Perpetual Trustee Co Ltd v Commissioner of State Revenue [2000] VSC 177

197. I consider also that some sort of reality check is appropriate having regard to the circumstances of the transaction effected between the parties on 1 April 1997. What occurred was a series of steps which included a sale by the vendors of their interest in Shoppingtown's real estate for $147M and by which, in the result, the vendors' full estate in fee simple passed to PT as to the equitable estate by way of the constructive trust and as to the legal estate to Perpetual as trustee for PT by way of the instruments of transfer. Whether or not there was between each step, from the Offer to the execution of the instruments of transfer, a mere moment of time or, for some practical reason or other, a somewhat longer period, the fact is that what happened was a pre-planned, highly organised series of steps to the effect mentioned. The line drawing suggested by Perpetual seems artificial and removed from the reality of the parties' own actions.

200. I referred earlier to cl 4 of the Agreement. Paragraph (d) required the vendor, subject to the tenancies, to give possession of the property. That is, on completion on 1 April 1997 on payment of the purchase price the purchaser was entitled to immediate possession. Paragraphs (a), (b), (c) and (e) refer to the change of title. I referred to these sufficiently earlier. Paragraph (a) is important because it reflects that the parties had in contemplation the passing of the beneficial interest or "title" as cl 4(a) referred to it, and the legal title of the property, at different times or in different circumstances. It provides, in summary, that the vendor must on completion, subject to the Encumbrances and any legislation or regulation requiring registration for the passing of title, cause the unencumbered beneficial title to the property to pass to the purchaser. That is exactly what was done by the constructive trust, the existence of which the parties immediately recognised and acted upon. The conclusion is inescapable that the parties, and certainly the purchaser, treated the coming into existence of the constructive trust as performance or satisfaction of that requirement of par (a). The second obligation which par (a) imposed on the vendor concerned the legal title. The vendor, "if and when requested" to do so was to "cause the legal title of the Property to pass to the Purchaser". Further, by par (e) the vendor was also, on completion, to give an executed and registrable instrument of transfer for the property in favour of the purchaser. The vendor performed its obligations in this regard by providing executed instruments of transfer of the property in registrable form. It is immaterial that the transferor in each case was not PT in name but Perpetual which in that respect was acting as trustee for PT. The correct inference in my view is that the parties, in particular PT as the purchaser and the party liable for all stamp duty payable in respect of the agreement (cl 25), chose by these means to implement the agreement of sale and transfer the vendors' fee simple interest in possession to the purchaser. The obvious inference is that the purpose was to avoid stamp duty.

203. It is to be noted that recital A to the deeds of change of trustee which refers to the creation of the constructive trust does not refer to the Agreement or acknowledge its existence or the matters performed under it. It merely states that for valuable consideration given a constructive trust arose concerning the beneficial interest in the property described in the Schedule of which the Old Trustee is trustee and the Beneficiary is beneficiary. The recital provided for the insertion of the date of giving of the consideration. That date was not inserted, but it was 1 April 1997. Unless the Comptroller was prepared to accept the recitals and terms of the deeds as being fully informative of all matters that could be relevant to a decision whether the exemption was applicable, and I do not understand how the Comptroller could have in the face of such a relatively bland and uninformative document, the Comptroller must have required more information concerning the preceding events or underlying transaction and must, in turn, have been able to consider such of the information as related to the solely in consequence issue.

206. In the result I am of the view that Perpetual's submission must fail. When regard is had to the transactions of 1 April, the appointment of Perpetual as new trustee is seen as but one factor in consequence of which the instruments of transfer were executed. The change of trustee was but a step in the overall transaction of sale and the transfer of title and thereby full ownership to the purchaser. It was the means by which that part of the agreement was implemented. It cannot, in my view, in logic or commonsense, be divorced from all the other attendant circumstances and held to have been the sole reason or event in consequence of which the instruments of transfer were executed. For these reasons I hold that in the circumstances the exemption was not applicable. I add that if the question is in fact whether it was open to the Comptroller to make the assessments on the basis impugned by Perpetual, the answer is that it was.

