Fineglow Pty Ltd v Anastasopoulos and Ors

Fineglow Pty Ltd v Anastasopoulos and Ors - [2002] NSWSC 1181 - NSWSC 2002 case summary — Zoe

COUNSEL : S.D. Rares SC, T.M. Faulkner - Plaintiff D.A. Smallbone - Defendants SOLICITORS : Southern Cross Lawyers - Plaintiff R.S. Davis & Davis - Defendants CATCHWORDS : VENDOR AND PURCHASER - STAMP DUTY - EVIDENCE - SPECIFIC PERFORMANCE - Plaintiff sued for specific performance of contract for sale of land - contract evidenced by two instruments - only one instrument stamped with duty - duty assessed on purchase price in arm's length transaction - Chief Commissioner of State Revenue provided letter stating that no further duty was payable - Defendants contended that contract inadmissible and unenforceable because not "duly stamped" under s.304(1) Duties Act as duty had been assessed on purchase price rather than true value of the land - Defendant tendered valuation evidence to prove that value of land exceeded purchase price. HELD: Determination by Commissioner that no further duty payable was a "notice of assessment" for the purpose of Taxation Administration Act - a notice of assessment is conclusive evidence of the validity of the assessment and cannot be challenged other than in review proceedings as between the taxpayer and the Commissioner - valuation evidence rejected. - Duties Act 1997 (NSW) - s.5, s.8, s.18, s.19, s.21, s.297, s.304, LEGISLATION CITED : - Stamp Duties Act 1920 (NSW) - s.4, Part 3 - Supreme Court Rules - Pt 36 r.10B - Taxation Administration Act 1996 (NSW) - s.4, s.7, s.8, s.14, s.16, s.67, s.118, s.119 - Huddleston v Briscoe (1805) 11 Ves 583 [32 ER 1215] CASES CITED : - Reliance Financial Services Pty Ltd v Baddock [2002] NSWSC 857 - Shepherd v Felt & Textiles of Australia Ltd (1931) 45 CLR 359 - Weston & Cussen as liquidators of Karl Suleman Enterprises Pty Ltd v Metro Apartments Pty Ltd and Anor [2002] NSWSC 682 DECISION : The stamped contract was "duly stamped" within the meaning of s.304(1) Duties Act and was admissible; the other unstamped instrument was not a "dutiable instrument" and was not affected by s.304(1); both instruments admitted into evidence; specific performance granted.

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5 The Deed of Option itself has not been stamped. Upon execution of the Terms, the form of contract which was appended to the Deed of Option was amended by the Plaintiff's solicitors so that the consideration for the sale was $1,400,000, as had been agreed and stipulated in the Terms, rather than $1,470,000, as had been originally provided in the Option Deed. That form of contract, so amended, was submitted to the Defendants' solicitors for signature by the Defendants, but the Defendants refused to sign it. The contract was therefore executed by the Plaintiff and was lodged for stamping at the Office of State Revenue ("OSR"). Stamp duty calculated on the consideration of $1,400,000 was paid in an amount of $62,494. A Transfer pursuant to the contract was also lodged for stamping and duty of $2 was assessed and paid on it in accordance with s.18(2) of the Duties Act 1997 (NSW). 6 The stamped transfer was given to the Defendants' solicitor by the Plaintiff's solicitor on 18 September 2002 when the Plaintiff attempted to settle the conveyance. The Defendants' solicitor did not return the Transfer when the settlement broke down and has produced it during the trial in answer to a Notice to Produce. The stamped contract upon which $62,494 duty has been paid has been lost. Neither the Terms nor the Short Minutes of Order giving effect to the Terms has been stamped. 7 At the commencement of the trial, Mr Smallbone of Counsel, who appears for the Defendants, objected to the tender of any document which evidenced the terms of the contract upon which the Plaintiff sues, including the Deed of Option, the Terms and the Short Minutes of Order. His objection was founded upon s.304 Duties Act which, so far as is relevant, is in the following terms: "(1) An instrument that effects a dutiable transaction or is chargeable with duty under this Act is not available for use in law or equity for any purpose and may not be presented in evidence in a court or tribunal exercising civil jurisdiction unless:

