Chief Commissioner of Stamp Duties v Buckle and ORS S171/1996 [1997] HCATrans 174 (5 June 1997)

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry

Sydney No S171 of 1996

B e t w e e n -

CHIEF COMMISSIONER OF STAMP DUTIES

Appellant

and

WILLIAM FRANCIS BUCKLE, WILLIAM JOHN BUCKLE and JANE MARGARET JORY

Respondents

BRENNAN CJ

TOOHEY J

GAUDRON J

McHUGH J

GUMMOW J

TRANSCRIPT OF PROCEEDINGS

AT CANBERRA ON THURSDAY, 5 JUNE 1997, AT 10.19 AM

(Continued from 4/6/97)

Copyright in the High Court of Australia

BRENNAN CJ: Yes, Mr Slater.

MR SLATER: Thank you, your Honour. Yesterday afternoon Justice Toohey asked me was there a conveyance and, if so, what was it. The answer to that, in our submission, is that there was a conveyance and it was an instrument which varied the trusts governing the present property by appointing new trusts or, on a different view of the matter, by resettling the existing trusts. The property which was the subject of that conveyance was the entirety of the assets held by the trustee in as much as the trusts which were varied, being the whole of the trusts in the trust deed pursuant to a power which only extended to varying the whole of those trusts, were trusts which affected the whole of the property held by the trustee.

TOOHEY J: Is "trust fund" a compendious way of referring to that property?

MR SLATER: It is, your Honour. It is again a matter where the use of an expression such as "trust fund" sometimes tends to confuse.

TOOHEY J: As defined in the instrument, of course.

MR SLATER: As defined in the instrument, yes. Your Honours, what we say is that what were varied were the trusts which regulated the terms on which the trustee held the land and cash and which the class of beneficiaries had a right to have the trustee observe.

BRENNAN CJ: But how does that answer the requirement of the definition contained in the words "whereby any property is transferred to or vested in or accrues to any person"?

MR SLATER: It answers it this way, your Honour - and may I develop this a little later - in two ways. First, responding directly to what your Honour has put to me, what accrues to or vests in any person is the right to have the amended trusts administered in respect of the trust property.

BRENNAN CJ: That right, is that what accrues?

MR SLATER: In all the beneficiaries collectively. Not simply in the children but in all the beneficiaries; all those persons who had beneficial interests under the trust instrument had a right to have - - -

GUMMOW J: They did not have beneficial interests.

MR SLATER: Who did not have, your Honour?

GUMMOW J: No one had any beneficial interest in it. It was vested in corpus at the relevant time. There were a number of people who were hopeful that they might have an advancement under a power exercised in their favour, for example.

MR SLATER: Yes, your Honour, but in the same way as it may be said in respect of what in Gartside's Case was called a discretionary trust, that the whole of the class of objects together have a beneficial interest in the fund or in the case of an unadministered estate that the residuary legatees collectively have an interest in the trust fund, but none of them individually can point to any particular asset.

GUMMOW J: Gartside is authority for the proposition that when these people in this class and if one of them dies they do not die owning anything for the purposes of death duty, is it not?

MR SLATER: It is authority for the proposition that there is no direct succession as a result of that, but it is also authority for the proposition that collectively the class of persons in whose favour the trustee may exercise the discretion have the entire beneficial interest.

BRENNAN CJ: In the sense that if they are all sui juris they can discharge the trust. Is that what is meant by it?

MR SLATER: I think that is what is meant by it, your Honour. I hesitate slightly to answer that immediately because there could be circumstances in which by reason of what was said in Brockbank's Case in 1948, they cannot compel the trustee to act in a particular way but if they are all sui juris and they exhaust the estate, yes, they can bring the estate to an end.

BRENNAN CJ: Is that right?

GUMMOW J: Is that right?

MR SLATER: I am not sure which one of your Honours I should answer.

BRENNAN CJ: Answer Justice Gummow.

GUMMOW J: But is that correct?

MR SLATER: Is it correct that if all persons who can take sui juris and collectively call for the estate to be brought to an end, I believe it must be so, your Honour.

GUMMOW J: That is in a situation where the trust is held for A for life and then for B and A and B get together. This is just a case where there is these powers exercisable.

MR SLATER: I was responding to your Honour's point of principle.

GUMMOW J: A lot of set laws would be absolute astonished to realise that this is what they were establishing, would they not? That is why these things are cast in this way these days - apart from revenue consideration - which is another reason for casting these trusts in this form.

MR SLATER: Persons who settle funds generally speaking do not expect that the beneficiaries will club together and bring the trust to an end, but it can happen and I suppose - - -

GUMMOW J: You keep using this term "beneficiaries", you see. I know it is the word used in the document - - -

MR SLATER: Yes, and I accept that I am using it in a loose sense. Like Viscount Radcliffe, I do not have the vocabulary to find another word. Perhaps I should say "those persons who have a claim upon the trustee". If all those persons who have a claim upon the trustee are sui juris and make that claim, then collectively they may bring the fund to an end.

GAUDRON J: But nobody can make a claim, can they, until the appointment date?

MR SLATER: It depends, your Honour, upon drawing a distinction between the abstract way in which the question was put to me and relating it to the concrete facts of this case. If the abstract fact is that all the persons who have a claim upon the trustee can be identified and collectively call upon the trustee to bring the fund to an end, then they may do so. That is the effect of the decision in Saunders v Vautier. The particular facts of this case, as is ordinarily the case when a fund is settled, are that, first, not all the persons who have a claim upon the trustee - present or potential - can be identified because there are gifts over to the children of the children of the trustee - that is, to grandchildren - and they would have to be joined in, or some order of the court made to protect their interests, before the trust could be determined on a Saunders v Vautier basis.

Secondly, in a practical sense, set laws generally anticipate that the clubbing together, and indeed it, generally speaking, does not. But I mention Buzza's Case as an example where it did. Granted that was a simpler trust, and it is the factual matter of the relative simplicity of a small number of potential beneficiaries which limits the occasions on which a Saunders v Vautier resolution to determine the trust is made. But in abstract terms, if all the persons who could claim upon the trustee were to gather together, then they could call upon the trustee to terminate the trust and distribute it as they direct, and that would be a variation of the trust by resolution of the beneficiaries, as happened in Buzza.

BRENNAN CJ: Can I take you back to my first question, and that is the element of the definition contained in the words:

whereby any property in New South Wales is transferred to or vested in or accrues to any person -

As I understand you to say, that if in the abstract one might be able to say that all of the possible objects of the trust could bring it to an end, one could then define the property as being the property which is that comprised in the trust deed and which is relevantly in some sense or another accruing to or transferred to or vested in those objects. That is not a practical proposition in the present case. In the actual circumstances of the present case there is no Saunders v Vautier situation possible. So the property must be no more than the right to have the trust administered. Is that property?

MR SLATER: That is property - - -

BRENNAN CJ: What is the authority for that?

MR SLATER: - - - and that is what was decided in Schultz's Case, but that is not the relevant property.

BRENNAN CJ: That is not the relevant property?

MR SLATER: Your Honour was about to ask me for the authority for that proposition.

BRENNAN CJ: If that is not the relevant property, what is the relevant property?

MR SLATER: The relevant property, in our submission, your Honour, is the tangible assets held by the trustee, that is in the present case the land and the $10 note. The vesting - - -

BRENNAN CJ: If I could interrupt you there. If that is the relevant property, from whom was it transferred and to whom? In whom was it vested or to whom does it accrue?

MR SLATER: From whom is perhaps a misleading question.

BRENNAN CJ: Well, do not worry about the "from" because the word is only "to", to whom is it transferred.

MR SLATER: May I answer it this way: it is vested in the trustee upon trust for the class of persons, albeit a class which is very open, who may benefit under the trust fund, and it is vested in the trustee upon the amended trusts resulting from the execution of the amending deed. There are two ways of looking at the matter. One way, the way in which it was looked at in Livingstone's Case, and by Justice Hope in the DKLR Case, is to say that the absolute ownership is vested in the trustee and equity imposes upon him the obligation to hold it and administer it in accordance with the trusts declared. The other way is to look at it by reference to the beneficial interests and say that the beneficial interests are vested in the class of persons for whose benefit the trustee holds the fund upon the amended trusts.

BRENNAN CJ: And who are they?

MR SLATER: They are the class of persons defined in the instrument as "the beneficiaries" plus the persons referred to as "The father", "The children", "The issue" and the charities who are the ultimate objects of a power of disposition if all other trusts fail. That is the class. It is a class which would fail the criterion certainty set in McPhail v Doulton but does not fail the criterion certainty test used in Australian law in cases where there is a mere power followed by a gift over. If there were no gifts over to the children and their issue and the charities then the definition of the class of beneficiaries in the definition clause in 1.07 would fail the certainty requirement, but because there is that gift over to identifiable persons that specification of beneficiaries and the power to appoint in their favour is a mere power and does not have to meet the McPhail v Doulton test. It is that class in whom the beneficial interest on the amended trust vests by virtue of the appointment of the amended trusts.

BRENNAN CJ: Am I right in thinking that your argument would go so far as to say that if there was a trust which contains a power of appointment and the possible appointees are changed, then there is a conveyance of the property the subject of the trust?

MR SLATER: Yes. I would have to go that far, your Honour, yes.

TOOHEY J: That prompts me to ask you this question, Mr Slater. The Chief Justice has referred you to the words:

whereby any property in New South Wales is transferred to or vested in or accrues to any person -

Do you treat those words as governing everything that precedes them or does the definition mark out a number of transactions such as transfer, lease and so on and then go on to say, "and every other instrument whereby"? I am not sure that in the end there is any great distinction because the particular transactions that are marked out might all involve the transfer or vesting or accrual; but just as a matter of construction of the section, how do you approach it?

MR SLATER: What we say about the construction of the section, your Honour, is that some meaning must be given to that initial catalogue of words and, as we would see it, the effect of the addition of that catalogue of instruments which was not in the legislation before 1920 and is not in the comparable English legislation, is that those instruments may attract a liability to duty by reference to their operation upon property in a different way from the way in which an instrument operates in the manner Justice Sheller adopted. I do not think I put that terribly clearly, your Honour, and I apologise for that. May I try to elaborate on the point a little later, by taking your Honour to the legislation and endeavouring to show how we say it works?

TOOHEY J: It is just that the section - on one view the section might well have simply said that a conveyance means any instrument whereby any property and so on without descending to the particularity to which the section does descend. That might give rise to an argument that a conveyance includes any of those particular instruments, whether they involve a transfer, vesting or accrual, but also includes any other instrument which does involve a transfer, vesting or accrual.

MR SLATER: Yes.

TOOHEY J: You seem a bit dubious. The suggestion was not adverse to you.

MR SLATER: No, I appreciate that, your Honour, and it is, more or less, the submission we make.

TOOHEY J: I know that counsel are often very reluctant to accept any suggestion from the Bench.

MR SLATER: It is not from any reluctance, your Honour, it is from hesitation about overstepping the mark in responding with too great alacrity.

TOOHEY J: It is just a possible view of section 65.

MR SLATER: It is the view which Justice Hill has espoused from time to time in his writings on stamp duty, although I do not think it appears in his text. His Honour says that those words must be taken to extend the definition. The slight hesitation I have about it is that one then wonders whether there is not some constitutional inhibition, some limitation upon the power of New South Wales to extend it in that way and how far they should be read down. That is not an inhibition which applies in this case because all the property was within New South Wales.

TOOHEY J: There might also be a difficulty in identifying a property which generates the amount of duty.

MR SLATER: It is then necessary to identify that property which is referred to in section 66 as the property thereby conveyed. That is why I am appearing slightly hesitant in responding to your Honour's question. The way in which we put it is that those instruments extend the definition of conveyance beyond what appears in, say, the English Act, by extending it to property upon which those instruments operate. So that where there is a settlement then it is sufficient that there is a settlement of property and that will attract the liability to duty. The answer to the section 66 question then is, namely, what property is conveyed is that it is the property the subject of the settlement. The same can be said of releases and disclaimers. Disclaimer, in particular, is, as I will endeavour to show your Honours shortly, is a case where that word must be taken, in our submission, to extend the definition. That illuminates the import which should be given to the whole of that catalogue.

GUMMOW J: The consequence of a disclaimer, a release and a surrender, perhaps of a foreclosure, may be that an interest in property accrues to a person.

MR SLATER: It may be, yes, your Honour, except for disclaimer. It is more easy to see that that is so in relation to a release and a surrender.

GUMMOW J: Yes, you may be right about that but one can give the words "transferred to", "vested in" or "accrues to" distributive meanings which make sense to some of the words in relation to one or more of the various types of disposition referred to in the first three lines of that definition. There is no problem about it, is there?

MR SLATER: There is no problem about doing that, your Honour.

GUMMOW J: An exercise of a power of appointment could produce the vesting property in a person. That seems to be what you are saying is happening here, but I am not sure it is.

MR SLATER: What we are saying here is that - - -

GUMMOW J: You rely on "appointment", do you not?

MR SLATER: We do rely on "appointment", yes, your Honour. We rely on "appointment" and on "settlement" and we say that relevantly for present purposes they are to the same effect. We say also this, that the property in respect of which the children acquired rights by virtue of the amending deed is not the same thing as the rights which the children thereby acquired. The rights which the children acquired were rights to have the fund duly administered until the distribution date and then on the distribution date to have whatever property was then held by the trustee applied for their benefit provided that no other appointment was made to take effect on the distribution date under clause 2.21 or no other advancement was made.

The rights are in some respect analogous to those which were considered by the Court in Schultz's Case 170 CLR in the context of an unadministered estate. Schultz's Case is not on our list of authorities, nor our friend's. Your Honours will recall that the - - -

BRENNAN CJ: You had better give us the reference and tell us what it says.

