CPT Custodian Pty Ltd v Commissioner of State Revenue [2004] HCATrans 529 (3 December 2004)

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CPT Custodian Pty Ltd v Commissioner of State Revenue [2004] HCATrans 529 (3 December 2004)

Last Updated: 16 December 2004

[2004] HCATrans 529

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
Melbourne No M6 of 2004

No M7 of 2004

B e t w e e n -

CPT CUSTODIAN PTY LTD (previously trading under the name Sandhurst Nominees (Vic) Limited)

Applicant

and

COMMISSIONER OF STATE REVENUE

Respondent

Office of the Registry

Melbourne No M9 of 2004

No M10 of 2004

No M11 of 2004

No M12 of 2004

B e t w e e n -

COMMISSIONER OF STATE REVENUE

Applicant

and

KARINGAL 2 HOLDINGS PTY LTD

Respondent

Applications for special leave to appeal

GLEESON CJ
McHUGH J
HAYNE J

TRANSCRIPT OF PROCEEDINGS

AT CANBERRA ON FRIDAY, 3 DECEMBER 2004, AT 9.55 AM

Copyright in the High Court of Australia

__________________

MR B.J. SHAW, QC: If the Court pleases, I appear with my learned friend, MR D.R.J. O’BRIEN, for CPT Custodian in the first two matters, and for the respondent, Karingal, in the next matters. (instructed by Gadens Lawyers)

MR J.D. MERRALLS, QC: If it please the Court, I appear with my learned friend, MR C.J. HORAN, for the Commissioner of State Revenue in all matters. (instructed by Solicitor to the Commissioner of State Revenue (Vic))

GLEESON CJ: Yes, Mr Shaw. I assume it is convenient to the parties that these be heard together?

MR SHAW: Yes, I think so, your Honour, yes.

GLEESON CJ: Yes, Mr Shaw.

MR SHAW: If the Court pleases, it is a matter of common knowledge that unit trusts have become a common and important commercial institution in Australia. Millions of dollars are invested subject to unit trusts. How statutory provisions which were conceived in simpler times, which were without such institutions, are to apply to such trusts sometimes raises fundamental questions about their nature. These, it is submitted, are such a case.

If I might deal with our applications. Here the Court of Appeal has applied the rule in Saunders v Vautier to produce the result that the holder of 100 per cent of the units in a unit trust is said to have an estate of freehold in possession in land held by the trust and in land held by a sub-trust in which the head trust also holds 100 per cent of the units. It is submitted that the common understanding of that rule is that it enables a sole beneficiary, or all the beneficiaries, whose interests in the trust properties are vested and who are sui juris, to put an end to the trust by directing the trustee to transfer the trust property to him or his nominee and that notwithstanding any contrary directions in the trust instruments.

There are two things to say about the rule. The first is that it applies despite the terms of the trust instrument, and, second, that it enables beneficiaries absolutely entitled to the trust property to bring the trust to an end by the transfer of the trust property out of the trust to the beneficiaries or their nominee. Assuming for the moment that that rule may apply to unit trusts of the kind here in question, it would enable the holder of all the units in the relevant trust to bring the trust to an end by directing the transfer of the trust property out of the trust.

However, it would only enable the holder of all the units to bring the trust to an end. It would not enable the holder to direct the trustee, while the trust exists, how to perform or exercise any of his duties or powers in respect of the trust property, that is, so long as the trust continues in existence, and here the relevant trusts did continue in existence.

What the Court of Appeal appears to have done is, it is submitted, to proceed on the basis that the rule enables it to treat the holder of all the units in a unit trust as if he had exercised the power to terminate the trust in circumstances where it has not exercised the power, for the purpose of deciding whether the holder of all the units holds an estate of freehold in possession in the trust property. Not only has it done this, but it has treated the rule as operating in that way both in respect of a unit trust, the property of which is land, and also in respect of a trust where the trust property is not land but 100 per cent of the units in another unit trust, the trust property of which is land. This, it is submitted, is clear heresy. It is submitted that whether the rule in Saunders v Vautier operates in the way the Court of Appeal has decided does raise a question of important public law.

What I have so far said proceeds on the assumption that the rule in Saunders v Vautier does apply to trusts of the kind here in question. In our submission, it does not. There are a number of reasons on which such a submission may be based. First of all, there is the possibility of the issue of further units; secondly, there is the existence in the deeds of provisions for the holders of the units themselves to bring the trust to an end by virtue of the powers given in the deed; and, thirdly, the trust deeds provide not only
for a trustee but also for a manager, and how the trustee is meant to be obliged to transfer the trust property at the direction of the beneficiary when the trust deed involves also the manager, who also has rights, it is submitted, is very difficult to see.

Accordingly, it is submitted that our applications do raise questions of general public importance. Our case is clearly arguable. The view of the trial judge is, it is submitted, persuasive, and we submit that this is an appropriate case for special leave to be granted.

McHUGH J: You have to do a lot more than show that your case is arguable. What is special about it?

MR SHAW: What is special about it, your Honour, is this. It relates to important institutions in our society. It raises important questions about their nature and the sort of rights they create in people who hold units, and the matter is one which has not been dealt with by this Court and should be. If the Court pleases.

