Victoria Gardens Developments Pty Ltd v Commissioner of State Revenue [1999] VSC 10

Supreme Court of Victoria|1999-02-10|Before: Gillard, J

Victoria Gardens Developments Pty Ltd v. The Commissioner of State Revenue

Stamps Act 1958 - Duty on Transfer of land - Appeal against amount - Whether a "sale" within paragraph (a) of Heading VI of Third Schedule - Not a sale - Consideration expressed by parties greater than market value - Consideration as expressed - Appeal allowed

On 5 October 1998 the respondent, the Commissioner of State Revenue in his capacity as Comptroller of Stamps ("the respondent"), assessed that three instruments of transfer of land to the appellant Victoria Gardens Developments Pty Ltd ("the appellant") were liable for stamp duty pursuant to Part II, Division 3, Sub-Division 6 of the Stamps Act ("the Act") and Heading VI of the Third Schedule to the Act.

The appellant appealed the assessments in respect to both liability and quantum.

I heard the appeal in respect to the liability to pay duty and on 2 December 1998 I published my reasons concluding that two of the three instruments of transfer were not dutiable.

The appellant now proceeds with its appeal against the amount of the assessment of duty in respect of the instrument of transfer, I found was dutiable.

All told there were five instruments of transfer considered by the respondent in respect of the total project and the one liable for duty is the fifth instrument. The respondent assessed the duty in the sum of $1,375,000 on a value of M$25..

The basic facts are set out in my reasons for judgment published on 2 December 1998 under the heading "Basic Facts" and there is no necessity for me to repeat them.

The fifth transfer involved the transfer of a large tract of land by S.D.A.R.J.V. Pty Ltd ("the transferor") in its capacity as trustee of the Marpine Trust to the appellant being the land described in Certificate of Title Volume 9866 Folio 042. It is identified as Lot 1 on the schedule "A" to my reasons. The land is bounded by Victoria Street and the Yarra River in Richmond and is known as the Marpine Land.

The appellant contends that the amount assessed in respect of the instrument of transfer is excessive.

The burden is on the appellant to prove that the assessment is excessive. See s.33C(1)(b) of the Act.

The Notice of Assessment is dated 5 October 1998.

The amount of duty the subject of this appeal, is the sum of $1,375,000 in respect of the assessment bearing the number A70419.

In assessing the amount of the duty, the respondent took as the value of each transfer the amount allocated to the particular land in the Joint Venture Agreement ("JVA") dated 14 August 1998.

The Marpine Land is Lot 1 on annexure A to the JVA.

According to clause 2.3(a) of the JVA the price for each land holding party's portion of the land is the price which is set out in annexure B to the agreement.

The land known as the Marpine Land was priced for the purposes of the JVA at M$25. The appellant asserts that its market value at the date of the Instrument of Transfer, 20 August 1998, was M$17.7.

According to the instrument of transfer the consideration for the transfer was expressed as -

It is the contention of the appellant that the amount fixed in respect of the land in the JVA is not the true market value of the land but was fixed for the purposes of the JVA. It is contended therefore that the respondent was wrong in assessing the duty on the amount which was fixed in the JVA and which is substantially more than its market value.

The appellant submits that the assessment should have been on the market value of the land.

In a letter written by the respondent to the solicitors acting for the appellant dated 5 October 1998 forwarded prior to the Notice of Assessment being sent, the respondent wrote -

"I note the valuation provided by you is dated 11 June 1998. The transfers were executed around 14 August 1998. The joint venture agreement is dated 14 August 1998. In this regard on the face of the joint venture agreement a consideration of $65m is allocated for the land. On this basis we propose to raise an assessment on the consideration provided in the joint venture agreement document (totalling $65m) under s.63 and Heading VI of the Third Schedule to the Stamps Act 1958."

The reference to "land" is all the land transferred by the instruments of transfer and to be used in the development project. Clause 2.3(a) of the JVA provided -

"(a) The price for each Land Holding Party's position of the Land is the price set out in Annexure B"

There were three landholding parties including the trustee for the time being of the Marpine Trust. Annexure B provided -

"Annexure B - Price

See clause 2.3

The price for each Land Holding Party's portion of the Land is as follows:

Marpine Trustee Marpine Land $25,000,000

SDA SDA Land $11,500,000

Taras Taras Land $28,500,000

Total price shall be the total of the prices for each Land Holding Party's portion of the Land, namely $65,000,000."

