Kemtron Industries Pty. Ltd. v. Commissioner of Stamp Duties (Qld.).

Judges: Andrews SPJ

DM Campbell J

McPherson J

Court:
Supreme Court of Queensland (Full Court)

Judgment date: Judgment handed down 18 May 1984.

D.M. Campbell J.

Under para. (4)(b) of the heading ``Conveyance or Transfer'' in Sch. 1 of the Stamp Act 1894-1982, the Commissioner of Stamp Duties assessed a transfer dated 25 June 1982, of five B class units in a unit trust known as Banyandah Unit from Waranga Pty. Ltd. to the appellant, Kemtron Industries Pty. Ltd., as liable to ad valorem duty in an amount of $50,224.50 on the basis that the full unencumbered value of the property was $1,530,636.70.

Paragraph (4)(b) provides for duty to be calculated (in a case to which it applies) ``on the full unencumbered value of the property at the rate specified in the table contained in sub-paragraph (a) of this paragraph (4)... as if the words `value of the consideration' wherever they occur in that sub-paragraph were `full unencumbered value of the property'...''.

By para. (4)(a) the rates specified are as follows:

``(4) Of any property (except stock or marketable security or right in respect of shares) -

  • (a) Upon a sale for a consideration in money or money's worth of not less than the full unencumbered value of the property -
  • Duty calculated on the amount or value of the consideration at the rate specified in the following table -
  • Not exceeding $20,000
    • $1.50 for every $100 and also for any fractional part of $100 of the value of the consideration.
  • ...
  • Exceeding $500,000
    • $14,150 plus $3.50 for every $100 and also for any fractional part of $100 of the value of the consideration in excess of $500,000.''

The first question to be decided is whether the transfer is liable to be charged with duty under para. (4)(b) and at what rate. As to this, the appellant's submission was that there was a conveyance or transfer or property upon a sale for a consideration of $5, being an amount not


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less than the full unencumbered value of the property, and that, applying the appropriate prescribed rate, the duty payable is $1.50.

Banyandah Unit Trust is a trading trust whose principal business is the development and sale of a block of building units called Banyandah Towers at Duporth Avenue, Maroochydore. The trust deed which was made on 3 November 1980 provides for the trust to be administered for the benefit of the registered holders of units, and provides for the beneficial interest in a settlement sum of $20 as originally constituted to be divided into 20 units of $1 each to be held as to ten equal A class units by the appellant, as to five equal B class units by the transferee, Waranga Pty. Ltd., and as to five equal C class units by Brijoan Constructions Pty. Ltd. It was accepted by the Commissioner that the trust assets, at the date of the transfer, were valued at $6,122,547 (hence making the full unencumbered value of the five B class units transferred $1,530,636.70 in his view), and that the amount of the liabilities totalled $6,326,663, which means there was a resulting deficiency of $202,115.

The transfer of the five B class units was made pursuant to the exercise of an option to purchase the units for $5 granted on 10 December 1981. No consideration is stated in the instrument of transfer for the sale. But in a declaration in Form F of the Schedule to the Regulations made under the Act the person tendering the instrument for stamping declared that the true consideration or value of the property included in the transaction was $5.

As I understood, the appellant's initial submission was that as the units were not encumbered they could not be said to have an unencumbered value and that para. (4)(b) of Sch. 1 could not apply. There seemed to be some inconsistency in the argument which was allied with a further submission that the real value of the units was nil and that the sale for $5 was a sale for a consideration in money ``of not less than the full unencumbered value of the property'', to repeat the language of para. (4)(a), making the duty payable $1.50 under the table. The appellant was on firmer ground in asserting that the value of the interest of the beneficiary in all the assets of the trust was dependent on the extent of the liabilities.

It is clear that in determining the full unencumbered value of the units the Commissioner did not take into account the trustee's right of indemnity which consists of a right of reimbursement and a right of exoneration:
Re Blundell (1880) 40 Ch.D. 370 at p. 376 . He simply had regard to the balance sheet values of current assets.

