Westpac Funds Management Ltd v Chief Commissioner of State Revenue

LEGISLATION CITED : Duties Act 1997, ss 164, 164A, 165, 166, 168, 169, 170, 171 Taxation Administration Act 1996, s 97

Asciano Services Pty Ltd v Chief Commissioner of State Revenue [2008] HCA 46 Beeching v Westbrook (1841) 10 LJ Ex 464 Burbury v Commissioner of Stamp Duties (1972) 3 ATR 313 Carlill v Carbolic Smoke Ball Company [1892] 2 QB 484 Chief Commissioner of Stamp Duties (NSW) v W F Securities Pty Ltd (1995) 95 ATC 4284 CIC Insurance Ltd v Bankstown Football Club Ltd (1997) 187 CLR 384 Cohen & Moore v Commissioners of Inland Revenue [1933] 2 KB 126 Commissioner of Stamps v Frost (1926) 28 WALR 81 Commissioner of State Revenue (Vic) v Pioneer Concrete (Vic) Pty Ltd (2002) 209 CLR 651 Commissioner of State Taxation (WA) v Kitchener Mining NL (1994) 29 ATR 530 Fleetwood-Hesketh v Inland Revenue Commissioners [1936] 1 KB 351 Frazier v Commissioner of Stamp Duties (NSW) (1985) 17 ATR 64 Gillett v Burke [1997] 1 VR 81 Grain Elevators Board (Vic) v Dunmunkle Corporation (1946) 73 CLR 70 Hill v Booth [1930] 1 KB 381 CASES CITED : Ingram v Inland Revenue Commissioners [1986] Ch 585 J & G Knowles & Associates Pty Ltd v Commissioner of Taxation (2000) 96 FCR 402 Littlewood's Mail Order Stores Ltd v Inland Revenue Commissioners [1963] AC 135 Lucas v The Treasurer (2003) 53 ATR 19 Metro Taxi Management Pty Ltd v Commissioner of State Taxation (WA) (1995) 95 ATC 4671 Nicholas Paspaley Properties Pty Ltd v Commissioner of Taxes (1991) 103 FLR 305 Nixon v Doney (1960) 61 SR (NSW) 311 O'Grady v Northern Queensland Co Ltd (1990) 169 CLR 356 Prime Wheat Association Ltd v Chief Commissioner of Stamp Duties (1997) 42 NSWLR 505 Ramsay v Margrett [1894] 2 QB 18 Regent Oil Co Ltd v Strick [1966] AC 295 Rogers v Wentworth (1986) 7 NSWLR 88 Sydney Futures Exchange Ltd v Australian Stock Exchange Ltd (1995) 56 FCR 236 Technical Products Pty Ltd v State Government Insurance Office (Qld) (1989) 167 CLR 45 The Trustees Executors & Agency Co Ltd v Reilly [1941] VLR 110 Wonall Pty Ltd v Clarence Property Corporation Ltd (2003) 58 NSWLR 23

PARTIES : Westpac Funds Management Limited (P) Chief Commissioner of State Revenue (D)

COUNSEL : J T Gleeson SC and M Richmond (P) A H Slater QC and I Mescher (D)

SOLICITORS : Mallesons Stephen Jaques (P) Crown Solicitor's Office (D)

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION

4344/07 - WESTPAC FUNDS MANAGEMENT LTD v CHIEF COMMISSIONER OF STATE REVENUE JUDGMENT 1 HIS HONOUR: This is an application, presumably pursuant to s 97 of the Taxation Administration Act 1996, to review a decision of the Chief Commissioner of State Revenue made 6 July 2007 whereby he disallowed the plaintiff's objection dated 3 November 2006 (the "Objection") against the Chief Commissioner's assessments dated 19 and 24 October 2006 (the "Assessments"). 2 The proceedings concern the duties that are properly payable under the Duties Act 1997 in respect of documents executed between the plaintiff and Woolworths (Project Finance) Pty Ltd ("Woolworths") in respect of options and leases in connection with premises at the Norwest Business Park. 3 Initially the relevant documents were assessed and stamped with $38.15 and a nominal $2. However, by the Assessments in question, the assessment was increased to $13,277,378.15 (the assessment of 19 October 2006) together with a further $2 in the assessment of 24 October 2006. 4 The parties have agreed on a statement of facts. I will set out the material part of that statement verbatim. In the statement of agreed facts Woolworths is as I have defined it above, the plaintiff Westpac Funds Management Ltd is called "WFML", "Westpac" is used to denote Westpac Banking Corporation (WFML is a related entity of Westpac) and it is noted that WFML has at all material times since 3 August 2005 been the trustee of a trust known as the "WOW Office Trust" which was constituted by a trust deed of 3 August 2005: " Transaction

