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High Court of Australia Transcripts |
Last Updated: 14 June 2005
IN THE HIGH COURT OF AUSTRALIA
Office of the
Registry
Melbourne Nos M222 and M223 of 2004
B e t w e e n -
CPT CUSTODIAN PTY LTD (PREVIOUSLY TRADING UNDER THE NAME SANDHURST NOMINEES (VIC) LIMITED)
Appellant
and
COMMISSIONER OF STATE REVENUE
Respondent
Office of the Registry
Melbourne Nos M215, M216, M217 and
M218 of 2004
B e t w e e n -
COMMISSIONER OF STATE REVENUE
Appellant
and
KARINGAL 2 HOLDINGS PTY LTD
Respondent
GLEESON CJ
McHUGH J
GUMMOW
J
CALLINAN J
HEYDON J
TRANSCRIPT OF PROCEEDINGS
AT CANBERRA ON TUESDAY, 14 JUNE 2005, AT 10.17 AM
Copyright in the High Court of Australia
__________________
MR D.F. JACKSON, QC: If the Court pleases, I appear with my learned friend, MR D.R.J. O’BRIEN, for the appellant in the two CPT Custodian matters and for the respondent/cross-appellant in the other four matters. (instructed by Gadens Lawyers)
MR J.D. MERRALLS, QC: May it please the Court, I appear with my learned friend, MR C.J. HORAN, for the Commissioner of State Revenue, who is the respondent in the CPT Custodian appeal and the appellant and cross-respondent in the Karingal 2 Holdings appeal. (instructed by State Revenue Office)
GLEESON CJ: Yes, Mr Jackson.
MR JACKSON: Your Honours, the two groups of appeals relate to six assessments of land tax under the Land Tax Act 1958 (Vic). The CPT Custodian appeals are concerned with assessments of that company for the years 1998 and 1999. Assessments are by reference to being the owner, a defined term to which I will come, of land as at midnight on 31 December of the immediately preceding year.
Could
we refer your Honours in that regard to section 8(1) of the Land
Tax Act. Your Honours will see that it says:
tax on land shall in the case of each owner thereof be assessed charged levied and collected by the Commissioner for each year on –
as I submitted a moment ago –
the total unimproved value of all land of which he is the owner at midnight on the thirty-first day of December immediately preceding the year –
Your Honours, the other four appeals by
the Commissioner relate to the assessments of Karingal for the years 1996, 1997,
1998 and
1999. Your Honours, may I go immediately to the two CPT
Custodian appeals. The first of them, your Honours, is the 1998
assessment. That is the subject of M222 of 2004. Your Honours will see,
if I
could just go for a moment to volume 2 at page 1122, that the circumstances are
referred to in the document which is Appendix
B to the reasons for judgment of
the Court of Appeal.
Now, may I just say something, your Honours, about the reported version of the decision in the Victorian Reports. Your Honours may have that at [2003] VSCA 214; (2003) 8 VR 532. The relevant pages are 546, which is the equivalent to the page I referred to a moment ago. That contains an error in the sense that the title to it should be “1998 SANDHURST ASSESSMENT As at 31 December 1997”. So the reported version appears erroneous.
The second thing, your Honours – and while this does not relate directly to these appeals – is that on the previous page, page 545, you will see in the top right corner “CENTRO PROPERTIES”, it says, “HOLDS 50% OF ISSUED UNITS”. That should, as we understand it, be 100 per cent and it is 100 per cent on Appendix A in the appeal book, page 1121. No doubt the counsel of law reporting will do the appropriate thing to the editor of that.
Your Honours, having said that, may I say that in the 1998 year, that is, the 1998 assessment for CPT Custodian, and If I could take your Honours for just a moment to our written submissions in paragraph 9 – it is our written submissions in this appeal, your Honours – CPT Custodian was then named Sandhurst Nominees Victoria Limited. It was the registered proprietor of the land which is described as the Keilor Downs Plaza land.
Now, could I say in relation to that, your Honours, that although it in fact held that land as trustee for the Keilor Downs Trust, that was not the basis of the 1998 assessment; rather, it was assessed as the legal owner of that land. Now, your Honours, it was also trustee of another trust, the other trust being the Cranbourne Park Unit Trust. As such, it held a 50 per cent interest in the Cranbourne Park Shopping Centre land. Now, your Honours, as one can see from Appendix B at page 1122, it also held all the units in the Cranbourne Park Unit Trust.
May I pause to say, your Honours, that one’s mind turns immediately to the possibility of merger by reason of holding all the units in the unit trust, but merger does not necessarily occur. The issue, if I could say this, as one might expect, was raised by the primary judge at an early point and the contention that merger had occurred was not relied on.
Your Honours, could I go then to say the 1998 CPT assessment was then based on the aggregated, unimproved value of two pieces of land. One was the Keilor Downs Plaza land, that is, on the basis of the appellant’s legal ownership of that land, and the other was the unimproved value of a half interest in the Cranbourne Park land on the basis that the appellant was the equitable owner of that interest by reason of owning all the units in the Cranbourne Park Unit Trust.
Now, your Honours, could I
say – and I need to point out another error, with
respect – the assessment is referred to
in the agreed facts that were
before the courts below, in the agreed facts at page 1020, paragraph 25.
That is where the error occurs.
Your Honours will see at page 1020,
paragraph 25, it is said:
The 1998 CTP/Sandhurst Assessment was issued to CTP/Sandhurst as trustee for the Keilor Downs Trust, and assessed:
(a) a claimed 100% equitable interest . . . in the Keilor Downs Plaza land –
The fact that that
was an error, your Honours, can be seen from two things. The first is that it
is referred to specifically by the
Court of Appeal as such at page 1107
and, in particular, your Honours, in paragraph 5. Your Honours will see
that the mistake is
referred to particularly in the last five lines. Your
Honours, that it is a mistake is clear if one looks at the actual assessment.
The actual assessment is relevantly at page 182 and your Honours will see
at page 182 – this is the third page of the assessment
–
immediately under the rectangle with the assessment number it says:
This list pertains to your legal interest in the Keilor Downs Shopping Centre and your equitable interest in the Cranbourne Park Shopping Centre through the Cranbourne Park Trust.
GLEESON CJ: Does it follow that the point of your challenge to the 1998 assessment is to paragraph (b) of what appears in 25 on page 1020?
MR JACKSON: Yes. Your Honour, could I say we have paid the ordinary assessments, if I can put it that way. These are amended assessments which increase the amount by reason of the grouping. Now, your Honours, that is the 1998 assessment. May I go to the 1999 assessment. Your Honours, the relevant diagram is at page 1123 and it is Appendix C. Your Honours, may I say that there were two differences in 1999 from the position which had obtained in 1998. The first was the addition of another property, that is, the Mildura Plaza Shopping Centre.
Sandhurst Nominees (Victoria) Limited was again the registered proprietor of the Mildura Plaza land. Again, it held it as trustee for a unit trust, the Mildura Centre Plaza Unit Trust and all the units in that trust were held as at 31 December 1998 by Sandhurst Nominees which held them as trustee of the Centro Property Trust. Your Honours, that gave rise to the second change from the previous year. In the previous year, the assessment had been on the basis of a legal interest in the Keilor Downs Plaza land and a 50 per cent equitable interest in the Cranbourne Park land, but the land had been held as trustee of the Keilor Downs Trust of which it held 100 per cent of the units and held them as trustee of the Centro Property Trust.
In those circumstances it was assessed in the manner set out at page 206 where it is expressed shortly. Your Honours will see at page 206, again below the assessment number, the list pertained to the beneficial interest in the Mildura Centre Plaza Trust and beneficial interest in the Cranbourne Park shopping centre and Keilor Downs shopping centre through the Keilor Downs Trust. Your Honours, that is the base material, if I could say that.
Could I go then to the terms of the statute. I took your Honours earlier to the terms of section 8(1) and your Honours will see that it imposes a tax on each owner of land. Could I refer also, your Honours, to section 39 of the Act which says it is a debt due to the Crown “by the owner of any land”.
Now,
your Honours, the rate of tax is provided for by section 6 and by the
provisions in the second schedule. The term “owner”
is defined by
section 3(1). Your Honours, if one goes to the definition of
“owner” in section 3, your Honours will see
that the
definition contains a number of paragraphs and some concluding words.
Your Honours will see that the parts potentially
relevant of that
definition are paragraph (a):
every person entitled to any land for any estate of freehold in possession –
Paragraphs (b), (c), (d) and (e) do not seem to have any
particular relevance. Your Honours will then see the provision of the
concluding
words -
and includes every person who by virtue of this Act is deemed to be an owner –
Now, your Honours, the concluding expression “every
person who by virtue of this Act is deemed to be an owner” is one
to which
we have referred in our written submissions at page 5, footnote 9. We
refer to the fact that there are various provisions
where the language which
appears in the concluding words of the definition of “owner” is used
to deem persons owners
and they are, for example, life tenants, lessees, and
Crown lessees. Could I refer your Honours to sections 41, 42 and 43,
where
your Honours will see the expression in each of them:
shall be deemed for the purposes of this Act to be the owner of the fee-simple –
That is in section 41. In section 42(1) and also, your Honours, one see in section 43(1) and (3).
Your Honours, the ultimate question in the case no doubt, was
whether the appellant, by virtue of being the holder of the units,
was entitled
to any land for an estate of freehold in possession in terms of
paragraph (a) and the definition of “owner”.
To arrive at that
result, your Honours, it is necessary to rely on section 51.
Your Honours will see that section 51 provides that:
Subject to the other provisions of this Act, the owner of any equitable estate or interest in land shall be assessed and liable in respect of tax as if the estate or interest so owned by him was legal, but there shall be deducted . . . the amount of any tax paid in respect thereof by the legal owner of the land.
Now, your Honours,
underlying section 51 is the question of the nature of the estate or
interest held by unit holders, whether individually
or collectively as to
100 per cent or as to 50 per cent.
Could I mention two other matters, your Honours. The first is this, as I think I mentioned a moment ago, these were amended or additional assessments for the years in question, the ordinary unaggregated tax having been paid. The second thing is that reference is made in the judgments below, and I will come to those in a moment, to the ability to bring the trust to an end by ownership of all the units, the suggested availability of the rule in Saunders v Vautier, but no such steps, of course, had been taken at any relevant time.
GUMMOW J: What would “bring to an end” mean? By a vesting order of some sort?
MR JACKSON: In the Saunders v Vautier context, your Honour?
GUMMOW J: No, in the context of this case.
MR JACKSON: Bringing to an end – presumably what the judges who referred to that concept had in mind was an ability to bring the trust to end. That is the first thing.
GUMMOW J: That is a metaphor for something.
MR JACKSON: Yes, I know, your Honour. What I was going to say was what that would mean would be on that notion, it seemed to us, it would seem to involve that the property of the trust would then become property which was owned by the unit holders legally and to be disposed of as they should choose. That seems to be the concept, your Honours. Could I go very briefly - - -
GUMMOW J: Is there a system in Victoria of statutory trust for sale, do you know?
MR JACKSON: There is, I think, your Honour, in certain circumstances. Could I give your Honour a reference to that later?
GUMMOW J: Yes.
MR JACKSON: Could I go on to say we succeeded in the appeals before the primary judge but we failed in the Court of Appeal. May I indicate the issues, and I will do so very briefly, that ultimately separated the parties in these matters. The approach taken by the primary judge can be summarised in this way. He identified four questions which are at paragraph 25 of his reasons. Your Honours can see those in the appeal book at page 1035. I will not read them out but your Honours will see the four questions there referred to.
In relation to the first question he held at paragraph 56, page 1045, that the unit holders did have “an estate or interest in each of the pieces of land the subject of the trusts.” He decided that adversely to us of course. The second thing was that he held, however, that the interest so held to exist would not, if legal, render the unit holder entitled to an estate of freehold in possession. His Honour’s reasons in that regard commence at paragraph 57 at page 1045 under the heading “SECOND QUESTION”. They fall in a sense into two parts. The first part is paragraphs 57 through to 59 and the second, paragraph 60 essentially through to paragraph 67. I would refer your Honours particularly to paragraph 63. The decision on that question rendered the other two issues in a sense otiose, but he did express views on them.
On the third question, your Honour, the sub-trust issue, as it has been called, which appears in paragraph 25, the third point, he expressed a view in our favour. Your Honours will see that in paragraph 70 of his Honour’s reasons, in particular about line 23 on the page going through to the end of that sentence.
On the fourth point, your Honours, the indemnity issue, he held against us. You will see that particularly in paragraphs 73 and 74. That was the primary judge.
In the Court of Appeal, the Court of Appeal agreed with
his Honour on the first point and held that unit holders did have an
equitable
estate or interest in the land. That is at page 1112, paragraph 18 of
the Court of Appeal’s reasons. The Court of Appeal,
however, disagreed
with the primary judge on the second and third issues and your Honours will
see that at paragraph 19 on page 1113.
