COMMISSIONER FOR ACT REVENUE v PERPETUAL TRUSTEE COMPANY (CANBERRA) LTD

Judges:
Higgins J

Court:
Supreme Court of the Australian Capital Territory

Judgment date: Judgment handed down 26 November 1993 (Orders varied 10 December 1993)

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Higgins J

This is an appeal from a decision of the President of the ACT Administrative Appeals Tribunal (``AAT'') (Mr LJ Curtis) handed down on 31 May 1993.

The facts of the matter were not in dispute. As set out in the learned President's Reasons for Decision, they were as follows:-

``8. A unit trust, the T & G Trust, was established by deed executed on 2 March 1977. Stirling Finance Co. Pty Limited, which subsequently changed its name to Capital Property Corporation Pty Limited (`CPC'), was the trustee.

9. On 21 June 1985 CPC acquired all of the units in the T & G Trust and on 14 June 1989 held them in its capacity as trustee of the Empire Trust, a discretionary trust which had been established by deed executed on 24 May 1984 by Robert Alva Snow as settlor and Stirling Finance Co. Pty Limited as trustee.

10. Prior to 14 June 1989, CPC, in its capacity as trustee of the T & G Trust, held the leasehold of Block 19 Section 23 Division of City.

11. By Deed of Appointment dated 14 June 1989, CPC in its capacity as trustee of the Empire Trust, resolved to remove CPC as trustee of the T & G Trust and resolved to appoint the applicant Perpetual Trustee Company (Canberra) Limited as substitute trustee of the T & G Trust and declared that the estate and interest in the property of the T & G Trust should vest in the applicant Perpetual Trustee Company (Canberra) Limited from the date of the Deed of Appointment.

12. Subsequent to the execution of the Deed of Appointment, the applicant Perpetual Trustee Company (Canberra) Limited executed and lodged with the Registrar of Titles an application pursuant to s. 138A of the Real Property Act 1926 to be entered as the holder of the leasehold of Block 19 Section 23 Division of City as the new trustee of the T & G Trust.

13. On 30 August 1989, CPC advised the applicant Perpetual Trustee Company (Canberra) Limited in writing that it had disposed of its beneficial interest in the leasehold of Block 19 Section 23 Division of City and requested the applicant Perpetual Trustee Company (Canberra) Limited to execute a Declaration of Trust in respect of the leasehold in favour of the Capital Property Trust.

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14. On 31 August 1989, the applicant Perpetual Trustee Company (Canberra) Limited executed a deed declaring that it held the leasehold of Block 19 Section 23 Division of City in its capacity as trustee of the Capital Property Trust.''

The Deed of Appointment of 14 June 1989 (see para 11) was lodged with the ACT Revenue Office on 14 June 1989. It was then assessed as exempt from duty under the Stamp Duties and Taxes Act 1987 (ACT) (``Stamp Act''). Then, on 8 June 1992, an assessment was issued imposing duty on it in the sum of $2,271,765.00 plus a penalty tax of $3,130,029.75. There was no apparent explanation why the ACT Revenue Office decided to reassess the liability of the instrument to duty. On 3 October 1990 Mr GR Crawford, a newly appointed delegate of the appellant, had sought certain documents relevant to the transaction.

An objection was lodged on 6 August 1992. It was disallowed on 18 December 1992. The respondent sought a review on 24 December 1992 from the AAT. The learned President upheld that application.

It is from that decision that this appeal has been brought.

The Commissioner, it seems, took the view that the Deed of Appointment of the respondent as trustee in place of CPC effected or agreed to effect a transfer of the leasehold interest in Block 19 Section 23 Division of City (``the lease'') from CPC to the respondent and was, therefore, dutiable. The respondent was registered as proprietor of the lease pursuant to s. 138A of the Real Property Act 1926 (ACT) (``RPA'').