In the appellant's notice of objection dated 12 October 1998 it stated the following grounds with respect to the quantum of the assessment -

"5. Alternatively to the foregoing, if (which is denied) the Commissioner is entitled to assess any of the said instruments of transfer to ad valorem duty under the said sub-division (6) or the said Heading VI, then the value of the land upon which the duty should be assessed should be the market value of the said real property and not some greater amount upon which ad valorem duty on the said instruments of transfer has been assessed.

6. Further, in the alternative to paragraph five, without limiting the generality of the foregoing, because no consideration has passed from the transferee to the transferor in relation to any of the said instruments of transfer and the market value of the said land transferred thereby does not in aggregate exceed $47,500,000, the duty assessed upon each of the said instruments of transfer is excessive and should be reduced."

In giving his reasons, the respondent in the notice dated 14 October 1998 said this with respect to the question of the quantum of the assessment -

"16. The value of real property (referred to in the first, second and fifth transfers) for the purposes of sub-division 6 of division 3 of Part II of the Act, and Heading VI of the Third Schedule to the Act is, based on clause 2.3 of the Joint Venture Agreement and Annexure B to that agreement is as follows:-

Marpine Land (fifth transfer) $25,000,000

SDA Land (first Transfer) $11,500,000

Taras Land (second transfer) $28,500,000."

It is the fifth transfer concerning the Marpine Land which is the subject of this appeal.

The appellant relied upon two affidavits of Bernard Francis Sweeney sworn 22 October 1998 and 20 January 1999 respectively.

Mr Sweeney is a director of JLW Advisory Services Pty Ltd formally known by the well-known name of Jones Lang Wootton and a registered valuer in this State having qualified in 1980.

Mr Sweeney was not cross-examined. He opined the view that the market value of the Marpine Land at the date of the Instrument of Transfer was M$17.7.

It was common ground that the market value of the Marpine Land at the relevant date was M$17.7.

Section 17(1) of the Act imposes the obligation to pay duty and it provides -

"(1) Subject to the exemptions contained in the Third Schedule and in any Acts for the time being in force, there shall be charged for the use of Her Majesty upon the several instruments specified in the said Schedule the several duties and additional duties therein specified."

I found that the exemptions contained in the Third Schedule did not apply to the Instrument of Transfer in respect to the Marpine Land.

Accordingly, one proceeds to the Third Schedule, Heading VI of Schedule 3 which is concerned with - "Conveyance of Real Property and Land Transfer".

If the instrument is dutiable the table in Heading VI sets out the bases for the calculation.

In making his assessment, the respondent proceeded on a valuation of M$25, arriving at an assessment of $1,375,000.

The appellant submits that the proper value was $17,700 and the assessment should have been $973,500.

The material part of Heading VI is the opening paragraphs which provide -

" VI - CONVEYANCE OF REAL PROPERTY AND LAND TRANSFER

Except as otherwise provided in this Act, a reference

in the provisions under this Heading to the value

of real property or property is a reference -

(a) in relation to a conveyance on sale of the real

property or property -

(i) to the consideration for the sale; or

(ii) to the amount for which the real property

or property might reasonably have been

sold if it had been sold, free from

encumbrances, in the open market on the

date of the sale -

whichever is the greater; and

(b) in any other case, to the amount for which the

real property or property might reasonably have

been sold if it had been sold, free from

encumbrances, in the open market on the date of

the conveyance, direction, consent or

application."

See also the definition provision in s.63(b) which contains similar wording. The word "conveyance" is defined as including a transfer - see s.63(1).

The appellant submits that paragraph (a) did not apply because the transaction evidenced by the Instrument of Transfer was not a sale, and as a result paragraph (b) applied. It followed that the proper value was the market value. The respondent submitted that the transaction was a sale and paragraph (a) applied. It was submitted on his behalf that as the parties to the JVA had fixed the price, the value of the land was M$25.

In the alternative the appellant submitted that if paragraph (a) applied the consideration was not M$25.

This part of the appeal involved two general issues -

(i) Was there a sale of land effected by the Instrument of Transfer of the Marpine Land within the meaning of paragraph (a) of Heading VI of the Third Schedule?

(ii) What was the consideration for the sale?