Your Honours will see in
paragraph 19 the reference in the third line at page 1113:
the parties were in agreement that ss.51 and 52 of the Act were not themselves charging provisions –
you had to be an owner, to put it shortly. Your Honours will see a reference to Arjon – I will come to that in a moment – where his Honour said why in his opinion the holder of all of the units was entitled to a “freehold estate in possession in land which is an asset of the trust” and then the last sentence of that paragraph disposes of the third point that there had been. Your Honours, the argument as to the trustee’s indemnity was also rejected. That is at paragraph 21, page 1114.
Now, your Honours, the Court of Appeal, however, went on to deal with the issues arising from the fact that the interest in the Cranbourne Park land on the one hand, which your Honours have seen in the two diagrams I referred to, and the Glen Centre land, to which I have not referred but which is relevant to the Commissioner’s appeals, were 50 per cent interests rather than the whole. Your Honours will see that referred to at paragraph 22, page 1114.
What was held was that the assessment could be maintained in respect of the Cranbourne Park land but not in respect of the Glen Centre land and the interests were different in kind in the sense that the interests in the Cranbourne Park land was an interest in the whole of the 50 per cent ownership of the land – that is paragraphs 24 and 25 on pages 1115 and 1116 – and, accordingly, the sole unit holder was said to have a like interest of freehold, but in the case of the Glen Centre it was different because what was held was 50 per cent of the units, not 50 per cent of the land. Your Honours will see that in paragraphs 26 to 30, commencing at page 1116.
Now, your Honours, at the heart of the decision of the Court of Appeal is the proposition that the sole unit holder of all the units in a unit trust has the ability to bring the trust to an end, if I could use that expression, at any time, whatever may be its terms, and, accordingly, at all times, even though that power has not been exercised, in fact, is the equitable owner of an estate in possession.
Now, I took
your Honours before to the fact that Justice Phillips relied on his
reasons in Arjon v Commissioner of State Revenue [2003] VSCA 213; (2003)
8 VR 502. I need to go to that case, your Honours. May I go to
his Honour’s reasoning, first of all at page 514, paragraph 25.
At
the fourth line of paragraph 25 his Honour refers to the fact that they
were:
not concerned with the unit holder who is merely one of more than one, but only with a company which is, and was at all material times, the sole unit holder.
Then your Honours will see at the top of page 515 he goes on to
say:
In my opinion, the holder of all of the units in the trust is in different case; for, quite apart from the terms of the trust deed, the holder of all of the units will ordinarily have the power to bring the trust to an end and, if it so chooses, appropriate the trust assets to itself.
Now, your Honours will see that that sentence in a sense
encapsulates what follows in the later parts of his Honour’s reasoning,
that, he says, quite apart from the terms of the trust deed, the holder will
ordinarily have the power to exercise, to put it shortly,
a Saunders v
Vautier like notion. Your Honours will see in the next two
sentences:
At one stage in the argument before us it was put that the holder of all of the units in a unit trust has no more than the conglomeration of the rights attaching to each of the units severally.
He rejected that and says they have more than that, and your
Honours will see in the last few lines of that paragraph:
On this analysis, Arjon, as the sole unit holder in the GSF Unit Trust, had the full beneficial interest in the Broadmeadows land and, it follows, was the equitable owner of the land.
Now, his Honour at page 516, paragraph 30, about five lines into
the paragraph, once again says:
It is important to emphasise that we are not now dealing with the entitlement of one of several unit holders . . . Obviously any consideration of the rights of one of many must depend upon the provisions of the trust deed and the entitlements thereby created and conferred. We are concerned with the holder of all the units whose position, as owner in equity of the trust assets, may be determined without reflecting at all upon the position of an individual unit holder who is but one of many.
Again, page 518, paragraph 34 your Honours will see a reference
to the MSP Case – I will come back to that in a
moment – and it is said:
And in relation to individual unit holders the discretions conferred upon the trustees were obviously of more significance than would have been so had the court been considering the position of a sole unit holder.
At page 519, paragraphs 36 through to 38, there was a reference to the decision of the Full Court of the Federal Court in Kent v SS “Maria Luisa” (No 2) and your Honours will see most relevantly at paragraph 38 the reference to what had been said by Justices Tamberlin and Hely in that case about the position of the sole unit holder – your Honours, I will come back to the passage, it goes through to the end of paragraph 38 – and your Honours will see once again emphasising, at the end of that, the position of the holder of all the units. Then your Honours will see at page 520, paragraph 40, the passage which really commences at the top of page 521, he said:
there can be no doubt that the whole of the trust fund is vested in interest, expressly by cl 7(a), in all of the unit holders and such is a vesting in possession.
Your Honours will see a reference to clause 8(a) and then a few
lines further down:
but whatever the effect of such restrictions upon the proprietary interest of an individual unit holder as one of many . . . they do not prejudice the conclusion that the holder of all of the issued units in the trust for the time being has the full beneficial interest in the trust assets and has that interest “in possession”.
Finally, your Honours, paragraph 43, page 522, he said:
For the reasons given, I am clear that –
and he goes to the right of recoupment question
later –
Arjon was, in equity, entitled to a freehold estate in possession in the Broadmeadows land, notwithstanding the interposition of the GSF Unit Trust.
GLEESON CJ: That turned on clause 7(a)
which appears on page 510 in paragraph 17.
MR JACKSON: It did, your Honour. Your Honours will see that clause and also clause 8 there referred to. Our submission is that his Honour was in error in taking that view of the effect of the clauses perhaps in that case but certainly in applying them to these cases. What I propose to do now, your Honours, was to go to the correctness of, in a sense, that view and also the view which was adopted by the primary judge and again by the Court of Appeal at page 1035, paragraphs 26 and 27.
The first thing we would say in relation to that is that the terms of the relevant instrument are, in our submission, necessarily the starting point. We have referred to a number of passages in that regard, in our written submissions, page 9, paragraph 20 and following – I do not think I need to go to the detail of those, your Honours. What I particularly want to do your Honours, if I may, was to go to the terms of the trust deed in the particular case and they do not, in our submission, provide support for the view that the unit holders, in toto or individually, have such an interest and may I take your Honours to the terms of the Keilor Downs trust deed which commences at page 319.
McHUGH J: Is this proposition upon which the Court of Appeal and Justice Nettle relied traceable back to the decision of Justice Brooking in Costa v Duppe?
MR JACKSON: It is, in a sense. What appears to have happened is that Justice Brooking in that case – this seems to have been his own work, if I may say, with respect, as distinct from something that was particularly argued – put together what he said was a history of the legal position arriving at the two relevant consequences. One was that the beneficiaries, as it were, the unit holders, necessarily had the equitable estate in the land, on the one hand, and all the assets of the trust and, secondly, that provisions, to which I will come in a moment which said they did not have an interest in any particular asset, were to be treated as simply meaning that they had no interest in any particular asset and disregarded to the extent that they asserted they had no interest in the assets in toto. It seems, if I may say so, with respect, to be his Honour’s work. I do not mean that in any offensive way, but that seems to be the case.
McHUGH J: Do the other cases follow on from that, do they?
MR JACKSON: Essentially, your Honour, yes.
GUMMOW J: I am not sure what is said in that case about the caveats is entirely consistent with the Rosewood Case [2003] UKPC 26; [2003] 2 AC 709, The Isle of Man Trust Document Inspection Case. Lord Walker has quite a detailed consideration of modern discretionary trust with an emphasis on a right to administration rather than interest in any assets.
MR JACKSON: Your Honour, what seems to have occurred, and one can see this in a sense at page 94 of the decision of Justice Brooking, is that the Baker v Archer-Shee notion, or the majority in that case, seems to have had the effect that once the interests were vested, in a sense, there had to be in toto some interest in the equitable estate. That view, of course, came at a time when no doubt there were not interests of quite the same kind as those with which the Court is now concerned and what we would submit about it is that one has to look at the particular deed to see. It may or may not give rise to an interest which is caveatable, for example.
GUMMOW J: At the bottom of it, there is an idea that unless you can locate it, there is not a trust, I think.
MR JACKSON: Your Honour, that seems to be - - -
GUMMOW J: There is some core anxiety, unless you can find it somewhere, you do not have a trust.
MR JACKSON: That is so, your Honour. But your Honour, to have a trust in the ordinary course of it, leaving aside charitable trusts - - -
GUMMOW J: I am not saying I agree with it, but that seems to be the anxiety.
MR JACKSON: Yes. If one leaves aside charitable trusts, then the situation has to be certainty as to subject matter. There has to be certainty as to the persons who are the objects of the trust at least, but it does not follow that the obligations of the trustee are obligations to persons necessarily having an equitable estate. In the case of trusts which involve administration, there may be no one who has the equitable estate at the particular point. Your Honours, it is, in a sense, a leap of faith to say that because you divide it up into 100 units, but even though none of the units individually would give rise to such an estate, in adding them together you get something more than a sum of the parts.
GLEESON CJ: Is that partly, however, because there are contractual rights that exist and are relevant so long as the units are in a separate ownership, but when the units are all in a common ownership, the contractual rights between unit holders do not mean anything?
MR JACKSON: Your Honour, yes and no, your Honour, if I can put it that way. The yes part is of course that the unit holders, if the unit holders are the same persons, do not have any immediately conflicting rights, one would expect, in cases where units are of the same class. The no part is this, your Honour; that so far as the unit holder is concerned, the unit holder may wish to sell off some of those units, in which case the issues may arise again. But also, one does have in the contractual context as this arises, rights not only of the unit holders. There are persons who are involved, namely, trustee and manager, each of whom has an entitlement to remuneration, and remuneration based on the assumption that the trust will continue unless brought to an end in accordance with the terms of it.
Your Honours, that is what I wanted to do, if I may, to go to the terms of the trust deed now with a - - -
CALLINAN J: Which became a real problem, Mr Jackson, when the Income Tax Act was changed to treat unit holders in the same way as shareholders. Big problems arose when a lot of companies tried to undo the unit trust because of the position of the trustees, who continued to insist on their remuneration.
MR JACKSON: Yes.
CALLINAN J: So it was a practical and a legal problem that arose in that situation.
MR
JACKSON: Yes, your Honour. Your Honour, one can imagine, one is
not talking at the moment, in the context of a trust created by a will or
by a
benevolent relative. What one is speaking about is a context where people buy
units for commercial reasons, people set up unit
trusts for commercial reasons,
and people expect to get something out of it on all sides. May I in that
regard, your Honours, go
to the Keilor Downs deed at page 319. There
is a long index, your Honours, and I will not go to that, of course, but
may I just
say, that as your Honours will see from page 329 where the
recitals are, recital (D):
This Deed is made with the intent that the benefits and obligations thereunder may enure not only to the Manager and the Trustee but also to the extent provided herein, to every Unit Holder –
to put it shortly –
from time to time –
So it recognises the position of trustee and manager.
The deed contains a number of definitions. In clause 1 they are rather along the lines, one would expect – may I just mention - - -
GUMMOW J: There is a set law. It seems to be the manager.
MR JACKSON: Yes, your Honour.
GUMMOW J: Who kicks off with $100, in recital (B).
MR JACKSON: Yes, your Honour, and it goes from there.
If I could just go very briefly to some of the definitions, you will see at
page 330
a definition of “accrual period” and accrual period
is, I think, every six months. There is a definition of “the
Fund”
at page 333. It means, “the Fund hereby constituted”. There
is a definition of “ordinary resolution”
at page 336, and a
definition of “Trust Fund” at page 336 also, means:
all cash on hand or at bank, investments, amounts owing to the Fund and all other property of the Fund for the time being held by the Trustee upon the trusts of this Deed –
and the definition of “unit” is described,
your Honours, at the top of page 337 as meaning:
that interest in the Trust Fund as is provided for in this Deed –
Now, your Honours will see on a number of occasions it
speaks of “interest as provided for by this Deed”. The duration
of
the trust, your Honours, is dealt with by clause 2.1 at page 337.
Essentially it is 80 years and:
If the Perpetuities and Accumulations Act 1968 is repealed and not replaced –
there is a Royal lives’ clause - - -
GUMMOW J: Just stopping there. Am I right in thinking that the Perpetuities and Accumulations Act 1968 repealed the Thellusson accumulations legislation?
MR JACKSON: I think it did, your Honour, yes. I think - - -
GUMMOW J: In Victoria there is no inhibition. Provided you are within the perpetuity period there is no inhibition to accumulating.
MR JACKSON: I think that is so, your Honour. I will check that, your Honour, but that is my understanding.
GUMMOW J: It is significant to understand Saunders v Vautier to understand what the accumulation law is.
MR JACKSON: Yes. Your Honours, could I say if
your Honours look at about line 40 on page 337, it is provided:
Notwithstanding anything to the contrary contained herein, the Fund may be continued in operation or existence if it appears to be in the interest of Unit Holders during such period as the Manager may determine PROVIDED THAT –
to put it shortly, it is lawful to do so. One comes then - - -
GLEESON CJ: These units are all marketable? They are listed securities, are they?
