AUSTRALAND INVESTMENTS LTD (AS TRUSTEE FOR AUSTRALAND WHOLESALE PROPERTY TRUSTS NO 4 & 5) v COMMISSIONER OF STATE REVENUE (VIC)
Judges:Mandie J
Court:
Supreme Court of Victoria, Melbourne
MEDIA NEUTRAL CITATION:
[2009] VSC 453
ATC 10192
Mandie JIntroduction
1. These proceedings are appeals pursuant to s 148 of the Victorian Civil and Administrative Tribunal Act 1998 (Vic) from the whole of the orders of the Victorian Civil and Administrative Tribunal ("VCAT" or "the Tribunal"), constituted by Deputy President Mr M F Macnamara, by which the Tribunal confirmed certain assessments of duty under the Duties Act 2000 (Vic) ("the Duties Act") in respect of the acquisition of units in the Australand Wholesale Property Trust No 4 ("AWPT4") and the Australand Wholesale Property Trust No 5 ("AWPT5").
2. Under the "land rich" provisions of Chapter 3 of the Duties Act, if 60% or more of the unencumbered value of the property of a unit trust is attributable to land, a person who acquires units in the unit trust may be subject to duty on the value of the Victorian land in the trust. The primary issue in proceeding No. 10057 of 2008 is whether the trustee of AWPT4 is liable to pay duty under Chapter 3 of the Duties Act as a result of units in the trust becoming listed on the ASX by being "stapled" to the shares of a listed company. Related issues arise in proceeding No. 10058 of 2008 concerning the liability to pay duty of the trustee of AWPT5.
3. Whether or not the trustee of AWPT4 and AWPT5 is liable for duty depends upon whether AWPT4 and AWPT5 were, at the relevant time, "land rich landholders". AWPT4 and AWPT5 were not land rich landholders if at the relevant time they respectively satisfied the statutory definition of either "widely held trust" or "listed trust" (which would mean that they were "public unit trust schemes" rather than "private unit trust schemes").
4. The Tribunal determined that both AWPT4 and AWPT5 were liable for duty under Chapter 3. It found that AWPT4 was a widely held trust before the stapling transaction,[1]
Facts
5. Australand Holdings Limited ("AHL") is a company listed on the Australian and Singapore stock exchanges. As a result of transactions that occurred in November 2003 and in October 2005, shares in AHL are "stapled" to units in the Australand Property Trust and in AWPT4 and AWPT5 and trade on the Australian Stock Exchange and Singapore Stock Exchange as the one stapled security.[4]
6. The Australand group is active in the property market across Australia, with activities that include the development of residential land, housing and apartments, development of and investment in income producing commercial and industrial properties, and property management. In 2000 the Australand group's principal focus was property development, but at or about that time it decided to diversify its operations so as to increase income from holding properties for investment. From about late 2000 the Australand group established a series of managed property trusts comprised of properties developed or under development by AHL. In the case of each trust so established, AHL (or a related entity) retained a minority unit holding in the relevant trust and also managed the trust.
7. The appellant said that when the Australand group first issued units in these trusts to investors it intended that either the various trust portfolios would eventually be merged into a listed property trust or the trusts would be stapled to shares in AHL to form an ASX stapled entity. The appellant said that therefore, in the case of each offering, the relevant offer document outlined "Exit Strategies" regarding the re-acquisition or stapling of the units in the relevant trusts.
8.
ATC 10193
The "Exit Strategies" for AWPT4 were, according to the appellant, set out in the relevant Information Memorandum.9. The Information Memorandum for AWPT4 related to the offer of 117 million units at a price of $1 per unit. The memorandum stated that the fundraising (product disclosure statement) requirements of the Corporations Act 2001 (Cth) ("the Corporations Act") did not apply to the offer of units under the memorandum and that the offer under the memorandum could only be made to Australian residents who qualified as "Wholesale" investors under s 761G(7) of the Corporations Act. The covering letter to investors from the Managing Director of AHL, contained in the memorandum, stated that investors in AWPT4 would have a clearly defined Exit Strategy, namely acquisition by the Australand group or the listing of the trust on the ASX. The letter said that AHL would participate as an investor and would subscribe to a maximum of 20% of the units (in fact it subscribed to some 6.6% thereof).
10. Under the heading "Offer at a glance," the Information Memorandum described the "preferred exit strategy" as "acquisition of the Trust by the Australand Group to form part of a stapled entity listed on ASX" and the "alternate exit strategy" as "listing of the Trust, or Sale of the Properties[5]
11. In the executive summary contained in the Information Memorandum it was stated that "it is intended that an Exit Strategy will be implemented within 5 years: See Section 5 (Exit Strategies)." Later in the Executive Summary under the heading "Trust Objectives" it was stated that the trust would be managed with a view to achieving certain objectives for investors including "providing an exit strategy that could enable investors to realise a higher capital return than that typically associated with the sale of a property portfolio."
12. In section 5 of the Information Memorandum headed "Exit Strategies" the following appeared:
"In the event that an Exit Strategy has not been implemented before December 2008, then [the Trustee] intends to propose that the Trustee seeks Investor approval to implement one of the following exit strategies:
- 1. Acquisition of the Units by the Australand Group in exchange for cash and/or Australand Group stapled securities (the Acquisition Proposal). If the Acquisition Proposal is implemented on or after 1 January 2006, Units will be acquired by the Australand Group at the then NTA per Unit plus a premium of 5%. If the Acquisition Proposal is implemented prior to 1 January 2006, the premium will be 4%; or
- 2. Listing the Trust on the ASX, either alone or merged with similar trusts (the Listing Proposal); or
- 3. an alternative proposal that converts the Units into cash or another liquid security (an Alternative Proposal),
each being an Exit Strategy.
Australand will evaluate the timing of the implementation of an Exit Strategy on an annual basis during a pre-set annual Review Period. The first Review Period will commence on 15 July 2005 and end on 15 August 2005, with subsequent reviews being undertaken annually at the same time until the earlier of, the successful implementation of an exit strategy and 1 June 2008. Australand may call a Special Review Period in the event of a Takeover Proposal occurring.
During a Review Period or Special Review Period, Australand may request that the Trustee seeks Investor approval to implement an Exit Strategy during the following 12 months. If Australand so requests, it must provide the Trustee with adequate information supporting the proposal and the Trustee must call a meeting of Investors to vote on the proposal. In order for an Exit Strategy to be implemented, it must be approved by an ordinary Resolution of Investors.
If an Exit Strategy has not been implemented by the end of December 2008, the Trustee will hold a meeting of Investors to decide whether to continue or to wind up the Trust. If a Special Majority of Investors
ATC 10194
vote to continue the Trust, the Trust will continue for a further term of 5 years, at which point a further meeting will be held for the same purpose (and so on). If the resolution to continue the Trust is not approved by a Special Majority, the Trustee will terminate the Trust, realise the assets as soon as reasonably practicable and distribute the proceeds to Investors pro rata to their investments.Australand Option Over Investors' Units
Each Unit will be issued with an Australand Option attaching to it. The Australand Option is an option granted by each Investor, under the terms of the application for Units, to Australand or its nominee to acquire the Investor's Units on the occurrence of certain events. By signing an application for Units, an Investor will be agreeing to the grant of the Australand Option. The application form also contains a power of attorney that Investors must sign, appointing Australand as his or her or its attorney for the purpose of executing a transfer of his or her or its Units pursuant to the exercise of the Australand Option.
