Konann Pty Ltd v Commissioner of State Revenue

Konann Pty Ltd v Commissioner of State Revenue - [2014] VCAT 1024 - VCAT 2014 case summary — Zoe

[18]

There was a resolution of Directors of Annacott (drawn by Mr Lean) and dated 1 August 1994 resolving to purchase Tulliallan and execute a Declaration of Trust that the Property be purchased by Peter and Gary White in their capacity as Trustee for Annacott.
On the 14 September 1994 Peter and Gary White declared that they hold Tulliallan on Trust for Annacott (Annacott Declaration of Trust). The Declaration was drawn by Mr Lean and purported to declare that P and G White were Trustees who 'have become registered as the owners of the Property known as Tulliallan' declared in favour of Annacott as 'the Beneficiary' 'that they hold the Property on Trust for the Beneficiary and agree to transfer the Property in such manner as the Beneficiary from time to time directs.' It is noted, that the Tribunal was provided with a photocopy of this Declaration without having been stamped in accordance with the Stamps Act. As a result the production of this document into evidence was objected to by Mr Kotros who appeared on behalf of the respondent. I will deal with whether this document should be admitted into evidence later in this decision (see [33] ff).
The Property was finally settled on the 2 November 1994 and on the 10th of that month, Mr Donaldson wrote a letter to Peter White confirming lodgement for Registration of the Transfer, 'by which you and Gary as Trustee of the PWFT have purchased Tulliallan'.
The Accounts of PWFT and Annacott, show that the purchase monies were distributed to Annacott and the loan that was set up from PWFT. The loan to purchase the Property was reduced and eventually paid off.
In March 1998, Peter and Gary White retired as Trustee of the PWFT and the applicant Konann Pty Ltd was appointed Trustee. Just prior to this time PWFT sold its shares in various businesses and Peter White retired from business and became a fulltime farmer and investor.
In May of 2004, Gary White unfortunately became very ill and requested that his name be removed from the Title of Tulliallan. Around this time on the 4 June 2004 Peter White attempted to explain what he believed was the proper position to Mr Donaldson by way of a fax which enclosed the Declaration of the Trust of 14 September 1994. Peter White wrote as follows:

[33]

Relying upon the Statutory Declaration to which I have referred in the last preceding paragraph, the Respondent stamped the Transfer to Konann as "exempt from duty" on the 4 September 2006. The Transfer was registered to Konann on 7 September 2006.
On 21 April 2009, the Respondent began investigations in relation to the Transfer of 7 July 2006 and sought an explanation as to why the Property was transferred from the Trustees for Annacott as Trustees for the PWFT .
Three Supreme Court Proceedings were brought by Annacott against Konann alleging that the Property was held by Konann as Trustee for Annacott and seeking a declaration to that effect. The first proceeding was dismissed, and the other two proceedings were heard before MacMillan J and dismissed on the basis that there was no proper contradictor and in fact what was sought to be determined was a revenue issue which was properly determined in accordance with the provisions of the Taxation Assessment Act 1997.
On 24 April 2012 the Respondent assessed the Transfer of the 7 July 2006 as dutiable pursuant to the Duties Act finding that the value of the land was $20.5 million dollars and that the duty payable and penalty payable was $2,143,313.14.
Konann objected to this Assessment which objection was disallowed by the Respondent. It is in relation to the refusal of the objection that this review including the objection has taken place. Further it should be noted, that there was an objection to the penalty that was issued which was included in the Assessment of $676,500. The penalty is also the subject of review in this proceeding.
As stated previously this review also deals with the Assessment of Land Tax for the years 2012 and 2013 in respect of the land.
For convenience, I reproduce in this decision a revised chronology which has been prepared by the parties. However, I have corrected some mistakes in the chronology and in the case of a resolution of Directors of 1 August 1994 I note that the Applicant objected to the use of the word 'backdated'.