MR JACKSON: I do not think so, your Honour. No, not in this one. I will take your Honour to the provisions – the deed contemplates they may be. These ones are not, your Honour, because no doubt, they are owned by the same people. May I come now to the provisions which, in a sense, are the strongest for the - - -
GUMMOW J: Do we not have to look at 3.1?
MR JACKSON: Yes, your Honour, may I go to
the immediately preceding provisions? I was going to say, your Honours,
the provisions to which
I am just about to come are, in a sense, the strongest
for the respondent’s case, but at the same time they contain within
them
their own constraints. One starts from clause 2.4 which says:
The Trust Fund shall be vested in and held by the Trustee upon trust for the Unit Holders subject to the terms and conditions of this Deed.
One sees then, your Honours, that the next
provision relates to the appointment of the manager. It says:
the management of the Fund is hereby vested exclusively in the Manager and shall not be removed as Manager except as required by law or permitted under this Deed.
One goes then, your Honours, to clauses 3.1 and 3.2. Your
Honours will see clause 3.1 says:
The beneficial interest in the Fund shall be divided into Units.
Then it goes on in clause 3.2 to say in a sense what that
interest is. It says:
Until Units –
and your Honours may pass over the different classes
part –
every Unit shall confer an equal interest in the Trust Fund but shall not confer any interest in any particular part of the Trust Fund or any investment but only such interest in the Trust Fund as a whole as is conferred on a Unit under the provisions contained in this Deed.
One sees of course again
the words “under the provisions contained in this Deed”.
Clause 3.2 in a sense makes it as clear as could be that on the one
hand units have equal rights but also that no unit has any interest
in any
particular asset and also that a unit has only an interest in the trust fund as
a whole and such interest as is conferred
on a unit by the deed. The unit
holder’s rights, your Honours, are referred to also in
clause 7.1 at page 343. Your Honours
will see that
clause 7.1 says:
A Unit Holder shall be entitled to a beneficial interest in the Trust Fund as stipulated in Clause 3 and shall not otherwise be entitled –
If I could go first to 7.1.1, it appears to take away the
ability to interfere with the exercise of powers in relation to the trust
by the
manager or by the trustee. In a sense, if I could say in passing, one would
think there could not be a greater interference
than by bringing the trust to an
end. If one goes then to clause 7.1.2, your Honours will see that a unit
holder is not entitled:
to exercise any rights, powers or privileges in respect of any investment –
and the only other potentially relevant provision is 7.1.3
there. One then sees that clause 8 at page 344 says:
The terms and conditions of this Deed shall be binding on the Trustee and the Manager and each Unit Holder . . . as if the Unit Holder and other persons had been parties to this Deed.
Your Honours, that expression, which no doubt perhaps has its origins in corporations legislation, is a provision which appears to treat the relationship, admittedly one of trust of course, as having within it obligations which are contractual in nature and the parties are obliged to observe the terms of the deed.
GUMMOW J: There would be a privity problem.
MR JACKSON: There would be, your Honour, if it were – I am sorry, may I answer that this way. The position is of course that if a person becomes a unit holder, then a person becomes a unit holder on terms of the deed. They do not do so otherwise. That is the point at which they – it is of no interest to them until they become a unit holder. Your Honours, could I say also the deed contains provisions for, as one might expect, the consolidation and subdivision of units in clauses 10 and 11 and for transfer and transmission of them in clauses 12 and 13.
Provision for determination of the trust is
made by clause 15. May I take your Honours to page 354.
Your Honours will see that
clause 15 provides for a number of ways in
which the trust may be determined. At 15.1.1:
If a liquidator is appointed to the Manager . . . if in the reasonable opinion of the Trustee the Manager . . . has ceased to carry on business . . . the Trustee shall summon a meeting of Unit Holders –
Then your Honours will see in particular 15.1.3 does give
an ability to determine the fund by a meeting of unit holders.
Your Honours
will see that clause 15.1.3 refers to:
If at a meeting of Unit Holders summoned in the same manner as a meeting may be summoned under Clause 29 hereof –
to which I will come –
a resolution that the Fund be determined is passed by all Unit Holders . . . the Trustee shall determine the Fund within 28 days of the day on which the meeting is held.
May I pause to
say, your Honours, that one sees of course that a determination of the
trust would affect the manager and trustee
as well as the unit holders. The
provision is made for a requisition for a meeting of unit holders by
clause 29.1, which is at page
400.
GLEESON CJ: Clause 15.1.3 does not provide for a resolution of all unit holders; it provides for a resolution of all unit holders who are present at a meeting.
MR
JACKSON: That is what we were going to say, your Honour. That is one
of the points to which I would direct your Honours’ attention.
That
is one thing, but one also sees in clause 29 itself at page 400 that
in clause 29.1, if one goes to about the fourth line of
that
clause:
The Manager shall . . . on the requisition in writing of 50 Unit Holders or Unit Holders who in the aggregate hold not less than one-tenth (1/10th) of the number of the issued Units (whichever is the less) convene a meeting of the Unit Holders –
Your Honours will then see in clause 29.2:
A requisition by Unit Holders must state the objects of the meeting and the terms of any resolution proposed to be submitted –
and your Honours will see that goes through the whole of
29.2 and there is provision for times and so on. One then sees,
your Honours,
in clause 29.3 there has to be at least seven days notice of
the meeting, and then at clause 29.4 in paragraph (a) specifically
recognises
that there may be circumstances where the units are beneficially
owned by a single unit holder but the procedure of that clause is
still to
apply. Your Honours will see on page 402, the last sentence of 29.4,
that:
The Manager and the Trustee or their respective duly appointed representatives shall be entitled to attend and address the meeting.
CALLINAN J: Mr Jackson, does the trustee have power to borrow?
MR JACKSON: The answer I think, your Honour, is yes. May I check that. I think there is specific reference to that, your Honours, in - - -
CALLINAN J: You understand why I would ask that, because what the net available would ultimately be might well depend upon an administration of the trust which would in turn require that there be borrowings repaid and interest paid.
MR JACKSON: Yes, your Honour, and could I say
your Honours will see, if I go back then to page 355 and back to
clause 15.5.2, if there is –
and 15.5 deals with the effect of
determination and your Honours will see in paragraph 15.5.2
that:
the Manager shall request the Trustee . . . to realise the whole of the Fund and convert the same into money . . . less all proper costs, charges, payments and expenses –
and then to distribute the money:
amongst the Unit Holders in proportion to the number of Units and their entitlement in relation to such Unit –
Now, your Honours, 15.5.5 allows the possibility that a unit holder’s interest might be satisfied by a payment in specie, but the manager has to agree. Clause 16.4(g), page 357, I think, is the answer to your Honour Justice Callinan’s question, the borrowing power.
Now, your Honours, the trustee’s and manager’s powers more generally are dealt with in clauses 16, 17 and 18, and provision is made by clause 20 for a distribution six monthly to unit holders.
Your Honours, I am almost at the end of this – both the
manager and the trustee, hardly surprisingly, have an entitlement to
remuneration. That is dealt with by clause 23 at page 377. The
manager’s management fee, in 23.1:
shall be paid out of the Fund a management fee for managing the Fund equal to seventy-five one hundredths of one per cent per annum (0.75% p.a.) of the Fund Value on the last business day of each month –
and then there is provision in clause 23.2 for the trustee’s fee. Your Honours will see in 23.2 it is the percentage that is set out in the first five or six lines there.
CALLINAN J: Is that a kind of performance fee? Again, what I have in mind is sometimes the managers are paid or the trustees are paid according to how well the underlying business is conducted and can fluctuate very much.
MR JACKSON: Your Honour will see that 23.2
expresses the trustee’s entitlement to be a fee, first of all:
where the Fund Value –
which is a defined
term –
is less than $500,000,000 of 0.04% per annum of the Fund Value or, where the current Fund Value exceeds $500,000,000, $200,000 plus 0.03% per annum of the amount by which the Fund Value exceeds $500,000,000, on the last business day –
so it is like a modern executive’s
salary.
CALLINAN J: And some major listed companies are making huge profits out of managing units in infrastructure funds and the like, Mr Jackson.
MR JACKSON: Yes, your Honour, and
your Honour will also see that halfway down that paragraph, 23.2,
about line 32:
The Trustee shall also be entitled to an acceptance fee of $3,000 on the execution of this Deed and a termination fee of five one hundreths of one per cent (0.05%) of the current value of the Fund when all the assets of the Fund have been realized –
and there is a further fee for incomplete developments. Your Honours, I should refer to 23.3 which provides that there is not to be a fee “if the Manager or the Trustee is the manager or trustee of a sub-trust”.
Your Honours – and this is
clause 26.1 at page 386 – will see there are covenants by the
trustee and the manager for
the benefit of the unit holders jointly at
26.1:
To act continuously as Trustee . . . until such trusts are determined as herein provided or it has retired or been removed from the trusts in the manner herein provided –
and then your Honours will see also clause 26.3.
|Finally, clause 28.13 at page 397 provides that:
No Unit Holder shall otherwise than in accordance with the provisions of this Deed be entitled to require the transfer to him of any property comprised in the Fund nor be entitled to interfere –
and your Honours will see the remainder of the provision.
I am sorry to have taken a while in taking your Honours to the provisions of the deed but what follows from that in a sense – and, your Honours, the first thing we would say is that a unit holder has no interest in any particular asset, be it land or otherwise, in that the trust deed says so specifically.
There is, of course, an interest in the trust fund, a term which encompasses all the assets, land and otherwise, but that interest is characterised not by an ability to reduce it to possession, but rather by an inability. That is the essence of the provisions to which I have referred, including the last provision to which I referred, clause 28.13. There is an inability to reduce to possession and the inability, your Honours, is made manifest by the existence of procedural and substantive provisions and they are applicable whether one is speaking of the units agglomerated, if that be an appropriate word, on the one hand, or considered individually.
Now, your Honours, if I could deal first with the position where the units are considered together, one sees that the holder of the units is required to go through the procedure adverted to earlier in order to bring about a determination of the trust. I referred your Honours specifically to the provision which dealt with the situation where there was but one owner of all the units. The second aspect of it, your Honours, is that the procedure to be adopted is such that the trustee and the manager have the opportunity to put their case against the adoption of the view that the trust should come to an end.
Now, your Honours, on the substantive aspects of it all unit holders have agreed to be bound by the terms of the deed. The terms of the deed recognise that the several parties have an interest in performance of the deed according to its terms, the several parties of course being the trustee, the manager and the unit holders from time to time.
Now, your Honours, in relation to transactions of this kind, which are quintessentially commercial in nature, what compelling reason, in our submission, is there to prefer the interests of unit holders to those of the trustee or manager? Your Honours, persons become unit holders on the terms of the deed which says that the unit holder’s interest in the trust fund can only be an interest in the assets when sold.
Now, your Honours, under the terms of the deed unit holders considered individually, in our submission, do not have any right which could be regarded as an estate of freehold in possession and the reality, we would submit, is that neither a unit holder nor all unit holders are ever entitled to have an estate of freehold in possession under the deed.
Now, your Honours, the reasoning essentially against us appears to involve the proposition that whatever the deed of trust may say is the principle of trusts, a principle which is immutable, that whatever may be the terms of the trust, no matter what financial interests other persons may have in the continued operation of the trust, the persons who together hold all the beneficial interest in the trust (a) have the capacity to bring it to an end, and (b) because of that capacity are to be treated as having an estate in possession in all the trust property.
GLEESON CJ: Does the reasoning also involve, at least in part, the idea that although this is a commercial matter, if for your commercial purposes you choose to adopt the scheme of a trust, then you take the consequences of that?
MR JACKSON: Yes, your Honour, it does. Putting it in that way of course does reveal what, in our submission, is a weakness in the theory that lies behind it. The weakness arises in this way. Your Honour put to me that the theory was if you adopt the method of a trust, or words to that effect, but to determine what method has been adopted one does have to look to the instrument which creates the trust. If the instrument which creates the trust is one which has provisions which are antithetical to the notion that the trust may be brought to an end by all the persons who have an interest in it beneficially, then what that does involve is that it is, and if I could use the expression again, an immutable part of the law of trusts that once one finds there is a trust this notion must apply, but leaves out of account of course the terms pursuant to which the trust was created in the first place.
Now, your Honours, the notion, we would submit, that there has to be the ability to bring the trust to an end – I leave aside of course cases where people are not sui juris and so on – but the notion of that kind is one which, in our submission, does involve rather a leap of faith. I took your Honours to the various parts of the reasons for judgment in Arjon, and I will not take your Honours back to that, but what your Honours will have seen in those passages is, in our submission, an underlying notion that whilst it may be that individual unit holders do not have an estate in the land, yet the unit holders together do. Now, your Honours, one sees that referred to, for example, at the top of page 515, paragraph 26 of Arjon.
Now, your Honours, at page 516 at about line 10 one sees Justice Phillips rejecting the proposition which – at page 516 of Arjon, if I could just go back to that for a moment, at about line – I think it must be the wrong page or wrong paragraph, your Honours, but his Honour on a number of occasions rejected the proposition that the holder of all the units had no more than the rights of all the – I am sorry - - -
HEYDON J: Page 515.
