Chief Commissioner of Stamp Duties v Buckle & Ors S5/1996 [1996] HCATrans 362 (13 September 1996)

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry

Sydney No S5 of 1996

B e t w e e n -

CHIEF COMMISSIONER OF STAMP DUTIES

Applicant

and

WILLIAM FRANCIS BUCKLE, WILLIAM JOHN BUCKLE and JANE MARGARET JORY

Respondents

Application for special leave to appeal

TOOHEY J

GAUDRON J

GUMMOW

TRANSCRIPT OF PROCEEDINGS

AT SYDNEY ON FRIDAY, 13 SEPTEMBER 1996, AT 2.30 PM

Copyright in the High Court of Australia

MR A.H. SLATER, QC: I appear with MR H.R. SORENSON for the applicant. (instructed by I.V. Knight, Crown Solicitor for New South Wales)

MR R.W. WHITE: If it please the Court, I appear with my learned friend, MS P.P. WINES for the respondents. (instructed by Mallesons Stephen Jaques)

TOOHEY J: Yes, Mr Slater.

MR SLATER: Your Honours, the facts on which this application comes to this Court are straightforward and undisputed. They can be very briefly stated. Pursuant to a power granted by a trust instrument, the dispositive provisions of the trust were altered by changing the terms of the gift for future interest. The issues raised by the application are, in our submission, not peculiar to the instant facts but are of general application to all exercises of power to vary entitlements under a trust instrument.

Your Honours, there is no real dispute between the parties that there are two points of principle. The first is whether, for stamp duty purposes, a variation of the entitlements under a trust instrument should be approached on the basis that it is an appointment or resettlement of the trust fund or on the basis that it is an appointment or resettlement only of the interests varied. My learned friend's written outline to the Court seeks to defeat the application by confining the first point to the instant facts but, in our submission, it runs wider because the instant facts are typical of many others.

GUMMOW J: That may be conceded, I think, but what do you say about paragraph 20 of your opponent's outline, that is to say, that tends to suggest that the various State and Territory Acts are sufficiently different not to have any useful flow-on effect for any interpretation given to any New South Wales Act?

MR SLATER: Your Honour, that is so in relation to Victoria. We concede that. Victoria has a fixed duty. But in relation to the other States, on the first point the issue arises in each case, in our submission.

GUMMOW J: When you say "has a fixed duty" - - -?

MR SLATER: In Victoria there is a fixed $200 duty on any variation of a trust.

GUMMOW J: Yes.

MR SLATER: But in the other States the issue of identifying the subject matter of a variation arises in each State. Although the wording is different, the issue in general is sufficiently similar to put a matter to be of general materiality.

GUMMOW J: What about this concept of unencumbered value in the New South Wales Act? Does that run through to the other legislation?

MR SLATER: It does not arise for the same reasons in Victoria and it does not arise in Queensland, and we accept that, but in other States, although the words are differently expressed, the concept of unencumbered value does arise.

GUMMOW J: Yes, thank you.

MR SLATER: Your Honours, each of the two issues, but particularly the first one, is fundamental to stamp duty assessments and variation of trusts and how they are to be approached.

GUMMOW J: What I suppose you have going in your favour in a way is that Chirnside and those old cases have been treated as generally providing wisdom throughout all stamp duty law in Australia as to what a resettlement is.

MR SLATER: Yes, they have, your Honour. Chirnside, Davidson v Armytage, and Buzza's Case have since they were handed down by this Court - - -

GUMMOW J: And they are from various States, I think. They are not all from this State.

MR SLATER: Yes. What we also have going for us to a certain extent is this, your Honour: it is a matter of sufficient complexity to warrant the attention of the Court and that is manifest from the decision of the court below. It is difficult to get an evenly divided court of three, but this case went about as close as you can go. You have, on the first issue, the identification of the subject matter, Justice Sheller agreeing with the taxpayer that the relevant property is the future contingent interest and you have Justice Powell agreeing with the Commissioner that the relevant property is the fund vested in the trustee and the President, although he expressed some intellectual preference for Justice Sheller's views, declined to decide between them. So that the decision below, although it deals with the matter, it does not stand as authority for either view.