Mr Boaden of counsel who appeared on behalf of the respondent accepted that if paragraph (b) applied to the transaction then the value of the land for the purposes of the assessment was the market value and the amount of the duty should be $973,500.

There are two trite propositions of law which apply in this area of the law, namely, that it is the instrument which is stamped and not the transaction and secondly, "that the substance alone of the transaction is to be looked at." - see Viscount Simonds, Littlewood's Mail Order Stores Ltd v. I.R.C. (1963) AC 135 at 154; also L.N.C. (Wholesale) Pty Ltd v. Collector of Customs (1988) 17 FCR 154 at 164.

" ... The court is not bound by the apparent tenor of an instrument and will decide according to the real nature of the transaction, receiving if necessary extrinsic evidence." - per Lowe, J in Comptroller of Stamps v. Buckland [1959] VicRp 72; (1959) VR 517 at 521.

The instrument of transfer executed on 20 August 1998 by S.D.A.R.J.V. Pty Ltd as transferor and the appellant as transferee expressed the consideration to be - "transferee being entitled in equity".

The evidence establishes that the instrument was one of five instruments of transfer to give effect to a number of transactions the subject of the Victoria Gardens Land Trust Deed and the JVA both executed the same day and agreed to by various parties.

It is necessary to consider the substance of the transaction and one looks to these two documents and in particular the JVA to determine whether or not there was a sale of land.

The Act does not define what is a sale. Accordingly, it is necessary to go to the cases to determine what is required to establish a sale of real property.

Mr Boaden extracted dicta from various cases as to what constituted a sale. The factors were variously described as

* parting with property for money consideration, and delivery of the property sold on payment of money;

* an agreement between two parties, one parting with something and the other giving something for it;

* the conveyance of property from one person to another for money or moneys worth;

I refer to, Re Lang, ex parte Collector of Imposts [1899] VicLawRp 153; (1899) 24 VLR 807 at p.810, Davies v. Collector of Imposts [1908] VicLawRp 42; (1908) VLR 272 at p.278 and Collector of Imposts (Vic) v. Cumming Campbell Investments Pty Ltd [1940] HCA 17; (1940) 63 CLR 619 at p.634.

The common thread running through the cases is that there is a transfer of property from one person to another for money or money's worth.

The House of Lords considered the question in Littlewood's Mail Order Stores Ltd v. IRC supra and Viscount Simonds, with whom Lord Devlin agreed, stated what had to be proven to establish a sale at p.152 when he said -

"I quote, as did Harman LJ, from Benjamin on Sale, 8th ed. p.2:

'It (a sale) may be defined to be a transfer of the absolute or general property in a thing for a price in money. Hence it follows that, to constitute a valid sale, there must be a concurrence of the following elements, viz:-

(1) parties competent to contract;

(2) mutual assent;

(3) a thing, the absolute or general property in which is

transferred from the seller to the buyer; and

(4) a price in money paid or promised.'"

In my opinion the word "sale" in Heading VI is to be construed in its ordinary meaning and in order to constitute a valid sale the elements set out in Benjamin on Sale, 8th ed. at p.2 which were quoted with approval by Viscount Simonds have to be established.

It is a trite proposition that for a transfer on sale to take place, the sale must have been made at or prior to the transfer.

This proposition is supported by the words of Heading VI and also the authorities. See Wm. Cory and Son Ltd v. I.R.C. (1965) AC 1088 at p.1105-7, 1109 and 1110.

Mr De Wijn QC who appeared with Mr M. Connock of counsel for the appellant submitted that in this case there was never a sale to the appellant as land trustee in the transaction.

In considering this submission it is necessary to consider the circumstances which existed when the instrument was executed - see Dixon, J in Commissioner of Stamp Duties (Q) v. Hopkins [1945] HCA 14; (1945) 71 CLR 351 at 378 - and determine the substance of the transaction - per Viscount Simonds in Letterwood's case supra.

Lord Reid summarised the court's approach in Wm. Cory & Son Ltd v. IRC supra at p.1105 in words which are apposite to the present case -

"And, secondly, the liability of an instrument to stamp duty depends on the circumstances which exist when the instrument is executed. There is no doubt that the court can have regard to what is said and done thereafter in order to discover the true position when the instrument was executed but in the present case the true position at that time is not in doubt. The agreement was a genuine agreement and the transfers were executed in order that they should be used in the manner contemplated by the agreement."

Was the instrument giving effect to a sale of real property?

