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High Court of Australia Transcripts |
Last Updated: 2 September 2005
IN THE HIGH COURT OF AUSTRALIA
Office of the
Registry
Sydney No S215 of 2005
B e t w e e n -
WARREN HALLORAN AND THE PERSONS NOMINATED IN THE ATTACHED SCHEDULE OF OWNERSHIP
Appellants
and
MINISTER ADMINISTERING NATIONAL PARKS AND WILDLIFE ACT 1974
Respondent
GLEESON CJ
GUMMOW J
KIRBY J
HAYNE
J
HEYDON J
TRANSCRIPT OF PROCEEDINGS
AT CANBERRA ON THURSDAY, 1 SEPTEMBER 2005, AT 10.16 AM
Copyright in the High Court of Australia
MR S.D. RARES, SC: If the Court please, I appear with my learned friend, MR R.G. McHUGH, for the appellants. (instructed by Blake Dawson Waldron)
MR A.H. SLATER, QC: If the Court please, I appear with my friend, MR H.R. SORENSEN, for the respondent. (instructed by Crown Solicitor for New South Wales)
GLEESON CJ: Yes.
MR RARES: Your Honours, this appeal arises from the exercise of Class 3 jurisdiction in the Land and Environment Court. The provisions under which Justice Talbot heard - - -
GUMMOW J: You mean the Land and Environment Court of New South Wales?
MR RARES: Yes, I am sorry, your Honour.
KIRBY J: Remind me what Class 3 is.
MR RARES: It is attached to our submissions
in-chief. Class 3 deals with resumption inter alia. There is a
special section dealing with
procedure which is on page 5 of the attached
statutory materials to our submissions in-chief. Section 38 is the
relevant section:
(1) Proceedings in Class 1, 2 or 3 of the Court’s jurisdiction shall be conducted with as little formality and technicality, and with as much expedition, as the requirements of this Act and of every other relevant enactment and as the proper consideration of the matters before the Court permit.
(2) In proceedings in Class 1, 2 or 3 of the Court’s jurisdiction, the Court is not bound by the rules of evidence but may inform itself on any matter in such manner as it thinks appropriate and as the proper consideration of the matters before the Court permits.
KIRBY J:
That is a very common provision, of course, and has been read down so that
you do not offend the rules of natural justice and fair
procedure.
MR RARES: That is right, your Honour. There is no suggestion that the rules of natural justice were infringed. The question which really arises here is that, your Honours, there is no dispute between the parties, as we understand it, that it is possible to hold simultaneously a number of meetings of different entities at the same time dealing with similar subject matter. In this case, like in many cases where people go to see solicitors or accountants, meetings had to be held, dealings had to take place in order to give effect to what the parties wanted.
GLEESON CJ: Mr Rares, where do we most conveniently find listed or set out the transactions that had to be entered into in each particular case? By the transactions I mean the acts in law that had to be effected in order to produce the end result desired.
MR RARES: I think, your Honour, there is a table in the agreed facts in volume 1 of the papers starting at page 385 of volume 1. Your Honours will see there that there are set out what was in two booklets for each set of these 770 transactions the various written materials that were either minutes of meetings, records of offers to purchase land or units or deemed units in a unit trust.
GLEESON CJ: I am perhaps not making myself entirely clear. Just take one of the transactions in question, any one. What is set out on page 385 and following is a reference to a number of documents.
MR RARES: Yes.
GLEESON CJ: I am just not interested at the moment in the documents. What I would like is a step-by-step account of the acts in the law that had to be performed or transacted in the sequence in which they had to be performed or transacted in order to achieve the ultimate result desired?
MR RARES: If I can use what is on 385 as a template and try and take your Honours through that and explain it, you had to establish a trust deed for the trust company that was ultimately to wind up as the beneficial owner. So the trust deed had to be established and it had to have provisions making it a discretionary trust in the way that the Court has held in MSP Nominees v Commissioner of Stamps (SA) was a discretionary trust.
The next thing, you had to have a meeting to both constitute the trust by the trustee and to issue the initial A class units which were special units that the trustee had. They were issued - - -
GLEESON CJ: A meeting of what or whom?
MR RARES: A meeting of the directors of the trustee company to issue units in the trust.
GLEESON CJ: I think that is an example of the problem I have. What you must mean is you had to have a resolution of something. You achieved that resolution by having a meeting, but the act in the law is the resolution.
MR RARES: Yes, I see what your Honour means. You need the resolution which is referred to in 5.2. The act in the law in 5.3 is a resolution or an acceptance by the company that is the vendor of the land of the issue of the initial units in the trust. In other words, it accepts that it gets the units.
GUMMOW J: Wait a minute, who is selling what land?
MR RARES: That is what - - -
GLEESON CJ: Just take one example, any one case, the easiest one for you to think of, and just describe to us the series of transactions, acts, that were involved.
MR RARES: You set up the trust, you issue an initial set of 10 units to what will be the vendor company. Then what happens is that the directors of the trustee resolve to make a written offer to buy the land of the unit holder by issuing units as the purchase consideration. That offer is to be accepted orally, or capable of being accepted orally. A meeting of the offeree, the proposed vendor, takes place at which the offer is put before it and there is a resolution of the offeree to accept the offer and to sell the land in consideration of the receipt of the A class units. The trustee then issues the A class units.
GUMMOW J: Sell the land to whom?
MR RARES: To the trustee. Issues the A class units. The only unit holder at that point is the vendor. The A class units have the special rights that you have an actual interest as a unit holder in the corpus of the trust fund, but when you ask to redeem, the trustee pays you back cash to the value of your units, being $1 per unit. The next thing that happens is that the trustee company in its personal capacity resolves to apply for an equivalent number of ordinary units worth $1 each as has been issued to the land vendor.
The trustee company then pays for those units by drawing a bill of exchange, which is an accommodation bill, on the vendor of the land and the vendor accepts the bill. The vendor of the land then says, “I would like to redeem the units that I own in the A class”, and the trustee then resolves that that will happen. The trustee also resolves that in its personal capacity it will buy the land that is held by the unit trust by offering to pay - - -
GUMMOW J: Wait a minute. The trustee at the moment is the legal owner, is it, of the land?
MR RARES: Equitable. It is all happening in equity. There is no registration because the Stamp Duties Act at the time enabled you to do this kind of transaction, changing the beneficial ownership by the issue and redemption of units in a unit trust.
GUMMOW J: The ISPT Case.
MR RARES: Yes, and a number of others, the Suncorp one in Queensland and a couple in the Court of Appeal of Victoria.
GUMMOW J: So when you said the vendor was selling, it was not selling the land.
MR RARES: It had agreed to sell and what it had done was create a sub-trust, as it were, on the terms of the unit trust deed which inter alia - - -
GUMMOW J: What was the subject of the contract of sale?
MR RARES: The land. The land then became held, we say, on a sub-trust but on the terms of the trust deed.
GUMMOW J: Where was the legal title to stay or to be received? Unless we begin to understand this, it just all becomes mumbo-jumbo frankly.
MR RARES: Well, what I was proposing to do was to take your Honours through the documents briefly. But the legal title was in a somewhat complicated position.
GUMMOW J: I know, that is what we have to find out.
MR RARES: I will explain it to your Honours. A scheme of arrangement was made ordered by the Federal Court under section 411 and 413 of the Corporations Law, as it then was, under which the person who was the registered proprietor of the land – and in this case the company was called Port Stephens Development – under the scheme of arrangement divested itself of all its assets in favour of Sealark. Sealark, in the example of Pacinette, then became the vendor of the land.
GUMMOW J: Sealark never became registered proprietor, did it?
MR RARES: It did become registered proprietor but after the date of the compulsory acquisition and there is an issue as to what efficacy there might have been for that, but at the time of the transactions Sealark was not registered proprietor under the Torrens system. The registered proprietor had been dissolved and by force of the section 413 of the Corporations Law all of the registered proprietor’s assets, including its land, vested in, on the making of the order, the transferee company, which was Sealark.
GUMMOW J: That had not been implemented by the taking of any steps under the Real Property Act?
MR RARES: The registration as proprietor of Sealark at that time had not been implemented, but the evidence is, I think, on 5 March 1998 transfer was executed – Justice Bryson described that as being an irregular transfer – by both the then dissolved Port Stephens Development and Sealark transferring, pursuant to the order of the Federal Court, the land from Port Stephens Development to Sealark. That was lodged for registration and ultimately was registered in October, the acquisition having occurred in June. Under the Real Property Act there are provisions where you can be registered once there is an order of a court vesting.
GUMMOW J: Yes, I understand that.
MR RARES: But it had not happened. So that Sealark has a form of legal title because the Federal Court’s order gave it the title to the assets and the Corporations Law itself gave it the title to the assets, but it was not a title by registration under the Torrens system. So Justice Bryson described it as a form of legal title. It is obviously a curiosity, but that is the way the order works because the transferee company was immediately dissolved by force of section 413 on the making of the Federal Court’s orders for these transfers. Now, that is the conceptual framework in which that works.
HEYDON J: At what stage did the Australian Securities Commission have legal title?
MR RARES: It never has legal title. Well, the argument - - -
HEYDON J: The respondent’s chronology said that the legal title was vested in the Commission on 23 December 1997. Is that right or wrong?
MR RARES: Well, we say it is wrong because we say that the general provisions in section 1336 of the Corporations Law do not apply to the specific provision in 413 which immediately vests under 413 the title to the assets in the transferee company by force of 413. So you have a situation where you have in the statute a general provision dealing with vesting orders and a specific one dealing with the particular circumstances. Indeed, if you think about it, the scheme of arrangement situation, the importance of an immediate vesting and taking over when you are dissolving the company that is going out of existence under the scheme and the immediate capacity to deal with all of the assets and undertaking in property tends to indicate that the general provision vesting property in the ASC until formal steps are taken would not work and was not intended to work in that way.
On the other hand, if it did operate to vest the legal title in the ASC, it never prevented the parties dealing in equity with the underlying equitable interest and the beneficial interest, so that is, in our submission, a formality. It did obviously prevent you registering a legal title – or somebody had to go and register the legal title and it did not, one would not have thought, need the permission of the ASC to do that given the force of the Federal Court’s order. It was registering the Federal Court’s order with the Registrar-General or the Land Titles Office would do that.
Now, the provisions of
section 413 are in my learned friend’s submissions, attached to them
on page 22, I think. Your Honours
will see there that the application
can be made for the approval of the compromise and the court may order that any
of the following
matters apply, including:
(a) the transfer to the transferee company of the whole or a part of the undertaking and of the property or liabilities of the transferor body;
. . .
(2) Where an order made under this section provides for the transfer of property or liabilities, then, by virtue of the order, that property shall be transferred to and vest in, and those liabilities shall be transferred to and become the liabilities of, the transferee company –
So that is the point, by force of the Federal Court’s order and section 413(2) it vested.....the making of the order because it is a specific provision that says - - -
GUMMOW J: There is a section 109 issue lurking in all of this.
HEYDON J: Which operates in priority to the Real Property Act, State Act.
GUMMOW J: It is the same in bankruptcy. It is not a new problem. It has been so since 1924.
MR RARES: This is under the State Act, your Honour. This is the Corporations Law - - -
HAYNE J: Were we State Act or federal?
MR RARES: It is the Corporations Law, so you have the - - -
GUMMOW J: It was a State law, was it?
MR RARES: Yes, 1997. It was a State law, the Corporations Law, and so - - -
GUMMOW J: Right, a different sort of problem.
MR RARES: - - - you had all the other problems in Wakim, but in any event the Federal Courts (State Jurisdiction) Acts have taken care of that and there is no issue raised about the efficacy of this part of what was done. In any event, it is an undisturbed order of a superior court of record, the Federal Court, and it is valid. That is one complication that we have not had to get over at this point, your Honour.
Your Honours can
see on the next page, in my friend’s submissions, the general provisions
for outstanding property in 576.
We say there cannot be any outstanding
property because 413(2) says by making the order the property vests, so there is
nothing
outstanding to be picked up by 576. In 1336 there is a general
provision. Firstly, subsection (1) provides that:
Where an order is made by a court under this Law vesting property in a person:
(a) subject to subsection (2), the property forthwith vests in the person –
We know that 413 itself provided its own mechanism for vesting.
Then subsection (2) provides that:
Where:
(a) the property to which an order referred to in subsection (1) relates is property –
which is required to be registered and
a State law enables registration – this is the Real Property
Act – then:
the property, notwithstanding that it vests in equity in the person named in the order, does not vest in that person at law until the requirements of the [Real Property Act] have been complied with.
That is the argument. We say that – and
subsection (3) is relied on to say:
Where:
(a) property vests in a person by force of this Law;
we say
it vests in the person by force of that order made under the law which is
different then you need to register it notwithstanding
it vests in equity so
what we say is that along the Anthony Horden’s line in 47 CLR
and David Grant v Westpac that there are general provisions in the
Corporations Law in 576 and 1336 and there is a specific provision in 413
and the specific provision prevails. If you take on its face the intention
of
413(2) to say that by virtue of the order there is a vesting straight away and
that is an immediate thing because under
413 -
- -
HEYDON J: You say 413 applies and 1336 does not apply?
MR RARES: Yes.
HEYDON J: And therefore 1336’s attraction of the Real Property Act does not happen.
MR RARES: Yes. Obviously, if want to deal with it you have to get some form of registration but the idea that things would vest in the Commission under 576 does not work because there is no outstanding property of the company. That is taken care of by the making of the order under 413(2). Because of what the Federal Court ordered, which it could do under 413(1)(d), it could order that the “transferor” be dissolved “without winding up” - which is what it did in this particular case - then that was the end of the transferor.
GUMMOW J: Why do you
say 1336 does not apply:
an order is made by a court . . . vesting property . . .
(a) subject to subsection (2) the property forthwith vests - - -
MR RARES: Because
the - - -
GUMMOW J: What would be the common sense in a construction that you advocate?
MR RARES: Because the
legal owner has immediately been dissolved on the making of the Federal
Court’s order so there is no person who,
on this hypothesis, can be the
legal owner and control the property. We say that when you look at 413, which
is different to 576,
for example, it is by force of the order there is an
immediate vesting. So that it is not intended merely to vest in equity under
413, it is intended to vest for all purposes and subsection (1) says it
is:
subject to subsection (2) –
so you have to look at what subsection (2) is directed to
is:
the property to which an order referred to in subsection (1) relates is property the transfer . . . of which may be registered -
We say, well, where you have an actual section like 413 that explicitly provides it is the order that causes the change itself and vests the property itself then there is no work, in our submission, for 1336 to do.
HAYNE J: Why is there not work for 1336(3)? 1336(3) has work to do to enable the Torrens register be brought into line with what has been sought to be achieved and has been achieved in equity by the order of the Federal Court. Is not that the way that various provisions mesh together, unless I am wrong?
GUMMOW J: Is that not the scheme of 1336? 1336 is designed to accommodate the Torrens system to this statute.
MR RARES: As a general proposition that is right. What we say is that in order to be workable under the scheme of dissolution provisions and the immediacy of the implementation of the vesting under 413, 413(2) operates according to its term. But if it is wrong, then all that means is that there is an equitable title with which both provisions in 1336 recognise there is an equitable title that can be dealt with, and that is what the parties were dealing with in any event.
GUMMOW J: What is clear is they were not selling a legal title.
MR RARES: That is right. Indeed, there was no intention ever to have an actual conveyance because the whole purpose of dealing with the matter in equity and under the provisions of the Duties Act was so that there would not be stamp duty attracted. So if you had a conveyance dealing with the legal title, you would have duty attracted.
HAYNE J: You had got to the point, I think, in describing the series of transactions and the legal steps that were involved in the transactions thought to be effected by the various bits of paper to the point, according to my note, when the trustee company had resolved to buy the land owned by the trust.
MR RARES: So it resolves to make a written offer - - -
GUMMOW J: To purchase this equitable interest.
MR RARES: - - - to purchase the equitable interest from itself in its trustee capacity. That offer is accepted orally and, as a result, it then redeems its units in the trust which are the only units left and the only asset of the trust is the land.
GUMMOW J: Equitable interest in the land.
MR RARES: The equitable interest in the land. The way that that was dealt with – it may be convenient to go to the documents. I was going to go to the evidence about the meetings or the dealings.
GUMMOW J: What is the revenue smart act in all of this?
MR RARES: It is the Stamp Duties Act.
GUMMOW J: What is the smart activity that has gone on?
MR RARES: The effect of this is to – the land that was acquired was acquired from a very large holding in Jervis Bay that had in the early part of the 20th century been subdivided on what were called paper lots, subdivisions, that is, on the certificates of titles. There were a large number of subdivided parcels which were intended for - - -
GLEESON CJ: We understand that, but what is it that avoids stamp duty? In other words, why are you doing this?
HAYNE J: I thought to bump up your compensation to turn into non-contiguous lots what otherwise would have been broadacres.
MR
RARES: Page 8 of the statutory materials attached to our submissions
in-chief. It is section 44(2)(d):
the issue or redemption of units in a unit trust scheme –
where the beneficial interest in property passes is exempted from duty. So it is now accepted that – and the Chief Commissioner of Stamp Duties had assessed that none of these transactions attracted any duty.
GLEESON CJ: There was something done in Canberra that was relevant to all this.
MR RARES: Yes, the unit trust deeds were executed in Canberra by an attorney and then sent to Sydney and that also did not attract duty. There is no suggestion that any duty was payable on any of this. It was all legally done under accepted schemes.
GUMMOW J: How does this then operate with the resumption legislation?
MR
RARES: That comes about by looking at whether we had an interest -
each of these companies had an interest in land. If you go to page
4 of
our statutory materials attached to our submissions in-chief, your Honours
see in section 4 of the Land Acquisition (Just Terms)
Act:
interest in land means:
(a) a legal or equitable estate or interest in the land . . .
land includes any interest in land.
owner of land means any person who has an interest in the land -
and section 37 gives a right to compensation for an “owner of an interest in land”. So that if the end result is that the company that was the trustee company in its own right has an equitable interest in the land then it can make a claim for compensation.
So the issue that was tendered to Justice Talbot, on the two occasions in which his Honour heard matters, was to decide whether or not in each case one selected transaction gave rise to an interest in land and his Honour found that the trustee company ultimately did get an interest in the land because the transactions were effective to pass that from, in the first case, Pacinette and Sealark, which had the either legal or equitable title after the dissolution of the registered proprietor to pass that to Pacinette in the first case.
GLEESON CJ: The idea was to get the equitable ownership of the various allotments at Jervis Bay into different hands in a tax-friendly fashion.
MR RARES: In a tax-friendly fashion, then the different hands would be entitled to apply for compensation.
GUMMOW J: The aggregate of which would be greater – would have been so if the transaction had not been entered into in the first place.
MR RARES: That part has not been got to yet, but that is the proposition, that if they are non-contiguous parcels, as the scheme created, then that will be the contention that is made when the time comes to value the interest.
KIRBY J: Is that on the theory that subdivided land in aggregate is worth more than the whole lot?
MR RARES: Yes, there is a discount for bulk that you get if it is all in one ownership. If it is in different ownership and it is not contiguous then it is valued as different parcels.
KIRBY J: I saw that that is subject to other proceedings in the Land and Environment Court, is that correct, which stand in abeyance?
MR RARES: Those are waiting to see whether or not – the bases on which the valuers value will depend on whether or not this worked or did not work. At the end of the day it may or may not produce a different valuation effect; that is yet to be seen. But that is obviously one of the purposes for which the appellants sought to create the extra parcels because it was at the time known that there was going to be - - -
KIRBY J: An open object was that it will create a greater pool but without the unhappy burden of having to pay stamp duty.
MR RARES: Yes. Well, as we understand it, there is no doubt now that this was a legitimate way of ensuring you did not have to pay stamp duty. There is no question now that any stamp duty that was payable on any of these was avoided. There was no stamp duty payable because the mechanism used was perfectly within that section of the Stamp Duties Act that I took your Honours to. So the only question is was Justice Talbot – did he have it open to him to make the findings he did that the - - -
GLEESON CJ: From the stamp duty point of view, there are really only two alternatives. One is that, as the Court of Appeal held, nothing happened in the law, therefore there was no stamp duty payable; or what happened was what was intended to happen, in which event section 44(2)(d) applied.
MR RARES: Yes.
GLEESON CJ: So either way there is no stamp duty.
MR RARES: Yes, that is right. So it is stamp duty neutral in a sense. The Commissioner acknowledged that and that has gone out as being an issue in the case. But originally when the case was conducted at the trial, the separate issue – there were objections to all the documents going in on the ground of stamp duty and Justice Talbot in the ultimate first decision ruled that there was no duty payable and therefore it had received the documents. It might be convenient just to go quickly through these documents to show your Honours the scheme of the documents and then I will take your Honours through the evidence about meetings and the like.