209. This conclusion means it is not necessary to consider the further submission which I understood the Commissioner to make, based on the reasoning in Baker and Bilney, that the circumstances in this case take the instruments of transfer outside the object or purpose to which exemption 23 is directed. On this argument the change of trustee is regarded as a contrived step undertaken for the purpose of attracting the exemption. I would infer that was so.

212. This is sufficient to answer the case based on the exemption. The appeal fails in that respect.

216. As an alternative argument, assuming that exemption 23 is not applicable, Perpetual submitted that the value of the estate or interest conveyed by the instruments of transfer was nil or nominal and that, accordingly, the duty chargeable on the instruments should have been assessed at nil or in a mere nominal amount. Whereas under the exemption 23 submission the step that was critical was the execution of the deeds of change of trustee, on the alternative submission the critical point is the earlier coming into existence of the trust in favour of PT. The point upon which the alternative submission turns is that on completion, when PT accepted title, paid the purchase price and became entitled to a transfer of the property, PT became entitled in equity to the land and the vendor became a bare trustee thereof for PT; see McWilliam at 660 per McTiernan and Taylor JJ, and Stern at 523 per Deane and Dawson JJ. The trust existed prior to and at the time when the instruments of transfer were executed; it was not created by or as a result of the instruments of transfer. Rather, the effect of the transfers was to transfer the legal title, or bare legal interest as it was said, into the name of Perpetual as trustee for PT. Thus the point at which Perpetual's submission commences, and upon which it turns, is that prior to and at the time when the instruments of transfer were executed PT was entitled to the full beneficial interest in the property which, to quote Perpetual's counsel, "Took the whole value so that the value of what is acquired was nil". That is, having identified PT's pre-existing beneficial interest in the property, which accounted for its full value, all that was left for the transfers to convey, and all that they did convey, was the bare legal interest which had a nil value. This argument was raised unsuccessfully in Oughtred and Parinv.

219. Counsel for Perpetual referred to the following authorities, in addition to McWilliam and Stern, as correctly stating the relationship between the legal estate and the equitable estate in land: DKLR Holding Co (No. 2) Pty Ltd v Commissioner of Stamp Duties (1980) 1 NSWLR 510 at 519-521 per Hope JA, and Re Transphere Pty Ltd (1986) 5 NSWLR 309 at 311 per McLelland J. In DKLR at 519 Hope JA said:

"... an absolute owner in fee simple does not hold two estates, with all the rights and incidents that attach to that estate. If he were to execute a declaration that he held the land in trust for himself absolutely, the declaration would be of no effect; it would give him no separate equitable rights; he would remain the legal owner with all the rights that a legal owner has. At least where co-extensive and commensurate legal and equitable interests are concerned, '. . . a man cannot be a trustee for himself.': Goodright v Wells (1781) 2 Dougl 771 at 778; 99 ER 491 at 495 per Lord Mansfield. 'You cannot have a legal estate in trust for yourself.': Harmood v Oglander (1803) 8 Ves Jun 106 at 127; 32 ER 293 at 301, per Lord Eldon. Secondly, although the equitable estate is an interest in property, its essential character still bears the stamp which its origin placed upon it. Where the trustee is the owner of the legal fee simple, the right of the beneficiary, although annexed to the land, is a right to compel the legal owner to hold and use the rights which the law gives him in accordance with the obligation which equity has imposed upon him. The trustee, in such a case, has at law all the rights of the absolute owner in fee simple, but he is not free to use those rights for his own benefit in the way he could if no trust existed. Equitable obligations require him to use them in some particular way for the benefit of other persons. In illustrating his famous aphorism that equity had come not to destroy the law, but to fulfil it, Maitland, Lectures, 2nd ed, p.17, said of the relationship between legal and equitable estates in land: 'Equity did not say that the cestui que trust was the owner of the land, it said that the trustee was the owner of the land, but added that he was bound to hold the land for the benefit of the cestui que trust. There was no conflict here.' "