MR SLATER: I was about to, your Honour. It is [1990] HCA 45; 170 CLR 306 and it concerned the rights of a beneficiary in an unadministered estate who was made bankrupt before the death of the testator. The testator left property to the bankrupt in her will and there was a family provision application made and then varied before the discharge of the bankrupt. The official receiver sought to claim the property which was left to the bankrupt in the will as part of the property of the bankrupt within sections 54 and 116 of the Bankruptcy Act. The Court held that the rights which the bankrupt had were not rights specifically in property but rights similar to those which Viscount Radcliffe had spoken of in Livingston's Case. The relevant passage, your Honours, is in the last paragraph beginning on page 313 of the report. If I may read it to your Honours:

The right which any beneficiary has in an unadministered estate springs from the duty of the executor to administer the estate, to preserve the assets and to deal with them in the proper manner. Each beneficiary has an interest in seeing that the whole of the assets are treated in accordance with the executor's duties. In that sense, the beneficiaries as a class may be said to have an interest in the entire estate -

and that is the point which I was endeavouring to make to your Honour the Chief Justice earlier -

But it does not follow that each piece of property which goes to make up the estate is held on a particular trust for the beneficiary named as its intended recipient upon completion of the administration: Horton v Jones. Whether or not the estate is held on a trust for the beneficiaries as a class in the usual sense in which the word "trust" is used, so as to confer a specific proprietary interest, as distinct from a general, non-specific interest, upon all beneficiaries, is not something which arises for consideration in this case.

They then went on to hold that Mrs Schultz's right to have the estate administered matured into an interest in the property.

GUMMOW J: Well, those 10 lines at the top of 314, maybe the question does arise here in construing the Stamp Duties Act.

MR SLATER: Yes, it does, your Honour. If I may give your Honours one other reference to a somewhat analogous position. Again, it is not an authority which is on our list of authorities. It is the decision of this Court in Harmer v Federal Commissioner of Taxation 173 CLR 264 and the relevant passage is the last paragraph commencing on page 272 and just very briefly, your Honours, the issue in that case concerned moneys which had been paid into court and then paid out to the appellants to hold pending the resolution of the litigation and the dispute was as to whether there was any person presently entitled to the income which accrued on the fund. If there was not, then the appellants were liable to tax. If there was, then the person presently entitled was liable to tax, and in the joint judgment of the Court at the foot at page 272 their Honours say:

Upon payment into court, the $198,195 owed by Riverhall became "trust moneys" in the broad sense that neither the Accountant of the Crown Law Department nor the court itself was beneficially entitled to them. They were received by the court (through the Accountant as the appropriate officer) pursuant to the statutory provisions or Rules of Court under which they were paid in. After payment in, the claimants acquired an interest in the moneys in the sense that they were entitled to insist that they be properly administered and applied for the purposes for which they were paid in. However, no claimant was beneficially entitled to either the whole or any part of the moneys paid into court or of the interest earned thereon -

and they refer there to Schultz's Case -

The moneys were received and held by the Accountant to be applied in accordance with the orders ultimately made by the Supreme Court. The respective interests of the individual claimants were, at best, contingent. None had an entitlement to the capital or the income of the fund which was vested either in interest or in possession. A fortiori, none had a present legal right to demand or receive payment of either capital or income.

And the tax consequences followed. Those are cases which illustrate the proposition which we advance that there can be moneys held on trust for a class of beneficiaries, none of whom has a present claim on the fund but who, collectively, have the beneficial interest in the fund. Our submission in this case is that when the trusts regulating the terms on which the fund is held are varied, then there is an appointment of fresh trusts in respect of that property and that property vests in or accrues to the trustee on those fresh trusts as distinct from whatever trusts were held previously. That is not to say that at the same time there is not - - -

BRENNAN CJ: That does not carry you very far, does it, if you say that the property is then held by the trustee on fresh trusts because, if you are speaking about the property which the trustee has, there has been no movement in it? You must be speaking about some beneficial interest.

MR SLATER: It is the movement in the beneficial interest in the sense that it accrues to the trustee on trust for the class of beneficiaries upon different trusts. That brings us - - -

BRENNAN CJ: I do not understand that proposition.

MR SLATER: It brings me back to the point which Justice Toohey invited me to elaborate upon, but just before I go to that may I make one other point and then come back to your Honour.

BRENNAN CJ: Yes; I would like you to explain what you mean by a sentence - - -

MR SLATER: Yes, I will endeavour to do that, your Honour. I am not trying to evade it; I am just trying to make another point before I come to it.

BRENNAN CJ: Yes.

MR SLATER: The other point I wish to make is this: the circumstance that by reason of the instrument some additional entitlement or enlarged right accrues to one of the class of objects or class of persons who have a claim upon the trustee - I am trying to avoid the word "beneficiary" - does not prevent the instrument from also having the effect which we claim that it has of causing the property to vest in the trustee upon different trusts. I appreciate that that is the expression which your Honour the Chief Justice has asked me to elaborate upon, but if I may go on using it.

BRENNAN CJ: What property is it that we are concerned with, and what has happened to that property? Whether one takes it in terms of any of the categories of instruments which are specified in the definition of "conveyance", or whether one takes it under the category of "other instrument whereby", whichever way one takes it, what happens to what property?

MR SLATER: What property, your Honour, is in our primary submission the land and the cash. In our secondary submission, the beneficial interest in the land and the cash, thereby distinguishing it from the legal title which remains in the trustee. There are two ways of looking at it and we say that either way will get us home. What moves is that whereas previously it was held upon one set of trusts as a result of the amendment it is held upon a different set of trusts, albeit not very different, and we say that the movement from the one set of trusts to the other set of trusts is the relevant conveyance, and the vesting in the trustee on the new set of trusts as distinct from the old set of trusts is the relevant vesting.

McHUGH J: Is your point that the variation deed divested the children of their original contingent interests as tenants in common in equal shares in the corpus of the trust fund and had the effect of vesting it in them in the two to one?

MR SLATER: I think that is my friend's point, your Honour. If that is the only effect of the instrument, then my friend must win. What we say is that it has that effect, but it has the wider effect that I have been endeavouring to put to his Honour the Chief Justice, that it causes the entire fund to vest in the trustee on the new trusts, an incidental consequence of which is that the entitlement of the children in the future on the distribution date is different from what it was before the amendment.

TOOHEY J: If you are driven as matter of construction to look at section 65 in terms of "whereby any property is transferred, vested or accrues", on the assumption that that has application to everything that precedes it, where is the transfer or vesting or accrual in the trustee?

MR SLATER: If we are driven to the proposition of accepting that those words must be satisfied in respect of any instrument, then we say that the vesting or accrual is the vesting in two alternatives. The first alternative way of putting it is in the trustee upon the amended trusts. The second alternative way of putting it is in the class of beneficiaries on trusts which were different from those which obtained before the appointment is made. The point that your Honour Justice McHugh and the Chief Justice have been putting to me is really the fundamental difference between the parties in this case. The respondents - - -

BRENNAN CJ: On one approach, the property is the legal interest in the land and the $10; on the other, it is some equitable interest.

MR SLATER: I am sorry, your Honour. Those are the two alternatives that we put.

BRENNAN CJ: Those are the two alternatives.

MR SLATER: That we advance.

BRENNAN CJ: Yes.

MR SLATER: The alternative which the respondent advanced, and which found favour with Justice Sheller below, is the alternative that one looks only to the difference between the position of the children before and after the amendment is made, that is their future rights in the fund as it stands at the distribution date is varied from being equal among all children to being two to one among two named children.

TOOHEY J: It is a bit difficult to see how there is a vesting in the trustee by reason of the deed of variation, property already being vested in the trustee. I understand your argument that it is vested on a different trust, but in a sense there is no movement of the legal estate out of the trustee and back to the trustee; it just remains with the trustee.

MR SLATER: That is certainly so, your Honour, yes.

TOOHEY J: How does the vesting arise by reason of the deed of variation?

MR SLATER: Only in this way, your Honour, that it is a vesting which operates to impose different trusts upon the trustee. If one looks purely at the legal estate and nothing else, then there can be no dispute, there is no movement. What we are seeking to advance is that there is a difference between the bare legal estate held by the trustee and the nature of the manner in which the trustee holds the fund. He holds the fund subject to the obligations which are imposed upon him by the terms of the trust instrument and the court.

McHUGH J: So, your argument is not that the result of the variation is to divest the children of their original contingent interest and then revesting, and that being the transfer of property - that is not your argument.

MR SLATER: If by the "original contingent interests" your Honour means the right to share equally in whatever the fund is on the distribution date, then we say that, although that happens, that is not the event upon which we rely. The reason for that, your Honour, is that although that is also a conveyance - - -

GUMMOW J: But there is no right to share there.

MR SLATER: - - - it is a conveyance of property of such exiguous value as to attract no material liability to duty, because the rights are so remote in the future and the property is unidentified at present. So that, if that is the conclusion that is reached, then the taxpayer must win. So, we must persuade the Court that there is a more immediate vesting of the land and cash. I am sorry, your Honour was going to ask me something.

GUMMOW J: There is no right to share. There is a hope, or an expectation that the trustee will exercise the power in a correct manner. If the trustee abused the power and exercised it corruptly, there would no doubt be an equitable remedy in that respect. But otherwise, what you have is....,in a sense; it is a hope, an expectation that the trustee will choose to appoint in your favour. And in default of that happening, there is then a gift over, so it is even more remote.

MR SLATER: I think we are at cross-purposes, your Honour. The interest, as I understood Justice McHugh to be advancing to me, is the gift over, not the expectation of an appointment that your Honour is putting.

GUMMOW J: The gift over is even more remote.

MR SLATER: Yes, and that was the point of my answer to Justice McHugh; that if that is the only interest that is conveyed, then it is so remote that we must fail, in terms of collecting duty. I mean, nominally we still collect an amount of duty, but its calculation is so difficult and its amount is so small that we would not bother.

GUMMOW J: You have to fix on the whole of the property and value the whole of that, and then levy your stamp duty on that footing.

MR SLATER: Yes, we do.

GUMMOW J: And that is your problem.

MR SLATER: It is only a small problem, your Honour. But may I say about that that it invites a false dichotomy and, in our submission, it is a false dichotomy to which Justice Sheller stumbled. It is not the case that if there is a variation in that future exiguous interest there can be no other variation, and his Honour's reasoning, in our respectful submission, appears to proceed on the basis that it having been found that there is a change in the future remainder interest in whatever property there is on the distribution date, there can be no other relevant variation. We say that is no so; there is that future change. But we say there is also a present appointment or settlement of the trust fund.

Your Honours, I have been proceeding so far on the basis that there is a settlement and there is an appointment, and I indicated to your Honours yesterday that the first of those propositions is contested and, while the second is not contested, there is a dispute about the subject matter of it. May I then turn to our submission in relation to settlement? What we say about that is that there is a settlement in this sense; that the amending deed altered the trusts on which the land was held, so that after the execution of the amending deed the rights of the persons having claim upon the trustee could only be determined by reference to the amending deed, as well as to the original deed.

For that reason, we say that the amending deed has the characteristics which we have identified in paragraph 9 of the written submissions. I will not weary the Court by reading to the Court from the various citations in the written submissions; if I may simply ask the Court to take it that I have directed your Honours' attention to those. What we have done is to pick out those things which it appears to us that the courts have, on different occasions, adverted to as indicating the presence of a settlement. There is not any comprehensive definition of a "settlement" beyond that which fell from Chief Justice Griffith in Davidson v Chirnside, where his Honour said that one of the marks of a settlement was that it was the charter of future rights and obligations in respect of the trust fund.

But his Honour was not there seeking to specify an exhaustive definition of settlement. He was simply saying that that was a sufficient indication. In that case there was a new instrument which wholly replaced the testamentary trusts, although it replaced them in terms which, save for two minor points, were identical.

McHUGH J: But those statements in paragraph 9 I am afraid have misled me as to what your argument was about because they really have little to do with your basic point, do they, concerning the property that is transferred?

MR SLATER: They have this to do with it, your Honour: if we are right in saying that there is a settlement, a term which includes resettlement, effected by amending the trust instrument, then it is a settlement or resettlement of the property subject to the trusts at the time the amendment is effected. If the settlement is not of future claims against the trustee, those are the consequences of the settlement. The settlement is of the property held by or transferred to the trustee. So that if there is a settlement then we say that, having established that there is a sufficient amendment to the trusts to constitute a settlement of the fund on varied trusts, then when one asks the question, "What is it that is settled?", the answer is, "The property held by the trustee," which will bring me back to the point that Justice Toohey raised with me earlier.

GUMMOW J: But, Mr Slater, look, the words in line 6 "whereby any property", are you saying they do or do not qualify every item that goes before, that is to say in all of these cases enumerated there must be property transferred, et cetera?

McHUGH J: And they are the critical words, "whereby any property in New South Wales is transferred to or vested in", and the matters in paragraph 9 no doubt your opponent would not disagree with, I would imagine.

GUMMOW J: You have an instrument at any rate. You have another instrument, so what is the problem if the rest is made out?

MR SLATER: The problem lies in this, your Honour, that it is the character of the instrument that I have to persuade your Honours of and the way in which it operates to identify what property is vested in or accrued. May I very briefly deal with the point of appointment and then come to that point, which is also the point which your Honour the Chief Justice has reminded me that I must not neglect to come back to. On the score of appointment there is no dispute between us that this instrument is an appointment. It is one effected pursuant to a power in paragraph 14 of the trust instrument to appoint new trusts.

What is material, in our submission, about its character as an appointment is that it is a different power from that in paragraph 2.21. The power in paragraph 2.21 is a power to appoint the property held by the trustee at the distribution date to a person. The power in clause 14 is a power to appoint new trusts in respect of the whole of the trust fund at the time it is exercised. So the power in clause 14 is one which extends over and can only be exercised in respect of the whole of the assets held by the trustee as at the date of exercise, and that is why we say that it is an appointment of the trust property held at the time of exercise.

BRENNAN CJ: You say clause 14, the power of variation, can be exercised only with respect to the whole of the property?

MR SLATER: Yes, your Honour.

BRENNAN CJ: Even though 14.1 provides for a power to vary any of the trusts imposed upon the trustee?

MR SLATER: Yes, because by varying any of the trusts it varies those trusts as they operate upon the whole of the property held by the trustee. There is a distinction which is easily lost sight of between the property which is subject to the trusts and the rights in that property which can also be characterised as properties. When your Honour says, "vary any of the trusts", what your Honour, may I respectfully suggest, has in mind is varying the rights in the property.

