Commissioner of State Revenue v Challenger Listed Investments Ltd (As Trustee of Challenger Diversified Property Trust 1) [2012] HCATrans 352 (14 December 2012)

Last Updated: 18 December 2012

[2012] HCATrans 352

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
Melbourne No M174 of 2011

B e t w e e n -

COMMISSIONER OF STATE REVENUE

Applicant

and

CHALLENGER LISTED INVESTMENTS LTD
(ACN 055 293 644) (AS TRUSTEE OF CHALLENGER DIVERSIFIED PROPERTY TRUST 1)

Respondent

Application for special leave to appeal

HAYNE J
BELL J

TRANSCRIPT OF PROCEEDINGS

AT MELBOURNE ON FRIDAY, 14 DECEMBER 2012, AT 12.21 PM

Copyright in the High Court of Australia

MR J.D. MERRALLS, QC: If your Honour pleases, I appear with my learned friend, MR N.A. KOTROS, for the applicant. (instructed by State Revenue Office)

MR J.W. DE WIJN, QC: If the Court pleases, I appear with my learned friend, MS E.A. BENNETT, for the respondent. (instructed by Mallesons Stephen Jaques)

HAYNE J: Yes, Mr Merralls.

MR MERRALLS: If the Court pleases, the summary of argument refers to two questions concerning what are known as the land rich provisions of duty legislation which bring to duty certain acquisitions of interests in what are called landholders involving private unit trusts and private companies, which are equated in a rather rough way with transfers of the underlying land from a landholder to the acquiring person. The application raises two issues which are separate but connected, as I will explain presently. The first concerns the application of the words of section 76(1) of the Duties Act 2000:

beneficial entitlement . . . to a distribution of property from the landholder on a winding up of the landholder.

The landholder, I might say, may be either a private unit trust or a private company – there is one other category which is irrelevant for present purposes. So the question is whether those words refer to the character of the entitlement to receive property on the winding up of one of those entities or the capacity in which the recipient will hold the property after receipt, and our submission is that it is the former, that it is a compound expression – beneficial entitlement to a distribution of property from a landholder on the winding up. It points to the entitlement to receive.

The first question has been described as the Landrow point because the question arose in a case called Landrow which is in the materials that we have provided to the Court which was an appeal from Justice Mandie to the Court of Appeal, and in that case it was held that the phrase had the latter meaning, not the former meaning. Our submission is that for various reasons that decision was wrong. Now, the Landrow point arises in this case as well, but when the case was heard before Justice Pagone it was conceded that he would be bound by Landrow on this particular point.

There was, however, another issue and he expressed an opinion upon it, it is a sort of considered obiter dictum, and that point concerns section 89C of the Duties Act which brings to duty interests acquired by various means and the question is whether that section brings to duty interests which are acquired by means of the issue of new units in a private unit trust scheme which becomes a public unit trust scheme. In this case, the units were originally held by one party. There was an issue of 61 per cent of new units which effectively diluted the value of the holding of the original 100 per cent holder, and the 100 per cent holder also transferred 39 per cent of the units to another company.

The diagram on page 3 of the application book shows what happened fore and aft. One really has to look up the diagram to find ownership rather than down it. So you can see that after the float 61 per cent of the units in what is called “Trust 1” were held by members of the public, and 39 per cent by the transferee from the original trustee. Now, this issue did not arise in Landrow, which did not involve the conversion of one type of unit trust scheme to another, it was a simpler transaction.

Both Justice Pagone and the Court of Appeal through Justice Sifris, sitting as an Acting Justice of Appeal, expressed an opinion on it which is likely to influence future decisions, and so it is a very important point in the administration of the land rich provisions. Now, they differed in their opinion; Justice Pagone was in favour of the Commissioner’s submission that the dilution effect involved the transfer of an interest, Justice Sifris said, no, you look only to the unit and not to the interest which is represented by the unit.

The first question, in our submission, involves a matter of public importance concerning the interpretation of remedial statutes which are intended to rectify a perceived deficiency or shortcoming in the law, which enabled, in effect, interest in land be transferred by transferring interests in the landholder without incurring transfer duty. In Landrow itself in the Court of Appeal, the justices were aware of the effect that their decision was having on the legislation and they said that it would undermine the purpose of the legislation, but they considered the language to be clear and that they had no choice. That is found in paragraph 50 of the judgment.

In our respectful submission, the language is at worst ambiguous, but we say it is not even ambiguous, but if it is ambiguous then the court in Landrow made the wrong decision and gave an interpretation of the words which they conceded undermined the purpose of the legislation.

BELL J: But in coming to that view they had regard to the legislative history, did they not, including the 2004 amendments with the insertion of the word “beneficial” before “entitlement”?