The Australand Option will be exercisable by Australand or a nominee in the Australand Group to give effect to the proposed Exit Strategy. Australand or its nominee can only exercise the Australand Option to give effect to an Exit Strategy, following the approval of the relevant proposal by an Ordinary Resolution of Investors.
In the event the Australand Option is exercised on or after 1 January 2006, Units will be acquired at the then NTA per Unit plus a premium of 5%. In the event the Australand Option is exercised prior to 1 January 2006, the premium will be reduced to 4%.
The terms of the Australand Option are set out in Section 14 (How to Invest).
To implement any Exit Strategy, Australand may either:
- • exercise the Australand Option to acquire the Units of those Investors who either voted against or do not otherwise participate in the exit proposal (Dissenting Investors), to give effect to the exit strategy; or
- • exercise the Call Option to acquire the units in the sub-trusts from AWIL4."
13. The memorandum further explained that each investor was required to grant a call option to the Australand group to acquire the investor's units on the occurrence of certain events. By signing an application form an investor granted the option and a power of attorney to enable the option to be exercised. The Australand group was required to obtain the approval of a majority of unit holders before it exercised the call option.
14. On 24 June 2003 the Australand group publicly announced the launch of AWPT4 through an Australian Stock Exchange announcement. Units in AWPT4 were offered to investors by the Information Memorandum to which reference is made above and which was issued in June 2003.
15. Units in the trusts were offered to investors subject to the limited disclosure requirements relating, inter alia, to "sophisticated investors" permitted by s 708 of the Corporations Act.[6]
- • I/we are not acquiring Units in AWPT4 for use in connection with a business and have net assets of at least $2.5 million or have a gross income for each of the last 2 financial years of at least $250,000 and we attach a qualified accountants certificate which confirms this; or
- • I/we control at least $10 million in net assets…for the purpose of investment in securities; or
- • I/we are a regulated superannuation fund, an approved deposit fund, a pooled superannuation trust, a public sector superannuation scheme within the meaning of the Superannuation Industry (Supervision) Act 1993 which has net assets of at least $10m; or
-
ATC 10195
• I/we are a RSA provider within the meaning of the Retirement Savings Accounts Act 1997; or - • I/we am/are a professional investor as defined by section 9 of the Corporations Act 2001; or
- • I/we am/are applying for at least $500,000 worth, in price or value, of Units in AWPT4.
16. The Australand group marketed the units in AWPT4 by forwarding letters to the previous investors in earlier Australand property trusts, appointing Computershare Investor Services Pty Ltd as the registry for AWPT4 to manage the receipt of applications and application moneys, printing and distributing 5,000 copies of the Information Memorandum to potential investors, engaging Property Investment Research to prepare an investment report to potential investors, and distributing Information Memoranda and promoting the units through JBWere Limited.
17. As a result, the Australand group sold or issued 109,235,000 (or approximately 93.4%) of the 117 million units available to 585 investors.
18. As part of the application for units in AWPT4, the applicants agreed to be bound by the terms of the constitution thereof. A supplemental deed dated 23 June 2003 made amendments to the AWPT4 constitution at this time. These amendments included provisions dealing with "stapling" which was defined to mean "the process that results in Units and Attached Securities being and remaining Stapled to each other." "Attached Securities" were defined to include "a Stapled Share" and "Stapled Share" was defined to mean an ordinary share in AHL. "Stapling Commencement Date" was defined to mean "the date upon which Stapling of the Units to Stapled Shares is to commence as determined by the Manager."
19. Clause 28.3, as inserted by the supplemental deed, provided that:
"The Units are intended to be stapled to the Stapled Shares in the ratio of one Unit to one Stapled Share as from the Stapling Commencement Date. The intention is that, so far as the law permits, a Unit and a Stapled Share which are Stapled together shall be treated as one security. If further Attached Securities are from time to time Stapled to the Units the intention is that, so far as the law permits, a Unit and one of each of the Attached Securities which are Stapled together shall be treated as one Security."
20. Clause 27.9, as inserted by the supplemental deed, provided that:
"While Stapling applies, no redemption or sale under this clause 27 may occur unless, at the same time as Units are redeemed or sold, an identical number of Attached Securities are also redeemed or sold."
21. Units in AWPT5 were offered to investors by an Information Memorandum issued in December 2003. The Information Memorandum insofar as it related to exit strategies was in similar terms to the memorandum covering AWPT4. The Information Memorandum for AWPT5 also explained that each investor was required to grant an option, but it did not require the approval of investors before the option could be exercised. A similar offer and marketing process was adopted for the sale of units in AWPT5. As it was seeking to raise only $50 million, two thousand Information Memoranda were printed for distribution to potential investors. Goldman Sachs JB Were Limited was appointed to co-ordinate the sale process. Computershare Investor Services Pty Ltd was again appointed as AWPT5's Registry and was also engaged to receive the applications and application moneys and applications were received from 214 applicants.
22. On 13 May 2004, relevant amendments to the land rich provisions of Chapter 3 of the Duties Act commenced operation.
23. The transactions that gave rise to the present dispute with the Commissioner of State Revenue began with the issuance of Explanatory Memoranda for the stapling transactions concerned on 18 August 2005. In September 2005, the stapling transactions were implemented by way of scheme of arrangement - "security holder" approval was obtained and court approval of the scheme was granted on 29 September 2005. The stapling transactions were completed on 12 October 2005, when units in
ATC 10196
AWPT4 and AWPT5 were stapled to form an expanded Australand Property Group.24. According to the appellant, it constituted an implementation of the "Exit Strategies" for both AWPT4 and AWPT5 when the approval was obtained of a majority of unit holders at meetings convened for that purpose to the redemption of the units in the trusts from the investors for cash and the issuance of new units that were stapled to the shares in AHL and the units in the Australand Property Trust.
25. The stapling of the units in AWPT4 required the approval of the external investors. Although Australand could have exercised its call option in relation to AWPT5 without investor approval, the Australand group elected to follow the same procedure in respect of both trusts, including the seeking of majority investor approval which was subsequently obtained.
26. The steps by which the stapling transactions were implemented were as follows:
- • the security holders in AHL and Australand Property Trust received by way of special dividend and capital return a "Merger Distribution" in the amount of approximately $0.21 per security held;
- • the Merger Distribution was compulsorily used to fund the subscription by security holders in AHL and Australand Property Trust for units in each of AWPT4 and AWPT5 equivalent to the number of securities held by the relevant security holder in AHL and Australand Property Trust;
- • the money paid for the subscription of units in AWPT4 and AWPT5 was used to fund the redemption of units in those trusts held by the previous external investors; and
- • prior to subscription and redemption of units in AWPT4 and AWPT5, each trust was listed on the ASX in order to allow for the trading of units as part of the expanded Australand Property Group stapled security; and
- • the stapling transactions were completed on 12 October 2005.
27. As mentioned earlier, Australand entities also held a small investment stake in each of AWPT4 and AWPT5. These "cross-holding" units were not part of the stapling transaction and remained held by the relevant entities. This was because it was not possible for those units to be stapled as this would have resulted in related entities breaching the prohibition on an entity owning shares in itself.
28. On 20 December 2006 (after correspondence with the State Revenue Office) AWPT4 and AWPT5 lodged Land Rich Acquisition Statements under s 80 of the Duties Act indicating that a dutiable acquisition had occurred on 12 October 2005.[7]
29. Following further correspondence, the Commissioner issued an assessment dated 21 February 2007 to the trustee for AWPT4 imposing duty of $7,151,162 and an assessment dated 21 February 2007 to the trustee for AWPT5 imposing duty of $564,300. The appellant lodged notices of objection dated 26 March 2007 and the Commissioner disallowed the objections by Notices of Determination dated 1 November 2007.