BRENNAN CJ: Yes.

MR SLATER: So that when one varies the trust one varies the beneficiary's rights in respect to the property. But, at the same time, one varies the trusts upon which the property is held so when this power was exercised it varied the trusts on which Mr Buckle held the land and the $10 note. That is the point which, obviously not very clearly, I have been trying to convey to the Court, that it is a variation of the trusts upon which the land and the $10 were held, as well as being a variation of the property, however exiguous that property is, which comprises the rights or the beneficiaries against the trustee.

BRENNAN CJ: That raises the question of whether the property referred to in section 65 is either the property affected by any of the nominated instruments that appeared in that definition and is to the extent to which it is affected by those instruments or the property which is transferred, vested or accrued under any other instrument, or whether on the other hand it relates to the legal estate in property the beneficial interests in which are affected in any of those ways.

MR SLATER: Our answer to that, your Honour, is that it is both, according to the circumstances.

BRENNAN CJ: Yes.

MR SLATER: Justice Gummow put it to me earlier that those concluding words operate distributively. We say that the conception of property is also a distributive one, and that is the point which I was endeavouring to make in responding to Justice Toohey's comments about the circumstance that the introductory words might be said otherwise not to add anything to the words which were present in the English Act of 1891 and the New South Wales Act of 1898. May I take your Honours to that point next.

What we say about that is that under the 1898 Act of New South Wales and under the 1891 Act of the United Kingdom, upon which our legislation is broadly modelled, the only requirement for there to be a conveyance was that there should be an instrument or a decree or order of the court "whereby any property vested in or accrued to a person". That appears from the materials which we handed up. In part A of those materials we have included at page 1 - the various pages are numbered in the top right-hand corner, your Honours. The first page is from the 1870 Act and your Honours will see that section 78 of that Act specified, in effect, the concluding words of the present definition:

Every instrument, and every decree or order of any court.....whereby any property on any occasions, except a sale or mortgage, is transferred to or vested in any person, is chargeable with duty as a conveyance or transfer of property.

Then, in the 1891 Act which appears on page 4 of the materials, section 54 defines conveyance on sale as:

every instrument, and every decree or order of any court.....whereby any property, or any estate or interest in any property, upon the sale thereof is transferred to or vested in a purchaser, or any other person -

The English Act at that time only imposed duty upon conveyances upon sale. Voluntary conveyances were subject only to a nominal duty.

Then the New South Wales Act, as it stood in 1898, is at page 10 of those materials. In section 3, about halfway down the page, there is a definition of "conveyance" as:

any instrument for deed whereby property is vested in any person or transferred or conveyed from one person to another.

When we then come to the current Act as it was introduced in 1920, that appears at folio 15 of the materials. We find that it is extended by the inclusion of what in our written outline we have called "the catalogue of additional instruments". So it now:

includes any transfer, lease, assignment, exchange, appointment, settlement, surrender, release, foreclosure, disclaimer, declaration of trust, and every other instrument (except a will), and every decree or order of any court whereby any property in New South Wales is transferred to or vested in or accrues to any person -

Your Honours, we have endeavoured to find the explanatory material which was referred to in parliamentary debates as having been available at the time that the amendment was made, but it seems to have vanished in the mists of time. It is 78 years ago, which I suppose is about the length of time from the amendment to the termination of the present trust. So that all we have to go on is the change in the legislation itself. There is nothing in the parliamentary debates which would be of assistance to your Honours in divining the reason for the amendment.

What we say about the amendment is that the addition of those words must be taken to have some consequence to extend the concluding words which were already in the previous Act in some way. We say that the way in which they do so is that if an instrument falls within one of the items in that introductory catalogue, then the property which is subject to the instrument may be taken to be the property which is conveyed and which therefore vests in or accrues to any person. The instrument is dutiable by reference to its nature and not solely by reference to its effect.

If one has regard only to the wording of the legislation as it stood in 1898, then the status of an instrument as a conveyance was to be determined only by reference to its effect. It was a conveyance if it was whereby property was transferred to or vested in or accrued to a person, because otherwise there is nothing in the definition, as it stood in 1898, to identify the characteristics of a conveyance, just any instrument. When these additional words were added, then they are all instruments which have a particular character and if the subject instrument, the instrument upon which duty is claimed, falls within that catalogue then, in our submission, it is thereby a conveyance and it is necessary in order to make it one chargeable to duty to identify property which is subject to it.

So that if one looks at a declaration of trust, then a declaration of trust is dutiable even if the trusts which are declared are not materially different from those which previously obtained, unless there is some exempting provision in the Act which protects it. There is a limited range of exempting provisions. In the Second Schedule there is a specification of a fixed duty for a trust which redeclares the trusts of a previous instrument which had been duly stamped. If one does not fall within that, then a declaration of trust, even though it reiterates the trust, in our submission, is dutiable as a conveyance because it is a declaration of trust of the property which the trustee declares himself to hold for the beneficiaries, and that is a sufficient accrual or vesting to attract the concluding words of the section.

In a different way, a surrender is made dutiable, even though the primary operation of a surrender is to destroy the interest which is surrendered. That destruction may, as our friends point out in their written submissions, have the effect of accelerating some other interest; but what accelerates the other interest is the terms of the grant of the other interest, not the destruction of the surrendered interest by the surrender. Nonetheless, the surrender is made dutiable.

A disclaimer - and disclaimer is perhaps the strongest case - is dutiable. The effect of a disclaimer is not to accelerate an interest as at the time of the disclaimer, but rather to destroy the disclaimed interest ab initio from the very time of its creation, so that the instrument, or testamentary gift takes effect as if the interest disclaimed had never been included in it. The authorities for that are not expressed in our outline. May I just give them to your Honours. I do not propose to read them to your Honours, but they are a matter of Re Paradise Motor Co Ltd (1968) 1 WLR 1125, at 1143B, the matter of J.W. Broomhead (Vic) v J.W. Broomhead [1985] VicRp 88; (1985) VR 891, at page 934, line 32, and the decision of Justice Street In the Will of Clayton (1971)1 NSWLR 76, at page 79C to D.

Another example of the way in which this introductory catalogue of instruments must be taken to impose duty in a way which is not solely conditioned upon the effect of the instrument is the inclusion of a release. When an interest is released, that interest is destroyed. It does not vest in or accrue to anybody. Nonetheless, the instrument of release is made dutiable. That is so even though some releases may, as our friends point out in their written submissions, be part of a wider transaction by way of sale, by way of lease and release.

The point of taking your Honours to these examples is to advance the submission that the instruments in this introductory catalogue, which has been added to section 65, are instruments which fall for consideration for stamp duty according to their nature and the property they deal with, and not solely by reference to their effect.

McHUGH J: But that just omits the effect of the words "whereby any property is transferred to or vested in or accrues". The word "whereby" is causal and requires you to look at the causative effect.

MR SLATER: Yes, your Honour, I cannot escape from that. There are two ways in which the legislation could be viewed. One is to say that those introductory words simply stand aside from the concluding words. So that there are two halves to the definition of "conveyance", one of which ends with the words "declaration of trust", and the other which begins with the words "and every other instrument" down to "accrues to any person". If one takes that view, then one has to identify what it is is the property which is thereby conveyed as referred to in section 66.

There is perhaps a presumption, although we would say not a very strong one, that "thereby conveyed" should be read as congruent with "whereby conveyed" - "whereby ellipsis conveyed" - in section 65. We would say that the first construction of section 65 is open, and that when one looks to determining what is the property thereby conveyed in respect of an instrument which falls within the catalogue, it is sufficient if the property upon which the words in that catalogue relevantly operate is taken to be the property thereby conveyed for section 66 purposes.

So that where there is a settlement of property which imposes the same trusts as before, that is dutiable because it does not fall within the exemptions, then although there is no movement, the property is taken to be thereby conveyed because of the circumstance that the instrument is defined to be a conveyance and being defined to be a conveyance that which is its subject is in consequence conveyed. I have to acknowledge that there is a difficulty with that construction when one comes to look at a release because - no, I withdraw that. The difficulty does not subsist as I momentarily thought it did.

The other view of section 65 is to say that the words "whereby property.....is conveyed" which appear at the end, although they regulate all that appears before it, regulate it in different ways according to the nature of the instrument. So that if the instrument is a settlement then all that is required for it to be a settlement whereby property is conveyed is that the relevant property is comprised in the settlement and that is a sufficient circumstance to satisfy the requirement that it be an instrument whereby property is conveyed. Now, perhaps there is not really a difference between those two analyses. Either is sufficient for our purposes.

BRENNAN CJ: So that if an instrument is a settlement and it affects some transfer of a beneficial interest in the property which is the subject of the settlement, it will be dutiable on two counts: one, because it transfers the property the subject of a settlement and, two, because it transfers or affects the beneficial interests in that property.

MR SLATER: Yes, your Honour, but not twice dutiable as a result.

BRENNAN CJ: No, but yet the statute is constructed on the footing that the stamp duty will be assessed ad valorem. Why should one pick one rather than the other? Now, I am familiar with the notion that if an instrument bears two characters, one of which is dutiable at a higher rate, then the Commissioner is entitled to take the higher rate.

MR SLATER: I was about to take your Honour to that proposition.

BRENNAN CJ: But that is where you have got an instrument that bears two characters. Here you have got an instrument which bears but one character, namely, that of conveyance.

MR SLATER: And has two consequences.

BRENNAN CJ: It has two consequences on your argument.

MR SLATER: Firstly, may we say that the principle to which your Honour referred me a moment ago about two characters, which was established in the House of Lords decision in Speyer Brothers v Inland Revenue Commissioners in 1908 or thereabouts, is a principle which would extend to the present instance, but we do not really need that principle because the circumstance that the instrument has two consequences, each of which were it the only consequence would attract duty, does not prevent it from having the consequence which attracts the larger amount of duty.

May I give your Honour an analogous example. Suppose that Black Acre is held by a transferor upon trust for A for life and then for B, A and B both being persons of age and otherwise capable, and the trustee sells the property to a purchaser who is a bona fide purchaser for value. That instrument of sale has two consequences or perhaps three consequences. In ascending order they are that the beneficial interest which B had in remainder in Black Acre is now passed from him and vested in the purchaser. The beneficial interest which A had for life in Black Acre passes from him and vests in the purchaser and the entire property passes from the trustee to the purchaser and vests in the purchaser. The circumstance that the instrument - - -

GUMMOW J: Are you saying this is a breach of trust or not a breach of trust, Mr Slater?

MR SLATER: Not in breach of trust, your Honour.

GUMMOW J: Not a breach of trust?

MR SLATER: No. It is pursuant to a power of sale. The circumstance that the beneficial interest of the remainderman is divested from him and that the beneficial interest now subsumed into the entirety is vested in the purchaser does not limit the liability of the instrument to duty by reference only to the value of the remainder. The instrument has all those consequences, but it is dutiable as a transfer of the property because it attracts that duty. The Commissioner cannot add up the three potential duty liabilities and impose them all, but he can impose the largest and most comprehensive duty which the instrument attracts because the duty is on the instrument and the nature of the instrument is the pass of the title and here the duty is on the instrument and the nature of the instrument is that it resettles the property upon amended trusts.

BRENNAN CJ: Perhaps the example that you give illustrates the importance of the words "transferred to" as distinct from "transferred from" because the example that you give is one where there is only one piece of property that is transferred to the purchaser.

MR SLATER: Yes, your Honour, but can I invoke that and just respond to what your Honour says? If the property is transferred from A, the absolute owner, to B, who buys, as trustee of a settlement under which X holds the life and Y for remainder, then the consequence is that a beneficial interest in the property accrues to X for life, the beneficial interest in the property accrues to Y for life, and the property vests in the trustee. The Commissioner is not constrained to tax only the instrument in so far as it affects the passing of a life interest to X.

GUMMOW J: No, but look, the transfer is an exercise of a the power to do so under the trust. There is no breach of trust. There is just a transfer of the full ownership to, but what the person receives, as the Chief Justice is pointing out to you, transferred to, is the whole ownership; no problem. Why agonise over dissections, in that example?

MR SLATER: That is what I am inviting your Honours not to do here. I am inviting your Honours to accept that this is an instrument which varies the trusts on which the property is held. It is a resettlement and an appointment of new trusts in respect of the present land - - -

GUMMOW J: There is no question of some angry beneficiary saying, "You are not a bona fide purchaser, so my interest still subsists" etc. It is just an exercise entirely above board according to Hoyle, it is exercising power. The trust recreates it. It is regularly done. What is received is the full ownership and that is what is stamped.

MR SLATER: I accept all of that, your Honour, but nonetheless, the circumstance is that the - - -

GUMMOW J: Why are we agonising over all this?

MR SLATER: - - - beneficial interest which the life tenant had in the first example, before the transfer, is gone from him and the property is now vested in somebody else. The aggregate beneficial interest into which that life interest has subsumed is now held by another person. My point in giving these examples is to respond to the Chief Justice's question of me, whether some adverse inference should be drawn from the circumstance that, as we would have it, the instrument can have more than one consequence, or a character and a consequence, and be differently dutiable by reference to the different consequences. We say that the instrument attracts the duty which its largest consequence, or its largest nature, gives rise to. Here, the largest nature is that it is a resettlement or appointment of the land at Brookvale and the $10 note upon amended trusts.

GUMMOW J: I just think it is a transfer of Black Acre and we do not get into all this agony.

MR SLATER: In my examples?

GUMMOW J: Yes, the words of the section, it is a transfer of Black Acre.

MR SLATER: Well, certainly, your Honour, and that, we say, is sufficient even though it also has the other effects. That, I think is the point I am trying to make. I am not sure whether your Honour and I are on different wavelengths but I think we are heading to the same point.

