SUPREME COURT OF WESTERN AUSTRALIA
LINTON AND LINTON NOMINEES PTY LTD v COMMISSIONER OF STATE TAXATION (WA)
29 September, 28 October 1977 -
Jones J This is effectively an appeal from a decision of the Commissioner of State Taxation in his capacity as Commissioner of Stamp Duties ("the Commissioner"), whereby he assessed an instrument to ad valorem duty of $16,173.50 in the circumstances set out below. It comes before me in the form of a case stated by the Commissioner at the request of the plaintiffs pursuant to the provisions of s 32 of the Stamp Act 1921-1976 ("the Act"). The plaintiffs hereinafter are referred to as "Linton" and "the Company" respectively.
The background is briefly this. Linton was the registered proprietor of 51 parcels of land of an aggregate value of something over $1,000,000. By an option agreement ("the Agreement") dated 21 June 1976 he gave the Company an option to purchase all or some of those lands for the prices set out in a Schedule to the Agreement. The material parts of the Agreement read:-
"W HEREAS: The owner has agreed to grant to the company an option to purchase the land described in the First Schedule hereto upon the terms and conditions hereinafter contained.
I T IS HEREBY AGREED:
(1) In consideration of the payment of ONE HUNDRED DOLLARS ($100) to the owner (receipt whereof the owner hereby acknowledges) the owner grants to the company an option (hereinafter called 'the option') exercisable during the period hereinafter mentioned to purchase free of encumbrances the lands described in each of the Groups 1 to 9 of the First Schedule hereto (hereinafter called 'the said land').
(2) The option shall be exercisable within THIRTY DAYS (30) from the date hereof PROVIDED THAT the company may extend the term of the option for a further period of SIXTY DAYS (60) by giving written notice to the owner of such extension at any time during the said period of THIRTY DAYS (30) together with payment of a further THREE HUNDRED DOLLARS ($300).
(3) The company may exercise its option on each group of land as set out in the First Schedule hereto separately and from time to time during the term of the option and any extension thereto PROVIDED THAT the company may only exercise the option in respect of all the land in any one group.
(4) The consideration payable for each group of land is as set out in the Second Schedule hereto.
(5) The option shall be exercised by notice written or oral given by any director of the company to the owner. In case of an oral exercise of the option a certificate in writing purporting to be given by a solicitor of the Supreme Court of Western Australia that the option was duly exercised in his presence on the date therein specified shall be conclusive evidence of the facts so certified.
(6) With a view to protect the company's interest under this grant of option the owner shall forthwith transfer the said lands to the company and the company thereafter shall hold the same on behalf of the owner.
(7) No transfer of the said land effected under and in accordance with the provisions of the last preceding clause hereof shall operate or be deemed to operate to pass any beneficial interest in the said land to the company or give to the company any right to possession of the said land.
(8) In the event of the option lapsing from effluxion of time in respect of any group or groups the company shall forthwith retransfer to the owner or as he may direct the lands in the group or groups in respect of which the option shall have lapsed.
(9) The company shall pay the costs of and incidental to preparation of this option agreement and the said transfer and retransfer if applicable and the stamp duties thereon and all fees for the registration of the transfer and retransfer."
In the First Schedule the 51 parcels of land, divided into nine groups, were set out with their title particulars; in the Second Schedule the purchase price for each group was stated, the total being $1,079,652.
This document was duly executed by Linton and by the Company. Pursuant to cl 6 of it a Transfer of the lands in the ordinary form (Sched 7, Transfer of Land Act) was prepared and executed by the parties; it is undated, but presumably was executed at or about the same time as the Agreement. In this document the full title descriptions of all the lands were set out in annexures, the estate or interest being transferred was described as "fee simple", and the consideration as "pursuant to the terms of an Option Agreement dated the [blank] day of [blank] 1976". It was not in question that the "Option Agreement" so referred to was in fact the Agreement dated 21 June 1976 set out above.