It was conceded by the appellant before the Tribunal that it was only s. 17(1)(b) of the Stamp Act which was relevant. That provision made dutiable (inter alia) any instrument which can be described as ``an agreement for a transfer of a Crown Lease''.

A further concession was made in the course of the hearing. Initially, the appellant had contended that CPC had, on acquiring title to all units in the Empire Trust, of which it was then trustee, put an end to that trust by merging the legal and beneficial interest in the property subject to the trust, namely, the lease. The appellant further contended that, as a result, Perpetual would not have been able to be appointed as a substitute trustee of the lease. It would have been necessary to create a new trust of which Perpetual would have been trustee and CPC the beneficiary. It would also follow that the registration of Perpetual as proprietor pursuant to s. 138A (RPA) would have been inappropriate. However, it may be assumed that that consideration would not invalidate either the registration or the trust. The contention that the trust had been so ended by merger was expressly abandoned.

The appellant seeks now to resile from that concession.

It had been part of the appellant's reasoning, in imposing duty, that, because the legal and beneficial interests had merged, the Deed of Appointment had really been a document transferring the legal ownership from CPC to Perpetual subject to a new trust. In valuing the interest transferred, the appellant claimed to be entitled to assess that value without regard to the trust in favour of the transferor.

Subsequently, CPC transferred its interest in the units which purportedly were held pursuant to the original Empire Trust. Perpetual, on 31 August 1989, declared by deed its acknowledgment of the beneficial interest of CPC in the units.

The alternative contention of the appellant, having abandoned reliance on merger, was that the Deed of Appointment, in any event, whether s. 138A (RPA) applied or not, was an agreement for transfer of a Crown Lease whether or not the proposed transferor and transferee were trustee and substitute trustee respectively. The value of the interest transferred, for the purpose of the imposition of duty, was the value of the property. The fact that the interest transferred was subject to a trust should, in the appellant's submission, have been ignored.

The learned President accepted that the Deed of Appointment did amount to an agreement for a transfer from CPC to Perpetual of all the right, title and interest of the former in the Crown Lease. The real issue, he considered, was the true dutiable value of that interest. The interest transferred could not, he concluded, be valued without deducting the value of the beneficial interest vested in the unit holder or holders on the terms of the Empire Trust. That had not been done. It followed that the assessment made by the appellant was defective. The matter was

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remitted back to the appellant for reassessment according to law.

Merger - discretion to allow the issue to be raised

I accept that the issue of merger depends upon a conclusion of law to be drawn from undisputed facts. It is an issue of relevance to taxation law. If the appellant's concession was erroneous there is a discretion to allow the issue now to be raised even though it was abandoned before the Tribunal.

(See
Kuswardana v Minister for Immigration and Ethnic Affairs (1981) 35 ALR 186, 194-5, 199, 205;
Hospital Benefit Fund of W.A. Inc v Minister for Health, Housing and Community Services (1992) 111 ALR 1, 8-9;
Tefonu Pty Ltd v Insurance and Superannuation Commissioner (27/8/93; FCA; Beazley J; unreported), (8-11).)

Of course, the result following from an exercise of that discretion will be affected by the extent to which, if at all, the respondent is prejudiced unfairly by a decision to allow the issue to be raised although previously abandoned. Unfair prejudice is more likely where the issue has been expressly abandoned and the other party misled thereby into altering his, her or its position accordingly.

In the instant case, the only deleterious consequence to the respondent seems to me to have been that the respondent did not need to address that issue before the Tribunal. It had been prepared to do so. It was given adequate notice before the hearing in this Court of the appellant's intention to raise the issue of merger. It has addressed the issue on the hearing of this appeal.

In my view, no unfair prejudice will be occasioned to the respondent by permitting the appellant to resile from his previous concession.

Accordingly, I propose to allow the issue of merger to be considered on its merits.

Has merger occurred?