MR JACKSON: Thank you, your Honour.
HEYDON J: Just after the reference to footnote 27.
MR JACKSON: Yes, thank you, your Honour. I am sorry,
that is the page I should have gone to. He rejected the argument,
your Honours, in the
first six or eight lines on the page, where he
said:
At one stage in the argument before us it was put that the holder of all of the units in a unit trust has no more than the conglomeration of the rights attaching to each of the units considered severally, but I reject that argument. The holder of all of the units has more than that. First, through holding all the units, it has what all of the unit holders together (if more than one) would have –
and then your Honours will see the way in which he goes
about it –
which, by virtue of cl 7(a) and the opening lines of cl 8(a), is the whole beneficial interest in the entire trust fund –
But one sees, your Honours, if one goes to the provisions in this case, that each of those provisions is a provision which specifically is concerned with rights dealt with in the whole of the document, and the whole of the document reduced the ambit of the rights. It is not just the simple provision stated in clause 7(a).
Could we refer also to paragraph 34 of the reasons in Arjon. I mentioned earlier that refers to the MSP Case, but the MSP Case – and I will be coming to it in just a moment – was one where there were three initial holders. They were reduced to two and then to one. The provisions referred to in the case, or the observations made in the reasons for judgment in the case, do not suggest there was any increase by reason of that; rather the opposite. At paragraph 38 on page 520 there is the rejection of the view of Justices Tamberlin and Hely in “Maria Luisa”, but could we just say the words following the quotation in paragraph 38 refer to some but, with respect, not all of the relevant terms of the trust deed.
Finally, your Honours, if one goes to paragraph 40 at the top of the next page, his Honour treats the question as being whether the whole of the trust fund is vested in interest, but a better question, in our submission, would be: what is the interest in the trust fund which is vested? Once again in that passage one sees that ownership of all the units is treated as being greater than the total of the individual rights. Our submission is that a more appropriate approach was that taken in “Maria Luisa” [2003] FCAFC 93; (2003) 130 FCR 12. Could I take your Honours to the joint reasons at page 32.
GUMMOW J: We refused special leave in this case on grounds that are not presently material.
MR JACKSON: Yes. Your Honour, I was hoping it was on the ground of the inherent merit of the case.
GUMMOW J: No, that one had to read the Admiralty Act which assumed there was just one owner or stated so.
MR JACKSON: Could I say, however, if one goes first to
paragraph 60 at page 32, your Honours will see a reference to
Justice Kennedy in Commissioner of State Taxation v Merifield Cooksey
Holdings:
a little misleading simply to accept that for all purposes the Unit-holders in a particular trust have a proprietary interest in each of the assets comprised in the trust.
Your Honours will see that passage goes on then to a
reference to Justice Fullagar in Livingston, then at page 33
their Honours say immediately after the quotation in the second
line:
Hence it may be unsafe to proceed from the premise that because each Unit-holder has an equitable interest in each asset of the Fund to a conclusion that the sole Unit-holder must be the equitable owner of each asset. It all depends upon the terms of the trust. The ultimate question –
et cetera. Your Honours, that is
the first thing. The second thing is if one goes to page 34,
paragraph 68 you will see a reference
to clause 2(c).
Clause 2(c) is a provision which has similarities in the present case.
Their Honours say:
The effect of cl 2(c) is that neither “the Unit-holders”, nor any individual Unit-holder is entitled to any property comprised in the Trust Fund prior to the vesting day, and then only in the circumstances referred to in cl 12(a).
Your Honours will see the remainder of that paragraph, and then
particularly at the bottom of that page:
Thus, even if it be right to say the AFE had an equitable interest in the ship on the relevant day it was not the equitable owner of the ship because the terms of the trust deed precluded recognition of AFE as equitable owner.
Then, your Honours, finally at paragraph 72 - - -
GLEESON CJ: Is paragraph 69 material?
MR JACKSON: Sorry, your Honour. Yes, I am
sorry, I was going to the conclusion that was arrived from that. But
your Honours will see in paragraph
69 that they said:
there is nothing . . . that if AFE was entitled to extinguish the trust or call for transfer of the legal title to it that it had attempted to do so –
There is a reference, your Honours, to the
question:
whether the trustee had a beneficial interest in the trust property in aid of any rights of indemnity or exoneration –
Then, your Honours, if I could perhaps go to the conclusion
at paragraph 72, in the last three lines on page 35:
AFE had the practical ability to collapse the trust as at the relevant date, and had it done so, AFE and not Everdene would have been the owner of the ship –
And then paragraph 73 your Honours will see:
Once it is accepted that the trust deed is not a sham and that if AFE is to be held to be the owner of the ship it can only acquire that status by virtue of the provisions of the trust deed then the question whether AFE was the owner of the ship at the relevant date depends on the proper construction of the Act, and the legal effect of the deed.
Your Honours will see then paragraph 74. There was a reference to the fact that it conveyed a potentiality “to become the owner” as distinct from it equating to present ownership.
Your
Honours, if one goes to the observations in this Court in MSP Nominees v
Commissioner of Stamps [1999] HCA 51; (1999) 198 CLR 494 -
your Honours, I intend to come ultimately to paragraph 34, but may I take
you briefly to a couple of passages before that. Your
Honours will see at
page 500, paragraph 3 there is a reference to the fact that:
Clause 4 provided for the beneficial interest in the Trust Fund to be divided into units of equal value and that no Unit Holder was to have an interest in the Trust Fund –
and your Honours will see the remainder of that sentence.
Your Honours will then see at page 501, paragraph 5 through to paragraph
7,
and particularly in paragraph 7 at the top of page 502, it said:
Clause 4 denied any entitlement to Unit Holders to require a distribution, other than pursuant to cl 11. Of the methods for distributions specified in the Trust Deed, only the first, that in cl 11 for distributions after the Vesting Date, conferred upon Unit Holders rights not dependent upon or preconditioned by a requirement of consent by the Trustee or the exercise of a power vested in the Trustee. Accordingly, any scope for the operation of the rule in Saunders v Vautier was limited.
Underlying that, with respect, is the conception, if I can put it that way, that the rule in Saunders v Vautier is one capable of being excluded, or modified, by the terms of the relevant trust instrument.
Your Honours, one sees at paragraph 11 at
page 503 in about the fifth line of paragraph 11 there is a reference
to the events that
happened:
Sharrard then remained as the sole Unit Holder.
What one sees also is then at paragraph 22 at
page 506, the last part of the paragraph:
The meaning of the reference to an increased (although no more valuable) beneficial interest is not entirely clear. Upon a redemption of the units of one Unit Holder, the remaining Unit Holders were no better off, and both the nature and worth of their interests remained the same.
Your Honours will see a reference again to “nature
and worth” and of course one had a point where there was only one unit
holder reached. Then at page 509 at paragraph 32 first of all,
your Honours will see in the second sentence:
Where, as in the case of the Trust Deed, the subject matter is interests in a fund rather than in land, the analogy must be imperfect because possession in the sense used in old system conveyancing is not to be found.
Then one sees in paragraph 33, in particular in the third
sentence:
In the present case, contrary to the view taken in the Full Court, the effect of the redemptions –
that is in the plural –
was not the receipt or acquisition by the remaining Unit Holder of any “beneficial interest” held by the Unit Holders who had obtained the redemption of their respective units.
The use of terms such as “beneficial interest” is apt to mislead when applied to beneficiaries’ interests in a discretionary trust. As effected by cl 4 of the Trust Deed –
and your Honours will recall clause 4 is the provision
which is referred to in paragraph 3 on page 500 –
the Unit Holders were denied any specific interest in any item of property held in the Trust Fund. Rather, the rights enjoyed by [them] were, upon favourable exercise by the Trustee of its discretion conferred by cl 34, transmuted . . . into the entitlement to the price . . . This . . . was in fulfilment of the rights . . . not the “surrender” . . . of a beneficial interest or potential beneficial interest in or in relation to the assets represented by the Trust Fund.
No doubt that decision is not a decision which deals specifically with the issues raised in this case but it is a decision in which the Court does two things really. One is to deal with a provision in the form of clause 4 and recognise that Saunders v Vautier may have lesser application or no application. Secondly, the court appears to have treated the arising of a situation where there was one unit holder only as not increasing the estate of that unit holder.
Could I just invite your Honours to note one thing. The judgment appealed from in that case – I will not take your Honours to it. It is [1997] SASC 6197; (1997) 68 SASR 266 – had referred specifically in its opening paragraphs to Costa and to the decision of Justice Brooking and also in Costa v Duppe Properties and also to some observations in Read v Commonwealth [1988] HCA 26; 167 CLR 57 at 61 to 62. So that the issue cannot have been absent from the minds of the members of the Court dealing with it.
Your Honours, could we refer also - and I can go to our written submissions for a moment - in relation to the rule in Saunders v Vautier to the submissions we make in paragraphs 44 through to 47. Your Honours, may I say two further things orally in relation to our appeals. The first is in relation to the question of the sub-trust. In our submission, where a trustee holds the units in a unit trust subject to a further trust, the beneficial interest in a higher trust is in that trustee, that is, the trustee who holds the units, not in the unit holders in the second trust. Your Honours, could I refer to our written submissions, page 18, paragraph 52. Your Honours, subject to that, we rely on our written submissions.
GLEESON CJ: Thank you, Mr Jackson. Yes, Mr
Merralls.
MR MERRALLS: If it please the Court, we too rely upon
our written submissions, but I will advance some oral supplementary submissions.
The main
difference between the parties is that the Commissioner emphasises the
distinction between what might be called essential and incidental
elements of
the unit trust schemes, while the taxpayers emphasise the aggregation of
individual rights and obligations and the contractual
arrangement which contains
elements of the trusts.
The Commissioner begins with the fact that under each trust deed the trustee holds the trust fund upon trust for the unit holders. The deeds divide the beneficial interests into units and confer on such unit holders a beneficial interest in the trust fund. Each unit holder has fixed and ascertainable rights in relation to the distribution of income and capital. Hence, as it was held by both courts below, the trust deeds confer on the unit holders an equitable estate or interest in each asset comprising the trust fund from time to time. No other person or class has any such rights and the unit holder’s entitlements do not depend upon the exercise of discretion.
A provision of a trust deed which limits or restricts the exercise of the rights or powers of a unit holder derived from the impression of the trust on the assets comprising the fund does not have the effect of denying the existence of the unit holder’s estate or interest, but is superimposed on them.
The taxpayers, on the other hand, begin with the existence of a document containing terms which confer or deny rights and powers. They contend that each term must be given effect not only to state primary rights and to qualify or restrict the exercise or powers that are inherent in the trustees holding the fund assets upon trust for the unit holders but also to define the substance of the unit holders’ rights. Those rights, under their written submissions, are regarded as merely personal rights to compel the trustee to administer the trusts. The questions before the Court concern the application of the provisions of the Land Tax Act to five unit trusts which have the effect of requiring the holder of a unit to be the owner of an equitable estate of freehold in possession in land held upon the trusts as a condition of liability for the tax.
I would like to take the Court very briefly to the history of the land tax legislation which has a bearing upon the interpretation of the present provisions. The Land Tax Act 1958 (Vic) is a consolidating statute. Its critical provisions, for present purposes, are derived from the land tax provisions of the Land and Income Assessment Act 1908 (NZ). Victoria and the Commonwealth enacted similar Land Tax Acts in 1910, both derived from the New Zealand Act. It was not exactly an act of co-operative federalism but what I think in another area of law is known as conscious parallelism.
The previous Victorian act, the Land Tax Act 1877, was directed to lands owned by squatters, what were known as landed estates. Ownership was identified in terms of an “estate of freehold in possession”, amongst other things – that is in section 4. I might say the Acts have been included in the folders that we have handed up to the Court. But there were also provisions for imposing tax on persons who were beneficially interested where the landed estate was vested in trustees. They were deemed to be the owner thereof. The trustee was answerable, the beneficially interested persons were liable to pay tax in proportion with the annual value of their beneficial interest bought at a whole of the rents and profits.
HEYDON J: Is that section 8?
MR MERRALLS: That is section 8. Significant provisions of the New Zealand Act of 1908 and the Commonwealth and Victorian Acts of 1910 concern, for present purposes, the definition of “owner” and there were some differences in that the Victorian Act contains what is longer but it is, in a sense, a simpler definition of “owner” lacking what was subsection 2 of the Commonwealth definition.
The time at which ownership is relevant is identified for assessment. There are provisions for the assessability of owners of an equitable estate or interest. They are to be assessed as if the legal owners. Those provisions are in common form derived from the New Zealand Act. Then there is a right to deduct a tax paid by the legal owner. There are common provisions for the assessability and liability of a trustee as though beneficially entitled. The sections are in common form with section 52(1) of the Victorian Act, but there is no counterpart of section 52(2) of the Victorian Act in the New Zealand or the Commonwealth Acts and there are provisions for the assessment of joint owners.