Then, on the second issue, we have Justice Sheller saying that the trustee has a beneficial interest in the trust assets to the extent of its right to be indemnified and that that beneficial interest is to be preferred to the interest of the cestui que trust. On the other hand, we have Justice Powell agreeing with the Commissioner that the trustee's lien is in the nature of an encumbrance and then we have the President saying that those two arguments are very evenly balanced and it is very difficult to chose between them, and that a substantial case can be made out for each point of view. Finally, after teetering a bit - - -

GUMMOW J: Is there bound up in the second question some dispute as to the nature of the trustee's lien?

MR SLATER: Sorry, your Honour?

GUMMOW J: Is there bound up in the second stamp duty question some general law question about the nature of the lien?

MR SLATER: In our submission, there is, your Honour. In identifying whether the interest is a beneficial interest or is merely an encumbrance for stamp duty purposes, it is necessary to go into the issue which was controverted between the Full Courts of Victorian, South Australia and Western Australia about the nature of a trustee's right of indemnity. That is the issue which was canvassed, on the one hand, in Re Enhill in the Victorian court and, on the other hand, in Re Suco Gold in the South Australia court and the Full Court in those two courts came to different conclusions on the nature of the trustee's right. They were dealing with the question for the purpose of deciding whether - - -

GUMMOW J: Is there any difference between Justices Sheller and Powell in the Court of Appeal as between Suco Gold and Enhill?

MR SLATER: To this extent, yes, your Honour: Justice Sheller took the view that the interest of the trustee was a beneficial interest in the assets and that is the view which was taken in Re Enhill. Justice Powell took the view that it was merely a charge. Depending on which of those views is correct, there are logical implications for the way in which creditors of an insolvent trustee would approach claims upon the assets of the trust estate because if the correct view is that a trustee's claim to the trust assets is a beneficial claim then non-trust creditors can have recourse to the trust assets through that beneficial claim. But if the correct view is that it is merely an encumbrance for the benefit of the trustee's liability to trust creditors, then only trust creditors can have access to the trust assets and non-trust creditors cannot. That is the issue which divided the courts in the liquidation cases and we say that in order to resolve this case that question has to be resolved and the resolution of that will have the wider implications. That is one of the reasons why we say this case warrants the attention of the Court.

GUMMOW J: That is to say, the range of creditors who can take advantage of this facility, as it were, general creditors or purely trading trust creditors?

MR SLATER: Whether non-trustee creditors, general creditors of the trustee.

GUMMOW J: Is that an issue in this Court in Octavo or was that not necessary for decision in Octavo?

MR SLATER: It was not an issue in Octavo, your Honour. At least, it did not arise in the way in which it arose in the later Supreme Court cases.

GUMMOW J: Yes, all right.

MR SLATER: Each side of the debate takes a different view of what the implications of Octavo are for non-trust creditors of an insolvent trustee.

Your Honours, if I can return for a moment to the first issue in this application. It is one on which there are two strongly expressed but directly opposed views in the court below and it is, in our submission, one which has application to every variation of trust. Not every variation of trust would be expressed in precisely these words but every time a trust instrument is varied so that the entitlements of beneficiaries are altered, it could be said, as Justice Sheller said, that it is only the extent of the alteration of the beneficiaries' interests that is at stake or it could be said, as Justice Powell said, that it is the entire trust fund that is affected by the variation.

GUMMOW J: Is that not the traditional view?

MR SLATER: The latter is the traditional view?

GUMMOW J: Yes.

MR SLATER: Yes, but it is not the view which attracted Justice Sheller and just attracted the President in this case, so that this case stands, in our submission, in opposition to the view which has prevailed since 1910 or thereabouts.

Your Honours, it is also put against us that the present application is one which involves just a matter of statutory construction. In an absolute sense, that is so, but then so does 70 per cent or more of the work of this Court. The issues that we seek to put forward as the ones that attract the grant of special leave go beyond merely being matters of statutory construction, in the same way, for example, as the recent case of Telegraph Investments could have been characterised as a statutory construction matter but was accepted by the Court as running wider than that.

Your Honours, on the second issue, I have addressed your Honours on the way in which the Enhill and Suco Gold dispute arises and we say that that, in itself, is a sufficient matter to justify the grant of special leave but, a fortiorari, we say the two issues together would, both of which require resolution in the context of this case, each independently justify the grant of special leave. Neither of them is peculiar to this case and both of them involve a sufficient range of cases that they are appropriate matters for this Court to intervene in. If your Honours please.

TOOHEY J: Yes, thank you, Mr Slater. Mr White.