The two documents, the Agreement and the Transfer, were then submitted to the Commissioner for adjudication of stamp duty. He assessed the Agreement for duty at $2.25 plus 50¢ for the duplicate, and the Transfer at $16,173.50. In a letter to the plaintiffs' solicitors dated 25 August 1976, he gave his reasons for doing so: "With respect to the transfer of land form I have treated this as being in effect a contract of sale. You will appreciate that by s 34(1)(a)Property Law Act 1969-1973 it is a requirement of law that no interest in land is capable of being created or disposed of except by writing signed by the person creating or conveying the interest. In short there has to be a contract of sale in writing. Section 74(1)Stamp Act 1921-1974 refers to every contract or agreement, howsoever executed. An examination of the transfer form reveals that the vendor did sign the transfer form and made express reference to the option agreements [sic]. By a combination of the option agreements [sic] in which the sale price is clearly stated it seems to me clear that there is a contract of sale of land in writing. I have treated the transfer form as being a contract of sale and I have adjudicated it for duty amounting to $16,173.50 calculated at the ad valorem rates on the total value of the property of $1,079,852 which is the value recommended by the Valuation Division for the purposes of the assessment.
In treating the transfer form as being a contract of sale I am assuming that there was no written acceptance to the option price in view of the fact that clause 5 of the first option agreement permitted either oral or written notice."
(In this latter assumption the Commissioner was correct. In the event, as I was informed during the hearing from the Bar table, the option was exercised orally by the Company as to Groups 1 to 7 inclusive on 30 June 1976 and as to Groups 8 and 9 on 30 June 1977, the option presumably having been extended until then. I was not informed whether the Transfer has been registered.)
The plaintiffs' solicitors objected to the assessment, maintaining that the Transfer was not a contract of sale and could not be construed or assessed as such. Correspondence between them and the Commissioner followed; the Commissioner remained adamant, the plaintiffs remained dissatisfied, and the Commissioner stated this case. Omitting formal parts and so far as necessary to be reproduced here, it reads:-
"1. The opinion of the Court is desired as to the stamp duty chargeable on an Agreement granting an option to purchase land (hereinafter called 'the Option Agreement') dated the 21st day of June 1976 made between JOHN HORACE BARROW LINTON of the one part and LINTON NOMINEES PTY LTD on the other part (hereinafter called 'the Plaintiffs') and a Transfer of Land Form undated, signed by the Plaintiffs, transferring the said land. THE COMMISSIONER OF STATE TAXATION (hereinafter called 'the Commissioner') assessed the Option Agreement and the Transfer of Land Form for duty in the sums of $2.25 and $16,173.50 respectively on the 22nd day of September 1976 and stamped the said Option Agreement and the Transfer of Land Form to these amounts....
"4. The Commissioner was of the opinion that the Option Agreement and the Transfer of Land Form constituted an instrument chargeable as a conveyance on sale within s 74 of the Stamp Act 1921-1974.
"5. The Commissioner accordingly assessed the Option Agreement and the Transfer of Land Form with ad valorem duty under the provisions of the said s 74 and the head of charge 'CONVEYANCE or TRANSFER on sale of property' in the second Schedule to the Stamp Act....
"7. The Plaintiffs objected to the assessment and contended that the said Option Agreement was not a 'conveyance or transfer on sale' and did not attract ad valorem duty under the provisions of the said s 74 and the head of charge 'CONVEYANCE or TRANSFER on sale of property' in the Second Schedule....
The question for the opinion of the Court:-
(i) whether the abovementioned Option Agreement and the Transfer of Land Form is liable to duty as assessed by the Commissioner;
(ii) if not, to what duty (if any) it is liable; and
(iii) how are the costs of the proceedings in this case to be borne and paid?"
It is immediately apparent that the Agreement here in question has been closely modelled on that in Cory's Case (W Cory & Son Ltd v IR Comrs  AC 1088;  1 All ER 917), the final decision in which was given by the House of Lords on 18 March 1965. It had had a long career. It, like this case, had originated in a case stated, under s 13 of the (English) Stamp Act 1891. The essential circumstances in it were indistinguishable from those in the present case, except that the subject-matter of the agreement there was shares, not land. The Inland Revenue Commissioners there, as did the Commissioner here and for substantially the same reasons, assessed the transfers pursuant to the option agreement to ad valorem duty as constituting effectively transfers on sale. The case stated went in the first instance to Pennycuick J, who held that the documents constituted neither conveyances on sale nor a contract for sale, that accordingly they did not attract ad valorem duty, and he therefore allowed the appeal. The Commissioners appealed to the Court of Appeal which, by a majority (Lord Denning MR and Danckwerts LJ, Diplock LJ dissenting) allowed the appeal. Cory appealed to the House of Lords, which unanimously reversed the decision of the Court of Appeal and restored that of Pennycuick J.
