[2009] NSWCA 407
Byrnes v Kendle (2011) 243 CLR 253
[2011] HCA 26 Sayden Pty Ltd v Chief Commissioner of State Revenue (2013) 83 NSWLR 700
Source
Original judgment source is linked above.
Catchwords
[1915] HCA 57
CPT Custodian Pty Ltd v Commissioner of State Revenue (2005) 224 CLR 98[2005] HCA 53
Franklins Pty Ltd v Metcash Trading Ltd (2009) 76 NSWLR 603[2009] NSWCA 407
Byrnes v Kendle (2011) 243 CLR 253[2011] HCA 26 Sayden Pty Ltd v Chief Commissioner of State Revenue (2013) 83 NSWLR 700
Judgment (5 paragraphs)
[1]
The Applicant's submissions
The Applicant says the entirety of clause 3(4), quoted in [21] of these reasons, operates as an 'overriding and paramount' clause through the use of the introductory words 'Notwithstanding any other provision of this Deed'. It says that, properly construed, those introductory words apply not only to the first sentence but also to the second sentence of clause 3(4): Applicant's Written Submissions (AWS) at [41]-[42]. Alternatively, it submits that the clause 'still operates as an overriding and paramount clause when consideration of the nature and content of the clause as well as the entirety of the Trust Deed is taken into account': AWS at [43].
While the Applicant concedes, on the basis of CPT Custodian, that clause 3(2) does not confer equitable ownership of any particular asset or any particular part of the Fund on the unit holders, it submits that clause 3(4) confers on the unit holders a right and entitlement to the land itself, and this is to be contrasted with an entitlement to a beneficial interest in the Fund as an entirety. To the extent that clauses 3(2) and 3(4) are at odds, the Applicant submits that the latter overrides the former.
The Applicant summarises its position this way, at AWS [81] and [83]:
The Applicant submits that Clause 3(4) grants each Unit Holder an equitable ownership of an estate of freehold in possession in a particular asset of the Trust Property being the Land itself on the basis that Clause 3(4) confers an absolute power upon the Unit Holders to have their respective 50% interest in the each (sic) of the parcels of land transferred directly to them or after directing the Trustee to sell the Lands to receive the net proceeds of sale. There is a right under the provisions of the Trust to the present enjoyment of the land.
…
The Applicant submits that the use of the words 'notwithstanding any other provision of this deed' coupled with the overriding and paramount application of the Clause 3(4) operates so as to resolve any conflict between the Unit Holders' equitable ownership of the estate of freehold in possession of the Land and the income of the Land and the application of any other clause within the GerryJohn Unit Trust deed similar to the terms considered in the decision of CPT Custodian to the extent that they exist.
Finally, the Applicant submits in its Written Submissions in Reply that a proper construction of clause 3(4) provides that either unit holder has the right to compel the trustee to wind up the trust without compliance with either clause 18 or clause 23 of the trust deed. It submits that this right existed at each of the relevant taxing dates; it was not dependent on the expiration of any particular period of time or on the application of clauses 18 and/or 23.
[2]
The Chief Commissioner's submissions
The Chief Commissioner disagrees with the Applicant's construction of clause 3(4) of the trust deed. Specifically, it is submitted that:
1. The words 'Notwithstanding any other provisions of this Deed' should not be read into the second sentence of clause 3(4);
2. In any event, and even if they were read into the second sentence, they could only have the effect of resolving any inconsistencies with other provisions of the deed;
3. Clause 3(4) should not be construed as overriding clause 18, as it does not expressly deal with how the unit holders are to determine whether or not to wind up the trust;
4. Clause 3(4) has to be properly construed not only with clause 18 but also with clause 5, which requires the Trustee to keep and maintain an up-to-date register of unit holders. There is no inconsistency between clause 3(4) and clauses 5 and 18. The combined effect of clauses 5 and 18 is that all the unit holders recorded on the register are required to convene a meeting and determine by a poll that 100% of the unit holders have decided to wind up the trust and to have the land distributed to the unit holders. Until that happens there is no right to have the trust wound up and the land (or the proceeds of its sale) distributed;
5. The second sentence of clause 3(4) is properly construed as requiring all the registered unit holders to agree before winding up the trust with no discretion in the Trustee. This is because clause 23 deals with the situation where a unit holder holding not less than 50% of the units can seek to wind up the trust but in that case clause 23(3) reserves in the Trustee a discretion to postpone the winding up.
The Chief Commissioner also submits that the reference in the second sentence of clause 3(4) to the 'unit holders' is a reference to all of them, and cannot be read as including a reference to any individual one of them. The Chief Commissioner notes that while clause 1(2) of the trust deed provides that the plural includes the singular, that is subject to express provision to the contrary.
Finally the Chief Commissioner submits that the trust deed should be construed in a way that recognises the possibility that additional unit holders may be admitted, other than the two original unit holders who were the only unit holders throughout the relevant period. I understood the submission to be that a construction of the deed that delivers a sensible commercial outcome when there are two unit holders will not be the correct construction if it does not also deliver a sensible commercial outcome no matter how many unit holders there are. The submission is evidently based on what was said by the Court of Appeal in Franklins Pty Ltd v Metcash Trading Ltd (2009) 76 NSWLR 603; [2009] NSWCA 407, and in particular the requirement to give a commercial contract (including, according to the Chief Commissioner, a trust deed) a businesslike interpretation, one that avoids making commercial nonsense or that delivers a commercially inconvenient outcome: at [19].