30. The appellant requested that its objections be referred to VCAT. The Tribunal heard the matters on 15 and 16 October 2008 and the defendant's assessments were confirmed by order of the Tribunal made on 5 November 2008.
Relevant provisions of the Duties Act
31. Section 71(1) of the Duties Act provides that a "landholder" includes a private unit trust scheme and s 71(2) provides that a landholder is "land rich" if it has landholdings in Victoria whose unencumbered value is $1 million or more. In respect of each of AWPT4 and AWPT5, the appellant had landholdings in Victoria whose unencumbered value exceeded that sum.
32. Section 3(1) of the Duties Act relevantly provides that a "private unit trust scheme" means a unit trust scheme that is not a public unit trust scheme and defines "public unit trust scheme" relevantly to include "(b) a widely held trust."
33. Section 3(1) of the Duties Act defines "widely held trust"[8]
- "(a) that is a managed investment scheme registered under Part 5C.1 of the Corporations Act; and
ATC 10197
(b) in which units have been issued to the public; and- (c) that has not less than 300 public unit holders -
- (i) each of whom is beneficially entitled to the units and holds at least the minimum subscription under the prospectus or product disclosure statement; and
- (ii) none of whom, individually or together with any associated person, is beneficially entitled to more than 20% of the units in the scheme."
34. Under s 78 of the Duties Act, a liability for duty arises when a relevant acquisition[9]
35. Section 79(1) of the Duties Act deals with when a person makes a relevant acquisition in a land rich landholder but there is no need to set out that provision because there is no issue that a relevant acquisition was made within the meaning thereof, if AWPT4 was a land rich landholder. No issue on this aspect arises in relation to AWPT5.
36. Importantly, s 89E(1) of the Duties Act (inserted by the State Taxation Acts (Tax Reform) Act 2004 that relevantly commenced on 13 May 2004) provides:
"Subject to sub-section (2), if, as a result of the acquisition of one or more units in a unit trust scheme that, immediately before the acquisition, was a public unit trust scheme, the scheme becomes a private unit trust scheme, the scheme is taken to have become a private unit trust scheme immediately before that acquisition."
37. Relevant to the case put on behalf of both AWPT4 and AWPT5, Item 20(6) of Schedule 2 to the Duties Act (as introduced by the State Taxation Acts (Tax Reform) Act 2004) provides:
"(6) This Act, as in force immediately before the commencement day, continues to apply in respect of any transactions occurring on or after that day that resulted from a written agreement made before that day."
38. Further, relevant to the case put on behalf of AWPT4, Item 20(7) of Schedule 2 to the Duties Act provides:
"(7) Without limiting sub-clause (6) -
- (a) …
- (b) section 89E does not apply to or in relation to an acquisition referred to in that section -
- (i) made before the commencement day; or
- (ii) made in response to an offer or invitation made or arrangement entered into before that day."
39. Finally, s 85(2) of the Duties Act provides:
"An acquisition by a person of an interest in a landholder is an exempt acquisition if the Commissioner so determines, being satisfied that the application of this Part to the acquisition in the particular case would not be just and reasonable."
Tribunal's reasons
40. The appellant contended before the Tribunal that AWPT4 was not a landholder within the meaning of the land rich provisions because it was a "widely held trust" and hence a public unit trust scheme. Because, as a result of the acquisition of the stapled securities in October 2005, AWPT4 became a private unit trust scheme,[10]
41. AWPT5 was a private unit trust scheme both before and after the acquisition of the stapled securities in October 2005 but the appellant contended before the Tribunal that, by virtue of Item 20(6) of Schedule 2 to the Duties Act, the Duties Act as in force immediately before 13 May 2004 applied to the said acquisition. Before the Tribunal, AWPT5 was unsuccessful in relation to this contention.
42. Before the Tribunal, in relation to AWPT4, there were two principal issues:
- (i) whether AWPT4 was a "widely held trust"; and
ATC 10198
(ii) whether, by reason either of the transitional rules in Items 20(6) or (7) of Schedule 2 to the Duties Act, or as a result of the exercise of the Commissioner's discretion in s.85(2), s.89E of the Duties Act did not apply.
43. Before the Tribunal, AWPT4 was successful in relation to the first issue but unsuccessful in relation to the second.
44. In relation to the issue whether AWPT4 was a widely held trust, two questions were disputed before the Tribunal, namely, were units in AWPT4 issued to the public[12]
45. After referring to
Lee v Evans,[14]
"In the present instance the offer made in the manner described was not capable of acceptance by any member of the public. The particular requirements set out in the Information Memorandum were chosen so as to render the issue a wholesale and unregulated one in accordance with the Commonwealth corporations legislation. If one wished to summarise the criteria for acceptable applicant in popular language one might describe the offer as being addressed to 'the well heeled'… I would conclude that in the case of [AWPT4] there was at least an invitation to a section of the public."
46. The Tribunal went on to discuss whether an offer to a section of the public was sufficient to render the offer one made to the public generally. After further reference to
Lee v Evans and to a number of other authorities,[15]
- "117 I conclude that the units in the Wholesale Trust No. 4 were issued to the public. The following factors lead to this conclusion:
- (a) the wide distribution of offers and the wide distributions of acceptances across the nation;
- (b) the payment of commission to J.B. Were and others;
- (c) the fact that 'all and sundry' were entitled to accept the offer by subscribing for $500,000 worth of units;
- (d) whilst the group to whom the offers were directed did have a rational connection viz. in broad terms they were members of the 'well heeled' group in society, they were not linked by any prior relationship with Australand or any common bond such as membership of a credit union as in the Australian Central Union case or employment by the same corporate group as in the David Jones' case. The common characteristic which they shared, namely a comfortable financial situation and therefore an ability to subscribe is the sort of characteristic which a number of the judges considering these matters have said should be regarded as irrelevant.
- 118 My conclusions might be difficult to reconcile with some of the reasoning adopted by Needham J in the David Jones' case. Nevertheless, in broad factual terms the conclusion I have reached is reconcilable with the conclusion His Honour reached in the case before him. The offerees in David Jones were linked by common employment. The offerees in the present proceeding are linked only by financial capacity, a characteristic which according to a number of authorities ought to be ignored. Moreover Needham J himself said that an offer could be regarded as to the public if it were addressed to 'a large section of the public'. As I understand it he reached that conclusion independently of Section 5(6) of the Companies Act 1961 which he concluded was in the circumstances not applicable [1975] 2 NSWLR 710, 719F. The offer for Wholesale Trust No. 4 was distributed through a wide network of brokers, accountants and financial advisers. As previously observed it was directed to the 'well heeled' section of society. It reached the four corners of the Commonwealth of Australia and obtained nearly 600 acceptances. There was no evidence as to precisely how many natural and legal persons in the Commonwealth of Australia meet the criteria laid down in the application form. Even in the absence of that evidence I think it reasonable to conclude that this group represents a large section of the public and so the reasoning in the David Jones' case would point to the same conclusion which I have reached. It follows therefore that at the date of acquisition Wholesale Trust No. 4 was a widely held trust and held a public trust scheme, prima facie exempt from liability under the land-rich landholder provisions.