We say that instruments fall for duty according to their nature and according to what they deal with. A settlement is dutiable upon the whole of the property settled even though the property may already have been largely or wholly held on the trusts which result from the instrument. Duty is not in that case payable on the difference between the positions before and after execution of the instrument but upon the value of the property impressed with the trusts which flow from the instrument. We give two examples of authorities which support that proposition. One is Davidson v Chirnside [1908] HCA 65; 7 CLR 324. I will not take your Honours to any particular part of that, but simply point out to your Honours that in that case what the trustees did was to declare themselves as holding the property on the same trusts as those upon which it had previously been held by them as executors with only this variation - that there was provision for commission, and provision for maintenance. Otherwise the trusts were identical, so that it would be very difficult to say that any substantial beneficial interest moved from beneficiary A to beneficiary B as a result.

Nonetheless, the instrument was a settlement of the whole property, even though the legal ownership remained where it was and the beneficial ownership remained where it was. The other example that we give is the one in which these issues have most elaborately been debate. That is Buzza v Commissioner of Stamps [1951] HCA 16; 83 CLR 286. In that case there was a substantial - - -

McHUGH J: One of the problems in making use of Chirnside, for example, in this context is that the statutory formula was quite different, was it not? It said nothing about the property being transferred to or conveyed to anybody. The text of the relevant statute is set out at 338 and what was dutiable was any instrument:

whereby any property is settled or agreed to be settled in any manner whatsoever - - -

MR SLATER: Yes. Our response to that, your Honour, is the response which I gave earlier, that in section 65 it is sufficient if the property is the subject of a settlement.

McHUGH J: Yes, but you have to make that proposition good.

MR SLATER: Yes. Your Honours have to accept that proposition.

McHUGH J: Yes.

MR SLATER: I am not sure if there is much more I can say than I have in support of it without repeating myself.

McHUGH J: Why is not the argument to the historical point that you raised simply that under the 1898 Act people may have been arguing that when conveyance was defined to mean "instrument or deed whereby property is vested in any person or transferred or conveyed from one person to another", it was merely talking about conveyance in a fairly strict sense, and to overcome that difficulty, if it was a difficulty, the draftsman of the 1920 Act put a catalogue of things in to show that for the purpose of the Act conveyance included such things as appointment, settlements, surrenders and so on.

MR SLATER: That answer to that, your Honour, is that some of the instruments which were included in the catalogue did not answer the description of instruments whereby property vested in or accrued to, and we instanced disclaimers and releases.

McHUGH J: If they do not have that effect, then the mere fact that they happen to be a disclaimer or a surrender is of no moment. You, for instance, say that surrender operates on a leasehold and destroys it rather than vesting it in a transferee. Another way of looking at it is that the surrender vests the reversion in the landlord - I am sorry, the tenant's interest in the landlord.

MR SLATER: That is a practical consequence, your Honour, but it does not vest the tenant's interest. The tenant's interest is simply extinguished. What it does is to relieve the landlord of the burden of the obligations to the tenant and of the tenant's right to occupy. It does not give the landlord the tenant's right of quiet enjoyment or any of the other incidents which attach to a tenancy; it simply destroys them.

BRENNAN CJ: Destroys it by merger?

MR SLATER: No, your Honour, not by merger. Merger would be if the landlord took a transfer of the lease and then leased in common law; that would cause a merger. But that is a different matter from a surrender. The same with a release. The release of a life estate may cause the remainder to be accelerated but it does not vest the life estate in the remainder.

BRENNAN CJ: Is there anything which indicates that a surrender is dutiable before acceptance?

MR SLATER: It is not a question to which I have given any thought, your Honour, and I am therefore hesitating before answering it. An instrument is dutiable at the time it is executed. If the surrender were not accepted, I confess I am not sure whether that has the effect of making the surrender a nullity. If it does and it is a nullity ab initio, then one would think that the instrument would not be liable for duty at all and that the principle in Shepherd v Felt and Textiles will allow the taxpayer to seek to recover any duty which had wrongly been paid upon it, but otherwise the surrender would be dutiable at the time of execution and by reference to the circumstances then, even though it required something else to make it fully effective in the same way as a deed executed in escrow, I think, attracts duty at the time that it is executed and not the time when it is delivered out of escrow. I am not sure that that advances this debate though, your Honour.

BRENNAN CJ: One question, however, does arise, in the case of a surrender. That is: what is the property of that conveyance?

MR SLATER: In that case, your Honour, it would have to be the property which is vested in the party surrendering.

BRENNAN CJ: Why?

MR SLATER: Because that is the subject matter of the surrender.

McHUGH J: Because it is the property thereby conveyed.

MR SLATER: No, your Honour, because the surrender does not purport to deal with anything else. And, incidentally, it is the property thereby conveyed but - - -

McHUGH J: But what does 66 operate on?

GUMMOW J: It operates on the accrual of something, does it not?

MR SLATER: It operates upon the property the subject of the conveyance, and if the surrender is capable of operation only upon the interest of

the party surrendering, and not upon the interests of any other parties who may have estates in the subject matter, then it is only that which can be conveyed by surrender. But a settlement is something which is executed by a trustee who hold the property on trust for all the persons interested, and it is the whole property which is the subject of his instrument.

McHUGH J: But 66 assumes that the words "property thereby conveyed" are equivalent to property that is transferred, vested or accrues to any person.

MR SLATER: Well, as I said to your Honour earlier, one could draw a line between the "thereby" and the "whereby".

McHUGH J: I know.

MR SLATER: But in our respectful submission, that is not a necessary line, and section 66 is adequately given effect to by treating whatever property is conveyed by what is deemed to be a conveyance as being the property thereby conveyed.

TOOHEY J: That is expressed, is it not, in section 65; "convey" has a meaning corresponding with that of "conveyance".

MR SLATER: Yes. So that it is the property the subject matter of the instrument which is taken to be a conveyance, is the property which is conveyed by the instrument.

BRENNAN CJ: If there had been a disclaimer by those who were the subject of clause 2.21, what would have been the stamp duty consequence?

MR SLATER: Then only their rights to be considered for the exercise of the power in clause 2.21 would be the subject of the disclaimer, because that instrument would deal only with those rights. But this instrument dealt with the whole trust fund. It declared new trusts in respect of the whole fund. That is the point of my endeavouring to take your Honours, at somewhat tedious length yesterday, to the authorities on the nature of stamp duty. The stamp duty is on the instrument which is effected.

Your Honours, it would have been possible to get to the same result in this case by making an appointment under 2.21 by saying - by the trustee making a determination that revocably he appointed the trust fund on the distribution date as to two thirds to William Buckle and as to one third to Jane Jory and, if he had done that, he would have got to the same point.

BRENNAN CJ: Yes. No doubt the various methods might have been adopted, but the question that really is to be answered is whether or not the instrument does answer the statutory description in section 65 as an instrument, and your argument is, well, it does.

MR SLATER: Yes. It is a very short point in a way, your Honour. It just has some subtleties around it.

BRENNAN CJ: A very short point, yes.

McHUGH J: It is. I am amazed it has taken so long.

BRENNAN CJ: But you do need to deal, do you not, with the unencumbered value for duty?

MR SLATER: Yes, I do, your Honour. May I just, before doing that, finish off briefly with a couple of points, and without trying the Court's patience too much, just to give your Honours some references

. I was referring your Honours to Buzza's Case. May I give your Honours the relevant passages, without reading them to your Honours. The point of these citations is that although there was a substantial overlap between the trusts which operated under the will and the trusts which resulted from the deed of family arrangement, it was the whole fund, including the personalty, which was taken to be settled

The leading passage is in the judgment of Sir Owen Dixon, from the foot of page 299 to the top of page 301; the in the judgment of Justice Williams, commencing in the middle of page 311 to the foot of that page; Justice Fullagar, the last tenth of the page on page 312; and, finally, Justice Latham, dealing with the reality at point 2 on page 295, and dissenting on the personalty at point 6 on page 295.

In relation to the subject matter of an appointment may I just make these points about appointments. In Davidson v Armytage [1906] ArgusLawRp 149; 4 CLR 205 what was appointed was only the remainder and, therefore, it was only the remainder that was subject to duty. That partly harks back to what your Honour put to me about an exercise of the power under paragraph 2.21. Because what was appointed was only the remainder, it was the value of the remainder which was subject to duty. Before the appointment the three sons took equally, and that appears from about point 3 on page 206. The effect of the appointments was to vest it in two of the sons in shares of three to two, but the duty was not calculated nor held to be payable on the incremental addition to the interests of the two sons who benefited from the appointments, but on the whole of the remainder interest which was subject to the appointments.

In Davidson v Chirnside 7 CLR the instrument ultimately was held to be exempt from duty and the reason why it was exempt from duty was that it was an appointment of the entire fund and that appears from the foot of page 341 and the foot of page 351. So that if it had not been an appointment of the entire fund in that case it would not have been exempt from duty. There is a similar result in another authority on our written submissions, O'Donohue v Commissioner of Stamps [1969] VicRp 54; (1969) VR 431 and, finally, there is the authority which is referred to by our learned friends in the House of Lords in Stanyforth v Inland Revenue Commissioners (1930) AC. The point which we wish to make about that case as to its value in this debate is that what was assessed in that case was only the net change in the estate in the relevant remainder. So that it was not open to counsel for the Revenue to make the submission which we make to your Honours today that the appointment related to the fund because the assessment which was in contest was only an assessment on differences.

That appears inferentially from what is in the decision of the House of Lords but more particularly from the statement of case when the matter was before Justice Rowlatt in (1930) 1 KB 58 and the relevant passage, if I could give your Honours this reference, is in the paragraphs numbered 11 and 12 on pages 62 and 63 of (1930) 1 KB. So that although that case at first seems to be one which supports my friend's proposition, it does not really because the dispute which is before your Honours today was not before the court there and could not have been resolved upon because it would have resulted in a larger amount of duty than had been assessed and was in contest.

Your Honours, may I then pass to the question of the value for duty. I said yesterday that the resolution of this issue depends very much on the identification of the property the subject of the dutiable instrument. There are three possibilities as to that and in what one might say is descending order they are, first, the entire interest in the land and cash which was held by the trustee but which the trustee holds according to the terms of the trust instrument and the obligations imposed on him by equity. In that respect I referred your Honours yesterday briefly to what had been said by Justice Hope in the DKLR Case. I will not read it to your Honours but may I draw your Honours' attention to his Honour's remarks in (1981) NSWLR 519D.

The second possibility - and this is territory which we have traversed this morning, so I am covering it fairly briefly - is that the subject matter is the equitable interest which all those who have claims upon the trustee, what might loosely be called the beneficiaries, collectively have in the trust estate, and the third possibility as the subject matter of the conveyance and that for which our learned friends contend is the rights of the children following the exercise of the power to amend being the future right to have the trustee pay over to them the trust fund as at the distribution date subject to the liabilities of divestment or defeat in the meantime.

Your Honours, if the first of those views is correct - that is, if the subject matter of the conveyance is simply the land and the cash, then there is no encumbrance other than that which is referred to in the notes to the accounts as a secured obligation to a third party. That appears on page 15 at line 45, it is said that there is a:

Loan by unrelated corporation secured on the assets of the company -

I think we must take the company there to mean the trust fund, and on other assets. Then there is an unsecured loan. That secured loan is clearly an encumbrance which is to be disregarded in ascertaining the unencumbered value of the land and cash, treating that as the subject matter of the conveyance. So there is no real contest about that, I would have thought.

If at the other end of the scale the view for which the respondents contend and the view which appealed to Justice Sheller is correct, and that is that the property is the defeasible right to have a future distribution of whatever is held by the trustee in 78 years time, then having regard to the present value of that future right, the value is so slight as to be immaterial, and your Honours need not be concerned with the question of encumbrances upon it.

If the intermediate view is correct - that is, that what the Court is concerned with is the aggregate beneficial interest in the trust fund, then it is necessary to deal with the nature of the trustees' rights of indemnity and whether they comprise an encumbrance upon the property which is to be disregarded for the purpose of assessing duty. Your Honours will recall that duty is imposed in the case of a voluntary conveyance upon the unencumbered value of the property.

There is no definition of encumbrance in a stamp duty context to which I could take your Honours. There is only general observations. In our list of authorities there is a matter of Jones v Barnett [1899] 1 Ch 611 where there was an order made for the sale of property of one Isaac Jones subject to prior encumbrances, and the question which arose was whether the rights arising from a previous agreement for sale were an encumbrance. At page 620 at about point 3, and this is the only point for referring your Honours to the case, Justice Romer referred to Wharton's Law Lexicon and adopted the definition of encumbrance there given as "a claim, lien, or liability attached to property". That is obviously not an exhaustive definition, but clearly, a mortgage upon property is an encumbrance within that concept. The question which will trouble your Honours in this context is whether the trustees right of indemnity is one.

The nature of the trustees right of indemnity is well known to your Honours. It is conveniently summarised in a passage which has often since been cited in Re Blundell 40 Ch D 370, and the relevant passage is at pages 376 to 377. Again, I will not read it to your Honours, but what was established there was that the trustee has a right to resort to trust assets to discharge liabilities properly incurred in the capacity of trustee. In some of the later authorities that is referred to as a right of exoneration.

There are two leading authorities in this Court on that right. The first of them is the decision in Vacuum Oil Co Ltd v Wiltshire [1945] HCA 37; 72 CLR 319. In that case Sir John Latham, at page 328 at about point 4 observed:

But, as the executor may have a right of indemnity out of the estate assets in respect of the trading debts -

And more elaborately the issue was considered by Sir Owen Dixon at page 335. This is relatively familiar law, but there is one point in his Honour's observations to which I wish to take your Honours in particular. At about point 5 on page 335 his Honour says:

The liabilities the executor incurs in carrying on the business are his personal debts and give the creditors to whom he has incurred them no direct right of recourse to the assets of the estate. But, if the executor has acted under some authority binding upon those who otherwise would be entitled to the assets, their claims are subject to his right to be indemnified out of the assets in respect of liabilities he has incurred in the proper performance of his duties or exercise of his powers. He has a lien over the assets which takes priority over the rights in or in reference to the assets of beneficiaries or others who stand in that situation.

The point that his Honour was making there is that it is a security - it is a right in the nature of security to enable him to resort to the assets to discharge his obligations to creditors. That is the purpose for which it is given. His Honour refers to it as the "executor's lien" again at the beginning of the paragraph last commencing on page 336.