Since I think, for reasons which will appear, that Cory's Case is determinative of this appeal, I should refer in some detail to the leading speech in the House of Lords, that of Lord Reid, expressed with his usual lucidity. Having set out the facts and the terms of the option agreement - and these are quite on all fours with the present case - he went on (at 1105; 920): "The appellants base their argument on two propositions which the respondents do not dispute. In the first place stamp duty is payable on instruments and not on transactions. And, secondly, the liability of an instrument to stamp duty depends on the circumstances which exist when the instrument is executed. There is no doubt that the court can have regard to what is said and done thereafter in order to discover the true position when the instrument was executed but in the present case the true position at that time is not in doubt. The agreement was a genuine agreement and the transfers were executed in order that they should be used in the manner contemplated by the agreement.
"The controversy between the parties can be shortly stated. The appellants say that as there had been no sale and there was no contract or agreement to sell in existence at the time the transfers were executed the transfers could not be transfers on sale. The respondents on the other hand argue that that is taking too narrow a view of the provisions of s 54 [our s 63] of the Stamp Act. That section provides that the expression 'conveyance on sale' includes every instrument whereby any property, or any estate or interest in any property 'upon the sale thereof is transferred to or vested in a purchaser'. And by the First Schedule to the Act ad valorem duty is chargeable on a 'conveyance or transfer on the sale of any property ...'. The respondents say that is enough to bring a conveyance or transfer within the ambit of that section, that it was made in the course of and for the purposes of a transaction which if completed would be a sale - or alternatively that it was made in contemplation of a probable (or possible) sale and for no other reason.
"So put the argument avoids any reliance on anything which happened after the transfers were executed. But it forces the respondents to say, and they do say, that, even if the appellants had not exercised their option and had therefore re-transferred the shares to the original owners, those transfers would nevertheless have been transfers on sale within the meaning of the Act. In other words the respondents must and do argue that a transfer can be a transfer on sale although there never has been at any time a sale of the property transferred. They say that it is enough that the transfers were made in anticipation of a sale which was in contemplation.
"This is a completely novel argument. There are many cases in the books in which instruments were held to be conveyances or transfers on sale although at first sight they might not appear to be such. But no case was cited in which there was neither a sale nor an agreement to sell anything until after the instrument was executed, and there does not even appear to be any dictum supporting this argument.
"Counsel for the respondents did argue that the option agreement could be regarded as an agreement to sell within the meaning of s 59 [our s 74]. That section deals with 'any contract or agreement ... for the sale of ...'. It was not argued that the option agreement contained any contract to sell: to make any such contract one party must agree to sell and the other must agree to buy and the appellants did not agree to buy - they only acquired an option to buy. But it was argued that the two words, 'contract' and 'agreement', would not have been used if both had been intended to mean the same thing and that here there was an agreement to sell because the shareholders had bound themselves to sell if the option was exercised. I am satisfied that no such inference can be drawn from the fact that this section includes both the word 'contract' and the word 'agreement'. In the Stamp Act the word 'contract' is used alone in some sections, the word 'agreement' is used alone in others, and in others both are used, and I cannot find any ground for supposing that this was always done deliberately. In s 59 the words are 'contract or agreement ... for the sale' and I cannot see how there can be an agreement for the sale of anything unless the other party to the agreement has agreed to buy it. In order to succeed under s 59 the respondents would not only have to find in the option agreement an agreement to sell but it would have to be an agreement for the sale of an equitable estate or interest. But I need not consider that point because in my view there was no agreement for the sale of anything.
"Then counsel for the respondents said, no doubt truly, that if this appeal were allowed the door would be open for wholesale evasion of stamp duty. But that consideration has never prevailed over the rule that the words of a taxing Act must never be stretched against a taxpayer. And there is a very good reason for that rule. So long as one adheres to the natural meaning of the charging words the law is certain, or at least as certain as it is possible to make it. But if courts are to give to charging words what is sometimes called a liberal construction, who can say just how far this will go? It is much better that evasion should be met by amending legislation. One is familiar with this in the realm of income tax, and if the ingenuity of taxpayers' advisers is now turning to the Stamp Act no doubt that in time will be met in the same way.
"Even if I were entitled to go beyond the natural meaning of the words of s 54 I should find difficulty in bringing this case within its ambit. But taking the natural meaning of s 54 I find it impossible to say that, where there may never be a sale at all, property 'upon the sale thereof is transferred to or vested in a purchaser'."