ATC 10199
119 In my view the Wholesale Trust No. 4 as at the relevant date also fell within the definition of 'widely held trust' with respect to the criterion laid down in paragraph (c)(i) of the definition, namely that the unit holders held beneficially at least the minimum subscription 'under the prospectus or product disclosure statement'. 'Product disclosure statement' is not an expression in popular use independent of its particular usage in the Corporations Act. It has a special definition in that context and accordingly I accept that it would bear that special definition when used in the Duties Act in the absence of any indication to the contrary. Mr Fox it will be recalled submitted that 'Prospectus' too bore its defined meaning in the Corporations Act, namely a prospectus registered with the Australian Securities Investment Commission. By reference to dictionary definitions Mr de Wijn and Mr Flynn showed that the word prospectus has an ordinary English meaning independent of the Corporations Act. Given that elsewhere in the definition there is an express reference to the Corporations Act had Parliament wished to restrict the concept of prospectus to its defined meaning in the Corporations Act it knew how to say it and it had the means to achieve that result at hand in the very same definition. I conclude therefore that Parliament did not intend to use the word prospectus in any limited sense, hence it is sufficient for the application of the definition to Wholesale Trust No. 4 that the unit holders have their holdings at not less than the minimum subscription amount stipulated in the information memorandum which is according to ordinary English meaning capable of being described as the prospectus for the unit trust."
47. Despite finding that AWPT4 was a "widely held trust," the Tribunal held that AWPT4 was liable for duty as a result of the application of s 89E of the Duties Act. AWPT4 did not contend before the Tribunal that s 89E was inapplicable in its terms but that it did not apply by virtue of the transitional provisions contained in Items 20(6) and (7) of Schedule 2 to the Duties Act. As to that contention, the Tribunal said:
- "122 …[AWPT4] relied upon a decision of the Australian Industrial Court in
Top Performance Motors Pty Ltd v Ira Berk (Queensland)Pty Ltd (1975) 5 ALR 465 where the Court adopted as the appropriate meaning for the word 'arrangement' in the Trade Practices Act 1974 the analysis of that term by their Lordships of the Judicial Committee of the Privy Council in
Newton v Federal Commissioner of Taxation (1958) 96 CLR 1, 7 where Lord Denning speaking for the Board said:'Their Lordships are of opinion that the "arrangement" is apt to describe something less than a binding contract or agreement, something in the nature of an understanding between two or more persons - a plan arranged between them which may not be enforceable at law.'
- 123 This dictum was quoted by Smithers J in Ira Berk at (1975) 5 ALR 465, 469. His Honour also quoted from [Diplock] LJ in
Re British Basic Slag[, Ltd.'s] Agreements [1963] 2 All ER 807, 819 where His Lordship said:'Arrangement is not a term [of art]; [and in] s.6(3) of the Act I agree with my [l]ords that it bears the meaning of that an ordinary educated man would ascribe to it. It involves a meeting of minds because under s.6(1) it has to be an arrangement "between two or more persons" and, since it must be an arrangement "under which restrictions are accepted by two or more parties", it involves mutuality and that each party, assuming he is a reasonable and conscientious man, would regard himself as being in some degree under a duty whether moral or legal to conduct himself in a particular way or not to conduct himself in a particular way as the case may be, at any rate so long as the other party or parties conducted themselves in the way contemplated by the arrangement.'
ATC 10200
124 I accept the submission…on behalf of the Commission[er] that the exit strategies described in the information memorandum for Wholesale Trust No. 4 are too vague even to fall within the concept of 'arrangement' as described by Lords Denning and Diplock in the passages quoted above. As Mr Fox observed the scenario described at page 18 of the information memorandum expressly contemplates the possibility that Australand would not have postulated any of the exit strategies leaving it to the unit holders to arrange their own exit. There are a number of express options canvassed at page 18 and the third of those options viz. 'an alternative proposal that converts the Units into cash or another liquid security' is so vague and allows for so many possibilities that not event an 'arrangement' could be regarded as being established between the parties.- 125 [AWPT4] submitted that the exit strategy section imposed some form of 'best endeavours' obligation on Australand…I prefer the submission…on this point that these are no more than statements of intention which ultimately might or might not be implemented in one way or another. It follows therefore that Section [89E] operates and for that reason the Commissioner's assessment with regard to Wholesale Trust No. 4 should be confirmed."
48. As regards the application of the said transitional provisions, the Tribunal further stated in its reasons:
- "129 …I accept that the unit trust deed or the arrangements governing the issue of the units to existing unit holders in 2005 could constitute an agreement for the purposes of the transitional provisions. Moreover, I accept that the question whether the acquisition on 12 October 2005 resulted from this agreement is a question of fact to determine in accordance with the 'commonsense' approach to legal causation postulated by the High Court…
- 130 Counsel for the taxpayer noted that Clause 28.3 of the No. 4 Wholesale Trust as amended for the 2003 issue of units precisely described the exit strategy implemented and hence the strategy 'resulted' from this part of the agreement. First the factual premise of this submission is wrong. The clause speaks of existing units being 'stapled'. These units were redeemed. It was an entirely new issue of units that were stapled in 2005. Secondly even if the clause is regarded as describing the same units the sub-clause states 'The units are intended to be stapled …' It is a statement of intention and no more.
- 131 I previously explained why in my view the explanation of the exit strategies to be found at page 18 of the information memorandum for [AWPT4] are to be regarded as mere statements of intention not as in themselves constituting agreements or even arrangements. Clearly there are other elements in the information memorandum which could properly be regarded as constituting an agreement but a description of the exit strategies for the reasons already given cannot be regarded as creating any operative obligation. Hence in my view when Australand acted according to a strategy that was generally in accordance with what was described at page 18 it was doing so because at that time it seemed the appropriate thing to do rather than because it was under any form of obligation resulting from an agreement. Its action did not 'result' from the exit strategies.
- 132 The transitional provision does not operate. The earlier definition of 'public unit trust scheme' does not apply.
- 133 It follows that the assessment with respect to [AWPT4] must be affirmed."
Questions of law raised by appeal
49. In relation to AWPT4, the appellant trustee raised the following questions of law:
- "(a) For the purpose of applying the transitional provision in Item 20(7)(b) of Schedule 2 of the [Duties] Act did the Tribunal err in concluding that having regard to the terms of the Information Memorandum pursuant to which the units in AWPT4 were originally issued…and the Trust Deed constituting AWPT4 …the acquisition was not made in response to an arrangement entered into before 13 May 2004?
ATC 10201
(b) If the Tribunal was correct in concluding that s.89E of the [Duties] Act did apply to the acquisition did the Tribunal properly consider whether or not to exercise the power under s.85(2) of the [Duties] Act to treat the acquisition by the appellant as an exempt acquisition on the basis that it would not be just and reasonable to apply Part 1 of Chapter 3 of the [Duties] Act to the acquisition?- (c) For the purpose of applying the transitional provision in Item 20(6) of Schedule 2 of the [Duties] Act did the Tribunal err in concluding that the acquisition did not result from a written agreement made before 13 May 2004 because the exit strategies set out in the Information Memorandum and clause 28.3 of the Trust Deed were 'mere statements of intentions' not giving rise to an obligation to implement an exit strategy?"
50. By order made 27 February 2009, leave was granted to appeal on the question of law (b) above and the application for leave to appeal on questions (a) and (c) above was adjourned to the hearing of the appeal to be heard together with the appeal itself as if leave had been granted on those questions.
51. In relation to AWPT5, the appellant trustee raised the following question of law:
"For the purpose of applying the transitional provision in Item 20(6) of Schedule 2 of the [Duties] Act did the Tribunal err in concluding that the acquisition did not result from a written agreement made before 13 May 2004 because the exit strategies set out in the Information Memorandum were 'mere statements of intentions' not giving rise to an obligation to implement an exit strategy?"
