Commissioner of State Revenue v Rojoda Pty Ltd [2019] HCATrans 214 (7 November 2019)

Last Updated: 7 November 2019

[2019] HCATrans 214

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
Perth No P26 of 2019

B e t w e e n -

COMMISSIONER OF STATE REVENUE

Appellant

and

ROJODA PTY LTD

Respondent

BELL J
GAGELER J
KEANE J
NETTLE J
EDELMAN J

TRANSCRIPT OF PROCEEDINGS

AT CANBERRA ON THURSDAY, 7 NOVEMBER 2019, AT 9.45 AM

(Continued from 6/11/19)

Copyright in the High Court of Australia
BELL J: Yes, Mr Solicitor.

MR THOMSON: Thank you, your Honour. Can I just tie up a few loose ends that arose out of yesterday? You may recall that I referred to a passage from the Privy Council’s decision in Cameron v Murdoch in which the Privy Council expressed the view that the fiduciary relationship between a surviving partner and the estate of a deceased former partner is not equivalent for all purposes to a relationship with a trustee in a cestui que trust; that was at page 287 of the ALJR reports.

I should have mentioned when I took your Honours to that passage that this observation was based upon Lord Hatherley in Knox v Gye and that was an observation which the Privy Council interpreted as approved in Chan v Zacharia and what was said by his Honour Justice Deane at page 194. With respect, it is suggested in the respondent’s submissions at paragraph 73 that Justice Deane came to a different view, we would say that, at least, the view that we have suggested is one that is consistent with the interpretation of the Privy Council in Cameron v Murdoch that Justice Deane preferred the view of the Lord Chancellor who was dissenting in Knox v Gye.

It may be helpful if I take your Honours to what was said by the Lord Chancellor in Knox v Gye, and then show you what Justice Deane said. The relevant passage is in the reports that have just been handed to your Honours at pages 678 to 679 and the Lord Chancellor said, starting at the base of page 678:

I confess, my Lords, that I thought it was an elementary principle of law that the partnership which at Law survives to the surviving partner, which carries to him at Law the whole interest in the partnership assets, which, treating him as a joint tenant, vests the whole of the partnership estates in him, was always subject to the doctrine of a Court of Equity, that in Equity the interest of a partner in the partnership is that of tenancy in common as between the two partners: so that the executors of a deceased partner have an interest in those assets which the surviving partner alone can get at, and that the surviving partner alone having a legal interest in the property, there arises, necessarily, a right, as between the executors of the deceased partner and him, to insist upon his holding those assets, which he so collects, according to the partnership interest, or subject to the share which the executors of the deceased partner, in right of their testator, are entitled to claim . . . The executors of the deceased partner have a right to a sale of every portion of the partnership property, so completely are they held to be in a fiduciary position, so completely are the assets, including the plant or houses, the machinery or stock in trade, or whatever the description of property may be that comes into the hands of the surviving partner by right of his survivorship at law, and which are all vested in that surviving partner by right of his survivorship at law, held to be property in all of which, whether they are chattels of the partnership, or estates of the partnership, the executors of a deceased partner have an interest commensurate with the extent of the share of their testator. They have a right, therefore, to have that property so disposed of that it may be applied under the direction of a Court of Equity, according to the equitable rights between the partners.

Now, we think that that is consistent with the ‑ ‑ ‑

EDELMAN J: I mean, the issue in Knox v Gye was the dispute which had existed up to that point as to whether there was any particular right that a partner had during an extant partnership that could devolve, for example, by will.

MR THOMSON: Yes. And as I said previously, clearly equity recognises that you can have an interest that devolves by will, but does not mean that you have a fixed and specific interest equivalent to that of a beneficiary under a bare trust. The relevant passage which approves that in Chan v Zacharia is on page 194, which is tab 17 of the joint book of authorities in volume 3. And starting about a third of the way down the page, Justice Deane, with whom Justices Brennan and Dawson agreed, states that:

It is now established, under the general law as reinforced by the provisions of Partnership Acts and in the absence of overriding provisions of a particular partnership agreement . . . that the legal representative of a deceased partner has “an unascertained interest in every single asset of the partnership, and it is not right to regard him as being merely entitled to a particular sum of cash ascertained from the balance sheet of the partnership as drawn up at the date of his death” . . . In that regard, subsequent elucidation of partnership law has confirmed that the “convincing reasoning” of Lord Hatherley L.C. in his dissenting speech in Knox v. Gye should be accepted as correct . . . Notwithstanding the strictures of authorities as eminent as Lord Westbury and Sir Frederick Pollock . . . there is neither metaphor nor inaccuracy in the description, in the ordinary case, of a partner or of surviving a partner as a trustee of a particular item of partnership property which is legally vested in his name but the “beneficial interest” in which “belongs to the partnership” –

Now, as I explained yesterday, the interpretation that has been put on that, at least by the Privy Council in Cameron v Murdoch, was that it does not mean that there is a relationship of trustee and cestui que trust for all purposes which reflects the point that we were making previously that it is not the same as the equitable – sorry, it is not the same as having an interest as a beneficiary under a bare trust. That point is developed by reference to all of these cases in the decision of the New South Wales Court of Appeal in Sze Tu v Lowe which is found behind tab 34 of the joint book of authorities, volume 4.

I should just mention that special leave to appeal was sought with Sze Tu v Lowe and it was refused by your Honour Justice Gageler and Justice Gordon. However, it is fair to say that a review of the special leave hearing does not seem to suggest that these points were debated in the special leave application. If you go to page ‑ ‑ ‑

EDELMAN J: Which tab was that?

MR THOMSON: Tab 34 ‑ ‑ ‑

EDELMAN J: Thank you.

MR THOMSON: ‑ ‑ ‑ of volume 4 of the joint book of authorities. If you go to page 339 of the report, which is on page 987 of the joint book, the question that was in issue in this case was about whether partners who had seven children had interest in real estate properties which had been purchased using partnership funds without their consent. And so there was an analysis of the interest of partners in partnership property, antecedent questions of constructed trust and so on.

The main judgment is that of Justice Gleeson and if you go to page 339 and paragraph 113, he starts by setting out the relevant provisions of the Partnership Act. Your Honours will notice that section 20 of the Partnership Act (NSW) and subsections (1) and (2) are the direct correspondent of sections 30(1) and (2) in the Partnership Act (WA). If I can then take you to paragraph 117 over the page, Justice Gleeson starts in the second line of that paragraph:

it is said that, once particular property is characterised as “partnership property” for the purposes of the partnership legislation, it is, for that reason alone, held upon trust and is trust property accordingly. The contention is derived from statements in decided cases to the effect that partnership property, the legal title to which is held by one partner, is impressed with a trust for the partnership. One such statement is found in the joint judgement of Kitto, Taylor, Menzies, Windeyer and Owen JJ in Carter Bros v Renouf [1962] HCA 67; (1962) 111 CLR 140. The court referred at 163 to the question of whether property acquired in the name of one only of the partners “was acquired as partnership property, and therefore upon trust for the partnership”, so that “the purchasing partner is a trustee of the property for the firm”.

Statements such as this imply that characterisation of particular property as partnership property has the consequence that it is trust property and that all partnership property must therefore be regarded as held upon trust.

The first step in assessing that proposition is to consider the nature of a partner’s interest in partnership property.

His Honour then analyses what was said in Henschke. He refers, as we have previously done, to Bolton and then Canny Gabriel and then to what was said by President McLure in Hancock Prospecting. In paragraph 122 his Honour reaches the conclusion, which is the one that we have advanced, that:

In the eyes of equity, therefore, a partner has an undivided interest in the whole of the partnership property. This interest is non‑specific and of a unique kind. It is the concomitant of the right of the partner to see the property applied only as partnership property may lawfully be applied and, on dissolution, to see any surplus remaining after payment of the firm’s debts distributed to the partners according to their respective shares in the partnership.

Statements to the effect that particular property, by virtue of its being partnership property, is “held in trust for the partnership” do not mean that the property is trust property or property held upon trust. Any applicable concept of “trust” is analogical or metaphorical and arises from the circumstance that, as Duff J put it in Boyd v Attorney‑General of British Columbia . . . the property is “dedicated to the purposes of the partnership” and held “in trust for such purposes”. The allied notion that, in cases of insolvency, partnership property is held on “trust for partnership creditors was explained by the Supreme Court of the United States, in Hollins v Brierfield -

I do not need to read that passage but it gives the context of the analogy. Then, he goes on and says, as we have said, in paragraph 124:

This is an example of the use of “trust” terminology in a way to which reference was made in Commissioner of Taxation of the Commonwealth of Australia v Linter Textiles . . . Gleeson CJ, Gummow, Hayne, Callinan and Heydon JJ there pointed to several instances in which analogical or metaphorical resort had been had to the language of trust when, in reality, no trust exists. Reference was made to In re Oriental Inland Steam Company . . . where the property of a company subject to winding up was said by Mellish LJ at 560 to be subject to a “trust for the benefit of all the creditors” and by James LJ at 559 to be “clearly trust property” – a proposition squarely rejected in Linter Textiles itself. Reference was also made to Clay v Clay . . . where at [41] it was noted that descriptions of company directors as “trustees” were “at best . . . metaphorical because property of the company was not vested in the directors”.

In both Linter Textiles and Clay v Clay, the High Court referred to the observation of Lord Westbury in Knox v Gye . . . that, upon the death of one of two partners and dissolution of the partnership accordingly, the partnership estate accrued to the survivor (the entitlement of the representative of the deceased being to an account); and the survivor, although frequently called a “trustee”, was not in truth a trustee, because he did not hold property exclusively for the benefit of a cestui que trust. Lord Westbury endorsed a remark of Lord Mansfield that “nothing in law is so apt to mislead as a metaphor” –

So all of that is really an analysis by the New South Wales Court of Appeal of the same propositions that we have advanced based on the same cases, that the nature of the trust interest that a partner has in partnership assets is only metaphorical in the sense that has been described, and is not the equivalent of the beneficiary of a bare trust.

EDELMAN J: Is there any difference between the interests that a partner has in an ongoing partnership in the trust asset ‑ in the partnership assets ‑ and the interest that objects of a discretionary trust have in the assets of the trust other than that the objects of a discretionary trust have got a power, collectively, to bring the trust to an end under Saunders v Vautier? Other than that distinction, is there any difference?