MR MERRALLS: Yes, but they did it in a rather funny way because the word “beneficial” had jumped in and out of the Act. It had been in the definition of entitle right through and it was really superfluous where it was, but we actually - - -

BELL J: At the same time the amendments to section 77(1) introduced the words “obtains an interest beneficially”.

MR MERRALLS: Yes, but those words were not related to the expression “beneficial” in 76(1). Those words concerned what may be called a timing exercise that you acquire because they are concerned with the time that the interest is acquired. There was a problem which is illustrated by the New South Wales case of Affinity, a decision of Justice Gzell, that where a contract – an executor contract is entered into there may not be an acquisition, so it brought forward the time of the relevant acquisition. It has got nothing to do with the meaning of “beneficially” in section 76(1).

Now, the court did not, if I may respectfully say so, stand back and look at the decision and say, why on earth would there be such a gap in the remedial legislation, which would exclude from liability to tax transfers made to a trustee, because if a transfer was made of land to a trustee it would not matter a fig, it would be liable for duty? Why would there be this weird gap in the legislation? That question simply is not asked, and we say that that was relevant to the interpretation of the section.

In addition, there are two sections, or two subsections, in the Act which was in force at the time of the transactions in this case that were not in force at the time of the transactions in Landrow. They are in section 77(2A) and (2B). Subsection (2A), which is at page 142 says:

In addition to sub-section (1), a person who holds an interest in a land rich landholder acquires an interest in the landholder if the capacity in which the person holds the interest changes.

So it contemplates that the capacity may be that of trustee, and that subsection was in the Act at the time that this case was decided at the time of the transaction, and yet the courts below treated the case as depending upon provisions that were in all respects identical with those that had been before the court in Landrow. The second issue concerns only the issue of units representing a 61 per cent of the interest in Trust 1 because it was an issue of units, not a transfer of units.

HAYNE J: Now, it is said against you that this issue, I think, does not arise, is that said against you?

MR MERRALLS: It does not arise unless the Landrow point is decided in our favour, but it raises a very important matter, and it is strong enough itself if the whole case is before the Court to justify the grant of special leave. So that it raises a matter of continuing importance, and importance not only in the administration of the Victorian Act but the land rich provisions of other jurisdictions.

Now, there was a difference of opinion on this point between Justice Pagone at first instance, his opinion being expressed in paragraph 12 of his judgment on page 8 of the application book, and Justice Sifris whose opinion is expressed in paragraphs 85 and 86 of his judgment on pages 49 and 50 of the application book. On page 8 one finds his Honour saying:

Upon the issue of the units in Trust 1 to the public investors under the initial public offering on 17 October 2006, the Old Holding Trust ceased to hold its 100% interest in Trust 1. Its interest in Trust 1 diminished to a 39% interest constituted by a holding of 208,893,199 units in Trust 1 stapled to the same number of units in Trust 2. The 61% interest was held, collectively, by the public investors constituted by the holding of 326,730,232 stapled units . . . The Old Holding Trust ceased to hold its 39% interest in Trust 1 by sale and transfer of the units . . .

It follows that either of the two events contemplated by s 89C are satisfied and the focus of inquiry must turn to whether they occurred “under” an agreement –

and then his Honour goes on to consider whether they did. Justice Sifris, on the other hand, treated unit as being equivalent to interest, so that one must find a transfer of a unit in order for someone to acquire an interest, but he did not refer to the definition of unit in section 3(1) which means:

a right or interest . . . of a beneficiary under the scheme.

Nor did he refer to section 77(2)(b) which states that:

a person may acquire an interest in a land rich landholder –

by the issue of units. Sections 77(3) which states that:

an acquisition by way of transfer of units or shares is not necessary to acquire an interest in a land rich landholder.

HAYNE J: I notice the time, Mr Merralls, but what do you say about the proposition that the application concerns a closed class because of the changes that have occurred? I have in mind what is said in the respondent’s argument at, for example, page 105, paragraph 1(a):

the subject of the first special leave question mean that it could only arise for transactions which occurred between 13 May 2004 and 25 July 2007.

MR MERRALLS: Well, on the first point, on the Landrow point, no, it would not, it would occur to transactions before 2004 because the word “beneficially” was in the definition of “entitle”. The other thing that we say about it is that there is a whole stockpile of Landrow cases, and the revenue should not be penalised for being prudent when the risk of an adverse construction was put to it.

HAYNE J: Yes.

MR MERRALLS: If it please your Honours.

HAYNE J: Thank you, Mr Merralls. We will not call on you, Mr De Wijn.

We are not persuaded that an appeal to this Court would enjoy sufficient prospects of success upon the issues determinative of the appeal to warrant a grant of special leave to appeal. Special leave is refused. It must be refused with costs.

AT 12.45 PM THE MATTER WAS CONCLUDED