That view was confirmed and elaborated upon in the later decision of Octavo Investments v Knight [1979] HCA 61; 144 CLR 360. In the majority judgment Justice Murphy gave a very short concurring judgment at pages 367, starting the paragraph first commencing on the page, at the top of the page, and then going over to the top of page 368. May I draw your Honours' attention to that passage without reading it, your Honours, and specifically draw attention to three things about it. First, where their Honours refer at about point 3 of the page to Vacuum Oil Co. v Wiltshire they describe the right of the trustee as:

a charge or right of lien over those assets.

Secondly, the reason their Honours give for preferring the trustee's right in respect of the assets to that of the beneficiaries is that the right is one which is limited to such recourse to the assets as is necessary for the payment of debts, and it gives the trustee no further interest in the assets. So it is a limited right. It is for that reason, in our submission, that their Honours refer to it as a right - - -

GUMMOW J: But to that extent it diminishes the trustee's fiduciary obligation as to the holding of those assets for the beneficiaries, does it not? The trustee can prefer him or her or itself. If it comes to distribution to the beneficiaries, the trustee can say, "No, I'm paying myself, I've got this debt."

MR SLATER: Certainly it impinges upon the trustee's obligations to the beneficiaries. I slightly hesitate at the word "diminishes" because diminishes suggests that there is some quantification - - -

GUMMOW J: It just enables the trustee to prefer the trustee's own position.

MR SLATER: Yes, it certainly does that.

GUMMOW J: He says, "Pay me; I'm going to pay myself."

MR SLATER: Yes, but it does not affect the relative shares of the beneficiaries in the trust fund after the trustee has exercised that right in the courts.

GUMMOW J: But you have got to say this is not an encumbrance.

MR SLATER: No, we would say it is an encumbrance. We would say that the trustee's right - if the relevant property which is conveyed is beneficial interests, then we want to say that the trustee's right to resort to the property is an encumbrance which is to disregarded for the purpose of valuing.

GUMMOW J: Yes, I am sorry, we were at cross-purposes.

GAUDRON J: Is it an encumbrance on the beneficial interests rather than an encumbrance on the property?

MR SLATER: It is certainly not an encumbrance on the legal estate, your Honour, because there is no charge or encumbrance on the legal estate. It is an encumbrance in that before the beneficiaries can claim their share in the property held on trust they must defer to the trustee's right to resort to the fund to pay creditors. But the right is one which is given to the trustee for the purpose of protecting the creditors. It is not one which is given to the trustee so that the trustee can take the money and go and bet it on the races. The trustee has no authority - - -

GAUDRON J: It still does not seem to me that - it seems to me that there is another step, though, if you wish to make it an encumbrance on the beneficial interests.

MR SLATER: I confess I do not quite see what that other step is, your Honour, so I have difficulty responding to it.

GAUDRON J: No, I do not either, which is why it is all very well to talk about a lien in the nature of a security and so forth, but what is it secured against? What is it a lien over? It does not seem to me - - -

MR SLATER: It is secured against the aggregate right of the beneficiaries to claim from the trustee delivery of the property. In the case of a simple trust, where property is held on trust by A for B and A has incurred liabilities in acquiring that property, then B cannot ask the trustee to hand over the entire property because, before B's rights to have the entire property, which are prima facie given by the trust instrument, can be exercised, the trustees right to pay out the creditors must be satisfied.

GAUDRON J: But that seems to suggest that their beneficial interests are not in the entire property.

MR SLATER: Their beneficial interests are in the entire property, subject to - - -

BRENNAN CJ: I should say I think at this time, Mr Slater, that, looking at the time, the Court is constrained to limit you to another quarter of an hour.

MR SLATER: Yes, your Honour. I am sorry. In that case, may I simply say that the right which the trustee has is a right to resort to the trust fund for the purpose of meeting claims to creditors and, in our submission, that is a right which imposes a burden upon the beneficiaries' claims upon the trust property, and that burden is in the nature of an encumbrance. Your Honours, this issue has been the subject of a debate in the Full Supreme Courts in relation to the question whether a corporate trustee's right of indemnity can be taken advantage of by the liquidator of the corporate trustee as an officer of that trustee in order to apply the funds held on trust to meeting the personal obligations of the trustee corporation, namely, the discharge of the liquidator's costs.

That issue has been considered in several courts. In the Supreme Court of New South Wales, in a matter of Re Byrne Australia (1981) 1 NSWLR 394 and (1981) 2 NSWLR 364, Justice Needham held that the liquidator of the trustee could not use trust funds to meet the trustee's obligations. In the Victorian court in Re Enhill [1983] VicRp 52; (1983) VR 561, the Full Court of the Supreme Court of Victoria reached the contrary view and, if I can give your Honours references to the relevant passages, page 563, lines 37 to 40 and page 564, lines 24 to 31.

What we say about his Honour's decision is that it fails to recognise that the recourse to the trust assets is given to the trustee for the purpose of meeting creditor's obligations, or obligations to creditors incurred for the benefit of the trust fund, and not for the purpose of meeting the trustee's personal obligations. A different conclusion was reached by the Full Court of the South Australian Supreme Court in Re Suco Gold - - -

BRENNAN CJ: Does this matter? I mean, we have got here - - -

MR SLATER: Only to this extent, your Honour; the relevance of it for the present purposes is that if I am right in submitting to your Honours that the trustee's claim is one by way of encumbrance, then it is to be disregarded in determining the value of the four beneficial interests in the present fund, if that is the subject matter for valuation.

GUMMOW J: Whether or not it was classified as an encumbrance was not really determinative of these cases you are taking us to.

MR SLATER: No, it was not, your Honour. It was not determinative of an encumbrance, but what is important about these cases is that the view which was taken in the Victorian court was that the trustee had an unlimited beneficial interest in the trust fund, which he could then appropriate to do with as he wished and, if that is right, then it is, in the present context, just a beneficial interest. The view which was taken in the other courts was that the trustee's right was a right to resort to the fund only for the purpose of meeting creditor's obligations and, if that is right, then the right to resort to the trust fund is a right in the nature of an encumbrance. It is a charge or lien on the fund which subsists only in relation to, and to the extent of, obligations to creditors and, therefore, it is properly characterised, in our submission, as "encumbrance". That is the point of going to these cases.

GUMMOW J: The trustee may have already paid out the creditor for various reasons.

MR SLATER: In that case it is a right to withdraw from the fund what the trustee has already paid out. In the case with which we are concerned here the trustee has not paid out the creditors. The trustee is still indebted to the creditors so that we are concerned with the position of the trustee's right of exoneration and the submission we make by reference to those authorities is that - - -

GUMMOW J: Are these obligations to creditors presently due and owing but unpaid?

MR SLATER: That does not appear from the appeal books except in so far as they are described as non-current liabilities. They are simply described as loan by unrelated corporation unsecured. That is all we are told about them, but in our submission it would not make a difference.

GUMMOW J: Well, in so far as, I suppose, they are payable on demand, there has been no demand.

MR SLATER: Yes, but it would not make a difference because the trustee has a right when demand is made or when the obligation falls due to resort to the trust property.

GUMMOW J: Yes, but that has not happened yet.

MR SLATER: No, it has not happened yet. I suppose one way of looking at that - and this may be what your Honour is putting to me - is that that obligation should simply be disregarded. I respectfully do not think that is the right conclusion.

GUMMOW J: It depends what you mean by "obligation". I am just trying to ascertain the nature of the obligation, whether there is any present obligation.

MR SLATER: Your Honours, bearing in mind the constraint which has been imposed upon me may I briefly refer to two other matters. One is the course of authority in the Queensland court, the two cases of Kemtron Industries (1984) 1 Qd R 576 and Re Pachet (1965) 16 ATR 923 and it is reported only in the Tax Reports. The former was a case of a transfer of units in a unit trust which were taken to be a present interest in the trust property and carrying the income of the trust property and the court held that in determining the value of the interest to be transferred once you look at the net assets of the trust and, therefore, deduct the liabilities.

That is not this case. That would be the case if the conveyance here were of a net interest in the trust fund but if, as we submit, the conveyance is a conveyance of the gross value of the fund - of the entire beneficial interest or the legal interest - then the Kemtron has nothing to say to your Honours. Re Pachet is, in our submission, wrongly decided for the reasons which we set out at paragraph 31 of our written submissions and I will not repeat those. Your Honours, in our submission the subject matter of the appointment is the entire fund held by the trustee and it is the value of that fund unencumbered by any obligation by way of charge of lien which the trustee has which is to be taken as the unencumbered value for duty purposes.

Your Honours, I have not taken your Honours through the judgments below and, in view of time constraints, unless your Honours would be assisted by my doing so, I will not.

BRENNAN CJ: We can read those for ourselves, Mr Slater.

MR SLATER: If your Honours please.

BRENNAN CJ: Yes, Mr White.

MR WHITE: If the Court pleases, may we commence by seeking to clarify what it is the respondents do contend for and that which they do not. One of the matters which we do not contend for is that duty should be assessed in this case on the differences in outcomes of transactions as distinct from by having regard to the legal operation of the instrument. The legal operation of the instrument and the transaction to which the instrument gives effect in this case is that it revokes the trusts created by clause 2.22 of the original trust deed, that is to say the trusts in favour of the children as a class in default of appointment, and substitutes a new trust in the two named children and the shares which are specified in the corpus in default of appointment at the distribution date.

It is that interest which is itself property in accordance with section 3 of the Act, which we submit is the property which the instrument conveys and, in so far as it is an appointment, the property which it appoints. We do not contend that the Court should have regard to the substance of the transaction and say that all that is conveyed is a one-sixth interest which Ms Jory had, at least presumptively, under the original settlement, and which in substance has been transferred to Mr Buckle junior, because that is not the legal effect of the amending deed. The effect of the amending deed is to vest in the two named children a future equitable interest and it is that which is the property the subject which is conveyed.

Indeed, it is our submission that where his Honour Mr Justice Powell fell into error in the court below is that his Honour did not have sufficient regard to the legal operation of the instrument. The conclusion to which his Honour came, which is set out at page 116 of the appeal book, his Honour's conclusion was that because the instrument altered the destination of the corpus of the trust property and varied the quantum of the interests of the two children and excluded other children as beneficiaries it thereby settled or appointed the trust property, by which his Honour meant the physical assets, the assets which were vested in the trustee.

It is our submission that the effects to which his Honour drew attention are simply the result of the instrument having a legal operation, that it brought about those outcomes through the creation of new future equitable interests in the corpus from the distribution date. It is those interests which were created by the instrument.

The second matter is this: it is not the respondent's contention that there must always be an equitable estate in existence which is coextensive with the legal interest. We could not contend that, and we do not; in fact, to the contrary. When dealing with the question of the nature of the trustee's right of indemnity and whether it constitutes an encumbrance we rely upon the authorities which say that an equitable interest is that which is engrafted on to, not that which is carved out of, the legal estate.

We do say, however, that in this particular case that the equitable was coextensive with the legal ownership and we submit that that must be so for two reasons: first, the revocation of the trusts in default of appointment and the creation of new trusts in default of appointment were both effected by the same instrument and there was no notional instant of time when the first trust had been revoked without a new trust having come into existence; secondly, quite apart from the timing problem, an exercise of power under clause 14.1 could never have had the effect that the trustee acquired any greater interest in the trust fund than he had before the execution of the amending deed.

That is one of the reasons why we submit that it is just wrong to characterise this instrument as in some way transferring or vesting in the trustee afresh the trust assets in order that new trusts in default of appointment could be created by the instrument, because clause 14.1 provides that the power of variation and revocation cannot have the effect - this is at page 39 of the appeal book - cannot have the effect of creating any interest or benefit whatsoever in the capital or income of the trust fund in favour of the trustee.

So the effect of this instrument we say is simply this, that before 11 June 1993 the trustee never had any free property to settle or appoint, he did not acquire any greater interest in the property by exercise of the powers under clause 14 and could not do so. What he did by the instrument was to simply substitute a new trust, a new future interest, beneficial interest which was subject to defeasance by the exercise of a power of appointment. He simply created that new trust in substitution for the old. We accept that that instrument is a conveyance. If one has to give it a character, its most obvious character is that it is a variation of trusts and it has the effect of being a conveyance for the purposes of section 65 because it is an instrument whereby property is vested in and accrues to a person.

GUMMOW J: What is the property?

MR WHITE: The property is the beneficial interests in favour of the two named children which are created by the amending deed in default of appointment.

TOOHEY J: You described them as future equitable interests, Mr White, at one stage.

MR WHITE: Yes. Mr Justice Sheller called them an interesting remainder because they only arise on the distribution date.

GAUDRON J: But they may not even arise then.

MR WHITE: No, because they are liable to be defeated.

GAUDRON J: At best - well, they are contingent, are they not, on - - -

MR WHITE: We argued - - -

GAUDRON J: They may be liable to be defeated in one sense but there is an earlier point at which they are contingent.

MR WHITE: That was our argument in both of the courts below. Mr Justice Sheller said on the application of the rule in Phipps v Akers that they would truly be regarded as vested interests which were liable to be defeated either by the two children not surviving for the distribution date or by the exercise of a power of appointment under clause 2.21.

GUMMOW J: But if your submission to the Court of Appeal in the event had been accepted, not rejected, there would be no property, would there?

MR WHITE: Yes, there would, your Honour. There would be the contingent interest. Contingent interest is property which can vest in a person. It is property which can be assigned, it is property which can be transmitted by will. A contingent interest is equally property for the purposes of section 3 as a physical asset, provided it is not a mere space or mere expectancy. We do not suggest that the interest of the children should be characterised as a mere expectancy. We accept that it is at least a contingent interest. We are not necessarily disposed to dispute that it is a vested interest which is liable to be defeated by two conditions. The question is not whether it is contingent or vested; the question is: what is the property? Attaching that label to it cannot detract from the fact that what it is which is conveyed is what clause 2.22 says, namely - - -

GUMMOW J: Is there any definition of "property"?

MR WHITE: In section 3, your Honour?

GUMMOW J: Of the Act?

MR WHITE: Yes. It is referred to in our written submissions in paragraph 8. It includes:

real and personal property and any estate or interest in any property real or personal, and any debt, and any thing in action, and any other right or interest.