MR THOMSON: I think that there is probably not.

KEANE J: What about the interest of the creditors?

MR THOMSON: I was about to say that the purpose of the partnership, though, is to carry on a business and that is not the purpose of a discretionary trust.

EDELMAN J: Well, it could have a discretionary trust where the purpose of the trust is to continue a business.

MR THOMSON: You could, but it is not always ‑ ‑ ‑

EDELMAN J: And the assets would move in and out and pay to creditors as they come in, or go out.

MR THOMSON: Yes. You could, but it is not necessary that a discretionary trust carry on a business; it is necessary that a partnership carry on a business. And in terms of the interest of the creditors, the creditors have rights enforceable in both instances against the relevant owner of the legal property, which is then, they have rights of indemnity.

In neither case is there a proper ‑ sorry, in neither case are the interests of the beneficiaries the same as a beneficiary under a bare trust. And really, that is all that we have to establish to say that there was a change by reason of the 2013 deeds, because the proposition that is advanced is that it was always the same as the interest of a trustee under a bare trust while a partnership, after dissolution, and after the 2013 deeds. So that is really the very‑ ‑ ‑

EDELMAN J: In a sense, the debate about whether you call it a trust or not, from your point of view, it is just a debate about language ‑ ‑ ‑

MR THOMSON: Yes.

EDELMAN J: ‑ ‑ ‑ because even if this were called a trust, or said to be sufficiently alike to be like a discretionary trust, you say what has happened here is there is a declaration of a fixed trust.

MR THOMSON: Precisely. And that is accepted, that after the 2013 deeds, the interest of the beneficiaries were equivalent to that of a beneficiary under a bare trust, so the question is how did that come to that position?

Can I just make this point also about the internal/external perspective argument? In a sense, internal and external perspectives are a fancy way of trying to distinguish between different situations but, in reality, the reason why you distinguish between different situations is because the nature of the obligations needs to be ascertained for different purposes.

If you are ascertaining the nature of the equitable obligation for one purpose, it may be necessary to understand the nature of that obligation in more detail than if you are ascertaining it for a different purpose so that if you have to ascertain it for the purposes of rights of partners inter se then you may have to state it with greater precision compared to whether or not you have to understand the nature of the equitable obligation for the purposes of determining jurisdiction in a case like Gray’s Case.

So, really, to fasten upon the language of internal and external perspective is a little bit misleading, in our submission, because really what you are doing is you are simply asking what is the nature of the obligation for a particular purpose and you sometimes need to understand the nature of the obligation in greater detail for one purpose compared to a different purpose. It might be that it is convenient to call some purposes an external perspective and other purposes an internal perspective, but in a sense that masks perhaps the different purposes for which the question can be asked.

That emphasises our point that this is always the same obligation and that the way you view it and the extent to which you need to understand the nature of the obligation depends upon the purpose for which the question is asked. It is not that there is a different obligation for one purpose and another purpose.

So we would make the submission that perhaps the idea of an internal/external perspective and using that nomenclature can be beguiling because really the question is about asking for what purpose do we have to understand the nature of the obligation and to what extent and in what detail do we have to understand the nature of the obligation?

GAGELER J: Mr Solicitor, there is a passage in a report of the English Law Commission that uses this language of internal/external perspective and refers to the passage in the judgment of Lord Justice Hoffmann, as he then was, that you took us to yesterday. The suggestion there is that really ties, I think, with Knox v Gye, that when this distinction is drawn what is really being spoken about is, on the one hand, an interest of each partner in each partnership asset as a tenant in common in the partnership shares, that is, the external perspective and the internal perspective is a limitation that arises by virtue of the contract between the parties on the realisation of that share.

Now, it may be that this is not the way the case is being put against you but I had understood the case being put against you – that you are, in effect, dealing with in anticipation at the moment – I had understood it to be that this deed only speaks to the first of those levels, that is, this deed is not in any way speaking to the absence of such restrictions on realisation as exist by virtue of the continuing operation of the partnership deed. It merely confirms the tenancy in common in the partnership shares. Now, you deal with that by saying it is just a declaration of bare trust. I suppose that is your entire answer.

MR THOMSON: Yes, that is one answer. Another answer is that, for what purpose is the question asked and the purpose here is that it is asked to determine the incidence of taxation. We do not understand how it is that, for the purposes of determining that question, somehow the Commissioner is put on the external rather than inside the internal perspective to understand the nature of the obligation because we submit that the nature of the obligation is essentially the same and it depends on the purpose for which the question is asked.

NETTLE J: Just as it was in Henschke?

MR THOMSON: Precisely. Can I then deal with the conversion agreement? In order to deal with that, first, your Honours will appreciate that by reason of the respondent’s reply submissions the only basis upon which it is suggested that there has been an agreement to convert the interests of the partners into separate and divisible specific interests is by reason of the proper interpretation of the 2013 deeds. It is not suggested that there was an antecedent agreement. That is now accepted in terms of the respondent’s reply submissions.

May I make the observation that, therefore, the argument about a conversion agreement is antithetical to the primary position that has been advanced, that there was never any need for a conversion because, in substance, there was always a fixed and specific interest. So, in substance, the argument about a conversion agreement proceeds from the basis that their primary legal position is wrong and that the parties misapprehended that and that they made an agreement to convert.

Now, we say that there is a difficulty about this agreement being advanced at this point – and I need to take you through the appellant’s further materials to show your Honours why. I can do that fairly quickly. If you go first to page 141, your Honours will see that this is the initial objection against the assessment for taxation and there are four grounds that are stated in the objection on pages 141 to 142. None of those grounds mentions a conversion agreement and, rather, they state in ground 2, starting at the end of the second line:

The former partners were beneficially entitled to the properties in their partnership shares prior to the dissolution of the Partnerships, and remain beneficially entitled to the properties in the same shares following the dissolution of the Partnerships. All that has happened is that prior to the dissolutions of the Partnerships they held their proportionate beneficial shares in the properties as partners in a partnership, and after the dissolutions of the Partnerships they held those same proportionate beneficial shares in the properties as former partners in a former partnership. There is no transfer of the properties.

Now, that is consistent with the primary ground that is advanced. It is, as I said, antithetical to the idea that there was a conversion agreement. There is nowhere in this objection any reference to a conversion agreement.

If your Honours then move to page 153. On that page and the following page, there is a preliminary view expressed by the Commissioner upon the objection. Unsurprisingly, because it was not raised, there is no preliminary view expressed about a conversion agreement.

If you then go to page 157, this is the response to the preliminary view, and again there is no reference to a conversion agreement and if you look specifically at the bottom of page 159 going into page 160 it says in the last line of page 159:

In clause 3 in each Deed, Mrs Maria Scolaro simply confirms the existence of the trusts that have always existed over the properties since they were acquired, with the exception of the interest of the deceased partners, which is discussed below.

Again that is consistent with the primary argument that has been advanced and no reference to a conversion agreement. And then you have a determination of the objection at page 165 and again, unsurprisingly, there is no reference to a conversion agreement in that. The idea of a conversion agreement was not advanced before the State Administrative Tribunal. It was advanced as an afterthought by way of an amendment before the Court of Appeal but the Court of Appeal did not determine it and it has now been raised by the notice of contention.

In effect what the conversion agreement does is it says, well, if we happen to be wrong about our primary argument then there was in fact a different dutiable transaction, that is, a conversion agreement, that could have been assessed, but has not been assessed, because we did not raise it and in those circumstances you were wrong to subject us to duty in the way that you have subjected us and we escape that duty because we now raise, at the last stage, a different dutiable transaction which you cannot now assess. Now, with respect, they should not be able to escape liability in that form.

EDELMAN J: How did the Court of Appeal deal with the raising of this argument?

MR THOMSON: They just deferred it. Well, they did not deal with it at all because they said that they found – that they accepted the primary argument. If you go to paragraph 36 to 37 of the decision of President Buss and Justice Beech at pages 88 to 89 of the core appeal book, you will see that it says that:

The parties conducted the proceedings before the Tribunal and the appeal on the basis that if, contrary to the Commissioner’s first two propositions, cl 3 of the 2013 Deeds merely acknowledged or recorded an existing obligation of Maria that had arisen under the general law, no duty was payable. After hearing of the appeal, following a request for supplementary submissions from the court, it emerged that the parties do not agree on the path by which that result is reached. The appellant contends in supplementary submissions that a mere acknowledgement or record of a pre‑existing –

I apologise, that was a different afterthought that was raised by the ‑ there is another ‑ I apologise, there is another passage ‑ ‑ ‑

BELL J: At paragraph 40 on page 90, their Honours deal with the grant of leave to amend in order to raise that, the conversion agreement point.

MR THOMSON: Yes, that is right.

NETTLE J: Is that governed by the Taxation Administration Act? Does the State have one like the Commonwealth with those provisions?

MR THOMSON: It certainly has a Taxation Administration Act; I am sorry, I am not sure ‑ ‑ ‑

NETTLE J: That is to say, that the taxpayer is ordinarily confined to the grounds of objections taken in his objection, unless the court otherwise allows.

MR THOMSON: I think that is so. I will just ‑ yes, that is correct.

KEANE J: So the court would not have had jurisdiction to entertain this contention, in any event.

MR THOMSON: Yes. And we say, just as a matter of fairness, it cannot be raised at this point because of the reasons that I have explained, because effectively it leads to the escaping of duty by raising a different dutiable transaction in substitution for one that they have never ‑ that they have always advanced. But can I deal with it as a matter of substance, if your Honours wish, or I can deal with it in reply, if you prefer.

BELL J: If it be the case that the taxpayer is confined to the grounds of objection, what is the necessity to deal with it?

MR THOMSON: I am content to accept that, except there are substantive reasons why it cannot be accepted as well, and as I say, I can deal with those in reply.

BELL J: In reply, I think.

MR THOMSON: Yes, thank you. And then all that leaves ‑ and, of course, we have set out the proper construction of the relevant provisions in our written submissions as well.

BELL J: Yes.

MR THOMSON: That leaves only the question of section 78. As I have said previously, we do not see that as being separately engaged. If I happen to be wrong about that, then I will deal with that in reply also.