[3]
Consideration
Both parties acknowledge that the trust deed is to be interpreted by reference to orthodox principles of construction: Byrnes v Kendle (2011) 243 CLR 253; [2011] HCA 26; Sayden Pty Ltd v Chief Commissioner of State Revenue (2013) 83 NSWLR 700; [2013] NSWCA 111 at [39].
The Applicant's submission concerning the 'overriding and paramount' nature of clause 3(4) amounts to an acknowledgment that the trust deed does not otherwise give the unit holders a present right of beneficial enjoyment of the land. Therefore, the Applicant must succeed in establishing either (a) that the words 'notwithstanding any other provision of this Deed' apply to the second sentence of the clause as well as the first, or (b) that clause 3(4) is an 'overriding and paramount' clause in any event.
The drafting of clause 3(4) is such that the words 'notwithstanding any other provisions of this Deed' are absent from the second sentence of the clause and I do not consider they can be properly read into it. Orthodox drafting to achieve the end contended for by the Applicant would more likely have seen the expression repeated from the first sentence to the second, or the expression used as a kind of chapeau to introduce the two ideas following it. Even the use of the word 'further' at the beginning of the second sentence is not strong enough to import into that sentence the overarching qualification that is present in relation to the content of the first sentence.
Nor am I persuaded by the Applicant's alternative submission, that clause 3(4) is an 'overriding and paramount clause' that displaces the remaining provisions of the deed. This is because, even allowing for the fact that the design of the clause might have been better, the content also falls short. In my view, the effect of the second sentence is not to resolve any inconsistencies with other provisions of the deed (which is what a clause of this kind, if it were effective, is generally designed to do: Sayden, at [40]). Instead it is simply to confirm the unit holders' power to require the Trustee to wind up the trust, but not in such a way that ignores the conditions imposed on that power elsewhere in the deed.
For either limb of the Applicant's submission to be accepted, the language used in clause 3(4) would have to point strongly towards that outcome. This is because the other provisions of the deed set out in detail the powers, duties, rights and obligations of the Trustee and the unit holders. They should not be presumed to be displaced without the clearest language dictating that result. The language simply does not do that.
As both Glenn's case and CPT Custodian make clear, unless it follows from the proper construction of the trust deed that the unit holders had a present right of beneficial enjoyment of the land at any of the relevant taxing dates, the Applicant's case must fail.
Because clause 3(4) does not override the other provisions of the deed, the unit holders do not have a present right of beneficial enjoyment of the land. The most they have is the power under clause 18 to call a meeting and, depending on the outcome of the meeting, the right to have the trust wound up in accordance with clause 23 if the votes go that way. But even the power to call a meeting is not available to every unit holder; it is only available to a unit holder who individually holds, or to unit holders who together hold, at least 50% of the units. It is true that each of the current unit holders holds no less than 50% of the units, and on that basis either one of them could call a meeting - but, all else being equal, the admission of only one additional unit holder would throw that arithmetic out. The power (which even now is less than a right) would be even more diminished in that circumstance. And it cannot be the case that an objective assessment of the unit holders' power can depend on the number of unit holders recorded on the register: in this regard I agree with the Chief Commissioner's submission as set out in [32] above.
For these reasons the unit holders did not, on any of the relevant taxing dates, have a present right of beneficial enjoyment of the land. The Applicant has therefore failed to establish that the Unit Trust is a fixed trust. It follows that the assessments made by the Chief Commissioner are correct.
[4]
Order
1. The land tax assessments for the 2015 to 2019 land tax years are confirmed.
[5]
I hereby certify that this is a true and accurate record of the reasons for decision of the Civil and Administrative Tribunal of New South Wales.
Registrar
DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.
Decision last updated: 30 November 2020
Parties
Applicant/Plaintiff:
Marius Street Developments Pty Ltd ATF The Gerryjohn Unit Trust
Respondent/Defendant:
Chief Commissioner of State Revenue
Legislation Cited (1)
Land Tax Assessment Act 1910(Vic)
Cases Cited (11)
The meaning of the expression 'estate of freehold in possession'
The expression 'estate of freehold in possession' is not defined in the land tax legislation, but the exact same expression appeared in the Land Tax Assessment Act 1910 (Vic) and was considered by the High Court in Glenn and others v Federal Commissioner of Land Tax (1915) 20 CLR 490; [1915] HCA 57.
In Glenn's case Griffith CJ said at 498:
The essential element of an 'estate in possession' is, in my opinion, that the owner of it has a present right of beneficial enjoyment, whether accompanied by physical possession of the land or not.
Isaacs J expressed himself this way, at 501:
The real question here, as I view it, is this: Have the appellants, in the eye of a Court of equity, a present right under the provisions of the will to the present enjoyment of the land? If they have, they are equitable 'owners' within the meaning of the Act; if they have not, they are outside the definition. I emphasize the word 'right,' for nothing short of a right will satisfy the requirement.
The notion that a person is entitled to an estate in possession only if the person has a present right of beneficial enjoyment of the land was confirmed in CPT Custodian Pty Ltd v Commissioner of State Revenue (2005) 224 CLR 98; [2005] HCA 53, where the High Court also marked out the proper approach to a case such as this (at 109 [14]-[15]):
The first step was to ascertain the terms of the trusts upon which the relevant lands were held. The second was to construe the statutory definition to ascertain whether the rights of the taxpayers under those trusts fell within that definition.
In taking those steps, a priori assumptions as to the nature of unit trusts under the general law and principles of equity would not assist and would be apt to mislead. All depends, as Tamberlin and Hely JJ put it in Kent v SS Maria Luisa [No 2] (2003) 130 FCR 12 at 33, upon the terms of the particular trust.