Your Honours, the trust deed for Pacinette which I – I will use the Pacinette transaction. It starts at page 68 of volume 1 and, your Honours, I am perfectly happy for my friend to interrupt and suggest things that I should tell your Honours about while we are going through this to get the context right so your Honours can get it once.
Your Honours will see in recital
C that the deed is settled by the sum of $10 paid by the settlor who is
Mr Howell in each case.
The trust is then named. These documents are all
identical apart from the names of the parties and the amounts and the identity
ultimately of the land. Then the “Fund” and “Trust
Fund” are defined as meaning the settled sum and in (b)
all other money
which becomes the proceeds of the bill of exchange. On page 69:
“Registered Holder” means the person for the time being registered under the provisions of this Deed –
and it is accepted that at the relevant time there was not a
formal register of units brought into existence while these transactions
occurred. A “Unit” is defined. Then the fund is – on
page 70 there is a declaration:
from the Commencement Date, hold the Settled Sum and all other money and property forming part of the Trust –
and with the consent of the trustee it can accept other money
and property. Trusts are set up in 3:
The Trustee will hold the capital and income of the Trust Fund on trust for the Registered Holders in proportion to the number of Units held by them, subject to the rights and restrictions specified in the Schedule for A Class units.
That is on page 86 and we will come to that in a
moment:
The Trustee must at the request of a Registered Holder pay . . . the share of the income –
Well, we do not need to trouble with that. Then in 3.3 there is
what the Court said in the MSP Case 198 CLR 500
paragraph 3 and paragraph 7 was a feature that trust deeds of this
kind are deeds of discretionary trust:
A Registered Holder will be entitled as provided in this Deed to a beneficial interest in the Trust Fund, subject to the special rights and restrictions relating to A Class units, but the Registered Holder will not be entitled, other than as provided in this Deed to:
(a) interfere with –
the trustee’s discretion –
(b) exercise any rights . . . in respect of any investment . . . or
(c) require the transfer to him of any of the assets or property which at any time constitute - - -
GUMMOW J: This seems a fairly familiar provision?
MR RARES: Yes, it is.
GUMMOW J: It is in the CPT Case too, which we have presently got reserved.
MR RARES: Well, your Honour, I think it is - - -
GLEESON CJ: Must be boilerplate.
MR RARES: I think it is boilerplate. Then you have
5.1, the units are issued – the ordinary units and the A class
ones. The period of
the trust, my learned friend points out, is the usual
boilerplate 80 years or any earlier date. At 5.2 you do not get “any
interest in any particular part of the Fund” for ordinary units. At
5.4:
The beneficial interest in the Fund . . . will be divided into 10 A Class Units having an initial value of $1.00 each.
That is important because you will see the A class units
are redeemed for a price of $1 each, not for the asset that is held. Then
in
5.5:
As and when any addition is made to the Fund under clause 2.2 additional Units will be created.
So there is an obligation to create units upon the trustee
consenting to new assets being brought in and the number of those units
is
determined by the trustee looking for value.
In the case of creation of any additional Units those additional Units will only be entitled to share in the income of the Trust Fund from the date of their creation. The Settlor, or any person (other than a Registered Holder) appointed as an additional or substituted trustee of this Trust will not be entitled to be beneficially interested in any Units.
Importantly, that does not exclude the current trustee from
being entitled to a beneficial interest. It is clearly worded to
entitle
– and this is the self-dealing point that we raise in our
submissions. That clearly provides that the current trustee is outside
that
exception. There are special units, which I do not think we need to tarry with,
and in clause 7 the transfer of units occurs
– well, again, I do
not think there is terribly much there except in 7.4:
Despite any other provision of this Deed, no transfer or alienation of Units may take place in such a manner that the Settlor, or any person (other than a Registered Holder) appointed as an additional or substituted Trustee of this Trust becomes beneficially interested in any Units.
Again, it does not include the current trustee. It is accepted.
Redemption is provided for in 9, and again, this is for the ordinary
units:
A Registered Holder may by notice in writing to the Trustee request redemption of specific Units or request the return of the capital or part of the capital paid on the Units specified in that request.
9.2 (a) The Trustee may in its discretion either refuse the request . . . or may consent to that request on any terms -
it sees fit, so there is a discretion as to whether or not to redeem and on what basis, and that - - -
GUMMOW J: Is there an issue in this case as to whether a unit holder in these provisions we are looking at does or does not have any equitable estate in the underlying – any sub-equitable interest in the primary equitable interest in the land?
MR RARES: No, because if you go back to
3.3:
A Registered Holder will be entitled as provided in this Deed to a beneficial interest in the Trust Fund, subject to the . . . A Class units - - -
GUMMOW J: Yes, that is the fund.
MR RARES: I am sorry, then I missed what your Honour was saying.
GUMMOW J: I am talking about the specific asset, the specific asset being the equitable interest in the land. The trust fund is one thing. Assets in the trust fund is something else.
MR RARES: That is in Schedule A, which I have to take your Honours to in a second. I am happy to go to that immediately - - -
GUMMOW J: Just tell me, is there an issue about this?
MR RARES: I do not think so.
HEYDON J: Paragraph 27 of the respondent’s written submissions contends that a unit in this trust deed “confers a proprietary interest in all the property” which is subject to the trust. Now, do you agree or disagree, or do you say it is immaterial?
MR RARES: Yes, we agree with that. Your Honours, going back to page 73 there is a provision for keeping a register of up-to-date registered holders and I said there is no issue that there was no such formal register kept at the time that these particular transactions occurred. We say that does not affect the disposition of beneficial interests in the land.
There are the general powers of the
trustee set out in clause 11, and we draw attention to, on page 77,
subclause (m) that it can
receive any property real or personal that is
conveyed or transferred or paid, and in (q), it can:
generally exercise or concur in exercising all the powers and discretions conferred on it by this Deed or by law despite the fact that the Trustee or any person being a director or a shareholder . . . has or may have a direct or personal interest (whether as trustee of any other trust fund or in its personal capacity or as a shareholder . . . in the mode or result of exercising that power or discretion or may benefit either directly or indirectly as result of the exercise of any such power or discretion and despite the fact that the Trustee for the time being is the sole “Trustee” -
So what we say there is again
another permission to self-deal.
GLEESON CJ: I understand, perhaps erroneously, that one of the points made against you is that because there is no register of units, then these redemption provisions did not apply.
MR RARES: Yes, and we say that the answer to that is the actual documents record the registration of them, they are in a book, they are - the records of each company contain that material. There is a journal of the company that records the movements in the units. We say at the end of the day that formality would not defeat the underlying disposition of the equitable interest because it would mean that equity would treat the form as being more important than the substance because the units were actually created - - -
GLEESON CJ: Did you mean the opposite of what you just said?
MR RARES: No, I did not. I meant that. That is, my learned friend’s case is that in equity the form matters more than the substance. If you do not have the physical register of unit holders, you cannot even deal with the property even though you pay the money or you hand over the transfer of the title.
HEYDON J: Do you accept that there were registered holders or do you say - - -
MR RARES: No, we do not accept that there were not registered holders. We just say there was not a book that was the register.
HEYDON J: So you say there was no principal register but there were registered holders?
MR RARES: Yes, because - - -
HEYDON J: But you cannot be a registered holder unless you are registered under the provisions of this deed as the holder of a unit. Does that not mean under clause 10.1?
MR RARES: As your Honour will see, the certificates say that the person is registered as holder and the minutes of the meeting record the resolutions to register and to redeem. So that we say that is a register. That is a book or a record of - - -
HEYDON J: So you do say there was a principal register, do you?
MR RARES: We say that there was a
register. We accept that there was no formal document engrossed as the register
of units. We say the
answer is that there were documents that recorded in the
books of the company the matters that required recording in a register of
units.
I will show your Honours how that comes up. On page 81,
clause 14.4(b) is another clause indicating that the trustee can
be
personally interested in the dealings with the trust and take interests up in
it. Then on page 86, clause 22 provides that:
Neither the Settlor nor any Trustee appointed after the retirement of the first Trustee will have any right or interest in or be entitled to any benefit from the Trust Fund or any part of it.
So it is again clear that it is contemplated that the current trustee, the first trustee, will be able to have such an interest. Then there is the schedule dealing with the A class units, which are the ones that deal with the land that is to be transferred from the vendor.
GLEESON CJ: Is what appears in clause 7 of the schedule a proposition of fact?
MR RARES: Yes.
GLEESON CJ: And is it correct?
MR RARES: Yes, we say it is. We say that is what
happened. Your Honours see in 1 that the trustee can allot the A class
units and that
they “form a separate fund”. In subclause 2, the
entitlement of the A class unit holders is limited:
to a fractional interest in the corpus of the A Fund, the value of which shall be calculated by dividing the value of the A Fund by the number of units . . . A Class unitholders shall not be entitled to any interest in the assets of the Trust Fund and ordinary unitholders shall not be entitled to any interest in the assets of the A Fund.
What happens, as your Honours will see, is that when there is no more A fund - - -
GUMMOW J: What does clause 2 mean, “A Class unitholders shall not be entitled to any interest in the assets of the Trust Fund”?
MR RARES: That is the general assets of the trust. A is a subclass.
GUMMOW J: I asked you that question about five minutes ago and you said the opposite.
MR RARES: I am sorry?
GUMMOW J: I asked you that question about five minutes ago, about specificity of interest in assets in the fund, and you said there was no dispute that they did have it.
MR RARES: I am sorry, I must have misunderstood your Honour. I apologise.
GUMMOW J: I said to you an interest in the fund is one thing; an interest in an asset in a fund is another. What does the deed provide on that subject?
MR RARES: The deed provides for the ordinary units in clause 3 for them to have an undivided - - -
GUMMOW J: Then Justice Heydon asked you a question about what seemed to be said in the respondent’s submission, namely, in paragraph 27.
MR RARES: I am sorry. Your Honour, there are two different funds. There is the A fund, which has this particular set of rights for the A units, and there is the general fund. In the general fund you get the beneficial interest in the trust fund subject to the rights and restrictions; in the A fund you get a fractional interest in the corpus. I am sorry I did not explain - - -
GLEESON CJ: But this provides, does it not, that A class unit holders do not have any interest in the general fund - - -
MR RARES: That is right, and vice versa.
GLEESON CJ: - - - and ordinary unit holders do not have any interest in the A fund?
MR RARES: Yes.
GLEESON CJ: It is for the purpose of keeping the two funds separate.
MR RARES: That is right. What happens
in the scheme is that once the A class unit holder is redeemed, there
is nobody holding any A class
units but the land is held by the trustee and
there are no other assets of the trust and the trustee becomes the sole
unit holder
and, therefore, can redeem its units to get back the land, and
that is how the land passes. It works, as your Honours will see in
clause
5 – clause 4 relates to accepting “the transfer of assets as
accretions to the A Fund”, so that is how the
land gets in, and
then:
5. Redemptions
(a) The trustee may –
and this is where it is discretionary –
on request of an A Class unitholder, without the consent of the ordinary unitholders, redeem units held by an A class unitholder on payment of their full value, that is at a price of $1.00 per unit.
So that although, in answer to what your Honour
Justice Gummow was asking earlier, they have a fractional interest in the
corpus of
the fund, when they want to redeem, they get money, not necessarily
the asset that represents the corpus of the A fund. In other
words, the
trustee can pay them money and keep the land, which is the way this works.
Under 5(b):
Upon redemptions of A Class units the assets which were previously part of the A Fund shall cease to be assets of the A Fund and shall from then on form part of the Trust Fund.
So that is what happens. You get paid the cash. If the trustee
can find the cash, he pays you out, and then the asset that was in
the A fund,
if there is no other A fund holders, goes with the general ordinary funds.
Then:
(c) No redemption of A Class units shall be made by the Trustee unless all the units are redeemed at the same price.
Then there is no right
of indemnity for the trustee under clause 6 of the schedule for the trustee to
seek to recoup itself out of
the A class units. So the situation where the
normal proprietary interest of a trustee in the assets to redeem itself for
costs
and expenses and the like have occurred in administering the trust funds,
including in this case land, is not available under this
provision. Then clause
7 says Sealark is to have – so that Sealark becomes introduced into this
by being given the first 10
A units.
Then at page 89 is the first meeting of Sealark’s directors and they table a deed to establish the Pacinette Trust and say it is proposed that they get the first 10 units, and there is a resolution to accept those units. Justice Bryson in the Court of Appeal, unlike the trial judge, concluded that this never occurred. That is at volume 3, 1186 to 1187, paragraphs 43 and 44. There is a document for acceptance of the units on page 90. On page 91 there is a meeting of Pacinette’s directors where - - -
HEYDON J: Are we going back to Justice Bryson at paragraphs 43 and 44 later?
MR RARES: Yes.
HEYDON J: Right. That is all right.
MR RARES: Yes, but essentially his Honour’s thesis is none of this every happened.
HEYDON J: Yes, but I just want to examine his reasoning at a convenient time to you later.
MR RARES: I thought the logical way to do it, but I am happy to be corrected, is to go through the documents. I can give your Honours while you are going through this the references to the paragraphs in the judgment, if that helps.
HEYDON J: Yes.
MR RARES: At page 91 – Justice Bryson at 1187, paragraph 45 – is the acceptance of the obligation as trustee and the issue of the unit certificate to Sealark in resolution 2. On page 92 the first unit certificate is issued and, the point I was discussing with Justice Heydon a little earlier, it is in the form of Pacinette certifying that Sealark “is the registered holder of 10 A Class units . . . constituted by that deed.” So that was the first little booklet of the two booklets that were prepared for each of these 770 series of transactions. What the evidence shows, as I will take your Honours to later, is that they were all executed and agreed to and resolved before the 11 May meeting that was the meeting at which we say everything happened.
The next booklet is
“PGH2”, which starts on page 94. That, on the front of it,
really summarises the transaction that
is intended to be achieved. The sale of
the property is from Sealark to Pacinette and it is achieved by the series of
steps that
are undertaken in the following documents. The letter from Gadens
– and all these documents were prepared and in existence
and in the room
at the time the meeting of 11 May occurred, all 770 sets of these.
Gadens write and say:
We refer to your instructions to transfer the property in the table below (“the Property”) from Sealark Pty Limited to Pacinette Pty Limited.
So that is the purpose of these documents. The consideration is
set out at $79,000 and the documentation by which that is to be achieved
is then
referred to, bound up with this material. Your Honours can see that a
number of documents are enclosed, including a procedure
sheet. At
paragraph 4:
The Power of Attorney to be executed by Sealark Pty Limited giving Pacinette Pty Limited the power to deal with the Property any way they see fit. This should be executed at the time of the transfers.
So that the purpose of the power of attorney, as
your Honours would imagine, is that once Pacinette gets the power of
attorney from
Sealark it can, if it ever wanted to, execute a transfer to itself
of the land because it has complete power over the property.
The letter
concludes:
Upon the holding of the meetings and the execution of these documents the transfer of the Property from Sealark Pty Limited to Pacinette Pty Limited will be complete.
We note that there will not be a transfer to the name of Pacinette Pty Limited registered on the title to the Property. The title to the Property will remain in the name of Sealark Pty Limited.
The reference to that is, of course, as I will show your Honours, that the transfers had been executed to take it from Port Stephens Development into Sealark’s name at the Registrar-Generals in March so that when they are writing this that is what it is speaking to.
The procedure sheet is at 97 and Justice Bryson is at 1194, paragraph 59. It describes the movement of cash and units and inaccurately refers to, on page 98, “cheques”. That was replaced by “bills of exchange” except that there is evidence that the money was banked for the $10 initial capital of each of the funds. That was all done in a bank account of one of the companies on behalf of all of them. The first meeting occurred, we say, in 1999 and dealt with by Justice Bryson at 1187, paragraph 45. There is produced at the meeting a draft written offer to be made by the trustee of the Pacinette Property Trust to Sealark to buy the property for 79,000 $1 A class units. There is a resolution that Mr Howell is authorised to execute the written offer and to deliver it to Sealark. So the proposing purchaser is authorised to execute the written offer to buy the property and deliver it to the proposed vendor.
The written offer is set out at pages 100 to 107 and
your Honours can see on 103 the consideration is:
Seventy Nine Thousand Dollars, to be satisfied by the allotment of Seventy Nine Thousand One Dollar ($1.00) A class Units in The Pacinette Property Trust.
Then there is a standard form, New South Wales contract for sale
of land. At 108 – Mr Justice Bryson at 1187,
paragraph 45
– there is a meeting at Sealark, the intending
vendor, and the written offer is produced and the resolution is:
that the Company should accept the offer made by the Trustee . . . on the basis that the consideration would comprise of the allotment of Seventy Nine Thousand . . . Units . . . Howell was authorised to inform a meeting of the Trustee –
of that. Then there is a statutory declaration, which
Justice Bryson deals with at 1188, paragraph 47, saying that
Ms Kenny was present
at the meeting and heard Mr Howell hold the
meeting and resolve to accept the written offer and there is a statement
that:
The Offeror stated to the Offeree that possession of the property had been delivered –
At 110 is the Pacinette Property Trust minutes –
Justice Bryson is at 1189, paragraph 46:
Attending the meeting was Earleen Kenny. Philip Howell confirmed that Sealark Pty Limited had accepted the offer made by the Trustee of . . . Seventy Nine Thousand . . . Units . . . for the purchase of the land –
The resolution is:
that Pacinette . . . should allot Seventy Nine Thousand . . . Units . . . and that a unit certificate should be issued to Sealark Pty Limited evidencing the allotment of such units.
At 111 there is the certificate and the certificate certifies that Sealark is the registered holder of the 79,000 units. Then at 112 – and the reference to Justice Bryson is 1189, paragraph 48 – Pacinette meets and this is in its personal capacity. It resolves to apply for allotment of 79,010 units, which is equivalent to the 79,010 A class $1 units. So that there is going to be a matching of the number of units on issue and at a price of $1, so that the units will all have the same denominated value of $79,010 in the ordinary fund and in the A fund.
The application is at 113 for the units. At 114 there is the Sealark directors – in Justice Bryson’s judgment 1189, paragraph 48. Sealark resolves to request the redemption of its 79,010 A class units at the price of $1, and then the request for redemption is in 115. Then on 116 Pacinette Property trustee meeting occurs – that is Justice Bryson 1189, paragraph 49. They have before them Pacinette’s application for its ordinary units and they resolve to issue Pacinette the 79,010 ordinary units and then they resolve to redeem Sealark’s 79,010 A class units.
At 118 there is the certificate for Pacinette as being the registered holder. At 119 – reference to Justice Bryson is at 1190, paragraph 50 – there is Pacinette in its personal capacity resolving to make a written offer for the land that the trust holds on the terms set out in the written offer and to pay for it by redeeming the ordinary units that it holds. In other words, “We redeem the units and you transfer the land to us”, and so you pick up the second exemption of the Stamp Duties Act for redemption of units. Then the offer is set out and it is in similar form to the one we saw earlier.
The next document is 128, which is the statutory declaration about being present at the meeting when the directors resolved to accept the written offer. Justice Bryson deals with that at 1190, paragraph 50. The document on 129 is the meeting of the directors of the trustee resolving to accept the personal offer of the trustee to buy the land by redeeming its units. That is at 1190 - - -
GUMMOW J: Buy the land? What are we talking about?
MR RARES: Well, sorry, to buy the equitable interest in the land.
GUMMOW J: In what land?
MR RARES: In the land that Sealark had transferred under the first contract. This is all the same land. What has happened conceptually up to now, your Honour, is Sealark accepted orally Pacinette as trustee’s written offer to sell these parcels of land for the consideration of the issue of the 79,000 units, so that the A fund holds those five parcels of land at this point and has issued 79,010 A units to Sealark and there are no other units. Then Pacinette applies for 79,010 ordinary units and simultaneously Sealark says, “We want to redeem our A units”.
GUMMOW J: But these lots did have a distinct existence, did they, in relation to particular DPs?
MR RARES: Yes.
GUMMOW J: Even though they did not have a separate certificate of title?
MR RARES: That is right, and I will show your Honours the conveyancing. There is no doubt that they actually did exist, and it is accepted – there is no issue between us that the lots do exist and they are conveyable in that form.
GUMMOW J: You cannot ordinarily in New South Wales, can you, have a lot in a registered - - -
MR RARES: That is why they are called “paper lot subdivision” because in the early 1900s you apparently could do this without actually subdividing and creating a separate certificate of title, and that is why this was quite unique, the feature of - - -
GUMMOW J: When did that change, do you know?
MR RARES: I think when one of the Local Government Acts came in and required council permission for subdivision.
GUMMOW J: In 1919, I think.
