RINGTHANE PTY LTD v COMMISSIONER OF STATE TAXATION (WA)Judges:
Supreme Court of Western Australia
This is an appeal from the assessment of the Commissioner of State Taxation pursuant to s 33 of the Stamp Act 1921. It proceeds upon agreed materials which are contained in a statement of agreed facts, the transmission of the objection and the affidavit of Mr Deacon.
Section 16 of the Act charges duty on instruments in accordance with the Second Schedule subject to the exemptions specified in the Third Schedule. Counsel are agreed that the relevant item in the Second Schedule is item 4 subpara (1) which relevantly provides for the stamping of conveyances or transfers of property. The relevant exception in the Third Schedule is for the conveyance or transfer of any estate or interest in goods, wares or merchandise.
The issue in the appeal is whether or not the exemption is available in relation to certain chattels of the value of $587,566.00 bought by the appellant.
The background is that the appellant, to whom I will refer as Ringthane, and Bayhill Pty Ltd who I will refer to as Bayhill, were equal partners in the business of the Tradewinds
ATC 4825Hotel in Fremantle pursuant to a partnership deed dated 22 June 1989. The instrument with which the appeal is concerned is a deed of sale dated 25 May 1992 between the partners by which Ringthane purported to buy all the interests of Bayhill in the partnership. The question is whether or not the deed was effective to pass the title to the chattels in use in the business as a discrete item.
It is accepted the deed of sale is not a sham and the respondent submits that there are two primary issues in the case: firstly, whether the deed is properly characterised as an agreement to sell specified assets or whether it is an agreement to sell Bayhill's share in the partnership to Ringthane and dissolving the partnership and, secondly what is the proper characterisation of the interest agreed to be sold?
I do not need to go into very great detail about the terms of the deed of sale because the parties are agreed that it deals with every asset and interest which would be involved in the dissolution of the partnership. Furthermore, it is agreed that the completion date for the purposes of the deed of sale was 31 May 1992 and that on that day Ringthane acquired various items of real property and personal property comprising a one-half interest in the Tradewinds Hotel. It is also common ground that at all material times there was no need to sell any of the partnership property to meet the partnership debts.
The deed recites that Ringthane and Bayhill own the property as tenants in common in equal shares as the partnership, and that Bayhill has agreed to sell and Ringthane has agreed to purchase the one-half interest of Bayhill in the property on the terms and subject to the conditions therein contained.
The property is defined by the deed to mean the land, the business, the plant and equipment of the hotel, the goodwill, the stock and Bayhill's interest in a management agreement.
Clause 4 provides as follows:
``4. Payment of purchase price
The sum of TWO HUNDRED THOUSAND DOLLARS ($200,000.00) should be paid as to the sum of TWENTY THOUSAND DOLLARS ($20,000.00) by way of deposit within two (2) days of the execution of this Deed and the balance of ONE HUNDRED AND EIGHTY THOUSAND DOLLARS ($180,000.00) shall be paid on the Completion Date.
As and from the Completion Date Ringthane shall assume all obligations of Bayhill pursuant to the Mortgage as from that date and shall indemnify Bayhill in respect thereof.''
The mortgage is defined as being a mortgage over the real estate which is an asset of the business. There is also provision in clause 5 that a number of documents are to be executed by Bayhill prior to the completion date, including a deed of dissolution of the partnership, an assignment of the management agreement, a transfer of land, documents reasonably required by the mortgagee, some documents required under the Liquor Licensing Act and the Business Names Act and such assignments as might be required in respect of leases of plant and equipment.
Paragraph 8 provides:
``8. Possession and Passing of Risk on Completion Date
As from the Completion Date Ringthane will be entitled to possession of the Property and to the receipt of all income in respect of Ringthane's interest in the Property and Ringthane shall be liable to all outgoings in respect thereof and from the Completion Date the Property shall be solely at the risk of Ringthane.''
There is then a provision in clause 9 that $200,000.00 is the purchase price and that there are to be no further adjustments in favour of either party in respect of payments inter alia under the mortgage or in the accounts of the partnership. There is then a specific provision for the assumption by Ringthane of liabilities under the mortgage, a specific provision for the assignment of the management agreement and a specific indemnity to Bayhill in respect of all claims, demands, actions, pleadings, damages, costs and expenses which may be brought against Bayhill by any third party which takes effect from the completion date and also is in respect of any matters which may have arisen prior to the completion date.