Mr Boaden on behalf of the respondent submits that the true effect of the arrangements made and evidenced by the trust deed and JVA demonstrates that there was a transfer of property from a vendor to a purchaser and that there was a price to be paid, hence there was a sale. He referred to clauses 2.2(1), 2.3(a), 6.2(a) and 6.6 of the JVA.

"(a) The Land Holding Parties irrevocably make their respective portions of the Land available to the JV for the purposes envisaged by this Agreement and are not entitled to a transfer back of their respective portions of the Land and the Land Trustee shall hold their respective portions of the Land for such purposes."

The purposes are encumbering the land to provide security for borrowings, developing the land and selling it. Mr Boaden emphasises that once the land is made available to the joint venture it cannot be returned to the transferor.

"(b) The Land Holding Parties are only entitled to payment for their respective portions of the Land in accordance with this Agreement."

It follows that upon development and sale the transferor is entitled to payment for its particular portion of the land provided for the joint venture.

"(a) The price for each Land Holding Party's portion of the Land is the price set out in Annexure B."

Annexure B is headed "Price" and the Mr Boaden emphasises that the parties have agreed that there be a "price" for each portion of the land which is transferred to the appellant for the purposes of the development. The price for the Marpine land is fixed at M$25.

Mr Boaden submits that the transfer of the land to the appellant as land trustee is supported by valuable consideration, namely, the obligation on the appellant to distribute the first M$65 in accordance with the prescribed formula which is set out in clause 6.2.

Clause 6.6 is concerned with payment for the land and it provides -

"A Land Holding Party is only ever entitled to be paid for its portion of the Land from Cash distributed in accordance with clause 6.2."

He submits that the practical and real effect of the transactions evidenced by the instruments of transfer is that there is a transfer of property from the owner to another, namely, the appellant for a consideration even though the payment of the price is delayed. He submits that there has been a sale of real property prior to the execution of the instrument of transfers.

Mr De Wijn, QC submitted that the transfer did not arise out of a sale of the land to the appellant as the appellant merely holds the land as trustee for the benefit of the transferor and the transferor did not convey or transfer to the appellant any beneficial interest in the land. The appellant took the land not as a purchaser but "to facilitate the joint venture and make its administration more manageable." He relied upon the finding I made at paragraph 91 of my reasons for judgment on the question of liability.

I said after considering the terms of the trust deed and the JVA -

"The 'Land Trustee' was the appellant. In my opinion the three material instruments of transfer when considered in accordance with the provisions of the trust deed and the JVA, did not change the beneficial interest in the land immediately after the execution of the various agreements. It was also plain that the purpose of the exercise was to facilitate the joint venture and to make its administration more manageable."

It was submitted that the appellant was to hold the land as "trustee for the Marpine Trust" - see clause 2.1(a)(3) of the JVA and clause 2.1 of the trust deed - and progressively develop the land on behalf of the joint venture parties and ultimately enter into contracts of sale with purchasers of the developed property. It was obliged to account for the sale money to the joint venture and the distribution was provided for by the JVA - see clauses 2.3(b) and (c) and 6.

It was submitted that there was no consideration provided for the transfer of land to the appellant as land trustee and the amount that was to be received by the transferor was the cash arising from the project and was to be distributed at a later point in time. Mr De Wijn, QC submitted that the entitlement to the "cash" did not give rise to a debt due to the Marpine Trust at the time the JVA and the transfer were executed. The appellant, he submitted, never became a purchaser or beneficial owner of the land but merely held it as trustee under the trust deed for the purposes of the joint venture which are set out in the JVA.

The substantial and practical effect of the transfer is that the legal estate is transferred to the appellant, the beneficial interest remains with the transferor but the transferor has agreed the legal and beneficial interests are to be sold by the land trustee after the land has been developed. The legal estate has been transferred and the transferor has agreed that it shall not retain the beneficial interest which is to be dealt with by the appellant in accordance with the JVA.

When viewed in that way, there is much to be said that there has been a transfer from the Marpine Trust to the appellant of general property for a consideration to be paid thereafter. Mr Boaden submits that all elements of a sale of property are present.

Whilst a lot of what Mr Boaden submitted has substance, the fact is the appellant does not take the land as a purchaser. The substance and reality of the transaction is that the appellant was chosen as a convenient vehicle to develop and sell the land. It is obliged to account for the proceeds to the land holders which included the transferor.

