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.

McPherson J.

This is a case stated under sec. 24 of the Stamp Act 1894-1982 (``the Act''). The questions it raises are whether the transfer of an interest in a trust fund is assessable to stamp duty, and in what amount, as a ``conveyance or transfer'' under the Act.

The trust fund was established by a unit trust deed dated 3 November 1980 in terms of which the settlor was to pay to the trustee a settlement sum of $20 which by cl. 3.1 is to be held, together with other amounts accruing to the trust fund, by the trustee upon the terms of the deed on trust for the registered holders who are the persons registered under the deed as the holders of units. Clause 8.1 of the deed provided for a division of the beneficial interest in the fund, as originally constituted by payment of the settlement sum, into 20 units of $1 each. Of these, ten units designated the A class units were to be held by the present appellant Kemtron Industries Pty. Ltd.; five B units were to be held by Waranga Pty. Ltd.; and five C units by Brijoan Constructions Pty. Ltd. The designation of units as class A, B, or C exists for purposes of identification only because the units into which the beneficial interest in the fund is divided are of equal value and are distinguishable by numbers: cl. 8.4. There is provision in cl. for transfer, subject to the approval of the trustee, of units in the fund, but this is subject to a right of pre-emption in favour of other unit holder: cl. 14.1. A register of unit holders is to be kept by the trustee (cl. 13) and transfers of units are to be entered therein: cl. 14.5. The trustee is, of course, invested with the powers and duties commonly to be found in trust deeds of this kind.

As I have mentioned, Waranga Pty. Ltd. (``Waranga'') was originally the holder of five


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B units in the trust fund. On 25 June 1982 Waranga, by a written instrument of that date, transferred those units to the appellant which accepted the transfer. The transfer was stated to be in accordance with an earlier option to purchase dated 10 December 1981 in terms of which the other registered holder Brijoan Constructions Pty. Ltd. waived its right of pre-emption under the trust deed. No consideration was stated for the transfer but by a contemporaneous instrument the consideration was declared to be $5.

The Commissioner of Stamp Duties assessed duty under the Act on the instrument of transfer in the sum of $50,224.50. In arriving at his assessment he adopted the figures in a balance sheet of the trust at 30 June 1982. This showed current assets totalling $6,122,547 and current liabilities of $6,324,662, producing a deficiency in the funds of $202,115. The base for calculation of duty was the assets figure of $6,122,547 and the sum assessed was arrived at by taking 5/20ths of that figure, which was the proportion that the five units transferred bore to the 20 units in the trust. It will be seen that this calculation takes no account of the trust liabilities of $6,324,662.

In making his assessment, the Commissioner relied on the provisions of sec. 52 of the Act, and also on provisions of para. (4) in the First Schedule to the Act under the heading ``Conveyance or Transfer''. Having regard to the manner in which the matter was argued before us, it is convenient to consider the latter provisions first. They speak of a conveyance or transfer -

``(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 -
  • ...
  • 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.
  • ...
  • (b) In any other case to which paragraphs (1) and (2) do not apply -
  • Duty calculated on the full unencumbered value of the property at the rates specified in the table contained in sub-paragraph (a) of this paragraph (4) including the proviso thereto as if the words `value of the consideration' wherever they occur in that sub-paragraph and proviso were `full unencumbered value of the property' and as if the words `had the property been sold' in sub-paragraph (ii) of the proviso were `had the property been conveyed or transferred'.''

The question for determination is what, in terms of para. (4), is ``the full unencumbered value'' of the property transferred by the instrument dated 25 June 1982. The argument before us assumed, I think correctly, that the expression ``full unencumbered value of the property'' means in effect the full value of the property disregarding any encumbrance to which it might be subject. It was because of that meaning that the Commissioner disregarded the liabilities of the trust and calculated the duty by reference solely to the asset value of the trust. The question therefore is whether the liabilities are properly to be considered as an encumbrance on the trust property.