It is important to note that, at the time these provisions were enacted, the modern form of unit trust had not developed. In a sense, it was in abeyance - - -
GLEESON CJ: Mr Merralls, if the legal owner is liable to pay land tax, and then if somebody else is made liable, you get an entitlement to deduct the tax paid by the legal owner - - -
MR MERRALLS: Yes.
GLEESON CJ: Why does this dispute matter?
MR MERRALLS: Why does it matter?
GLEESON CJ: Yes. Why is not the legal owner always there liable to pay the tax in these cases, for example?
MR MERRALLS: The tax ultimately is borne by the beneficial owner, because the legal owner has a right to obtain repayment - - -
GLEESON CJ: Yes, I am just wondering what difference it makes to the revenue, unless there is an insolvency somewhere.
MR MERRALLS: The provisions are primarily for ease of collection, in that it is easier, I think, to target the legal owner in some cases, than the beneficial owners, and probably is - - -
CALLINAN J: It would also depend upon the accumulation, because the legal owner might own a great deal more property. Is the rate of land tax affected by the aggregated value of properties?
MR MERRALLS: No, there are specific provisions for that. It depends upon there being different beneficial or same beneficial owners, so that the beneficial owners of property, of which the legal owner is, say, a public trustee company are not penalised for that fact. The present cases involve the application of what I might call the 1910 statutory provisions to circumstances that were not directly in the contemplation of the Parliaments when those provisions were originally enacted.
McHUGH J: Why do you say that? The unit trust has existed since the 19th century.
MR MERRALLS: Yes, it has. Not since the 19th century, since about the 17th century.
McHUGH J: Well, what about cases like Smith v Anderson where that was dealt with? The joint - - -
MR MERRALLS: Yes. I am not saying that unit trusts were not known.
GUMMOW J: They pre-date companies, actually.
MR MERRALLS: Of course they do. Good Dr Sin, in his treatise has instructed us in the history of what might be called unit trusts. But the modern form of unit trust was really revived in the 1930s, as your Honour would be aware. It was a revival of the unit trust concept for popular use.
May I take your Honours particularly to section 51, which is the section which makes the “Equitable owners to be liable as if legal owners subject to deduction of any tax paid by legal owner”. It recognises that there may be “an equitable estate or interest in land”. That is to say, it rests upon an assumption, which in some quarters may be said to beg the question raised in Maitland’s ninth lecture about the relationship between a beneficiary and a trustee. So for the purposes of the statute, there may be an estate or interest owned by a person in equity in land.
The second point to note is that it applies notwithstanding actual differences between legal and equitable estates and interests. One does not merely cross out the word “equitable” and substitute “legal” as though all the incidents of each interest were identical. It makes - - -
GUMMOW J: I am not sure what the relation is between section 51 and section 8(1).
MR MERRALLS: That has always been a puzzle, your Honour. Certainly, the word “owner” is used in a different sense in section 51. The sense is not wholly the same as that in section 8(1) because section 51 applies to estates or interests which may be other than freeholds in possession but which are, for tax purposes, deemed to be estates of freehold in possession.
In some of the sections
to which the Court has been referred in the group of 40s – that is, 41 to
43 – the deeming provision
applies whether the estate is legal or
equitable. In others it does not - it applies only to legal estates. So one
needs the aid
of section 51. An example of that is section 41, which
refers to:
The owner of any life estate in possession or of any other freehold estate less than the fee-simple –
That might be equitable,
but one would need to associate section 51 with it to apply the
section 8(1) definition. The third point
to note about section 51 is
that it recognises the existence of a trustee and it adopts concurrent ownership
for taxing purposes.
The fourth point to note is that it applies to all forms
of legal ownership giving rise to tax liability both actual and deemed.
The tax
provisions appear to have been drawn so as to facilitate the collection of tax
while ensuring fairness of burden and they
also enable the Commissioner to
aggregate beneficial interests even where there are different
trustees.
The Commissioner’s submissions are summarised in paragraph 5.4 of filed submissions and are elaborated under various subheadings. We adopt the reasons of Mr Justice Phillips in the Court of Appeal except for paragraphs 26 to 30. We also adopt his reasons in the Arjon Case except for the doubts expressed there about the nature of the rights possessed by one of several holders of units in a trust. The first question that arises is whether a unit holder has an equitable estate or interest in land held upon the trusts. Here we say there are four important points. The trust funds are vested in the trustee on trust for the unit holders. No other person has an interest under the trusts in the assets. Each deed provides for the net income to be payable to the unit holders and no other person has an interest in the income. On the termination of the trusts the assets of the funds are to be sold and the proceeds distributed to the unit holders.
Such a situation was regarded briefly, admittedly, in the joint judgment of Chief Justice Dixon and Justice Kitto and Justice Taylor in Charles’ Case and by the more elaborate reasons of Justice Brooking in the Costa & Duppe Case as giving rise to equitable interests in trust assets, the passage in Charles’ Case being page 609 and the conclusions in Costa & Duppe at page 96.
McHUGH J: But in Charles their Honours did refer to this deed and they did contrast this deed with the ownership of a share in a company.
MR MERRALLS: Yes, that is precisely what they were doing and our learned friends have underlined this deed as if there were some magical concept associated with that reduction of vision. In our submission, the statement should be regarded as a general one about the difference between a unit and a company share. Indeed, that passage is examined at some length in Dr Sin’s text. Reference has not been given to that text to the Court today.
McHUGH J: We had it on the special leave application.
MR MERRALLS: It is mentioned in many footnotes. The name of the book is The Legal Nature of the Unit Trust. It is by Dr Kam Fan Sin, then of the University of New South Wales. It is published by the Clarendon Press.
GLEESON CJ: Our copies at the moment do not have either a table of contents or an index. Is the book equipped with those?
MR MERRALLS: Does your Honour only have photocopies?
GLEESON CJ: Yes.
MR MERRALLS: We can easily photocopy the table of contents.
GLEESON CJ: At which page is this discussion that you mentioned, Mr Merralls?
MR MERRALLS: It is at pages 273, 275, 282 and 283.
GLEESON CJ: Thank you.
CALLINAN J: Mr Merralls, you said before that nobody else had an interest in the land or the fund.
MR MERRALLS: Yes.
CALLINAN J: What about the managers and the trustees?
MR MERRALLS: I am going to come to that, your Honour. They have contractual rights but we say that they do not have an interest in the sense required by section 51. I will say this about this book, which I have read with great interest. It is a very ingenious thesis but it must be regarded, with the greatest respect, as tendentious in that Dr Sin is concerned to achieve a recognition of a trust unit as what he describes as – and I use his phrase – “an indivisible item of property in its own right”. So, having that as his object, he is sure to criticise any case or observation that might be inconsistent with it.
The taxpayers relying upon Dr Sin contend that the observation in Charles’ Case and the decision in Costa & Duppe - - -
GUMMOW J: Charles [1954] HCA 16; 90 CLR 598 has to be understood in the light of what Mr Gibbs at page 600 explained was the nature of the provisions of the deed in question, which looks very different, at the top of page 600.
MR MERRALLS: What is your Honour referring to? I have page 600.
GUMMOW J: “The trustees were bound to distribute”, “The only powers of sale” were limited.
MR MERRALLS: They did not distribute; they distributed it at the end.
GUMMOW J: What is the general proposition you rely on from Charles? The question in Charles was whether moneys in the hands of the trustees were income, was it not?
MR MERRALLS: Whether the moneys in the hands of the beneficiaries were income reflecting the character they had in the hands of the trustee.
GUMMOW J: What is the particular passage of general significance that is relied on from Charles?
MR MERRALLS: It is on page 609. It is merely the comparison of the unit trust, of a unit and a share and the reference - - -
GUMMOW J: That passage at 609 and the reference to Baker v Archer-Shee is pre-Livingston, is it not? This is 10 years before Livingston.
MR MERRALLS: This case was pre-Livingston, yes, it was, and it is one judge all in Livingston. Chief Justice Dixon was a dissentient in Livingston. Mr Justice Kitto was in the majority.
GUMMOW J: Yes, but we are controlled by what Lord Radcliffe said.
MR MERRALLS: Unfortunately so.
GUMMOW J: Or maybe.
MR MERRALLS: This is not an occasion to digress far about Livingston, but Livingston is essentially a private international law case and - - -
GUMMOW J: So was Baker v Archer-Shee.
MR MERRALLS: Indeed, they were.
CALLINAN J: Viscount Radcliffe said it all depended upon Sudeley anyway and nobody had paid enough attention to that.
MR MERRALLS: There is quite a bit of attention paid to Mr Justice Windeyer’s judgment, but that is - - -
GUMMOW J: I do not think we can just fasten on Charles, on page 609.
MR MERRALLS: I was not suggesting that your Honours should, no. Far from it. The place of Charles has been disputed by the taxpayer – no, no. All we say about Charles is that is consistent with the re-ignition of the sort of analysis that we impress upon the Court in this case. Costa & Duppe contains a closer analysis of the position.
The taxpayers first refer to provisions in the deeds, that a unit does not confer an interest in particular investments but only in the fund as a whole. There are provisions to that effect in all the trust deeds except Cranbourne Park. If the trusts declared have the effect of giving an equitable interest in trust assets because of the rights to income and capital conferred and the absence of rights in others, such a provision is inconsistent with that equitable interest. That submission was accepted by Justice Phillips in Karingal at paragraph 28. That is to say an equitable interest in all the assets is the same as an equitable interest in each component. The fund for this purpose is not a separate entity.
Second, provisions in the trust deed that prevent a unit holder from requiring the transfer of particular assets or from exercising rights in respect of particular investments or from lodging caveats, either state normal restraints on the powers of a beneficiary under an active trust – a beneficiary cannot go to a company meeting and purport to exercise a voting right that is attached to a share held by a trustee on his behalf or direct the trustee to exercise his vote in a particular way – or they create personal obligations which restrict the exercise of what otherwise would be a unit holder’s rights. This is the contractual element referred to by my learned friend. They do not deny the existence of an interest of the character which would otherwise give rise to the rights. In fact they impliedly confirm the existence of such rights by qualifying them or restricting them.
The taxpayers secondly refer to the conferring on the trustees and/or the mangers of wide powers of management and power to change investments without the consent of unit holders. In our submission, those powers are not significant to the determination of the character of a unit holder’s interest. Powers of management are not unique to unit trusts and of course they existed and were most important in the conduct of operations on landed estates. The power to change investments is not significant because section 8 requires ownership to be determined on a snapshot basis at midnight on 31 December of a year preceding a year of assessment.
As Chief Justice Griffith said in Glenn’s
Case [1915] HCA 57; 20 CLR 490, which is one of the important early decisions on
the Commonwealth Act 1910, at page 497:
the tax is an annual tax, and the “owner” of the land is the person who is in the present enjoyment of the fruits which presumably afford the fund from which it –
which we take to mean the tax –
is to be paid.
We say that what is true of the ascertainment of the owner is true of the identification of the land. The taxpayers, thirdly, refer to provisions that express the unit holder’s entitlement to income not as being to the rents and profits of particular assets, but to a proportionate share of the total income of the trust fund. In our submission, the existence of an entitlement to income is the significant factor and it is irrelevant whether or not it is possible to trace particular income to a particular asset. There is no relevant difference between the position of a unit holder here than that of a beneficiary under an ordinary fixed trust where the trustee has duties of management and the beneficiary’s entitlement to rents and profits is subject to outgoings or even to the retention of funds to provide for future outgoings.
The next question is, assuming that there is an equitable estate or interest to satisfy the provisions of section 51, does the interest of a unit holder amount to an equitable estate of freehold in possession? Mr Justice Nettle, having decided the first question in our favour, held that it did not. The Court of Appeal held that it did where the unit holder was a sole unit holder but not where there was more than one unit holder.
I will defer for a moment my submissions about the distinction drawn in paragraphs 26 to 30 of Mr Justice Phillips’ judgment in Karingal about the difference between the position where there is a single unit holder and more than one unit holder. The Court of Appeal’s grounds on the simple point, whether one unit holder has an estate of freehold in possession, are elaborated in Mr Justice Phillips’ judgment in Arjon, which for this purpose is the principal judgment.
To answer the question, we ask the question: if it is accepted that a unit holder’s interest is not merely a right to procure the due administration of the trust and so amounts to an equitable estate or interest in the land, what could it be otherwise in the present case than an estate of freehold in possession? It is in possession. It is not an estate or interest in remainder or reversion or expectancy. It is one which gives the unit holders a present right of beneficial enjoyment.
Again, I refer your Honours to Glenn’s Case, first at page 497 in the judgment of Chief Justice Griffith and then to pages 498 in the learned Chief Justice’s judgment and page 501 in the judgment of Mr Justice Isaacs. The question in that case was whether persons who had an interest in a landed estate at the end of a period during which the income was directed to be accumulated had an estate of freehold in possession. I think that the decision is actually misstated in the taxpayer’s submissions in paragraph 40 of their submissions in the Karingal Case but in paragraph 38 of their submissions in the CPT Case where they say that the question concerned the interest of the annuitants did not concern the interest of the residuary beneficiaries.