BELL J: Thank you, Mr Solicitor.

MR THOMSON: Thank you.

BELL J: Yes, Mr Dharmananda.

MR DHARMANANDA: Could I just, before I forget, address the last point about the nature of the jurisdiction of the Tribunal? And I will come back to dealing with the conversion argument. If your Honours have the core appeal book, please turn up page 26 in the decision of the Tribunal. And your Honours will see that the Tribunal has reproduced section 27 of the Tax Administration Act ‑ sorry, the State Administrative Tribunal Act 2004, on which the Tribunal gets its jurisdiction, and your Honours will see that in 27(3):

The reasons for decision provided by the decision‑maker, or any grounds for review set out in the application, do not limit the Tribunal in conducting a proceeding for the review ‑

And subsection (2) provides for:

the correct and preferable decision

to be made. And so we say there was jurisdiction. And the other point is the point that the learned presiding judge raised with my learned friend in paragraph 40 of the Court of Appeal’s judgment. Leave was in fact granted for those grounds of appeal ‑ amended grounds of appeal – to be relied on, and the court, recognising that it ought to deal with every issue said, in this case, it would not provide reasons for the conversion, with respect to the conversion argument, having already found in our favour with respect to the primary argument put below.

NETTLE J: So leave was granted to argue the existing pre‑existing or conversion argument?

MR DHARMANANDA: It was granted, yes, your Honour.

BELL J: Was there consideration of - the question as I understood the Solicitor’s response to Justice Nettle’s question, it was that under some provision of the Taxation Administration Act the taxpayer is confined in the review to the grounds of objection and I am not sure that section 27 of the State Administrative Tribunal Act gets you over that point if it is a good point.

EDELMAN J: Section 27 is just a general provision, is it not?

MR DHARMANANDA: In our submission, when I have looked at this point, I will look at it and tell your Honours more precisely but my recollection of the Taxation Administration Act is it does not have the limit that my learned friend has put.

BELL J: Well, it might be important to ascertain the position in that respect since if it be as we have been told the circumstance that the Court of Appeal without argument on the point granted leave and then found it unnecessary to deal with the matter may not really assist you very much.

MR DHARMANANDA: Yes, and I will come back to that.

BELL J: Yes, all right.

MR DHARMANANDA: It is always a little bit awkward to start in the middle of somebody else’s argument, but may I start where I had wished to start?

BELL J: Yes.

MR DHARMANANDA: Your Honours, may I say the critical issue in this appeal is whether the former partners already had a sufficient interest in the partnership lands when the 2013 deeds were made. That issue, in our submission, must be considered by reference to whether a dutiable transaction of a dutiable property arose by reason of each of the clauses 3 of those two deeds.

In our submission, it is necessary and fundamental to focus on the legislation. Under the Duties Act, a declaration of trust is dutiable only if dutiable property is the subject of the declaration and I am going to take your Honours to the Act pretty shortly. To qualify as dutiable property, relevantly, there had to be an interest in land declared to be held on trust. Because the former partners already had, in our submission, an interest in all partnership property, the partnership lands, even when legal title was held by Anthony and Maria, Maria could not and did not declare a trust over dutiable property. No new proprietary interest in land was created by clause 3 of those two deeds. We submit that the confirmation of trust did not give rise to a new specific and fixed interest in land to trigger a dutiable transaction when the two Acts, the Duties Act and the Partnership Act, are considered.

I need to go directly to the legislation. Can I first take your Honours to the Duties Act and that is in the joint appeal book volume 1, tab 3, page 11, if your Honours are working from that. Can I go to section 10? Can I take it, your Honours, that I do not have to give you the joint book of authority page numbers, or would you like them?

BELL J: I think we are all working off the Act.

MR DHARMANANDA: Okay, so I do not need to read those page references. Section 10, your Honours:

Duty is imposed on dutiable transactions.

Then, can I take your Honours first to section 15(a), where your Honours will see that:

Any of the following property is dutiable property –

and:

(a) land in Western Australia –

is what we are concerned with, and then take your Honours back to section 3(a), where there is an inclusive definition of “land” and your Honours will see in paragraph (a) that it includes:

any estate or interest in land –

In our written submissions we had referred to the Interpretation Act for that same conclusion, but that conclusion can be found in the Duties Act itself. Now, relevantly, your Honours, only dutiable property can be the subject of a dutiable transaction. That is made clear, if your Honours now to go to section 11 of the Act, and 11(1)(a) provides that a “dutiable transaction is:

(a) a transfer of dutiable property –

11(1)(b), a dutiable transaction is:

an agreement for the transfer of dutiable property, whether conditional or not –

and then 11(1)(c), a dutiable transaction is:

a declaration of trust –

and importantly:

over dutiable property –

Then skipping over a few, if your Honours then go to 11(1)(i), a dutiable transaction is also:

a partnership acquisition –

I need to go to other provisions of the Act to explain what is a partnership acquisition, but before going to those provisions it is apparent that section 11 makes a transaction dutiable only if in each case, relevantly, an interest in land is transferred, agreed to be transferred or created.

A partnership acquisition, I am coming to the partnership acquisition provisions directly, is a transaction that is treated as a transaction relating to land only if the partnership holds an interest in land. The provisions of the Duties Act proceed on the basis that the partnership, that is, the partners as a group, hold an interest in partnership property, particularly partnership land.

That idea of “hold” is connected to the idea that we say emanates from partnership law, which has been the subject of discussion over the last two days, particularly the external perspective, as it is put in shorthand. But I will hesitate to use that without making sure that my position on that issue is clear.

Can I take your Honours to section 9, which defines “partnership acquisition” as having the meaning in section 72 and then take your Honours to section 72. Section 72 provides that a partnership acquisition occurs when a person acquires a partnership interest, but only “in a partnership that holds” an interest in land. Section 75(1) provides that:

A person acquires a partnership interest if a partnership is formed or the person’s partnership interest increases.

Putting that shortly, section 74, your Honours, makes it plain that:

a partner’s partnership interest is to the greater of ‑

the partner’s capital or the losses “the partner is required to bear”. Sections 76 and 77 in effect provide that “The dutiable value of a partnership acquisition is” either the consideration paid or “the unencumbered value . . . of the dutiable property”.

As we have submitted, to be dutiable property, the partnership must hold an interest in land. The Duties Act is not concerned with levying duty over a partnership acquisition unless the partnership holds land and there is a change in the proportion of ownership. The Duties Act is concerned to levy duty under partnership acquisition by reference to the value of any change in the partner’s interest in land held by the partnership as partnership property.

As we have submitted, the Duties Act proceeds, therefore, on the footing that the partnership as a whole holds the dutiable property, not, for example, section 72 in the second line, where the word “holds” is used:

partnership that holds –

(a) land ‑

And then 77(1)(a), where it provides:

For the purpose of section 76(b), the value of a partnership interest in the subject of a partnership acquisition is the total of the following amounts –

(a) in respect of the dutiable property held by the partnership ‑

The Duties Act recognises that the partnership, consisting of all the partners in the partnership, hold an interest in the partnership property. The Duties Act does not treat a partner who may happen to hold the legal title to any partnership property differently from all of the other partners. So the focus is on the partnership property held for all of the partners.

That focus, in our submission, reflects the position under the law, to which I will come later, but as a matter of principle all of the partners have an interest in partnership property at all relevant times for the purposes of the Duties Act and the manner in which it imposes duty. That is the first point about why it is important to focus on the legislation and the fact that you have to have a declaration of trust of a dutiable property over some interest in land that had to be created by reason of clause 3 for there to be duty.

If we are right, and all partners had an interest as tenants in common, then nothing changed under clause 3. It was not as if there was a declaration of trust individually to each individual partner, there was a declaration of trust holding a trust, if it arose, with respect to all partners and successors as hands in common. Nothing changed. That is our primary point. Carrying on with the Act, because there are more provisions that matter, can I take your Honours to section 26(1)(a). Your Honours will see that it provides that, subject to the chapter:

duty is chargeable ‑

(a) by reference to the dutiable value of a dutiable transaction ‑

And then section 27 effectively provides that:

Unless otherwise provided . . . the dutiable value of a dutiable transaction is ‑

putting it shortly:

(a) the consideration for [it] . . .

(b) the unencumbered value of the dutiable property ‑

In short, if that is “greater than the consideration”. So, the focus for the levy of duty is the value of the dutiable property. The focus here must be on the value of the land interest that is the subject of the transaction. If no land or no interest in land is in truth transferred, agreed to be transferred, created or acquired, no duty would be payable. If no valuable land interest is moved, if I can use that neutral word for a moment, or created by the transaction, there is no dutiable property, nor any dutiable value.

NETTLE J: But that is all agreed, is it not? They are pushing on an open door on that front. The question is whether or not the deed resulted in the creation of new equitable interests in favour of the former partners and their successors.

MR DHARMANANDA: The question, your Honour, is whether anything that occurred involved a declaration with respect to a land interest. That is the focus. The point we are making is if a relevant land interest was always held by all partners and there was no change in that land interest, then there is no declaration of trust which is dutiable.

EDELMAN J: To come out – just out from the complications of partnership then, would your submission mean that if land is held on a discretionary trust for persons A, B and C and persons A, B and C and the trustee agree to collapse the discretionary trust and declare a fixed trust for persons A, B, C and D, there would be no duty payable.

MR DHARMANANDA: If D comes into it there could be duty payable because of D coming into it but if it is A, B and C then there are other provisions of the Act dealing with changes in trusteeship of that nature where if there is no change in beneficial ownership then there is no duty payable.

EDELMAN J: The example, then, if you keep persons A, B and C the same, the change is a change from persons A, B and C being objects under a discretionary trust to being beneficiaries under a fixed trust, but you say that would not be a dutiable transaction.

MR DHARMANANDA: Yes, we do because the inquiry is, relevantly, is there dutiable property that has moved.

EDELMAN J: How does that bit fit with 15(b) where 15(b) focuses not upon a land in Western Australia but on a right?

MR DHARMANANDA: The same analysis would apply in that. The inquiry will be has there been a shift in right sufficient for there to be a dutiable property.