So far I have spoken of the liabilities of the trust. But the trust is not an entity recognised by the law, and the current liabilities of the trustee. The rule is that a trustee is personally responsible for liabilities including debts properly incurred by him in the course of administering the trust property: see
Octavo Investments Pty. Ltd. v. Knight (1980) CLC 40-602 ; (1979) 144 C.L.R. 360 at p. 367 . A creditor has no direct claim or remedy against the trust assets, but must look to the trustee personally:
Worrall v. Harford (1802) 8 Ves. Jr. 4 at p. 8; 32 E.R. 250 at p. 252 ;
Re Evans (1887) 34 Ch.D. 597 . The trustee in his turn has in respect of liabilities so incurred the right to be indemnified out of the trust assets. He also has, in general, a right to be indemnified by the beneficiaries personally, including those beneficiaries who may have acquired their interest in the trust assets by assignment from another beneficiary:
Hardoon v. Belilios (1901) A.C. 118 . The right to a personal indemnity of this kind is not relevant or relied on in this instance because here the trust instrument in cl.


ATC 4386

18.3 expressly excludes that right: cf. Hardoon v. Belilios (1901) A.C. 118 at p. 127.

The right of the trustee to indemnity from the assets is an incident of the office of trustee and is inseparable from it: see Worrall v. Harford (supra) . For that reason it is probably incapable of being excluded. The Trusts Act 1973-1981, now contains a statutory expression of the right to such indemnity which is not capable of being excluded by the trust instrument: sec. 65. In the exercise of his right of indemnity the trustee may resort to the trust assets for the purpose of discharging liabilities incurred but not paid, and also for the purpose of reimbursing himself in respect of liabilities paid by him out of his own funds:
Jennings v. Mather (1901) 1 Q.B. 108 ; affd. (1902) 1 K.B. 1 ; Octavo Investments Pty. Ltd. v. Knight (1980) CLC ¶ 40-602; (1979) 144 C.L.R. 360 at p. 371. For that purpose he has a lien or right of retention over the trust assets pending such payment or reimbursement: ibid .

The trustee's right over or in respect of the assets of the trust is a right transmissible to his representative in bankruptcy: Jennings v. Mather (supra); Octavo Investments Pty. Ltd. v. Knight (supra) . It is often spoken of as a ``charge'' over the assets; but this is really a conclusion deriving from the fact that in proceedings in Court for administration of the trust, the claim of the trustee to be indemnified will be given effect by directing that liabilities properly incurred by him are paid out of the trust assets in priority to the claims of beneficiaries to their interests in the trust property:
Re Exhall Coal Company Ltd. (1866) 35 Beav. 449 at p. 453; 55 E.R. 970 at p. 971 ; Octavo Investments Pty. Ltd. v. Knight (1980) CLC ¶ 40-602; (1979) 144 C.L.R. 360 at p. 367. It may, in my view, be doubtful whether the trustee's right in the course of administration proceedings to indemnity in priority to the claims of beneficiaries, or his right to retain the trust assets pending satisfaction of his right to indemnity, can properly be regarded as a charge in the nature of an encumbrance in the sense in which the word ``encumbered'' is used in the phrase ``full unencumbered value'' in para. (4) under the heading ``Conveyance or Transfer'' in the First Schedule to the Act. Nevertheless, in Octavo Investments Pty. Ltd. v. Knight (supra) the High Court held that the right to be indemnified out of trust assets conferred on the trustee an interest in the trust property which was in its nature a proprietary interest: see 144 C.L.R. 360 at p. 367, where in the joint judgment it is said that, once that interest arises, the trust property is ``no longer property held solely in the interests of the beneficiaries''.

From this point Mr. Jackson Q.C. for the appellant proceeded to his major submission, which was that, properly analysed, the trust property, in this and other cases where there is a right in the trustee to indemnity from the assets, at any time is limited to the beneficial interest in the assets remaining after deduction of the value of the trustee's interest comprising his right to indemnity out of the assets. Among the authorities relied on in support of this proposition was the decision of the Full Court of Victoria in
Re Enhill Pty. Ltd. (1982) 1 ACLC 415 at p. 421; (1983) 1 V.R. 561 , where Lush J. (with whom Gray J. agreed) said:

``... when the trustee's rights come into existence, the rights of the beneficiaries are to that extent reduced. This is conveniently expressed by saying that the trustee now has, himself, a beneficial interest in the trust assets, implying that the beneficial interest of the cestuis que trustent are reduced. It is the reduced beneficial interest only to which they are entitled. To speak in terms of the trust property, i.e. the assets subject to the trust, tends to obscure this point.''