3. On 9 June 2005, Woolworths executed: (a) a deed poll entitled 'Deed Poll of Call Offer for Agreement for Lease' (' Call Offer Deed' ) … on which the hand written insertion of the date '5 August' on page 2 had already been made; and (b) a deed entitled 'Deed of Covenant' (' Deed of Covenant' ) … on which the handwritten insertion of the date '5 August' on pages 2 and 9 had already been made. 4. Later on 9 June 2005 following the receipt of those documents from Woolworths, Westpac executed a deed poll entitled 'Deed Poll of Put Offer for Agreement for Lease' (' Put Offer Deed' ) … and two original counterparts of the Deed of Covenant. 5. By 5 August 2005, WFML had paid to Woolworths the amount of $241,670,000 specified in clause 2.2(b) of the Call Offer Deed, being the 'Call Offer Fee' referred to in clause 2.2(a) of the Call Offer Deed. 6. On or about 5 August 2005, Westpac (in accordance with clause 14 of the Deed of Covenant) lodged a caveat against Certificate of Title 7077/1020073, which was registered with the number AB678021 … . 7. On 2 September 2005, the offer contained in clause 2.1 of the Call Offer Deed was accepted by WFML in its capacity as trustee of the WOW Office Trust by the delivery to Woolworths of the documents referred to in clause 2.3 of the Call Offer Deed, including an Agreement for Lease (' Agreement for Lease' ) of the premises known as Norwest Business Park at Baulkham Hills, Sydney (' premises' ) executed on behalf of WFML in its capacity as trustee of the WOW Office Trust and dated the same day … . 8. On 19 September 2005, WFML in its capacity as trustee of the WOW Office Trust paid to Woolworths the amount of $24,167,000 by electronic funds transfer to the bank account of Woolworths specified in clause 2.2(b) of the Call Offer Deed, being the 'GST Gross Up' referred to in that clause. 9. On 26 September 2005, in accordance with clause 2.2 of the Call Offer Deed, the solicitors for Woolworths returned to Westpac the banker's undertaking provided by Westpac. … 10. Pursuant to the Agreement for Lease, by 31 October 2005 WFML in its capacity as trustee of the WOW Office Trust executed and delivered to Woolworths a lease of the premises for a term of 99 years commencing on 31 October 2005 (' the Lease' ) … . On or about 25 October 2006 Woolworths executed the Lease." 5 The statement of agreed facts attached the full text of the relevant documents in tabs A to G. I will mention the material parts of those documents as I survey the submissions that were made by counsel. 6 It is necessary to look briefly at the key points of the documents. The first significant document is entitled "Deed Poll of Call Offer for Agreement of Lease" (the "Call Offer"). The document recites that Woolworths is the registered proprietor of the land in question. By cl 2.1 in consideration of the payment of Call Offer Fee and the GST Gross Up, Woolworths irrevocably offered to the "Call Offerees" to enter into an agreement for lease and procure the entry into the agreement for sublease by Woolworths Ltd therein called "the tenant". The Call Offer Fee was $241,670,000 and that fee was actually paid on 5 August 2005. The "Call Offerees" were defined as Westpac and each person within the Call Offeree Class. "Call Offeree Class" was defined as meaning: (a) Westpac or any related entity of Westpac; or (b) any trust or fund of which Westpac or any related entity of Westpac is the responsible entity, trustee or manager with the clarifying statement that a Call Offeree may or may not be in existence at the date of the Deed Poll. 7 The Call Offer document annexed a draft form of lease in which Woolworths was the landlord and the Call Offer Acceptor was to be the tenant. The lease was for 99 years at a rental of $100 a year. There was also an extra proposed sublease whereby the Westpac entity which exercised the Call Option would sublease the property to Woolworths Ltd for 15 years with 6 options to renew each for a further 5 years, so that the commitment (subject to break clauses) was a possible 45 years. The rent for the sublease was a commercial rent. 8 In addition to the Call Offer there was a Put Offer which in the events which have happened, was not brought into play, but had the effect of giving the parties comfort that the contemplated transactions would take place in some form or other. 9 What happened subsequently is already contained in the statement of agreed facts which I have set out. 10 In making the reassessment of duty, the Chief Commissioner's representative wrote on 23 October 2006, referring to s 170(2) of the Duties Act: "In our view, the amount of $241.67 million payable (and paid) by Westpac Banking Corporation (ostensibly as a 'Call Offer Fee' under the Deed Poll of Call Offer for Agreement for Lease) is and was a 'premium paid or payable in respect of the lease' within the meaning of section 170(2) of the Act, and is liable to duty (at the rate specified in section 32(1)) accordingly. In this connection, it is considered that upon payment of the so called 'call option fee' there was constituted a conditional agreement for the grant of the lease; as a consequence, the Deed Poll of Call Offer for Agreement for Lease is and was a 'lease instrument' within the meaning of sections 164(1) and 164A(a) of the Act, and the $241.67 million amount was a premium paid or payable in respect of this lease instrument. Even if this is not correct, it is considered that a lump sum paid in the course of a sequence of events which results in, and which is paid for the manifest purpose of achieving, the grant of a lease of the property at a nominal rent - with no provision for any refund if the so called 'offer' is not accepted (as was the case with the $241.67 million payment in this case) - is and was a ' premium paid … in respect of a lease' within the meaning of section 170(2)." 11 In response, the plaintiff put that the Call Offer Fee was not an amount of any premium paid or payable in respect of the grant of a lease. 12 The proceedings were heard by me on 1 October 2008, Mr J T Gleeson SC and Mr M Richmond appearing for the plaintiff, and Mr A H Slater QC and Mr I Mescher, appearing for the defendant. At the commencement of the argument Mr Slater for the Chief Commissioner said: "It would save a waste of time if we were on common ground. The document which is charged to duty is not the Deed of Call Option Offer. That is not the document upon which duty is imposed. The document upon which duty is imposed is the instrument in registrable form headed Lease, Tab G to the exhibits." 13 In the Duties Act, lease instruments are dealt with in Chapter 5. The first section in Chapter 5 is s 164 which reads: "This chapter charges duty on a lease instrument , being an instrument that evidences or effects a lease (as defined in section 164A)." 14 Section 164A defines a lease and for present purposes it is only necessary to deal with category (a) of the definition which is: "a lease of land in New South Wales or an agreement for a lease of land in New South Wales". 15 Section 165 then provides that duty is chargeable on a lease instrument at the prescribed rate "on the cost of the lease, as determined in accordance with this Chapter … ". 16 Section 166 then defines what is the "cost" of a lease. It says it is the aggregate of the following:

(b) any premium payable for a lease of premises in a retirement village;

and various other matters which are not relevant to the present dispute. 17 Section 170 provides that the rate of duty is 35 cents per $100 of the total cost of the lease. It then provided in subsection (2) as follows: "In addition, duty at the rate chargeable under section 32(1) is chargeable on the amount of any premium paid or payable in respect of the lease (other than a premium paid or payable in respect of a lease of premises in a retirement village …. ) as if that amount were the dutiable value of dutiable property subject to a dutiable transaction."

[Subsection (2) has now been repealed, see Act 49 of 2006] 18 Section 171 provides that a fixed duty is payable on a lease instrument made subsequently to and in conformity with agreement for lease for which ad valorem duty has been paid and a duty of $10 is payable on an instrument "that evidences a variation of a lease". 19 The plaintiff says that under Chapter 5 duties are payable on documents not transactions. Although s 164A includes agreements for a lease of land as leases, it does not include an offer or option to enter into a lease or an agreement for lease. Such an offer or option is not liable to duty under the Act. It is not possible to classify the Call Offer Fee as a premium for a lease. It is not possible to treat the Call Offer Deed as a conditional agreement for a lease; accordingly, the appeal against the Chief Commissioner's assessment should be allowed. 20 The Chief Commissioner basically says that the document at tab G effects the lease in respect of which the sum was paid as a premium. The premium does not have to be a premium for a lease. It merely has to be a premium in respect of a lease. Further, the document at tab G evidences an agreement comprised in a number of documents and conduct which gives rise to the lease. Accordingly, we have a document which evidences a lease within the meaning of s 164. 21 I should make it quite plain that behind tab G is the lease from Woolworths (Project Finance) Pty Ltd to Westpac Funds Management Ltd for 99 years commencing on 31 October 2005. 22 The Chief Commissioner says that by s 169 of the Duties Act the liability for duty arose on the date of first execution of the document at tab G and the charge for duty was on the instrument as it operated at the time of execution. That document effected a lease (in equity on execution and at law on registration) and in addition or alternatively, evidenced an agreement for lease. 23 Messrs Slater and Mescher put in [20] of their written submissions: "The document also evidences an agreement for lease. Although the documents executed on 9 June 2005 were carefully framed to avoid expressly making or recording it, there can be no doubt that there was an agreement that the property should be leased; the irrevocable payment of more than $265 million is inexplicable on any basis other than that the parties were agreed that following the payment a lease should be granted by the lessor. That agreement falls within sec 164A, and the document is dutiable as evidencing it; see Fleetwood Hesketh v Commissioners of Inland Revenue [1936] 1 KB 351 at 361-2. For reasons which follow, the sum of some $265 million paid to the lessor by the Plaintiff was a premium paid also in respect of the agreement evidenced by the document, and again the charge to duty is attracted." 24 It seems to me that it is convenient to deal with the arguments that were put under the following heads:

1. Is the Call Option Fee properly taxable as a premium?

3. Is the document at tab G dutiable as evidencing an agreement for lease?

Is the Call Option Fee properly taxable as a premium? 25 Messrs Gleeson and Richmond refer to the decision of the Full Court of this Court in Nixon v Doney (1960) 61 SR (NSW) 311. 26 In that case a shop with dwelling above were demised by the respondents to the appellants for 3 years at a yearly rental of £208 payable by equal quarterly payments in advance, and further upon the payment of a bonus of £350 as a consideration for the grant of the term so far as the shop portion of the demised premises was concerned. The appellants held over after the expiration of the term at £4 per week, but the lease contained an extra clause providing that if there was a holding over, the lessees would pay £2.5.0 per week by way of bonus for the use and occupation of the business. If this £2.5.0 per week was rent, it would exceed the amount allowed by law under the existing Fair Rent legislation. 27 The Full Court held at 316 that the distinction between rent on the one hand, and a bonus or premium on the other hand, was not a distinction based upon the nomenclature used by the parties to the lease. 28 There were two distinct concepts: (a) premium is a personal promise to pay money in consideration of the lease being granted (the Court applied Hill v Booth [1930] 1 KB 381 at 387) as distinct from (b) rent which is payment for the use of the land. 29 In what counsel informs as the only decision in which the concept of premium in the Duties Act or its predecessor has been considered, namely Frazier v Commissioner of Stamp Duties (NSW) (1985) 17 ATR 64, Lee J followed Nixon v Doney and said at 68 that he agreed with the submission of counsel on both sides in that case that the question as to whether the disputed amount was premium or rent: "is to be determined by deciding firstly whether it is a payment required as a consideration for the granting of the lease or whether it is a payment for the use and enjoyment by the lessee of the land". 30 Mr Slater and Mr Mescher don't depart from this view. They quote Lord Upjohn in Regent Oil Co Ltd v Strick [1966] AC 295 at 341 that premium "merely means a lump sum paid as a consideration for the acquisition of a lease". 31 They also cite the decision of the Appeal Division of the Supreme Court of Victoria in Gillett v Burke [1997] 1 VR 81. In Victoria at that time it was illegal to take a premium from a tenant of retail premises. The tenants of a hotel wished to sell their business and wished to get a renewed lease to enable them to do so. The landlord agreed to grant an option for a further term of 4 years in consideration of a payment of $35,000. The tenants then sued to recover that sum which they had paid as an illegal premium. For technical reasons the tenants failed. However, Ormiston J considered the meaning of the phrase "key money or premium" and said at 91 that the word "premium" often obtains its characterisation in its particular context: "[B]ut a consideration of all of the contexts will show the width of that term as comprehending almost all conceivable payments in cash or kind to obtain leasehold interests in land." 32 Again, however, the focus is on a payment to obtain a leasehold interest in land. They also point out that the word "premium" is used in connection with the grant of an option. They point to Sydney Futures Exchange Ltd v Australian Stock Exchange Ltd (1995) 56 FCR 236 (FC) where, for instance, at 240 in the context of trading in options Lockhart J says: "Option contracts have four components: contract size, expiry date, exercise price and premium."

And later on that page, his Honour says: "The premium is the price of the option … ". 33 There is no doubt on the facts that the large amount of money paid by Westpac to Woolworths was a payment made at least for the grant of an option and so would qualify as a "premium" under the accepted definitions.