GLEESON CJ: Yes thank you, Mr Shaw. Yes, Mr Merralls.

MR MERRALLS: May it please the Court, our case is a variant, in facts, of my learned friend’s case, in which all the units in the unit trust were held by one holder. In the case of Karingal, which was lost by the Commissioner, which concerned the Glen Shopping Centre, which is David Jones in the eastern suburbs, the units were held by more than one unit holder, in fact, two, and the court distinguished that case from the case of there being one unit holder and from the case of Arjon, which was decided at the same time, where the facts were similar to the CPT Case.

McHUGH J: Well, the strength of your argument is, is it not, that the Court of Appeal did not address whether several unit holders are joint owners as defined in section 3 of the Act?

MR MERRALLS: Yes, that is so. There are a number of reasons why we say special leave ought to be granted. The first is adverted to by my learned friend. The cases raise for consideration the determination of the character of the interest conferred by the holder of a unit in a unit trust in the underlying assets of the trust. There is no High Court decision upon the subject. There were two decisions, Charles and Read, which contained observations about interests in unit trusts, and it is unclear whether they were directed to particular facts or statutory contexts. In the more recent case of MSP Nominees, which was concerned with the effect of the redemption of units for a value, in a statutory context which spoke of surrenders and redemption, there are observations at page 509 which, with the greatest of respect, are Delphic, cryptic, enigmatic or perhaps some other “ic”, and have caused confusion in other cases.

Secondly, there are a number of decisions of intermediate courts of appeal and judges at first instance which have contributed to the state of uncertainty or confusion about the character of interests in underlying assets in a unit trust. I refer to Costa & Duppe, a decision of Mr Justice Brooking in the Supreme Court of Victoria; a case in Queensland, Suncorp Insurance; the New South Wales case, ISPT Ltd; a Federal Court case, Kent v “Maria Luisa”; and the companion case of the present, Arjon, in the Court of Appeal of the State of Victoria.

Now, going from the importance of the correct characterisation of interests in unit trusts to the revenue side, may I say that the cases concern the application of the trust provisions of the land tax legislation to modern commercial trusts. There has been virtually no consideration of these provisions which were conceived, as my learned friend said, in another age, since the era of the Griffith Court. It is very hard to apply observations about estates of freehold in possession in the context of conventional successory trusts or Broadacres in the Western District of Victoria in cases such as Glenn v Commissioner of Land Tax to trusts of a different character.

It is submitted that these cases are suitable vehicles for the consideration of these matters at the highest level. First, there was a difference of conclusion in the Court of Appeal between the two cases and between the CPT Custodian Case and the Arjon Case, which depended upon whether there was more than one unit holder of the unit trust.

GLEESON CJ: Has there been any application in the Arjon Case?

MR MERRALLS: No. We do not know whether Mr Gandel is seeking to travel on the coat-tails of my learned friend’s clients or not, but there has not been any application in that case.

Second, issues concerning sub-trusts arise; third, issues concerning the concept of the trustee’s right of indemnity are concerned; and, fourth, large amounts of tax are at stake and the parties have substantial resources, which make them suitable litigants for the determination of these matters at the highest level.

McHUGH J: Well, there is another important question in it, although I suppose you would not want to highlight it, and that is whether the rule in Saunders v Vautier applies to unit trust situations where parties are bound by contract as well as by trust.

MR MERRALLS: Just so, just so. I did not attempt to run away from that, your Honour. That is involved in the first question of the ascertainment of concepts under modern commercial unit trusts.

HAYNE J: Does it follow from your argument that leave should also go, on your submission, in the CPT matters?

MR MERRALLS: That leave should - - -

HAYNE J: That there should be leave in all, or there should be leave only in yours?

MR MERRALLS: In our submission, it is one in, all in, your Honour, and we say that it should be all in. We did file a supplementary submission earlier this week in which we conceded that point.

HAYNE J: Now, in what other jurisdictions does the immediate statutory question, framed in the way in which it is in the Land Tax Act (Vic), arise?

MR MERRALLS: Apply to land tax or other tax - - -

HAYNE J: In what other jurisdictions does the immediate statutory question arise?

MR MERRALLS: I understand New South Wales. The Act is drawn in a slightly different way, but the issues, as shown by the case of ISPT, may be similar, if not exact. Anyway, the determination of the rights has some relevance to cases in that jurisdiction.

GLEESON CJ: Yes, thank you, Mr Merralls. In these matters, there will be a grant of special leave to appeal.

MR SHAW: Your Honours will have noticed that in our submissions on my learned friend’s applications for special leave, we indicated that if special leave were granted and the appeals were launched, we intended to cross-appeal. We did send some draft notices of cross-appeal to the Court that perhaps the Court may not have received. What I am really asking is, is it appropriate to ask your Honours at this time to also grant special leave to cross-appeal or should - - -

GLEESON CJ: You have that leave.

MR SHAW: If your Honour pleases.

GLEESON CJ: We will adjourn for a short time to reconstitute.

AT 10.12 AM THE MATTERS WERE CONCLUDED