On
page 497 Chief Justice Griffith said:
In my opinion the term “estate in possession” is used in the Land Tax Assessment Act in the sense explained by Mr Butler.
He was the editor of the 10th edition of Fearne on
Contingent Remainders.
This is not only the natural, but the only just, interpretation that can be put on the words. For the tax is an annual tax, and the “owner” of the land is the person who is in the present enjoyment of the fruits which presumably afford the fund from which it is to be paid.
The respondent’s argument is based on the assumption that whenever the legal estate in land is vested in a trustee there must be some person other than the trustee entitled to it in equity for an estate of freehold in possession, so that the only question to be answered is who is the owner of that equitable estate.
That fallacy is attributed to us in some of our
learned friends’ submissions. It is not one that we adopt. In my
opinion,
there is a prior inquiry whether there is any such person. If there is
not the trustee is entitled to the whole estate in possession,
both legal and
equitable.
Then, on the next page, in the middle of the page, after
dealing with the contradistinction between the term “in possession”
and “in remainder” or “in expectancy”, his Honour
says:
does not, therefore, prove that there must always be in the case of trust property an equitable estate in possession held by some person other than the trustee. The essential element of an “estate in possession” is, in my opinion, that the owner of it has a present right of beneficial enjoyment, whether accompanied by physical possession or the land or not. The fact that the expression is commonly used in speaking of a terminable estate does not avoid the necessity for the inquiry whether there is any person of whose interest that essential condition can be predicated.
In my opinion, therefore, when the equitable rights created by a will, which may be as diverse as the testator thinks fit, are such that the beneficial enjoyment of property by a particular object of his bounty cannot begin until the expiration of a determinate or indeterminate period, there is no present estate in possession in that property in any person other than the trustees of the will.
On page 501, Mr Justice Isaacs adopts
Preston in saying:
“An estate in possession” . . . “gives a present right of present enjoyment.”
GUMMOW J: What does “present enjoyment” mean?
MR MERRALLS: It means the right to receive - - -
GUMMOW J: Rents and profits.
MR MERRALLS: It might be the rents and profits but it is not necessarily directly rents and profits. I am reminded of a point that I should have made that the definition of “owner” in the 1910 Commonwealth Act had two limbs and I will take your Honours to it for a moment.
GUMMOW J: The definition on page 39 of “owner”.
MR MERRALLS: It is on page 39, yes:
is entitled to the land for any estate of freehold in possession; or
(b) is entitled to receive, or in receipt of, or if the land were let to a tenant would be entitled to receive, the rents and profits thereof, whether as beneficial owner, trustee, mortgagee in possession, or otherwise -
It is suggested, in our learned friends’ written submissions, that paragraph (b) was of some significance in Glenn’s Case, in fact it was not. It is quite clear from the judgments that their Honours were concerned only with paragraph (a) and they construed paragraph (b) as requiring the person to be directly in receipt of rents and profits.
GUMMOW J: What does “present enjoyment” mean?
MR MERRALLS: It means enjoying the benefit of what comes from ownership of the land.
GUMMOW J: Well, the beneficiary could not bring ejectment against the trustee?
MR MERRALLS: No. I said for the purposes of the Land Tax Act the difference between legal and - the incidence of legal and equitable ownership are preserved. There is a sort of crude substitution of the concept of legal ownership for equitable ownership, but that does not mean that one has to find that the equitable owner could exercise all the rights that a legal owner could. Justice Isaacs, at page 501, poses your Honour’s question, but answers it only negatively by finding that the residuary beneficiaries did not have that right. Justice Rich, who dissented, would have regarded the accumulation for the benefit of others as being in the nature of an encumbrance which could be discharged so as to reduce the remainderman’s rights to be in possession.
The unit holder here is entitled to the distribution of income, but where there is a power to withhold income from a particular period for distribution it is held for the benefit of the unit holder. There is no power to accumulate for the benefit of persons other than the unit holders, and there may be no power to accumulate at all.
Upon the termination of the trust, subject to the satisfaction of the trustee’s right of indemnity and the payment of the other outgoings, the capital, or proceeds of sale, of the trust fund will be distributed to the unit holders. Thus, there is no person other than the unit holders who have any interest in the trust fund. The position of the unit holder is different from that of a residuary beneficiary in an unadministered estate, which rests upon concepts of a different area of discourse. The position of a unit holder is not analogous to that of an object of a discretionary trust. There is no discretion as to the identity of beneficiaries, or the quantum of their entitlement. The powers that are conferred on the trustee, or manager, do not convert the unit trusts into discretionary trusts in the normal acceptation of that term.
The
taxpayers raise the contention that since the unit holder’s entitlement is
expressed to be to a proportionate share of
the net income of the trust fund,
they are not entitled to an estate of freehold in possession in any specific
trust property. They
refer in this respect to the judgment of Mr Justice
Nettle at paragraph 60:
I accept that if land were held on trust for a taxpayer on terms that the taxpayer be entitled to the benefits of the rents and profits derived from the land, the taxpayer would be liable under s. 51 to land tax as owner of the land. But the trusts with which I am concerned do not provide that the unit holders are entitled to receive the rents and profits generated by each parcel of land that comprises the fund. They provide instead for each unit holder to receive only a proportionate share of the income of the fund however that comes finally to be constituted.
It may well be that the income of the fund as finally constituted and distributed will include all of the rents and profits generated by a particular parcel of land within the fund. But it is distinctly possible that it will not.
It is not quite clear what his Honour is driving at
there. If he intends to say that some of the outgoings may physically be met
with particular funds, funds derived from particular sources and not from
others, we say that that does not matter. The right of
enjoyment is to all the
assets and maybe offsetting payments and - - -
McHUGH J: His Honour goes on to explain what he means, does he not? What he is saying is - - -
MR MERRALLS: He does in a rather – I am sorry, your Honour.
McHUGH J: He goes on to say the rents and profits may be used in other investments, they may be used or set aside for contingencies.
MR MERRALLS: Yes, we have dealt with that. It was really another point that was being made that you could not identify a particular stream of income to an identifiable piece of land. His Honour is saying that you may not find an aliquot part of the income of a particular year used to defray one of the expenses referred to in paragraph 61. We say that does not matter.
The taxpayer’s
second contention is that the unit holder’s estate is not of freehold
because the trust is a trust for
sale of temporal duration – that is
how they put it in paragraph 2(a) of the cross-appellant’s
submissions – or,
as they put it in paragraph 23 of their
submissions in the CPT Case, it is:
a trust for management and sale of finite duration whereby any estate or interest held by the unit holders was not of an indeterminate duration.
They are concerned that an estate of freehold must
be of indeterminate duration. We say that that confuses the nature of the
interest
in land in which the equitable owner has an interest with the nature of
the equitable owner’s interest. That is if the trustee
holds an estate of
freehold and the unit holder has a full equitable interest in that estate, in
our submission, it must be an equitable
interest in that freehold. You do not
characterise the interest of the equitable owner separately from the freehold
interest of
the trustee. Alternatively, while the income trusts are not of
unlimited duration, the beneficial interest of the unit holders in
the trust
assets is not limited to the period of those trusts. A trust for sale arises on
the termination of those trusts and does
not prevent the unit holders from
having the full beneficial interest of each and every asset for the time being
subject to the trusts.
The taxpayer, on the other hand, seems to be saying that
the equitable interest has to be indeterminate as well as the legal estate.
GLEESON CJ: Is that a convenient time, Mr Merralls?
MR MERRALLS: If your Honour pleases.
GLEESON CJ: We will adjourn until 2.15 pm.
AT 12.45 PM LUNCHEON ADJOURNMENT
UPON RESUMING AT 2.17 PM:
GLEESON CJ: Yes, Mr Merralls.
MR MERRALLS: If it please the Court, I have here a collection of tables of contents and indexes of Dr Sin’s book, and they are in separate bundles because the contents precede and the index is - - -
GLEESON CJ: Thank you.
MR MERRALLS: I was dealing with the taxpayer’s contention that the unit holder’s estate or interest is not of freehold in possession. The third contention is that it is not, because the principle of Saunders v Vautier is incapable of applying to the trusts. They say the trusts are discretionary trusts. Saunders v Vautier is not applicable to unit trusts which operate under both contractual and trust principles. Third, there is a confusion of the potential of a unit holder to bring a trust to an end at the critical date of the actual exercise of the right or power to do so. Fourth, the existence of the trustee’s and manager’s contractual rights and the trustee’s right of indemnity has the effect that the unit holders were not the sole owners of the fund or aggregation of the assets at the critical date and the presence of express termination provisions, in particular, trust deeds, is inconsistent with the availability of Saunders v Vautier.
First, we say that the trusts are not discretionary trusts, but even if they were Saunders v Vautier would not be incapable of being applied to them. We refer to the cases that are cited in footnote 15 to the Commissioner’s reply in the Karingal proceedings. Secondly, the contractual arrangements between the trustee manager and unit holders, consistently with our other submissions, are superimposed upon the equitable ownership of the trust assets; they do not deny it. Third, we say that we may have been hoisted with our own petard in respect of Saunders v Vautier inasmuch as we do not rely upon it to create a vested interest in trust assets. We say that it reflects the existence of a vested interest. The interest does not depend on the exercise by the unit holders of their entitlement to terminate the trust, and it is not necessary for the trust to have been terminated by the critical date.
In effect, Saunders v Vautier is a red herring here. It is merely a corollary of beneficial ownership, but the rights that may be exercisable, in accordance with the Saunders v Vautier principle may be abrogated or terminated or limited by contract.
The taxpayers referred your Honours to the case of MSP Nominees which they asserted denied a beneficial interest of the unit holders in the underlying assets of a unit trust. We say that that observation that was made in the judgment in that case must be understood in the light of the issues there. The question was whether, upon the exercise of a discretionary power by the trustee to allow the redemption of units as a result of which the applicant unit holders became entitled to payment in redemption of their units, resulted in a surrender or renunciation of a beneficial interest in or in relation to property. The Court concentrated upon the discretionary aspect of the unit holders’ right and said that it was only upon the exercise of the trustee’s discretion that the unit holder had a right to receive something. As it received payment from the trustee its units were cancelled so that the trust fund was reduced.
In those circumstances it could not be said that the unit holder had surrendered or renounced a beneficial interest in any particular property; merely a discretionary power had been exercised in its favour. That, in our submission, is what the passages read by my learned friend this morning from page 509 refer to.
The next question concerns the trustee’s right of indemnity. Does it make any difference to the previous issues concerning the nature of the unit holder’s rights? The taxpayers contend that the trustee’s right gives it a proprietary interest in the trust assets that detracts from the unit holder’s total ownership. We contend that the trustee’s rights of exoneration and reimbursement are a species of equitable lien which give them a security interest in the trust property, sometimes described as a security proprietary interest, but it does not prevent the beneficiaries being the owners of the entirety of the trust assets subjected to that lien.
This proposition is found in the excerpt from Scott on Trusts which we have provided to the Court. It is the 4th edition known as the Fratcher edition, volume IIIA, at page 328, paragraph 244.1:
A trustee who is entitled to reimbursement or exoneration for expenses properly incurred in the administration of the trust cannot be compelled to surrender the trust property to the beneficiaries until his claim for reimbursement or exoneration has been satisfied. He has in other words a security interest in the trust property. If necessary to indemnify him, the court may authorize a sale or mortgage of the trust property. If it is so provided by the terms of the trust, the trustee may without an order of the court sell or mortgage the trust property or a part thereof to reimburse himself for what he has properly paid out of his individual property on behalf of the trust estate for expenses incurred on behalf of the trust estate or to exonerate him from liabilities that he has properly incurred on behalf of the trust estate.
The taxpayer contends that certain observations in the case of Chief Commissioner of Stamp Duties v Buckle have the effect that the property in which trust beneficiaries have equitable interests cannot be identified until the trustee’s lien has been satisfied. That too was a stamp duty case. It concerned the resettlement of an interest under a discretionary trust. It was a fairly conventional family settlement containing wide discretionary powers for the distribution of income and for the establishment of capital interests, the termination of the trusts.
There was a supplemental deed which varied that deed of settlement by
altering the group, the class of objects of the power, and
the Commissioner
assessed under a provision which provided that part of:
(3) A conveyance of property made without consideration in money or money’s worth is to be charged with ad valorem duty on whichever is the greater of:
(a) the unencumbered value of the property . . . or
(b) the amount or value of all encumbrances (whether certain or contingent) subject to which the property is conveyed.
The question was
whether the trustee’s right of indemnity was an encumbrance within the
expression “unencumbered value
of the property”, which had to be
disregarded for the purposes of calculating the value of the property on which
duty was charged
by the section. It was held that what was the settled, or
rather – may I go back a step and say that it was first held that
the
interests that were resettled were not the entirety of the beneficial interests
in the trust fund, but rather interests of an
almost ephemeral character which
depended upon the favourable exercise of discretions, and that they were, as the
Court said, interests,
the present value of which had to reflect vicissitudes
which were an essential element of the structure created by the deed of
settlement.