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The Chief Commissioner may, therefore, delegate to any person the making of an assessment under s.8(2), the issuing of a notice of assessment under s.14(1) and the approval under s.14(5) of the form in which the notice of assessment is to be communicated. 22 Section 118 of the Administration Act provides: " A document or a copy of a document bearing the written, printed or stamped signature or name of the Chief Commissioner or a person described in the document as a delegate of the Chief Commissioner is, in the absence of evidence to the contrary, taken to have been lawfully issued by the Chief Commissioner." 23 Exhibit P4 bears the name of, and is signed by, Mr Hughes. That it was signed by Mr Hughes, who is an officer of the OSR, is proved by the evidence of Ms Davies, who actually obtained the letter from Mr Hughes. The document does not contain, under the signature of Mr Hughes, the words "as delegate of the Chief Commissioner" but the words "Client Services Officer for the Chief Commissioner of State Revenue" have exactly the same effect. 24 I do not think that in order to qualify as a document issued by the Chief Commissioner for the purposes of s.118 a document must recite the very words "as delegate of the Chief Commissioner" as if they were a formula the slightest departure from which deprives the document of efficacy. Section 67 does not require any act of delegation by the Commissioner of any function under the Administration Act to be attended with formality such as, for example, an appointment under seal or by a resolution or even by any writing. The Commissioner's delegate may therefore be appointed informally and ad hoc. It would be giving an unduly narrow and restrictive construction to s.118 to read it as requiring rigid adherence to the word "delegate" in the relevant document. In my opinion, all that is necessary is that the document represent, in effect, that it has been signed by a person who has been delegated by the Commissioner with authority to sign it. In my opinion, Exhibit P4 fulfils this requirement. 25 There is no evidence that Exhibit P4 was not "lawfully issued" by the Commissioner within the meaning of s.118. The Court must, therefore, take it to have been lawfully issued. 26 Section 119 provides: "Production of a notice of assessment, or of a document signed by the Chief Commissioner purporting to be a copy of a notice of assessment, is:

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(b) conclusive evidence that the amount and all particulars of the assessment are correct, except in objection or review proceedings when it is prima facie evidence only." 27 Exhibit P4 was issued after the Commissioner had been provided with the Terms, inter alia, and had been asked to give a determination on whether any further duty was payable in respect of the transaction. Exhibit P4 gives such determination and is, therefore, a "notice of assessment" that there is "not a particular tax liability" in respect of the Terms or otherwise in respect of the transaction. By reason of s.119 coupled with s.16, the Defendants cannot, in these proceedings, challenge the correctness of that assessment. 28 It might be said that, because the purpose of the Duties Act and the Administration Act is the raising of revenue, s. 16 and s.119 should be construed as having conclusive effect only as between the taxpayer and the Commissioner so that a third party, such as the Defendants in these proceedings, is at liberty to challenge an assessment of duty in order to invoke the provisions of s.304 of the Duties Act . I cannot think that such a proposition could be correct. 29 In my view, s.119 makes a notice of assessment conclusive evidence of the matters stated for all purposes between all persons; the only exception is as between the taxpayer and the Commissioner for the purpose of an objection or a review proceeding. This is so because the purpose of the Duties Act and the Administration Act is manifestly to impose, and to collect as effectively as possible, a tax for the benefit of the State. Those Acts have nothing to do with the adjustment of private rights amongst citizens of the State. Section 304 of the Duties Act and its various predecessors affect the conduct of litigation between parties, not for the benefit of any of the parties, but in order to secure the effective collection of revenue by the State in accordance with the taxing legislation. Once the requirements of the taxing legislation have been fulfilled to the satisfaction of the revenue authority the Court has no further concern to scrutinise the transaction in the interests of a party to litigation who wishes to deprive an instrument of legal effect. 30 This has been the attitude of the Courts from the earliest times. The distant progenitors of s.304 of the Duties Act are s.11 of 5 Will. & M. c.21 and s.59 of 9 & 10 Will. 3 c.25. As to those provisions, Lord Eldon said in Huddleston v Briscoe (1805) 11 Ves 583, at 595 [32 ER 1215, at 1219]: "If the agreement is one, upon which no action is to be brought unless it is stamped, it must be stamped before action brought: but if it is an agreement, which you may get stamped, paying the penalty, there pending the action it may be stamped; and a cause has been allowed to stand over here upon that distinction. The consequence is, that, if the Court is not to act, where there has not been an observance of the revenue laws, neither is it to turn the party round, if, before the suit is over, those laws are complied with."