MR RARES:
It might have been, your Honour. But in any event, that was one of the
unique features of this land, that you did not need approval
to subdivide this.
It had all been done at the beginning of the 20th century, and it is
one of the bits of value that we say it had. Your Honours, the next document is
at 130, where Pacinette –
Justice Bryson at 1191, paragraph 52, said in
respect of this:
it is altogether clear that there was no such meeting and that Mr Howell made no such statement.
GUMMOW J: New South Wales legislation controls dealings in lots that are registered but which do not have an independent title, do not have their certificate of title?
MR RARES: There were certificates of title, but all the lots were in one certificate, but you could deal with these and then when you dealt with them there would be a subdivision and you would need council approval.
GUMMOW J: You say that. All right. It is not my - - -
MR RARES: Your
Honour, believe me, all the obstacles that could be raised about this have been
thought of by our learned friends in the past.
This is not an obstacle to this
working. Then, your Honours, at 131 there is a power of attorney. Justice
Bryson at 1191, paragraph
53 says that this is invalid because it “was not
supported by any purported resolution”, it was not properly acted on
and
“has no significance”, but if your Honours see it is a power of
attorney given by Sealark to Pacinette to deal with
the land detailed in table
A, which are these parcels, in any way it sees fit. At the bottom of that page,
it was:
granted in consideration of the payment of Ten Dollars ($10.00) and is to operate and continue to be irrevocable.
Although your Honours will see a bill of exchange at 133, that is badly reproduced and better reproduced at 191 where your Honours will see that it is drawn by Pacinette on Sealark and accepted by Sealark – and this is dealt with by Justice Bryson starting at 1192, paragraph 56 on a number of other occasions. It is endorsed on the back at the end of these transactions by Pacinette as trustee paying it back to Sealark to pay for the redemption of the units.
Now, just while we are dealing with the
conveyancing matters, can I take your Honours to page 169, which is the
order of the Federal
Court that we talked about earlier. This is referred to by
Justice Talbot at volume 3, 1071, paragraph 139, and Justice Bryson I
think in
paragraph 16 of his Honour’s judgment. Your Honours can see the
order that was made, was that the scheme in a particular
form was approved
pursuant to 411(4) of the Corporations Law, and then order 2 on page
170:
The whole of the undertaking, and the property and liabilities of the Applicant, be transferred to Sealark . . . pursuant to Section 413(1) of the Law.
Then in clause 4 of the orders:
The Applicant be dissolved without winding up, pursuant to Section 413(1)(d) –
That was entered on 19
December and therefore Port Stephens Development ceased to exist on that day and
the whole of the property
was vested in Sealark by force of the
order.
The title details – we have done a schedule to show
the conveyancing steps if your Honours need to look at that I can hand
that
up, but at page 176 you will see one of the transfers which is -
your Honours will see on this that in the first line in the
box of the land
transferred it has “V3409 F 65”. That is one of the three lots in
Justice Talbot’s order in 1062.
When the Land Titles Office went
from volumes and folios to auto consols they had a reference update index, and
if you go across
on page 177, the fourth line, you can see, “3409
65”, which is certificate of title folio 65, it becomes
“AC”,
and it just has a dash. Then you can see that the transferor
is Port Stephens Development. The transferee is Sealark, and in item
(D),
between lines 25 and 30, it is:
Pursuant to Order 2 of the Federal Court of Australia Court Order dated 12 December 1997 in the matter of Port Stephens Development Pty Limited and the Corporations Law –
and this is all executed on 5 March 1998. It is said correctly that that date Port Stephens Development did not exist because it had been dissolved by the Federal Court on 19 December. So there is an irregularity of that but in any event it attaches the order and it says that is how we did it.
HEYDON J: Who was Ms Kenny?
MR RARES: She was a lady who worked for the appellants.
HEYDON J: She is Lee Kenny or Earleen Kenny or both?
MR RARES: She was Earleen.
HEYDON J: “Lee” on page 132, but “L Kenny” on page 176.
MR RARES: I am instructed it is the same person, your Honour. We have done a schedule - - -
HAYNE J: Just standing apart from the particular transactions that are said to be affected by all this, if you have a scheme of arrangement with vesting of undertaking and immediate dissolution, how ordinarily is the Torrens register dealt with?
MR RARES: I think probably the easiest way is to attach the Federal Court’s order to it.
HAYNE J: It might be the easiest, but how under the Act?
MR RARES: Under the Act we have referred to those provisions in - attached those to our submissions, I think. No, I am sorry, your Honour, we have put it on the list of authorities.
GUMMOW J: It is 46C, is it not?
MR RARES: Yes, 46C, and there is another provision in 84, I think, and the Registrar-General can do it in his own motion under 46C, so he is shown the Federal Court’s order and presumably it is just done. So there was a lack of elegance in what was done.
Section 86 of the Real Property Act also allows the recording of a vesting order to be made to give effect to the vesting as well. When one looks at the proper construction of what a dealing is you can lodge the Federal Court’s order as a dealing under section 36 of the Real Property Act. So the Federal Court’s order must be a dealing because it vests the property in the new – the transferee company, so there are a variety of mechanisms.
What was done obviously was not very elegant, but the control of whatever Port Stephens Development had was clearly in Sealark and it could put the seal on probably to effect it. The title search at 175 in the book shows on 2 October 1998 Sealark was registered and in the second schedule the second item is the notice of the proposed acquisition at that time which was registered, but the acquisitions had in fact occurred earlier and there was a notation of unregistered dealing of the proposed acquisition.
Your Honours, I can hand up a chain of title document which I think helps to trace through where the three lots that Justice Talbot dealt with in the first decision passed. Now, I think, your Honour, those are all the relevant documents that the parties, we say, sought to give effect to. The evidence that was before Justice Talbot was both affidavit – those documents and three affidavits and some oral evidence. There were two affidavits of Mr Howell. One is at page 53 where he exhibits the documents. I do not think there is anything particularly significant in any of those matters except in paragraph 5 he says that for every one of the applicants below, which are all trustee companies, there was the same form of documents prepared and available and executed.
His second affidavit starts at page 135. He goes through the transactional steps in there. At paragraph 19 he refers to the bill of exchange having been executed by Pacinette in favour of itself as trustee and it being used as consideration for the issue of the ordinary units and then as consideration for the redemption of Sealark’s A class units. Justice Bryson refers to this at 1193 paragraph 58 and says it did not happen.
GUMMOW J: Which paragraph were you reading from?
MR RARES: Paragraph 19 on page 138.
GUMMOW J: Yes, thank you.
MR RARES: And Justice Bryson is 1193
paragraph 58, and the reference to the power of attorney is at
paragraph 23 on 139. Your Honours, then
there is
Mr Seller’s evidence, the solicitor from Gadens at page 157. He
notes that the relevant meeting that is in issue
here happened on
11 May 1998, in paragraph 2, at his office with Ms Cleary, a
solicitor who used to work for him, Mr Halloran, Mr
Howell and
Ms Kenny and he says:
I had previously had discussions with both Mr Halloran and Mr Howell –
Mr Halloran is the principal of the applicants
–
and had tendered them certain advice.
Then he says at this meeting he had – he said in
substance:
“These are the documents which will bring about the change in beneficial ownership of the properties as we have discussed. There are an enormous number of meetings to be held. It is just not possible to hold each meeting and sign each document in the sequence we need to have them signed in one sitting.
What I propose, and I think it is the only way to effectively deal with these matters so that they are valid, is for us to hold all the meetings and sign all the documents for one transaction, Gabrielle has one here, and then for you all to agree that, as regards each other transaction and transfer of land, that they occur in the same order and fashion. Do you understand this? It is important that you all agree and understand this. That is why we are going through one trust and transfer exercise in the specific order we require. All the transactions are exactly the same and by going through one transaction we are effectively going through all the transactions and then all that remains is the signing of the completed documents.”
Each of them said to me:-
“Yes, I understand.”
I then said:-
“It is important that we do this now while we are all here and before Phil Howell goes overseas.”
He could not recollect which one he did. Then he says earlier
he had been told by the Canberra attorney that all the trust deeds
had been
executed. In paragraph 7 he sets out:
the substance of the conversations –
The oral evidence relating to that is in the transcript that was
prepared. Your Honours, relevantly, Mr Seller’s evidence starts
at 282. What he says about the dating of these documents at 284 is he refers
to, at about line 20 – I asked him:
Well, looking at the date column . . . How did the dates come to be entered for the days that they appeared against the transaction?
That is a reference to Mr Seller’s undertaking which
I omitted to take your Honours to that starts at 211, and behind 211 there
is a big list of all of the 770 trusts and the transferee and vendors and the
amounts and then the dates they were entered in the
column that
your Honours can see there. He explained that they – he says at 284,
line 20:
My recollection is that these dates were allocated to each transaction as each transaction was completed. That is, all the documentation was signed, and at the completion of each transaction the documents were signed on that particular day that the transactions were completed. That is, the documents were signed.
And were the dates filled in on the days the documents were signed, or the dates they were completed, or some other dates.
Well I didn’t personally fill in the dates, my assistant did that, and my understanding was that dates were filled in as each bundle of documents were signed completely.
Then he was asked about some accounting records which became MFI 2 at line 40 and that is to be found and later admitted as an agreed fact at page 196 which records the money flows and unit holdings showing who paid what, when and where the money was.
HEYDON J:
Can I just go back to page 211? You said in evidence that:
at the completion of each transaction the documents were signed on that particular day –
Now, the day when all the meetings took place was 14 May.
MR RARES: The day all the meetings actually took place was on the 11th. What he says is that they put the dates on the date that they signed everything. He explained that – ultimately, that is what the judge finds that they adopted the 14th – Justice Talbot says they adopted the14th as the date and that is because - - -
HEYDON J: Why did they not adopt the date when it actually happened?
MR RARES: Your Honour, they should have, obviously, but the question is what did they agree to do.
HEYDON J: Miss Kenny on 109 signed a statutory declaration.
MR RARES: Yes.
HEYDON J: But on 14 May she was present at the meeting of the directors of Sealark.
MR RARES: Yes.
HEYDON J: That is not true apparently.
MR RARES: The date is untrue, yes. Mr Seller was
then cross-examined by Mr Downes from 285. At 287 he was asked about what
happened on
11 May, at about line 30, and at line 40 he was asked:
Now were you present when the relevant activities can I put it that way for the moment took place that afternoon?
RS: I was present that afternoon for part of the time and that was the time taken to do the things referred to in my affidavit.
MD: And so you, did the best of your understanding, did for example some company meetings take place in your offices that afternoon?
RS: Yes, yes they did.
MD: Were you present when those company meetings took place?
RS: Yes I was.
MD: So you were present for all of the activity were you relating to at least one transaction?
RS: That’s correct.
And then during the course of the day he had been present in
court while I had been trying to open the case and explain the series
of
transactions to his Honour, and he was asked about that. Then at 288, line
30 Mr Downes said:
Was there a sequence saying, for example, now we’ll close the meeting of Sealark and open the meeting of directors of Pacinette or whatever, that sort of thing?
RS: Perhaps it was not that form but it was certainly the case that each meeting and transaction moved from one step to the other in the sequence that was explained this morning.
MD: And were you the sort of superintendent of what was happening or someone else?
RS: I suppose I was, I don’t know if I’d use the word superintendent but I was certainly there to explain and ensure that all the parties understood the series of events and transactions.
MD: I know you’re not going to have a clear recollection of a particular meeting and particular words so I don’t do you the disservice of asking you about that but what’s the best you can do, for example, as to how a meeting was conducted so far as your recollection is concerned?
RS: I started explaining to the people who were there and we know, they’re explained in the affidavit, Mr Howell, Mr Halloran and Alan Kenney, the general effect of the transactions that were to take place, so firstly I wanted to make sure that they understood precisely what it was we were doing and why we were doing it and once I was satisfied that they understood that we then went through this one transaction in a step by step basis so that each person there could see the roles they were taking in each part of the transaction.
MD: But may I take it that there weren’t moments when somebody said now we’ll close the meeting of Pacinette and proceed to the meeting of Sealark or that sort of thing?
RS: There may well have [been] moments because those documents were there before us.
And then - - -
GLEESON CJ: What did they do in relation to that one transaction in connection with the bill of exchange?
MR RARES: The evidence in relation to that is in Mr
Howell’s affidavit, I think. I do not think it was pursued. It is at
page 138,
paragraph 19. At 289 at about line 35 Mr Downes asked:
MD: Now and it’s also true to say that it was only at, for example, the meetings that or to take the example of the meetings with which you were involved on that afternoon in your office it was only at that point at the meeting of 11 May in your office with respect to whatever transaction you were dealing with that, for example, the trustee accepted appointment of trustee of the trust.
RS: No, the meetings that we held at the time of 11 May 1998 were meetings of the companies in their various capacity as trustees and as principals in the transactions.
Then he was asked to look at the two sets of documents I have
taken your Honours through. At 290, 15, he was asked:
Well, do you now agree that it wasn’t until the meeting on 11 May in the transaction with which you were involved that the trustee accepted appointment as trustee of the trust.
That is the Pacinette trust because it is dated 14 May. He
says:
No, I simply think that’s the wrong, the wrong date on that document.
At line 25 he says:
The establishment of the trusts occurred prior to our meeting on 11 May.
MD: Well, but you don’t doubt I think, having regard to your answer, that the date 14 May was written on, on 14 May.
RS: I guess that would be correct day it was written on.
MD: What you’re suggesting is that somebody on 14 May should have written 9 May on the document?
RS: Or an earlier date, that’s right.
MD: And...but there was no meeting of directors of any of the companies at which a resolution to accept appointment as trustee could have taken place before 11 May was there? When you had the first round of meetings.
RS: These weren’t necessarily the first round of meetings. This affidavit –
that is his own affidavit –
refers to the meetings relating - - -
GLEESON CJ: What was the date on which the trust deed was executed in Canberra?
MR RARES: Certainly it was all done by 9 May. That is his evidence in - - -
GLEESON CJ: You mean all trust deeds were executed by somebody at Snedden Hall and Gallop before 11 May?
MR RARES: Yes, and that is on page 158, paragraph 6. He has the conversation with the solicitor at Snedden Hall and Gallop in Canberra on 9 May saying, “I’ve signed all of the documents”, and his hand was falling off.
GLEESON CJ: Certainly in relation to all the bills of exchange except the one for the transaction that was actually the subject of what happened according to Mr Seller, in relation to all the other bills of exchange, they were not executed on 11 May, they were not signed on 11 May?
MR RARES: The evidence is that Mr Howell had commenced signing a lot of the documents before 11 May in anticipation of that being confirmed and he had finished on the 12th but the others took some time to sign all the pieces of paper. As your Honours can see, there are quite a few. I cannot answer your Honour specifically on that but at the end of the day, I think the thing that your Honour is raising is if the bills of exchange were not signed, does that matter? Again, in equity, if that was what they were proposing to do and how they proposed to effect the consideration to be paid, they were all agreeing to do that. What we say is that when they went through the exercise of going through the different stages, they all agreed that each company would do each of the steps that it needed to do in the sequence of transactions so that there was not even - - -
HEYDON J: But they had to actually do it in the correct sequence, did they not?
MR RARES: Yes.
HEYDON J: Yet I think you were saying that some documents were signed at some times and others at other times.
MR RARES: But the meetings or the decisions to give effect to the documents we say all happened at this one occasion on 11 May. Then the documents were evidentiary of that and some were prepared in anticipation and some maybe held in escrow, if one likes, or partly completed. Others were signed afterwards but they were all, we say, evidentiary of what they agreed to do in the transactions and agreements they made.
HAYNE J: And that it suffices, for example, to have, does it, an agreement that there will be a dealing in something called a registered unit that has not then been issued on paper registered in a book, et cetera? Is that not what is buried in the general answer you have given Justice Heydon?
MR RARES: If there is an agreement for value, equity does not require any particular form.
HEYDON J: Very loose statement.
MR RARES: If everybody is agreed that I have all the documents sitting there ready to be signed – and the evidence is that they are all sitting there in the room, all 770 sets of these documents ready to be signed, or some of them partly signed. So they are all there and they all know what they are doing. The question is: do you have to sit down and have 10,000-odd meetings?
GUMMOW J: I do not think they all know what they are doing actually.
GLEESON CJ: It seems to amount to the proposition that equity regards as done that which is said to have been done.
MR RARES: Ought to have been done. We are prepared to modify that proposition, your Honour, to the more conventional base.
GLEESON CJ: What was actually said presumably was something to the effect of, “Let’s do that”?
MR RARES: Yes. Well, I am just taking your Honours through the various versions of what was said and then coming to the fact that the trial judge who saw and heard these people could make the findings of fact that he did, and then the question is: having found those facts, was there an error of law in determining that on those facts there was an interest in land?
There are
a couple of bits of the evidence that show they prepared them all in advance.
My learned junior points out that there
is a finding of fact by the trial judge
that they were all prepared in advance and there is paragraph 3 of
Mr Seller’s undertaking
at 211 and there is also what he says in this
evidence that I will take your Honours to. I was looking at 290, where at
the foot
of the page he was asked:
MD: But there weren’t 700 meetings of the board of various companies to resolve that a trustee accepted prior to 11 May were there?
RS: The meetings were in the same form as these meetings in the sense that there weren’t 700 meetings individually, separately for these, they were done at the same time.
MD: And not before 11 May?
RS: For the formation of the trusts is this, sorry I don’t understand.
MD: Meetings of the companies who, it was proposed to appoint, as trustee of the trust by which those companies resolved to accept appointment as trustee.
RS: Yes those meetings which are different to the meetings that I’m referring to in my affidavit would have occurred prior to 11 May.
MD: Well you’ve just said would have occurred. But were you present any such meeting?
RS: I was attending, I did attend meetings both in our office and at the premises of Realty Realizations –
which is the head office of the group of companies of the
applicants and Mr Halloran –
for the purpose of establishing the trust but that wasn’t this meeting on 11 May.
MD: Look Mr. Seller, the reality is, is it not, that what happened was, the first time there were any meetings of any kind at which this trust was set up and the transaction was put into place began with the meetings you had on 11 May.
RS: No I don’t believe that’s correct.
Then he was asked, he had not said anything about that in his
affidavit, and then at 35:
MD: Now, I just need to ask you this having regard to something you’ve just said. You’re not suggesting that more than one set of meetings took place on 11 May in your office are you?
RS: No, oh sorry, my apologies. I am suggesting that, because what we did was to have one meeting which we all understood was the same as the meetings that would occur for all of these transactions.
MD: And so thereafter there was no oral meetings as such but simply document signing, is that right?
RS: After the meeting on 11 May?
MD: Yes.
RS: That’s correct.
And then at 293 in re-examination I
asked him at line 20:
MR: And over what period prior to the meeting of 14 or 10, sorry at what time prior to the meeting of 11 May which you described in your affidavit had you first started to discuss with Mr Halloran and Mr Howell the establishment or possible establishment of these trusts?
RS: Approximately 2 months prior to that meeting.
Then I asked him at line 30:
MR: Well starting with 11 May and then going to any occasions thereafter involving the execution of these documents that are summarised in your undertaking.
RS: The meeting on 11 May, as I recall, was on level 14 of our office and we had all the.. all the documents were ready if you like to be signed.
MR: That’s for all 770?
RS: For all these transactions. Some of them may have already been commenced to be signed by Mr Howell, but the meeting on 11 May was to formalise if you like the transactions and to ensure as I said before that everyone involved understood what their role was and what the transactions were seeking to achieve. And to reinforce that I discussed the nature and effect of the transactions both in form and substance with the parties. In other words I explained to them in substance what was happening, that properties were moving beneficially from one owner to another and I explained in the form in which that was carried out, so that they understood not only what they were doing, but why they were doing it and in that process I went through the bundle of documents for the one transaction with them, going through all the various meetings and I wouldn’t say we role played but we certainly went through those meetings and we discussed the nature and effect of each step and transaction that was occurring.
MR: And as you explain from your point of view what the step was, what if anything was done or said by the other people who were participating as principals in the meetings.
RS: Obviously people asked questions, we had the minutes to look at. We discussed the minutes. There were questions asked –
et cetera. My friend suggests I should take
your Honours to the question at line 20:
MR: And then you explained to His Honour when you were being cross examined that you were, it was put to you that there was no oral meetings after the initial explanation type meeting at which all these steps that you’ve just described took place.
RS: Sorry there obviously were other discussions and oral meetings in the sense that I had discussions with both Mr Howell, Mr Halloran and Lee Kenny and they obviously had their own meetings as well both at their own offices and our premises during that week because it was essentially a week of that went by when these documents were executed, but in the sense of a formal meeting such as this one to formalise the transactions there were none that I had formalised.