The decision in Re Enhill Pty. Ltd. (supra) was not followed by the South Australian Full Court in
Re Suco Gold Pty. Ltd. (1983) 1 ACLC 895 , and the latter decision was, in the end, preferred by McLelland J. in
Re A.D.M. Franchise Pty. Ltd. (1983) 1 ACLC 987 . However, the point of departure between the two Full Courts (which concerned the right of a liquidator to costs and expenses out of the assets of an insolvent trading trust) does not affect the authority for present purposes of the remarks of Lush J. in Re Enhill Pty. Ltd. (supra) . Indeed, in speaking of the trustee's position in Re Suco Gold Pty. Ltd. King C.J. said (1983) 1 ACLC 895 at p. 899:

``The beneficial interest of the trustee company, that is to say the right of indemnity and supporting lien, passes to the liquidator and is property divisible among the creditors; the residual beneficial interest remains property held in trust for another within the meaning of sec. 116(2) of the Bankruptcy Act and is excluded, by virtue of that section, from the property which vests in the liquidator and is divisible among the creditors.''


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Cf. also
Re Staff Benefits Pty. Ltd. (1979) CLC ¶ 40-531 .

A case which was not cited, but which more than any other seems to me to carry Mr. Jackson's point, is the decision of the Full Court of Victoria in
Daly v. Union Trustee Company of Australia Ltd. (1898) 24 V.L.R. 460 . The defendant was the trustee of a settlement of land in trust for the plaintiff and her children. The land had, before the settlement was made, been transferred by way of mortgage and, in order to save the estate from foreclosure or sale, the defendant trustee paid off the mortgage and directed a transfer to a nominee. That involved the defendant in expenditure for which it was entitled to indemnity from the trust estate. The expenditure was not reimbursed and, with a view to its recovery by sale of the land, the defendant commenced proceedings to eject the plaintiff from the land. In an action brought by the plaintiff to restrain those proceedings the Full Court held that she was not entitled to such relief. The judgment of the Court was delivered by a'Beckett J. who, speaking of the defendant's expenditure, said (24 V.L.R. 460 at p. 469):

``Under those circumstances their duties as trustees are suspended by reason of the right which they have to be indemnified, which is incidental to their assumption of the duties as trustees, under which a state of things has arisen which should have been contemplated at the outset - that they might have to pay to save the estate.''

I read those remarks as meaning that, as regards its own beneficial interest in the land the subject of the settlement, the defendant trustee was under no fiduciary obligation to the beneficiaries; or, in other words, that to the extent of the right to be indemnified the land was not trust property. That view of the matter is supported by the remark of a'Beckett J. in argument, reported at p. 467 of the report and repeated at the following page, that ``the trust is of property after the mortgage is satisfied''.

In my view that decision and the other judicial statements referred to represent authority for the view that, in any case in which the trustee is entitled in respect of liabilities properly incurred to his indemnity and lien over assets vested in him as trustee, the trust property (which means the property to which the beneficiaries are entitled in equity) is confined to so much of those assets as is available after the liabilities have been discharged or at least provided for. There is an analogy with the interest of a partner in the partnership assets prior to winding up, as to which see
F.C. of T. v. Everett 80 ATC 4076 at p. 4078; (1980) 143 C.L.R. 440 at p. 446 . Obviously a matter of accounting and usually also of valuation may be involved; but it is the duty of a trustee to be constantly ready with his accounts:
Re Craig (1952) 52 S.R. (N.S.W.) 265 at p. 267 , and the fact that a valuation may be required for accounting purposes merely serves to emphasise that the right of the beneficiaries is limited to the balance remaining after the liabilities are paid or provided for out of the assets once their value is determined. It is therefore not correct to say, as Mr. Davies Q.C. submitted for the Commissioner, that the trustee's lien at all times attaches to all of the assets. That would have the consequence that the trustee could, as against the beneficiaries, insist upon retaining all the assets in the exercise of his right of indemnity even though the liability in respect of which that right was exercised was trivial in amount. Such a conclusion would be surprising particularly where, for example, the assets consisted entirely of cash and the liabilities were fixed and their amount capable of precise and immediate determination in money.