There is really little that can be added to what Lord Reid thus said in Cory's Case. His reasoning and his reasons appear to me to be conclusive and to be equally applicable to the present case. The applicable provisions of the respective statutes are identical except in two minor respects: one, that the Western Australian s 74 includes the words "howsoever executed", whereas the corresponding English section does not, and the other, that the English section includes the word "equitable", whereas the Western Australian section does not. (The Western Australian section reads: "Every contract or agreement, howsoever executed, for the sale of any estate or interest in any property ... shall be charged ..."; The English section reads: "Every contract or agreement for the sale of any equitable estate or interest in any property ... shall be charged ...".) In my opinion these variations make no difference for the present purposes.
Decisions of the House of Lords, although not technically binding on this Court, are of course of the very highest persuasive authority for all Australian courts, and Mr Kennedy for the plaintiffs, not surprisingly, adopted the reasoning of Lord Reid in its entirety and contended that the decision in Cory was conclusively determinative of the present case. Mr Brown for the Commissioner was therefore under the necessity of somehow distinguishing it. This he sought to do by advancing the following propositions:-
(1) The Commissioner in assessing the Transfer to duty had treated the option as having already been exercised, and was right in so doing. Undoubtedly the Commissioner did so treat it - otherwise he could not have regarded the Transfer as a conveyance on sale - but in fact he had no evidence that it had in fact been exercised. In any case however, whether the option had been exercised as at the time he assessed the documents was not to the point; what he had to have regard to was the circumstances as at the date of execution of the documents. To argue otherwise is to ignore or deny the second of the two fundamental propositions adverted to by Lord Reid at the beginning of the passage above cited. It is true, as Mr Brown pointed out, that Lord Denning in his reasons for judgment in the Court of Appeal had not accepted the correctness of that proposition (see the report in  3 All ER 66 at 70); but Diplock LJ in the Court of Appeal and all the members of the House of Lords decisively disagreed with him. In my view it must now be regarded as, in Lord Reid's words, "a rule ... universally applicable". So the Commissioner in assessing the documents had to have regard to the circumstances existing as at the date of their execution. He had no ground for finding or assuming that the option had then been exercised. Certainly the mere fact of the execution of the Transfer afforded no such ground; on the contrary, the Agreement by its terms required the execution of the Transfer, and the Transfer, on its face, was executed pursuant to the terms of the Agreement. It follows that the documents had to be assessed on the legal effect they had immediately on their execution on the basis that no option had then been exercised.
(2) The granting of an option in itself created an equitable interest in the land, and the parties in their provision for a transfer of the legal estate went far beyond what was necessary for the protection of that interest. That may readily be conceded; the Company could of course have lodged a caveat to protect its interests under the option. But I am unable to see the relevance of that fact to the present question. The parties in fact chose to proceed in the way they did, and not in some other way. That they were quite free to do; parties may couch their transaction in what form they will, provided that form is not a mere sham, an attempted disguise for a quite different transaction antecedently concluded:Mullens (Mullens v FC of T (1976) 6 ATR 504; 51 ALJR 82) and many other cases have decided that. The question is: what is the legal effect of the documents when executed? - for it is on that that their liability to stamp duty depends. Here, in my opinion, that legal effect was simply to grant an option on the conditions set out, and nothing more. What the parties may or may not have intended to do in the future was, in my opinion, for the purposes of stamp duty irrelevant. "The stamp duty legislation generally proceeds by way of stamping documents according to their nature and effect, and not by reference to parties' intentions, and any departure from this principle would require clear indication": Lord Wilberforce speaking for the Judicial Committee of Privy Council in Lap Shun Textiles Industrial Co Ltd v Collector of Stamp Revenue  1 All ER 833 at 837.
(3) The Property Law Act s 34, provides that no interest in land is capable of being created or disposed of except by writing signed by the person creating or conveying the interest; the Transfer was a writing, and it disposed of an interest in land - the legal estate; the Commissioner was entitled to assume that the parties in executing it had in mind the provisions of theProperty Law Act s 34, and that in compliance with that section they intended it to convey the whole of the interest in the land; therefore he was entitled to determine, as he did, that it was a conveyance or sale and stampable accordingly. As to this, it is evident from the reasons which the Commissioner gave to the plaintiffs' solicitors that he did place some reliance on the provisions of s 34, Property Law Act. But with all respect to the Commissioner, and to the ingenious argument of Mr Brown, I am quite unable to see the ground of that proposition. The requirement of s 34(1)(a) of the Property Law Act is clear; words could not be plainer; to create or dispose of any interest in land you must have a signed writing. But how that fact of itself bears on the question of that writing's liability to stamp duty I am quite unable to see.