So a contingent interest, we accept, is property. I do not want to reject the proffered suggestion from the Court, but it is not necessary for our argument to say that no property is conveyed by this deed. We have not submitted that hitherto and we do not now.

TOOHEY J: What are the practical consequences of that for duty purposes, Mr White?

MR WHITE: That the value of the property has to be assessed having regard first to the fact that it is a beneficial interest. That means, in our submission, that the right of the beneficiary is deferred to the right of the trustee to obtain indemnity out of the trust assets for liabilities which he incurred in the course of administering the trust. That is to say that the beneficiary's interest is by definition deferred to the trustee's claim and that that right is not an encumbrance on the interest. That is the first consequence.

The second consequence is that the incidents of that property have to be taken into account in valuing it. They are that it is not liable to come into possession until the distribution date; secondly, that it is liable to be defeated by an exercise of a power of appointment on or prior to the distribution date - and indeed there was evidence in the court below by the trustee that it was his intention that he would not bring forward the distribution date except to exercise the power of appointment under clause 2.21. So, unless there was a change of trustees, the value of that interest in any event would be nothing or would be minimal. Those are the two main respects in which we say a consequence flows from that different characterisation of the property conveyed.

TOOHEY J: I was just looking to see whether - did the original order of the Master go into that aspect of it? By "that aspect", I mean the value?

MR WHITE: He certainly went into the first part of that question because he said that he accepted the submission that the trustees right of indemnity was not an encumbrance on the property which was conveyed relevantly. Mr Justice Sheller dealt with it in the court - - -

McHUGH J: Are the short minutes of order in the appeal book?

MR WHITE: Yes, they are. They are at page 63.

TOOHEY J: They do not tell you a great deal, do they?

MR WHITE: No; that is because the learned Master accepted the submission about the trustee's right of indemnity not being an encumbrance. Mr Justice Sheller, in the court below, in a passage which I hope I will find shortly, said that - - -

GUMMOW J: Just going back to page 63, you do not dispute the Master's order No 2?

MR WHITE: Not having regard to the way in which he said what the relevant law was, nor having regard to the way in which the Court of Appeal said what the relevant law was.

Mr Justice Sheller said that even without the question of the trustee's right of indemnity it would not necessarily follow, on his view of what was the property conveyed, that the value of that property was the same as the value of the assets, and that must be so.

TOOHEY J: On your argument it would never be the value of the assets.

MR WHITE: Quite. It would have to take into account the contingencies of defeasance or the contingencies of not - - -

TOOHEY J: Contingencies for liability to defeasance, yes.

MR WHITE: I will try and find that reference in the passage in Mr Justice Sheller's judgment. I am being assisted by my learned friend. Yes, at page 89 at about line 28 at the commencement of the paragraph his Honour said:

I am not persuaded that the vested interests in remainder settled by the Deed of Variation would be properly valued at $4,056,143, even if the trust did not have liabilities -

et cetera.

TOOHEY J: But that is really based upon the right of indemnity is it not?

MR WHITE: No, your Honour.

TOOHEY J: Not so confined?

MR WHITE: No, with respect. What his Honour was saying was that even if the trust did not have liabilities - he said of $4,059,241 - but even if the trust did not have liabilities he was not persuaded that the vested interest in remainder were to be valued at the figure which is the value of the assets.

TOOHEY J: No, well, it certainly goes that far, but he does not then go on, as I read from that paragraph, to say what factors bear upon the assessment of the beneficial interest of the children.

MR WHITE: No, he does not.

McHUGH J: What does he mean by "even if the trust did not have liabilities"? What is he talking about?

MR WHITE: He means the trustee, your Honour, he must.

McHUGH J: Yes.

MR WHITE: Your Honours, as well as saying that the instrument is a conveyance within the meaning of the definition under the heading, "Any other instrument.....whereby property is transferred to, vested in or accrues to a person", we also accept that the instrument falls within the description of appointments which were set out in the judgments of the Chief Justice Sir Samiel Griffith and Justice Higgins in Davidson v Chirnside but that characterisation of the instruments as also being an appointment is simply the consequence of its operating to vary the trusts in default of appointment by revocation of one trust and substitution of a new trust.

It is fallacious reasoning, in our submission, to argue from the premise that because such an instrument which substitutes one equitable interest for another can fall within what is an appointment and argue that because appointments often appoint physical assets on trust that, therefore, what is appointed in this case is the physical asset in the appointor rather than the interest which is in fact appointed and - I am conscious of the time - we elaborate on that submission in paragraphs 9 to 13 of our written submissions. We do take issue with the proposition that the instrument is also a settlement but we submit as we submitted below that it does not matter whether it is a settlement or it is not.

GUMMOW J: I still do not understand this, Mr White. What do you say was the property in which these two children acquired what has been said to be a vested interest?

MR WHITE: The corpus of the trust fund but that does not mean that the corpus of the trust fund vested in them or accrued to them. The trust fund remained vested in the trustee and what accrued to or was vested in them was an interest in it.

GUMMOW J: But why does that not answer the words of section 65?

MR WHITE: Because the words of section 65 speak of "whereby property.....is" relevantly "vested in or accrues to any person" and the only property which vests in a person, being the two children, is the future equitable interest subject to defeasance.

GUMMOW J: If it does that, it is a vested interest.

MR WHITE: I am sorry, your Honour.

GUMMOW J: I thought it was now a vested interest.

MR WHITE: Even if it is a vested interest, it does not follow that the property, the physical asset itself, is vested in anyone other than the trustee. What is vested is an interest in that property.

McHUGH J: Your point is that the property which was transferred to them was not the physical assets which comprised the trust fund but their beneficial interest, describe it as you will, whether it is an interest in remainder, a contingent interest or whatever it might be.

MR WHITE: Precisely, your Honour, and that is why I have not been concerned to argue whether their interest is contingent or vested. Whatever it is, it has the characteristics which are laid out in the amending deed but with the original instrument and it is only those rights which are conveyed.

GUMMOW J: Whatever it is, it is of less value than the value of the whole of the trust fund.

MR WHITE: That must be so.

BRENNAN CJ: Is there any case other than Quigley's Case which gives any insight into the meaning of the word "interest" in the definition - definition of the word "property" I should say?

MR WHITE: Definition of the word "property". My friend suggests that DKLR Holding might deal with it in some respects, but it does not in terms of this particular problem. I am sorry, your Honours, before coming back to the question of whether this instrument is a settlement or not I wanted to move forward a step - - -

BRENNAN CJ: Could I just delay you one more moment. If the rights of the two children are not properly to be described as property for the purposes of section 3, what then?

MR WHITE: Then, in our submission, the instrument is simply not liable to any duty at all as a conveyance, because the physical assets are not conveyed, and all that is created by the instrument are the rights which are given to the two named children. If those rights do not entail a vesting or accrual of property - if those rights are not property, then there is no conveyance. The case which does concern the definition which - - -

GUMMOW J: Well, just stopping there, Mr White. What would one do if one came to that view? You want to shut the windows and doors in respect to that possibility, do you?

MR WHITE: If the Court came to the view that the interests of the children were propriety - - -

GUMMOW J: Well, the Court will only come to a view if you make a submission.

MR WHITE: I am sorry, your Honour?

GUMMOW J: The Court can only come to a view if you make a submission about it, really.

MR WHITE: Well, we do submit, your Honour, that if the interests of the children are not property within the meaning of the definition in section 3, then this instrument is not a conveyance: "whereby any property.....is conveyed".

TOOHEY J: But by identifying those interests as future equitable interests, in that sense you bring them within the definition of "property", do you not?

MR WHITE: Yes, we do. We do not, and have never put forward a case - - -

TOOHEY J: And as counsel are inclined to say, you do not shrink from that.

MR WHITE: No, that is quite so.

McHUGH J: Can you just tell, how do you distinguish DKLR, because it holds, does it not, that a declaration of trust is dutiable by reference to the trust fund, even though no interest is passed from the declarant to any particular beneficiary?

MR WHITE: That is so, and that is because it was liable to duty under a combination of section 4 and the Second Schedule, and liable to duty on the basis that as if it were a conveyance of the property comprised in the instrument. That is the words of the Second Schedule. We submit, first, that the property comprised in the instrument is not the same as the property thereby conveyed and, secondly, that when it is made liable to duty as if it were a conveyance of the property, the Parliament is not saying that it is, in fact, a conveyance - the physical asset.

McHUGH J: Yes.

MR WHITE: In response to your Honour the Chief Justice's question about any further authorities which concern the definition of "property", there is one which is of some importance, and that is the decision of this Court in Yeend's Case [1929] HCA 39; 43 CLR 235, and it might be convenient if I took your Honours to that now. It is an authority which is important on the second question which has been raised by the Commissioner in this Court, and that is whether or not the words "whereby any property.....is transferred to or vested in or accrues to any person", whether those words qualify all of the instruments which are set out at the commencement of the section.

TOOHEY J: But does it matter, from your point of view, Mr White?

MR WHITE: Well, it may, your Honour. We certainly submit that those words do qualify inter alia appointment and settlement, and one can see the argument that if this is a settlement, for example, and the only question is what is the property settled - in terms of section 66, what is the property thereby settled - that one might say it is the physical assets which are settled on new trusts. That is the Commissioner's argument. It is our submission that, even if that argument were otherwise open - and we submit that that would not be the correct interpretation - but even if it were otherwise open, it is negated by the terms of the general words in section 65.

TOOHEY J: Yes, I follow.

MR WHITE: It is those words which we submit give the character of the conveyance to all of the instruments which are described in the section. In Yeend's Case the instrument in question was an assignment or a transfer of contractual rights. The Warwick Farm Racecourse had given rights to a Mr Smith, who had died, to supply refreshments. His executrix - although those rights must have been regarded as sufficiently non-personal to pass to the executrix because as appears from page 237 of the report, his executrix, with the consent of the committee of the club, transferred those rights to Mr Yeend. The Commissioner contended that having regard to the width of the definition of property in section 3 that that instrument was liable to duty as a conveyance.

Your Honours will see at the foot of the joint judgment at page 240 that the Court sets out the Commissioner's contention that when section 65:

which describes what the word "conveyance" shall included, is interpreted by the definition of the word "property" contained in sec. 3, it applies to the written agreement in question.

Then after setting out the definition their Honours say:

Sec. 65 defines the meaning of the word "conveyance" to include a catalogue of instruments "whereby any property ... is ... vested in or accrues to any person."

McHUGH J: That is the critical - - -

MR WHITE: That is a critical passage on the question of whether or not those words qualified the catalogue of instruments. I should say, your Honours, that in his work on stamp duties Mr Justice Hill suggests that the Court there may simply have been repeating what was the contention of counsel for the Commissioner. We submit that that is not so and, indeed, the question of whether those words qualified each of the instruments was a question which had to be decided in the case because, on any view of it, the instrument was treated by the commissioner as a transfer, a transfer of contractual rights, and it was expressed to be an assignment or a transfer of those rights.

So that unless it was a transfer whereby property became vested in a person et cetera - I withdraw that. If it was simply sufficient to say that there is a transfer, without having to look at the qualifying words, then the Commissioner would have won. The Commissioner did not seem to contend for that but the result of the case is such that we submit the words must qualify each of the instruments. The Commissioner lost, in fact, because their Honours held - - -

GUMMOW J: Look at page 242, Mr White, if I could just interrupt you. That seems to be consistent with what you are putting as to the adoption by the Court:

We think that, if sec. 65 is read -

et cetera. They seem to be treating "whereby" there as in the sense you said it should be put.

MR WHITE: We submit so. The relevance of this case to the question asked by your Honour the Chief Justice is that the court said that although this instrument could be regarded as an assignment of the chose in action, it was not liable to ad valorem duty because, to fall within the definition of "property", the chose in action had to be of a proprietary kind and that a mere personal contractual right, although it might give right to a chose, was not the property which was spoken of in section 65.

McHUGH J: Mr White, I notice that in Justice Isaacs' judgment at 244 in Yeend, he takes the same view of the section. He says:

the term "conveyance" includes every instrument (except a will) whereby any property.....is "transferred - - -

MR WHITE: Yes. It is not necessarily clear whether his Honour in that passage was referring to each of the named instruments or just "any other instrument" where that expression is used in the section.

BRENNAN CJ: Why is it that this interest, if it be an interest, is not contingent?

MR WHITE: I would like to say that it was, although we have not put on a notice of contention to that effect. The reason which Mr Justice Sheller gives is because the gift over in the event of the two named children not surviving to the distribution date invokes, his Honour says, the rule in Phipps v Akers that where there is a gift to a person, for example, upon obtaining a particular age, or the gift over in the event of their not doing so, that the gift would be construed as vested subject to defeasance if they do not attain that age. It was put in argument in that case that, unless it were vested, it would not make sense to say that the heirs of the person would take property unless the ancestor had a vested interest in that property. Your Honours will see his Honour Mr Justice Sheller's reasoning in that regard at pages 79 to 80.

GUMMOW J: It does not really explain the limitations with which the rule of Phipps v Akers is concerned. The same sort of limitations.....

MR WHITE: That may be, and in our written submissions we say that the interests are either - let me go back a step. Simply in the position as beneficiaries who are takers of the corpus in default of appointment, if that were the only character which they bore, their interest would be regarded as vested but subject to defeasance. There is another condition, however, and that is that they survive to the distribution date, and we say that that makes their interest either contingent or that is another possibility of defeasance but, for the purpose of our argument, it does not matter how it is characterised, we submit.

So that it is partly in reliance upon Yeend's Case that we submit that the words "settlement and appointment" are qualified by the general words. We also submit that the general words "whereby any property is conveyed", et cetera, can be given a distributive operation to each of the instruments and that one purpose which the draftsman may well have had in mind in listing each of the catalogues of instruments and following them with those general words was to preclude an argument of the kind which was advanced by our learned friend that a disclaimer, for example, is not an instrument whereby property is transferred to or conveyed to a person but only operates to extinguish or a surrender to that effect or foreclosure. The effect of including those words is to preclude any such argument.

TOOHEY J: The difficulty with that approach I think is that it would have been so much easier to simply have not worried about identifying particular instruments but simply spoke of "any instrument whereby property is transferred to or vested in" and so on. That would have been even clearer, would it not?

