Rio Tinto Ltd v Commissioner of State Revenue [1998] VSC 118

8. On 19 May 1994 CRA exercised the option by serving an option notice which required North and Ballarat to transfer the Call Shares to Australian Mining & Smelting Limited ("AM&S"), a wholly owned subsidiary of CRA.

11. On 20 May 1994 CRA instructed its broker, Potter Warburg Securities Pty Ltd ("Potter Warburg"), to sell a number of shares in Pasminco, including the Call Shares. On that date, and pursuant to that order, Potter Warburg sold a number of shares, including the Call Shares, on the market to a large number of individuals ("the ultimate purchasers"), for a price of $1.70 per share, the settlement date for those sales being 2 June. For administrative purposes, the shares were transferred from North and Ballarat to Melfast Nominees Pty Ltd ("Melfast"), a company controlled by Potter Warburg. The parties have agreed for convenience that, rather than identifying each of the ultimate purchasers, if those sales are found to attract stamp duty, then Melfast will be treated as the purchaser of all of those shares.

14. On 24 May 1994, before settlement of the contracts for the sale of the Call Shares to the ultimate purchasers, CRA, North and Ballarat entered into an agreement ("the letter agreement"), expressed as an agreement to amend the option notice which had already been served. The option notice was now to be read as if instead of requiring North and Ballarat to transfer the Call Shares to AM&S, it required them to transfer the Call Shares "to such persons and in such numbers as Potter Warburg Securities Pty Ltd arranges in accordance with the instructions given by the Grantee [CRA] on 20 May 1994". Counsel were in agreement that the letter agreement in fact created a novation rather than an amendment.

17. On 24 May 1994 North and Ballarat delivered the share certificates to Potter Warburg and CRA paid the purchase price of the Call Shares, namely $1.53436 per share, to North and Ballarat.

20. On 1 June 1994 two transfers, being a transfer of North's parcel of the Call Shares from North to Melfast and a separate transfer of Ballarat's parcel of the Call Shares from Ballarat to Melfast (together referred to as "the two transfers") were executed by Potter Warburg on behalf of each transferor. On 2 June 1994 each of the two transfers was executed by Potter Warburg on behalf of Melfast.

23. Pursuant to section 60D(1) of the Act, Potter Warburg certified in respect of each of the two transfers, on behalf of both the transferor and the transferee, that "stamp duty, if payable, has been or will be paid". Duty was paid pursuant to section 60C. Sections 60A to 60E appear in subdivision 4A of Division 3 of Part II of the Act, and are conveniently referred to as "the broker provisions".

26. On 22 May 1995, CRA paid to the respondent an amount of $1.4 million, being an estimate of the stamp duty the respondent considered to be payable on the two transfers. On 2 May 1997 a default assessment was issued by the respondent for a total amount of $1,398,913.80 in respect of the two transfers, and the balance of the sum of $1.4 million has been refunded. A notice of objection to the assessment was lodged on behalf of the appellant on 30 June 1997 and by a notice of decision dated 28 January 1998 the respondent disallowed the objection. By letter dated 20 March 1998, the appellant requested the respondent to treat the objection as an appeal and cause it to be set down for hearing by this Court.

29. The respondent has assessed the duty pursuant to section 22(c) of the Act which reads:

22. Except where express provision to the contrary is made by this or any other Act -

(c) an instrument relating or giving effect to two or more transactions shall be separately and distinctly charged with duty in respect of each transaction as if it contained a duly executed instrument in respect of each transaction.

35. The circumstances affecting each of the two transfers are identical, and it is convenient to consider this matter as though it related to one transfer only. I shall proceed on the basis that I am concerned only with the transfer from North to Melfast, but on the understanding that the issues are identical with regard to the two transfers.

38. It is, of course, fundamental to the operation of the Act that stamp duty is payable on instruments, not on transactions, and this is provided by section 17(1). In the case of a disposition of shares, the duty is payable on the transfer. However, as Master White of the Supreme Court of Western Australia pointed out in Hartley Poynton Ltd v Chong Yee Yap (1989) 20 ATR 1618, referring to the corresponding provisions of the Stamp Act 1921 of Western Australia, the broker provisions of the Act are unusual in an Act concerned, in general, with the stamping of instruments. The scheme of the broker provisions is apparent from sections 60A(2), 60B(1) and 60C(1)(b); namely, that upon a sale or purchase of shares at market price made by a broker pursuant to an order, the broker is to record certain prescribed information, including the amount of stamp duty chargeable, and the duty is to be paid within ten clear days of the date of the sale or purchase. Those provisions do not relate to the payment of duty on an instrument, save that, when the transfer of shares is endorsed with the certificate under section 60D(1) (see paragraph 8 above), the transfer is deemed by section 60D(3) to be duly stamped.

41. The submission of the respondent was that the transfer gave effect to two separate transactions, namely one sale from North to CRA for $1.53436 per share and one sale from CRA to Melfast (i.e. the market purchasers) for $1.70 per share. Accordingly, Mr Boaden submitted, section 22(c) of the Act applied and duty was payable on the transfer in respect of each transaction. The second transaction had been made by the broker, Potter Warburg, pursuant to an order. Accordingly while duty had been paid on the transfer under the broker provisions that duty had been paid only in respect of the second transaction and not in respect of the first transaction.