EDELMAN J: Why is there not a shift in right? They have gone from merely being objects under a discretionary trust to having a fixed entitlement in the asset held on trust.

MR DHARMANANDA: In our submission, if there is that change then there may be duty payable but the case is not put that way in this case. This case is all about an assertion that there has been movement of dutiable property, namely, an interest in land.

NETTLE J: What is said against you is that the old equitable chose in action of due administration of each partner was extinguished, and in its place there was erected a fixed specific beneficial interest in the land the subject of the chose. That, it is said, is sufficient to come within declaration of trust, and thus to be exigible.

MR DHARMANANDA: In our submission, and I need to develop this by reference to the Partnership Act as well, but in our submission, to respond to your Honour Justice Nettle’s question directly, in our submission when one considers the two things that are occurring whenever there is a partnership and partnership interest it is the two things that Justice Gageler raised with my learned friend.

When one considers the restraint, because it is a business, because there are creditors, that constraint does not - its existence or the lack thereof goes to the question of land interest. It is a constraint on each individual partner being able to deal, whilst the partnership is going, with respect to the partnership property that they own as tenants in common, like with all the other partners.

NETTLE J: Is that consistent with Henschke?

MR DHARMANANDA: In our submission it is, and I will come to Henschke as well.

GAGELER J: Do you say, looking at clause 3 of the deed, what it declares on the day it comes into operation is exactly the position that existed the day before it came into operation, and that it has nothing to say about the partnership agreements which continued operation?

MR DHARMANANDA: There are two points, your Honour. It has nothing to say about a movement in land, using “movement” neutrally again. Secondly, it does have something to say about what the parties decided was going to happen with respect to their partnership and that, one has to go to the recitals and then clause 1 in particular.

That is an important point, and it is a point that Justice Nettle raised with my learned friend yesterday. It goes without saying, and it is the law under the Act and also under the agreement, if there is a dissolution you sell everything, surplus goes – you pay the creditors and then the surplus is received by the partners.

But that is precisely what they decided, agreed would not happen. They agreed instead that it was all owned, and they repeat, and I will come to this, owned and owned and owned, beneficially, beneficially, beneficially, in their umpteen recitals and then they say in clause 1, we are going to continue to hold it on trust. There is no more sale; the implied trust for sale is gone. I will come back to that, your Honour. Can I keep going through the Duties Act. Can I take your Honours to section 119 and your Honours will see 119 defines “new trustee” as:

a trustee appointed in substitution for a trustee or a trustee appointed in addition to a trustee –

and then section 119(3) provides that:

Nominal duty is chargeable on a transfer, or agreement for the transfer, of dutiable property –

(a) to a trustee as a consequence of the retirement of a trustee or the appointment of a new trustee –

and the words go on. But, in effect, it provides that:

Nominal duty is chargeable on a transfer, or agreement for the transfer, of dutiable property –

(a) to a trustee as a consequence of . . . the appointment of a new trustee –

in effect, if there is no change in beneficial interest. So the focus is, is there movement in beneficial interest and there are other provisions of the Act that deal with the same concept.

NETTLE J: So presumably the transfers from Maria Scolaro to Rojada were nominal duty?

MR DHARMANANDA: Correct, your Honour, and that is why they have not fixated upon clause 4 to levy us with ad valorem duty.

NETTLE J: Right. No one is relying on this provision in relation to the deeds insofar as it is said that they constituted new fixed specific trusts, are they?

MR DHARMANANDA: No, your Honour, but I am seeking to describe the structure of the Act and what its focus is.

NETTLE J: Very well.

MR DHARMANANDA: So if there is no shift in beneficial interest, a change in legal title is not dutiable at the applicable rates. One last provision ‑ a couple more provisions. Can I take your Honour to section 139(2)(a) and (b), which as your Honours would be familiar, in effect provide that “a transfer, or agreement for the transfer”, or “a declaration of trust over dutiable property” is chargeable only with nominal duty to the extent that it effects:

a distribution in the estate of a deceased person; and

(ii) there is no consideration –

that passes. Now, there is an interesting point that your Honours should notice, section 139(2)(b), which is dealing with the declaration of trust, proceeds on the basis that there can be a declaration of trust that effects a ‑ to use the word used by the statute ‑ “a distribution” of the “estate of a deceased person”.

So the schism between creation and transfer is actually noticed by the Parliament but it says, if there is a distribution which idea entails movement, even though that is by creation, whatever that might mean, there is only nominal duty payable. It goes back to the issue that Justice Nettle raised with my learned friend about paragraph 28 of Henschke: something goes, something else is replaced that is in effect a conveyance.

EDELMAN J: Well, the distribution from the estate of a deceased person would be a conveyance.

MR DHARMANANDA: That is the point ‑ ‑ ‑

EDELMAN J: It is a transfer of usually legal title.

MR DHARMANANDA: The point I am making, your Honour, is that that idea if contrasted with declaration of trust, is it a movement and a creation, and if it is such a thing, that idea sits conformably with the view taken in paragraph 28 of Henschke, to which I will return. That is that our section 78 argument, contrary to what my learned friend put, is not a backstop which does not work if we are wrong about our first two points. It works because what it does do is to say the logic of this Act, whatever happens, however it happens, if there is no proportionate change in partnership interests, no duties should be payable. That is why I am dwelling on it.

BELL J: Given that the Act makes specific provision in relation to declarations of trust over dutiable property in the context of the distribution of an estate of a deceased person, how does it strengthen your argument in relation to the provision respecting declarations of trust over dutiable property in 11(1)(c). We have here a specific exception in the case of the treatment of the distribution of a deceased’s estate.

MR DHARMANANDA: I think the argument we are making about 11(1)(c) is not dealing with distributions of deceased estates as such but the broader point about what is the nature of a partnership – what is the nature of partner to property and whether there is at all times a land interest in this case, property interest held by all partners such that no known declaration of renewed interest could be created.

BELL J: We may be at cross‑purposes. It is just that taking us to a provision that deals specifically with the distribution following a declaration of trust in relation to a deceased estate does not necessarily seem to me to bear on the issue with which we are concerned.

MR DHARMANANDA: I understand, your Honour. I think the reason why I also need to address it is in our case because there are two deceased estates and because certain things did move by reason of that and that is what the 2013 deeds also deal with ‑ ‑ ‑

BELL J: But clause 3 does not, does it?

MR DHARMANANDA: Clause 3 comes after the preceding clauses which deal with the transmission ‑ ‑ ‑

BELL J: The preceding clauses were the subject of partial success on your objection.

MR DHARMANANDA: Because of 139.

BELL J: Yes.

MR DHARMANANDA: Yes.

BELL J: But the declaration in clause 3 is discrete, it does not ‑ ‑ ‑

MR DHARMANANDA: We say not discrete but I understand your Honour’s point and I think I have answered your Honour’s question. I am not using 139 as a way of getting around whatever 11(1)(c) entails on its terms. I am saying 11(1)(c) does not apply because no dutiable property was, in fact, transacted by reason of clause 3. Your Honour, may I then take your Honours quickly to section 78 and I am going to come back to section 78 at the end but may I mention it now.

BELL J: Mr Dharmananda, just so I understand, are you saying that we take from the treatment in 139(2)(b) something about the concept of the transfer or agreement to transfer of dutiable property in 78?

MR DHARMANANDA: No, the point I was getting – no, I understand.

BELL J: No, I am trying to understand the significance.

MR DHARMANANDA: Yes. The significance of the point I was making, your Honour, is that this, 139(2)(b) ‑ ‑ ‑

BELL J: Yes.

MR DHARMANANDA: ‑ ‑ ‑ is dealing with twin subject matter which might be treated as not good bedfellows, namely declaration of trust, which is traditionally treated as creating something without anything being transferred.

BELL J: Yes.

MR DHARMANANDA: And yet it is talking about giving effect to a distribution, which is a word which seems to convey something transferred.

NETTLE J: But you are not contending, just to make it clear, that 139(2)(b) applies to clause 3 of the deed for the A & MMR Scolaro Partnership, insofar as it declares trusts in favour of the JASCO Testamentary Trust, the RASCO Testamentary Trust and the DASCO Testamentary Trust?

MR DHARMANANDA: The Commissioner has already accepted that to the extent that clause 3 declares trusts ‑ ‑ ‑

NETTLE J: In favour of those ‑ ‑ ‑

MR DHARMANANDA: ‑ ‑ ‑ for those successors ‑ ‑ ‑

NETTLE J: You are home?

MR DHARMANANDA: We were home, we were home. So we do not need to contend, we have already won that point, your Honour. But that is why we won that point, because of 139(2)(b).

EDELMAN J: It is really just an analogy you are developing.

MR DHARMANANDA: It is.

EDELMAN J: Through the statute, broadly to say that by treating in 193(2)(b) a declaration of trust as though, contrary to the situation, the correct situation in law, it gives effect to a distribution rather than, as might correctly be expressed, it creates a new interest that did not previously exist.

MR DHARMANANDA: That is the point.

EDELMAN J: You then say that in 78(2), one should look at the word “transfer” in the same way and “transfer” could also involve the extinguishment and creation of a new interest.

MR DHARMANANDA: Precisely, your Honour, that is our point, insofar as it goes – yes.

EDELMAN J: That is the point that the appellant says you have not taken, or you were not going to take, but you say you are taking this point.

MR DHARMANANDA: We are taking this point, that is to say, because of our primary point it is very hard to conceptualise, if we are right about our primary point, how section 78 could ever be engaged because there would be, on our primary point ‑ ‑ ‑

NETTLE J: It just would not be. It would not be.

MR DHARMANANDA: Exactly, your Honour. So then putting that conceptual point out of one’s mind and saying assuming we are wrong about that, and assuming we are wrong about the conversion point as it is described, if the Commissioner is saying something happened pursuant to clause 3, we say that something that happened involved an agreement to transfer because of the combined effect of what the 2013 deed provides.

NETTLE J: The trouble you would face then is that it would be both a declaration of trust and a conveyance.

MR DHARMANANDA: The analysis we would ask the Court to adopt is the same sort of analysis as the Court engaged in in Henschke, namely the idea that something gets destroyed and something gets created because on the Commissioner’s case, assuming we are wrong about our first point, there is a land interest that is somehow a land thing – a land impediment has been removed. That removal - and then it is a much more fixed - perfect rights have been created under 3. We say that involves the conception of conveyance ‑ ‑ ‑

NETTLE J: I understand that you do.