So the amount of stamp duty chargeable was minimal.
The
Court then went on to express opinions upon the other question that had been
raised and argued concerning the application of
the provision charging the
unencumbered value of the property, even though it expressed the view that it
was unnecessary for the
decision. So strictly speaking the observations of
obiter dicta there is the headnote, if I may say so, accurately records. The
Court said at page 245:
that “unencumbered” is used in s 66(1) not in a loose sense but to refer to security interests in, or charges or other liabilities which attach to, the property in question.
So it had to determine what that property was. It said:
The liabilities of the trustee to the two companies which provided the funds . . . Those interests were to be distinguished from the assets –
and at the top of page 246 said:
In aid of that right to reimbursement or exoneration for liabilities properly incurred in the administration of the trust, the trustee cannot be compelled to surrender the trust property to the beneficiaries until the claim has been satisfied. In that sense, the entitlement to reimbursement or exoneration confers a priority in the further administration of the trust. Accordingly, in an administration action, if it appears probable that the trust fund will be insufficient for the full recoupment of the trustee, the trustee is entitled to the insertion in the order for administration of a direction that there be payment in the appropriate order of priority.
In
paragraph 48 it is said that:
Until the right to reimbursement or exoneration has been satisfied, “it is impossible to say what the trust fund is” -
in the sense that it is impossible to say what is eventually
going to be available for distribution, in our submission. Entitlement
to the
beneficiaries in respect of the assets held by the trustee which constitutes the
property to which the beneficiaries are entitled
in equity is to be disregarded
from the assets themselves.
The entitlement of the beneficiaries is confined to so much of those assets as is available after the liabilities in question have been discharged or provision has been made for them. To the extent that the assets held by the trustee are subject to their application to reimburse or exonerate the trustee, they are not “trust assets” or “trust property” in the sense that they are held solely upon trusts imposing fiduciary duties which bind the trustee in favour of the beneficiaries.
So there is that qualification on the statement that they are
not trust assets or trust property. It is not an absolute statement
at all; the
phrase is used in that restricted sense. Then there is a reference to the
identification by Lord Justice Lindley of
the entitlement of
trustees:
as “the price paid by cestuis que trust for the gratuitous and onerous services of trustees”.
Whether that is the only justification for the right perhaps is open to question, if I may respectfully say so. The right of the trustee has been described as a first charge upon the assets vested in the trustee and is one upon the trust assets and is conferring upon the trustee an interest in trust property which amounts to a proprietary interest. But again, in our submission, the proprietary interest is one of a security nature. It does not convert the trustee into a beneficiary pro tanto for himself.
If the taxpayer’s submission is correct, section 51 could have little or no operation since most trustees would be entitled to some form of exoneration or reimbursement. What is more, its operation would depend upon the state of account between the trustee of the trust fund at the critical date and if that submission is taken further, the beneficiaries would have a full beneficial interest at one moment and be deprived of it the next. A trustee’s right of indemnity, of course, is not confined to unit trusts.
We refer the Court to paragraphs 45 to 62 of the judgment of Mr Justice Phillips in the Arjon Case and respectfully adopt what is said there about the trustee’s right of indemnity.
The next question is the sub-trust question, where a unit trust is interposed between a landowning unit trust, and a person assessed as a beneficiary under section 51. The question is, does the beneficiary have an equitable estate or interest in the land, and hence ownership of the land, held for the landowning trust? In our submission, it does. The question only arises on the assumption that the intervening trustee holds an equitable estate of freehold in possession in the land, and that that equitable interest, if that is so, is the subject matter that is held on a trust for the assessed unit holder, that is to say, the assessed unit holder has not only a right to enforce due performance of the other trust, or rather, of the rights held in the other trust by the trustee, but has the same form of equitable interest in the equitable interest that is held by the trustee of the intervening trust.
The last question concerns the Glen Centre Unit Trust. This is where we fell at the last jump. The question is, where there is more than one unit holder, does each unit holder have an estate of freehold in possession? That is assuming that all the other questions are decided in the Commissioner’s favour. May I take the Court to section 45 - - -
McHUGH J: Did the Court of Appeal refer to section 45 at all?
MR MERRALLS: Yes, it did but it did not on the last page. It did in previous parts of the judgment.
McHUGH J: But not on this - - -
MR MERRALLS: It was quite extraordinary, yes.
HEYDON J: It is set out on page 1115, paragraph 23 of the Court of Appeal.
MR MERRALLS: Yes. It
was very strange that Mr Justice Phillips in paragraphs 28 and 29
simply did not refer to it, although it was specifically
argued in this
connection. He purports to summarise my submission but does not mention
section 45, which was essential to it. Anyway,
section 45 provides
that:
Joint owners of land are to be assessed and liable for tax in accordance with this section.
It then provides for joint assessment and it provides also for
separate assessment in respect of:
(a) the owner’s individual interest in the land (as if the owner were the owner of a part of the land in proportion to that interest) –
and it has within it an aggregation provision.
GUMMOW J: There is a definition of “joint owners”, is there not?
MR MERRALLS: There is a definition of “joint
owners” which was amended at the same time as section 45 was amended.
It is complementary
to section 45. It is persons:
(a) who own land jointly or in common, whether as partners or otherwise; or
(b) who are deemed by this Act to be joint owners;
If all the unit holders own the land together, they own the land either jointly or in common. It does not matter which.
GUMMOW J: When you say they own it together, you answer the question, do you not? Who says they own it together?
MR MERRALLS: If the whole of the beneficial ownership is in a state of freehold in possession, the only persons who can own it are all the unit holders. There is nobody else. In a sense your Honour is right. It is almost a question which - - -
GUMMOW J: They are certainly not joint tenants.
MR MERRALLS: No, they are not.
GUMMOW J: If one dies, the other unit holder does not get it by - - -
MR MERRALLS: No, they are not joint tenants. They would be equitable owners in common, but it does not matter whether they are joint tenants or owners in common and it does not matter how the ownership arises because of the width of the expression “or otherwise”.
GUMMOW J: This is assuming that there is this apple called “beneficial ownership”.
MR MERRALLS: Yes.
GUMMOW J: Which is a matter I raised with Mr Jackson earlier this morning.
MR MERRALLS: Well, it is an assumption which is made by the Act.
GUMMOW J: Well, that may be a question.
MR MERRALLS: That is our submission. It is only in connection with this last point that the issue of part ownership becomes significant. In our submission, if we are correct in saying that only the unit holders own the land, they must own it within the definition of “joint owners”. I have covered all the grounds that are raised against us. In conclusion I wish to draw to your Honours’ attention a passage in one of the textbooks that we have cited. It is Professor Waters’ Law of Trusts in Canada.
We have cited the second edition, which is of
1984, because the Supreme Court Library in Melbourne has the third edition on
order
but has not yet received it and we were not able to locate a copy in
Melbourne. But we hope that Professor Waters has not had second
thoughts about
what I am going to read to the Court and, in any case, we adopt what is said as
part of our argument. It is at page
1135 under the subheading
“Taxation”:
It is a theory soundly rooted in the law of trusts that the beneficiary’s interest is a right to compel the trustees to perform the trust. This compulsion is brought about by the personal liability of the trustees to compensate the trust beneficiaries, and the ability of the beneficiaries to bring a breach of trust action, should the trustees not perform their duties. This means that the interest of the beneficiary under the trust is a chose in action, and the situs of that chose is in that jurisdiction where the trustees reside and are administering the trust.
That is an allusion to the Baker v Archer-Shee and
Livingston and Lord Sudeley problems.
Since the late nineteenth century, however, another view has been expressed and enforced in the courts. This is to the effect that in “substance” the trust beneficiary has an interest in the trust property. It is to that property that he looks for the benefit to come to him under the trust, and it is irrelevant that the trustees may change the character of that property from time to time, as they vary the investments in the trust portfolio. Seen from this point of view the trust is a mere vehicle or conduit for the transfer of the proprietary benefits or rights from the property itself to the beneficiary, and the trustees are no more in fact than agents of the beneficiaries.
The former and traditional view is still the most persuasive approach for the understanding of the trust as a working concept. It succinctly describes the fact that the trustee is the legal owner of the trust property, and can deal with the property as if he were the owner, while the beneficiary has title to the right of enjoyment in the property. The trustee is an owner without the right to enjoy, something which the layman who associates ownership with personal advantage would find it almost impossible to understand;
the beneficiary owns nothing and in the majority of cases he has no right to ask for the transfer of ownership, but he alone enjoys the property which the layman would understand as a facet of ownership. The relationship between trustee and beneficiary is therefore more than that between principal and agent, and less than the relationship between the absolute owner and a person to whom that owner has a moral obligation. Nor, as the history of the common law trust has shown, are these just the distinctions of sophistry. The very flexibility first of the use and then of the trust has been due to the fact that the mediaevalists conceived of a manner of giving legal efficacy to a moral obligation. Vis-à-vis the world a man was an owner with all that this implied, vis-à-vis the beneficiary, he accounted.
When the issue therefore concerns the working operation of the trust, that is to say, what the trustee and the beneficiary may expect of each other in the performance of the terms of the trust and the discharge of the obligations imposed by the law of equity, the traditional theory – Maitland’s axiom – is unsurpassed. But when the issue does not concern the working operation of the trust, as for instance when the state is seeking to recover taxes and duties from the trust, it is forcefully arguable that this theory is a hindrance. The working operation of the trust is not going to suffer if for tax and duty collection purposes the “substance” or the reality of the situation is preferred as an approach; indeed, in this latter manner a sound measure may be taken of exactly what benefit the beneficiary has derived from, and currently possesses in, the trust property.
We adopt that passage as part of our
submissions. If it please the Court.
GLEESON CJ: Thank you, Mr
Merralls. Yes, Mr Jackson.
MR JACKSON: A preferable approach,
with respect, in our submission, would be to look first at the words of the
statute in relation to which
the issue arose. But may I say a number of things
in relation to matters that have arisen today. Your Honour Justice Gummow
asked
me about a power to sell. I think that is the Trustee Act 1958,
section 13.
GUMMOW J: Thank you.
MR JACKSON:
Another question your Honour asked was about accumulations. The position
was this, your Honours. There was a provision of the
Law of Property Act,
later repealed in Victoria, which dealt with the position by enacting
legislation which prevented, to put it shortly, accumulations
going on forever.
That provision was repealed by the Perpetuities and Accumulations Act,
and the relevant provision now appears to be section 19 of that Act, which says
in effect:
(1) Where property is settled or disposed of in such manner that the income thereof may be or is directed to be accumulated wholly or in part the power or direction to accumulate that income shall be valid if the disposition of the accumulated income is or may be valid but not otherwise.
(2) Nothing in this section shall affect the power of any person or persons to terminate an accumulation that is for his or her benefit and –
other provisions for maintenance, et cetera. Your Honours, those are the two matters arising from what your Honour said.
Your
Honours, could I come back to section 51 of the Land Tax Act. For
section 51 to operate there has to be an equitable estate or interest in the
first place. Of course, there is not necessarily
one. In that regard, could I
give your Honours two references. The first is Commissioner of Stamp
Duties (Queensland) v Livingston [1964] UKPCHCA 2; (1964) 112 CLR 12 - this is in
the Privy Council – in particular at page 22 of Viscount Radcliffe. Your
Honours will see the first new paragraph
on the page:
A second line of criticism has occasionally been expressed to the effect that it is incredible that Lord Herschell should have intended by his proposition to deny to a residuary legatee all beneficial interest in the assets of an unadministered estate. Where, it is asked, is the beneficial interest in those assets during the period of administration? It is not, ex hypothesi, in the executor: where else can it be but in the residuary legatee? This dilemma is founded on a fallacy, for it assumes mistakenly that for all purposes and at every moment of time the law requires the separate existence of two different kids of estate or interest in property, the legal and the equitable.
Your Honours will see that developed through the remainder of that paragraph and in the first six or seven lines of the next paragraph.
GUMMOW J: He said Sir Owen Dixon was confused.
MR JACKSON: Yes, your Honour. May I refer also to Glenn 20 CLR - - -
GUMMOW J: I think it was Sir Frederick Jordan who was muddled.
MR JACKSON: Yes, your Honour.
GUMMOW J: Justice Heydon points out.
MR JACKSON: Can be confused about the location of confusion.
McHUGH J: Yes, but Chief Justice Dixon had cited those passages with evident approval in - - -
MR
JACKSON: Your Honours, may I move to Glenn 20 CLR and I
wanted to refer your Honours to page 497. Your Honours will see
in the penultimate paragraph on the page, it was said:
The respondent’s argument is based on the assumption that whenever the legal estate in land is vested in a trustee there must be some person other than the trustee entitled to it in equity for an estate of freehold in possession, so that the only question to be answered is who is the owner of that equitable estate. In my opinion, there is a prior inquiry, namely, whether there is any such person. If there is not, the trustee is entitled to the whole estate in possession, both legal and equitable.