HH: There were the what?
RS: Sorry there were no other formal meetings that I started other than this one.
MR: And did you, in the meting that you have described extensively, discuss with the participants the manner in which the transactions would be given effect to, in respect of the documents they weren’t then signing but were going to have to sign in the large number of documents you prepared.
RS: Yes well essentially as I said in the affidavit that I explained that there were and they could see that there was a large number, physically there were a large number of documents in the room, in boxes and piled on the table. And it was clear that, and it made it abundantly clear that, the documents for each transaction were essentially exactly the same so that the meetings and the transaction that we were going through today would be the same as those they would be signing for the other transactions and that we would and that we had the list which is attached to my note.
MR: Your undertaking?
That is at 211.
RS: My undertaking which summarised all the transactions that were to occur so that the understanding that I and everyone else there came away with at that meeting was that all of the meetings referred to in that –
it says “visit” but it must be “list”
–
had then taken place, that what was required now was to execute all of the documents that reflected those meetings. As the documents were executed and they were completed then they were dated, hence the different dates marching through the week.
Then I asked him at line 15 on 295:
MR: Had you not had the understanding that everybody was agreeing during the course of the sample meeting at which you went through everything in detail that they were agreeing to all the steps being taken for each of the individual transactions that were contemplated to occur what would you have told the participants?
RS: If I thought they did not understand?
MR: Yes.
RS: I would have, I suppose, gone through the transactions again.
Mr Howell’s evidence is at 301 and following. He
says at 302 that there is a record of the payment of each of the initial $10
sums and your Honours will see that as exhibit D at page 194.
That shows a bank statement showing that each of the $10 – $7,700
is
deposited into a bank account of one of the trustee companies is the mode for
taking the initial $10. Mr Downes cross-examined
him against
Mr Seller’s affidavit at page 303, getting him to agree that all
that was said. At 305, line 30 it was put to
him:
MD: Well, he said all the transactions are exactly the same and by going through one transaction we are effectively going through all the transactions.
PH: Yes.
MD: And he then went through one transaction, did he not?
PH: Yes.
MD: And he did not go through all of the transactions.
PH: That’s correct.
He agrees at the top of 306:
It certainly wasn’t Pacinette –
I think that is all that I – unless there is anything my
friend wanted me to direct attention to. At 306 the question starts
at about
line 13:
MD: Now, may I suggest that after he had gone through this one transaction, you then went away and what you and others did was sign all of the relevant minutes and other documents that were in the binders for all the other transactions.
PH: No.
MD: What did you do?
PH: Prior to the 11th I solely had commenced signing documents. I had not completed all the documents at the 11th.
MD: So you started signing the documents including, for example, possibly the Pacinette document prior to the 11th?
PH: Yes.
The question at line 40 on 306:
MD: Well, you didn’t literally have eleven meetings orally convened and transact the business referred to in your affidavit with respect to Pacinette on the 14th of May, did you?
PH: Yes.
MD: What, how long did those meetings take?
PH: Very quickly.
MD: Well, how did you do it? Who was present and how did you do it?
PH: The process was that I met with Mr Halloran and Mrs Kenny and we simply said that at that stage I had completed signing all the documents, I completed them on the 12th and I sought confirmation that we were proceeding with the resolutions and the signing of the documents which I said yes for all matters...all transactions.
MD: So what you’re saying is that by the 14th you had signed all of the relevant documents that were for you to sign.
PH: I said by the 12th.
MD: By the 12th, sorry. And had Earleen is it? Had Kenny signed all the documents she was going to sign by that time?
PH: I can’t say I know but I do know that when I signed the documents I was the only signatory at that point in time.
MD: Alright. Well, now is this what happened then...that on the 14th you said well, as to all of the trusts...where now...is everybody agreeable that we can take the meetings that are necessary as having taken place or something like that?
PH: I used words to the effect of “I have completed all the signing of all the documents, do you confirm that we are pursuing to resolve all the resolutions and sign all the documents as was outlined by Mr Seller”.
GLEESON CJ: Mr Rares, on 11 May 1998 were the shareholders of Sealark Pty Limited and the shareholders of Pacinette Pty Limited identical?
MR RARES: Can I get that checked? I think relevantly they were either identical or they were all represented by the same physical beings.
GLEESON CJ: On that date were the directors of Sealark Pty Limited and Pacinette Pty Limited identical?
MR RARES: I think that, yes, they were.
GLEESON CJ: And who were they?
MR RARES: Mr Halloran and Mr Howell I think.
GLEESON CJ: Does the question that ultimately has to be decided here involve the same issue as would have arisen if on the 20 May Sealark Pty Limited had gone into liquidation and on 21 May hydrocarbons had been discovered under the land in the allotment and on 22 May the liquidator had said to Pacinette Pty Limited, “The beneficial owner of that land is Sealark Pty Limited in liquidation”?
MR RARES: That question could arise in this and also a liquidator of Sealark might say to Pacinette, “You pay me on the bill of exchange”.
GLEESON CJ: I just choose a liquidator to distance the interests, in other words, to make Sealark and Pacinette capable of having a conflict of interest.
MR RARES: Yes. So the issue is, at the end of the day, would these parties, having entered into this arrangement to transfer the land and to have taken these steps, is it to be effective? The very issue or a similar issue came up in this Court in Joseph v Campbell [1933] HCA 34; 50 CLR 317 where you had a company that was operating and it was desired to set up a new company. The new company was to be capitalised by a payment of £1,800 for the shares and as soon as the payment was made the payment was drawn back out and paid to the shareholder. The question was: when the liquidator came along was that a valid dealing or was it simply the crossing of the cheques effectively not a real transaction? The Court said it was intended to be real. The parties acted as though it was real. It actually seems to have happened and effect should be given to it. It is a joint judgment of, I think, Justice Rich, Justice Dixon and Justice McTiernan.
GUMMOW J: What did Justice Bryson say about this case, this authority?
MR RARES: He said it was of no assistance.
GUMMOW J: Yes, that is what I thought.
MR
RARES: That is at page 1197, paragraph 66:
does not furnish a useful comparison with the present circumstances.
Now, the facts of that case are at 321 and
following. Your Honours can see that at 322 in the joint judgment about
point 2 their
Honours refer to “the new business”:
This business was opened at the end of January 1928. The Company was registered on 5th April 1928, and is the liquidating Company. Before the date of the incorporation goods had been supplied to the business by Louis Joseph Pty Ltd to the amount of ₤800 16s 6d. Upon its incorporation the liquidating Company took over the business. No formal agreement was drawn up and no record was made of any terms upon which the business was so taken over. The name of the Company was substituted for the trade name previously used. It continued the same set of books –
Then there is a reference
to a bank account that had been previously maintained and at the foot of 322
their Honours say:
On 18th April 1928, the appellant drew in the name of the liquidating Company a cheque for £1,800 in favour of L. Joseph Pty Ltd. The bank account of the liquidating Company was not opened until 20th April 1928.
That is two days after the cheque was drawn by it.
On that day a cheque was drawn in the name of L. Joseph Pty Ltd on that Company’s account for a like amount in favour either of the appellant or of the liquidating Company, it does not appear which. In the books of Louis Joseph Pty Ltd, the amount of the cheque was debited against the appellant as an advance to him. On 20th April 1928 the appellant made out an application to the liquidating Company for 1,800 shares and paid the cheque for £1,800 into that Company’s bank account, thus opening the account. In his application he said: “I have paid to the Company’s bank at Newcastle the sum of £1,800 being at the rate of £1 per share.” On 23rd April 1928 the liquidating Company’s cheque of 18th April was presented for payment and the amount debited to its account.
So that is the round robin.
It is this transaction which the appellant relies upon as constituting a payment up of the amount of the shares which were allotted to him in pursuance of his application.
The decision appealed from denies that a payment in cash in respect of the shares took place, on the ground that the cheques were no more than cross-cheques representing no actual payment. There can be no doubt that the two cheques were meant to effect concurrent counter-payments. When the cheque of Louis Joseph Pty Ltd was given in payment of the liability upon the shares, it was intended that, by means of the cheque of the same amount which had, on 18th April, been issued in the name of the liquidating Company, its proceeds should be at once withdrawn from the bank account to which it would be credited. If the liquidating Company issued that cheque neither in payment of a liability which it was bound to discharge, nor in exchange for some equivalent consideration, it would, in our opinion, be clear that the effect of the transaction was to leave the liability upon the shares undischarged. Although the cheque would have been credited to the liquidating Company’s account as money, yet inasmuch as it was appropriated to answer the Company’s own outstanding cheque, it would not form part of the liquidating Company’s general resources, and the Company would not have been put in funds –
Then their Honours say at 324 point 8:
No objection can be made that if the share capital has been provided it has not been provided in cash. The payment of a cheque credited to the bank account is a cash payment. The complaint is not, as so often is the case under –
the relevant Companies Act –
that, although the share capital is provided, it is not paid in cash. It is that an apparent payment in cash is illusory because it is annihilated by a counter-payment. The real question appears to us to be whether the counter-payment restores the first payment to the payer or is an expenditure by the Company in the discharge of its liabilities or for some other legitimate purpose. In other words, has share capital been paid but applied in the acquisition of assets or the discharge of liabilities?
GUMMOW J: Have you looked at the tax case of Agnew 82 CLR?
MR RARES: I have not.
GUMMOW J: [1951] HCA 26; 82 CLR 408. At 420 to 421 there is an explanation by Sir Owen Dixon of cases, including Joseph v Campbell, as cases of cross-liabilities. That explains what Justice Bryson says at paragraph 66 of his judgment, I think. Anyhow, perhaps you can look at it at some stage.
MR RARES: If I may, your Honour, at the foot of - - -
GUMMOW J:
But for the application of these principles there must be cross-liabilities and agreement, express, tacit or implied, and the cross-liabilities must be equal.
MR RARES: Here you have the very thing with the series of transactions, and at the end of the day the liability of - - -
GUMMOW J: That is at page 421.
MR RARES: Thank you, your Honour, if we can
look at that over the lunch. At the foot of page 325 of the joint judgment
in Joseph their Honours say that:
We agree that a contractual relationship was created between the appellant and the new Company, but we think the obligation implied is a little more than mere indemnity. When the affairs of two or more companies or enterprises are governed by the decisions of one mind –
in this case it was Mr Halloran who was the controlling mind of
these companies –
the absence of any formal expression of an intention to contract often means that no contractual intention existed. But, in the present case, the plan upon which the transaction proceeded is clear, and, in our opinion, that plan necessarily involved the assumption of obligations on the part of the Company. The plan was that the Company, upon its registration, should assume the proprietorship of the business retrospectively as from its inception. Upon this footing the accounts of the business continued as if the Company had existed at the beginning and the books of account were its books –
et cetera, and here the plan is to transfer the equitable interest in the land by effecting the series of steps, and so you have these counter-payments and discharges because the whole plan is clearly to, if it works, to transfer.
The reason Justice Bryson says it did not happen is, without any real analysis of, in our submission, the facts, and we say his Honour was not really – and where the trial judge found the facts that the transaction had been effective as Mr Seller and the participants had intended, because in the one meeting they had done all of the transactions, and we say, well, equity gives effect to that plan in the same way that the court recognised in Joseph v Campbell that you would give effect to it.
Similar considerations came up in the Equuscorp Case that the documents were evidentiary of assumptions of liabilities which would be enforceable by liquidators against the various participants, and it would be difficult to think that if the liability that had been accepted once Sealark had accepted as an accommodation part of the bill of exchange it would be difficult to see that Pacinette would not be liable to pay to Sealark that consideration.
At the end of the transactions the equal interest in the land and the entitlement to compensation that was going to come when the resumptions occurred would be in Pacinette. Pacinette would have the wherewithal from the payment of compensation, having the interest in land, to meet its liability to Sealark and to discharge its right to either indemnity or payment under the bill.
So that at the end of the day the reality was
that Sealark would get consideration for this transaction. The money was going
to
be there when the compensation was paid. The obligations were all
enforceable, the parties intended to enforce them. Why would
they engage in
this elaborate exercise? What Justice Bryson does – perhaps I
should firstly take your Honours to Justice Talbot
because he, in our
submission, found the facts. It is in volume 3, at page 1043. In
paragraph 17 his Honour described the general
background, and he
says:
A common date adopted for the relevant transactions involving Pacinette Pty Ltd is 14 May 1998.
Now, that is a finding that was open to his Honour to make
in light of the evidence, although the transactions, in substance, we say,
occurred on at the one meeting on 11 May. They adopted a convention to date
them. Then his Honour says:
The evidence discloses that various meetings took place in the weeks leading up to 9 May 1998. On 11 May 1998 there was a meeting in the office –
and these are all agreed facts and your Honours have been
through this. His Honour then says:
23. The documentation prepared for each transaction in advance was signed or executed at the same time.
24. There is no direct evidence that the individual participants formally conducted meetings and made statements attributed to them by the documents. Nevertheless the documents record that meetings were held and the transactions described were entered into. It is not the respondent’s case that the scheme was a sham. There was relevantly at all times an intention to transfer the beneficial ownership of land from one party to another.
GLEESON CJ: Sorry, I will just interrupt you. The reason I asked that question earlier about the shareholders of Sealark and Pacinette is because some reliance is placed in the written submissions upon some principles relating to shareholders and unanimous consent.
MR RARES: Yes.
GLEESON CJ: Could you just check on who were the shareholders of those companies?
MR RARES: Your Honour, Sealark’s shareholding is at volume 3, 1012, which is a company called Closer Settlement, but the beneficial owner is Mr Halloran. At line 30 on 1012 in the ASIC search – I am sorry, that is previous share interest. I am sorry, I withdraw that.
GLEESON CJ: Perhaps you could tell us after lunch.
MR RARES: Yes, your Honour. I will have to check this, but I think it is common ground that Mr Halloran ultimately controls all of these companies and entities himself.
GLEESON CJ: I am just interested in knowing, if it is available in the evidence, who were the shareholders of those two companies and who were the beneficial owners of the shares.
MR RARES: Your Honour, I will come to that. So what we
say is – and then Justice Talbot identifies - at 1045 he says that Mr
Seller:
confirms that he has checked his files and says, and the fact is, that substantially identical documents . . . were prepared by his firm and provided to Mr Howell at least seven days prior to the date upon which he purports to have convened meetings and signed documents.
That is an agreed fact, at page 391. He then says:
The question to be resolved –
which we say truly is a question of law –
is whether the objective of transferring beneficial ownership was achieved and if so whether liability for payment of stamp duty arose.
His Honour then sets out the transaction at 1047 as
findings, we say, of fact. At 1048 at paragraph 41 he says:
The consideration for the issue of 79,010 $1 Ordinary Class units to Pacinette was in the form of a bill of exchange drawn by Pacinette on Sealark in favour of the Trustee. Sealark accepted the bill of exchange. There is no explanation of the consideration passing between Pacinette and Sealark in respect of the drawing and acceptance of the bill of exchange. The respondent assumes it was a loan of some sort . . .
43. The Trustee endorsed the bill of exchange in favour of Sealark.
Then finds the effect of the transactions, at paragraph 48
says:
The bill of exchange is valid on its face. The acceptance by Sealark is no more than an acknowledgement by that company that it will guarantee payment –
It is an accommodation bill.
It is alleged the bill of exchange was drawn in favour of the Trustee to enable the issue of 79,010 $1 Ordinary Class units –
but that was a proper payment. They were all findings of fact
that were open to the trial judge to make. Then 49:
By the time that Pacinette applied for 79,010 Ordinary Class units, the earlier transaction between Sealark as owner of the land and the Trustee company whereby 79,000 A Class units had been issued in consideration for the purchase of the land, had already taken place. Although each of the transactions took place at or about the same time, the sequence of the meetings makes it clear that the purported transfer from Sealark to the Trustee was intended to take place prior to the issue of Ordinary Class units to Pacinette by the Trustee.
Then his Honour applies Joseph v Campbell. Now, all those things were open to his Honour to do, particularly bearing in mind the jurisdiction that his Honour was exercising under Class 3 in section 38 of the Land and Environment Court Act, and there is only an appeal on a question of law. The procedure sheet sets out how it was all to happen in the documents and the sequence and that is what Mr Seller did when he took them through it. Now, sure, a year and a half later he does not remember exactly all the words he said, but he said, “I went through it and wanted it to work”. Why would it not, in our submission?
His Honour then made a finding at 1069 of oral acceptance, at
paragraph 132, by Sealark of the offer to purchase, for the issue of
the
79,000 A class units and then found that there was sufficient value. He applied
a passage in the previous edition of Meagher,
Gummow and Lehane which had been
picked up by Justice Phillips in the Victorian Court of Appeal, in
paragraph 137. That is, I think,
now in the present
4th edition at about 7-150 to 7-155. Then his Honour dealt
with the interest by Sealark in the material that we dealt with. But at
145 at
1072 his Honour said:
The Court is satisfied that in the circumstances set out above, Sealark was, at 14 May 1998, in a position to deal with the legal estate –
If that is an error of law, it is only an immaterial one because it was certainly in the position to deal with the equitable interest. If it was in a position to deal with the equitable interest, it could pass an equitable interest to somebody else such as Pacinette. So there is no error of law in the ultimate finding at 146, which was Pacinette held the whole of the equitable title in the land at the end of all these transactions. When he found all those facts, the question is: is that an error of law? We say it is not even arguable that it is.
GLEESON CJ: What do you say about what Justice Bryson says on page 1200 in the first sentence of paragraph 74?
MR RARES: We say that what his Honour
has done is purported to find different facts to the judge. If you go back down
to the end of that paragraph,
your Honour, it is:
The Court of Appeal should find that the purported transactions did not occur, and the appeal should be allowed for that reason.
So the way his Honour has proceeded with this is to say, “It is all a fiction, these things never happened”, instead of saying, “Well, look, what were they doing in these meetings? Was it really a fiction or were they seeking to give effect to something that was very difficult to give effect to?” You know, boxes and boxes of all these documents, lots of things to sign, lots of meetings to hold. Seller comes along and says, “This is the way to do it. I am the solicitor. I have prepared everything. You go through this. You are doing it for all of them.” Now, why, in our submission, would one not adopt the common sense position which – people who go to their solicitors or accountants every day get told you have to have a meeting and they sign the documents, record a meeting, but they do not necessarily go through all these formalities.
In the Joseph v Campbell Case the Court said, if there was a plan, you give effect to it. A similar thing happened in the War Assets Case [1954] HCA 81; 91 CLR 53 where the Court looked at a similar approach – and it might be useful to take the Court to that – where the purpose was to get the benefit of a tax exemption by having a Papuan company have particular assets. If I can take your Honours to that – it is a joint judgment of the Court again.
At page 87 at the foot of the page the Court said that when
they were dealing with the people who were the shareholders, at about
point 9:
The directors and shareholders in the appellant were Burns and Randall. Burns and Randall of the firm of Buckley & Hughes certainly never meant that the Milne Bay company should act as agents for the appellant. But they had no beneficial interest in the shares and the company was at all times under the real although perhaps remote control of Cody, Wren and Westhoven –
here, Mr Halloran –
who represented the beneficial owners of the shares. They could at any time cause the shares to be transferred to them, remove Burns and Randall from the directorate, appoint new directors, and assume direct control of the company. The appellant company was their automaton to do their bidding.
Likewise here, these various corporate vehicles were the
automatons to get the land ownership transferred which was Seller’s
scheme
which he set out in the letter recording his instructions.
Cody, Wren, Westhoven and Baker were the promoters of the Milne Bay company. The appellant company had a part to play in that promotion. It was to become the repository of the title of the war materials so that when the Milne Bay company was incorporated it would be certain that these assets would be available for its exploitation. Otherwise there would be no sense in forming the new company. A company can be bound by acts intra vires its memorandum of association by the unanimous consent of its corporators, and such consent can be express or can be inferred from acquiescence.
We think that the true inference from the evidence is that the beneficial owners as well as the formal owners of the shares in the appellant with full knowledge acquiesced in the Milne Bay company taking possession of the war materials and disposing of them for its own benefit and intended that the Milne Bay company should do so. This was the very purpose for which the company was promoted by these owners in conjunction with Baker. It was the whole foundation upon which the promoters proceeded in interesting themselves. They would not have become interested at all in the venture unless the profit was to be made by the Milne Bay company. It was the agreed manner in which Baker would participate in the profit –
et cetera. At the top of page 90 their Honours
again refer to a plan. Then at 94 from the top of the page to the bottom they
explain
the very essence of the transaction and they way they went through it in
that case was to get the benefit of the tax concession.