The appellant's submission is that there is no reason why the deed of sale should not be construed in accordance with its terms and in particular for the purpose of determining how it is to be charged with stamp duty. The parties agreed in effect that the assets would not be
ATC 4826sold in order to discharge the debts and liabilities. As at the date of sale the extent of the interest of Bayhill in the partnership assets had therefore ceased to be indefinite and fluctuating.
The submission of counsel for the respondent is that when one looks at the legal effect of the documents it is clear that there is an agreement for the sale of the partnership interests and a dissolution of the partnership both effected by the deed and that to characterise the document as a conveyance of goods and an adjustment of the partnership interests followed by dissolution is to elevate the words the parties have chosen over the true character of the transaction.
She drew my attention to
City Mutual Life Assurance Society Ltd v Commr of Stamp Duties (1943) St R Qd 59 and to a passage in the judgment of Philp J at p 67 where his Honour said:
``In order to determine the taxability of the instrument we must determine the true character of the transaction and the true intention of the parties despite the mere form of words used.''
I accept the submission on behalf of the respondent that one effect of the deed is a dissolution of the partnership and both parties accept for the purposes of this appeal that a subsequent deed of dissolution which is before me is irrelevant.
Counsel for the appellant drew my attention to the decision of Jones J in
Linton and Linton Nominees Pty Ltd v Commr of State Taxation (WA) (1977) 8 ATR 99 at 105. There his Honour said:
``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.''
It is common ground that legal effect at the time of execution is the material time.
In my view, there is nothing in the form of the words which is to be put aside to reveal the true character of the transaction. It is an attempt to sell each of the interests in Bayhill in each item of the property of the partnership to Ringthane without dealing with the partnership assets and accounts in globo. It seeks to achieve that result by setting a firm price for them.
In my view, the substance of the deed is the same as its form; namely, an endeavour to sell an interest in particular assets and I do not uphold the first submission of counsel for the respondent.
The second issue which then arises is as to the nature of a partner's interest in the assets of a partnership. The submission of counsel for the appellant is that the partners own between them the whole of the partnership assets and each partner has a proprietary interest in each and every asset which has been described as a beneficial interest. It is not right to regard a partner as merely being entitled to a particular sum of cash ascertained from the balance sheet of the partnership as drawn up at the date of dissolution. During the subsistence of the partnership the extent of a partner's interest in each asset is indefinite and fluctuating, it being proportionate to his share for the time being, in the ultimate surplus if the partnership were to be wound up and its accounts taken.
However, the submission of counsel for the respondent is that the interest of a partner is a chose in action which consists of a right to a proportion of the surplus after the realisation of the assets and payment of the debts and liabilities. The share in the partnership carries with it a beneficial interest in every piece of property which belongs to the partnership while it is partnership property. This beneficial interest has two important characteristics:
- (a) it exists only as an incident of the partner's share in the partnership; that is, by virtue of a chose in action;
- (b) it is not a right to any definite share of any particular asset.
Counsel for the appellant relied upon
Canny Gabriel Castle Jackson Advertising Pty Limited & Anor v Volume Sales (Finance) Pty Limited (1974) 131 CLR 321 and in particular to passages at pp 327 and 328 of the report. McTiernan, Menzies and Mason JJ said at p 327:
``The nature of a partner's interest in the partnership property has often been explained. The partner's share in the
ATC 4827partnership is not a title to specific property but a right to his proportion of the surpus [sic] after the realization of assets and the payment of debts and liabilities. However, it has always been accepted that a partner has an interest in every asset of the partnership and this interest has been universally described as a `beneficial interest', notwithstanding its peculiar character.''
At p 328 their Honours said:
``Nevertheless we think that the interest of a partner in an asset of the partnership is sui generis.''
He also submitted that that decision is supported by the advice of the Judicial Committee of the Privy Council in
Cameron v Murdoch (1986) 60 ALJR 280 where at p 293 their Lordships respectfully agreed with the decision in Canny's case.