52. By order made 27 February 2009, the application for leave to appeal on the above question was adjourned to the hearing of the appeal to be heard together with the appeal itself as if leave had been granted.
53. Further, on appeal, the Commissioner challenged the Tribunal's decision that AWPT4 was a "widely held trust" and submitted that the Tribunal's reasons in relation to the questions of "offered to the public" and "issued under a prospectus or product disclosure statement" were in error.
For the purpose of applying the transitional provision in Item 20(6) of Schedule 2 of the Duties Act, did the Tribunal err in concluding that the acquisition of units in AWPT4 did not result from a written agreement made before 13 May 2004?
54. This raises question of law (c) above. The appellant stated as a ground of appeal in relation to this question that the Tribunal erred in paras 130, 131 and 132 of its reasons[16]
55. The appellant submitted that the trustee redeemed units as part of the stapling transaction pursuant to either or both of cl.28. 3 of the Trust Deed[17]
56. The appellant said that the Tribunal had dismissed this argument on two grounds. The first was that the existing units were not stapled but that they were redeemed and the trustee has issued new units. The appellant submitted that this ground for dismissing the argument was extremely technical because cl.28.3 crystallised the promise that the trustee would endeavour to provide the unit holders with an exit from their investment by means of stapling the units to shares in AHL and the fact that this purpose was ultimately effected by the mechanics of a
ATC 10202
redemption and issue of new units did not mean that it did not occur in accordance with cl.28.3. The second ground stated by the Tribunal was that cl.28.3 was a statement of intention only. The appellant submitted that, although formulated as an "intention," the trustee was nevertheless under an obligation, as a contracting party, to do all that was reasonably necessary to enable the other party to have the benefit of the contract.[18]57. The appellant further argued that one of the exit strategies was "listing the Trust on the ASX, either alone or merged with similar trusts" and that the application form attached to the Information Memorandum required investors to grant an option to Australand to acquire their units pursuant to the exit strategies. The undertakings to provide an exit strategy were contractual in nature and the trustee was under an obligation to endeavour to bring about one of the exit strategies. The Explanatory Memorandum for the AWPT4 stapling proposal referred to the exit strategies and noted that the stapling proposal fitted within the said listing strategy and also noted that the pricing of the stapling proposal incorporated a 4% premium as provided for in the exit strategies and in the terms of the option. The appellant submitted that although the option was not formally exercised, the stapling transaction "resulted from a written agreement made before [17 June 2004]" for the purposes of Item 20(6) of Schedule 2 to the Duties Act and that the terms on which the departing unit holders were bought out were consistent with the terms of the option and with the exit strategies foreshadowed in the Information Memorandum. Once the unit holders approved the relevant scheme of arrangement, Australand was able to proceed with the stapling transaction by way of compulsory acquisition of the units without the need to formally exercise the option.
58. The appellant further submitted that, even if AWPT4 was not under a legally binding obligation to bring about a purchase or redemption of the units, the acquisition of the units nevertheless "resulted from" a written agreement within the meaning of Item 20(6).
59. The Commissioner submitted that the Tribunal was correct and that, if there was a written agreement, the acquisition did not "result from" that agreement. Reference was made to the Explanatory Memorandum when Item 20(6) was introduced which said:
"Sub-clause (6) effectively addresses the case where there is a written agreement made before the commencement day to acquire an interest but the acquisition under the agreement is not made until after that day."
60. The Commissioner submitted that there was no written agreement made before 13 May 2004 to acquire the relevant interests in the trusts the subject of assessment and the relevant acquisitions in 2005 occurred under agreements made after 13 May 2004. The Commissioner submitted that, while Australand may have had an obligation to periodically consider the implementation of an exit strategy as outlined in the Information Memoranda, it was not under any implied obligation to use its best endeavours to ensure that any exit strategy was implemented. Apart from anything else, such an implication is inconsistent with the express term that if an exit had not occurred by the end of December 2008, there would be a meeting of unit holders to determine whether to wind up or to continue the trust.
61. Further, the Commissioner submitted that the exit strategy set out in the Information Memorandum did not describe and did not produce the acquisitions in 2005 - the acquisitions made were different from the strategies outlined. The Commissioner submitted that the references to possible exit strategies in each Information Memorandum were no more than the expression of an intent. In addition, the fact that the transactions of October 2005 required approval of the unit holders in each trust to significant amendments to the constitution of each trust indicated that there was no earlier written agreement providing for the acquisition and restructure.
62. In my opinion, assuming that the question whether the acquisitions in 2005 resulted from a written agreement made prior to 13 May 2004 is a question of law and not of fact, there can be no reasonable doubt about the answer. The exit strategies described in the Information Memorandum relating to AWPT4 whether taken alone or in combination with
ATC 10203
cl.28.3 of the Trust Deed did not constitute a written agreement for any acquisition of units and certainly not for the acquisition that in fact occurred. Clause 28.3 of the Trust Deed contemplated a stapling transaction but that clause and no other part of the Trust Deed contained any obligation to implement a stapling transaction. In addition, the stapling transaction implemented in 2005 was not that which was contemplated by cl.28.3 of the Trust Deed. Further, I agree with the Tribunal that the exit strategies constituted no more than statements of intention and did not amount to any binding obligation. Further, the stapling transaction in fact implemented differed from any of the proposals foreshadowed in the Information Memorandum.63. To put it another way, the acquisition that occurred in 2005 did not "result from" any written agreement made prior to 13 May 2004.
64. At any rate, I do not think that the question is attended by sufficient doubt as to justify the granting of leave to appeal in relation to that question. Accordingly, leave to appeal is refused.
For the purpose of applying the transitional provision in Item 20(6) of Schedule 2 of the Duties Act, did the Tribunal err in concluding that the acquisition of units in AWPT5 did not result from a written agreement made before 13 May 2004 because the exit strategies set out in the Information Memorandum were "mere statements of intentions" not giving rise to an obligation to implement an exit strategy?
65. For the reasons stated above, this question should also be answered in the negative, and, again, the question is not attended by sufficient doubt as to justify the granting of leave to appeal. Leave to appeal is therefore refused.
For the purpose of applying the transitional provision in Item 20(7)(b) of Schedule 2 of the Duties Act, did the Tribunal err in concluding that the acquisition of units in AWPT4 was not made in response to an arrangement entered into before 13 May 2004?
66. This raises question of law (a) above. The appellant stated as grounds of appeal in relation to this question that, inter alia:
- • The Tribunal erred in para 124 of its reasons[19]
See para [47] above. by finding that the "exit strategies" described in the Information Memorandum were too vague to fall within the concept of an "offer or invitation made or arrangement entered into;"- • The Tribunal failed to have regard to cl.28.3 of the Trust Deed, either taken alone or in combination with statements in the Information Memorandum in deciding whether the acquisition was made in response to an arrangement entered into before 13 May 2004;
- • The Tribunal should have found that the units in AWPT4 were originally issued on terms which incorporated the relevant matters, including the exit strategies in the Information Memorandum and the terms of cl.28.3 of the Trust Deed, and whether or not the said exit strategies and terms were non-binding statements of intention they evidence an arrangement in response to which the acquisition was made.