[165]

In relation to s.33(3)(b) Mr Kotros said that subsection should be read with subsection (a). He said the words "in order" as appearing in s.33(3)(b) are important.
He distinguished the case of Kringas v Commissioner of State Revenue (2005) VCAT 424 where I sitting as the Tribunal was concerned with the word "entitled" in s.33(3)(b). He stated further that this situation is different from Kringas, in that steps were not taken prior to the transfer for Konann to hold the property as trustee for Annacott. For this proposition he relied on the statutory declaration of the 30 August 2006.
Mr Kotros said that for the words "in order" to be given their proper meaning Konann must be entitled prior to the transfer to hold the property for Annacott. Put a different way, for s.33(3)(b) to apply Konann must have been entitled to call for the transfer as trustee for Annacott prior to the transfer being signed. It was not so entitled. He stated at [26] ff of his submissions "another difficulty is with the idea that Konann is a Resulting or Constructive Trustee for Annacott. One would have thought that, if any such Trust arose by operation of law, it would be between the transferee (Konann) and the transferors (P and G White). It is difficult to see how Annacott could have any claim or interest enforceable against Konann." He then referred to the 'Law of Trusts' by Ford and Lee [1.250] ff. The authors of that book distinguished between different types of Resulting Trusts. The Resulting Trust that may have existed prior to the time of the transfer was a purchase money resulting trust. After the time of transfer, the Applicants maintain that the transfer happened by mistake. Therefore it was a Resulting Trust as a result of a mistake. This is made clear by the submissions by a solicitor employed by the Applicant, Mr Sebo, of Hall and Wilcox made to the Respondent on 3 July 2009 (T120). Mr Kotros then said that in those circumstances, the transfer caused the land to be held in a different type of Resulting Trust and thus, the exemption did not apply. That is, prior to the transfer was held as a "payment" resulting trust and after the transfer it was a "mistake" resulting trust. He concluded by saying that the cause of the transfer was to put the title in Konann's name as Trustee for PWFT.
Mr Kotros submitted, that it was wrong to carve out the value of the beneficial interest from the interest in the fee simple when valuing the land being transferred. He referred to the fact that the Duties Act requires duty to be paid on all dutiable transactions except where those transactions are exempt. He therefore concluded that if it was possible to separate the legal and equitable title, the need for the exemptions would be superfluous. In this case, the transfer was "all estate in fee simple".
Mr Kotros cited a number of authorities for the proposition that the interest of a beneficiary is not to be carved out of the legal estate. In stating this proposition, he conceded that an exception to the proposition is where there is a registered managed investment scheme. That was the situation in the Commissioner of State Revenue v Lend Lease Funds Management [2011] VSCA 182; (2011) 33 VR 204 where the majority of the Court of Appeal (Tate JA and Pagoni AJA) held that a transfer to a new trustee was exempt from duty pursuant to 2.33(3) of the Duties Act as the new trustee was to perform the same, pre-existing and continuing functions pursuant to the scheme trust. It was held that the termination of the custody agreement did not involve the termination of the scheme trust nor was the transfer made to the trustee of a separate or different trust. The majority therefore concluded that the transfer was made "solely because of" the change of trustee.
Mr Kotros said that the managed investment trust was the sole exception to the proposition about not carving the beneficial estate out of the legal estate. In support of this proposition, Mr Kotros went through the Lend Lease case in detail and referred to numerous authorities referred to by the plurality of the judges in the Lend Lease case. He referred to in the judgements of the Court of Appeal in the Lend Lease case where Their Honours went through the authorities inter alia in R Extra Nominees Pty Ltd v Comptroller of Stamps (VRC (1990 21 ATR 3664) where Member Nettle of the AAT as he then was considering the dutiability of a transfer of land, the transferee of which already had a beneficial entitlement to a 25% interest in the land. Having concluded that there was no applicable exemption Member Nettle then dealt with the submission on behalf of the transferee that:

[181]