If so, is the premium "in respect of a lease"? 34 The plaintiff says that the words "in respect of" merely mean "for". However, the Chief Commissioner says that the words have a much wider meaning. I will return to this matter shortly. 35 The plaintiff says that s 170(2) of the Duties Act charges duty on "any premium paid or payable in respect of the lease". If one expands that phrase by substituting the definition of "premium" for the word "premium", one gets "any money paid in consideration for the grant of the lease paid in respect of the lease". The submission is that here the payment made was clearly for the option which is a recognised commercial transaction (vide the Sydney Futures Exchange case supra). 36 Accordingly, as no premium is involved, it is immaterial that what was paid as an option fee might also have some connection with or be in respect of a lease. The meaning of "premium" is not expanded to extend it to payment "in respect of" a lease, thus not all payments made in respect of the lease are caught by the statute, only those which are premiums. It is submitted that the amendments made to the Duties Act in 2006 to introduce an expanded definition of premium reflecting a proposal to extend premium to option fees tends to support the conclusion that before the amendment that option fee was not caught. 37 This is a legitimate way of approaching the interpretation of statutes as Dixon CJ said in Grain Elevators Board (Vic) v Dunmunkle Corporation (1946) 73 CLR 70 at 86, that this sort of matter: "may be considered on the question of interpretation. It would be a strange result if we were to interpret the prior legislation as giving a wider exemption than that conferred by the provision so that the express exemption it makes would prove unnecessary and the qualifications it places upon that exemption would be futile."