67. The appellant relied on the submissions made in relation to the existence of a written agreement but submitted, in the alternative, that even if there was no agreement there was an "arrangement" and that the stapling transaction occurred in response to that arrangement. There was an "arrangement" as between the investors and Australand that an exit strategy would be put to investors for approval by December 2008 if not earlier. It was in accordance with this arrangement that the transaction was put to the investors and the transaction then occurred in response to that arrangement. The appellant submitted that the Tribunal adopted too narrow a view of the word "arrangement."
68. The appellant referred to
Re British Basic Slag, Ltd.'s Agreements[20]
ATC 10204
arrangement between the trustee and the unit holders.69. The appellant referred to
Federal Commissioner of Taxation v Lutovi Investments Pty Ltd,[22]
"It is, however, necessary that an arrangement should be consensual, and that there should be some adoption of it. But in our view it is not essential that the parties are committed to it or are bound to support it. An arrangement may be informal as well as unenforceable and the parties may be free to withdraw from it or to act inconsistently with it, notwithstanding their adoption of it."
70. The appellant submitted that it mattered not that the arrangement could be effected in a number of ways or that there were a number of options or that it was unenforceable. As a matter of commerce, the redemption of the units and the issuance of new units which were stapled was in fulfilment of an exit strategy under the original Information Memorandum.
71. On the other hand, the Commissioner submitted that the Tribunal was correct in concluding that the exit strategies described in the Information Memorandum were too vague to constitute an "arrangement." The Commissioner submitted that a reading of the Information Memorandum showed that there was simply no determined future mechanism by which exit was to be procured - rather what was done was to seek to keep available every conceivable possibility which might later be identified.
72. The Commissioner further submitted that there needed to be an appropriate causal relationship between the acquisition on the one hand and the suggested arrangement on the other. The Commissioner submitted that the acquisition that occurred in 2005 was not made in response to the arrangement (if any) constituted by the exit strategies for a number of reasons. First, the acquisition of units that took place did not conform to any of the possible exit strategies described in the Information Memorandum. Secondly, the Information Memorandum expressly recognised that an exit strategy might never occur. Thirdly, the transaction which did occur required unit holder approval in 2005 to a range of measures including the redemption of existing units and amendments to the constitution of AWPT4. Fourthly, cl.28.3 of the Trust Deed related to the stapling of existing units and not to the redemption of units and the issuance of new units. In short, what happened in 2005 did not flow from an arrangement made prior to 13 May 2004.
73. It seems to me that the question arises whether the alleged errors of the Tribunal that the appellant seeks to establish are ones of fact or of law because, of course, an appeal pursuant to s 148 of the Victorian Civil and Administrative Tribunal Act 1998 (Vic) must be "on a question of law."
74. The distinction between a question of law and a question of fact in a statutory context was considered by J D Phillips JA in
S v Crimes Compensation Tribunal[24]
- (1) What is the proper meaning, as a matter of construction, of the statutory description which is relevant to the taxpayer's success or failure is a question of law.
- (2) Once the task of construction is over, the question whether the taxpayer's particular circumstances fall within the relevant statutory description is essentially a question of fact.
- (3) Nevertheless if, in determining whether the particular circumstances of the taxpayer are such as to fall within the relevant statutory description, the fact-finding tribunal arrives at a conclusion which was simply not open to it, that is an error of law; and the question whether it arrived at a conclusion which was not open to it is a question of law.
75. In my opinion, the Tribunal erred in its construction or application of the word "arrangement." The Tribunal's approach was, at least by inference, that the "arrangement" had to have a sufficient degree of specificity as not to be too vague or uncertain as to constitute
ATC 10205
an arrangement at all. It is no doubt correct that a particular set of representations or proposals advanced by one side and adopted by the other might be so vague or uncertain as to not constitute an "arrangement." So it might be said that the Tribunal's approach in that respect involved a correct construction of the word "arrangement" and there was no error of law within the meaning of proposition (1) above. However I think that, for reasons that follow, the Tribunal's conclusion that the exit strategies in the Information Memorandum were too vague to amount to an "arrangement" constitutes an error of law in that the Tribunal either misconstrued the word "arrangement"[26]76. The Tribunal, in its Reasons, referred to a passage in
Re British Basic Slag, Ltd.'s Agreements. After that passage in the judgment of Diplock LJ (as he then was) the following further statement is made:[28]
"No necessary or useful purpose would be served by attempting an expanded and comprehensive definition of the word "arrangement" in s.6(3) of the Act. Cross, J., said:
'…all that is required to constitute an arrangement not enforceable in law is that the parties to it shall have communicated with one another in some way and that as a result of the communication each has intentionally aroused in the other an expectation that he will act in a certain way.'
I think that I am only expressing the same concept in slightly different terms if I say without attempting an exhaustive definition, for there are many ways in which arrangements may be made, that it is sufficient to constitute an 'arrangement' between A and B, if (i) A makes a representation as to his future conduct with the expectation and intention that such conduct on his part will operate as an inducement to B to act in a particular way; (ii) such representation is communicated to B, who has knowledge that A so expected and intended, and (iii) such representation or A's conduct in fulfilment of it operates as an inducement, whether among other inducements or not to B to act in that particular way.
On the evidence in the present case it is plain beyond a peradventure that the knowledge of each member acquired at the board meetings of Basic from statements made by the nominees on that board of his fellow members that each of his fellow members was going to enter into a contract with Basic in the terms of the vertical contract, operated as an inducement to each member himself to enter into a contract with Basic in the same terms as those of the vertical contract. If this is not an 'arrangement' I do not know what is."
77. In my view what is contained in the Information Memorandum about exit strategies falls within the concept of "arrangement" so described by Diplock LJ. A number of representations were made and communicated in the Information Memorandum as to future conduct in relation to the units to be issued with the expectation and intention that investors would be induced to apply for units in reliance thereon and it is to be assumed that they did so. I do not think that the statements in the Information Memorandum concerning exit strategies were so vague or uncertain as to be incapable of forming part of an "arrangement." The principal exit strategies identified in the Information Memorandum were the acquisition of the Trust by the Australand group to form part of a stapled entity listed on the ASX, or the listing of the Trust or sale of the properties by a given date, or the acquisition of the units by the Australand group in exchange for cash or stapled securities, or some other proposal that converted the units into cash or another liquid security. I do not think that any of these proposals were too vague to form part of an "arrangement" or that the fact that there were a number of alternatives detracts from the conclusion that they formed part of an "arrangement." Further, it does not detract from that conclusion that the trustee or the Australand group was not legally bound to do anything or that the Information Memorandum contemplated that exit strategies might not occur and provided for that eventuality. I think that the exit strategies are sufficiently and
ATC 10206
coherently described so as to form the basis of an "arrangement."78. The question whether particular circumstances fall within the relevant statutory description is essentially a question of fact[29]
79. The next question is whether the Tribunal erred in law in its conclusion that, if there was an arrangement, the acquisition involved in the "stapling transaction" in October 2005 was not "made in response to" the arrangement. I accept that the words "made in response to" require at least a loose causal relationship. I do not think that this question is one of degree or evaluation despite the various differences identified by the Commissioner between the exit strategies outlined in the Information Memorandum and the transaction ultimately concluded. That is because an essential feature of the acquisition was the redemption of the existing units in AWPT4 for cash at the premium and within the time frame contemplated by the Information Memorandum, and the purchase of the units for cash was one of the exit strategies plainly foreshadowed in the Information Memorandum. In my opinion, therefore, it was not open to the Tribunal to conclude that the acquisition was not "made in response to" the arrangement and the Tribunal therefore erred in law.