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See also the authorities cited in Shepherd v Felt & Textiles of Australia Ltd (1931) 45 CLR 359, at 383 ff. 31 For these reasons, I am of the view that by reason of s.16 and s.119 of the Administration Act a notice of assessment cannot be challenged by any person other than in proceedings for review between the taxpayer and the Commissioner. If it were otherwise, there could be no confidence in the enforceability of any dutiable transaction as between the parties thereto. Any person wishing to resist performance of a contractual obligation would be at liberty to contend that, notwithstanding the Commissioner's assessment, the correct amount of duty had not been paid so that no instrument effecting the transaction might be of avail or might be admissible under s.304 Duties Act . In the case of a contract for the sale of land, any action upon the contract would probably require, as stage one, a valuation case, resulting in a judgment as to the dutiable value of the transaction which would not be binding on the Commissioner. That was exactly what Mr Smallbone submitted was required in the present case. 32 Further, in proceedings in which the Commissioner was not a party an unstamped contract might be excluded from evidence and specific performance of the contract refused because the Court held that the instrument was dutiable; the Commissioner might later decide, on a different view of the facts, that the instrument was not, in fact, dutiable, so that the instrument would have been wrongly excluded from evidence and denied legal effect. The converse is equally possible. That such a situation could arise would bring the law into discredit. 33 For these reasons, I did not accept Mr Smallbone's submission that it was open to the Defendants to contest in these proceedings the issue of whether the Commissioner had correctly assessed the duty paid in respect of the sale transaction between the parties and, accordingly, I rejected the proposed evidence from the Defendants' valuer as to the value of the Properties. 34 It will also be apparent from the above reasons that I did not accede to Mr Smallbone's objection that Exhibit P4 was inadmissible as hearsay and that I admitted the document as a notice of assessment for the purposes of s.119 of the Administration Act . 35 In the result, the Defendants fail in their defence that the Contract for Sale and the Terms are inadmissible and that the contract upon which the Plaintiff sues is unenforceable by virtue of s.304(1) of the Duties Act. 36 I should note in conclusion on this aspect of the case that at the commencement of the trial the Plaintiff proffered an undertaking in terms of s.304(2) of the Duties Act and Part 36 r10B of the Supreme Court Rules . Mr Smallbone contends that, even if the undertaking were accepted, on the true construction of s.304(2), the result could only be that the Contract for Sale and the Terms would be admitted in evidence but would still not be "available for use in law or equity for any purpose" , as provided in subsection (1) 37 The decision of Young CJ in Eq in Reliance Financial Services Pty Ltd v Baddock ([2002] NSWSC 857 at para 46) would support Mr Smallbone's submission. On the other hand, Campbell J in Weston & Cussen as liquidators of Karl Suleman Enterprizes Pty Ltd v Metro Apartments Pty Ltd and Anor ([2002] NSWSC 682 at para 20) was inclined to the opposite view. Both of those decisions were decisions on interlocutory applications and their Honours' differing opinions on the point were not essential to the ultimate result. In view of the conclusion to which I have come that s.304(1) of the Duties Act is no bar to the reception and enforceability of the relevant documents, I do not think that this is the appropriate case in which to resolve this difference of opinion. The GST issue