The three basic arguments put on behalf of the Commissioner, therefore, fail. Anticipating that they might, Mr Brown had an alternative argument. If, he said, the Transfer is not caught under s 74, either in combination with the Agreement as a contract or agreement for sale, or of its own force as a conveyance or transfer on sale, then it should be held to be caught either under s 73 or under s 75 of the Act. Section 73 provides that every instrument whereby any property on any occasion is transferred to or vested in any person is chargeable with duty as a conveyance or transfer of property. The Transfer here in question, it is said, transfers property to a person, and so falls under that section. Section 75 deals with voluntary dispositions inter vivos, including transfers for an inadequate consideration, and makes them liable to duty under the sliding scale applicable under the heading "Deed of Settlement or Deed of Gift" in the second Schedule. As to both of those propositions one can think of immediate difficulties in the ascertainment of what would be a true consideration for a transfer of the bare legal estate bereft of the beneficial interest; but it is unnecessary to pursue those difficulties, for the argument in both its limbs meets a fatal obstacle - the proviso in s 73. That is that (among other things) any conveyance or transfer under which no beneficial interest passes in the property conveyed or transferred is not to be charged with any higher duty than one dollar.
In conclusion, Mr Brown strongly pressed on me that it is now 12 years since Cory's Case was decided, and that if the plaintiffs' argument is correct it is a very strange thing that the procedure they adopted has never, as far as is known, been adopted by anyone else in this State. He instanced the well-known Farm Products Case in New Zealand (Farm Products Co-op (Tararua) Ltd v IR Comrs (NZ)  NZLR 874; 1 ATR 85) as illustrative of why Cory's Case should be distinguished as not applicable in other jurisdictions. In that case as in this, the form of the transaction was closely modelled on that in Cory's Case and the circumstances were indistinguishable, but the Court of Appeal in New Zealand upheld the Commissioner's assessment of ad valorem duty, distinguishing Cory's Case as being not applicable in New Zealand. But the Farm Products Case is itself plainly distinguishable. The determinant words in the New Zealand statute are "instrument of conveyance", not "conveyance on sale". The Transfer there was most certainly an instrument of conveyance, as is the Transfer here; but under our Act it is not chargeable with duty on that account. Further, however (Mr Brown pressed on me), as a result of Cory's Case the English Parliament found it desirable to amend the Stamp Act to close the loophole, as Lord Reid had suggested, and did so (via the Finance Act) in 1965. The Western Australian Parliament has not found it necessary to do that (although there have been 17 amendments to the Act since 1965), and that very fact indicates strongly, he said, that there has been no need for such amendment because there is no loophole in our Act to close; there are vital differences between our Act and the UK Act. If that is so, Mr Brown was not able to point out to me such differences in relevant respects, and I have not been able to find them. One may concede that it does seem strange, if it is the fact, that nobody before the plaintiffs has chosen to follow the same procedure, but it is not for me to speculate as to why that may be so. It is enough for me to say that, like Lord Diplock at the Court of Appeal stage in Cory's Case, I have not been able to see any fallacy in the plaintiffs' argument, and (again like him) it has not been for want of trying. If, as Lord Denning feared in Cory's Case, holding for the plaintiffs "will open a door through which the whole world will pass", then it is for the legislature to close that door. As the law stands, it is permissible and legitimate to avoid liability to duty or tax. To avoid is not to evade. It is one thing to avoid tax by shaping a transaction in a form that does not attract tax; it is another thing to evade tax by camouflaging an already concluded transaction that does attract it. Perhaps it may be thought that in the modern corporate and commercial world, both in law and in practice, this classic distinction between avoidance and evasion has become illusory. That may be so. But if it is so, and if that be thought to be a symptom of illness in the body politic, it is for the legal philosopher to diagnose the illness and for the statesman to cure it; not for the courts. As the law stands, so it is to be observed.
For these reasons I come to the conclusion - again like Lord Diplock, firmly but with regret - that the plaintiffs here are right and the Commissioner wrong.
The appeal therefore succeeds, and the questions in the case should be answered:-
(i) as to the Option Agreement, yes; as to the Transfer of Land Form, no;
(ii) the Transfer of Land Form is liable to duty of one dollar;
(iii) by the defendant.
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