80. Accordingly, leave to appeal should be granted in relation to this question. The Tribunal should have concluded that the application of s 89E of the Duties Act was excluded by Item 20(7)(b)(ii) of Schedule 2 to the Duties Act.
Was AWPT4 a "widely held trust" prior to the acquisition of units and stapling transaction in October 2005?
81. As mentioned earlier, the appellant succeeded on this issue before the Tribunal but the Commissioner submitted on this appeal that the Tribunal had erred on this question and that AWPT4 was a "landholder" because it was a private unit trust scheme within the meaning of the Duties Act,[31]
82. The Commissioner first submitted that the units in AWPT4 were not originally "issued to the public" within the meaning of sub-para (b) of the definition of "widely held trust" in s 3(1) of the Duties Act. The Commissioner submitted that the concept of "the public" did not, contrary to the views of the Tribunal, include an offer to a segment of the community or a section of the public. The Commissioner contended that the offer had to be made to "the public generally" or "capable of being acted upon by any member of the public" in order to constitute an "offer to the public."[33]
83. The Commissioner submitted that an offer capable only of acceptance by a person who fell within one of the classes of persons identified in the Corporations Act as sophisticated investors (see s 708(8)) or professional investors (see s 708(10)) did not constitute an offer to the public. I note that, for the purposes of this argument, it is unnecessary to set out the detailed definitions of these classes of investors - it is sufficient to say that the definitions give rise to a requirement in substance of substantial financial resources or significant financial experience.
84. The Commissioner submitted that the offers that were made were not offers to the public within the conception of public adopted by the majority in
Lee v Evans. The offers were not capable of acceptance by all and sundry, but only by the individual recipient to whom the Information Memorandum was sent should that recipient be a person eligible to apply for units as a "wholesale" investor in accordance with the eligibility criteria specified in the application form.
85. The Commissioner submitted that the Tribunal should have found that the offers were made to a class of investors which had the
ATC 10207
characteristic of being not only "well-heeled" but also of being identified by the Corporations Act as not requiring the benefit of a prospectus or product disclosure statement.86. The Commissioner secondly submitted that the Tribunal had failed to determine whether there were 300 "public" unit holders within sub-para (c) of the definition of "widely held trust" and the appellant had failed to prove before the Tribunal that there were not less than 300 public unit holders.
87. The Commissioner thirdly submitted that the Tribunal erred in finding that the units were issued under a "prospectus" within the meaning of sub-para (c)(i) of the definition of widely held trust. It was submitted that the phrase "prospectus or product disclosure statement" in sub-para (c)(i) referred to a prospectus or product disclosure statement lodged with ASIC under the Corporations Act and, as there was none, AWPT4 did not fall within that aspect of the definition of a widely held trust. The Commissioner submitted that the Tribunal erred in construing the word "prospectus" as covering an offer of securities whether lodged with ASIC or not. The reference to a product disclosure statement, a concept not existing outside the Corporations Act, confirmed that the definition was intended to refer only to a prospectus lodged with ASIC.
88. On the other hand, the appellant submitted that the Tribunal was correct in its finding that AWPT4 issued units to the public because the units were widely marketed and because there was no prior special relationship between the unit holders or between the trustee and the unit holders. The appellant referred to what was said by McHugh JA (as he then was) in
Hurst v Vestcorp[34]
"will usually be a matter of inference drawn from a combination of the terms of the communication, the manner and width or intended width of circulation of the communication, and any other circumstance which indicates that the offer may be accepted by any member of the public."
89. The appellant referred to a number of cases in which there had been a promotion and marketing to a limited number of persons in which there had been found that there was an offer to the public.[35]
90. In relation to the Commissioner's point about lack of proof that there were not less than 300 "public" unit holders, the appellant said that the Commissioner had not relied on that ground and that, in any event, the evidence was before the Tribunal and the Tribunal had so decided, at least implicitly.
91. The appellant further submitted that the Tribunal was correct in its conclusion that AWPT4 had issued units under a "prospectus" and that this word should be given its ordinary meaning. For example, the Macquarie Dictionary (3rd edition) defines "prospectus" (in the context of securities) as "a circular or advertisement inviting applications from the public to subscribe for securities for a corporation or proposed corporation." The appellant submitted that the AWPT4 Information Memorandum satisfied that definition. The appellant submitted that had Parliament intended a requirement that the prospectus be lodged or registered with ASIC it would have so provided.
92. I turn then to the question whether the units in AWPT4 were "issued to the public" within the meaning of sub-para (b) of the definition of "widely held trust" in s 3(1) of the Duties Act.
93.
Lee v Evans[36]
94. In
Lee v Evans, Barwick CJ said:[37]
ATC 10208
"The Full Court's reasoning begins with the proposition that the expression "to the public" must take its particular significance from the context in which it is used because it is not an expression of a fixed and universal meaning. So much may be granted and is a good reason for not attempting any general pronouncement as to its signification. Taking a dictionary meaning of "the public" as referring to the community in the aggregate, and therefore as signifying the members of the community, the Court concluded that an invitation would not satisfy the amending section unless some member or members of the public were actually invited. This is, in my view, an equivocal statement. With every respect I am unable to agree with it, if it means that an invitation which is of its nature an invitation to the public must be shown to have reached some specific individual or individuals. Equally, I must disagree if it means that when an invitation has reached some individual or individuals in no other capacity than that of a member or members of the community it is by that very circumstance an invitation to the public. It must be conceded that an announcement which is not an advertisement within the meaning of the amending section, but which in form constitutes an invitation to the public at large, must be published in some fashion if there is to be an invitation to the public: but being published, the use of the business name in association with it either at or subsequently to its publication would constitute an offence under the amending section, although no particular person was shown to have seen or to have received the invitation the announcement conveyed. But the Full Court meant, it seems to me, that upon some member of the public being invited, as such, i.e. for no other reason than that he was one of the general mass of citizens, what I might call the public element of the offence was provided."
95. Barwick CJ went on to say that the Full Court had relied upon the case of
Nash v Lynde.[38]
"A document is not a prospectus unless it is an invitation to the public, but if it satisfied this condition it is not the less a prospectus because it is issued to a defined class of the public."[40]
. [1929] AC 158 , 171
96. Barwick CJ also referred to what was said as to the prospectus by Viscount Sumner:
"No particular numbers are prescribed…Anything from 2 to infinity may serve: perhaps even 1, if he is intended to be the first in a series of subscribers…The point is that the offer is such as to be open to any one who brings his money and applies in due form, whether the prospectus was addressed to him…or not."[41]
. [1929] AC 158 , 159
97. Barwick CJ went on to say:[42]
"…the basic concept is that the invitation, though maybe not universal, is general; that it is an invitation to all and sundry of some segment of the community at large. This does not mean that it must be an invitation to all the public either everywhere, or in any particular community. How large a section of the public must be addressed in a general invitation for it to be an invitation to the public in the relevant connexion must depend on the context of each particular enactment and the circumstances of each case. But within that sufficient area of the community the invitation must be general in the sense (citations omitted)… 'an offer of
ATC 10209
shares to anyone who should choose to come in' and (citations omitted) 'made to the public generally and capable therefore of being acted upon by any member of the public'."
98. Barwick CJ said[43]
99. In the same case, Kitto J said[44]
100. In
Corporate Affairs Commission v David Jones Finance Ltd,[46]
101.