Then they say at about
point 2:
The conclusion seems inevitable that the Milne Bay company entered into possession of the war materials and sold them on its own behalf. No doubt the question whether it did so with the assent of War Assets involves matter of law as well as of fact. But we think that, constituted and controlled as the appellant company was, the knowledge and intention which animated all parties to the transaction must be imputed to the appellant company. That in substance means that the benefit of the contract between the appellant and Vacuum was made over by the appellant to the Milne Bay company. If the goods were vested in the appellant, they passed to the Milne Bay company. The inference that the benefit of the contract was made over to that company arises from a combination of facts. The persons who really controlled the appellant intended that the contract should be assigned and knew that the Milne Bay company was selling the war materials as owner. In furtherance of this intention the Milne Bay company took possession of the materials as owner and of the proceeds as its own. It was only in this manner that effect could be given to Baker’s interest in the venture. As assignee, the Milne Bay company would be bound to indemnify the appellant against the payment of the purchase money owing by the appellant to Vacuum. The appellant never made any payments to Vacuum out of its own funds and never had any funds to do so. The moneys to pay the deposit and purchase moneys to Vacuum were all provided by Cody, Wren and Baker or out of the proceeds of sale of war materials by the Milne Bay Company. The moneys provided by Cody, Wren and Baker were regarded as advances to the Milne Bay company which were to be repaid by that company out of the proceeds of sale of the war materials. These considerations appear to us to be enough to show that the first contention of the commissioner should fail.
So the
Court again took the practical view that when – everybody goes through a
series of steps and there is some informality
and obviously here I cannot say
that the process was ideal or we would not be arguing this case before
your Honours if it was, but
the substance of what Mr Seller said
happened and was instructed to bring about was that there should pass the
equitable interest
to Pacinette and each of these other companies and they would
become the owner of an interest in land. They held the meetings and
he said,
“Look, we’ll go through all this. What we’re doing here is
effectively for everything.”
In our submission, why would the Court not give effect to those parties’ intentions in the same way as in these other cases where you have not arm’s length dealings? Justice Bryson’s thesis is because they are not arm’s length, he should just not accept that there can be these informalities and drive wedges in at every spot. You can have an acceptance of things of course by conduct. We say when you look at the conduct of the parties here in the passage your Honour the Chief Justice asked me to look at in paragraph 74 of Justice Bryson’s reasons at 1200, what his Honour is doing is saying the judge who saw and heard these witnesses had no ability to make the findings that he did, and yet he was not bound by the rules of evidence in coming to his conclusion. He had the evidence of Seller as to what they were about, what they were trying to achieve.
HEYDON J: But not what they did achieve.
MR RARES: We say that is what they did achieve because the judge found they did it.
HEYDON J: You say that the findings cannot be set aside on the ground that there was no evidence for them because Justice Talbot was not bound by the rules of evidence.
MR RARES: If there is a question of what does evidence mean in that context, the question your Honour is asking, but - - -
HEYDON J: Material.
MR RARES: If there is no material at all, that might be an error of law. If there is material but it is not what in strict terms of admissibility under the Evidence Act or whatever particular procedural requirements for evidence is in an ordinary court proceeding - - -
HEYDON J: There is no material to show what order particular events took place in in relation to a particular dealing.
MR RARES: Yes, and we say that the order is quite clearly the order that was in each of these books - because they were bound books. They were taken through the book and the order is in the procedure sheet. So that they started off knowing what they were going to do, Seller was there saying, “This is how we do it”. It was never put to him that he did not go through it in this order. So, in our submission, it is clear and the judge found they went through it in that order.
HEYDON J: He was not able to say that they went through it in that order. He was able to say what the plan was.
MR RARES: Your Honour, why would one not infer regularity if one got to that point? You have the sequence of steps in the book. They are working through the book in order. It would be unbelievable that they would not go through the book in the order that it was set out.
HEYDON J: You say that it is right to infer that in relation to each of the 769 books people sat down and said, “We have to sign that and then we have to sign that and sign that” and so on, then put that book aside and then take up the next book?
MR RARES: No, what we say is that what happened is that they had concurrent meetings of each of these 770 series and they all came in with a hat of the trustee company and said, “As the trustee company in each series, we are doing this. We’re using this as the vehicle, this one book that we’re going through is the vehicle for us to do all of these”. That is our agenda, as it were, but rather than have blank pieces of paper without the name of the trustee company, they have one set of documents and they say, “We’re going through this but we’re wearing our trustee company hats. We’re going to adopt the convention that as” – we know it was not Pacinette, but let us just use Pacinette as an example – “as Pacinette we’re going to do this”.
GLEESON CJ: Putting aside metaphors about hats and vehicles, the description of the acts in the law that occurred has to be based on the proposition – it may be right or it may be wrong – that if the people who are the directors of two companies, Sealark and Pacinette, having had explained to them by a lawyer a series of steps to be taken by or on behalf of those two companies respectively then say, “Yes, let’s do that”, full stop, then the consequence is that the two companies have in law taken those steps in that sequence.
MR RARES: Yes.
GLEESON CJ: That is what it amounts to, does it not?
MR RARES: Just so I am sure I am at one with your Honour, we say that the inference that one draws from the evidence is that Seller went through and said they are going to have the first meeting at which they agreed to allot the units and make the offer for the land, “Yes, we will do that and we will do it for all the 770”, and then they move to the next one sequentially or by inference. I do not think he suggests, or any of the evidence suggests, that it was as simple the law proposition your Honour put of saying the lawyer explains all the steps and then they simply said, “Yes, we’ll do that.” There is a - - -
HAYNE J: But does this not reveal that there is the possible merging of two separate ideas? One idea is that A Co owns a piece of property, it matters not what, and B Co, controlled by the controllers of A Co, is intended to have the property. Because A Co and B Co are controlled by the same individuals, as between them there is no one who will deny that B Co is now the owner of the item of property. That is one set of ideas founded in result.
MR RARES: Yes.
HAYNE J: A separate set of ideas, which may be radically different, is that we got from A to B Co via a particular method, a particular set of legal steps, and the fact that A Co and B Co are controlled by the same controllers, that each of them jointly think, express the view, write down, “Yes, what a good way of doing it and, yes, let’s treat it as though we have taken those steps” does not mean that the steps have been taken. Now, does your argument not meld the two ideas, result and method of getting to the result, on the basis that A Co and B Co are all ultimately controlled in the same interest?
MR RARES: My primary argument, we submit, does not because the way we put it is that Mr Seller and the participants in the meeting went through each of the steps with the order that was set out. Indeed, it would make very little sense for them to have spent the time and effort and no doubt money in preparing all these documents, and having Seller come along and say, this is how we do it.
GLEESON CJ: But they did not do it in this case. They did it in relation to an unknown case.
MR RARES: That is the question, is it not? The question is whether they did it using the unknown case as the template but having all of the transactions for all of the different companies occurring simultaneously.
HAYNE J: And that involves the notion that the companies which are not the template are having transactions occur which at least in their terms involve writing, agreement, oral acceptance, matters of that kind?
MR RARES: And all of the terms are already documented and in existence and at the very place the other meeting is taking place, on the tables, in the boxes, as Mr Seller said, so that they know exactly – this is not a case where they make it up afterwards. This is a case where the whole of each of the transactions was mapped out, documented, some of it already executed by - others to be signed.
So you have the whole series of steps identified for each of the
770 transactions, and they say, well, we cannot possibly sit down
and have 770
times 13, 15 meetings or whatever it is. We will do it altogether, and the way
we will do it is we will go through
one identified set of documents and treat
that as being us doing it with all our different hats on for all our different
meetings.
On page 290 of volume 1, that was really what
Mr Seller was saying and why the judge was able to find as he did. He says
at line
42:
The meetings were in the same form as these meetings in the sense that there weren’t 700 meetings individually, separately for these, they were done at the same time -
and done by reference. On the next page at
line 35:
I am suggesting that, because what we did was to have one meeting which we all understood was the same as the meetings that would occur for all of these transactions.
GUMMOW J: That may be enough to found a conventional estoppel between the actors but that is not enough for you because you have to, as it were, bind the resuming authority.
MR RARES: What you have is the fact that they entered into these or they documented what they said they had agreed by signing the documents that needed to be documented. I mean, for a statute of frauds situation you do not actually have to have the memorandum at the time of the agreement. As long as you bring it into existence later then that is sufficient. So, really, in our submission, that the judge was able to find, because he had the evidence, what they did. Justice Bryson simply says all - - -
HAYNE J: The method of doing it was fiscally important for stamp duty. What is the fact, or what is the legal conclusion, that is significant for the resuming authority?
MR RARES: That the equitable interest is in Pacinette, or an equitable interest.
HAYNE J: At a date.
MR RARES: At the date of the resumption, which is - - -
GUMMOW J: And that is the last paragraph of Justice Talbot’s judgment.
MR RARES: Yes, and the relevant date or the first of the two resumptions was on 18 or 19 June that year so that all of these things had been done, Mr Sellers says it was all signed off before that. The documents were there to be evidentiary of the acts that had occurred.
GUMMOW J: Another way of looking at it, if the intention is sufficiently manifested, the only question becomes any formality outside company law that applies, in particular that required another form of writing or value, or whatever. You say there was not any.
MR RARES: There was not any need for it, no.
GUMMOW J: And that is what Mr Slater denies, I think.
MR RARES: I think his thesis is that whatever they might have intended, they just failed to achieve it by what they did.
GUMMOW J: Yes, but why did they fail to achieve it?
MR RARES: Because he says that only one meeting was held, effectively.
KIRBY J: I do not think he concurs in that.
MR RARES: One thing we have got is that Justice Bryson’s judgment is basically saying none of these events occurred because - - -
GUMMOW J: The question is – well, firstly it is a philosophical question. What do you mean by “event”? Do you mean event in the law?
MR RARES: Event in the law.
GUMMOW J: As the Chief Justice has been putting to you.
MR RARES: Yes, but the question is can you - - -
GUMMOW J: Then you say event in the law itself creates a further question, event in the law which binds whom?
MR RARES: Well, again, I guess the - - -
GUMMOW J: Hence my question to you about conventional estoppel.
MR RARES: But it would not just be that. I mean, if your Honour just imagines a liquidator in the situation the Chief Justice and I discussed - - -
GUMMOW J: Well, that is the question, yes.
MR RARES: I mean, how could Pacinette, for example, say, “Well, we are not liable on this bill of exchange. It is just a bit of paper. It never happened”. That would be absurd to suggest that. That was the point of what the Court said in the Equuscorp Case that when you document things people, you know – taking this idea that there is no real money involved which is really another thing that really affects the reasoning of Justice Bryson, you say, well, look, people have actually signed these things so there is a documentary trail. It would be pretty difficult for any of these people to say afterwards it really did not happen.
Now, if they could not say it against a liquidator it really did not happen, why can they not say it against the State? But it did happen. Why is the State allowed to say, “You cannot say to us it happened”, but you might be bound by third parties. I mean, in our submission, it is quite clear that these steps were all undertaken with the intention of being binding and that they were carefully – obviously not as carefully as it should have been – undertaken to bring about this transfer of ownership.
What Justice Bryson says is everything is a fiction. That is an assertion by his Honour that he just says it just didn’t happen. There is no analysis to get that - - -
GUMMOW J: He did not say it was a sham.
MR RARES: He did not say it was a sham. He said it was a pretence, a fiction, a pretension - - -
GUMMOW J: A sham is when you do something that you do not intend the form to achieve what the form suggests you achieve.
MR RARES: But where you prepare a document intending it to achieve something and asserting that it does achieve it you seem to be promoting a false instrument or something. A very different legal concept, in our submission, in this case where what is being done is to say, “We did enter into these arrangements. We did it by conventional basis, but not by an estoppel by convention. We adopted a convention for binding each of the parties in the different roles they would have for each set of transactions, and then all we need to do is sign the documents so that where the law requires there to be writing for things they are sufficiently evidenced in writing.” That is what happened.
There is no need, even with the register of units, to have the actual physical book if the company is acknowledged by a certificate that there is a registration. Nobody could then come along and say, yes, there is a register. There is a resolution saying you are registered, but you do not have a book saying there is a registered unit holder, therefore you do not get any right at all in equity. In our submission, that would be making a triumph of form over substance.
GLEESON CJ: The ultimate question that Justice Talbot had to answer was who was the equitable owner of the land at the time of the resumption.
MR RARES: Yes.
GLEESON CJ: Is that in any respect different from the question, “At the date of the resumption, could Pacinette Pty Limited have obtained an order from a court directing Sealark Pty Limited to execute a memorandum of transfer of the land”?
MR RARES: No. I think that is obviously comprehended in that, yes.
GUMMOW J: It would be a bare trust, would it not?
MR RARES: Of Sealark, yes.
GUMMOW J: Yes, so that would follow.
MR RARES: Yes. In this case, of course, you did not need that because you had the power of attorney executed by Sealark in favour of Pacinette so that if it wanted to make itself the registered proprietor it could execute the transfer itself without involving Sealark.
HAYNE J: And could have done so and submitted for registration before the critical date?
MR RARES: Yes. Of course, if it did that then it would have to pay stamp duty on a conveyance on the transfer. That was not the intention at the end of the day.
HAYNE J: Just so.
GLEESON CJ: But if, on the date of resumption, Pacinette was in possession of – I am sorry, did you say there was a power of attorney?
MR RARES: Yes.
GLEESON CJ: Executed by Sealark?
MR RARES: Sealark for consideration irrevocable to allow Pacinette to deal with the land as it sees fit.
GLEESON CJ: Who was the attorney?
MR RARES: Pacinette.
GLEESON CJ: I see.
MR RARES: It is at page 131.
GLEESON CJ: So on the date of the resumption Pacinette was in the possession of a power of attorney from Sealark which would have enabled Pacinette to execute on behalf of Sealark a transfer to it of the subject land?
MR RARES: To it, yes.
GUMMOW J: What page is the power of attorney?
MR RARES: Page 131 and it is referred to, of course, in Mr Seller’s letter outlining things as part of the deal at the bottom of page 95.
GUMMOW J: This is also dated 14 May, I see.
MR RARES: Yes. The
way Justice Bryson deals with it is at paragraph 53 on 1191 where
his Honour says that:
This power of attorney was not supported by any purported resolution authorising its execution, nor was it purportedly acted on in any way, and in my opinion it has no significance.
In our submission, (a) it does not need
to have a resolution; (b) it is perfectly clear that is what they intended to
do, that was
part of the solicitor’s instruction sheets. It is there, it
is executed and it operates according to its terms. Why would
you not give it
effect?
HAYNE J: Does it come to this, that once the Duties Act point falls away you would say 131 is a complete answer?
MR RARES:
Yes. The whole issue at the trial was of course I was trying to get these
documents in to prove the scheme. That all went away
in the Court of Appeal
when we got the Chief Commissioner’s letter saying nil assessment. So
what we say, when Justice Bryson
says at paragraph 74 on page 1200 that the
transactions did not occur and he says:
The Court of Appeal should find that the purported transactions did not occur, and the appeal should be allowed for that reason –
he engaged in an impermissible series of fact-finding because
the appeal under section 57 of the Land and Environment Court Act is
on a question of law only, and that is on page 5 of our principal submissions
statutory materials at the foot of the page:
(1) A party to proceedings in Class –
relevantly –
3 of the Court’s jurisdiction may appeal to the Supreme Court against an order or decision (including an interlocutory order or decision) of the court on a question of law.
GUMMOW J: Are there provisions in the Conveyancing Act (NSW) now about value and powers of attorney?
MR RARES: I cannot tell your Honour.
GUMMOW J: And their effect on third parties? Notice – it used to be section 151 associated provisions. Is this expressed to be irrevocable, this power?
MR RARES: Yes, it is. At the foot of the first page, page 131, and - - -
GUMMOW J: I think there are provisions about that.
MR RARES: It says it “is to operate and continue to be irrevocable” and it is $10.
GUMMOW J: Those words are not just a flourish.
MR RARES: Pardon, your Honour?
GUMMOW J: Those words are not just a flourish. It is Part 16, Division 1.
MR RARES: I notice the time.
GLEESON CJ: Yes, go ahead. We will sit until 1 o’clock and resume at 2 o’clock.
MR RARES: If your Honour please. We wanted to also deal with the way that the accommodation bill worked. We say that under the Court’s decision in the Coles Myer Case [1993] HCA 29; 176 CLR 640 it is clear that when you sign an accommodation – when the partner giving the accommodation, that is, the party in Sealark’s position, signs the bill, the drawer, Pacinette, comes under an immediate obligation to indemnify. That is in the joint judgment of five members of the Court.
GUMMOW J: So you can concentrate a little bit between 1 and 2, section 160 of the Conveyancing Act deals with irrevocable powers. Someone had better look at it.
MR RARES: If your Honour please, thank you.
GUMMOW J: It may have been removed from the Act but it was there in 1998.
MR RARES: My learned junior tells me it still is. Your Honours, in the Coles Myer Case there were accommodation bills entered into. The relevant passage is at 658 to 659 where the joint judgment of five members - - -
GUMMOW J: It is about indemnity and so on, accommodation bills and so forth.
MR RARES: Yes, it is
about accommodation bills and that is what we have in this case. At the foot of
page 659 their Honours say:
we reject the view of the Full Court of the Federal Court that the drawer of an accommodation bill does not come under a liability to the acceptor until the acceptor makes payment under the bill.
In other words, you
come under an immediate liability as soon as the bill is accepted following
judgments, including of Mr Justice
Maule in Yates v Hoppe which
their Honours cite at 658 and following. They say at the foot of
658:
The decision establishes that the payment made by the drawer was a payment made in discharge of a then existing obligation; at that time, it was not a voluntary payment which the drawer was entitled to recover as money had and received.
Your Honours, there is an old decision of the Court of Exchequer Chamber, Harmer v Steele [1849] EngR 656; 4 Exch 1 to which we refer in our submissions in - - -
GUMMOW J: What do we get out of reading Harmer v Steele that we do not get out of Coles Myer, some dust?
MR RARES: I am happy with Coles Myer.
HAYNE J: You get value and friendly service, I think they used to say.
MR RARES: The other curious thing that
Justice Bryson does when he deals with the bill of exchange in another case
that Coles Myer seems
to have been involved in insuring that its fiscal
liabilities were less rather than greater, at page 1210 when
his Honour is dealing
with the ISPT decision in the Court of Appeal,
he says about Coles Myer, having referred to Justice Meagher’s
judgment:
As Coles Myer Property Investments paid and was repaid with its own cheque it was in no position to assert that the transactions did not take place for value.
Yet he says when we pay and are repaid by the same bill of
exchange, it is all a fiction and it never happened and there was no value
and
it is – he says at the top of 1209, paragraph 94:
The availability of an equitable remedy which would compel giving such an assurance, even in the face of opposition by the assignor, is a real requirement, cannot be treated as fiction or formality, and must be capable of being tested by conjecturing what would happen in a hypothetical Equity suit brought by the assignee to compel performance. Equity does not assist a volunteer –
and throughout the judgment his Honour refers to there is no indemnity given – say, at paragraph 92 at the foot of 1207. The fact is that there was a right to sue on this. It did not have to actually pay.
GUMMOW J: That is the magic of the Bills of Exchange Act.
MR RARES: Yes. My friend says it is all discharged when, under section 66, it winds up back in the hands of Sealark. So be it, but what Harmer v Steele established and Coles Myer the obligation dehors the bill of exchange when you have given accommodation is to indemnify the surety or to pay up on the arrangement between the surety and the party accommodated. But even if that happened, at the end of the transactions Pacinette wound up with its power of attorney and the land.
Your Honours, subject to answering the Chief Justice’s and Justice Gummow’s questions about the shareholders and the Conveyancing Act, those are our submissions.
GLEESON CJ: Mr Rares, I would just like to have a word with Mr Slater over the adjournment in my Chambers about something that has nothing to do with this case.
MR RARES: We have absolutely no problem about that, your Honour.
GLEESON CJ: Yes, go ahead, Mr Slater.
MR SLATER: Your Honours, I feel as if I have come to answer a case that has not been put against me.
HAYNE J: It is not an unusual experience in this place, Mr Slater.
MR SLATER: Perhaps not, your Honour. What is conspicuous about my friend’s submission this morning is that it is all directed to the complexity of the scheme and to the mechanics of it, but at no point in his submissions did he address – he simply assumed – the central question in the case, which is whether a beneficial interest was acquired as a result of the steps taken, notwithstanding on the one hand the operation of section 23C and on the other hand the operation of sections 44 and 29 of the Stamp Duties Act.
In our submission, the question for this Court is whether at the end of the sequence of steps, the scheme devised by Mr Seller, that is to say as matters now stand, Pacinette or Actalian can maintain a claim that Sealark is obliged in equity to acknowledge them as the beneficial owners. That first, and second, to do so on the basis that their entitlement to make that claim is one in consequence of an issue or redemption of units, because if they cannot make the second point then what they have done, whether it be by granting a power of attorney or otherwise, is struck down by section 44.