There can be no trust where the legal title and the beneficial interest become vested in the same person. (See ``Principles of the Law of Trusts'' Ford and Lee, 2nd ed. 1990 [502] p. 153; ``Jacobs' Law of Trusts in Australia'' Meagher & Gummow, 5th ed. 1986 [108] p. 8.)

If, therefore, the owner of the legal estate subject to a trust also acquires the sole beneficial ownership of property, then the trust upon which the legal estate was held will cease. (See
Re Selous; Thomson v Selous [1901] 1 Ch 921;
Re Cook; Beck v Grant [1948] Ch 212.) Merger will not occur where the trustee is merely one of a number of beneficiaries, or where the trustee holds the beneficial interest in a different capacity from the capacity in which the legal interest is held.

As Luxmoore J noted in
Re Turkington; Owen v Benson [1937] 4 All ER 501, 504:

``... where one finds the legal and equitable estate equally and co-extensively united in the same person or entity, the equitable interest merges in the legal interest, on the footing that a person cannot be a trustee for himself.''

An example of the holding of the legal and equitable interests in different capacities by the same person was
Chambers v Kingham (1878) 10 Ch D 743. C was the administrator of his father's estate. An asset thereof was a 99 year lease. C granted an underlease to P. P assigned the underlease to C.

Fry J held that no merger of the underlease had taken place:

(746) ``It appears to me that, in the absence of such special circumstances as are not shown to exist here, a term held by a person in his own right does not merge in the reversion held by the same person as an administrator.''

Once the trustee who is also the beneficiary has taken both estates for his or her sole use and benefit, merger will take place (see
In re Annett (deceased), Annett v Taylor [1956] NZLR 929.

In
Ingle v Vaughan Jenkins [1900] 2 Ch 368 Farwell J held that the rule as to merger might yield to the intention of the parties that merger not take place.

In my view, the issue is, in the present case, resolved by reference to the fact that CPC held the units in question as a trustee for the beneficiaries of the ``Empire Trust'', a discretionary trust. That is a different capacity than that in which CPC held title to the Crown Lease in question. That was as trustee of the T & G Trust. On acquiring all the units in the Empire Trust, CPC held the property of that Trust in trust for the beneficiaries of the T & G Trust and on the terms thereof. That, however, does not unite the legal and beneficial ownership of the lease in the same person in the same sole capacity. As trustee, CPC held the legal estate subject to and for the benefit of the

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beneficiaries of the Empire Trust. As beneficiary of the Empire Trust, CPC held the beneficial interest therein as trustee of the T & G Trust.

In any event, it is clear that it was intended by CPC to maintain the units in the Empire Trust as marketable securities, despite their acquisition by CPC. Accordingly, insofar as intention is relevant, there was clearly no intention that merger should occur.

I do not need to decide whether the capacity to issue further units enjoyed by CPC as trustee of the Empire Trust would also have prevented merger taking place (see
Aust-Wide Management Ltd v Chief Commr of Stamp Duties (NSW) 92 ATC 4740; (1992) 24 ATR 418. In any event, it supports a conclusion that merger was not intended even if it was possible.

In my view, therefore, the concession made before the Tribunal was correct. There was no merger. Perpetual, therefore, merely replaced CPC as trustee of the Empire Trust and on the terms thereof.

What if there had been a merger?

Even if there had been a merger, the matter would not necessarily be determined in favour of the appellant. The effect of the Deed of Appointment was that CPC agreed to transfer the legal estate to Perpetual. But that legal estate was subject to the objection imposed on Perpetual to hold the property in question on the terms of and as trustee for the T & G Trust.

It seems to me, therefore, that in either case Perpetual would acquire no more than a bare legal estate. The beneficial interest was vested either in CPC or in the beneficiaries of the T & G Trust.

It is contended both that the process of appointment of Perpetual did not involve a dutiable transfer and, even if it did, the value of the interest transferred was nominal. I will now consider those issues.

Liability to Duty

(i) Was the Deed of Appointment an agreement for transfer of an interest in the Crown Lease in question?