And your Honours will see on the next page, at the top of
the page his Honour referred to, commencing in the second line, the case
where –
an object of –
a testator’s bounty is –
not for a determinate or indeterminate period have any beneficial enjoyment of specified property, the will cannot be construed as conferring upon him any equitable estate in possession before the expiration of that period.
That is a will, of course. Your Honours will see also,
about a third of the way down the page:
The fact that the term “in possession” is often used in contradistinction to “in remainder” or “in expectancy” does not, therefore, prove that there must always be in the case of trust property an equitable estate in possession held by some person other than the trustee. The essential element of an “estate in possession” is, in my opinion, that the owner of it has a present right of beneficial enjoyment, whether accompanied by physical possession of the land or not.
I will come back to the application of that, your Honours.
Your Honours will see also in the penultimate paragraph on that page,
his Honour said:
In one sense, perhaps, the persons who are for the time being entitled to share in the fruits of the land may collectively be called the equitable owners, but that point is not material to the present case.
Your Honours will then see, at the bottom of page 499,
it was held that:
until the trusts for accumulation of income have been carried out the whole equitable as well as the legal estate in the land is vested in the trustees.
That continues to the top of the next page. The point I would
seek to make about it, your Honours, is this, that here, the unit holders
are not the only persons having an interest in the rents and profits. You have
the interests of the trustees and the managers, and
if I could go back for just
one moment, your Honours, to page 377 of volume 1, your Honours
will see in clause 23.1 and clause 23.2,
the manager’s and
trustee’s fees respectively. It says they:
shall be paid out of the Fund -
the management fee, and the trustee’s fee is to –
be paid out of the Fund –
So that, your Honours, one does have interests of persons other than the unit holders being expressed to be interests that are to be paid out of the fund.
CALLINAN J: Mr Jackson, though, in the ordinary case of an ordinary trust, would that not be so though? Anybody properly employed in or about the performance of the trust would be entitled to be paid out of the trust funds, and indeed in some priority.
MR JACKSON: Your Honour, in the ordinary course of events, there is provision for there to be the expenses of the trustee, however they be expended, be something which is recoverable from the fund, no doubt about that. In relation to the remuneration of the trustee, they may or may not be payable out of the fund. They may be payable in some other way altogether, but in the ordinary course of events, I suppose the more likely thing is that they would be payable out of the fund.
But, your Honour, the fact of the matter is that if one looks at the position of the trustees in the particular case, one is not dealing with the simplest class that your Honour was in a sense referring to me, because what one sees here is that it is not just a case of one saying the trustee obtains the remuneration to which the trustee is entitled by under the Act, the Trustee Act or something - - -
CALLINAN J: There is a performance fee in there, in effect, too, is there not?
MR JACKSON: There is a performance fee. So that in reality there is an interest in the trustee in a particular - - -
CALLINAN J: In a curious kind of a way the manager is a joint venturer, as it were, in the whole project, I suppose, the investment and income-earning project.
MR JACKSON: Yes. Your Honour, could I say the concept advanced by our learned friends is that a unit holder is entitled to an estate of freehold in possession, but we would submit why should that be so when, first of all, you have clause 3.2 saying that the unit holder has no interest in any piece of property. That is specifically what it says.
McHUGH J: But you do not have to go so far as to say that the manager has an interest in this fund, do you? These cases upon which you rely seem to go so far as to say you must have a beneficiary but it does not follow that the beneficiaries have an equitable estate or interest in - - -
MR JACKSON: That is so, your Honour. I am not saying that the entitlement to remuneration of the trustee and manager is critical to it. The point I am seeking to make is that that is part of it. In a case of this kind where the test is whether a unit holder has an estate of freehold in possession we would submit why should that be so. I referred a moment ago to clause 3.2 which says that the unit holder does not.
GLEESON CJ: Leave aside the argument in this case as to whether it is proper to describe it as a discretionary trust, if you had a case of a discretionary trust, then that would produce the result, would it not, that you would not be able to identify, amongst the beneficiaries, equitable owners of an estate of freehold in possession?
MR JACKSON: I think our learned friends’ argument, your Honour, would be that if you added them all together, all the possible persons, you would have.
GUMMOW J: But they are all in competition with one another.
MR JACKSON: Yes, your Honour. I am sorry, I meant in the Saunders v Vautier sense, but they are all potentially in conflict with one another. I am reminded, your Honour, Charles v Federal Commissioner of Taxation was a case where the trustee was not entitled to have remuneration paid out of the trust fund, but I mention that in passing. It was a particular type of trust.
Your Honour, the second thing I was going to say was this, that I mentioned clause 3.2. Clause 7.1, which is at page 343, says that the unit holder shall be entitled to a beneficial interest only as provided for by clause 3, and then a unit holder cannot require transfer to it of any of the property. That is clause 28.13 at page 397.
Your Honours, if one goes from that to the case of the sub-trust,
there is really no basis, in our submission, for one to say that
there is an
estate of freehold in possession of the land in the case of a sub-trust. In our
submission, Justice Nettle was right
in what he said at page 1049,
paragraph 70, and if I could go back to that briefly. Your Honours
will see at about line 20 on that
page, the second sentence in that
paragraph:
Whatever might be said about the ability of a unit holder in a landholding trust to obtain from equity an order to compel possession or receipt of the rents and profits from individual lands within the trust fund, I consider it to be untenable that a holder of units in a trust of which the fund was comprised of units in another, landholding, trust, could obtain from equity an order compelling in favour of that unit holder possession or receipt of the rents and profits from individual lands the subject of the landholding trust.
McHUGH J: The argument that is put against you is that the trustee of the sub-trust has an equitable interest and that forms part of the property of the primary trust, so it is the same question, is it not?
MR JACKSON: Your Honour, one gets there really by
section 51. Section 51 does not seem to have a double effect. If one goes
to section 51, it says:
the owner of any equitable estate or interest in land shall be assessed and liable . . . as if the estate or interest so owned by him was legal –
If one is endeavouring to convert the second level of beneficial interest, let us say, into a legal interest, what does one get? The answer, in our submission, is that it is not capable of being converted. The one above no doubt one can convert. That gets the trustee into the legal position but it does not provide for the double effect.
CALLINAN J: That truly is only a chose in action because you would have to join the primary trustee in order to get any order anyway of any kind.
MR JACKSON: Yes.
Your Honours, I was going to say the observation of Justice Nettle at
the passage to which I just referred seems to reflect
what was said by
Justice Isaacs in The Trustees, Executors and Agency Company Limited v
Acting Federal Commissioner of Taxation [1917] HCA 56; (1917) 23 CLR 576. It is
a passage at page 583 halfway down the page after referring to
Snider:
The principle is that equitable ownership, as it is called, is always commensurate with the right to relief in a Court of Equity. If the appropriate relief would not be present enjoyment, there is no equitable ownership in possession.
Your Honours, our learned friends said that in a sense Saunders v Vautier is a red herring and that the effect of it can be – a red herring so far as their case is concerned. It can be altered in effect by contract. But Saunders v Vautier is the basis on which the Court of Appeal decided the case. If it was wrong on that, then, in our submission, there is nothing in the Court of Appeal’s decision which really supports the Commissioner’s case. Could I say also that our learned friends referred to discretionary trusts. Could I just say using the term “discretionary trusts” in this context is simply to use in a sense the language that was used in MSP Nominees 198 CLR at the bottom of page 501 and the top of page 502. When the Court came to actually deal with the issue, the reference was made in paragraph 34 to clause 4 which is the clause saying that there was no interest in any particular assets.
Having said that, may I come back to the appeals by our learned friend’s side. Our submission is that Justice Phillips was correct in the views which he expressed first of all at paragraphs 26 and 27 of his reasons. Could I say that the effect of the adoption of the Commissioner’s submissions of course is that every unit holder in every unit trust would have to aggregate the interest with that of any other land held by the unit holder, which is a significant movement, in our submission.
Your Honours, could I go to what was said by Justice Phillips, in
particular your Honours have seen paragraph 23, first of all, at
page 1115 which sets out the principal parts of section 45. Your Honours,
of course, to be a joint owner one has to be an owner. The expression is
defined, as your Honours have seen –
it is one defined in section
3(1), but it:
means persons-
(a) who own land jointly or in common, whether as partners or otherwise –
and the term “owned” is one which is defined in the
way in which your Honours have seen. So that one sees the underlying
question that is involved. When one comes to section 45 and sees the way in
which the issue was dealt with at page 1117, at the bottom of paragraph 27,
your Honours will see in the last
eight lines of that paragraph
Justice Phillips saying:
For even if all of the unit holders together were properly regarded as having in equity the freehold estate in possession held at law by the trustee of their trust, it does not follow that the holder of only some of those units has the like estate or interest.
That is something which is directed to the concept of ownership
underlying joint ownership in the definition of “joint ownership”
for the purposes of section 45. His Honour goes on to say:
Indeed I should have thought it was the contrary. The holder of some only of the units has no more than those entitlements afforded by the trust deed to a unit holder; they are surely personal property quite different from the realty held by the trustee.
McHUGH J: How do you fit that in with 45(3) when it
says:
Each joint owner of land is also to be separately assessed and liable in respect of -
(a) the owner’s individual interest in the land (as if the owner were the owner of a part of the land - - -
MR JACKSON: Well, the first thing, your Honour, is that one has to be, in our submission, an owner to be a joint owner.
McHUGH J: Yes.
MR JACKSON: Now, to be an
owner one has to be a person who falls within the definition of
“owner”, to put it shortly. In those
circumstances –
and, your Honour, the definition of “owner” does not just
include persons in paragraph (a) of the
definition, but there are some other
persons as well. If one is looking at the terms of subsection (3), it says each
person who
is a joint owner of land – so you have to be a joint owner in
the first place, “is also to be separately assessed and
liable”
– sorry, may I start again. If one looks at the way in which the section
is arranged, it says:
(1) Joint owners of land are to be assessed and liable for tax in accordance with this section.
(2) Joint owners of land are to be jointly assessed and liable for tax in respect of the land as if it were owned by a single person . . .
(3) Each joint owner of land is also to be separately assessed and liable in respect of -
(a) the owner’s individual interest in the land –
plus other interests, in effect, owned by that person. So that is the aggregation provision, your Honour. It does not do more than that, with respect. Then one goes to - - -
GUMMOW J: These sections, it seems to me, assume that there is an entirety which is jointly owned or owned as tenants in common. The nature of the beast you are looking at under this deed is not of that nature.
MR JACKSON: That is so, your Honour.
GUMMOW J: There is a series of individual interests.
MR JACKSON: Indeed, your Honour.
GUMMOW J: They are not coalesced in any way at all.
MR JACKSON: Your Honour, that is where - - -
GUMMOW J: They are sold separately, without any severance.
MR JACKSON: Indeed, your Honour. What I was going to say was that is where one sees, what I described I think twice this morning, as the leap of faith in a sense.
GUMMOW J: Yes.
MR JACKSON: You add up 100, but in effect you get 101, where 101 is the total. You add something in, and that is admittedly so in the approach taken by Justice Phillips, and also I think by Justice Brooking. But the basis for it, apart from saying it, is not clear.
Could I say, your Honour, in response to your Honour Justice McHugh, not all of section 45 was set out in there of course and if one goes then to the actual Act, you will see in subsection (4) the provision - - -
McHUGH J: Provisions for deduction, yes.
MR JACKSON: - - - avoiding double taxation.
McHUGH J: But your case really comes to this on this aspect, does it not, that the unit holders either collectively or individually are not owners of the land?
MR JACKSON: Yes, that is so, your Honour.
GUMMOW J: There is some support for that in what Lord Reid said in Gartside [1967] UKHL 6; [1968] AC 553 at 605 to 606, I think. I know it is in a discretionary trust case.
MR JACKSON: Could I
say, your Honours, just in support of the proposition I was advancing that one
has to be an owner before one can be a joint
owner, that in Union Trustee
Company of Australia Limited v The Commissioner of Land Tax [1915] HCA 68; (1915) 20 CLR
526, what was held was:
that the testator’s surviving children and his granddaughter were not during the life of his widow entitled to the land comprised in the estate for an estate of freehold in possession, and therefore were not owners, therefore were not “joint owners” –
Your Honours,
could we also just go back to page 1117 for a moment in the reasons for judgment
of Justice Phillips in the Court of
Appeal. Your Honours will see in paragraph
27 he observed that:
the holder of some only of the units in a unit trust is not in the same position as the holder of all of the units –
which was his underlying thesis. Your Honours will see going through the remainder of that paragraph that the basis for holding that when a person held all the units there was an estate in possession was the basis for holding that when there were not all the units held there was not.
Your Honours, those are our submissions. If there is something arising
from a reference your Honour gave to Gartside, could I perhaps refer to
it in a moment.
GLEESON CJ: Yes. Thank you, Mr Jackson. We
will reserve our decision in these matters and we will adjourn until 10.15
tomorrow morning.
AT 3.23 PM THE MATTER WAS
ADJOURNED
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