MR WHITE: May it please the Court. As my learned friend says, there are essentially two questions. The first question, we do submit, ultimately will turn upon a construction of the particular instrument. It can be put in wider terms, as appears from the respective summaries of arguments, but in order for it to be put in wider terms one has to be able to say that an instrument executed by a trustee which alters the trusts whereby only particular interests of beneficiaries are altered necessarily requires that the instrument conveys the whole of the trust fund vested in the trustee.

GUMMOW J: I think the traditional language is that it alters the charter of the - - -

MR WHITE: That is the traditional language of a settlement, it alters the charter of the party's rights.

GUMMOW J: Yes, the universal language of the stamp duty authorities.

MR WHITE: Yes, but the question is what are the charter of the rights which are - - -

GUMMOW J: There is a question of characterisation at a fairly fundamental level that is involved in it.

MR WHITE: Precisely, your Honour. There is no doubt, from the authorities going at least back to Davidson v Armytage, that one can have a settlement which deals not with physical assets held by trustees but with particular interests in them, in the same way as one can have a power of appointment over a fee and one can exercise the power not by appointing the fee but by appointing a lesser interest in it. In each case, the question is what is appointed or what is resettled.

Unless there is a general principle that necessarily - in such an interest, the whole of the assets are resettled or appointed irrespective of the terms of the instrument. Then the case will turn on the terms of each particular instrument.

This case is not a case in which the existing trusts were revoked and some trusts were restated and other trusts were altered. Now, many of the cases, and they are referred to in the judgments below such as Buzza's Case, is effectively just such a case. In this case, clearly enough the legal ownership remained untouched. The trusts of income were simply not dealt with by the instrument.

GUMMOW J: No, it was corpus.

MR WHITE: It was corpus and the position of the beneficiaries as objects - - -

GUMMOW J: Which one might have thought strengthened the Commissioner's position.

MR WHITE: It was the interests of the beneficiaries as takers in default of appointment to the corpus.

GUMMOW J: Yes.

MR WHITE: So, the position of beneficiaries as objects of a discretionary power for the appointment of the corpus were unchanged. All that was changed and, indeed, all that the instrument purported to change or that it dealt with was the interests of beneficiaries as takers and children as takers in default.

Now, it is our submission that that is plainly a case in which the instrument simply dealt with those particular interests. It is our submission that unless one could challenge the authorities which the Commissioner does not expressly say he seeks to do, to challenge the authorities that say that one can resettle or appoint particular interests in trust property, then, in each case, it must be a question of the terms of the instrument.

The matter has obvious relevance to States other than New South Wales but, as my learned friend quite correctly accepts, the language of the different statutes in different States is different and it does not necessarily mean that any result which is made in this case will not be applicable to, say, Queensland on this first question but it does mean that there will be matters of debate which will be available in each of the other States as to whether the differences in wording necessarily leads to the same result as applies under the New South Wales statute.

GUMMOW J: What do you say about the unsatisfactory nature from the precedential point of view of the Court of Appeal's treatment of this issue?

MR WHITE: I missed the last part of your Honour's question.

GUMMOW J: What do you say about what is said to be the unsatisfactory nature in which this matter was disposed of by the Court of Appeal; unsatisfactory as regards both the tax collector and other taxpayers?

MR WHITE: That issue turns upon an analysis of what the President decided. He found at the end of his judgment, at page 20 of the application book, that the value of the property conveyed was nil for the reasons given by his Honour Mr Justice Sheller. Mr Justice Sheller made that decision because he was of the view that the property conveyed was in the beneficial interests of the children as takers in default of appointment. He had earlier, at page 19 of the application book, said that it was not necessary for the court, finally, to conclude its decision on that particular point, the identity of the property conveyed.

It is our submission that the President must, accordingly, also have been of the opinion that even if the property conveyed was the trust fund held by the trustee, that the trustee's right of indemnity was not an encumbrance and that what was conveyed upon a resettlement of the entirety of the trust fund would be a beneficial interest subject to the trustee's preferred beneficial interest which arises from his right of indemnity.

Now, we submit that that is consistent with his Honour's reference to "the trend of law as revealed by analogous cases" at page 20 of the application book which appears to be a reference to Pachet's Case.

GUMMOW J: Which is a Queensland decision, is it?