The respondent contended that the learned President had been incorrect in concluding that the Deed of Appointment was an agreement to transfer any interest in the Crown Lease from CPC to the respondent (see s. 17(1)(b), Stamp Act).

Registration of the transmission of title from CPC to Perpetual pursuant to s. 184A (RPA) does not, of course, extinguish the equitable obligations Perpetual had assumed by virtue of the Deed of Appointment (see
Barry v Heider & Anor (1914) 19 CLR 197;
Corin & Anor v Patton (1990) 169 CLR 540).

The Deed of Appointment did not require CPC to execute a memorandum of transfer of its legal title or to make application under s. 184A (RPA). It did, however, effect a transfer in equity of all the right, title and interest of CPC in the Crown Lease to Perpetual.

It seems to me that the President was correct to assume that, by virtue of its appointment as trustee in place of CPC, Perpetual was entitled to require CPC to cooperate in perfecting its legal title. That entitlement was created by the Deed of Appointment. It follows that the Deed can properly be characterised as an agreement by CPC to transfer its title to Perpetual and to execute all such documents as may be necessary to effect that result.

Section 17(1)(b) of the Stamp Act renders dutiable any instrument which is characterised as ``an agreement for a transfer of a Crown Lease''. The transfer of the legal estate in a Crown Lease does not necessarily have to be effected by such an instrument to render it dutiable. Insofar as the appellant's submissions implied the contrary, I reject them.

It is, I think, irrelevant whether the transfer of title contemplated was to be effected or was subsequently effected by a request under s. 138A (RPA) or by virtue of an ordinary memorandum of transfer.

(ii) Was the instrument exempt from duty under Schedule 1 if a transfer of an interest from one trustee to another?

A question was raised as to whether the Deed of Appointment, although an instrument within the purview of s. 17(1)(b), was excluded from liability to duty by virtue of s. 18 (Stamp Act).

Section 18 exempts from duty instruments to which Schedule 1 of the Stamp Act applies.

The agreement in question was, as I have concluded, a ``conveyance'' within the meaning of s. 4(1) (Stamp Act). However, it merely effected the replacement of one trustee by another. Consequently, it was an exempt instrument under paragraph (f) of Schedule 1. There was no evidence that it was made ``in connection with a tax avoidance scheme''.

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It is important to distinguish between an exempt instrument and one transferring an interest of little or no real value. There is a conceptual difference between a legal estate subject to a trust having a reduced or even nil value and an instrument which is exempt. In the latter event, no issue arises as to the value of the interest in question.

If there had been a merger of the legal and equitable estates, of course, paragraph (f) would have been inapplicable unless the merger was merely of the Empire and T & G Trusts so as to cause CPC to hold the legal title to the property of the Empire Trust for the beneficiaries of the T & G Trust on the terms thereof. The Deed of Appointment would, on that view, still fall within paragraph (f) of Schedule 1.

A transfer by an absolute owner of the entire estate to a trustee, even with a resulting trust in favour of the transferor, would not come within Schedule 1, par (f). An instrument creating a new trust is not made an exempt instrument.

(iii) In any event, should the interest transferred, even if the instrument was dutiable, being a ``bare legal estate'', have been valued at ``nil'' or at a nominal value?

It is strictly unnecessary to address this issue. However, in deference both to the expression of view by the learned President and the arguments of counsel addressed to the issue, it is, I think, important to express a view in case I am wrong in characterising the instrument in question as exempt.

The relevant Determination imposing duty on an instrument made dutiable under s. 17(1)(b) (Stamp Act) was the Stamp Duties (Conveyances) Determination 1987 (No. 3).

Paragraph 4 thereof provided (relevantly):

``A reference in this determination to an amount set out in a Schedule means an amount calculated by applying the formula appearing in Column 2 of the relevant Schedule, opposite and in relation to the appropriate range of value or consideration specified in Column 1 of that Schedule, to the value of the interest transferred or agreed to be transferred... in respect of... (b)... an agreement for a transfer of a Crown Lease...''