Counsel for the respondent draws my attention to the decision of the High Court in
FC of T v Everett 80 ATC 4076; (1979-1980) 143 CLR 440.
That was a case concerned with the assignment of a partnership share and she drew my attention to a passage in the report in the joint judgment of Barwick CJ and Stephen, Mason and Wilson JJ at ATC p 4081; CLR p 450 where their Honours said:
``The fundamental consideration, as we see it, is that the partner's fractional interest is an entire chose in action; it is capable of division by assignment into further fractions, but it is not capable of division by assignment so that the right to participate in partnership profits which is inherent in the interest is hived off from the rest of that interest. Consequently, a partner's entitlement to participate in profits is not separate and severable from the interest of the partner.''
She submitted that by analogy a partner's beneficial interest in chattels only exists in a partnership which is continuing and if the partnership is effectually dissolved then there can be no acquisition separately of title to particular chattels.
She also placed reliance on
United Builders Pty Limited & Anor v Mutual Acceptance Limited (1980) 144 CLR 673, a case in which the effect of mortgages on the interests of partners is discussed. She drew my attention to passages in the judgment of Mason J, as he then was, at p 687 where his Honour said:
``The vital question is: What rights passed to Mutual by virtue of the charge over United's right, title and interest in the partnership? The answer to this question is that, according to long established principle, a mortgage or charge over a partner's share or interest in the partnership does not vest any interest in the assets of the partnership against the other partners. What the mortgage or charge does is to confer an entitlement on the holder on dissolution of the partnership in relation to the partner's share of the partnership assets. Section 34 of The Partnership Act specifically provides that a mortgagee is on dissolution entitled to receive the mortgagor's share of the assets and that, for the purpose of ascertaining that share, he is entitled to an account from the other partners as from the date of dissolution.
This principle does not in my opinion deny the existence of a partner's beneficial interest in each of the partnership assets, but this interest is of a special and non-specific kind...''
and be refers to Canny's case. He then said at p 688:
``The vital consideration is that the partner's interest is in truth a chose in action, which, as Everett acknowledged, `consists of a right to a proportion of the surplus after the realization of the assets and payment of the debts and liabilities of the partnership'. (1980) 143 C.L.R., at p. 446. A mortgage or charge is considered to vest rights over that chose in action but it is not considered to carry any title to the specific assets until dissolution.''
He also said:
``It gives rise to a present security over the chose in action which is the partner's share. Although it creates no specific interest in the partnership assets until dissolution, this is not because the charge is dormant; it is because the rights conferred by the charge relate to the existing chose in action and that the security over the chose in action confers no entitlement to the asset of the partnership until dissolution.''
That case is support for the submission of counsel for the respondent that as the deed of
ATC 4828sale effects a dissolution of the partnership upon completion it is ineffectual to give title and pass an interest in a share in particular property. Her submission was that a partner's interest in the property of the partnership is a chose in action and there is no legal reason why one partner should not sell it to the other.
In my view in the light of the decision of the Judicial Committee in Cameron v Murdoch, consideration of what is assignable in the future and what are the future fruits of a present assignment which arose in the case of Everett, and consideration of the position of a mortgagee of partnership assets which arose in the United Builders' case, are not determinative of the issue with which I am concerned.
Cameron v Murdoch holds, at p 293, that in a case where there was no suggestion at any relevant stage that it was necessary to sell land to pay the partnership debts, a partner could have a fractional equitable interest in land which was partnership property and could acquire a further fractional interest in it through the intestacy of a relative who had previously been in partnership with him although there had been no winding up or taking of accounts in the former or subsisting partnership.
Although the discussions in the authorities in relation to the nature of a partnership interest and the precise application of those authorities to the circumstances of the present case are not entirely free from difficulty, in my opinion if a specific fractional interest in a partnership which is undissolved may be dealt with by the will of a partner in the circumstances which I have described, then such an interest is capable of sale between two partners.
I therefore conclude that there is nothing which in law prevents the deed of sale from operating in accordance with its terms. I therefore allow the appeal and I will hear counsel as to the order which I must now make pursuant to s 33(4) of the Act.