223. In Re Transphere at 311, McLelland J, after referring to the above dicta of Hope JA, said:

"But what is significant for present purposes is the imprecision of the notion that absolute ownership of property can properly be divided up into a legal estate and an equitable estate. An absolute owner holds only the legal estate, with all the rights and incidents that attach to that estate. Where a legal owner holds property on trust for another, he has at law all the rights of an absolute owner but the beneficiary has the right to compel him to hold and use those rights which the law gives him in accordance with the obligations which equity has imposed on him by virtue of the existence of the trust. Although this right of the beneficiary constitutes an equitable estate in the property, it is engrafted onto, not carved out of, the legal estate."

227. Before mentioning further authority which Perpetual's counsel referred to, I note that early in this part of his submissions he referred to provisions of the Act and the Schedule which, he said, made it clear that in referring to the value of real property it is "the value of the relevant estate or interest the subject of an instrument [that is in question] and not that of the underlying property". It was submitted that the Tribunal had erred in concluding otherwise and in having regard to the value of the underlying property including PT's beneficial interest.

230. I note too that in presenting his submissions Perpetual's counsel extensively criticised the reasoning of the Tribunal. While I have regard to all that counsel said I will not labour this judgment by setting out and commenting on the criticisms. In my view it is not necessary to do so.

233. Counsel for Perpetual referred to two cases on the point whether for stamp duty purposes the value of the bare legal title is nil or nominal. They are O'Sullivan v Commissioner of Stamp Duties (Qld) (1983) 14 ATR 299, on appeal [1984] 1 Qd R 212; and Commissioner for ACT Revenue v Perpetual Trustee Co (Canberra) Ltd (1993) 116 FLR 296, on appeal [1994] FCA 1150; (1994) 50 FCR 405.

236. In O'Sullivan the point now raised by Perpetual was relied upon by the taxpayer before Connolly J at first instance. In that case trustees held certain lands which, on the beneficiaries becoming absolutely entitled to the full beneficial interest, were transferred to the beneficiaries by written instrument. The instrument transferred "an estate and interest in the said piece of land". The Commission took the view that stamp duty was payable on the transfers under the heading "Conveyance or Transfer" and that no consideration being stated in the transfers duty should be calculated on the full unencumbered value of the land. The taxpayer trustees objected to this approach and in particular contended that they had transferred no more than the bare legal estate in the land the full beneficial interest in which was already vested in the transferee beneficiary. They argued that the full unencumbered value of the property conveyed must be regarded as nominal. Connolly J accepted the taxpayer's argument and granted a declaration, which was the relief sought, as to dutiability. His conclusions on the argument appear at 303-304. He noted that the argument had proceeded on the footing that what was conveyed was the unencumbered estate in fee simple absolute in possession and that the taxpayer's argument was that the property in fact conveyed, as distinct from that stated in the transfer, was the value of which should be used to calculate stamp duty. Connolly J then said:

"Although I was referred to no reported case in which this approach has been adopted it seems to me in principle to be correct. Extrinsic evidence may be resorted to not only to ascertain the true value of the property but also to identify the true nature of the subject matter of the instrument. It follows in this case that the transferees got only the legal estate to property the full beneficial interest in which was already vested in them. The full unencumbered value of the property conveyed must accordingly be regarded as nominal."

240. Counsel for Perpetual submitted that the conclusion of Connolly J was correct. It is in fact the only decision that counsel could find in which a judge has so concluded. This seems a singular fact in light of the countless times that a trust has arisen on completion under a contract for the sale of land pending registration of a transfer of the land.