44. It was not, Mr Boaden submitted, necessary for present purposes to determine the exact nature of the rights which CRA acquired on the exercise of the option and payment of the very substantial purchase price. It was sufficient that it thereby acquired the power to sell those shares. He drew attention to sub-sections 846(1) and (2) of the Corporations Law, providing that a person shall not sell securities to a buyer unless at the time of the sale the person believes on reasonable grounds that the person has a presently exercisable and unconditional right to vest the securities in the buyer; and that it is sufficient if the person has a presently exercisable and unconditional right to have the securities vested in the person. CRA had clearly acquired those rights on the exercise of the option, and it was thus empowered to sell the shares.

47. He submitted that the exercise of the option and payment of the purchase price by CRA gave rise to one sale and purchase, and each of the sales to the ultimate purchasers (here all treated together as one sale to Melfast) and payment of the price therefor was another sale and purchase. That being so, there were two sales and purchases. Those two sales and purchases were two separate transactions. The transfer gave effect to each of those two separate transactions, and accordingly section 22(c) operated to charge the transfer with duty in respect of each transaction as if it contained a duly executed instrument in respect of each. Duty had been paid only in respect of the second transaction, and accordingly CRA was liable for duty on the transfer in respect of the first transaction.

50. Mr de Wijn did not, if I understood him correctly, suggest that any "express provision to the contrary is made" by the Act or any other Act in terms of the introductory words of section 22, so as to override the operation of section 22(c). I accept the submission of Mr Boaden that section 60D(3), deeming the transfer to be duly stamped on endorsement of the broker's certificate, is not intended to override section 22(c) in circumstances where it is applicable.

53. Section 22(c) appears to have been introduced into the Act because of the difficulty in establishing under section 22(a) that the instrument sought to be charged with duty was an instrument "containing or relating to several distinct matters". There is authority both here and in England to the effect that, for section 22(a) to operate, "it must be possible to find spelled out in terms in the instrument itself a reference to another matter which if it were expressed in a separate instrument would make that instrument liable to stamp duty" (see the authorities referred to by the Victorian Taxation Board of Review in cases Nos. S/1/85 and S/2/85 (unreported, decided on 24 September 1985)). Section 22(c) enables the consideration of transactions which underlie the instrument but are not apparent on the face of it (as to which see the extract from the explanatory memorandum on the introduction of section 22(c) which is set out in Innvale Pty Ltd v Comptroller of Stamps (1989) 89 ATC 2019 at 2021).

56. That case, decided by Mr Gibson, Member, in the Administrative Appeals Tribunal, was the only authority on section 22(c) to which counsel were able to refer me. The Tribunal there found that on a sale of land from A to B "and/or nominee", when B nominated C as the purchaser, section 22(c) did not operate to render the transfer from A to C to be separately charged with duty in respect of two transactions. In the course of his Reasons for Decision Mr Gibson made the following observations at 2023:

. . . it does seem to me that as a matter of ordinary language that there were two transactions that led to the transfer. A transaction occurs when people have dealings or do business.

. . . it is my view that the transactions that are referred to in section 22(c) are transactions which if recorded in an instrument would make that instrument liable to duty under the Act.

On that basis he then found that there were not, in the case before him, two or more transactions of that kind. The land was sold only once, from A to C, C having been substituted for B with the consent of A. The second transaction was properly described as a novation. At 2024 he said:

I think it would be fair to say that the relevant land here has been sold once, and once only, that there has in substance been one, and only one, purchase of the land, but that along the way the purchaser was changed. It is in my view important that no money consideration passed from [C] to [B]. One of the ordinary elements of a sale is missing.

I would with respect adopt the passages which I have cited from those Reasons.

64. The distinction between the facts in Innvale and those before me is clear. In the present case, money consideration passed between CRA and North and also between the ultimate purchasers and CRA. Thus there were two "transactions which, if recorded in an instrument, would make that instrument liable to duty". It is not in issue that a purchaser of shares does not require a transfer from the actual vendor from whom that purchaser acquired the shares.

67. Counsel informed me that section 67A of the Act was introduced as a result of the decision in Innvale, but as that section relates only to transfers of real property it is not relevant to the matter before me. Section 59 deals with the payment of stamp duty in respect of dealings with shares where no instrument of transfer was executed. I do not consider that section to be an "express provision to the contrary" so as to override the operation of section 22(c).

70. Mr de Wijn submitted that there was only one transaction, that every component of the transaction was evidenced by an instrument, the option agreement, the letter agreement, the option notice and so on, but that none of those instruments was dutiable, and therefore the transfer could not be dutiable. However, section 22(c) in effect deems there to have been a dutiable instrument of transfer in respect of each of the two transactions. The existence of other documents evidencing what I will here call the arrangements between the parties does not negate the operation of section 22(c) in that regard.

73. Having considered the matter, I accept the submissions of Mr Boaden that the transfer gives effect to two transactions, and that by virtue of section 22(c) of the Act duty is payable on the transfer "as if it contained a duly executed instrument in respect of each transaction". By virtue of section 55B of the Act, on a transfer of shares in a company the liability to pay duty is a joint and several liability of the transferor, the transferee and the company, but the transferor and the company are entitled to recover from the transferee any duty paid by them on the transfer. Duty on the transfer so far as it relates to the second transaction was paid under the broker provisions (see paragraph 13 above). CRA is correctly assessed by the respondent as liable to pay the duty as transferee on the transfer as if the transfer contained a duly executed instrument in respect of the first transaction. That liability arises pursuant to section 17(1) of the Act under Part IV of the Third Schedule, requiring duty to be paid "upon the transfer of any marketable security . . . not being a transfer to perfect a sale or purchase to which subdivision (4A) of Division 3 of Part II [containing the broker provisions] applies".

76. For these reasons the appeal will be dismissed. Counsel may wish to make submissions as to costs.