The Commissioner of Stamp Duties v Westleigh Management Services Pty Ltd

[1] MACKENZIE J: On 3 November 2000 the Commissioner of Stamp Duties commenced proceedings against the defendant company for a sum claimed under the Stamp Act 1894 as a debt for stamp duty and interest. The amount was then $576,921 and at the date of hearing $648,477.

[2] The claim was based on the transfer of two shares in Homebase Jindalee Pty Ltd ("Homebase") to the defendant and the issue of 1000 shares in Homebase to it. The transaction was alleged to be chargeable with stamp duty under s 56FA to s 56FO of the Act and that there was an obligation to lodge a statement with the Commissioner under s 56FH(1) of the Act. No such statement was lodged. A default assessment issued on 4 August 1999 after the transaction was discovered.

[3] The defence originally delivered contained a number of untenable propositions concerning constitutional issues. These were deleted in an amended defence filed on 23 May 2001. After that there remained two disputed issues. One was that the defendant was entitled to an exemption under the corporate reconstruction provisions of s 49C of the Act. The two transactions relied on as the basis of liability were denied and it was asserted that those parts of the transfers were "part of a wider transaction which was not to have affected the defendant with respect to Homebase nor was it to affect any liability of the defendant to the plaintiff with respect to Stamp Duty on transactions."

[4] In the alternative it was alleged that there was no obligation to give the notice and no right for the Commissioner to issue a default assessment because the defendant had not acquired an interest in Homebase within the meaning of s 56FA to s 56FO of the Act.

[5] The Commissioner has brought two applications. The first is to strike out the defence and for entry of judgment. The second is to join the solicitors who have persisted in the claim, for the purpose of ordering costs against them.

[6] The Commissioner claims that the issues raised now were raised in an objection dated 30 July 1999 and disallowed. To the extent that they were not raised they cannot now be raised. In the written submissions on behalf of the defendant it was argued that the letter of 30 July 1999 was not an objection within the meaning of the Act. That construction of it is untenable in my view. The letter refers to previous conversations with the Office of State Revenue concerning lodging an objection against the default assessment and sets out what are described as "objections". The same word is used elsewhere in the letter as well.

[7] The letter was treated as an objection by the Commissioner and reasons were given for a "decision on objection" that the objection was disallowed and the assessment reaffirmed. The letter also advised of the right of appeal under s24. This right was not availed of with the result, according to the Commissioner, that the assessment stands and cannot be challenged.

[8] The defendant's submission that the letter should not be construed as an objection appears to confuse an appeal provided for under s 24 with the objection procedure under s 23D. Further, the provision quoted in the submission as s 24 is not the relevant version of the section. The letter has all the indicia of an objection. I am satisfied that it was an objection and that there is nothing in that argument.

[9] The right of appeal under s 24, consequential upon disallowance of an objection made under s 23D, was not exercised. Nevertheless, the defendant contests the Commissioner's submission that the assessment could only have been reviewed under the case stated procedure under s 24 and was conclusive since that procedure had not been followed. The defendant submitted that s 24 did not create an exclusive regime. It was submitted that there was nothing in the Act which precluded the defendant from raising a defence in an action for debt even though it could have but had not been raised in an appeal against the assessment.

[10] As I understand the submission it is to the effect that a crucial matter upon which the defendant wishes to rely in defending the action was not raised in the letter of 30 July 1999. This was the scenario in paragraphs 14 to 18 of the amended defence which, in effect, denies that the defendant ever acquired an interest in Homebase in a relevant way. What is suggested is that Homebase was in financial difficulties and the financier was instrumental in negotiating the sale of the majority interest in the company to a third party. As I understand it, the theory advanced is that the intent of the parties was for Homebase shares to be transferred to the purchaser, with the respondent, by direction of the financier, holding the shares pending resolution of the sale. It was submitted that to pursue this would require disclosure from all parties involved in the transaction, and probably evidence.

[11] The same kind of scenario was put in the objection. In the objection it was conceded that, without advice as to the stamp duty implications, and under pressure from the financier, the defendant acquired full ownership of Homebase. This "unwittingly" placed the defendant in a position of obtaining a land rich company without receiving consideration for incurring a stamp duty liability. There is a letter from the accountants who acted for a director of the defendant stating that he was advised by them to try to negotiate the future course of action with the financier having regard to the difficulties in which the company then was.

[12] The two scenarios are not in my view fundamentally different, although they may involve some differences in detail and emphasis. In any event the defendant's submission about the right to defend the present proceedings by challenging the existence of the debt must fail in my view. In O'Sullivan v Commissioner of Stamp Duties (Q) (1984) 1QdR 212 the Full Court held that an assessment of duty may only be reviewed upon a case stated under s 24. It was also held by the court that, subject to an appeal the assessment was conclusive in an action for duty (Matthews J at 214-218; Williams J at 227). Matthews J at 215 expressly addressed an argument that if the Commissioner was correct, an assessment, subject to appeal, was conclusive even in an action for duty. He said that rhetorically it was asked why the Act did not expressly say so if that was the case. After a review of authority he decided that that was the case.