GUMMOW J: Yes, but where is the text of section 44?
MR SLATER: It
is attached to my friend’s submissions. It is at page 7 of the
statutory materials attached to my friend’s submissions:
This Division applies to a transaction which, on or after 21 November 1986, causes or results in a change in the beneficial ownership of an estate or interest in:
(a) land situated in New South Wales.
I do not need to take
your Honours any further than that. Section 44A, which is on page 9,
requires:
A person, being a party to a transaction to - - -
KIRBY J: Which subsection?
MR SLATER: Subsection (1), your Honour.
GUMMOW J: Section 44A on page 9.
MR SLATER: At the top of page 9:
(1) A person, being a party to a transaction to which this Division applies which is not effected or evidenced by an instrument chargeable with ad valorem duty in accordance with the Second Schedule . . .
shall, if the person would have liable to pay such ad valorem duty in respect of the transaction had such an instrument been executed, lodge with the Chief Commissioner a statement in respect of the transaction.
Then there are provisions for paying duty on that. Now, this of course is the 1920 Act. It is not the more recent Act with which your Honours have more recently been concerned. The penalty under the 1920 Act, because it was a tax on instruments, is to be found in section 29. Although the 1920 Act is a tax on instruments, Division 3A, in which section 44 appears, is in truth a tax on transactions brought within the scheme of the Act by the device of compelling a person to prepare and lodge a statement in respect of the transaction, upon which duty is payable.
I should have taken
your Honours to section 44A(1A) which makes that provision. Subsection (3)
provides:
No instrument made or executed . . . on or after 21 November 1986 in respect of a transaction to which Division 3A of Part 3 applies, shall, except in criminal proceedings, be pleaded or given in evidence, or admitted to be good, useful or available in law or equity for the purpose of proving that a change in beneficial ownership to which the transaction relates occurred, unless:
(a) an instrument to effect that transaction has been sufficiently stamped, or
(b) any statement required to be lodged under section 44A in respect of the transaction has been lodged and the duty and any fine . . . have been paid.
The effect of
section 29 was considered many years ago in this Court in a decision in
Dent v Moore 26 CLR 316. It was to do with the predecessor to
the 1898 Act. It concerned an action to recover commission on sale where the
instrument recording
the contract of sale was insufficiently stamped. The
passages to which I wish to take your Honours are at page 324 of the
report.
At the top of 324 the corresponding provision in the 1898 Act is set
out at about the fifth line:
Apart from authority, the words of the section are quite plain. It says of an “unstamped instrument” . . . that, except as to criminal proceedings, it is (1) inadmissible in evidence and (2) not to be available or effectual for any purpose whatsoever at law or in equity.
Then, in the next paragraph – this is a joint judgment of
the Court delivered by Justice Isaacs:
The meaning of the second branch of the enactment, unless controlled by authority, is not open to reasonable doubt. The Legislature by way of securing the payment of the impost for public purposes, which is placed on the instrument, provides in effect that the sanction of law shall be withheld from the acts of the parties until the revenue law is obeyed.
This
perhaps echoes something that your Honour the Chief Justice put to my
friend:
It lies at the root of all contractual obligation that the mere convention of the parties creates no binding tie between them. It is the law operating on their compact – either the common law or some Statute - which creates the obligatory relation that one can enforce against the other. But here, acting impersonally on the bargain finally embodied in an “instrument,” and therefore contained nowhere else, it strikes that instrument with sterility (to borrow an expression from another branch of the law) unless and until the public requirement of taxation has been complied with. Until that has happened, the instrument (except in criminal proceedings) is not “available” and not “effectual” – that is, it has no effect – for any purpose whatsoever at law or in equity: in other words, it cannot be considered as an instrument giving title, or as one which could be made the means of compelling anyone to give title. It is in the eye of the law a nullity –
On page 326 at about point 3 of the page and picking
up halfway through a sentence:
an admission not of simple liability, or of a sale consistent with an oral sale, but of the contents of a written document, though as good in law as if the document were itself produced, is still only primary proof of the document itself, and not of something outside the document. It is just as if the document were produced. Proof of the contents of a written document by admission is simply an alternative method of reaching the same end as by the ordinary method of production of secondary evidence.
In consequence their Honours found could not be relied upon while the instrument was unstamped.
GLEESON CJ: Is it your submission that the efficacy of the stamp avoidance plan was critical to the contention in the Land and Environment Court that the beneficial owner of the land at the date of resumption was Pacinette?
MR SLATER: Yes.
GLEESON CJ: Where does Actalian come into this, by the way? It is just another taxpayer?
MR SLATER: There were two proceedings in the Land and Environment Court separated by four years. The second one was taken because there was an impasse between the parties as to the outcome of the first. The second one concerned Actalian.
GLEESON CJ: We can conveniently consider the matter by reference to Pacinette?
MR SLATER: My friend has taken your Honours to the documents of Pacinette. We used Actalian partly because it was in one convenient spot at the end of the first volume, which is not a very good reason.
GLEESON CJ: We will adjourn until 2.00 pm.
AT 1.01 PM LUNCHEON ADJOURNMENT
UPON RESUMING AT 2.02 PM:
GLEESON CJ: Yes, Mr Rares?
MR RARES: Your Honour, can I just deal with the homework that we had?
GLEESON CJ: Yes.
MR RARES: Your Honour
the Chief Justice asked if there was a set of steps. Over the adjournment
we have tried to put on one page the ultimate
steps. Can I hand a copy of that
to the Court? Can I just point out the only thing that may be of curiosity is
in step 4 we have
said:
Pacinette as trustee holds an equitable title to land in the A Fund.
Because at that stage there is a question as to whether
it was an equitable title to hold effectively the real beneficial interest
back
on trust for Sealark
or not. We have left that to be indeterminate, whereas
by step 11 it gets the whole of the beneficial interest. Secondly,
your Honour
the Chief Justice asked about the corporators. There is
some evidence as to who the ultimate beneficial owners of Sealark were,
but my
friend and I agree that all of the companies were all ultimately controlled by
Mr Halloran and Mr Howell was an agent of his
and, indeed, one can
infer that from the evidence that all the meetings were intended to be carried
out with the same people. Thirdly,
Justice Gummow asked me about Part 16
of the Conveyancing Act, and we do rely on
section 160 - - -
GUMMOW J: Yes, but you have not stamped the power of attorney. That is Mr Slater’s point. That will not get you home. That is what he was explaining to us before lunch.
MR RARES: Well, your Honour, we have an assessment by the Chief Commissioner of State Revenue, which is at 1156, in which he got the bundles of documents for the parties and found there was no liability.
GUMMOW J: Under Division 3A?
MR RARES: Yes. In the event that it is necessary to stamp the power of attorney - - -
GUMMOW J: The power of attorney would not be stamped - - -
MR RARES: Your Honour, it has been admitted into evidence and there was no notice of contention about that, so we are not – and we did rely on it and that point had not been taken against us. The last point was your Honour Justice Gummow told me about the Steeves Agnew judgment of Justice Dixon. I think what your Honour was referring to was an anterior point in Joseph v Campbell about steps cancelling each other out.
GUMMOW J: Yes, I understand what you say.
MR
SLATER: Thank you, your Honours. As to the point your Honour
Justice Gummow made just a moment ago about the power of attorney, we do
rely upon section 29 insofar as any attempt is made to use the power to
pass a beneficial interest otherwise than by way of the scheme
designed by
Mr Seller, that is that otherwise than by way of reliance upon
section 44(2)(d). As to the power, generally, my recollection
– but
I am having it checked at the moment – is that the obligation to stamp a
power had gone by the time of these transactions.
Your Honours, as to the efficacy of the various events, we say this. It is clear that so far as the documents say that meetings happened, that instruments were executed, that bills were delivered and the like on 14 May, in the case of Pacinette, the documents are an untruth. That is the undisputed evidence of the witnesses.
So far as Justice Talbot found that there were meetings and events which occurred on 14 May he was in error. The evidence was directly to the contrary and there was no basis upon which he could have made those findings. In defence of Justice Talbot and in defence of Justice Bryson in the Court of Appeal in the way in which matters were put to them, as indeed they were put to this Court this morning by my friend, was in terms of present tense language. The next step is that this happens on 14 May. It is understandable that there was an element of confusion about it but it is quite clear that insofar as there were any meetings which purported to go through the sequence of documents the only meeting was on 11 May.
There is at least an element of ambiguity as to whether the intent of the participants in the meeting of 11 May was, as our friends would have it, to hold 770 meetings concurrently or whether it was, as some of the language in the evidence would suggest, to carry out one transaction as a template for other transactions which would be taken to have occurred when the documents were signed.
We have adverted to the evidence one way and the other in our written submissions and I will not take the Court’s time to go through it again. What we have to say is said there. I would, however, just briefly add one thing to them, to the material there, and that is part of the material which my friend read to the Court this morning, at page 307, is not reproduced in our written submissions and like much else of the evidence it tends to go a bit each way.
In the first answer on the page
Mr Howell tells us that he had completed signing the documents on the
12th and he said:
I sought confirmation that we were proceeding with the resolutions –
which tends to suggest that the idea was that the meeting of the
11th was a template for things that were to be done afterwards. On
the other hand, at about line 23 and in the answer to it, Mr Downes
asked the witness:
on the 14th you said well, as to all of the trusts... where now... is everybody agreeable that we can take the meetings that are necessary as having taken place –
and the answer was in terms:
do you confirm that we are pursuing to resolve all the resolutions -
This is perhaps ambiguous but could be taken to mean that
they are agreeing with what they had agreed to do on the 11th or
could be taken to mean that they are agreeing to do it then. One thing that
perhaps can be said about this is that if it is necessary
for the appellant to
establish that the course of events comprised 770 concurrent meetings, then the
onus lies on him as the leading
party to do so and the materials certainly, in
our submission, do not discharge that onus. The trial judge’s findings
were
clearly wrong. The case which was presented in this Court of concurrent
meetings, which is somewhat different to the case which
was presented to the
Court of Appeal, is one on which the trial judge did not make any
findings.
As to the question of common intent, we agree that the only evidence as to who the directors and shareholders were was the material which my friend took the Court to very briefly this morning at pages 1011 at lines 14 and 17 and 1022 at lines 12 to 16 as to who the directors of Sealark were and at 1012 at line 25 and 1021 at line 25 as to who the shareholder was. That is in Sealark. There is no evidence about Pacinette except for the circumstance that the parties clearly acted on the assumption that the directors were Messrs Halloran and Howell.
There is nothing that we can point to to say otherwise and we do not dispute that they were the controlling minds of all the companies. All that that shows at most is a level of concurrence sufficient for it to be said that there was agreement as to what resolutions should be passed and there was agreement as to what the end result should be.
It is not, in our submission, sufficient to escape the operation of sections 44 and 29 if the requirements of subsection (2)(d) were not met. If the end result of concurrence among the parties was simply that they concurred in the proposition that title passed direct from Sealark to Pacinette without the interposition of the trust structure, then that would be a result which could not be relied upon by reason of sections 44 and 29.
My friend adverts to the letter which was produced through the good offices of Mr Raphael in the Court of Appeal that the terms of that letter are directed to the efficacy of the scheme designed by Mr Seller and they are not directed to a direct transition of title from Sealark to Pacinette.
HAYNE J: I am sorry, what was your last proposition?
MR SLATER: My last proposition, your Honour, is that the letter which was produced and tendered to the Court of Appeal - - -
GUMMOW J: Page?
HEYDON J: Page 1156.
MR SLATER: Is a letter which is directed to
the efficacy of the scheme as designed, that is to say – my
apologies, your Honours. The scheme
on which the letter is given
is:
The Pacinette transaction . . . two sale agreements both occurring on 14 May 1998.
1. Sale of land by Sealark Pty Ltd to Pacinette Pty Ltd as trustee . . .
2. Sale of the land by Pacinette Pty Ltd as trustee . . . to Pacinette –
That is what the ruling from the Commissioner was on. If the transaction which might be said to be the result of concurrence of the minds of all the relevant entities was not that transaction but instead a direct passage of ownership from Sealark to Pacinette, this letter has nothing to say about it.
HAYNE J: Why? You may be right but it is not evident to me at all from the terms of the letter.
MR SLATER: Perhaps it needs
to be read in the context of the letter to which it is a response, which is at
1154, where there was sent to the
Commissioner the documents, in fact for the
Actalian transaction, and then a submission is made:
that the sale of land by Sealark Pty Limited to Pacinette Pty Limited as trustee . . . was not liable . . . under the Stamp Duties Act 1997 nor by virtue of Division 30 –
it says 30, it should be 3A –
of the 1920 Act. It is my view that the same result arises in relation to –
this trust and he encloses documents. This is a response to that inquiry, that is, as to the imposition of duty upon a sale from Sealark to the trustee and a sale from the trustee to – in its capacity as trustee to – Actalian or Pacinette in its own right. That is what this letter is addressing.
GLEESON CJ: Is Mr Peter Johnson an officer of the Stamp Office?
MR SLATER: Yes, and I know that my friend can direct my attention to it but the letter referred to there is somewhere in volume 1.
Your Honours, I was dealing with the consequences of mutual concurrence. The next thing we say about mutual concurrence is that concurrence as to the conduct of meetings or as to the passage of resolutions are not themselves the acts in law upon which the scheme depends. It is not the resolution to do something; it is the doing of it that matters.
The things which had to be done were, first, the formation of a contract by offer to purchase and oral acceptance by the putative vendor between Sealark and Pacinette in its trustee capacity; second, the issue of units by the trustee to Sealark; third, the drawing acceptance and negotiation of the bill of exchange; fourth, the issue of units by Pacinette in its trustee capacity to itself, in its own right, in the ordinary division of the fund; fifth, the redemption of the units held in the A division by Sealark; and sixth, the endorsement of the bill by Pacinette in its trustee capacity to Sealark in satisfaction of the entitlement consequent on the redemption. Now, there are some further steps in the design but those are the critical steps, because once one gets to that point one is left with the trustee with a sole unit holder being itself.
Our friends say that the intent of the parties to achieve that result is clear. We do not dispute that the parties can be taken to have intended to do what Mr Seller told them it would be a good thing to do and, therefore, we do not say that this was a sham because sham, as your Honours pointed out in Equuscorp, involves an element of deceit. We do not say there was an element of deceit here. What we do say about this transaction is that although there were good intentions, they just were not carried into effect. The documents which record that they were carried into effect do not record the actuality.
We accept that in some circumstances equity will seize upon a sufficient manifestation of intent, but it will not say that mere intent is enough when nothing is done. In our submission, in these transactions nothing was done. There was a design, there was a template, everybody agreed the template was a good idea, and then they said, “Let’s behave as if we’ve done it”. That, in our submission, is just not enough.
HEYDON J: It may have been done for one transaction, but we do not know which one.
MR SLATER: The actual transaction that was to have gone through, apart from its legal deficiencies, which I will come to in a moment, might well have been implemented, but the others we say were not. That is our case on that point.
HEYDON J: Your point is really there was a failure to carry out what was intended rather than, to use Justice Bryson’s language, something pretended happened.
MR SLATER: I have to confess, your Honour, that I think I was the first to use the word “pretence” in the Court of Appeal, but I was using it in relation to the insertion of dates on the documents. But there was indeed just a failure to do anything and the documents were inaccurate insofar as they recorded that things had been done.
Your Honours, the notion that intent is enough is, in our submission, a very dangerous proposition and one that ought not likely, or indeed at all, to be accepted. If it were accepted, it would have ramifications which run well beyond this particular avoidance transaction. For example, a party expresses an intent to purchase shares, the shares then fall in value. On my friend’s case, the intent is enough. The party is bound to wear the fall in value. That would make most of contract law superfluous.
A perhaps imperfect analogy to my friend’s submission is this. My friend more or less says that mens rea is sufficient without actus reus. Now, the criminal law has for many years established that that is not so and civil law, in our submission, is to the same effect.
Your Honours, as to the specific deficiencies in implementation, may I return to them in dealing with parts of the transaction as I go along. When I said at the outset that I felt that I had come to meet a case which was not presented against me, what we do say is that even if Mr Seller’s design had been implemented as he designed it, that is, even if the meetings had been held and the acts of making oral offers, the things that are supposedly recorded in the statutory declarations had occurred 770 times in sequence, still the transactions would not have been effective to pass beneficial ownership to the desired destination.
My friend’s submissions this morning rather assumed to the contrary. I have a vague suspicion that I might be being set up for what in the trade is called “a Gleeson reply” where the real substance of the case comes out after I have sat down. I will endeavour to forestall that as far as I can. We do invite the Court to take a larger view of the matter than the detailed account of the facts which my friend presented to the Court this morning.
What was sought to be achieved and what is claimed to have been achieved is two end results. One is that Pacinette is in its own right the beneficial owner of the land. The other is that no stamp duty liability was incurred and therefore neither was duty payable, nor does section 29 invalidate the transactions. To achieve this it was necessary to get to a position where Pacinette owed Sealark the value of the land and it had to be money owing because there was no money sloshing around to actually pay it, but it had to be owing in some capacity other than as purchaser because had it been as purchaser there would have been both duty and invalidity.
So we say merely to secure an overall consensus or to rely on the power of attorney as being in some sense everything that needs to be done, in the words – not perhaps quite the words – of Sir Samuel Griffith in Anning v Anning is not enough because that would not escape the section 44 consequences. It was necessary, therefore, for the appellants or for those managing their affairs to rely on the intricate scheme which my friend has taken your Honours through this morning.
In that scheme there are two essential steps. The first is the transfer of a beneficial interest to the trustee of the trust in its capacity as trustee. In the argument which was presented to the Court of Appeal in the ISPT Case and the argument which my friend presented to the Court of Appeal in this case it is said that no beneficial interest passed because Sealark was on the one hand the transferor and on the other the sole unit holder after the transfer.
In a very loose and imprecise sense that may be accurate but it is not accurate for the purpose of proper analysis. It was necessary to vest some beneficial interest in the trustee in order that the beneficial interest in the land should be subjected to the powers to issue and redeem units because it was the exercise of those powers which was the device which shifted beneficial ownership from Sealark to Pacinette in its own right and if what was done at the first stage was not to subject the land to the terms of the trust, that is, to pass the ownership of the land from Sealark to the trustee of the trust estate, then the powers involved in issuing a redemption of units would not fix upon the land and the subsequent acts of issue and redemption would have no consequences. Sealark would be left as the beneficial owner.
There is some suggestion in my friend’s submissions in paragraph 13 of the reply that there was a sub-trust created but that does not solve the problem because such a sub-trust falls both within section 23C(1)(a) and (b). There is always a tendency in this area to confuse concepts of net or ultimate beneficial interest and the estate with which one is dealing. Many centuries ago there were learned debates in the Catholic church about how many angels could dance on the head of a pin and some of the discussions about beneficial estates have some of the hallmarks of that discussion, but if this land was to be able to be moved around in ownership by the exercise of the powers which attracted the exemption in paragraph (d), then it had to be land which was subject to the trust powers and it had to be land which was beneficially owned by the trust estate, notwithstanding that the trustee owned its beneficial ownership as against Sealark on trust for the unit holders for the time being. In order for the scheme to be implemented, it was necessary that a specific sequence of events, each of which was - - -
GLEESON CJ: You said there were two essential steps. The first was the transfer of a beneficial interest in the land from Sealark to Pacinette as trustee of the trust. What was the second one?
MR SLATER: I was going to come to it but I sort of drifted off, my apologies. The second one is the issue of units under the terms of the trust instrument to Pacinette in its own right and the redemption of units held by Sealark. If that happened and if the land was a trust asset, then it caused the land to cease to be part of the A fund and become part of the general fund under the provisions of Schedule A of the trust deed to which my friend took the Court this morning.
What we say about the scheme, your Honours, is that in order to be effective, it required a particular sequence of events. First, the land had to become subject to the trusts of the trust fund, then Sealark had to become a registered holder of the A units, then Pacinette in its own right had to become a unit holder in the fund, that is a registered holder of units, and then there had to be a redemption of the units held by Sealark. Those things had to occur in that sequence. If they occurred out of sequence, they had no effect.
As to the first element, we say that in the scheme as designed no interest passed to Pacinette in its own right. We say that for these reasons. First, section 23C prevented the intended disposition of the interest held by Sealark, whether it be legal or equitable, to the trust. I should point out - I think my friend had intended to do this earlier – that the provision of the Corporations Law to which we refer in our submissions, section 1336 makes a provision for registration of the order within seven days. My friend’s point is that section 413 makes provision for registration within 14 days and it is on that basis he says that the two provisions are inconsistent.