243. An appeal from this decision was allowed on the ground that in light of the exclusive appeal provisions in the Stamp Act, which the tax payer had not pursued, the Court did not have jurisdiction to determine dutiability on a proceeding for a declaration. Accordingly the declaration granted by Connolly J was set aside. In these circumstances it was not necessary for the Full Court to deal with the valuation point and two members of the Court did not consider it. The third member of the Court, G.N. Williams J, agreed in the result but, out of deference to the argument and because he was of the contrary opinion to Connolly J, he concluded his judgment (at 229-231) with a consideration of the point.

246. G.N. Williams J found the answer to the point in a true understanding of the nature of the equitable estate enjoyed by the beneficiaries prior to the transfer. He referred to a trust being by definition an equitable obligation enforceable by the beneficiary to deal with property of the trust for the benefit of the beneficiary. After referring to the principle in Saunders v Vautier (1841) Cr & Pl 240 , and noting that it was not unusual for lawyers to say that the equitable estate is vested in the beneficiary, he said that "It must not be overlooked that at law the fee simple in land, being trust property, is vested in the trustee, and when the trustee conveys the property to the beneficiary, thereby putting an end to the trust, he conveys the fee simple to him". He then noted that in the case of land under the Torrens system the registered proprietor cannot transfer the so-called bare legal title to another while retaining the beneficial estate: see Ex parte Property Unit Nominees (No. 2) Pty Ltd [1981] Qd R 178. G.N. Williams J then referred with approval to the passage from the judgment of Hope JA in DKLR, quoted above commencing at "Secondly". As this passage and the observations of McLelland J in Re Transphere, makes clear, there are not two estates - legal and equitable - which aggregate to the full fee simple estate in land. There is one estate. Thus, G.N. Williams J concluded, "The respondents were conveying more than a 'bare legal interest in land'; they were conveying the ownership of or the fee simple in the land". It would follow that duty would be payable on the value of the fee simple estate subject to the correct application of the Stamp Act.

249. In addition to the fact that his Honour's reasons were obiter, counsel for Perpetual offered two critical comments. First, the reasons concentrated on the identification of the estate rather than the valuation point. Assuming validity in this criticism, the reason must be that the answer to the identification of the estate or interest of the parties also answered the valuation point. Secondly, the facts differed from the present case in that in the result the transferee beneficiaries had the entire fee simple interest in the land. That is correct but what is the difference in substance here? Perpetual is entitled to call on its chosen trustee (who it opted to receive the legal estate for it) to transfer the legal estate to it and, pending that, it is entitled to the equitable estate.

252. Counsel then referred to the Perpetual Trustee Co (Canberra) case. In that case, in the course of his decision on an appeal from the Administrative Appeals Tribunal, Higgins J dealt in obiter dicta with an argument that the duty on an instrument which effected a transfer of a Crown lease should be assessed after deducting the value of any outstanding equitable interests held by a third party. In question was a deed whereby a replacement trustee was appointed. The Commissioner argued that the deed effected a transfer of the leasehold interest to the new trustee and was therefore dutiable. The taxpayer argued that the value of the interest was nominal. After referring to a number of authorities including the decisions of Connolly J and G.N. Willliams J in O'Sullivan and DKLR in the High Court ((1982) [1982] HCA 14; 149 CLR 431 at 442 per Gibbs CJ) Higgins J concluded that:

"... in the absence of statutory provision to the contrary, the value of an interest conveyed by an absolute owner is the commercial value of the entire interest. If the interest is subjected to equitable obligations by virtue of the terms on which the legal estate is to be transferred, that circumstance does not affect the value of the interest so transferred. That is because the equitable interest is created by, not in advance of, the conveyance. Thus, as I have noted, had it been the case that merger had occurred and that the conveyance fell outside of the categories of exempt instruments, duty would have been assessable on the value of the Crown lease. It may be noted that otherwise there would be little need to create the relevant category of exempt instruments."