The result for the present case is that when, by the instrument of transfer dated 25 June 1982, the undivided share in the trust fund (for the five units transferred were no more than that) was assigned to the appellant, the property or interest so transferred was no more than the existing balance in favour of the transferor Waranga after providing for discharge out of the trust fund of the liabilities in respect of which the trustee was entitled to claim indemnity. As those liabilities at the date of transfer exceeded the admitted value of the assets, the ``full unencumbered value'' of the property transferred was nil. It follows that the consideration of $5 for that sale was not less than that value and that duty, although chargeable at a rate specified in para. (4)(a) of the Schedule under the heading ``Conveyance or Transfer'', is chargeable at the lowest rate prescribed in that paragraph, which amounts to $1.50 in this case.

I proceed now to consider sec. 52, which is the other provision relied on by the Commissioner in arriving at his assessment. It is in the following terms:


ATC 4388

``52. Where any property is conveyed to any person in consideration, wholly or in part, of any debt due to him, or subject either certainly or contingently to the payment or transfer of any money or stock whether being or constituting a charge or incumbrance upon the property or not, the debt, money, or stock 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.''

It is well settled that sec. 52 is not a charging section but a provision for computing duty on an instrument that is otherwise assessable to duty, for example, as a conveyance on sale:
Ex parte Miller & Gray (1892) 13 V.L.R. 31 ;
Brewer v. Commr. of Stamps (1903) St.R.Qd. 143 at p. 147 ;
Finance Corporation of Australia Ltd. v. Commr. of Stamp Duties (1981) Qd.R. 493 ;
Comptroller of Stamps (Vic.) v. Rylaw Pty. Ltd. 81 ATC 4411 at pp. 4414-4415 . The matter for decision here is not whether the instrument of transfer of 25 June 1982 is a conveyance or transfer, but whether the interest in the trust property thereby conveyed by Waranga to the appellant was property conveyed to any person either ``in consideration... of any debt due to him'', or ``subject either certainly or contingently to the payment... of any money... whether being or constituting a charge or incumbrance upon the property or not''. It is not suggested that the subject transfer falls within the first part of the section, which is no doubt directed primarily to transfers effected in return for a release, wholly or in part, of an indebtedness due by the transferor. The question is whether the share in the trust fund represented by the five units transferred was conveyed ``subject to the payment of any money''. On behalf of the Commissioner it is submitted that this question must be answered affirmatively because the trust property conveyed was subject to the right or ``charge'' of the trustee to go against it in the exercise of his right of indemnity.

It is to be observed that sec. 52 applies where property is conveyed subject to the payment of money. It does not speak of a conveyance of property that is subject to payment of money. The latter, but perhaps not necessarily the former, would comprehend the case of a transfer of property subject to an equitable charge even though there was no express promise by the transferee to pay the liability secured by the charge. In any event, it is the latter view of the section that has been adopted. In
I.R. Commrs. v. Liquidators of City of Glasgow Bank (1881) 8 R. (Court of Session) 389 , the Court of Session considered the legislative history of the corresponding provision, then sec. 73 of the United Kingdom Stamp Act 1870, and concluded that it applied to a transfer of heritable property that was the subject of a bond in the nature of a charge. I gather from what is said in the case that under Scots law transfer of property subject to such a bond and disposition in security, as it is called, does not, without more, transfer the personal obligation to pay the debt secured but only the burden of the security: see 8 R. (Court of Session) 389 at p. 391. Nevertheless, all three members of the Court held that under the equivalent of sec. 52 duty was to be computed on the amount for which the property transferred was burdened by the security. Otherwise, as the Lord President explained at p. 393, the transferee could reduce the stamp duty payable by paying duty calculated only on the amount of the consideration for the sale, and then immediately after the transfer discharge the mortgage debt in toto .