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The Plaintiff says that the GST for which it is liable under Clause 10 of the Terms is, therefore, that which may be payable, not in respect of the sale of the Properties, but in respect of the additional consideration of $400,000 to be paid to all Defendants in the Prior Proceedings. 42 I am unable to accept this submission. The Note on the front page of the Contract for Sale stating that the price for the Properties is inclusive of GST appeared in the form of contract annexed to the Option Deed dated 5 October 2000. The settlement reached by the parties on 10 July 2002 and embodied in the Terms varied that form of contract in a number of respects, as was expressly recognised in paragraph 7 of the Terms by the reference to performance of the contract "mutatis mutandis" . One of the variations was as to price; another, in my opinion, was as to the incidence of liability for GST. Paragraph 10 of the Terms does not distinguish between GST payable in respect of the sale of the Properties for a consideration of $1.4M and GST payable in respect of that part of the transaction which supported the additional consideration of $400,000. The plain, unqualified words of paragraph 10 of the Terms must be given their ordinary meaning, namely, that "any" i.e. "all" GST payable in respect of the transaction effected by the Terms, including the sale of the Properties, is for the account of the Plaintiff. 43 I should record that the Defendants sought to tender evidence to prove what is the amount of GST payable in respect of the transaction. I rejected the tender of this evidence because I regard the amount of GST payable in respect of the transaction, if any, as a false issue for the purpose of these proceedings. Clause 10 simply provides that " any GST applicable" - i.e. payable in respect of the transaction effected by the Terms - is payable by the Plaintiff. What the amount of that GST might be is ultimately a question for the Commissioner of Taxation. The Court is not required to decide that question for the purpose of construing and determining the obligations of the parties under the Terms, nor should the Court attempt to decide it, for its decision would not bind the Commissioner of Taxation and might cause great difficulty and injustice for the parties if the Commissioner were to come to a different conclusion. All that the Court has to decide for the purpose of these proceedings is when the Plaintiff is obliged to pay any GST which may ultimately be determined by the Commissioner to be payable. 44 Mr Smallbone submits that, as a matter of construction of the Terms, the Plaintiff must pay the relevant amount of GST to the Defendants at the same time as it pays the consideration of $1.8M. This must be so, he says, for the following reasons: "i. The Defendants if accounting on an accrual basis are obliged to remit the whole of the GST to the Commissioner of Taxation at the end of the next GST accounting period; and