MR DHARMANANDA: Yes.

NETTLE J: But it would also involve the conception of trust. It would be exigible as both. It still does not get you out of the mire, as it were.

MR DHARMANANDA: In our submission, if we are in the territory of conveyance we are within the protection of 78, even if the declaration is involved.

NETTLE J: Why should that be so? If it is a declaration of trust is that not the more specific provision and thus applicable?

MR DHARMANANDA: In our submission, the parliamentary intent around 78 is to make no duty payable if in truth there is no change in the proportion of interest held by partners.

NETTLE J: I see.

EDELMAN J: So 78(2) would bite, for example, if, putting aside partnership, if there were a trust in fixed interests for A, B and C, and a new trust was declared, with perhaps some minor variation, in identical interests, for A, B and C.

MR DHARMANANDA: If it were a partnership property, yes. For the document is in agreement and then the conceptual point, which I will not repeat, about whether it entails ‑ ‑ ‑

EDELMAN J: It is there to deal with that sort of problem, amongst others.

MR DHARMANANDA: Yes. It is there to make clear that the Commissioner is not intent on levying duty if, ultimately, there is no change at all in the proportionate interest held by all partners. Can I go now to the Partnership Act - can I take it that I do not have to give you the volume?

BELL J: Yes, I think so.

MR DHARMANANDA: Thank you. May I, please, first take your Honours to section 27, and that sets out the powers of partners. Every partner can bind the firm, and then section 27(d) provides that every partner can borrow money and secure it by relevantly mortgaging:

real estate . . . belonging to the firm.

Now, partnership property can only be used for partnership purposes, but that does not mean that the partnership, being each of the partners, do not own the partnership property. In our submission, section 27 is premised on the footing that each partner in a partnership has power to grant an equitable mortgage over partnership land. The basis for that premise is, in our submission, an acceptance of the view that each partner has an interest in partnership land.

By force of the Partnership Act and the general law, partnership land is regarded as being held by partners as tenants in common, even where at law they hold as joint tenants, and we refer to that in our submissions at paragraph 39. Can I then take your Honours to section 29:

rights and duties of partners . . . may be varied by the consent of all the partners ‑

A partner cannot unilaterally deal with the partnership property in a manner that is not permitted by the Partnership Act. Because the partnership lands were partnership property, Maria did not have a right unilaterally to create any trust over those lands. Section 29 makes it plain that the partners’ rights and duties, including as to partnership property, cannot be changed unless all the partners consent or agree.

BELL J: Among other things, I understood the Solicitor’s response to this to be to say all the former partners or their successors in title were parties to the deed.

MR DHARMANANDA: I am going to come back to that but, yes, the Solicitor does say that and we accept that. That is a foundation for our agreement point for the purposes of section 78. They agree some things to happen, and not to repeat myself, the net result is if we are wrong about our first two points, they agree for something to move, they say that we declare a trust, that is, within 78. So, we embrace the Commissioner’s acceptance that Maria did not act unilaterally, and if she did not, the parties agreed – if the parties agreed, we are one step closer for 78 to be applicable.

NETTLE J: So, the focus is on 78 now really?

MR DHARMANANDA: No, no, your Honour, it is not. I am developing the primary point, but as I take your Honour through the Act, your Honour will see – I need to take your Honour through the provisions of the Act to make good the primary point. Can I then go to section 30(1) and it does a few things:

All property and rights and interests in property originally brought into the partnership stock, or acquired –

is called “partnership property”. Then, section 30(1), also in the last three lines expressly provides that the partnership property:

must be held and applied by the partners exclusively for the purposes of the partnership, and in accordance with the partnership agreement.

Two things, we submit, follow from 30(1). First, section 30(1) is the statutory source for the conclusion that partnership property is trust property held for the partnership by whomever has primary title. Secondly, section 30(1) is the statutory source of the constraint on each partner’s ability to deal with partnership property as if it were their own property. The constraint exists, of course, because a partnership is not a separate corporate personality. Each partner is bound to deal with partnership property so that the creditors of the partnership may be paid.

The constraint on each partner’s ability to deal with partnership property, in our submission, does not deny the fact that it is partnership property. Equally, the constraint does not deny the fact that each of the partners together have an interest in the partnership property regardless of who has primary title. In our submission, the mistake that the Commissioner makes is to treat the constraint as having the consequence that the partners did not at all times have an interest in the partnership lands.

The conclusion that partnership property is trust property is underlined by section 30(2). Section 30(2) expressly provides that partnership land devolves according to its nature and tenure and general law rules but, importantly:

in trust so far as necessary for the persons beneficially interested in the land under –

section 30. In our submission, the words of the last two lines of section 30(2) are clear and important. It is manifest that partnership land is held on trust. This is a real or true trust. It is not metaphorical in any sense. The reference to “persons beneficially interested in the land” is a reference to all of the partners. The partners, together, are beneficially interested in the land. The beneficial interest arises because of ‑ or to quote the word used in the section ‑ “under” section 30.

So considering sections 30(1) and (2) together, partnership property must be applied only for partnership purposes. But all of the partners have a beneficial interest in partnership property, particularly partnership land, at all times. Partnership property is held on trust, and that is a true trust. And contrary to what was put ‑ ‑ ‑

KEANE J: For the purposes of the partnership, do they include the payment of creditors?

MR DHARMANANDA: They do, your Honour.

KEANE J: So insofar as you say that it is a true trust, it is nevertheless a trust in relation to which the payment of creditors is an imposition on the interests of those beneficiaries – the partners as beneficiaries?

MR DHARMANANDA: It is, your Honour. In our submission, that does not affect whether the partners have an interest as tenants in common in the relevant partnership property.

EDELMAN J: In effect, they are trust creditors? The creditors of the trust become trust creditors, insofar as the assets are held on trust.

MR DHARMANANDA: Yes. And then that is why in Henschke the analogy is drawn, when dealing with a partner’s share – I will come back to that, why I put the point that way.

NETTLE J: How does that happen? The creditors have a right of recourse against the partners as individuals.

MR DHARMANANDA: They do, and the reason for that, your Honour, is because ‑ ‑ ‑

NETTLE J: Each of them are jointly and severally liable in contract, and jointly liable in tort.

MR DHARMANANDA: Yes, your Honour, and section 16 makes them jointly liable. But the reason, your Honour, that curiosity arises is because even though we speak as if the partnership is a separate person, it comes back to each individual partner having the responsibility and that is why it is the individual partner involved. But at the same time, each individual partner has a right – an interest in all partnership property. That is how we put it.

So there are two sides of ‑ there is right and liability. Because the partners are all personally liable, whenever land is held or any partnership property is held by – happens to be held as legal title holder by one, does not entail the conclusion that that one somehow peculiarly has it especially so that they can create an interest in another. That is our point.

EDELMAN J: This idea of a trust so far as necessary – this trust so far as necessary is not the same as the usual Anglo‑Australian trust where beneficiaries or the objects collectively of the trust can exercise Saunders v Vautier powers to collapse the trust and distribute the assets because that can be done without disillusion of the partnership.

MR DHARMANANDA: If all the partners agree, because it is a partnership agreement, they can do that very thing. They can do whatever.

EDELMAN J: But they are not doing it in their capacity as beneficiaries. They are then distributing assets in their capacity as partners, or as partners agreeing to make a partnership distribution.

MR DHARMANANDA: Your Honour, even accepting that, the different strictures by which the outcomes will be achieved, the point we make is for the purposes of determining dutiablity under the Duties Act, and considering the nature of partnership property and partnership interest, it is not correct to say that what happened under clause 3 engaged a creation of dutiable property. That is the point we make.

BELL J: Mr Dharmananda, if you about to move to something new we might take the morning adjournment now.

MR DHARMANANDA: May it please the Court.

AT 11.01 AM SHORT ADJOURNMENT

UPON RESUMING AT 11:16 AM:

BELL J: Mr Dharmananda, how are we going in going in terms of your outline?

MR DHARMANANDA: I have a little way to go, I will try and speed up so that we finish in proper time.

BELL J: Thank you.

MR DHARMANANDA: Can I deal quickly with the issue that was raised about the Tax Administration Act? My learned friend took your Honours to the book of further materials at page 141 when he made the submission that points we raised here did not raise the conversion point, if I can put it that way. There is a simple reason for that. If your Honours go back to page 134, the basis on which the Commissioner assessed, at that time, did not include an assessment by reference to 11(1)(c). The assessment at that time was under 11(1)(b), 11(1)(i), which is why the point relating to 11(1)(c) was not taken, but there is a direct answer to the question raised.

Can I take, in the core appeal book, the Court to page 32, which is, again, the decision of the Tribunal. Your Honours will see at point 30 on the page, a reference to section 40, which states that:

A person dissatisfied with the Commissioner’s decision on an objection or on an application for an extension . . . may apply ‑

and there are no limits to the basis on which that can be made. There used to be section 40(2), which was repealed by the State (Conferral of Jurisdiction) Amendment and Repeal Act 2004 and 40(2) of the Act as it stood previously read:

However, a taxpayer is not entitled to appeal against the Commissioner’s decision on an objection on a ground that was not raised in the objection, unless the court or tribunal to which the appeal lies is satisfied that the taxpayer should be allowed to introduce other grounds of appeal in the interests of justice and gives the taxpayer leave to do so.

Gone. So, as a matter of jurisdiction, the Tribunal did have jurisdiction, and so too did the Court, and there is one further point with respect to that – there are two points really. Can I draw the Court’s attention to paragraph 99 on page 44 of the Tribunal’s decision, and I will not read it in the interests of time, but there is recorded what could be seen as, what is described as the “conversion argument”, and then take your Honours to the Court of Appeal’s judgment at paragraph 86 on page 106, and the grounds of appeal in relation to which leave was granted, including the conversion point are set out, on page 106. Your Honours will note the first sentence:

The Commissioner does not oppose the application to amend the grounds of appeal . . . on the basis that it has leave to rely upon a notice of contention.