The applicability of the Scots decision to sec. 52 of the Queensland Act was questioned by Griffith C.J. in Brewer v. Commr. of Stamps (1903) St.R.Qd. 143 at p. 145; but the relevant passages from the judgments of the Court of Session in that case were referred to and applied in the judgment of this Court in
King v. Commr. of Stamp Duties (1979) Qd.R. 167 at pp. 172-173 . I therefore think that we are bound to accept the construction placed upon sec. 52 by the decisions in those two cases. Nor is it, in my opinion, possible to distinguish the Scots decision as was done in
Swayne v. I.R. Commrs. (1899) 1 Q.B. 335 , where it was held that the section did not require that, on the assignment of a lease, the amount of stamp duty be calculated by reference to the amount of stamp duty be calculated by reference to the amounts of rent payable in future under the lease for the remainder of the term assigned. Bruce J. in that case regarded the liability to pay rent, not as a burden subject to which the property was conveyed, but as something ``inherent in the nature of the property, [which] can never be extinguished so long as the character of the property remains'' ((1899) 1 Q.B. 335 at p. 341). The feature that distinguishes that case from this is, as Mr. Davies Q.C. pointed out, that here the liability of the trust assets to meet


ATC 4389

the trustee's right of indemnity is capable of being extinguished at any time by payment by a beneficiary of the trust liabilities that give rise to that right of indemnity.

It does not follow that sec. 52 of the Act operates in this case to include the amount of the trust liabilities as the sum on which the duty is exigible. Accepting the approach adopted in I.R. Commrs. v. Liquidators of the City of Glasgow Bank (supra), namely that the section applies where the property conveyed is subject to the payment of money, it nevertheless remains necessary to identify the property in question. In my view, and having regard to my previous conclusion in relation to para. (4) of the First Schedule, the property conveyed to the appellant comprised only so much of the trust assets as were available for the beneficiaries after paying or providing for the trust liabilities. The property so conveyed was therefore not subject to any charge or liability for the payment of money because it represented the property of the trust only after that liability was paid or provided for: cf. Daly v. Union Trustee Company of Australia Ltd . (1898) 24 V.L.R. 460 at p. 467. Of course, because the total liabilities of the trust were larger in amount than the value of its assets, the value of the property transferred consisted of the value (if any) of a 5/20ths share of an insolvent trust. That value certainly did not exceed the $5.00 consideration in fact paid for it. The case of transfer of a share in a trust fund that has liabilities to be paid cannot be likened to a transfer of Torrens system land subject to a mortgage, with which Mr. Davies Q.C. sought to compare it. In that case, what is transferred is the fee simple estate subject to a statutory charge or mortgage. Here it is, if anything, more like a transfer of land subject to an old system mortgage where the subject-matter is simply the equity of redemption. The same thought is reflected in the interlocutory remark of Griffith C.J. in the course of argument in Brewer v. Commr. of Stamps (1903) St.R.Qd. 143 at p. 144:

``The `property' conveyed is prima facie only the property or interest which passes from one person to the other under the transfer, and in this case is the equity of redemption.''

It is not necessary here to consider the correctness of his Honour's remark in relation to the transaction there in question, which was a transfer of Torrens system land subject to a mortgage. It is enough to say that Octavo Investments Pty. Ltd. v. Knight (supra) establishes authoritatively that a trustee acquires in the assets of the trust a beneficial interest commensurate with his right of indemnity. It follows that the property conveyed by the assignment of the share of a beneficiary cannot include that interest but only what remains. What remains in this case may be property, but it was not transferred subject to payment of the liabilities of the trust. In saying that I perhaps should emphasise that the case we are considering is one where the trustee's right to indemnity from the beneficiaries personally is, as I have said, expressly excluded by the terms of the trust instrument.

It follows that the appeal against the Commissioner's assessment should be allowed. The question for the decision of the Court should be answered as follows:

  • (a) Yes - The instrument of transfer of units dated 25 June 1982 is to be charged with ad valorem duty under sub-paragraph (a) of paragraph (4) under the heading ``Conveyance or Transfer'' in the First Schedule to the Act.
  • (b) It is not necessary to answer this question.
  • (c) No - The duty payable on the said instrument is not $50,224.50.
  • (d) Yes - The amount payable as duty on the said instrument is $1.50.
  • (e) The costs of and incidental to the stating of this case and of the appeal thereon should be borne by the Commissioner, the respondent to this appeal.


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