A right of indemnity is given by sec. 72 of the Trusts Act 1973 which provides that a trustee ``may reimburse himself or pay or discharge out of the trust property all expenses reasonably incurred in or about the execution of the trusts or powers''. The extent of the right possessed by this trustee depends on the provisions of the trust deed. It is proper to look at some of these provisions.

On the termination of the trust the trustee is required to sell and convert into money the investments and property constituting the fund and to divide the proceeds ``less all proper costs and disbursements, commissions, brokerage fees and other outgoings and all proper provision for liabilities among the registered holders'' (cl. 17.2). The trustee is given the exclusive right to manage and control the trust fund ``and all the powers over and in respect of the investments which it could exercise if it were the absolute and beneficial owner of the entirety of every such investment, asset and property'' (cl. 18.2). The exception which is stated is that the trustee does not have ``any power or authority to enter into any contract that shall impose any obligation whether at law or in equity on the registered holders personally or call upon them for any payments whatsoever other than the amounts of their respective subscriptions for units'' (cl. 18.3). Generally the trustee is empowered ``to perform all acts of alienation and hypothecation and other acts of ownership to the same extent as might have been done if the Trustee were the absolute owner of the Fund beneficially entitled thereto'' (cl. 19.15). The trustee is given the right to determine in its absolute and uncontrolled discretion ``whether any expense or outgoing shall be borne out of the trust fund or income and out of which part thereof'' (cl. 19.50). There is provision enabling the trustee to establish a reserve ``against all or any liabilities or contingencies arising under or in this Deed or in relation to the Fund'' (cl. 23.3). The trustee is exempted from responsibility ``for any loss or damage occasioned by the exercise of any discretion or power hereby or by law conferred on the Trustee or by failure to exercise any such discretion or power or for any loss or damage


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accruing as a result of concurring or refusing or failing to concur in any exercise of any power or discretion'' (cl. 27.1). Finally, there is express provision that if the trustee should become personally liable ``for the payment of any the or the performance of any obligation by the trust the Trustee may execute... any mortgage charge or security over or affecting the whole or any part of the fund or income by way of indemnity to secure the Trustee..from any loss in respect of such liability'' (cl. 27.3).

The position of a trading trustee in relation to debts properly incurred by him in carrying out the purposes of the trust was stated in the joint judgment of the High Court in
Octavo Investments Pty. Ltd. v. Knight (1979) CLC ¶ 40-602 ; (1979) 144 C.L.R. 360 in a number of propositions. To summarise them they were:

  • (1) that while personal liability for the debts attaches to the trustee they should ultimately be met out of the trust estate;
  • (2) that he has a right to be indemnified against those debts out of trust assets which he is authorised to use in the trust business;
  • (3) that he possesses a charge or right of lien over these assets until his claim for reimbursement or exoneration has been satisfied;
  • (4) that the beneficial interest of the trustee takes preference over the beneficial interest of the cestui que trust and, so far as the right of exoneration is concerned, amounts to a proprietary interest in the trust assets which in the case of a bankrupt trustee, who has incurred liabilities in the performance of the trust, will pass to the trustee in bankruptcy for the benefit of the creditors of the trading trust operation.

We are not concerned with the question whether the right of indemnity of a trading trustee company which has gone into liquidation is property of the trustee available to the liquidator for division among the general body of creditors, about which the Full Court of Victoria and the Full Court of South Australia expressed different views in
Re Enhill Pty. Ltd. (1982) 1 ACLC 415 ; (1983) V.R. 561 and
Re Suco Gold Pty. Ltd. (in liq.) (1983) 1 ACLC 895 ; and see also
Re Byrne Australia Pty. Ltd. and the Companies Act (1981) 1 N.S.W.L.R. 394 ; (1982) 1 ACLC 28 ; (1981) 2 N.S.W.L.R. 364 ( Needham J.) and
Grime Carter & Co. Pty. Ltd. v. Whytes Furniture (Dubbo) Pty. Ltd. (1983) 1 ACLC 739 ; (1983) 1 N.S.W.L.R. 158 ( McLelland J.). But there would be no disagreement, I would think, with what Lush J. said in Re Enhill Pty. Ltd. at ACLC p. 421: V.R.p. 568 that when the trustee's rights for the protection of his ``personal property'' come into existence, ``the rights of the beneficiaries are to that extend reduced''.