Coming back to section 30(2), contrary to what was put yesterday at transcript 21, we do rely explicitly on section 32 and it is in our written submissions at paragraph 71. I think that my learned friend said that it is neither here nor there but, in our submission, it is of some moment.

Could I please refer to Carter Bros v Renouf which is in the joint book volume 3, tab 16. The deceased, RJ Carter, in that case, had a life insurance policy. The question was whether the income benefit under the policy was payable to the deceased estate or to a partnership called Carter Bros. It was held that the income benefit was partnership property payable to Carter Bros. RJ Carter had taken the policy and provided a security to a creditor, Carapark, for a loan Carapark made to the partnership.

Can I take your Honours to page 162 of the report in the judgment of Justices Kitto, Taylor, Menzies, Windeyer and Owen at about point 5 on the page - it is then ordered by the Court:

It appears that before Fullagar J. the case was put as if it depended entirely upon the question whether R. J. Carter in his lifetime ever declared himself a trustee of the policy for the partnership.

Then further down that page at about point 9:

On the appeal, a different contention was advanced. It was submitted for the appellants that in the view of the payment of the premiums out of partnership moneys a decision that there was never any declaration of trust by R. J. Carter is not enough to dispose of the partnership’s claim to the proceeds of the policy: there remains a question whether the policy was not impressed with a trust for the partnership from the beginning, so that the beneficial interest in it did not vest even momentarily in R. J. Carter and that accordingly its character as partnership property does not depend on proof of any dispositive act by him.

Then, further down that page reference was made to section 23 of the Queensland Act which is – its equivalent is section 31 and it is there said - I will not read the paragraph in the interests of time - it is effectively said if property is acquired as partnership property it is as a consequence held on trust for the partnership.

The same point is made at the foot of the page at about point 7 on the page. It is said, putting it shortly again, if partnership money is used the conclusion must be drawn that the purchase was on account of the firm and, therefore, the purchasing partner is a trustee of the property for the firm. The trust to which the joint judgment referred, in our submission, was accrued trust, not metaphorical in any sense. So, whenever a partner acquires partnership property for the partnership, the property, in our submission, is held on trust for the partnership of the firm.

Can I then go to section 31 of the Act? The property bought with the partnership’s money is deemed to have been bought on account of the firm, unless a contrary intention appears. In our submission, the words “on account of the firm” confirm the idea of a true trust.

The Queensland equivalent, section 24, was relied on by the Court in Carter Bros at page 163 about point 8. I will not go back there. Again, section 31 is underpinned by the concept that partnership properties held on trust belong to the partners. Can I deal quickly with section 32, which is a small diversion. It provides, again putting it shortly, partnership land is to:

be treated as between the partners (including the representatives . . . as personal and not real estate.

Section 32 expressly applies as between the partners. Section 30(1) has already provided, as I have submitted, that partnership property is held on trust for all of the partners. Section 30 deals with the position as between the partners and the rest of the world. They own beneficially against the world. The purpose of section 32 was to avoid partnership land devolving to the heirs of the deceased, no more than that, and there is commentary that we have referred to in our submissions from Fletcher which explains it is as between the partners and it is noteworthy that the equivalent in the United Kingdom has been repealed because the consequences – you can get to the same point that we are getting to without the diversion of 32 because it is dealing with why partnership land does not go to heirs by assuming, asserting it is personal property for particular purposes.

Can I quickly take the Court to Chan v Zacharia. The Court is familiar with this given the exchange between the Court and my learned friend. As your Honours know – do your Honours all have it, do I need to? Chan v Zacharia is in the joint book at tab 17, volume 3. As the Court knows the issue was whether Dr Chan was entitled to make a new lease with respect to premises that had previously been leased by Dr Chan and Dr Zacharia in partnership. The Court knows it was held that the new lease was held on constructive trust with a dissolved partnership.

The judgment of Justice Deane at 193 to 194 is what we rely on. My learned friend read most of that to your Honours and I will not reread it. But, in effect, what we draw from that is Justice Deane rejected an argument made relying on Lord Westbury’s comments in Knox v Gye, where Lord Westbury described the relationship as only a metaphorical trust and not a real trust. That was precisely what Justice Deane rejected. Can I direct the Court’s attention to the cases to which Justice Deane referred, particularly at 194 at point 5 ‑ ‑ ‑

EDELMAN J: None of this is really in dispute, is it? I mean, the appellant’s position is, call it whatever you want, call it a trust, call it an interest, whatever you call it, it is an interest which is unascertained and does not relate to any specific item of the partnership assets. I do not understand you to dispute that.

MR DHARMANANDA: Our point, your Honour, is that it is a sleight of hand to yet treat that as if it is metaphorical in terms of property ownership. Our point is that even though – and we do not dispute it is unascertainable whilst the partnership is extant, that does not entail the conclusion that something new in terms of land interest can be created by Maria. So that is why to develop our point we need to take away the spin, if I can put it that way, that has been put on this material by my learned friend. On the one hand, he accepts it is owned beneficially. On the other hand, he elides the concept of what beneficial might mean.

EDELMAN J: I think his point is much, much simpler than that. I think, as I understand it, his point is simply that the interest has changed. The nature of the interest was effectively a floating interest and the nature of the interest after clause 3 is a fixed interest. Whatever labels one wants to put on it, the appellant says the interest has changed.

MR DHARMANANDA: Our answer is, whatever label one puts on it, an interest in land did not change. The constraint on the ability of individual partners to deal with partner share changed.

NETTLE J: The constraint informs the interest. It is because of the equitable obligations the subject of the constraints that the interests are determined.

MR DHARMANANDA: In our submission, that does not have regard to the duality, the two things that Justice Kitto speaks about that exist at all times. Each partner and every partner has an undivided interest in the partnership property and there is the constraint. If we take away the constraint that does not in any way increase the interest in land the subject of a dutiable transaction, for the purpose of the Duties Act.

NETTLE J: So, speaking for myself, the point that you have to grapple with is that it is the established authority of this Court that the nature of a partner’s interest in partnership assets is as the Solicitor‑General describes it, namely, an equitable chose in action effectively for due administration. That was the interest which existed prior to something happening, whether that be an agreement on your analysis or indeed on the Solicitor’s analysis.

MR DHARMANANDA: I am going to come to Henschke – and we do grapple with it. The distinction we draw is that Henschke is describing the nature of a partner’s share, as opposed to the description that exists, and replete in decisions of this Court, that the partners together own all of the property. One can analyse that without using labels by saying that judgment is that the partners have a property interest as good as all against the rest of the world. The regulation as between themselves, so that there is only an equitable chose in action they have with respect to the surplus, does not take away that first point.

I will come back to the authorities, your Honour, to deal with that very quickly. Can I make one observation, without going to it, about what Justice Mason said in DKLR in volume 3, tab 20, the Commonwealth Law Reports, the DKLR Case. There is a passage that we rely on, on page 459, point 7. In effect, if there is a declaration of trust, and a trust is created, usually the trustee will hold the beneficial interest commensurate with the beneficial interest sought to be brought into existence and we say because the partners already held an interest in each item of partnership property there could not have been the creation of a commensurate beneficial interest and, again, that is just making our “no dutiable property was the subject of any declaration” point by relying on that observation of Justice Mason.

Can I go to section 33 of the Partnership Act. This describes the meaning of “partner’s share” and in effect, a partner’s share is the surplus, if the partnership property were realised and all debts and liabilities were paid. It is, as the Court said in Henschke, an equitable chose in action. But the point we underline is there is a distinction between a partner’s share, expressly described in section 33 being an equitable chose in action, and the also accepted position that all the partners always hold a beneficial interest in all partnership property.

That distinction between those two things should not be elided, nor ignored. We submit the mistake the Commissioner makes is to disregard the accepted position and focus only on the nature of a partner’s share. Because a partner’s share is confined to a notional surplus does not entail the conclusion that the partners did not always hold an interest in all of the partnership lands.

The notional surplus, specified by section 33, is in effect the difference between the value of partnership assets and partnership liabilities. But that is not the whole story in terms of trying to describe the nature of partnership property and who holds what at what time.

Can I take the Court to section 42, and section 42 deals with the assignment of a partner’s share, and in effect an assignee is entitled only to share in the profits and not entitled to be involved:

in the management or administration of the partnership -

So while section 42, like section 32, deals with a partner’s share, that equitable chose in action, section 30, as I have already submitted, deals with how partnership property is held on trust for all of the partners. It is, in our submission, important not to confuse the two, and it is important not to draw false conclusions by reasoning from a false point that a particular partner only owns his or her individual partner share, to a conclusion that at no time do all of the partners hold a sufficient beneficial interest in partnership property so that something was allegedly created by force of clause 3. We say that distinction is most important, for the purpose of answering the issues raised under the Duties Act.

It is important to focus on that ultimate question. Was there a dutiable transaction of a dutiable property and the answer, we submit, was no. Only the constraint itself created by section 30(1) on dealing with partnership property was removed, no interest in land was created. The Duties Act, in our submission, does not impose duty on a transaction that involves no more than the removal of the constraint imposed by section 30 of the Act. That constraint, we submit, is not an interest in land. Can I take the Court to section 44? That simply provides that:

Subject to any agreement between the partners every partnership is also dissolved by the death –

So, in this case, Anthony’s death and then on John’s death there was dissolution. Can I take the Court to section 50? On a partnership’s dissolution, each partner is entitled to have debts and liabilities paid and to receive their respective surplus. Each partner is entitled to apply for the partnership’s winding‑up. That right, in our submission, does not negate the accepted position that all of the partners have a beneficial interest in all the partnership property.

Then, section 57(3) sets out what needs to occur on a partnership’s dissolution, but section 57(1) expressly provides that this is “subject to any agreement”. In our submission, the 2013 deeds involved an agreement that the partnership lands would not be sold and I will come back to that very shortly. So, section 57(3) provides for partnership assets to be applied in paying debts and liabilities and for the ultimate residue to be divided proportionately.

Again, we submit that the rules in section 57(3) for in effect the realisation of partnership assets and payment of any surplus does not negate the accepted position that at all times all the partners hold the beneficial interest in all the partnership property even if the partners previously did not hold a specific and fixed interest and even assuming that such arose under clause 3, in our submission, that does not make the transaction a dutiable one. The reason partners are constrained from dealing with partnership property is not because partners do not have an interest in all of the partnership property. Removal of that constraint does not involve the creation of any new interest in the land.