See also Commissioner of State Revenue (Vic) v Pioneer Concrete (Vic) Pty Ltd (2002) 209 CLR 651 at 669, though see per Callinan J at 670 contra. 38 The classic Australian utterance on the words "in respect of" was made by Mann CJ in The Trustees Executors & Agency Co Ltd v Reilly [1941] VLR 110 at 111, where his Honour said: "The words 'in respect of' are difficult of definition, but they have the widest possible meaning of any expression intended to convey some connection or relation between the two subject-matters to which the words refer." 39 The High Court in Technical Products Pty Ltd v State Government Insurance Office (Qld) (1989) 167 CLR 45 at 47 said: "The words 'in respect of' have a very wide meaning. Indeed they have a chameleon-like quality in that they commonly reflect the context in which they appear. The nexus … is a broad one which is not susceptible of precise definition. That nexus will not, however, exist unless there be some discernible and rational link between the basis of legal liability and the particular … [propositus]." 40 The phrase "in respect of" occupies four pages of notes in the F-O volume of Australian Legal Words and Phrases (2007) at pp 254-258. Some stamp duty cases are cited including Commissioner of State Taxation (WA) v Kitchener Mining NL (1994) 29 ATR 530 (Western Australian Full Supreme Court) where at 543, Murray J said that money paid in respect of the instrument meant that money will be paid: "as a result of or in consequence of the creation of the instrument". 41 The Chief Commissioner says that the words "in respect of" require no more than a relationship whether direct or indirect between two subject matters and justifies that submission with reference to the High Court's utterances in O'Grady v Northern Queensland Co Ltd (1990) 169 CLR 356. 42 I considered that phrase in Rogers v Wentworth (1986) 7 NSWLR 88 at 92 and Campbell J built on what I there said in Wondall Pty Ltd v Clarence Property Corporation Ltd (2003) 58 NSWLR 23 at 44-5. Campbell J concluded that whilst the phrase may have a wide meaning, it does not necessarily have it and the context may so indicate. 43 Paragraph 29 of the submissions of Messrs Slater and Mescher refers to the words of learned judges in the past that the extent of the nexus imported by the phrase "in respect of" depends very much on the context and is to be ascertained having regard to the subject scope and objects of the statute in which it appears and that "[f]or this purpose regard may be had to 'the mischief which the statute was designed to overcome and of the objects of the legislation' as revealed by (inter alia) the language of the legislation and the relevant extrinsic materials." Cf CIC Insurance Ltd v Bankstown Football Club Ltd (1997) 187 CLR 384 at 408. 44 I was then referred to the Second Reading Speech in proposing the 2003 amending Act where the Minister said: "The Duties Act was amended last year to strengthen an anti-avoidance provision dealing with the use of long-term leases that avoid or minimise transfer duty. These anti-avoidance provisions have been effective and will be retained. However, the other States have addressed these practices by also charging the transfer rate of duty on lease premiums and it is appropriate that NSW imposes transfer duty on lease premiums." 45 The submissions then continue at [32]: "The elaborate transaction comprised in the Deed of Call Offer, Deed of Put Offer, Deed of Covenant, Agreement for Lease and Memorandum of Lease is manifestly within the mischief to which the legislation is directed. The plaintiff outlaid more than $265 million and acquired exclusive possession of the land for 99 years plus a right (and obligation) to acquire the land for a nominal consideration, amounting for all practical purposes to ownership, but claims to be liable to duty of only $38. It would be difficult to postulate a clearer case of 'the use of long-term leases that avoid or minimise transfer duty' on which 'it is appropriate that NSW imposes transfer duty.' " 46 Messrs Slater and Mescher submit that the offer may be the nominal, but it is not the substantial, consideration for the payment; the substantial consideration for the payment is the lease, under which only nominal rent is payable and that on any view the payment is "in respect of" the agreement for lease, and the equitable lease, which came into being as a direct consequence of the transaction which included the payment. There is a "discernable and rational link", a "sufficient or material connection or relationship" between the payment of the premium consideration and the agreement for lease. The words quoted derive from the judgment in J & G Knowles & Associates Pty Ltd v Commissioner of Taxation (2000) 96 FCR 402 at 408 (Full Federal Court). 47 The plaintiff says that that argument ignores the fact that s 170 does not talk about monies paid in respect of the lease but a premium paid in respect of the lease. 48 However, reverting to the question what "in respect of" means, Mr Gleeson notes that in s 166(1)(b) of the Duties Act the expression is "premium payable for a lease of premises" and that in s 166 the word "premium" appears to be used in its usual sense of monies paid in order to secure a lease. He puts that this is an indication that the words "in respect of the lease" in s 170(2) should have the same meaning, especially when one can see that the apposition between premiums paid concerning retirement villages and premiums concerning other premises are both referred to in both of the sections. I consider that this is a valid point. 49 The next significant matter is the question of first execution. Section 169 makes a lease liable to duty on the date of first execution. The document at tab G was executed on 31 October 2005 but under s 171(2), if the lessee requests (as it did in this case) that ad valorem duty be paid on the lease but not the previous agreement for lease, then the lease is taken to have been first executed on the date of first execution of the agreement. This makes the notional first execution date of the document at tab G 2 September 2005. 50 Mr Gleeson says that the effect of ss 168 and 169 read together is that duty is imposed upon the lessee on the date of execution of the instrument. There must therefore be an identified lessee being a person who has taken up the rights and obligations under the lease. In the instant case, the Call Option was in favour of a bevy of possible persons. As at the date the Call Option Fee was paid none of these people could be called the lessee. At the date of deemed first execution of the lease, the Call Option Fee had already been paid and that for which it was promised had been consummated in that the lease had been granted. It could thus never be said that the payment was a payment for the grant of the lease. 51 I have already quoted from the written submissions of Mr Slater and Mr Mescher that only a simpleton would be blind to ignore the way in which all these transactions fit together. It is quite obvious, Mr Slater says, that when one looks at the Call Option, every aspect of what was to happen in the next few months is there in consummate detail including all the terms of the lease. Indeed virtually everybody is locked into a particular transaction at that point, money is paid ($265 million) and it is obvious that no commercial person would be paying that sum of money for the mere right to pick up an option. 52 On the other hand, Mr Gleeson says one must be very careful not to fall into the sort of error that is illustrated in Prime Wheat Association Ltd v Chief Commissioner of Stamp Duties (1997) 42 NSWLR 505. In that case Gleeson CJ warned at 511 that courts must not resolve the issues: "by reference to considerations of economic equivalence rather than by reference to an accurate characterisation of the instrument under consideration." 53 I should note that in Burbury v Commissioner of Stamp Duties (1972) 3 ATR 313 at 314 Nettlefold J in the Tasmanian Supreme Court again noted that stamp duties legislation (with of course, significant exceptions) imposes duties on instruments not transactions as such. When considering the instruments one cannot ignore the legal operation of the instrument and assess the alleged realities behind it. In law the reality of the document is what, in law, it effects. 54 In Littlewood's Mail Order Stores Ltd v Inland Revenue Commissioners [1963] AC 135 at 154-155, Lord Reid said that as a result of the parties wishing to minimise stamp duties and leaving the matter to competent advisers: "[t]he result was a bizarre series of six deeds. But none of these deeds was a sham. Each had the effect which it purported to have, and if the parties chose to proceed in this way they were quite entitled to do so. There is no question of any of these deeds purporting to do something different from what the parties had agreed to do. So each must be stamped according to what it purported to do and in fact did. "