Australian Softwood Forests Pty Ltd v Attorney-General (NSW) ex rel Corporate Affairs Commission[48]
"Although the company through the brokers negotiated with members of the public individually, the persons signed up were approached as members of the public. The facts do not suggest that the company or the brokers looked to a particular class of person as growers. The documents contain no hint of any restriction to a class or group of persons having some common characteristic or qualification, except that of possessing the money with which to buy the trees. It is worth recalling the remarks of Kitto J. in
Lee v. Evans"
102. In the same case Wilson J said:[50]
"In
Lee v. Evans this Court had occasion to consider the meaning of the phrase 'invitation to the public' in a South Australian statute. The judgments in that case emphasise that the determination of the true nature of an invitation is a question of fact and degree dependent upon the particular enactment and the circumstances of each case. The manner in which the invitation is conveyed, whether by public advertisement or by personal solicitation is not decisive. But, however conveyed, to be an invitation or offer to the public, it must be general in the sense of being available to be acted upon by any member of the public."
103.
Corporate Affairs Commission (SA) v Australian Central Credit Union[51]
104. Mason ACJ and Wilson, Deane and Dawson JJ said:[52]
ATC 10210
"The question whether a particular group of persons constitutes a section of the public for the purposes of s. 5(4) of the Code cannot be answered in the abstract. For some purposes and in some circumstances, each citizen is a member of the public and any group of persons can constitute a section of the public. For other purposes and in other circumstances, the same person or the same group can be seen as identified by some special characteristic which isolates him or them in a private capacity and places him or them in a position of contrast with a member or section of the public. In a case where an offer is made by a stranger and there is no rational connexion between the characteristic which sets the members of a group apart and the nature of the offer made to them, the group will, at least ordinarily, constitute a section of the public for the purposes of the offer. If, however, there is some subsisting special relationship between offeror and members of a group or some rational connexion between the common characteristic of members of a group and the offer made to them, the question whether the group constitutes a section of the public for the purposes of the offer will fall to be determined by reference to a variety of factors of which the most important will ordinarily be: the number of persons comprising the group, the subsisting relationship between the offeror and the members of the group, the nature and content of the offer, the significance of any particular characteristic which identifies the members of the group and any connexion between that characteristic and the offer."
105. In
Hurst v Vestcorp Ltd,[53]
Securities & Exchange Commission v Ralston Purina Co[54]
"… In its broadest meaning the term 'public' distinguishes the populace at large from groups of individual members of the public segregated because of some common interest or characteristic. Yet such a distinction is inadequate for practical purposes; manifestly, an offering of securities to all redheaded men, to all residents of Chicago or San Francisco, to all existing stockholders of the General Motors Corporation or the American Telephone & Telegraph Company, is no less 'public' in every realistic sense of the word, than an unrestricted offering to the world at large. Such an offering, though not open to everyone who may choose to apply, is none the less 'public' in character, for the means used to select the particular individuals to whom the offering is to be made bear no sensible relation to the purposes for which the selection is made … To determine the distinction between 'public' and 'private' in any particular context, it is essential to examine the circumstances under which the distinction is sought to be established and to consider the purposes sought to be achieved by such distinction."
106. Kirby P went on to say:[55]
"Clearly, it is not necessary for the issue or offer to be made to all the world in express terms:
Lee v Evans (1964) 112 CLR 276 at 285. Nor does it need to be made to the whole world in its generality, so long as it is not in terms limited so that it can be accepted only by a defined group. In
Re South of England Natural Gas and Petroleum Co Ltd [1911] 1 Ch 573 at 576. Nor does the fact that in making an offer a company is careful and economical in the choice of its target investors make the offer any the less one to the public. The criterion of distinction cannot be simply whether the offerees have some special interest in the subject matter of the offer: see
Corporate Affairs Commission (South Australia) v
ATC 10211
Australian Central Credit Union (1985) 157 CLR 201 at 212. Similarly, the fact that by its very nature, an offer is effectively only capable of being accepted by a particular group of persons does not render its character any the less an offer to the public. It is the generality of the offer which gives it the character which attracts the operation of the statute. It could not be otherwise as there are always many members of the public (perhaps a majority) who could not afford in any circumstances to invest in a company. Their existence, and that of a comparatively small proportion of the public with disposable income interested in investments of a speculative nature but with distinct tax advantages, cannot relieve a company from compliance with the protective provisions of s 82. Were it otherwise those protections would be limited to the non-existent circumstances when all members of the public were in need of the protections provided by the section.Nor is it necessary to show that, by its advertising or solicitation, the company has reached out to the public at large. The absence of advertising circulars or similar initiatives does not conclude the character of the issue or offer, although obviously the existence of such initiatives would be highly relevant as suggesting the issue or offer had been made to the public: cf Wilson J in
Australian Softwood Forests Pty Ltd v Attorney-General for New South Wales; Ex rel Corporate Affairs Commission (1981) 148 CLR 121 at 142.…
The conclusion I have reached is therefore that the friendship and previous tax avoidance association with Mr Fox was the means by which the collection of investors for Filmco was initiated; but when defining the character of the offer and issue then made, of interests in Filmco, the friendship and previous association, direct or indirect with Mr Fox was not essential. In short, it was a means but not a precondition or requirement for acceptance of the offer to invest. That offer was open to those members of the investing public who came into possession of the second 'Dear member' circular letter. That letter was open to the public and represented an offer to investors, not as friends or past associates, but as members of the public. As such, it attracted the obligations imposed by s 82."
107. In
O'Brien v Melbank Corporation Ltd,[56]
108.
ATC 10212
In the light of those authorities, it seems to me that the Tribunal was correct in its conclusion, or it was open to the Tribunal to conclude, that the units in AWPT4 were issued to the public because the offer of the units was available to the public at large and capable of being acted upon by any member of the public with the means to do so. The result may perhaps have been different if the offer had been restricted to those categories of persons listed in the application form that were delimited, for example, by a requirement as to ownership of assets to a specified value or as to income of a specified amount. However the offer was open to any member of the public choosing and able to apply for at least $500,000 worth of units (as the Tribunal pointed out) and I do not think that that limitation has the consequence that the offer was not capable of being acted upon by any member of the public except in the sense, as would apply in every case (as noted in the authorities), that the member of the public must be able to afford the investment.109. In relation to the other matters of contention raised by the Commissioner, I accept that there was evidence before the Tribunal that there was not less than 300 "public" unit holders and that the Tribunal so decided, at least implicitly. Finally, I consider that the Tribunal was correct in its interpretation of the word "prospectus" contained in sub-para (c)(i) of the definition of "widely held trust" for the reasons that it gave and I accept the submissions of the appellant in that regard.[59]
Conclusion
110. Having regard to the foregoing reasons, it is unnecessary, in relation to AWPT4, to determine question of law (b) with respect to the power under s 85(2) of the Duties Act to treat the acquisition as an exempt acquisition.
111. The appeal should be allowed in relation to AWPT4 and dismissed in relation to AWPT5. I will hear submissions as to the precise orders to be made and as to costs.
Footnotes
[1][2]
[3]
[4]
[5]
[6]
[7]
[8]
[9]
[10]
[11]
[12]
[13]
[14]
[15]
[16]
[17]
[18]
[19]
[20]
[21]
[22]
[23]
[24]
[25]
[26]
[27]
[28]
[29]
[30]
[31]
[32]
[33]
[34]
[35]
[36]
[37]
[38]
[39]
[40]
[41]
[42]
[43]
[44]
[45]
[46]
[47]
[48]
[49]
[50]
[51]
[52]
[53]
[54]
[55]
[56]
[57]
[58]
[59]
[60]
This information is provided by CCH Australia Limited Link opens in new window. View the disclaimer and notice of copyright.