MR WHITE: No, with respect, your Honour, because one can imagine a person saying, who had, for example, executed a release or disclaimer, "By this instrument I didn't convey property. I didn't cause property to vest in or accrue to a person. All I did was extinguish an interest in property." It might be true that thereby somebody else's other interest is enlarged but that is because of the incidence which attached to their right under the original instrument. That is an arguable proposition, but it is not arguable once the general words are there because Parliament is saying that it regards all of the instruments which it specifies as instruments whereby property "is transferred to or vested in or accrues to any person" and that is apparent from the use of the word "other", any other instrument.

If it was intended that some of the instruments which were named were not instruments to which the general words applied then it would be almost misleading to say any other instrument whereby this is done. The draftsman would have had to have said "or any instrument by which property is conveyed" et cetera.

GUMMOW J: Mr White, I am sorry to be perverse about this but if one goes back to the terms of the trust, point 2.21. That remains. That was not revoked or replaced. Does that not suggest contingency? It is saying they would have only been entitled if they had survived but nevertheless if they die before there is special arrangements for the children. Is that not redolent of dealing with a consequence of contingency?

MR WHITE: If I have understood your Honour correctly, clause 2.21 is a power to appoint beneficiaries and the trust which was altered was the trust in default of the exercise of that power.

GUMMOW J: But 2.21 stayed in so it has to be read with the new paragraph that did go in. It still has to be read with the paragraph that went in.

MR WHITE: Yes.

GUMMOW J: What I am trying to suggest is that if one does that, does that not suggest that the paragraph that went in is still indicative of contingency, "would have been entitled had they survived"?

MR WHITE: Because it is put in terms of "if", your Honour?

GUMMOW J: Yes. If they had interests that were presently vested, you would not need it. They would have something they could leave in their will and would go off to the next of kin right now, would it not? Do not let me take you off your extended - - -

MR WHITE: No. I am grateful to your Honour. I wonder if I could think about that over lunch because - - -

GUMMOW J: Yes, all right. That is why I mentioned it now.

MR WHITE: - - - the general proposition, of course, is that a person who takes property in default of appointment takes a vested interest which is liable to be defeated by the exercise of the power of appointment, and it is a question of whether the draftsman, by using the word "if", intended to bring about any different result from usual.

GUMMOW J: Yes, all right.

MR WHITE: Can we consider that over lunch? We set out, in paragraphs 32 and following, to paragraph 35, the reasons we advance as to why instruments such as disclaimers, foreclosures, releases and surrenders can all be property described as instruments "whereby property is transferred to or vested in or accrues to any person" and, unless the Court wished me to do so, I do not propose to repeat what we set out there.

One matter to which we also draw attention is this, that if the appellant's argument on the proper construction of that section, were correct, it is an argument which must apply equally to leases as it applies to settlements. If what is conveyed is the subject matter of the instrument, that is, physical assets in the case of a settlement, so it must be in the case of a lease, on the appellant's argument. That would have the consequence that although what is, in fact, conveyed by a lease is a leasehold estate, that, on the appellant's construction, what must be taken to have been conveyed is the land which is subject to the lease.

Where, for example, a premium is taken on a lease, the Second Schedule to the Act charges, in respect to the premium, ad valorem duty on the value of the property conveyed. The consequence would be that whether the lease were granted for a term of one year, or for a term of 99 years, on the Commissioner's contention the value of the property which was the subject of the lease, that is to say, the land, would be that upon which ad valorem duty was payable. We submit that that is a somewhat bizarre construction of the section, and one which could not have been intended.

The next consequence is this with that construction: It is the words:

whereby any property in New South Wales is transferred to or vested in or accrues to any person -

which either do or do not qualify the catalogue of instruments in the section. If those words only qualify "any other instrument" and "any decree or order of the court", one has the curious position that section 65 imposes duty on a conveyance - presumably one executed in New South Wales, whether the property is in New South Wales or not. Likewise with lease, assignment, transfer, settlement et cetera.

BRENNAN CJ: That would not be a curious result, would it?

MR WHITE: It would. What would be curious about it, with respect, is this: the Parliament would have contemplated that a conveyance of property, whether in New South Wales or outside New South Wales, if executed in New South Wales was liable to ad valorem duty. Likewise, with the other instruments. But then have contemplated that any other instrument which caused property to be "transferred to or vested in or accrueds to any person" was only liable if the property was in New South Wales. It would seem to be a dichotomy between the intended range of operation of the specific instrument and the instrument expressed in general terms for which there would be no apparent rationale.

BRENNAN CJ: Does that make New South Wales an Alsatia for stamp duty so far as property in other States is concerned?

MR WHITE: There are other States. I think Queensland is one - I am not sure about that - there certainly are other States where there is a liability for duty on instruments which convey property outside the State. Victoria, I think, might be one. But, hitherto, the practice of conveyances which has been expressly adopted, or expressly justified on the basis of revenue rulings which had been issued by the Commissioner, is that conveyances which come within section 65 of any of the named instruments are liable to duty only if they convey property in New South Wales. That construction is also supported by the correlative section to section 65, which is section 41.

I omitted to take your Honours to the passage in the judgment of Justice Isaacs in Yeend's Case, where he deals with this matter. At 43 CLR 244 his Honour refers to section 41. Section 41 is in these terms - - -

GUMMOW J: It talks about property in New South Wales.

MR WHITE: It talks about property in New South Wales and charges ad valorem duty on agreement for sale or conveyance of any property in New South Wales. Justice Isaacs, in Yeend's Case, explained that that section was necessary as a precautionary provision to prevent mere departure from the form of a conveyance to enable the person to escape from the operation of the Act.

GUMMOW J: Given the species of property which you conceded existed here and was dealt with, what made it situated in New South Wales?

MR WHITE: That rather depends on Livingston's Case. It would be situated in New South Wales in this case because the trustee happens to be here as well as the trust assets.

GUMMOW J: That is what I was wondering. It is conceded, is it, that Mr Buckle was a New South Wales resident or whatever.

MR WHITE: Yes. So whether one gave primacy to the right to compel due administration or whether one gave primacy to the present locality of the assets which the trustee had to administer, the result would be the same.

GUMMOW J: Yes, thank you.

BRENNAN CJ: Would this be a convenient time, Mr White?

MR WHITE: If the Court pleases.

BRENNAN CJ: How long do you expect the remainder of your argument to take?

MR WHITE: I hope not more than an hour, your Honour, but I might be able to shorten that if that were of assistance.

BRENNAN CJ: Let us give you every encouragement in that direction. We will adjourn until 2.15.

AT 12.59 PM LUNCHEON ADJOURNMENT

UPON RESUMING AT 2.17 PM:

BRENNAN CJ: Yes, Mr White.

MR WHITE: May I go to the matter which your Honour Justice Gummow raised with me before lunch. We have submitted below, as I said, that the interest which was created was a contingent interest and, as I have said, we submit today that it does not matter for the purposes of our argument whether it is contingent or whether it is vested. But we do say that the matter which your Honour Justice Gummow raised as to the continued operation of the proviso in clause 2.21 is strongly suggestive that the interest of the two named children is still a contingent interest. We do not thereby contend, as I have said, that it is not property; we say it is.

GUMMOW J: By reason of the definition.

MR WHITE: By reason of the definition in section 3, and by reason of the fact that contingent interest is customarily regarded as property because it can be assigned, it can be transmitted by a will, it can even be made the subject of declaration of trust. As I have said, it does not matter for the purposes of our argument whether it is contingent or vested because, on any view, what is vested is only vested in interest and not in possession. So that the assets held by the trustee cannot be said to be vested in the children.

I referred in passing before lunch to the consequences of the appellant's construction of section 65 as including the consequence that the settled practice of conveyances would be altered by it because, having regard to rulings which the Commissioner has issued, the practice has been to regard the conveyance head of duty under section 65 as being:

limited to conveyances of property in New South Wales.

The ruling to which I was referring was Stamp Duty Ruling No 8, which is amongst the documents which have been provided to your Honours. I do not put this any higher than what I have just said. We do not suggest that the Commissioner is in any way bound by the rulings which he has issued; but simply that what would be the consequence of the argument which has been advanced on the construction of 65 would be alter what has hitherto been that settled practice. In Stamp Duty Ruling No 8, under the heading "Ruling" in the first paragraph, reference is made to section 65 making it clear:

that the conveyance head of duty is limited to property in New South Wales.

This morning the appellant propounded an alternative submission on the construction of section 65 and, as we understood it, that submission was to the following effect, that the words "whereby any property in New South Wales is transferred to or vested in or accrues to any person" regulate the previous words, that is to say, the catalogue of instruments, in different ways according to the nature of the instrument. So that that which is the subject of a settlement or appointment or upon which it operates may be taken to have been transferred to, vested in or accrued to a person.

It is our submission that that construction can be tested by asking how it is that in this case the assets held by the trustee are transferred to, vested in or accrue to a person, as distinct from the equitable interest which the instrument creates. The only answer, we submit, that the appellant has proffered to that particular question is that it was said that the instrument creates a new vesting of the assets in the trustee on new trusts. Whether that is so or not depends simply upon the construction of clause 14 and on the amending deed.

In our submission, the instrument does not have that effect of creating a new vesting of the assets in the trustee upon new trusts. The assets simply remain with the trustee. The deed of variation did not seek to deal with the legal title in any way at all. Most of the trusts created by the original settlement are unaffected by the variation deed. Clause 14 provides, as we submitted this morning, that the trustee cannot obtain a new interest, even a temporary one, through the exercise of a power under that clause. The effect and legal operation of the amending deed is simply, in our submission, to revoke one trust and create another. That involves no transfer, vesting or accrual of the assets in the trustee to the trustee.

Could I return, although I hope briefly, to our submissions upon the nature of the instrument and whether it is in any event a settlement. I do not wish to repeat what we say in our written submissions on that subject matter in paragraphs 14 and 23, but there is one matter which perhaps I ought to mention. Your Honours will see that in paragraphs 15, 16, 17 and 18 we support or seek to support our submission that the deed of variation is not itself a new settlement by reference to English authority.

The context in which that authority arose was the capital gains tax legislation of the United Kingdom and for reasons which appear particularly in the case of Roome and Pickford, which I do not think it will be necessary to take your Honours to now, that issue was one where the courts have had to decide whether what is involved is a new settlement or a variation of an old settlement. The issue arises in this way. Capital gains tax is imposed if there has been a disposal of assets. There is a deemed disposal under the Finance Act of assets where a person becomes absolutely entitled to settle property as against the trustee.

There is no requirement that the person who becomes so absolutely entitled as against the trustee in fact hold the beneficial interest and it is established that if a wholly new settlement is created then, even though the same person occupies the office of trustee under the new settlement as he or she does under the old settlement, there will be a deemed disposal of the assets the subject of the new settlement. So that these cases have been decided in that context of asking whether what has been done creates a new settlement or simply varies an old and it is our submission that they are thus irrelevant to the question of whether this instrument is a settlement or, as we submit, a variation of the old and we submit that the deed of variation cannot be regarded as the charter of future rights. It is simply a variation of the original charter.

That takes us, unless your Honours wish us to elaborate at all on what we have put in writing, about natures of releases, disclaimers, surrenders and so forth, that takes us to the issue of whether the trustee's right of indemnity can be properly regarded as an encumbrance on the property conveyed. Our learned friend suggested a tripartite division of what might be considered as the property conveyed in this case. His first possibility was that it might be the entire interest in the land and cash which is held on trust. We accept that if the property which is conveyed is characterised simply as the physical assets held by the trustee and in those terms, that its unencumbered value is simply what the land and cash is worth, that is to say $4 million. We, however, propound in our written submissions a somewhat different tripartite division.

The third category to which Mr Slater referred was that the property conveyed might be the interests of the children which were created by the amending deed, and we do indeed say that that is the property conveyed and the effect of that - rather, the effect of the trustee's right of indemnity upon that property is that it is not an encumbrance, and we do not understand there to be really an issue about that.

GUMMOW J: What is the nature of the right? Perhaps if I ask it another way. In what fashion may the right be exercised?

MR WHITE: It can be exercised by using the assets to satisfy the liability. It can be satisfied by being reimbursed from the assets for the liability which the trustee incurred in administering the trust, or it can arise by the trustee being entitled to sell the assets to obtain a fund to either pay or from which to be reimbursed for the liabilities which were incurred.

TOOHEY J: It would not give the trustee the sort of priority that an encumbrance would ordinarily have, would it?

MR WHITE: No, and, indeed, with the greatest respect, we take issue with the description of the trustee's right as being a lien or charge, except when that expression is used by way of analogy. It is very odd, we submit, to have this concept that the legal owner of property which is permitted to exercise his or her rights as legal owner, for particular purposes and within particular confines, should be regarded as in fact exercising security.

TOOHEY J: I was thinking of the situation where there were competing claims against the trust fund. Does the trustee stand just in the same position as any other person who has resort to the fund?

MR WHITE: No. It depends upon the title, presumably, of the other person, but if the other person's title derives from, or through the beneficiaries, then that other person - - -

TOOHEY J: I am sorry, I did not make myself clear. I meant that there were claims by creditors or someone who had a judgment debt. In other words, in that situation, would the trustee have any priority over those other claimants?

MR WHITE: A judgment debt arising from the incurring of a liability by the trustee in execution of the trust for which he was entitled to indemnity, or a judgment debt for another liability de hors the trust which the trustee incurred?

TOOHEY J: I was thinking of the second situation rather than the first.

MR WHITE: No, in that circumstance we do not suggest that the trustee would have a right of indemnity. We submit that it is not necessary in this case to resolve the issue which divided the Full Courts and the Supreme Courts of Victoria and South Australia in Re Enhill and Re Suco Gold. We are not concerned to contest the proposition that the trustee can only exercise his right of indemnity for the purpose of providing for discharging trust liabilities.

TOOHEY J: It is enough for your purposes, I take it, Mr White, that he or she is not an encumbrance5.

