difference between these sums go to the beneficiaries and not any incoming mortgagee.

1. Until shortly before the hearing, no written record evidencing the distribution resolution was disclosed by the applicants.
2. Mr Michalakas sought and obtained leave to rely on an affidavit dated 7 May 2017 wherein he explained his practices as director of the trustee of the Trust.

In September 2012 I was in the practice of creating electronic journals which I would then print off and write on for each day.

I kept these documents along with numerous other records at my home. In my possession I have thousands of pages of documents, the journals of which are spread throughout in hundreds of document storage boxes . . .

On 2 May 2017 I discovered entries from my journal dated 10 September 2012 and 26 September 2012 on my computer.

1. Copies of the journal entries referred to were exhibited to Mr Michalakas's affidavit. In the 3 pages of 10 September journal entries, the words appeared:

-out of Anikk - into Betty/Arthur-transfer-Principled-others guarantee-income

Journal entries for 26 September, amongst many obscure references, included the words:

1. Mr Michalakas could not account for why there was only one oblique reference to "beneficiary" and no reference to any trust in the records of a substantial trust distribution. Nor did Mr Michalakas explain why the word beneficiary was not associated with Athanasios/Arthur and why George Fagridas was not mentioned at all. He did mention that "VA" meant voluntary administration.
2. Evidence concerning the distribution resolution should not be accepted.
3. Mr Michalakas's description of the resolution and his replies in cross-examination were evidently result-driven. Mr Michalakas's explanation of why the evidence of his "journal" did not emerge until the week before the Tribunal hearing was not persuasive. His affidavit notes:

. . . I engaged Cartland Law to represent me in this matter. Adrian Cartland advised me that producing documentation of my resolution to distribute 738 Station Street Box Hill Vic . . . to Athanasios, George and Betty Fagridas . . . would assist in my application to the Victorian Civil and Administrative Tribunal VCAT Ref No Z879/2016.

1. Mr Michalakas's "journal" entries of the resolution were inconclusive. None of the transferor, the transferees or the subject property were identified without ambiguity.
2. The applicants asserted an equitable interest in land arising from the trust distribution in order to attract the Duties Act s36A exemption. The interest arose almost two years before a legal title was transferred by registration of the Transfer. Though I heard no argument on the point, I note that the statutory minima do not appear to be satisfied in order for the journal entries to count as a "note or memorandum" or "writing signed by the person disposing of" the land required by sub-section 53(1) of the Property Law Act 1958.[2]
3. I may be wrong. Though finding that Anikk made no or no enforceable trust distribution resolution disposes of both bases of the applicants' appeal, I will examine other aspects of the case argued before me on the assumption that the distribution resolution was valid.
4. A necessary element of the applicants' exemption claim under s36A of the Duties Act was that the dutiable property transferred be received by the transferee as beneficiary. In Ralara Pty Ltd v Comptroller of Stamps (1992) 24 ATR 1133 at [5]-[20] GAA Nettle so found in relation to the predecessor provision of s36A,[3] when sitting as a member of the Administrative Appeals Tribunal of Victoria. Any transfer to a beneficiary for the purposes of the exemption must be qua beneficiary.[4]
5. The transfer of land upon which duty was assessed was made by PMI as "Mortgagee or Annuitant". The "Land (volume and folio)" is described as the land. The "Mortgage or charge number under which power of sale is exercised" describes the mortgage referred to in paragraph 2. Operative words of the document record that:

The mortgagee or annuitant being the proprietor of the mortgage or charge described in exercise of the power of sale conferred by the Transfer of Land Act 1958 transfers the estate and interest of the registered proprietor in the land described for the consideration expressed . . .