It seems to me those words are directly applicable to the present case. 55 Mr Slater also directed attention to the fact that in s 170(2) the expression is "premium paid or payable". Thus, it does not matter that the sum may have been paid some time before the lease came into existence. After all, if one is paying for a lease to be granted, there must be many situations where the proposed lessor will want the money in its hand before it seals the document. Accordingly, it does not matter that as the date when the liability to make the payment came about, or when the payment was made, the lessee had not been identified. 56 It is a little difficult to uphold this argument because a premium is not normally considered to be a sum of money paid in consideration for the grant of a leasehold interest to one of a number of possible persons, it is paid in respect of a particular grant. For that one would normally need to have certain the substantial requirements for a lease, namely, name of landlord, name of tenant, commencement date, term, or at the very least, the identity of the tenant. This certainly was not known at the date of the Call Option Deed. 57 Mr Slater referred to a speech in Parliament on the introduction of the 2003 amendment to the Duties Act. I agree with Mr Gleeson that this does not assist in the resolution of the present problem. Although the mischief to which the 2003 amending Act was directed is in the same ballpark as the present problem, it certainly never contemplated anything like the present scheme. 58 I have rehearsed the submissions put on each side. There is obviously some doubt about the true construction of s 170(2), but I consider that basically the proposition of Mr Gleeson is correct, that is, that the statute does not refer to money paid in respect of a lease, but a premium paid in respect of a lease and that premium refers to money paid as consideration for the grant of a lease. The money in the instant case was paid for the grant of an option. It may be that one can rationalise commercially that no-one in their right mind would have paid that much money for the grant of an option, but there is no allegation that the transaction was a sham. The highest it is put by Mr Slater is that the money was not only a payment for the grant of an option, but also for the grant of a lease, but in view of the fact that the transaction appears to be deliberately designed not to do this, there was no lease in existence at the relevant time because there was no lessee. 59 Accordingly, it is not vitally necessary to look at the words "in respect of". Were it necessary to do so it would seem to me that in apposition with section 166, the words "in respect of" in s 170(2) should be read similar to the word "for" in s 166. 60 Accordingly, I do not accept the submissions of Mr Slater and Mr Mescher.

Is the document at tab G dutiable as evidencing an agreement for lease? 61 Although it was not in the original rulings as to liability against which objections were taken, it was argued before me that under s 164 the document at tab G was an instrument that evidences a lease. Mr Gleeson's first answer to that is that a document which is a lease can't also evidence a lease, it's one or the other and I consider that is correct. 62 Putting aside that matter, there is a question as to what is a document which evidences a lease? 63 It is quite clear and indeed this was acknowledged by all parties during argument, that if there has been ad valorem duty paid on a lease document, then it could not be the case that every time someone produced a piece of paper which was evidence of a lease, that there had to be extra duty payable. Where, however, is the line to be drawn? 64 In England, up until the Finance Act 1970, stamp duty was payable on a memorandum under hand "whether the same be only evidence of a contract". There were a number of cases as to what was meant by "evidence of a contract". I will not deal with all of them. However, it is instructive to consider a few of them. 65 In Beeching v Westbrook (1841) 10 LJ Ex 464, the plaintiff sued for the cost of board of the defendant's illegitimate child. The plaintiff tendered four letters of the defendant containing promises to forward money. The defendant objected to the admissibility of these letters on the basis that they were evidence of a contract and were not stamped and so were not admissible. The Full Court of Exchequer rejected this argument. Parke B said at 465: "The act does not impose a stamp upon every letter that is put in evidence to prove the existence of a contract, but on those documents only which the parties prepare, in order that the terms of them may be remembered, and may form a binding agreement." 66 In Carlill v Carbolic Smoke Ball Company [1892] 2 QB 484 at 490 (a case usually cited for a completely differently proposition), Hawkins J said of the requirement under the Stamp Act 1891 that a memorandum of agreement be stamped "whether the same be only evidence of a contract": "Whether a written or printed document falls within this requirement depends upon its character at the time it was committed to writing, or print, and issued. If at the time no concluded contract had been arrived at by the contracting parties, it certainly could not in any sense be treated as an agreement, nor could it be treated as a memorandum of an agreement, for there could be no memorandum of an agreement which had no existence. No document requires an agreement stamp unless it amounts to an agreement, or a memorandum of an agreement. The mere fact that a document may assist in proving a contract does not render it chargeable with stamp duty; …" 67 Further it is clear that a document which merely records an oral transaction which is already completed may not be liable for duty as evidence of a transaction. So that in Commissioner of Stamps v Frost (1926) 28 WALR 81 (Full Court of Western Australia) a husband purported to make a gift to his wife the whole of his business by going with her into the shop, handing her an article and saying "I give you this in the name of the whole" and then placing on record that that had happened. The Full Court held that the document was merely a record of what had taken place and did not effect a transaction. It is otherwise if the document actually is part of effecting the transaction such as occurred in Metro Taxi Management Pty Ltd v Commissioner of State Taxation (WA) (1995) 95 ATC 4671. 68 Perhaps the most awkward case in this area is Fleetwood-Hesketh v Inland Revenue Commissioners [1936] 1 KB 351. That involved a disentailing arrangement between a father and son. The son was to disentail and the father to purchase his absolute version in certain of the investments, the son taking over from the father his liability to pay an annual sum for the father's wife. The only document was an acknowledgement signed by the son acknowledging the receipt of the £160,000 "being the purchase price agreed as part of a family arrangement for my absolute reversion under the will …". 69 The English Court of Appeal held that that acknowledgement was chargeable as an agreement for sale. The judgments are not easy to understand. Lord Hanworth MR said that the acknowledgement was dutiable because the parties as part of their agreement intended that their agreement should be recorded and it was important and perhaps essential for there to be such a record. M L Romer LJ at 361-2 said something similar: "The mere fact that the document in question was intended to be part of a complicated transaction between the parties is not sufficient: the document must be 'intended to be a part of the bargain' … . If it be that, then whatever the parties may choose to call it, it is a conveyance or transfer on sale."