On no view does the appellant obtain the equitable interest in the Marpine Land. This is a cogent factor against a finding of a sale. See Commissioner of Stamps v. Parbury Estates Limited [1913] HCA 26; (1913) 16 CLR 521 at 531-2 and 534.

The fact is that the appellant could not deal with the property as an owner. It was given the property to facilitate the development and it was strictly bound to deal with the property in accordance with the trust deed and the JVA.

In my opinion the transaction did not involve a sale to the appellant.

It follows that there was not a transfer on sale of real property within the meaning of paragraph (a) of Heading VI of the Third Schedule to the Act and hence paragraph (b) applies.

The appellant succeeds on its appeal against the quantum. The amount of the assessment should have been $973,500.

If hereafter my conclusion that there was no sale is overturned it will be necessary to consider what was the amount of the consideration.

Whilst it is unnecessary for me to decide that issue, the parties have made their submissions and it is convenient for me to express my views upon the issue.

The parties to the JVA in their wisdom fixed as the price for the Marpine Land, the sum of M$25.

The parties fixed the value for the purposes of the transaction and even though it was in excess of the market value the parties themselves no doubt had their reasons for fixing the amount in excess of the market value. In my opinion it is not for the court to speculate as to the reason or reasons for this.

Parties selling and purchasing property may fix what value they like for the consideration. The price may be at an undervalue or it may be at an overvalue but in the end it is a matter for the parties to the agreement.

The parties, having chosen the amount, in my opinion it represents the consideration if there was a sale within the meaning of paragraph (a)(i) of the introductory words to Heading VI of the Third Schedule.

My conclusion is supported by Cussen, J in Roberts v. The Collector of Imposts [1919] VicLawRp 93; (1919) VLR 638 at 646 when he said

"It should be noticed that the Third Schedule alone supplies, in a case such as this, the measure, and in all cases the rate of what is called ad valorem duty and that by s.18 the Third Schedule is to be read as part of part II of the Act. The measure is afforded by taking 'the amount or value of the consideration of the sale'. In the present case this means 'the amount of the consideration for the sale'. I regard the ascertainment of the meaning of the words 'the consideration for the sale' as being of prime importance in the present

case, and I feel no doubt that, except so far as the

contrary is expressly provided, they mean 'the consideration for the sale by the conveying or transferring vendor.'"

[My emphasis]

The wording of the introductory party of Heading VI of the Third Schedule also supports my finding. Paragraphs (a) and (b) draw a distinction between consideration and open market valuation. The difference is emphasised in paragraph (a) between consideration for the sale and open market value and the value is to be determined by whichever is the greater. Accordingly, whilst parties may choose a value by contract which is less than its proper value, nevertheless, the duty will be assessed on the proper open market value. On the other hand, if the parties choose a consideration for the sale which exceeds the market value then it is the amount determined by the parties upon which the assessment is made.

In my opinion the respondent was correct in assessing as the consideration if there was a sale the amount fixed by the parties in the JVA, namely, M$25.

I find that the instrument of transfer was not a conveyance on sale of real property within the meaning of paragraph (a) of Heading VI. Paragraph (b) applies, the market value was at the relevant date $17,700,000 and the amount of duty is $973,500.

As a consequence, the appellant succeeds in its appeal against the quantum of the assessment in respect to the Marpine Land.

Subject to any submissions from counsel I propose to make the following orders.

(i) That the appeals against the assessments by the respondent numbered A70416 and A70417 are allowed and the assessments are set aside;

(ii) That the appeal against the respondent's assessment number A70419 is allowed in respect of the amount and it is reduced to $973,500.

I will hear the parties on the question of costs.

On 4 December 1998 I made orders in the motion seeking the rectification. I dismissed the motion and summons and ordered that the costs of that proceeding be costs in the present proceeding.

My provisional view is that since the plaintiffs failed in the motion proceeding that they should pay the cost of that proceeding. This would mean the appellant in the present proceeding.

With respect to the appeal the appellant has succeeded in having two assessments set aside and the third reduced. As it has been the successful party it appears to me that the usual rule should apply and accordingly the appellant is entitled to its costs of the appeal including any reserved costs. The appellant should pay the costs of the respondent as defendant to the motion.

At a glance

Court

Decision date

Before

Source

Judgment (115 paragraphs)

Parties

Cases Cited (4)