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vii. No contrary or other provision is made in the contract fixing the time for payment. …" 45 I am unable to accept the Defendants' submissions. In my opinion, GST on the transaction effected by the Terms, if any, is payable by the Plaintiff to the Defendants at the time when it is properly payable by the Defendants to the Commissioner of Taxation. My reasons for this conclusion are as follows. 46 First, paragraph 10 of the Terms does not expressly say that GST is payable and that the Plaintiff must pay it on completion of the conveyance. As far as the GST implications were concerned, the sale of the Properties in this case was evidently not as straightforward as a sale of commonplace goods or services upon which GST is readily calculable. Special Condition 43.1 of the Contract for Sale annexed to the Option Deed contained a statement that the Defendants believed that no GST was payable. However, it is apparent that by the time that the parties concluded the settlement of their dispute on 10 July 2002 the GST position did not seem so clear. Paragraph 10 of the Terms, in referring to "any GST applicable" , indicates that there must have been uncertainty as to whether GST was payable and, if it was, as to the amount payable. 47 That uncertainty could have been removed by 18 September 2002 - which was the time for settlement of the conveyance provided by paragraphs 6 and 7 of the Terms - if the Defendants had obtained by then a ruling from the Commissioner of Taxation as to GST liability. But the Defendants did not obtain such a ruling and there was no express obligation in the Terms for them to do so. Paragraph 10 simply leaves it at large as to when, by whom and how the existing uncertainty as to GST liability would be removed; all that the paragraph provides is that whatever the GST liability is, that liability is for the account of the Plaintiff. 48 Second, it is not possible, in my opinion, to imply a term in the Terms that the Plaintiff will pay GST upon, and as a precondition of, settlement of the conveyance of the Properties. Such a term is not necessary to give business efficacy to the Terms, nor is it so obvious that it goes without saying. GST is not payable to the Commissioner immediately upon settlement of the sale of the Properties; any GST payable on settlement of the Properties is payable 21 days after the end of the quarter in which the consideration for the sale is received. While the Defendants may wish to have the security of a payment by the Plaintiff to them of GST in advance of the time when they themselves have to make that payment to the Commissioner, it could not be said that paragraph 10 of the Terms is unworkable if it simply requires the Plaintiff to pay the GST at the time when the GST falls due for payment to the Commissioner. If the Plaintiff fails to perform its obligation under paragraph 10 after the conveyance has been completed, the Defendants will have to sue to enforce that obligation. No one suggests that the Plaintiff's promise in paragraph 10 will not enure for the benefit of the Defendants after completion. Whether the Defendants would have been wiser to secure the performance of the Plaintiff's promise in paragraph 10 by making payment of the GST a pre-condition to the Plaintiff's entitlement to completion of the conveyance is now beside the point. 49 For these reasons I conclude that on the true construction of the Terms any GST which may be payable in respect of the conveyance of the Properties or in respect of the whole of the transaction effected by the Terms is not payable by the Plaintiff upon settlement of the conveyance and as a pre-condition of the Plaintiff's entitlement to settlement. The adjustments issue

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50 The Defendants contend that the purchase price payable upon settlement of the conveyance of the Properties is subject to adjustment in their favour pursuant to clauses 14.1 and 14.2 of the Contract for Sale. Those clauses provide that after the "adjustment date" the purchaser is liable for rates, charges, taxes and outgoings in respect of the Properties and that the parties must make any necessary adjustment to the purchase price on completion of the contract. For present purposes, "adjustment date" is defined in clause 1 as "the date of giving possession" . 51 The Defendants say that possession of the Properties was given to the Plaintiff on 20 September 2000 so that under clauses 14.1 and 14.2 of the Contract for Sale the Plaintiff was obliged to pay rates, taxes and charges calculated from that date until the date of completion, namely, 18 September 2002. 52 The Plaintiff says that clauses 14.1 and 14.2 have been superseded by the express provisions of the Terms. Mr Rares points to the words of paragraph 7, namely, "upon payment of the moneys in paragraph 6 [$1.8M] the first to third defendants shall convey" , etc. He points as well to paragraph 13, which requires mutual releases between the parties, and to paragraph 15 which notes the parties' agreement that all interest payable under the Contract for Sale was incorporated in the sum of $1.8M. 53 Mr Rares says that the stipulation for a sum of $1.8M precisely, being a sum $400,000 in excess of the purchase price for the Properties, coupled with the provision of mutual releases and the absorption of interest under the contract in the payment of $1.8M, indicates that the sum of $400,000 was to be a final accord and satisfaction between the parties in respect of all claims and disputes between them arising out of the Contract for Sale and the Option Deed. 54 Mr Smallbone, on the other hand, submits that paragraph 6 and the other provisions of the Terms must be read in the light of paragraph 7, which requires the Defendants to convey "in accordance with the existing contract mutatis mutandis" . He says that the Terms make no amendment to clauses 14.1 and 14.2 of the Contract for Sale so that the Defendants are obliged to convey only if the Plaintiff complies with its obligations under those clauses. 55 I am of the view that the Plaintiff's submission is correct, for the following reasons. 56 The Terms must be construed in the light of the circumstances in which they came into existence. The parties to the Terms had been in dispute as to the validity of the Plaintiff's exercise of the option and as to whether the Plaintiff had lawfully been in possession of the Properties. Litigation had ensued and the Terms reflected a compromise of that litigation reached during the course of the trial. 57 It is clear that the Terms were designed to bring to an end all disputes between the parties and to provide a clear and simple regime for the completion of the sale of the Properties to the Plaintiff. Paragraph 8 varied the purchase price; paragraph 10 provided for GST liability; paragraph 11 settled the dispute as to the Plaintiff's lawful possession of the Properties; paragraph 12 provided for liability for agents' fees; paragraph 15 dispensed with any need to calculate the interest which was payable under Special Condition 30.3 of the Contract from 1 May 2000 to the date of completion, regardless of whether completion occurred on 18 September 2002 or earlier. The provisions in paragraph 13 for mutual releases and the consent orders which were made whereby previous costs orders were vacated and each party was ordered to bear its own costs of the Prior Proceedings further indicate that the common intention of the parties was to ensure that one payment of $1.8M precisely put an end to all claims between them: the Defendants would have $1.8M clear of GST liability and clear of agents' fees, the Plaintiff would have title to the Properties on 18 September 2002 and each side of the dispute would walk away from the settlement on 18 September free of any further involvement with the other. 58 The express provisions of the Terms were thus intended to override the terms of the Contract for Sale which had been annexed to the Option Deed in so far as there was any inconsistency. This is recognised in the concluding words of paragraph 7 of the Terms. In my view, in the light of the common intention of the parties emerging from the provisions of the Terms as a whole and the circumstances in which they came into existence, the stipulation in paragraph 7 that the Defendants were to convey the Properties upon payment of $1.8M is inconsistent with the requirement that any further adjustments be made to that sum in accordance with clauses 14.1 and 14.2 of the Contract for Sale. Accordingly, pursuant to the direction in paragraph 7 that the Contract for Sale is to be amended as required, clauses 14.1 and 14.2 are to be regarded as deleted. 59 For these reasons I conclude that the Plaintiff was not obliged to tender to the Defendants on 18 September 2002 any sum in addition to $1.8M by way of adjustments under clauses 14.1 and 14.2 of the Contract for Sale. Whether Plaintiff ready, willing and able to perform