In failing to have regard to the liabilities of the Banyandah Unit Trust and to the right of indemnity possessed by the trustee, in arriving at the full unencumbered value of the five B class units, the Commissioner, in my opinion, erred. I think that the true consideration for the transfer was stated in Form F, namely, five dollars ($5), and that, since the sum was not less than the full unencumbered value of the property, duty should have been calculated on that amount.

As an alternative, the Commissioner argued that it was open to him to apply sec. 52 and treat the liabilities as part of the consideration for the transfer. Section 52 reads (to the extent that it need be set out for present purposes):

``Where any property is conveyed to any person... subject either certainly or contingently to the payment... of any money..., whether being or constituting a charge or incumbrance in the property or not, the... money... is to be deemed the whole or part, as the case may be, of the consideration in respect whereof the conveyance is chargeable with ad valorem duty.''

The contention of the Crown was that the units were transfer subject to the payment of the liabilities of the trust estate amounting to $6,324,662 and that it was this sum (or, alternatively, 5/20ths of that sum) added to the sum of $5 which made up the consideration upon which duty is exigible. On this calculation the duty exacted would be either $218,014.50 or $51,992.

However, this is not a case of a simple trust. The trustee company accepted the trust knowing that its right of indemnity did not extend as far as giving it a right of recourse against the beneficiaries personally: see cl. 18.3 of the Trust Deed (supra) . In
Hardoon v. Belilios (1901) A.C. 118 at p. 127 the Privy Council said

``It is quite unnecessary to consider in this case the difficulties which would arise if these shares were held by the plaintiff on


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trust for tenants for life, or for infants, or upon special trusts limiting the right of indemnity. In those cases there is no beneficiary who can be justly expected or required personally to indemnify the trustee against the whole of the burdens incident to his legal ownership; and the trustee accepts the trust knowing that under such circumstances and in the absence of special contract his right to indemnity cannot extend beyond the trust estate, i.e., beyond the respective interest of his cestui que trustent . In this case their Lordships have only to deal with a person sui juris beneficially entitled to shares which he disclaimed. The obligation of such a person to indemnify his trustee against calls upon them appears to their Lordships undisputed in a court of equity unless, of course, there is some contract or other circumstance which excludes such obligation. Here there is none.''

The question really comes down in the final analysis to whether property was conveyed subject to the payment of any money over and above the five dollars mentioned. Having regard to the nature of the beneficial interest, I am of the opinion that it would be a mistake for the Commissioner to hold, in relation to this case, that there was a conveyance or transfer or property fitting that description. For the character of the ``property'' does not change according to whether the trustee has properly incurred liabilities in administering the trust. What affects the value of the property in question is the preponderance of such liabilities.
I.R. Commrs v. Liquidators of City of Glasgow Bank (1881) 8 R. (Court of Session) 389 upon which the Commissioner relies is a different case not involving the transfer of an interest in a trading trust.

For the reasons given I would answer the questions asked as follows:

  • (a) Is the said Transfer of Units liable to be charged with such ad valorem duty as is specified under para. (4) under the heading ``Conveyance or Transfer'' in the First Schedule of the said Act as assessed by the Commissioner of Stamp Duties? If so, under which subpara. of para. (4) is the said transfer so liable?... Yes, under subpara. (a) of para. (4).
  • (b) If ``no'' to (a), is the said instrument liable to be charged with duty in the same or some other and, if so what amount specified under the said heading or under any other and if so which heading in the said Schedule or under any other and if so which provision of the said Act?... Unnecessary to answer.
  • (c) Is the duty payable on the said instrument $50,224.50?... No.
  • (d) If ``no'' to (c), is any other amount and, if so, what amount payable as duty on the said instrument?... Yes, $1.50.
  • (e) How should the costs of and incidental to the stating of this case and of the appeal thereon be borne?... By the Commissioner.


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