In interpreting both sections (a) and (b), of S.33(3) the word" solely" takes on considerable importance. Mr Horan, in his submissions, put great emphasis on the fact that the beneficial interest was in the hands of Annacott both before and after the transfer, even though the declaration referred to the beneficial interest being in PWFT. He said the "cause of the transfer was to change the trustee from P and G White to Konann".
There is a considerable amount of evidence relating to the cause of the transfer. On the one hand, the applicant made it clear that Peter White and his brother wished to retire as trustees. On the other hand, the documentation in particular the resolution of directors on the 30 June 2006, makes it abundantly clear that the cause was to secure the registration of Konann as trustee for PWFT. As Mr Kotros put it, the resolution sets out a plan to be adopted, which plan was signed by Mr White as the only person at the meeting on that day. Both the resolution and the transfer were explained to and agreed to by Mr White. In my view it is entirely subjective that Mr White may have thought "the law was an ass". What he in fact did was to sign documents which on their face clearly indicated that PWFT was to be the beneficiary. PWFT was not the beneficiary prior to the transfer and resolution.
To ignore the words "making Konann trustee for PWFT" in the resolution is to ignore the reality of the situation. Mr White agreed to the document on the advice of his lawyer Mr Donaldson. The fact that that advice may be incorrect is not to the point.
It is correct, that Annacott had in fact paid the purchase price of the property and had financial accounts and taxation returns indicating the property as its asset however that does not change the nature of the transfer and the circumstances surrounding it. It may be that Annacott is entitled to claim as against PWFT that it is the true beneficiary of the property but that is not what the transfer did. It must be remembered, that Peter White, was the sole shareholder and director of Annacott. Therefore, he was in the perfect position to refuse to sign these documents if all he intended to do was change the trustee as the result of the retirement of himself or his brother or just the appointment of a new trustee.
It must be remembered, that the objective documents going back to 1994 suggest that PWFT was in fact the beneficiary of the property. Those documents include the memorandum from Peter White to Mr Donaldson on 5 September 1994 informing him that the property would be in the name of the family trust. The memorandum to Mr Merralls QC of Counsel on 5 September 1994 from Mr White's solicitors refers to the trust as the family trust by reason of the deed of settlement being 3 October 1973. After the original purchase was complete on 10 November 1994, Mr Donaldson wrote to Mr Peter White and informed him that P and G White were trustees for the PWFT. Mr White took no objection to the letter. Also it is noted, that the 2004 transfer transferring the Property to Annacott so that any trust would be "called in" was not proceeded with. The fact that that was done on "wrong legal advice" in my view is not to the point. It was after that that the parties had explored all the other options to have the names of P and G White removed from the title.
The fact that Annacott may have a claim as beneficiary of the property subsequent to the transfer, in my view, is not to the point. What I am considering here is the interpretation of s.33(3). The word "solely" must be given its proper meaning. Its meaning is that the transfer must have no other reason other than that described in the subsections (a) and (b) of s.33. For the reasons that I have given above, it seems clear to me that the transfer did have other objective reason other than just transferring the trusteeship of the property. The words on the face of the documents surrounding the transfer are clear and on the objective evidence, I am satisfied that Mr Peter White and the other parties, as the time of the transfer, did not only intend just changing the trustee. They intended to change the beneficiaries. I disagree with Mr Horan when he stated that the transfer was only of the bare legal estate. If that had not been the intention Mr Peter White would not have signed the resolution or the transfer in the form he did. Therefore I find, that the applicant has failed to make out s.33(3)(a). The applicant has failed in this case to "surmount the rigorous test of a factual nature" (see Perpetual Trustee Co case [53 - 56]).