The words quoted come from the judgment of Lord Esher in Ramsay v Margrett [1894] 2 QB 18 at 23. 70 Maugham LJ said that the document was clearly a memorandum which evidenced a transaction between the parties. In Nicholas Paspaley Properties Pty Ltd v Commissioner of Taxes (1991) 103 FLR 305 at 308, Angel J in the Northern Territory Supreme Court said that he considered the reasoning of Maugham LJ to be far more careful and preferable to the reason of the other judges, but he did not consider that the Fleetwood-Hesketh case was particularly helpful. 71 Finally, there is the decision of Lucas v The Treasurer (2003) 53 ATR 19, a decision of Gray J of the Supreme Court of South Australia. There memoranda were created with respect to the reorganisation of a family business from being a partnership between husband and wife with involvement of the sons to the two sons absolutely. Statutory declarations were prepared. Gray J held at 29 [34]: "The parties did not require a record of the agreement between themselves. There is no suggestion that the family, as parties to the transactions, required documentation. The decision of Fleetwood-Hesketh is distinguishable. In that case the later receipt was an important, if not essential record. It was intended to evidence the contract. That is not so in the present case." 72 All this adds up to me taking the view that the word "evidence" in s 164 does not mean that every document which is part of the material that would be put before a court to prove a lease is evidence of a lease under s 164. Nor probably is a document which incidentally records that there has been a completed action which has granted a lease orally. However, if there is a document which is deliberately created by the parties as an integral part of an otherwise oral transaction in order to comply with the Statute of Frauds or because of some other commercial purpose, then if that is evidence of a lease, it may well fall within s 164. 73 In the present case, what was said by Hawkins J in the Carbolic Smoke Ball case shows that the present Call Offer Deed could not be evidence of a lease and as the document at tab G is actually a lease, it could not be evidence of a lease.

Other Matters 74 It was vaguely argued that when one looked at the whole of the documents one could see that the proper analysis of the transaction was that the document at tab G was a lease with a premium. In Ingram v Inland Revenue Commissioners [1986] Ch 585, Vinnelot J said at 593 that although stamp duty was chargeable on instruments and not on transactions, the court needed to ascertain the substance of the transaction so as to determine whether it fell within the charge to duty. However, his Lordship continued at 593-594 by saying: "But in doing so the court cannot go beyond the transaction which was in fact effected by the instrument the chargeability of which must be determined at the time of its execution." 75 Of course, one can in the appropriate case, marry together more than one document to show that there is a single transaction; see eg Cohen & Moore v Commissioners of Inland Revenue [1933] 2 KB 126. I do not consider that that type of case assists the resolution of the present problem. 76 I was then taken to some authorities as to when a document should be taken as including two distinct transactions and so it should bear stamp duty in respect of each of them as opposed to the situation where the document could be construed in two different categories in which case the Chief Commissioner can only tax once and must choose which of the alternatives will form the basis of the impost; see eg Chief Commissioner of Stamp Duties (NSW) v W F Securities Pty Ltd (1995) 95 ATC 4284. However, again it is not necessary to do anything more than record this as I do not consider it affects the result of this case. 77 Mr Slater drew my attention to the decision of the High Court in Asciano Services Pty Ltd v Chief Commissioner of State Revenue [2008] HCA 46 decided on 25 September 2008. That case concerned a lease instrument whereby the railway lines in New South Wales were made available to private enterprise. 78 Although the case deals with what is a lease under the Duties Act it does not seem to me to give any assistance in the resolution of the current dispute.

The result of the proceedings 79 It follows that I consider that the submissions made on behalf of the plaintiff succeed and that accordingly I should make orders 1, 2 and 3 in the summons and order that the defendant Chief Commissioner pay the costs of the proceedings.

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