256. Counsel for Perpetual criticised as inaccurate the statement in that passage as to the equitable interest being created by and not in advance of the conveyance. In fact, he submitted, the interest was created after the conveyance. Further, in the present case the equitable interest existed prior to the execution of the transfer and hence the case is distinguishable. In other words, Perpetual does not rely on the reasoning of Higgins J.

259. An appeal from this decision was allowed and the case was remitted to the Tribunal for further hearing. The appeal was disposed of on another point and the obiter dicta of Higgins J was not discussed directly. I say directly because in the course of his judgment on the appeal Davies J referred to Oughtred as indicating a basis for an argument that might be made in the further hearing of the case.

262. In concluding his submissions Perpetual's counsel emphasised that the pre-existing interest of PT did not change by or as a result of the transfers, and the property transferred to Perpetual did not include any equitable interest in the land. These circumstances, he said, distinguished the case from the ordinary transaction for the sale of land. The distinguishing feature seemed to be the intercession of Perpetual as new trustee and the transfer of the legal estate in fee simple to that new trustee.

265. I should note for completeness that in his submissions counsel for the Commissioner relied, in addition to the authorities mentioned earlier, on Commissioner for Stamp Duties (NSW) v Perpetual Trustee Co Ltd (1926) 38 CLR 272, and on DKLR [1982] HCA 14; (1982) 149 CLR 431 at 449 and 450 per Mason J where his Honour referred to the significance of the description of the estate in the instrument in question.

268. In the end I conclude, having considered all that both counsel submitted, that the Comptroller was correct in assessing the transfers to duty on the value of the fee simple estate in the land. In my view the fact that PT was entitled in equity to the land at the time when the instruments of transfer were executed did not mean that the transfers operated to convey a mere "bare legal title". The analysis of Hope JA and McLelland J of the nature of the fee simple estate in land indicates that there is one estate onto which is engrafted the equitable estate. As McLelland J stated, the right of PT under the trust was "to compel [the vendor] to hold and use those rights which the law [gave the vendor as the legal and absolute owner] in accordance with the obligations which equity has imposed on him by virtue of the existence of the trust". To carry into effect the transfer of ownership of the land it was necessary to transfer the legal estate to the purchaser. Such a transfer would not merely transfer "the legal title" (to use the expression in cl 4 of the Agreement). It would convey all the estate and rights of the absolute owner in fee simple in the land sold. That estate and those rights were of a different nature and more extensive than PT possessed under the equitable estate. As it turned out, the transfer of the legal estate was made not to PT but to a trustee for PT, clearly at PT's design and request as its desired way of obtaining a transfer of the legal estate. The instruments of transfer describe the estate and interest transferred as "all its estate in fee simple". That is, the transferor transferred to Perpetual (as trustee for PT) all the fee simple estate in the land, that being the legal estate on to which was engrafted the equitable estate held by PT. I refer, with respect, to Lord Jenkins' observation in Oughtred at 240 that in truth the title secured by a purchaser by means of an actual transfer is different in kind from and may well be far superior to, the special form of proprietary interest which equity conferred on a purchaser pending transfer.

271. I have already concluded that the steps which were undertaken up to and including the execution of the instruments of transfer were in fact the means by which the parties chose to implement the Agreement to sell and transfer ownership of the vendors half interest in Shoppingtown to PT. That is, they were the means chosen by which the vendors' fee simple estate and absolute ownership of the land was transferred to or for PT as PT required. I do not further repeat my earlier conclusions. It is readily to be understood that the instruments of transfer were expressed in terms appropriate to transfer the fee simple estate and thereby all the rights and incidents of full ownership of the land. The transfers were necessary for that purpose.

274. For these reasons I am of the view that duty on the instruments of transfer was to be calculated on the value of the unencumbered fee simple estate (that is including the beneficial estate). Thus the Comptroller was correct in the assessing duty on the ad valorem rates in the Schedule.

278. For all of these reasons, which in all respects are not necessarily those of the Tribunal, the appeal must be dismissed and the decision of the Tribunal affirmed.