[189]

I notice, that the quotation I have referred to above refers to the change of trustee "has taken place" refers to the past tense. Thus what his honour means by what he said is that prior to signing the transfer and at the time thereof, Konann needed to have been trustee for Annacott. There is not sufficient evidence for me to be satisfied that a time immediately prior to signing the transfer, that Konann was the trustee for Annacott. As I have said previously the objective evidence tends to point the other way.
Mr Horan relied on a decision of mine in Kringas v Commisioner of State Revenue (2005) VCAT 424 at [55-57]. In that particular instance, the issue was whether the purported trustee was "entitled" to hold the land as referred to in s.33(3)(b). That is what I was considering. In this particular instance, the argument has been put by Mr Kotros that the applicant has not shown that the transfer was made "solely in order" to vest the property in the trustee. As I have previously found, the transfer had more than one purpose, and in this particular instance a purpose was for the beneficial interest in the property to be vested in PWFT. While such a purpose may have had no effect because it may not have been able to replace the interest of Annacott, in my view that is not to the point. In this instance unlike Kringas no steps were taken to replace the trustee prior to the transfer. Konann was not entitled to hold the Property on trust prior to the transfer. The objective evidence before me points to the fact that the transfer was intending to transfer the interest in the property to Konann to hold as trustee for PWFT. I agree with the submission of Mr Kotros.
Mr Horan maintained that as a matter of equity, Annacott was the beneficial owner of the property both before and after the transfer. He therefore said that the only purpose of the transfer was to change the beneficial ownership from P and G White to Konann. I agree with Mr Kotros who stated that even if the statement of Mr Horan referred to is accepted, the property was held on a different type of trust both before and after the transfer.
He said before the transfer the property was held on a payment trust for Annacott while after the transfer it was held on a mistaken trust for Annacott. That is, that both trusts were resulting trusts but different types of resulting trust, the resulting trust occurred prior to the transfer because Annacott had paid for the land. The resulting trust occurred after the transfer because there was a mistake in the transfer referring to PWFT rather than Annacott. (See 'Law of Trusts' by Ford and Lee [1.250] ff. The authors there state:

[218]

On the evidence before the Tribunal, Peter White, on behalf of himself and a number of other parties involved in this litigation sought expensive legal advice. He is quite apparent that he has obtained advice from at least two of the prestigious legal firms in Melbourne. He has also obtained advice from Senior Counsel. Part of the problem involved in this proceeding was caused by those legal advisers not talking to each other including not talking to Mr White's accountant. When I asked Mr White why there was not communications between his advisers he said, "I did not want to spend the money". I found this to be an extraordinary answer. Although I did not know the amount of money that had been spent on legal advice in relation to matters concerning this proceeding, I believe it is fair to assume that there would have been a considerable amount of money so spent. Why Mr White stopped at that point rather than having conferences between his advisers I am unable to say. If it was a matter of money I believe it was complete foolishness on the part of Mr White. Mr White had and has large financial resources. He gave evidence that he has been a very successful businessman.
Taking these matters into account, I think it is wrong to blame Mr White's advisers entirely for what has happened. However, it is equally clear that Mr Donaldson for example has assumed matters that he should not have and acted in a way where he should have insisted upon talking to those that set up the company structure around Mr White.
Given those circumstances, I am of the view that a considerable penalty should apply however I do not believe the penalty should be reduce to nil neither do I believe it is appropriate to reduce the penalty to the 25% referred to in s.30 of the TAA. However, having regard to the matters that I have said, rather than just reducing the penalty by 20% as referred to in s.31(2) of the TAA, I believe it is appropriate to reduce the penalty by 40% of the amount referred to in that section. And I will order accordingly.
In exercising a discretion pursuant to s.35 of the TAA I have considered all matters that are appropriate in this proceeding. I have taken into account, the dishonesty that has been pointed out by Mr Kotros, and I have also taken into account the way Mr White has been mislead by his legal advisers. It is the combination of those two matters that has lead me to the conclusion which I have stated above.
Thus I will order that the penalty tax pursuant to s.30 (1) and (2) be reduced by 40%.

At a glance

Court

Decision date

Source

Judgment (248 paragraphs)

Konann Pty Ltd v Commissioner of State Revenue (Review and Regulation) [2014] VCAT 1024 (21 August 2014)

Parties

Cases Cited (4)