We do not see the inconsistency. Whatever be the case, at the time that these transactions were implemented, Sealark was not registered on the title and it seems to us that the better analysis is that it was the beneficial owner rather than the owner of some legal estate. In the end it does not make a great deal of difference because it only purported to deal with beneficial interests. The only difference it would make would be which paragraph of section 23C(1) was most directly relevant.
We say first, that section 23C prevented the intended disposition from Sealark to the trust. Second, we say even - - -
GUMMOW J: Why would it do that if there was value?
MR SLATER: I was coming to why we say that, your Honour, but we say that there was not value.
GUMMOW J: But you agree that if there were value it would not be covered by 23C(2), surely.
MR SLATER: We agree that if there were value, 23C(2) would protect the resulting constructive trust from the operation of subsection (1). Second, we say that there was no effective issue or redemption, and finally – and I am sorry, I am repeating myself because my notes are a little out of sequence – we say that a direct passage would not be effective.
GUMMOW J: Say that again, Mr Slater?
MR SLATER: We say a direct passage of beneficial ownership from Sealark to Actalian would not be effective for stamp duty reasons.
GLEESON CJ: Because of section 44.
MR SLATER: Because of section 44. I am sorry, your Honours, if I am sounding a little repetitive.
GUMMOW J: Section 44, plus 29.
MR SLATER: Plus 29, yes. Now, as to the passage from Sealark to the trust, clearly there was no writing and that was an essential part of the scheme. That, in our submission, gives rise to something of a logical dilemma. If there was no passage of beneficial interest at all then, true, section 23C would have no operation because there would be nothing for it to operate on, but then the power to issue and redeem units would not seize upon the beneficial interest in the land.
If the only other alternative were to occur, that the land became subject to those trusts, then it must be because a beneficial interest has passed from Sealark to the trustee as trustee. So that that beneficial interest in turn can be the subject of a sub-trust for the unit holders, and that sub-trust is, under the terms which my friend took the Court to this morning, a sub-trust in favour of unit holders for the time being. The trust does not vest for 80 years. From time to time the composition of the class of unit holders may be changed.
GUMMOW J: Where do we see the 80-year provision?
MR SLATER: Yes, your Honour, page 70 at line 40, clause 4.1. Because it was a trust with a shifting use, it has to be given a closing date for perpetuity reasons.
GUMMOW J: Yes, thank you. Clause 4.3 is significant too.
MR SLATER: Yes. Your Honours, that disposition of the beneficial interest to be held on sub-trust was one in respect of which there was no writing and by design there was no writing. So, in our submission, unless it can be preserved by the operation of either section 23E or section 23C(2), it is ineffective.
Now, those provisions, subsection (2) and section 23E, do
not negate the statute. It is not the role of equity to render the statute
nugatory, as Lord Morris said, albeit in dissent, in Steadman v
Steadman [1976] AC 536 at 547D. Generally, the court will not
construe, or will not apply equitable principles to override a statute.
Instead, what equity
does is to prevent a party from obtaining an unconscionable
benefit by relying on the statute. That was the point made by Sir Owen
Dixon in
J.C. Williamson Ltd v Lukey and Mulholland, the case concerning the
contract to sell sweets in the theatre, where his Honour said at point 7 on
page 300:
the party is said to be charged on the equities arising out of the acts of part performance and not merely upon on the contract.
GUMMOW J: That is a 54A case, is it not?
MR SLATER: It is a section 54A case, yes, your Honour.
GUMMOW J: Not dispositions. It is agreements.
MR SLATER: Yes. But I was not citing it for the difference between 54A and 23C, but rather for the proposition that the equities arise out of what is done, not out of the Court disregarding the contract. In the same case Justice Evatt at pages 308 to 9 goes back to the decision in Maddison v Alderson on the same point. So that what has to be shown in order to invoke rights either under section 23E or under subsection (2) is an inequity resulting from reliance on the statute. That is, for example, that one party has performed its obligations in circumstances where that performance is unequivocally referable to the contract and not, as the Court pointed out in Lukey’s Case, merely consistent with and to deny the contract would be unconscientious. In the Lukey Case, of course, the Court held that the contract was not specifically performable and so the act of part performance was not sufficient.
In our submission, what equity does is to seize upon the inequitable conduct and oblige the defaulting party to honour its obligations notwithstanding that the contract is invalidated by the statute. That is the fundamental premise which underlies the discussions about a vendor being a trustee sub modo in favour of a purchaser.
Your Honours, a consideration of that topic has
progressed quite considerably since it was first raised perhaps in Lysaght v
Edwards. I had intended to give your Honours some passages from
relatively recent decisions of this Court. Perhaps in view of the time,
rather
than reading them, if I can give your Honours the commencement and
conclusion of the passages because I am sure they are familiar
to
your Honours not least from having been drawn to the attention of at least
some of your Honours in Tanwar Enterprises two years ago. The first
of them is the judgment of Justice Jacobs in Chang v Registrar of
Titles [1976] HCA 1; 137 CLR 177. The passage is at page 189, the paragraph last
starting on the page:
Moreover, it is doubtful whether a vendor under a contract of sale can properly be described as a trustee within the meaning of the Trustee Act –
over to the end of that paragraph on the next page. If it is of assistance to your Honours I will take your Honours to these passages at length.
GUMMOW J: Why do we have to go any further than the joint judgment in Tanwar?
MR SLATER: Probably not, your Honours, because most of this material is collected together there.
GUMMOW J: Yes, that is it. Counsel always wants to engage in case law archaeology.
MR SLATER: No, your Honours, counsel wants to overwhelm you with the weight of authority.
GUMMOW J: We are best overwhelmed by our own authority, what we have said two years ago, I would have thought.
MR SLATER: Yes, and that is – may I, notwithstanding that, just give your Honours the references without taking your Honours to them: Kern Corporation v Walter Reid Trading, the judgment of Justice Deane at about point 7 of page 191 through to the top of page 193; Stern v McArthur in [1988] HCA 51; 165 CLR 489, a joint judgment of Justices Deane and Dawson, the beginning of that judgment from point 8 on page 521 to about point 6 on page 523 and paragraph 53 of your Honours’ judgment in Tanwar Enterprises in [2003] HCA 57; 217 CLR 315 at 332.
The underlying principle is that equity will treat as done that which ought to be done and not let the vendor retain the benefit of the consideration or of part performance.
Now, we say, your Honours, that those principles are not invoked in the present case. The reason why we say that is that although my friend says that the consideration for the purchase by the trustee of the interest in the land was “the issue of units”, the issue of units in the particular case of Sealark was not the provision of any consideration. Underlying my friend’s argument is the notion that the issue of units corresponds to the issue of shares and, indeed, in his submissions he makes reference to cases on issue of shares and the significance of the registry in relation to that. But units in a trust of this type are no more than a measure of beneficial interest. The terms of the trust deed say that the trustee will hold the fund on trust for the unit holders for the time being in proportion to their units.
At the time that Sealark was supposedly selling its interest in the land to the trustee, Sealark was the sole unit holder in the trust, that is to say it was the sole beneficiary. The trustee held its assets on trust for Sealark alone subject only to the powers of issue and redemption. When Sealark contributed further land to the trust, it was still the case that the trustee held all the assets, including the further land, on trust for Sealark alone as the sole beneficiary for the time being, again, albeit, subject to the power of the trustee to alter the class of beneficiaries.
In our submission, nothing passes from the trustee to Sealark as consideration for the acquisition of the interest in the land. The most that can be said is that Pacinette in its capacity as trustee agreed to act in respect of the land as trustee for Sealark. That, in our submission, is not consideration for the purposes of erecting a constructive trust or recognising the rights which are called a constructive trust.
Can I take your Honours to what was said in Corin v
Patton 169 CLR 540 at 548 in the joint judgment of
Chief Justice Mason and Justice McHugh. Your Honours will
recall that that was an endeavour to sever
a joint tenancy after a marital
dispute by a voluntary transfer of one joint tenant’s interest to a
trustee on sole trust for
the transferor which was not carried into effect. One
argument that was advanced was that the attempted transfer should be given
effect because it was for consideration. At the foot of page 548 in the
last four lines their Honours say:
This particular case involved a voluntary transaction. In this respect we agree with Hope JA –
in the Court of Appeal –
that the consent or agreement of Mr Corin to act as trustee did not constitute valuable consideration, and in any event it was not seriously suggested otherwise. Indeed, in the famous case of Milroy v Lord, in very similar circumstances, the consent or agreement of the transferee to act as trustee was not regarded as constituting valuable consideration.
GLEESON CJ: When Sealark was issued,
assuming it was issued, units in the trust, could it have sold those units to a
third party?
MR SLATER: I was going to say the answer is no,
your Honour, but I think the answer is yes. At page 72, line 16,
clause 7.1:
A Registered Holder may not transfer or in any way alienate the Units of which he is or becomes the Registered Holder unless all of the Registered Holders by separate notice in writing consent to that transfer or alienation.
HEYDON J: But was Sealark a registered holder?
MR SLATER: That is a different question.
HEYDON J: You are assuming that for now?
MR SLATER: It was as to 10 units because by virtue of the deed itself I think it is stipulated to be a registered holder as to the initial 10 units but it was not a registered holder as to the remaining units and never became one. So the answer to your Honour the Chief Justice’s question is, yes, it could have sold but it could only have sold all of them.
HEYDON J: Or 10 of them.
MR SLATER: Or
10 – well, everything it had, whatever that be. In Corin v
Patton Justice Deane was of the same view. Can I give
your Honours the reference for that. It is at page 577 at about
point 8 of the page,
about three-fifths of the way through the paragraph
beginning on the page. His Honour says:
Nor was Mr Corin a purchaser for value. It is true that the memorandum of transfer stated that the transfer was “in consideration of” the terms of the deed of trust. The execution by Mr Corin of that deed of trust and the undertaking by him of the duties of a bare trustee did not, however, relevantly constitute valuable consideration for the purposes of equity. In determining whether a party to a transaction has given valuable consideration, equity looks to the substance, not the mere form. The trustee who promises to receive and hold property transferred to him as a bare trustee does not thereby give valuable consideration.
GUMMOW J: This was not a bare trust though.
MR SLATER: This was not a bare trust but the principle
is the same, in our submission. He was dealing with a bare trust in that case
but,
in our submission, it matters not whether it is a bare trust or a trust for
one person for the time being. Can I give your Honours
one further
reference not on our reading list. In a bankruptcy context in Cooke v Benson
(2003) 214 CLR 370 at 382, paragraph 35 the majority observed
that:
if [a bankrupt] had simply paid $80,000 to a person to hold on trust for him, the trustee would not be a purchaser for valuable consideration.
They were saying that in the context of discussing whether $80,000 could be the subject of a purchase for valuable consideration.
GUMMOW J: Within the meaning of the section.
MR SLATER: Within the meaning of the section. It is still the same point. Merely agreeing to hold on trust is not valuable consideration. There is an unreported decision, which I am not able to provide your Honours presently with a copy, of the Court of Appeal presided over by Sir Gordon Wallace in September 1967 in the matter of Darcy v The Commissioner of Stamp Duties where the converse situation was in issue.
GUMMOW J: What was the date?
MR SLATER: September 1967. I do not have a citation for it, your Honours. As far as I can see, it is not reported anywhere.
GUMMOW J: It would be in the Supreme Court library.
MR SLATER: I will arrange to have a copy of it made available to your Honours since I have mentioned it. It is the converse situation where their Honours held that the transfer by a trustee to a beneficiary was not for valuable consideration. So it is only indirectly of relevance, except insofar as it demonstrates the dealings of a trustee and beneficiary are not dealings for valuable consideration.
Your Honours, my friends say that the consideration is units in a trust but units are just a label, they are just a means of measuring proportionate beneficial interests. They are not discrete items of property as shares are. To talk of issuing units is not a matter of creating or transferring his property; it is merely a matter of altering the proportionate interests.
GUMMOW J: There is a point to that effect made in Charles’ Case, is there not?
MR SLATER: Not so much in Charles’ Case as in Read’s Case, your Honour. In Charles’ Case the point made – and we have set out the relevant passage in our written submissions – is that the holder of units holds an equitable interest in all the assets of the trust fund, unlike a shareholder who holds only shares. Perhaps more directly in point is Read v The Commonwealth [1988] HCA 26; 167 CLR 57. This may, I am not sure, be the origin of the question your Honour the Chief Justice put to me, but that concerned what was called a capital growth fund and the interaction of its operation with the Social Security Act. Mrs Read had units in the trust.
The way in which the trust deed was framed was that periodically the trust fund would be revalued. The increment would be recognised and those who held units in the fund as at the date of revaluation would be credited with additional units, which, as the Court said, was by way of an adjustment mechanism to adjust for the length of time that they had held their investment in the fund. Your Honours will find the terms of the trust instrument set out in the paragraph beginning at the top of page 61 and running to about point 9 of the page, and I will not read it to your Honours. It is all fairly familiar stuff and very similar to the boilerplate language that was read to your Honours this morning.
The analysis of the rights of unit holders begins at the foot of
page 61 with the proposition that:
A unit holder thus has a beneficial interest in the assets of the Trust, a right to have the trusts executed in accordance with the Deed, and a right to proportionate distribution of the proceeds . . . The extent of a unit holder’s beneficial interest at any given time is that proportion which his or her units bear to the total number of units issued.
They go on to deal with that in the following pages. At the
foot of page 62 they draw attention to the criterion in the statute.
“Income” means inter alia “valuable consideration or profits
earned”, and the question at issue was whether
there was valuable
consideration. In the last whole paragraph on page 63 their Honours
observe that:
distribution of an increase in value results in a net increase in the price at which a unit holder’s beneficial interest may be sold.
There was provision for unit holders to sell their units back to
the manager.
However, it is not at all obvious that it also results in an increase in the unit holder’s proportionate entitlement to share in the proceeds of realization in the event of the determination of the Trust.
On page 64 from approximately the top of the page to about
point 4, their Honours point out that the effect of the issue of
additional
units was to vary the relative interests of the shareholders but
their Honours make the point – if I could take your Honours
over to page 65 at point 5, after dealing with the consequence that
the additional shares could be sold, their Honours say this:
That is, a sale of the additional units would involve a surrender of part of the interest the appellant previously held. In these circumstances, the additional units cannot be said to represent a separate item of property or a separate interest in the Trust. Their issue to the appellant is properly to be seen as an adjusting mechanism in the sense which we have explained.
Your Honours, similar issues came to the Court in
a case mentioned by my friend this morning of MSP Nominees [1999] HCA 51; 198 CLR
494 where there is an analysis of the terms of the trust in paragraphs 2 to 6 at
page 500. I should draw your Honours’ attention
to paragraph 7
– I think this is common ground between us, that the terms of a trust of
this nature:
support the description of the trusts established by the Trust Deed as discretionary trusts.
I do not think I need take your Honours any further to that point.
Now, your Honours, in the present case the issue of more A units to the sole existing holder of A units in consequence of an addition to the fund held as the A unit fund under the terms of the schedule would not alter the class of the beneficiaries. The receipt would at most comprise an increase in the property held by the trustee on those trusts. There is no valuable consideration passing from the trustee to the contributor. So that if there was to be a sale by Sealark to Pacinette as trustee, it was not a sale which would be saved by virtue of it being one for valuable consideration from the operation of section 23C(1).
In that trust the device which was used to achieve the end result was that if all of the units held by Sealark were redeemed, then paragraph 5(b) in the schedule would cause the ownership of the land to shift from the class of A unit holders, which had been extinguished, to the class of ordinary unit holders, which comprised the trustee in its own right. That was the device which was supposed to attract the operation of section 44(2)(d).
In our submission, even if there had been an entry of Sealark on the register of holders as an additional unit holder, it would not have comprised valuable consideration such as to give rise to a constructive trust or attract the protection of section 23C(2). The end result of that, in our submission, is that section 23C(1) strikes down the attempted oral transfer of the beneficial interest from Sealark to the trust fund. Thus, there is no change in the beneficial interest which allows any subsequent dealings in units to operate upon the land.
GLEESON CJ: Is this consistent with that decision that is referred to as ISPT?
MR SLATER: It is difficult to discern a true ratio from the judgment in ISPT. Justice Mason was of the view that there was a disposal of beneficial interest, more or less for the reasons that I have advanced. Justice Meagher was of the view that, bearing in mind that the issue there was whether there had been a change and not whether there had been a disposal, either section 23C struck down any transaction or, if the transaction was protected from section 23C because there was no change in beneficial interest, then there was nothing for section 44 to seize upon.
It has to be remembered that what had been done in that case was to assess ISPT on the full value of the land. As in.....Case, counsel for the Crown was trying to defend the assessment which had been made, whether or not it was entirely consistent with the reasoning which might otherwise have been applied in a dispute between vendor and purchaser.
Justice Fitzgerald’s view appears to have been founded on the view he had taken in the Suncorp Case, that a sole unit holder has the full beneficial ownership. That may be so in one sense but it is not so if it says that the property in the asset is transferred to the trustee to hold on the terms of the trust fund. We are concerned here with whether there has been a disposal of the beneficial interest in the land from Sealark to the trustee to hold on the terms of the trust instrument. That must be so - - -
GUMMOW J: The thing to look at is at the top of 654 perhaps in ISPT, Justice Meagher’s judgment, 45 NSWLR.
MR SLATER: Yes, I have that, your Honour.
GUMMOW J: Now, one starts off
there with:
the owner at law of the freehold was Coles Myer –
that is not this case.
MR SLATER: No, it is not.
GUMMOW J: Because of the scheme of arrangement we have been talking about so much.
MR SLATER: Yes, and another very material difference from that case and this case is that in that case there was real money paid – when I say “real” I mean there was a commercial transaction in which land was being sold for a purchase price which was to be taken away. Despite what is said by our friends about things being taken away, at the end of this transaction, if it had been implemented according to its terms, Sealark would have had nothing but an obligation due to it by Pacinette.
GUMMOW J: What is the significance of the bill of exchange which is a feature here that was not in ISPT?
MR SLATER: There are two significances to it, your Honour, first, we contest that it was an effectual bill of exchange for reasons to do with the way it was implemented, and I was going to come to that a little later, but second, we say that at the end of the transaction Sealark had accepted the bill as an accommodation accepter. The bill was negotiated to it - that discharged the bill - so that all one was left with was at most – in one sense, the indemnity which Pacinette assumed on requesting acceptance of the accommodation bill was discharged because it was an indemnity against the obligation on the bill.
That is not a complete way of looking at it, I accept, because under the design of the transaction it was supposed to be the equivalent of money and it was supposed to be regarded as being in effect alone, but it was not implemented that way. As to the actual mechanics of the issue of the bill, may I come to that shortly? I think I have said all that I wanted to say about the first stage in the transaction. In our submission, the first stage simply did not pass the beneficial interest and what happened thereafter did not matter.
Going to the second stage, we do say that when one looks at the matter, putting aside the verbiage and the commercial practices of listing units for trading on stock exchanges and the like as if they were shares, units are in the end no more than a measure of beneficial interest, and the power to issue and redeem units so as to alter the class of persons who are beneficially entitled is a power of appointment. Analytically, that is what it is, and it is well-established that powers must be exercised in accordance with the terms on which they are granted.
We have given your Honours in the written submissions references to two quite old authorities on that. One is Hawkins v Kemp (1803) 3 East 410 at 440 and the other is Rutland v Doe d Wythe [1843] EngR 986; (1843) 10 Cl & Fin 419 at page 425 in approximately the middle. Both of those say things to the effect that no matter how arbitrary the terms on which a power is expressed to be exercisable, the manner of exercise must be complied with.
The
requirement which had to be complied with in the present case was that there be
entry in a register of unit holders and that
is so on several levels. It is in
one sense the very definition of a beneficiary:
“Registered Holder” means the person for the time being registered . . . as the holder of a Unit –
and the registration – and I was reading to
your Honours from page 69 at about line 12. The register is
provided for on page
73, clause 10, starting at line 30:
The Trustee must keep and maintain an up-to-date register –
If somebody is not entered on a register of members then he simply is not a registered unit holder and the trust fund is not held on trust inter alia for him, and that was not done in this case.
There is one
other curiosity about these provisions. It is a design curiosity in a sense.
The design of the scheme was that Pacinette
in its own right would contribute
into the assets of the fund the bill of exchange and after that had been done it
would become a
registered unit holder for the value of the bill, then the design
of the scheme, but not the trust deed was that the A units held
by Sealark would
be redeemed and the redemption would be satisfied by transferring the bill. The
terms of the trust deed say that,
in clause 2 of “THE SCHEDULE”
that:
A Class unitholders shall be entitled to a fractional interest in the corpus of the A Fund . . . not be entitled to any interest in the assets of the Trust Fund –
meaning the ordinary fund. There is no authority in the terms of the trust deed or the trustee to appropriate the bill and use it to pay out the A unit holders. So that insofar as it was tempting to do so, it was going beyond the power which it had under the deed and exceeding its power of appointment.