[13] In Commissioner of Stamp Duties v Edmunds (1989) 1 QdR 271, the authority of O'Sullivan was accepted by the defendants but there was an unsuccessful attempt to distinguish it since the case involved a reassessment of underpaid duty pursuant to s 80. The principle in O'Sullivan was accepted by the Full Court as being that the appeal provisions in s 24 of the Act were exclusive in the sense that that section provided the only avenue of appeal to a person dissatisfied with an assessment of duty, notwithstanding that in certain cases appeal by way of a special case as given by s24 of the Act would appear to be inappropriate.

[14] It may be observed in passing, since it is of no direct relevance to the way in which this matter developed, that subsequently, when the Judicial Review Act 1991 came into effect, another avenue became available, subject to the limitations in that Act, to dissatisfied persons (Westpac Banking Corporation v Commissioner of Stamp Duties (1994) 1QdR 99; Suncoast Milk Pty Ltd v Commissioner of Stamp Duties (1997) 2 QdR 529).

[15] When O'Sullivan and Edmunds were decided, the Act provided for a challenge to an assessment to be made directly to the Full Court by case stated. The step of objecting to the assessment was interposed between assessment and appeal in 1991. While s 24 was redrafted and reorganised in a more modern form at the same time, it is identical in principle to s 24 as it was when O'Sullivan and Edmunds were decided.

[16] In both its forms, dissatisfaction with the way in which the preceding step was resolved is the triggering event. The requirement that the Commissioner state and sign a case setting forth the question or questions upon which the Commissioner's opinion was required is the same. So is the requirement to set out the assessment. There are no material changes in other respects to the process under s 24.

[17] While the Act has been amended in relation to the steps for challenging an assessment since those decisions were delivered, the process has not changed in character. Therefore, it is my view that the Commissioner's submission is correct. As the matters raised in the defence cannot be relied on to challenge the existence of a liability the defence must be struck out and judgment entered against the defendant.

[18] That leaves the Commissioner's application to join the solicitors so that a costs order may be made against them to be considered. The application finds its basis in Knight v FP Special Assets Ltd (1992) 174 CLR 178 where Dawson J said that as the discretion to award costs is to be exercised judicially, a person against whom costs may be awarded must, if not a party, be brought before the court. He said that in many cases the convenient method of bringing him before the court would be to make him a party.

[19] Joinder is not an essential prerequisite of an order for costs, as the decision in Knight shows. Knight was decided in the context of O 91 r 1 of the previous rules. However, the repeal of that rule and its replacement by the Uniform Civil Procedure Rules does not affect the principle. Rule 689(1) still expresses the power in terms of a discretion.

[20] The principle underlying awarding costs against a non-party is that where the non-party is the real party to the litigation costs may be awarded. The notion is that the non-party is effectively a litigant standing behind the actual party. Abuse of process in the broad sense by a non-party is another category where an order may be appropriate, although because there is a wide discretionary element in awarding costs it is probably unhelpful to try to create closed categories of cases where the power may be exercised against the third party.

[21] The application is based on a series of correspondence between a solicitor in the Crown Law Office on behalf of the Commissioner and the defendants solicitors. The letter of 9 February 2001 from the Crown Law Office asserts that the defence offended against r 171 UCPR in several respects, only one of which appears in the amended defence filed on 23 May 2001. The letter also put the solicitors on notice of the present application.

[22] This letter was replied to on 6 March 2001. It advised that counsel who ultimately appeared for the defendant in the present proceedings had been briefed to settle the amended defence. The letter elaborated on the argument about the nature of the transaction in a way broadly consistent with what appears in the amended defence. It raised the question of the need for disclosure and asked for an indulgence to allow for further investigation of this avenue of inquiry.

[23] On 20 March 2001 the solicitors were advised that the application would proceed. It was repeated that neither the constitutional argument nor the issue of the consequences of failing to appeal against the assessment had been addressed in the previous reply.

[24] On 29 March 2001 the solicitors said again that they intended to file an amended defence but needed third party disclosure. They asked for the application to be delayed. The application was filed on 15 May 2001 and set down for 1 June 2001. The amended defence was filed on 23 May 2001.

[25] I have come to the conclusion that this is not a case where I should award costs against the solicitors. I am not satisfied the quality of their conduct is such as to justify that course. It is impossible to determine on the evidence before me the genuineness or otherwise of the defendants version of events that it was a naive participant in a transaction over which it had little or no control and in respect of which it had no advice as to the stamp duty implications. There is a considerable ad misericordiam element in the argument. Had the legal advisers not focused on this but addressed the question of whether it was open to them to defend the action on that ground in light of the Stamp Act the present proceedings may not have eventuated.

[26] In that regard the legal advisers contributed to the proceedings being brought. However, I am not satisfied that their conduct displays the level of obstinacy in the face of the obvious to justify an award of costs against them. I therefore refuse the application. However, even though they have been successful in resisting this aspect of the application the failure to address the issue of the implications of s 24 in a timely way disentitles them to costs themselves. I will make no order as to costs on this application.

1. The defence filed 29 November 2000 and the defence filed 23 May 2001 be struck out.

2. Judgment in favour of the plaintiff in the sum of $648,477 be entered with costs on a standard basis.

3. On the application to join the solicitors, the application is refused, with no order as to costs.