MR WHITE: Yes, and the fundamental proposition which we say determines this question is that if the property which is conveyed is the beneficial interest, either the particular beneficial interest given to the children under the amending deed, or even if it were in some way the beneficial interests in their entirety, then in either case, by definition, what the beneficiaries had is defined by the extent of the trustee's obligations to hold the property on the beneficiaries' behalf, so that where the trustee is entitled to have recourse to the trust property to discharge trust liabilities two consequences flow. One of them is simply that the trust properties, properly characterised, is that which is available to be held solely for the beneficiaries after the trustee has exercised that right. That follows from the very nature, we submit, of the beneficiaries' interest being something which is engrafted onto the trustee's - the legal estate. The trustee's conscience is only bound to hold the property on the trust after he or she has satisfied, or been reimbursed from the trust property, for liabilities which were properly incurred in administering the trust.

GUMMOW J: Could the trustee act quia timet, as it were?

MR WHITE: By using the trust funds to pay liabilities?

GUMMOW J: By setting them aside before, for example, a claim against the trustee has been reduced to a judgment debt?

MR WHITE: Yes.

GUMMOW J: What about where the indebtedness of the trustee is to pay, say, a certain sum at a future date - he has to wait for the future date? The trustee waits for the future date?

MR WHITE: He is entitled, first of all, to retain the property to satisfy that liability.

GUMMOW J: Even though there might otherwise be a present obligation to distribute to the beneficiary, but there is this liability out there that the trustee has which has not yet fully come home?

MR WHITE: Yes.

GUMMOW J: What happens?

MR WHITE: That he is entitled to retain the trust property to meet that liability. In that sense, one can see why, by analogy, the trustee's right is referred to as a lien and this Court, in Octavo, says that the right is preferred to the interest of the beneficiary - in the example which your Honour gave, interest to the beneficiary to obtain distribution. But the only right which the beneficiary has to obtain distribution is subject to the preferred interest of the trustee to retain the asset. We submit that that is not truly a lien, because the trustee is simply the legal owner of the asset. It is like a lien. It is a helpful analogy, but it is not truly a lien.

BRENNAN CJ: Is it assignable?

MR WHITE: Well, it passes. It passes on bankruptcy. It is difficult to say whether it is assignable voluntarily, because ordinarily a trustee's office is personal and is not capable of being assigned.

BRENNAN CJ: No, but is entitlement as against - to retain and to realise out of the estate the amount which he has expended in administering the trust. Because, if so, what is - - -

MR WHITE: I think so, your Honour. I think the authorities later than Octavo suggest that it is assignable.

BRENNAN CJ: What is the interest of the assignee?

MR WHITE: It is whatever interest the trustee had.

BRENNAN CJ: Charge or lien?

MR WHITE: No.

BRENNAN CJ: Why not?

MR WHITE: Because that was not what the trustee actually had which he assigned. The relevant question in our submission is: what interest did the beneficiary have?

McHUGH J: Is the trustee's right in equitable interest or in equity?

MR WHITE: If by equitable interest your Honour is asking whether it creates a right of property, then it is in equitable interest. That is what Octavo decided. But for present purposes it is sufficient, in our submission, to say that it is a preferred beneficial interest in the trust property, which makes the description of the property as trust property no longer an adequate description because it is only after the liability has been provided for or discharged that property is held solely for the beneficiaries. We submit that the true tripartite division, if there be one, is not between the physical assets first, the entire beneficial interests second, and the particular beneficial interests third, as we understood the appellant contends for.

Indeed, we submit in any event there can be no question here of there being a conveyance of the entire beneficial ownership as distinct from the particular beneficial interest. Rather, the tripartite division which we have suggested in our written submissions is between the physical assets on the one hand, the trust property in the sense of the property available to the beneficiaries solely - that is that which is available after the trustee's liabilities have been provided for or discharged - and then the particular beneficial interest is the third category.

GUMMOW J: What would happen if the trustee ceased to be a trustee and there was a new trustee in office but the contract which gave rise to the debt was one with the old trustee. So the third party wants to bring an action to recover and brings it against the old trustee, does the so-called lien still persist?

MR WHITE: Yes. As we have said, if the proper characterisation of the property conveyed is the interest of the beneficiaries, there seems to be no issue between the parties that the trustee's right of indemnity is not to be regarded as an encumbrance. What we submit is that even if we fail on that characterisation of the property conveyed so that it is said to be, as Mr Justice Powell found below, the trust property which is conveyed by being settled or appointed, we submit that that trust property is not the physical assets but that which is available to the beneficiaries. Indeed, that is especially so in this case because, even if the instrument is regarded as a settlement of trust - - -

GUMMOW J: What, available to the beneficiaries in the course of proper administration?

MR WHITE: Yes, and in particular because this settlement, which I am assuming it to be for present purposes, gives a right to the property at the distribution date at which time the property is to be distributed then it is very easy, we say, to characterise trust property which is settled under this instrument as being that sum which is then available to the beneficiaries. Once one applies what was said in Octavo that the existence of the trustee's interest renders the bald description of the property as trust property inadequate, then we submit that even if what is resettled is trust property it is still what is left net of the trustee's interest.

Your Honours, in addition to the cases which we have referred to in our written submissions, which we need not repeat, could we give your Honours a reference to the decision in Dodds v Tuke 25 Ch D 617, a decision of Vice-Chancellor Bacon, and it is the case which deals with costs and what the effect is of an order that all the parties' costs be paid out of the trust fund where the trust fund is insufficient to meet all of the parties' claims for costs. In that circumstance the question which was decided then was that the trustee got his costs first and the other parties got theirs after and the reason which was given for that conclusion which appears at page 619 and it is very short where the Vice-Chancellor says about point 4 of the page:

It is a good rule that trustees should have a priority for their costs, because until those costs are provided for it is impossible to say what the trust fund is.

And that, we submit, is on all fours with the way the matter was approached by Mr Justice McPherson in Kemtron in the passage which was quoted with apparent approval by Mr Justice Sheller below.

Your Honours, this distinction between the beneficiaries' interest on the one hand and the trust property but trust property net of the trustee's claim for indemnity on the other, is the distinction which we submit informed the President's reasoning in the court below. Your Honours will have seen that the President held that he did not feel called on to decide the question which divided Mr Justice Powell and Mr Justice Sheller as to what was the property conveyed.

We take it, from that, that what his Honour held was that even if the property settled or appointed was the trust property, that his Honour, accepting the line of authority in analogous cases, in particular Kemtron and Patchet, were saying that what that trust property was was the property held solely for the beneficiaries after the trustee's claims to have his liabilities and expenses provided for or discharged, satisfied. Unless we can be of any further assistance to the Court, those are our submissions. I have not sought to take the Court to the material which appears in our written submissions but we assume that that is unnecessary.

BRENNAN CJ: Thank you, Mr White. Mr Slater.

MR SLATER: Just a few points, your Honours, arising from what has passed between my friend and the Bench. First as to Yeend's Case: there is an assumption in the discussion of Yeend's Case which occurred earlier today. Yeend's Case was a case about a transfer of contractual rights, but that is not the way in which the Court approached it. Yeend's Case [1929] HCA 39; 43 CLR 235, and what appears from the description of the facts at page 237, in paragraph 9 of the stated case, is that although there was a document which recited a transfer of rights between the executrix of the deceased licensee and the new licensee, the agreement was one in fact between the new licensee and the representative, the chairman of the committee of the club. It was the on the basis that it was the rights which arose out of the relationship between those two parties which were at issue that the case was considered. So that in the middle of page 237 it is noted that it was agreed between the parties that Mr Yeend should continue to carry out the contract.

And then, in the joint judgment on page 241, at about point 7, the point that is made is that this case is one where:

the document expresses an ordinary simple contract, executory on both sides.

That is not a contract of assignment, that is the contract between Mr Yeend and the club, which was to be performed from time to time by Mr Yeend by way of providing refreshments at the club premises. And they go on to say that:

Each contracting party incurred obligations -

and that it might be said that a right arises by reason of those obligations, but that is not the sort of right with which the section was concerned because it is not a proprietary right, and that is the basis on which the case was decided. There was no question of assignment involved. The point of the case is that an executory contract to provide services in the future does not give rise to rights of a proprietary character.

Before I part from that case, the whole of the material from the third last line of page 240 to about point 3 on page 241, including the reference to section 65, is an account of the argument advanced by the Commissioner's counsel in the context of the way in which the section should apply to the executory contract. So that it does not - that passage which my friend read to your Honours this morning does not represent the Court's concluded view on the construction of section 65, but merely an account of the Commissioner's course of argument. The same point appears from the opening paragraph of the judgment of Justice Isaacs.

Your Honours, secondly, there was reference in my friend's written submissions, and briefly orally, of the United Kingdom cases on capital gains tax. Of those I wish to say only this; that the context in which those cases was decided is so remote from the present that they offer no assistance at all. The issue with which all of those cases was concerned was whether there was a new taxpayer as the trustee, as such, of a distinct settlement. So that, if there was a new taxpayer and property passed from one taxpayer to another, there was a disposition for capital gains tax purposes. That is not the issue here. The issue here is whether the trusts on which the property was held were varied and, if so, with what effect.

The third issue that I wish to raise in reply concerns the question of encumbrances. It was put by my friend that whether the property conveyed is the beneficial interest to the children in some future sense or the entirety to the beneficial interest, what the beneficiaries have is defined by the trustee's right of recourse. We certainly do not dissent from that. That is what the Court said in Octavo v Knight and it is what the Supreme Courts have said since, but that is really no different from the position which obtains between the mortgagor and mortgagee of property not governed by the Torrens system. The rights of the mortgagor are defined by the circumstance that the legal title passes to the mortgagee. The mortgagor has only what is left, that equity of redemption, but that does not make what the mortgagee has any the less an encumbrance.

What is an encumbrance in this context might be said to be a prior right to resort to the fund to protect a creditor. That is an accurate description of what the trustee has. The trustee's right to resort to the fund is a right given only for the purpose of enabling him to discharge the obligations to creditors. That is not a beneficial interest, a right to share beneficially in the fund, in the same way as a beneficiary to whom a benefaction has been made by the dispositive instrument. It is in a sense a beneficial right but it is the same beneficial right as a mortgagee has. The mortgagee is beneficially entitled to the benefit of a mortgage. The trustee is beneficially entitled to the benefit or a right of indemnity, but that is not a beneficial right in the fund in the context of the relationship between trustee and beneficiary.

Justice Gummow asked whether there could be some setting aside on a quia timet basis. In our submission, there cannot be. Neither the trustee nor the creditor can be confined in the assets to which they have recourse to settle their debts or their rights.

GUMMOW J: Is there any authority on that?

Just general principle, your Honour. A creditor may claim on any asset of the debtor. It is one of the fundamental distinctions, for example, between a debt claim and a trust claim. A trust claim is a claim in specific assets whereas a debt claim is a claim against the person of the debtor and the creditor may have recourse to any asset of the debtor to satisfy his judgment. That is all I meant to say; that a debtor cannot, by saying, "I put this fund aside to satisfy my obligation to my creditor", relieve himself of any liability in respect of his other assets. The creditor can go to any asset of the debtor that he chooses.

Your Honour the Chief Justice raised the question whether the right of an indemnity is an assignable right. We would respectfully adopt what was said by the Supreme Court of Western Australia in that regard in the case of Custom Credit Corp Ltd v Ravi Nominees Pty Ltd which is among the authorities in our list. I will just give your Honours the reference to it. It is (1992) 8 WAR 42, and the issue there was the efficacy of a purported assignment by a debtor trustee of its right of indemnity to a creditor. The Full Court held that the assignment was effective but that it was only effective because it was an assignment to the creditor for his benefit, the right had been created. There is a similar view implicit in the judgment of Justice Spender in [1994] FCA 1021; 49 FCR 454, a matter of Re Matheson.

BRENNAN CJ: For whose benefit the right had been created?

MR SLATER: Your Honour is correct to pick me up on that. It was a loose expression. The creditor, for the purpose of payment of whose debts the right was given to the trustee.

BRENNAN CJ: I see, yes.

MR SLATER: Your Honour Justice Gummow asked whether the lien survived a change of trustee. There is no dissent between the parties that it does, and that really points out the security nature of the lien because the lien survives the change of trustee but it does not survive the discharge of the debt. So, if the creditor of the former trustee were to release the debt then the former trustee's lien, his right against the fund, would disappear. That indicates, in our respectful submission, that the true nature of it is an encumbrance nature. It is a right to resort to the fund for the purpose of meeting a particular debt, and that is the nature of an encumbrance. It is true enough to say it is not a lien at law because a lien at law has to subsist between two parties, and there is only one party here.

McHUGH J: In Ravi's Case the Full Court took the view that it was a proprietary chose in action, did it not?

MR SLATER: Yes, and we would not dissent from that. It is proprietary in the sense that it is assignable and it is a chose in action in the sense that it is a right, but so is a mortgage a proprietary chose in action which is assignable. Our point is that it is a right in the nature of security. Your Honours, the fundamental difference between the parties is illustrated by what my friend said in relation to the nature of the trustee's right to resort.

He said, if I heard him correctly or if I remember him correctly, that the alteration in the present case takes effect at the distribution date in the sense that the rights which the children get by virtue of the alteration is a right to have paid out to them at the distribution date the fund and he made that point in the context of saying that the trustee gets the first slice, but if the circumstance that the right to which he points as being the subject of the transaction is the right to a share in the fund at that future date and nothing else, which illuminates the point of division between the parties, what we say is that although it has that effect, as well as having that effect the instrument in the present case was one which was an exercise of a power to amend the trusts of the whole instrument affecting the present property. It was that power which was exercised. The result of the exercise of that power was that the trustee held the property upon different trusts from that which he had previously held, different trusts presently operating upon the present property although sounding in a future distribution, and when the instrument was executed in 1993 it altered the terms on which the trustee held the property and the rights of the trustees and it was that alteration which was an alteration in respect of the whole of the property which was the chargeable event. If your Honours please.

BRENNAN CJ: Thank you, Mr Slater. The Court will consider its decision in this matter and will adjourn until 9.30 tomorrow in each of Sydney and Melbourne.

AT 2.56 PM THE MATTER WAS ADJOURNED