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60 The Defendants say that specific performance of the contract evidenced by the Terms should be refused as a matter of discretion because the Plaintiff is not financially able to complete the contract and to pay GST to a possible maximum of $180,000. 61 Mr Theodoridis, a director of the Plaintiff, has given evidence that the Plaintiff has arranged finance from Howard Mortgage Management Ltd in the sum of $2,180,500, of which $2,025,000 is available upon settlement and the balance upon completion of the redevelopment of the Properties. He says that the Plaintiff has now almost completed the redevelopment. 62 A letter from the financier dated 21 November 2002, admitted without objection, confirms that this finance has been arranged and is presently available, provided that the value of the Properties has not decreased. There is no suggestion in the evidence that the valuation of the Properties has decreased. 63 This evidence reveals that the finance available to the Plaintiff for settlement of the purchase of the Properties, after deduction for incidental costs and expenses, is some $174,000 in excess of the $1.8M which is payable under the Terms. This sum would be available to meet any liability which the Plaintiff might have to pay a maximum of $180,000 in GST under paragraph 10 of the Terms. 64 In addition, Mr Theodoridis has provided a bank statement for the Plaintiff showing that as at 15 November 2002 the Plaintiff had a credit balance of $76,584 which, Mr Theodoridis says, would be available to meet any GST liability. Further, Mr Theodoridis says that he owns properties in Newtown and Bankstown in which there is substantial equity. These properties, he says, could be utilised to provide any further funds necessary to pay the Plaintiff's GST liability under paragraph 10 of the Terms. 65 There was no serious challenge to this evidence and I accept it. I am amply satisfied that the Plaintiff has the financial resources available to complete the purchase of the Properties and to pay any GST liability which it may have under paragraph 10 of the Terms. 66 I find that the Plaintiff is ready, willing and able to complete the purchase and that there is no reason why the Court should, in the exercise of its discretion, refuse to make an order for specific performance. Conclusion

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