1. The Contract of Sale, as varied, refers to the applicants as the "Purchaser" and witnesses that the land is sold in consideration of the purchaser paying the sum of $1.9m to the vendor.
2. Neither the Transfer nor the Contract of Sale which preceded it refer to a transfer to the applicants in their character as beneficiaries of the Trust. Trust beneficiary character is irrelevant in instruments like the Transfer where the counterparty is a stranger to the trust. The Contract of Sale is incongruous in the light of the trust distribution which the applicants say had occurred in 2012. The refinancing character of the Transfer advanced by Mr Cartland was not persuasive.
3. I do not find that the Transfer was a transfer to the applicants as beneficiaries of the Trust.
4. The final condition of the Duties Act paragraph 36A(1)(e) exemption is that the Commissioner is satisfied that the Transfer is not part of a "sale or other arrangement under which there exists any consideration for the transfer". The Transfer gave effect to the Contract of Sale and that the consideration for that sale was stated to be $1.9m. Prima facie, the existence of the Contract of Sale between PMI as vendor of the land and the applicants as purchasers meant that the no sale condition has not been satisfied.
5. Mr Carland for the applicants argued that the Contract of Sale was really a refinancing instrument and as such within the Duties Act trust exemption extending provision in s36C.
6. No proper basis was suggested for why the Tribunal should ignore the plain words of the Contract of Sale with its statement that the $1.9m consideration moved the transfer. The fact that the applicants could assert that they were equitably entitled to the land did not mean that PMI as mortgagee was not entitled to insist on the $1.9m payment as the price of its agreement to transfer the land. Any trust relationship between Anikk and the applicants was res inter alios acta where PMI as mortgagee was concerned.
7. Terms of Duties Act s36C do not assist the applicants to obtain the s36A exemption. Section 36C is not a separate exempting provision. Instead, s36C provides that the Commissioner must not deny an exemption under ss36, 36A or 36B for the reason that a trust beneficiary becomes a transferee of land as a part of defined refinancing activities.
8. In this appeal, the Commissioner does not deny the applicants' Duties Act s36A exemption claim for any reason associated with mortgages or re-financing. Section 36C is inapplicable for this reason.
9. Further, none of the Duties Act s36C alternative refinancing conditions has been satisfied by the applicants. On evidence before the Tribunal each of the paragraph 36C(1)(a), 36C(1)(b) and s36C(3)(b) conditions is inapplicable.
10. Reference to the Duties Act s36C alternative refinancing conditions is made out of completeness. The Tribunal was not taken to the mortgage instruments in detail. Nor was the Tribunal taken to evidence relative to the satisfaction of s36A conditions s-s36A(2) - payment of duty on transfer of the land to the trust - and paragraph 36A(1)(b) - being a beneficiary at the relevant time.

1. The applicants made what was variously described as a "double duty" or "wrong transaction" claim. The theory of this was as follows. "The passage of ownership starting with Anikk and ending with the beneficiaries constitutes a single transfer". Both the trust distribution resolution and the Transfer were "dutiable instruments . . . [T]he Resolution is the first dutiable instrument which will attract duty." The resolution should have been stamped and the Transfer denoted with "a statement of the amount and the date of payment of the duty" pursuant to Duties Act s17. Instead, the Transfer was wrongly stamped.
2. The claim is misconceived. It is irrelevant that the applicants may have also incurred a duty liability in a transaction with Anikk involving the same land. Only one transaction has been assessed to duty. I do not find that the Transfer was wrongly stamped.

[1] Betty Fagridas (sub nom Betty Michalakas) is a Specified Beneficiary of the Trust and as a consequence her husband Athanasios Fagridas and son George Fagridas are within the class of General Beneficiaries.

[2] See Ford & Lee: The Law of Trusts ed WA Lee and others 5th edn (Thomson Reuters 2010), [61030]-[6.1090].

[3] Exemption (10) of Heading VI of the Third Schedule to the Stamps Act 1958.

[4] See (1992) 24 ATR 1133 at [17], following Frish Ltd v Barclays Bank Ltd [1955] 2 QB 541 per Evershed MR.