Schedule 1 then imposes duty of ``$1.25 per $100.00 or part of $100.00 of the value of the interest''.

The question is whether the ``Value of the interest... agreed to be transferred... in respect of an agreement for a transfer...'', equates to the whole or any substantial part of the value of the Crown Lease, inclusive of improvements, or whether it is of only nominal value if the interest is subject to a trust.

In
Commissioner of Stamp Duties (NSW) v Perpetual Trustee Co Ltd (Quigley's case) (1926) 38 CLR 272 the settlor conveyed property to a trustee upon trust for himself for life and thereafter for others. It was held that the value of the estate vested in the settlor was dutiable. It did not convey an interest subject to existing beneficial rights. The estate was wholly conveyed (subject to a life interest to another) and out of that estate the equitable interests were then created.

In
Farm Products Co-operative (Tararua) Ltd v Commr of Inland Revenue [1969] NZLR 874, a similar approach was adopted. This was on the basis that (per Turner J):

(883) ``He who takes a transfer or conveyance of the legal estate in property takes a transfer or conveyance of that property. The property of which he takes a transfer or conveyance may be the subject of equitable interests vested in equity in another. But this does not affect the position at law; and at law he becomes the proprietor of the property of which he has taken a transfer or conveyance. It is the value of the property transferred on conveyance which determines assessment, and this is unaffected by the existence of any outstanding equitable interest.''

The legislation in question rendered a conveyance dutiable by reference to the value of the property transferred. Where legislation rendered a ``conveyance on sale'' dutiable, a transfer pursuant to an option agreement was held not to be dutiable (see
WM Cory & Son Ltd v Inland Revenue Commissioners [1965] AC 1088;
Linton and Linton Nominees Pty Ltd v Commr of State Taxation (WA) (1977) 8 ATR 99).

However, those cases do not really assist in relation to the question raised by the present legislation.

In
O'Sullivan v Commr of Stamp Duties (Qld) (1983) 14 ATR 299, on appeal, 83 ATC 4684; [1984] 1 Qd R 212, trustees, upon beneficiaries becoming entitled thereto,

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conveyed the legal estate to them. The Commissioner sought to levy ad valorem duty on each transfer. However, whilst the matter was decided upon grounds not relevant for present purposes, Williams J did refer to the argument that a ``bare legal estate'' was to be given only a nominal value. His Honour said:

(4696-4697) ``By definition, a trust is an equitable obligation, binding the trustee to deal with property in respect of which he has either legal title or control, for the benefit of a beneficiary... it must not be overlooked that at law the fee simple in land, being trust property, is vested in the trustee, and when the trustee conveys the property to the beneficiary, thereby putting an end to the trust, he conveys the fee simple to him.''

It followed, in his Honour's view that the transfers were dutiable at the ad valorem rate applicable to the unencumbered fee simple unless it fell within a specified exemption.

I note that a transfer of the kind referred to in O'Sullivan v Commr of Stamp Duties (Qld) (supra) would, prima facie, fall within paragraph (h) of Schedule 1 (Stamp Act). It would thus be accorded a statutory exemption from duty under that Act.

In
D.K.L.R. Holding Co. (No. 2) Pty. Ltd. v. Commr of Stamp Duties (NSW) 82 ATC 4125; (1982) 149 CLR 431 a transfer of property was made to a trustee on terms that it would hold only the bare legal estate. A declaration of trust was executed by the trustee company following which the memorandum of transfer to it was also executed.

Gibbs CJ (ATC 4130-4132; CLR 442) took the view that to declare a trust over property was not simply to take a transfer, or have the benefit only of an agreement to transfer of a ``bare legal estate''.