May I please make some submissions about the deeds, the 2013 deeds, and like my learned friend focus on the SIC partnership and your Honours can find that in the further materials at page 95. The intention of the parties was not for Maria to declare any new trust of the partnership lands. The deed also had the effect of the parties agreeing that the partnership lands would not be sold as contemplated by sections 50 and 57(3) and by the partnership agreement.

Can I take your Honours first to the recitals. My learned friend has taken you to them so I will do it as quickly as I can. Recital A, the SIC partnership was formed in March 1972. Recital B is important. Until Anthony’s death, the two parents and the three children were the partners. There is an error in recital B which my learned friend has already pointed out. I will not do it again. That is to say, Maria and Anthony held as partners separately, not through the other partnership. Nothing turns on that. Recital C:

As at 12 February 2011, Anthony Scolaro and Maria Scolaro held certain properties jointly as joint trustees for the Partnership.

That is what they have recorded. That is consistent with section 30 of the Partnership Act. The lands were held on accrued trust for the partners. Recital D:

Anthony Scolaro passed away on 12 February –

Recital E is expressly linked to recital C:

On the passing away of Anthony Scolaro, Maria Scolaro became the sole surviving trustee of the Properties. The Properties continued to be held on trust for the Partnership as before.

The Partners were well aware that the partnership lands were always held on a true trust. That is the language they use. Recital F:

On 26 September 2011, the legal title to the Properties was transferred into the sole name of Maria Scolaro as the sole surviving trustee.

But the last sentence makes the position plain:

The beneficial ownership of the Properties remained unchanged.

The reference to beneficial ownership is a reference to ownership as against the whole world. It is not just describing the position that is between the partners alone. Recitals G and H, they refer to clause 17 of the partnership deed and Maria’s right to elect to acquire Anthony’s share which was not exercised and refer to the other party’s right to elect to acquire Anthony’s share which, again, was not exercised. That meant that the partnership dissolved.

Recital J, as a result of the dissolution, there was no change in beneficial ownership of the lands. There is the error, again, describing the fact that 40 per cent was held by the AMS partnership. Recital K refers to the AMS partnership because it was thought that that 40 per cent was held. Again, nothing turns on that.

Recital L, on the SIC partnership’s dissolution the lands were beneficially owned by all five partners, or in the case of Anthony, by his estate. That is the language used. The objective intention of the parties to confirm the express trust in the case of the two properties ‑ and I want to go back to the point of yesterday ‑ and the trust confirmed by section 30, which is what we are relying on, in cases of all of the partnership land was clear.

Recitals M to U deal with the consequences of the death of Anthony, what his will provided, the death of John and its consequences, and as we have already submitted, transmission of property on death is subject only to nominal duty. The transmission on death cannot be a basis for levying duty at ‑ ‑ ‑

BELL J: I think all of this is uncontroversial. Are there particular points that you are taking us to in the recitals?

MR DHARMANANDA: I am underlining at each point in the recitals the reiteration of beneficial interest and trust is being made consistent, we say, with the law as it stands.

Recital V describes what is the consequence, and, putting it shortly, your Honour, save for the change in ownership caused by the transmission, the proportionate interest of the partners does not change. Again, “beneficially owned” is used. Then W deals with the partners and the successors’ relationship with Maria as trustee. W, in our submission, is not dealing with each partner’s equitable chose in action, the notional surplus.

W is dealing with the partner’s beneficial interest in the partnership land which have always been held on trust for them, a right as good against the world as any. So, W recognises that the former partners and successors do not wish to sell as contemplated by section 50 and 57. Instead, they decided to appoint a new trustee who was to continue to hold the partnership lands on trust. So, from that it follows – no new trust was intended to be declared.

Then, clause 1, your Honours, on page 100, 1a and 1b records what the partners had elected not to take up Anthony’s share once he records an agreement of dissolution. Clause 1d is the agreement that the lands were beneficially owned in exactly the same proportion as the partners always owned the lands. That describes the position as it always was before the transmission required by Anthony’s will or under the Administration Act.

So, in our submission, both before and after dissolution, the partners held an interest in the partnership lands as tenants in common. There was an agreement not to sell. So much was accepted by the Commissioner. Can I just take the Court to that? In the further materials at page 165, that is the Commissioner’s response to the objection, and the reasons start at 166 and then if I can take the Court to 172 at point 40, foot of the page, this is what the Commissioner said:

On dissolution, the partners were entitled to have the assets, relevantly, the subject land, sold and applied in accordance with s 57 of the Partnership Act. In the absence of an agreement to the contrary, s 50 of the Partnership Act implies a right to have the assets sold for cash. The Partnership Agreements contain analogous provisions. It appears that the AMSP and SICP were not wound up in accordance with these provisions. It also appears that the partners agreed that the properties would not be sold based on their intention as reflected in the 2013 Deeds to retain the properties under a trust arrangement. On this basis, any implied trust for sale of the land came to an end.

So, that is what the deed is doing and then it is appointing – it is confirming that Maria holds on trust. Can I deal very quickly with the points made against us on this? The Commissioner’s argument ‑ and it is written down in their reply submissions at paragraph 29 ‑ is that there was no conversion, nor reference to separation of proprietary interest. We do not contend for a separation of proprietary interest.

Rather, our submission is that the parties agreed that the lands would not be sold but would continue to be held on trust. They would still have an interest as tenants in common. The land would no longer be partnership property and that is what occurred under the deeds. The lands were no longer constrained by the effect of section 30. That does not entail any increase in the tenancy in common land interest held by all of the partners. That is the long and short of our primary point, and our point with respect to the “conversion”, as we put it, that occurred.

We make the obvious point in our submissions, and we make it again orally, when one looks at clause 3, the language it uses is important. It does not say Maria declares trust; it says Maria confirms what was the position always as regards beneficial ownership, and the position following the transmission. Maria did not declare any new trust. She could only, and did only, confirm the fact that the partnership lands were already held on trust for the former partners or successors; because clauses 1 and 3, because of those two clauses, the requirement to realise the partnership property under 50 and 57(3) changed.

At all times before and after clause 3, Maria held the lands for the partners and later successors as well, as if they were always – because they were – tenants in common with rights as against the whole world with respect to the partnership’s land. Can I now go to some of the cases on which we rely.

BELL J: Is this paragraph 10 of your outline? I am not sure that we are not going around in circles to some extent, Mr Dharmananda. I thought we had been through a number of the authorities to make the point that you contend respecting the nature of the interest, the beneficial interest of partners in property.

MR DHARMANANDA: We are precisely at paragraph 10, your Honour. In paragraph 6, I have taken the Court to Carter and Chan.

BELL J: What different point are you seeking to make by taking us to the cases in paragraph 10.

MR DHARMANANDA: So Seymour, your Honour, is a case where a partnership is treated as joint owners for the purpose of the Taxation Administration Act. They are partners, but they are treated as owners of the land, and that does not sit comformably with an idea that legal title holders of a partnership land somehow has the whole title, and the partners have something lesser.

My learned friend suggested that that turned on statutory interpretation but can I draw the Court’s attention to what was said by the court at page 316, without going there. The analysis was not just about the construction of the statute, but rather was about partnership law. In that case there was a curiosity. They were partners. They were individual owners of land, they were assessed for land tax as if they were owners of each other’s land, and the reason for that was because they were in partnership. There was also an agreement once the partnership ended they would take back their individual land interests.

So it is a strong case to support the view that once there is partnership, a partnership involved, all partnership property, even if individually owned by individual land owners, is treated as owned by each of them, each of them having a full interest in that land. In Thomas’ Case, which is under tab 24 ‑ can I tell your Honours very quickly about the facts and then take your Honours directly to Justice Kitto’s judgment on which we rely.

So the value of a deceased partner’s interest for the purpose of estate duty was determined by taking into account the goodwill of the partnership and also be taking into account the value attributed to his partnership interest by the remaining partners who exercised their right to apply his share. That value, exercise of the option, was treated as a ceiling; there was no right to add a further amount for goodwill. That is the context in which Justice Kitto spoke. Can I take your Honours to page 27 of the Commonwealth Law Report version and pick up what Justice Kitto said at about point 8 on the page:

Such a case is not one in which a person entitled to a share in a partnership has carved an interest out of that share and disposed of it by a dealing which equity will enforce. But neither is it a case in which a share in a partnership exists as something independent of the rights and obligations created by the option provisions, so that those provisions are to be disregarded in ascertaining the extent of the interest of the partner in the partnership property. The following passage in the dissenting judgment of Rich J. in Sharp v. Union Trustee Co. of Australia Ltd. (1) accurately states all that need be said on this point : “Business partners own between them the whole of the partnership assets, and each partner has a proprietary interest in each and every item. But his interest is not a fixed proportion of each item, nor is it an immediately ascertainable quantity of the item. It is an indefinite and fluctuating interest, which at any given moment is in proportion to his share in the ultimate surplus coming to him if at that moment the partnership were wound up and its accounts taken.

And there is a reference to cases ‑ ‑ ‑

EDELMAN J: None of that is controversial.

MR DHARMANANDA: The controversy, your Honour, is between the suggestion that because it is indefinite and fluctuating it is not real for the purposes of determining whether something new has been created.

KEANE J: No, it is real; it is real, it is just different.

MR DHARMANANDA: In our submission, it is not different in terms of a proprietary interest in land.

KEANE J: It is a different interest, and that is the point that Justice Kitto is making. It is a different interest; it is a real interest, but it is different from the interest that a beneficiary enjoys in a fixed trust.

MR DHARMANANDA: In our submission – if your Honours would permit me to read just the last part of that paragraph, after the cases:

No doubt, as between himself and his partners, his interest in individual items is subject to their right to have all the assets of the partnership for the time being dealt with in accordance with the partnership agreement, but his interest in them is none the less real for that –

So, the submission we make, your Honour, is ‑ ‑ ‑

KEANE J: He is describing the right of due administration.