Our friends attempt to say that there is a register. They
rely on the accounting records at pages 196 to 197. Can I give
your Honours
a few references in the evidence to those accounting records?
They were identified at the time that they were tendered at page 284
at
line 40 where Mr Seller described them as:
This document is effectively the accounting records. This document is the accounting records for the Pacinette Property Trust . . . reflect the legal transactions which occurred in the first bundles of documents.
That goes over to about line 12 on page 285. It appears that there was a larger bundle of documents which was redacted. There is some suggestion to that effect at lines 20 to 25 on page 286. I cannot tell your Honours more about that because I was not a party to the hearing at the time it was done.
At page 292, the circumstances in which
they are created were explained by Mr Seller. Beginning at about
line 15, MFI 2, as they
were – is identified.
Mr Seller was asked whether they were:
created at the same time?
Then at about line 27:
to the best of your recollection when were the original entries made in presumably electronic form on a PC or something like that . . .
in the weeks that followed the completion of these meetings.
Then, at line 35:
These documents would have been printed out –
that is the documents which were tendered, the pieces of paper
which were tendered –
sometime shortly after the transactions occurred that is some time during 1998, possibly the next month or so after.
So that one thing it does establish is that they could not have been the registered unit holders at the time that the transactions were purportedly undertaken but more clearly it establishes they simply were not intended to be a register of unit holders, nor are the unit certificates a register. They are not intended to perform that role. It has to be borne in mind that the role of the register of unit holders was to identify the proportions in which the trust fund was held on trust for the class of beneficiaries, so that if it was to serve that purpose it had to be a document which enabled one to compare one unit holder with another.
We know, in fact, that there was only one unit holder in each class but the scheme of the deed is that the trustee can resort to the register of members to identify the proportion of entitlements of each member and merely knowing how many units one member holds does not tell you what the proportion is, so that these documents did not serve the function which the register was intended to serve.
Apart from that, the notion that one can point to something which has a list of unit holders on it and then say it is bound up in a book and therefore it is a register is one which is fundamentally flawed. The expression “register of members” is a composite phrase. It is not to be construed by disassembly, word by word. That was the point which your Honours made in Collector of Customs v Agfa Gevaert [1996] HCA 36; (1996) 186 CLR 389 at 396, point 9 to 397, point 2. I do not propose to read it to your Honours. Your Honours may recall the case. It was about silver dye bleach reversal process or some such thing.
Perhaps more entertainingly, Justice Learned Hand in
Helvering v Gregory – and I will give your Honours a
citation without taking your Honours to it – [1935] USSC 5; (1934)
69 F 2d 809 at 810 to 811 his Honour said:
the meaning of a sentence may be more than that of separate words, as a melody is more than notes –
A register of members is not simply something which is ascertained by saying, “Are there members and is there a register and can the two be linked?” It is a composite notion. It has to be register of members which serves the function under the deed. There was none such here. I might mention in passing that it is said in our friend’s reply that the point was not taken below. In answer to that we say this. The letters which establish that there was no register of members were tendered at the first hearing. Your Honours will find them at pages 203 to 204 and the tender at page 316. The submission based on it is at page 332, line 35.
The second hearing before his Honour Talbot was concerned entirely with issue estoppel and in the Court of Appeal it was the submission for the Minister that none of the steps were implemented.
Your Honours, the essential problem with the scheme in this case was that, having exhaustively and elaborately conceived it and gone through the business of preparing 770 folders of documents, they were perhaps simply exhausted and they just could not be bothered going through with the rest of it. Because they could not be bothered, the scheme was not implemented and it did not work. In our respectful submission, equity does not assist someone who cannot be bothered.
GLEESON CJ: But your primary submission is that the scheme was fundamentally flawed, is it not?
MR SLATER: Yes.
GLEESON CJ: How does that square, if it needs to be squared, with the ruling of the Stamp Commissioner?
MR SLATER: The ruling of the Stamp Commissioner was predicated on an assumption that the scheme had been implemented in accordance with its design. In any event, all the Commissioner said was that no duty was payable. If the transaction was ineffective, then most certainly no duty was payable.
GUMMOW J: No resumption either.
MR SLATER: And no resumption. The way in which that document came into court was very late in the course of the argument in the Court of Appeal and at that point the Chief Justice put it to me that it seemed odd that the Crown through one officer was saying that the transaction was ineffective for stamp duty reasons and through another officer was saying that no stamp duty was payable. That seemed a fair enough proposition, so we abandoned the stamp duty point. That is, we abandoned the attack on the ISPT-based transaction, but we reserve our position in relation to a different transaction.
GUMMOW J: What do you say about paragraph 17 in the reply, Mr Slater, which brings us back to the finding of the primary judge?
MR SLATER: That is the question of law point?
GUMMOW J: Yes.
MR SLATER: I was going to deal with that lastly. Is that convenient?
GUMMOW J: Yes.
MR SLATER: I undertook to your Honour earlier to say something about the bill of exchange. What we are told by the witnesses is that they went through one transaction under Mr Seller’s guidance and then they went away and signed documents. They went away and did it in sequence or in series. That is, Mr Howell signed all the documents in a folder and then Mr Halloran came along and signed where he was to sign and Ms Kenny came along and signed where she was to sign and then somebody came along and witnessed her signature on the statutory declaration forms.
What that involves is that not all of the transactions had been signed at the time that Mr Howell signed all of them, including as the last document in the bundle the form called “bill of exchange”. It is apparent that what he did was simply, when he got to that form, to sign it in all three places and turn the page. In our submission, that does not amount to drawing, accepting and negotiating a bill of exchange. It is just signing a piece of paper, particularly as it appears - - -
HAYNE J: What is the difference between that submission and the submission about sham?
MR SLATER: Sham would involve an element of dishonesty, that is, he set out to deceive. We do not say that he set out to deceive, that he was being dishonest. We say that he was doing what he had been told was the right thing to do by his solicitor and the fact that the solicitor had told him to do something which was not effective does not make it a sham, it just makes it ineffective.
My friend this morning referred to paragraph 19 on page 138 as evidence that the bill was issued and negotiated. When one looks at pages 136 to 138, it is clear that the affidavit there merely comprises a recitation of what the scheme was supposed to do. It begins on page 136, paragraph 8 by saying that all these things happened on 14 May when it is quite clear that they did not. It is evidence of a conclusion of law, not evidence of some primary fact.
HEYDON J: You say it is a means of getting the documents before the court but, whether objected to or not, the body of the paragraphs in the affidavit are not probative of what they say beyond the documents.
MR SLATER: I am sorry?
HEYDON J: What appears in paragraph 19 is not probative on what it says beyond the document annexed to it.
MR SLATER: That is our submission yes, your Honour. Your Honours, finally, I said I would come back to the question of law point. It is true that the court at first instance is not bound by the rules of evidence but that does not mean that a finding which is contrary to undisputed evidence, that is, a finding which could not have been on the materials presented to the decision-maker, is not an error of law. If the decision-maker, whether it be the Tribunal or a court such as this, makes a finding which is directly contrary to the material presented before it and is founded on nothing which is put before it, that, in our submission, is an error of law.
In this case, in our submission, his Honour the trial judge could not have found that the events which were recited at pages 1047 to 1048 of the appeal book and relied upon by the appellants actually occurred. It is clear that nothing happened on 14 May because Mr Howell had finished doing all that he was going to do on 12 May. The statutory declaration clearly does not record events which occurred. Whether or not there was consensus among all the parties that the things which Mr Seller designed should happen, they did not happen as they were recited.
The legal significance of the events which I recited is, in our submission, a matter of law. Our friends in their submissions refer to Vetter v Lake Macquarie 202 CLR 439 at 450 to 451, paragraphs 24 to 25 of the judgment. I did not propose to read to your Honours those passages in the judgment of your Honour Justice Hayne at page 108, and in the Agfa-Gevaert Case [1996] HCA 36; 186 CLR 389 at 395, point 5 the Court observed that where the facts are fully found then their significance is a question of law. Here, the primary facts were all agreed and, indeed, before the Court of Appeal and before Justice Talbot on the second occasion they were the subject of an agreed statement of facts.
GUMMOW J: There is an obscurity in this. An issue was whether there was a meeting. What are we talking about? That is a legal construct, is it not?
MR SLATER: Whether what happened was a meeting - - -
GUMMOW J: It is a meeting for the purposes - - -
MR SLATER: - - - whether what happened is to be characterised as a meeting - - -
GUMMOW J: It is a purpose for the so-called law of meetings, is it not?
MR SLATER: Yes. So we have the primary facts - - -
GUMMOW J: It is not just occasional conviviality. There is the whole common law of meetings and then the company law picks up part of it and changes part of it. Is that not what we are talking about, whether there was a meeting?
MR SLATER: Yes, your Honour. The primary facts are undisputed.
GUMMOW J: Yes, but the question is - - -
MR SLATER: But the question whether those primary facts comprised a meeting - - -
GUMMOW J: - - - whether there was an act in law which you would call a meeting.
MR SLATER: Yes. That is a question of law and therefore is open to review by the Court of Appeal. That is our submission. So we say the court had jurisdiction and the matter is properly before your Honours. Your Honours, unless there is anything that arises out of that - - -
GLEESON CJ: There was something I wanted to ask you about that bill of exchange. Was that a negotiable instrument? I was just going to ask could it have been negotiated and what would have been the consequence of that?
MR SLATER: I am sorry, your Honour, I missed that last question?
GLEESON CJ: Could it have been negotiated? Could it have been put into commerce?
MR SLATER: I would love to say not, your Honour, but I cannot see a basis for doing so.
GUMMOW J: You would create a bit of a flutter if you say it looks regular on its face, but why it is not a bill of exchange.
HAYNE J: .....would be drawing their cuffs out of their sleeves on such propositions.
MR SLATER: If your Honours please.
GLEESON CJ: Thank you, Mr Slater.
Yes, Mr Rares.
MR RARES: Your Honours, what Justice Talbot
did which my friend did not address was to say that the parties adopted
14 May when he made the
findings about that topic. That is at 1043,
paragraph 17. It is clear he had the evidence before him, he knew what was
going on,
and he said the evidence was that they had written this in, Mr Seller
had said that had been done at the last day and that somebody
had signed the
documents. That was the convention they adopted. It was not necessarily the
day it all happened. Having adopted
it, then the facts were recited. We accept
that if the transactions happened at all, that they obviously happened on the
11th. But it is the adoption and the fact that his Honour
recognised that it was open to him to find and within his jurisdiction and
his Honour made the findings in 18 that there was the meeting on the
11th and that that is basically where he took the facts
from.
Now, having made those findings, the question is whether under section 38 of the Land and Environment Court Act there was enough evidence before him to come to the conclusion that he did. We say there clearly was. In my friend’s submissions he said intent was not enough and it was dangerous to rely on that, but we are not saying that there is just intent. We say that there was part performance and that it was effective to create an interest.
GUMMOW J: What do you mean by part performance?
MR RARES: Well, part performance of the contracts for value.
GUMMOW J: Part performance only makes sense if you are talking about a contract.
MR RARES: Well, the first thing that one does is go back to the trust deed and see what happens when the application for the A units is made by Sealark. What it does is it subjects itself to the right of the trustee to exercise its powers of redemption under paragraph 5 of the schedule on page 86, that is that the trustee has a discretion whether to redeem the units and, if it does redeem them, to pay Sealark $1.
Now, it may be true that at the moment that there is no other unit issued in the trust of ordinary units to Pacinette that there is only one owner of units and, as clause 2 of the schedule on page 86 provides, Sealark retains a fractional interest of, in this case, 100 per cent in the corpus of the A fund. So the question is: when does that interest move? If, as we say, subjecting one’s self to a trust in which paragraph 5 of the schedule operates to give the trustee the discretion about redemption, albeit that the beneficial interest remains, Sealark has accepted slightly different conditions on its absolute ownership which restricted it slightly. It may be that the trustee has not acquired a beneficial interest at that point. That does not mean that the scheme does not become effective or that the sale does not proceed.
Under the ISPT analysis, which Justice Meagher adopted and which we say the Court of Appeal in Victoria adopted in the Arjon Case - - -
GUMMOW J: Well, that is under appeal here.
MR RARES: Is it?
GUMMOW J: It has been heard.
MR RARES: Well, if Justice Meagher’s
analysis is right whether the beneficial interest passed or not it all remained
in the vendor at
that time. But what my friend’s analysis elides is when
Sealark says under the trust deed, “I want to redeem my units”,
under section 44(2)(d) of the Stamp Duties Act, which is on
page 8 of our submissions in-chief annexures, what the section says
is:
A reference to a change in beneficial ownership in this section does not include a reference to a change in beneficial ownership occurring as the consequence of:
. . .
(d) the issue or redemption of units –
Now, you have the contract of sale, the oral acceptance. Sealark is objecting its interest to the terms of Schedule 1 in this trust deed and then saying, “We wish to convert our beneficial interest in the trust fund which we hold through the units that we have been issued into cash”. Why is that not just simply something within (2)(d)? It is plainly a change in beneficial ownership at the time it gets paid out for cash on the redemption of units in a unit trust. So plainly what is intended and it is plainly the intention of the framing of this scheme that that is how it would work.
GUMMOW J: The question that seems to have escaped notice,
44(1)(a) only begins to operate if you find:
the beneficial ownership of an estate or interest in:
(a) land situated in New South Wales.
MR RARES: Yes.
So when does that happen? It only happens when the redemption occurs, because
on the ISPT analysis and upon the analysis my friend has put forward the
beneficial ownership remained in Sealark because it was the sole unit
holder and
that is what clause 2 - - -
GUMMOW J: No, but this expression “an estate or interest in . . . land” is central to our consideration in CPT as the expression was used in the land tax legislation in Victoria.
MR RARES: Obviously your Honour will appreciate I cannot assist on that. We would also seek to distinguish Corin v Patton 169 CLR 540. I think your Honours discussed this. The terms of the bare trust are set out at 545 at point 5 where it is quite clear it is just a bare trust and the trustee must deal with it at the direction of the beneficiary.
GUMMOW J: Yes, but the trustee gets a right of indemnity though, particularly in a bare trust.
MR RARES: Yes, but in this trust deed you do not because clause 6 says there is no right of indemnity in the A class units against the trust fund.
GUMMOW J: The trustee gets a right of indemnity.
MR RARES: No, the trustee’s right of indemnity is excluded by clause 6.
GUMMOW J: What I was putting to you is in a bare trust - - -
MR RARES: In a bare trust, yes, your Honour. I am sorry, I was not meaning to disagree with that. I was trying - - -
GUMMOW J: Yes, but that is said to involve no consideration.
MR RARES: Yes. In Buckle, of course, the Court held that it gave the trustee a proprietary interest in the fund which seems to have a consequence but in this one - - -
GUMMOW J: Anyhow, what was the provision?
MR RARES: The provision is on page 87,
clause 6 in the schedule:
Notwithstanding any other clause of this Deed, the Trustee shall not be entitled to be indemnified out of the assets for the time being comprising the A Class Fund in respect of any liabilities incurred by it in the execution –
of those powers relating to the A
class fund. So that is saying that at that point there is not such a beneficial
interest, so you
may keep this ISPT concept Justice Meagher is
talking about until the redemption occurs and it is at that point you have
evidence of an intention to
sell perfected by the redemption.
My learned friend, I think, has now accepted that the bill of exchange was a negotiable instrument and therefore - - -
GUMMOW J: I do not know if he accepted that. He may have been embarrassed by it but I do not think he accepted it.
MR RARES: Well, (a) it is valid on its face; (b) there is no reason why it could not be a negotiable instrument and it looks like what the Bill of Exchange Act says it is and we submit it is plainly a negotiable instrument. He then sought to put that the steps that were taken somehow were not unequivocally referrable to the contract. In our submission, when one looks at the documents and the evidence before the judge and the judge’s findings, it is clear that they were unequivocally referrable. There is no other explanation for them. There is the clear evidence of all the parties that that is what they were intended to do and the clear finding in both courts below that that intention was the intention and - - -
GLEESON CJ: Your answer to Mr Slater’s argument based on the ownership by Sealark of all the units in the trust is in paragraphs 13 and 14 of your submissions in reply, is that right?
MR RARES: Yes, and, alternately, I should say that because of MSP [1999] HCA 51; 198 CLR 494, which we did not refer to in those submissions, because the trust is a discretionary trust, even in relation to the A class units because of clause 5 giving the trustee a discretion to redeem, that Sealark gave up some part of its complete beneficial interest. I think it is in the joint judgement of the Court in MSP at page 501, paragraph 34.
My learned friend relied on the two cases in his submissions, Hawkins v Kemp and the Rutland Case to deal with his registered unit holders argument. Each of those cases were cases at law, that is they were common law cases, not cases in equity dealing with property only transmissible in equity. We rely on what Sir Victor Windeyer said in Norman v Federal Commissioner of Taxation that there is no particular form needed for an equitable assignment to be effective as long as value is there and we say the value is constituted by the bill of exchange and the issue of units and the passing of the property.
My learned friend then said the creation at some later point of time of any registrable documents constituting a register was ineffective. We have two things to say about that. MFI 2 which is the document he was referring to at pages 284 and 292 of the transcript is the document at 196 and 197. Your Honours can see in that it is clear that the units are there, the passing of the units is recorded and they were all brought into existence later.
In this Court dealing with a company case,
Maddocks v D.J.E. Constructions [1982] HCA 17; 148 CLR 104 at the foot of 117
in the joint judgment of the Court their Honours said:
The authorities are clear that in the case of a person who subsequently to incorporation applies for shares to be allotted to him, or purchases shares from an existing shareholder, does not become a member of the company until his name is entered in the share register. In the present case the name of the appellant was at no time entered in the share register. It is irrelevant that for a long period the company had not had a register of shareholders. No claim was made in the Court of Appeal that the register produced at the hearing was not a genuine register and the fact that it was a belated compliance with the Act by the directors and secretary of the company does not affect the matter at all.
What we say is the fact that there may have been a later creation of something that could be used as a register in 196 and 197 does not affect matters but, likewise, we say my learned friend just does not deal with the form of the certificates that were given and the fact that there is a record of the trust at all material times when it allots units and when it redeems units in the minutes and in - - -
HEYDON J: Blake Dawson Waldron admitted that the trust’s principal register did not exist.
MR RARES: Yes, the principal register, I agree. I accept that, but the fact that that does not exist does not mean, in our submission, that there is not evidence to enable the trust to be properly administered. It would mean the trustee by its default in creating a register would defeat the interests of the persons whom it has as beneficiaries to hold their property on trust for them by its own default, and it could not rely on that.
HEYDON J: Yes, but that might have some force in a world where there was something other than one single brain organising every event.
MR RARES: It might and it might not, but the question is at the end of the day: is there something quite clear that shows there is material from which one can deduce who is the owner of the units? You have the certificates. They are all the cases from company law which show that when the company issues a share certificate, it is estopped from denying to third parties that that is a certificate of – it gives an entitlement to membership. Here we do have those documents. They are intended to create interests and they record a certification. So that we say that for the formalities of the deed, although it may not be bound up in one document, as it were, or in a book of its own, that was enough. That is no reason to defeat the transaction which is otherwise effective.
My learned friend then said that the affidavit at
page 138 did not do anything other than assert the legal consequence of
matters
and describe the bill. If you look at the bill of exchange at 191, it
does not say anything about what the considerations are paid
for but
Mr Howell says it in
paragraph 19. The judge found that
Mr Howell gave evidence of that matter, and that was something he could say
what it was for.
The bill of exchange just looks like a normal bill of
exchange, a negotiable instrument that says a written order on somebody to
pay
which is accepted by another person and endorsed across. So, in our submission,
it is quite wrong for my friend to have asserted
that this is not evidence which
the judge could have accepted, particularly in light of section 38, and it
is not simply a recitation
of the legal effect. It is a statement by a
participant in the transaction of what the document was for and what it did and
why
he, he being the person who signed it, did it.
We rely of course on our submission that the liability of Pacinette on the bill to Sealark was not discharged or, if the bill was discharged, Pacinette still retained the liability independently of the bill because of the cases that were referred to of Coles Myer and the older case that came from the Court of Exchequer Chamber.
Unless there is anything else we can assist the Court with,
those are our submissions.
GLEESON CJ: Thank you, Mr Rares. We
will reserve our decision in this matter and we will adjourn until 9.30 tomorrow
morning in Sydney.
AT 3.38 PM THE MATTER WAS
ADJOURNED
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