MR WHITE: It is a Queensland decision; a decision of the Full Court of the Supreme Court of Queensland. One which the Commissioner has consistently said he would not follow; a decision which Mr Justice Powell took the view was incorrect but a decision which, in our submission, first of all, might turn upon that court's identification of the property conveyed in that case, whether it was the trust fund or the beneficial interest of particular beneficiaries or, on the other hand, might perhaps take a view of the nature of the trustee's right of indemnity and whether it amounted to an encumbrance, even if the property conveyed were the entirety of the trust fund.

It is our submission that the President adopted Mr Justice Sheller's view, because that is what he says at page 20, but because he had earlier said it was a matter which the court did not necessarily have to decide, it would appear that he was also of the opinion that even if that view were wrong, the trustee's interest reduced the value of the property to nil. TOOHEY J: It still leaves the judgments, in terms of weight of authority, as somewhat unsatisfactory, does it not?

MR WHITE: It leaves it somewhat unclear. If lack of clarity is being unsatisfactory, yes.

TOOHEY J: I would not have thought there is much argument about that.

MR WHITE: But on an analysis, and particularly having regard to what the President said would be his preferred view in any event and then having further regard to what he in fact decided at page 20, it would be our submission that Mr Justice Sheller's view would be regarded as the view of the majority of the court.

Could I deal with the second question. The question of whether the trustee's right of indemnity is an encumbrance which would reduce the value of the property to nothing if what was conveyed was the entirety of the trust fund could perhaps raise questions of general importance. It is certainly a question which has not been clearly decided, at least not in favour of the taxpayer. The difficulty with that question is that it is one which only arises if the Commissioner succeeds on the first ground because both Mr Justices Sheller and Powell were of the like view, that if the property conveyed was the interest of the beneficiary, the value of that property was to be ascertained having regard to the trustee's right of indemnity. That was decided in Kemtron's Case in Queensland and the Commissioner has not challenged the correctness of Kemtron. So, although that may be a matter of some general importance, it is a question which this Court, if it granted special leave, would not necessarily and, in our submission, would not come to deal with.

It is submitted for the Commissioner that there is bound up with that question, the question of the correctness of Re Enhill in the Full Court of the Supreme Court of Victoria, and Re Suco Gold in the Full Court of the Supreme Court of South Australia. It is our submission that even if the question of the trustee's right of indemnity does arise, it certainly does not throw up the particular questions which divided those courts. Those questions are whether the interest which the trustee has, which this Court in Octavo described as a beneficial interest, is a beneficial interest which is available to the trust creditors or to the general creditors of the trustee and it arises in the case of the trustee's bankruptcy.

GUMMOW J: There is some debate, I think, as to what precisely this Court meant by "beneficial interest" in Octavo.

MR WHITE: And the debate has arisen in the later cases by the dispute as to whether it being a beneficial interest, the value of it is something which general creditors of the trustee can take advantage of or whether it is a beneficial - - -

GUMMOW J: I am thinking of the impact on that phrase "beneficial interest" in Octavo, of the reasoning in cases like Schultz, the later judgment in this Court of Schultz, for example.

MR WHITE: It would be our submission, on the point if it arose, that the question turns not so - the question turns, of course, upon what is an encumbrance for the purposes of section 66.

GUMMOW J: Yes, what is unencumbered value.

MR WHITE: What is unencumbered value. Now, the nature of the trustee's rights have been described and variously described but the question is, having determined what those bundles of rights consist of, does it amount to an encumbrance? Now, the Commissioner says that it is really in the nature of a charge or a lien. The other and, we would submit, the better view would be that when a trustee resettles the whole trust fund, all that passes to the beneficiaries is something which is deferred to the trustee's right of indemnity and right to have recourse to the trust assets to satisfy that right.

GUMMOW J: That is the unsettled question, is it not?

MR WHITE: That would be the issue which would arise and which I accept would be a matter of some importance to the stamp duty legislation of all States other than Victoria, Queensland and also excepting Northern Territory.

TOOHEY J: Your argument is that that point may not be reached.

MR WHITE: May not be reached. On the main point of the case, it would not be reached. My secondary point is that even if it is reached, the resolution of it does not resolve the controversy in Re Enhill and Re Suco Gold because there is no issue which arises as to who would have the benefit of the trustee's right of indemnity. There is no competition between trust and general creditors here to Mr Buckle's right of indemnity.

Unless I can be of any further assistance to the Court, those are our submissions. TOOHEY J: Yes, thank you, Mr White. We need not hear from you in reply, Mr Slater. There will be a grant of special leave in this matter.

AT 2.56 PM THE MATTER WAS CONCLUDED.