``It was next submitted on behalf of the appellant that even if the case fell within para. 2 no duty was payable, because the property comprised in the declaration was no more than the bare legal estate, or, alternatively, that the consideration for the declaration should be regarded as the transfer of the land and that there was therefore full consideration for the declaration. Neither of these arguments is correct. The property comprised in the declaration of trust was the entire property in the land in question. Before the transfer was executed 29 Macquarie was the legal owner of the land; it had the whole right of property in the land, but had no separate equitable estate in it, for its equitable estate was absorbed in the legal estate. Assuming, as we must, for the purposes of the case, that there was an effective transfer of the fee simple to D.K.L.R., the latter company then became obliged to hold the land for the benefit of 29 Macquarie. However, the property as to which the trust was declared - the property comprised in the declaration - was the whole right of property in the land, and not the bare legal estate, for it was not until the declaration of trust became operative that any separate equitable estate was created. 29 Macquarie did not transfer to D.K.L.R. the bare legal estate; indeed it could not declare itself a trustee for itself, and then transfer the bare legal estate to another.''

Aickin J concurred in this conclusion. Brennan J expressed a similar opinion (ATC 4150-4152; CLR 473-474).

Of course, this case was not one in which the instrument in question created a new equitable interest. That would, however, have been the situation had the appellant's contentions concerning merger been accepted.

It follows from the authorities referred to above that, in the absence of statutory provision to the contrary, the value of an interest conveyed by an absolute owner is the commercial value of the entire interest. If the interest is subjected to equitable obligations by virtue of the terms on which the legal estate is to be transferred, that circumstance does not affect the value of the interest so transferred. That is because the equitable interest is created by, not in advance of, the conveyance. Thus, as I have noted, had it been the case that merger had occurred and that the conveyance fell outside of the categories of exempt instruments, duty would have been assessable on the value of the Crown Lease. It may be noted that otherwise there would be little need to create the relevant category of exempt instruments.

The decision of the learned President was, therefore, in error. The Commissioner, but for the fact that the instrument was exempt, approached the issue of assessment correctly.

The questions of law raised on the appeal should, therefore, be answered as follows:-

• (a) The Tribunal did err in determining that duty to be imposed upon a transfer or an

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  agreement to transfer a Crown Lease in accordance with the Stamp Duties (Conveyances) Determination (No. 3) was to be assessed after deducting the value of any outstanding equitable interest held by a third party.
• (b) The Tribunal did err in holding that the Commissioner should have assessed duty on the basis that the value of the interest agreed to be transferred was the unencumbered value of the lease after deducting the value of any outstanding equitable interest held by a third party.
• (c) The obligations imposed by the T & G Trust did not cease upon CPC acquiring all units therein as trustee for the Empire Trust.

As a result, the decision of the learned President must be set aside. The Deed of Appointment was rightly construed as an agreement for the transfer of a Crown Lease. The value of the interest to be transferred was the value of the lease. However, the instrument was exempt from duty. It follows that it was not liable to duty. The original assessment was, therefore, correct.

It follows that the order made by the learned President that the matter be remitted to the Commissioner should be set aside. There is no duty assessable. The decision to disallow the assessment made by the Commissioner will stand.

I will hear the parties as to costs.

ORDERS VARIED:

10 December 1993

Higgins J: THIS APPEAL coming on for hearing on the 20th and 21st days of September, 1993 AND UPON HEARING Mr DF Jackson one of Her Majesty's counsel and with him Mr BJ Sullivan for the appellant and Mr IV Gzell one of Her Majesty's counsel and with him Mr A Robertson for the respondent THE COURT DID RESERVE JUDGMENT and the same standing for judgment this day IT IS ORDERED that:

1. The appeal be upheld.

2. The decision of the Administrative Appeals Tribunal appealed from is set aside.

3. The matter be remitted to the ACT Administrative Appeals Tribunal for further determination in accordance with the reasons of the decision of this Court given on 26 November 1993 and the reasons given for determining the notice of motion filed by the Appellant dated 1 December 1993.

4. There be no order as to costs.