MR DHARMANANDA: He is, your Honour. But, in terms of the nature of the proprietary interest with respect to land, our submission is that the proprietary interest is the same, the constraint is the difference. I will not go to Hendry, but we rely on our written submissions on that. Can I go to Haque v Haque and tell your Honours about it and just point your Honours to the passages on which we rely?

The deceased, in that case, died domiciled in India. He was a partner in two partnerships that held land in WA. For successional purposes, the question was whether the deceased’s interest in the land was movable or immovable and it was held by a majority that it was movable and, hence, the next of kin took. Can I refer your Honours to page 130 – again, Justice Kitto? At point 5 on the page, can I ask your Honours to mark:

The deceased in his lifetime had, in relation to each partnership, rights of two kinds.

Then, it describes the two different points that are made and the two interests held by each partner at all times. The externally focused interest put against the rest of the world is the proprietary interest on which we fix and we submit. The dealings – the agreements as between partners and as provided by the Act, not to be able to deal personally with that property does not change the question of land interest – putting it shortly. Justice Windeyer made the same point. His Honour was in dissent in the case but the point of principle your Honours will see at 147 to 148. I will not read that.

Can I go to Canny Gabriel which is volume 3, tab 15? Your Honours are familiar with the facts of the case. Can I take your Honours directly to page 327? My learned friend took your Honours to this yesterday and I rely on the passage – the large paragraph at the foot of the page and also the paragraph referring to In re Fuller’s Contract. I will not read it but there it is stated clearly by the Court that there is beneficial ownership in partnership property. Can I take the Court to page 328 and draw the Court’s attention to the new paragraph:

It is significant that s. 20(ii) of the Partnership Act, 1892, as amended (N.S.W.), treats a partner as having a beneficial interest in real estate belonging to the partnership for in this respect no distinction can be drawn between the nature of a partner’s interest in real estate and his interest in personal estate.

So, your Honour Justice Gageler raised a question about the difference, if there is one, between realty and personalty when it comes to this area. We apprehend that what is being said in that paragraph is ‑ the equivalent is section 30(2) and what is being said is, what is true with respect to real estate is also true with respect to personalty in terms of each partner has a beneficial interest.

Now, in our case it is all about realty, so nothing turns on it, but it is to emphasise that 30(2) or its equivalent is being treated by the court as giving rise to beneficial interests. And then the case cannot be distinguished on the basis that it was a contest between equitable interests ‑ prior equitable interests and equitable charge because as soon as one recognises that there is an equitable interest held by a partner, then there is an equitable interest in land, that is the nature of partnership property despite the constraint.

Could I now deal with Henschke, which is in the joint book of materials under tab 19. Your Honours know the facts, but may I tell ‑ get them back again shortly. As your Honours know, Doris Henschke retired from the Henschke Partnership, the partnership had goodwill valued at some $35 million, and then the partnership ‑ in paragraph 10 the Court notes the partnership:

had no legal personality ‑

Doris was paid $5.89 million in full satisfaction; that is paragraph 13. No partner, apparently, obtained her partnership property, nor her share, and the issue was whether that was right. And the Court held there was a movement, putting it neutrally, of her partner’s share to the remaining partners, which involved a conveyance on sale. The concept of conveyance is described in paragraph 17. May I go to paragraph 24, on page 517 of the report, where the joint judgment says:

Any such interest with respect to partnership assets was described by Dixon CJ as “a right in respect of assets but . . . a right, or a congeries of rights, growing out of the partnership articles”. As Windeyer J indicated in Bolton v Federal Commissioner of Taxation, the right is generally regarded as equitable and is “a fractional interest in a surplus of assets over liabilities on a winding up and in the future profits of the partnership business”. In Canny Gabriel Castle Jackson Advertising Pty Ltd v Volume Sales (Finance) Pty Ltd, McTiernan, Menzies and Mason JJ said that the interest of the partner is sui generis.

The position here is not sufficiently or accurately expressed merely by the use of the term “beneficial interest” any more than when considering the operation of discretionary trusts and unit trusts. The critical point, putting to one side the prospect of future profits, was examined by Kitto J in Livingston v Commissioner of Stamp Duties (Qld). It is that the interest of each partner can be ascertained finally only upon completion of the liquidation and the identification of any surplus share. That reasoning is reflected in the terms of s 39 of the Partnership Act, and exemplifies a proposition expressed by Viscount Radcliffe‑

The point we make about that passage, your Honours, is that is dealing with – the equivalent section is section 33, the partner’s share provision. It is not dealing with the question of the nature of the interest held by all partners in partnership property.

So it is focusing on the partner’s share because the way the transaction was structured, Doris Henschke’s share in the partnership apparently disappeared and the Court took the view, no, that is not correct. That share cannot be treated as somehow being an equitable chose in action as somehow being just obtained by the remaining partners.

GAGELER J: Do I understand part of your argument to be that here there had been a completion of the liquidation and the identification of the surplus share? Is that the way you say this ‑ ‑ ‑

MR DHARMANANDA: In our case, your Honour?

GAGELER J: Yes.

MR DHARMANANDA: No, neither occurred. But the point we are making is that even before that point in time, the inquiry is not about surplus. The inquiry is about what is the interest held by each and every partner. And we say, before and after, and at all times, the land interest is the same.

BELL J: And the position I think was that whilst the Court of Appeal proceeded upon acceptance that the current assets of the partnership were sufficient to discharge all partnership liabilities, there was no finding that those liabilities in fact had been discharged.

MR DHARMANANDA: That is correct.

BELL J: Yes, all right.

MR DHARMANANDA: But the Court of Appeal’s reasoning is effectively relying on those cases, including Holland, Ritson, Cameron v Murdoch and others, where when it is clear that there would be a surplus, and the relevant partnership is not insolvent, then you can give by will. But that, in our submission, says something about what the Court is doing.

BELL J: Well, there is a controversy about whether those cases establish you can give by will, in the sense of other than your partnership interest.

MR DHARMANANDA: Save that in Cameron v Murdoch, what was given by will was a particular proportionate interest in the relevant ML whatever the number is. So, in that sense, that is what it decided. It is more than giving that share, but rather, giving that property.

BELL J: Well, there is, I think, an issue between you and the Solicitor, relating particularly to the form of order 8.

MR DHARMANANDA: There is. So the submission we make about Henschke is Henschke does not sub silentio take away what the Court has said in Canny Gabriel and before that by Justice Kitto in a number of cases, and Justice Windeyer. What Henschke is directed to is the partner’s share in the surplus in the analysis that occurred, namely, her share just did not disappear into thin air ‑ one day there were four partners, the next day there were three and there is no movement of property. It is that that the Court was focused on based on the arguments that were before the Court.

The Court was not focused on changing the two different rights that have been described over and over again by the Court, namely, as against the world a proprietary interest held by each partner over all of the property and, two, the partner’s equitable chose in action. The only thing the partner can deal with individually is the equitable chose in action. The former is not subsumed into the latter and, in our submission, paragraph 25 is directed to the nature of a partner’s share. It is not directed to the underlying beneficial interest points made by Canny Gabriel.

We rely on Gray, but from what has passed between the Court and my learned friend, I do not need to read out what Lord Justice Hoffmann, as his Lordship then was, said about the two different perspectives as is put. I do need to underline that the case turned on the fact that each partner has a proprietary interest in that case in land, otherwise the Tribunal would not have had jurisdiction.

It was unnecessary ‑ if we are right about that ‑ for the Court of Appeal to take the next step of ascertainment that it did in its analysis, but we do say that when the authorities are considered, including Cameron v Murdoch and the authorities that are canvassed by Justice of Appeal Murphy, that the analysis is correct. The point raised by the Court yesterday that equity will treat as done only that which ought to be done and there needs to be an obligation to do that thing, but you cannot bootstrap it up, is of course correct. The submission we make is, if one looks at the 2013 deed in full and one appreciates that by force of clause 1 the implied trust for sale, they have agreed to get rid of it, now equity will come and assist that end. That is to say, equity will assist the end which is now freed of the constraint, but only freed of that constraint. There is ascertainable ‑ ‑ ‑

EDELMAN J: The Court of Appeal is using the maxim looking at the position prior to the 2013 agreement. It is not looking using the maxim of equity regarding that which ought to be done looking at the position after the 2013 agreement.

MR DHARMANANDA: In our submission, the judgment can be defended on the footing that I am putting, namely it is not open ended. You have.....situation whenever you do not even have an agreement for lease. That is not the point we are making. The point we are making is, under clause 17 using the SIC partnership it was to be dissolved, everything was to be sold, surplus paid to partners. They decided against that and they recorded more than 10 times in those documents that it was beneficially owned, beneficially owned and continued to be held on trust. They decided in clause 1 we are not going to sell, it is going to be held on trust and they confirmed that in clause 3. Equity would come to aid in that circumstance because the obligation, the agreement, is in clause 1.

NETTLE J: That is why the Solicitor says they have created an equitable interest of a new kind because from the moment that the agreement was executed equity would step in and enforce the trust declared by paragraph 3 of the deed.

MR DHARMANANDA: Your Honour, if we are right about the point that there is no movement in land interest ‑ ‑ ‑

NETTLE J: Then this does not assist. If you are right about that you win. If you are wrong about that then to say that equity would enforce this because there has been agreement does not avail you.

MR DHARMANANDA: In our submission, even when one considers what the parties objectively intended and goes through what they said was who owned what at what times, at all times they say it is owned by the partners beneficially. It is that that they bring into effect by agreement. There is sufficient ascertainability, in our submission, for the purposes of it being treated as ascertainable if ascertainability is required, but our primary point is ascertainability is not required. Our primary point is that at all times all property was held as tenants in common.

Can I last deal with section 78, and I have made, I think, many of the points in the course of argument, but can I say this. As I have said, if we are right about our primary point, we do not get to sell the......because there is nothing transferred, nor agreed to be transferred. But if we are incorrect then we submit section 78 would apply.

EDELMAN J: Is this point, about 78, one point or is it two. In other words, if you are incorrect on your primary submission, you rely upon section 78 as having been engaged on the basis that there is an agreement to transfer dutiable property.

MR DHARMANANDA: Yes.

EDELMAN J: If you are wrong about that, and perhaps it is just a trust that is created, there is no 78 point then that you rely upon, is there?

MR DHARMANANDA: If we are wrong that there is no agreement to transfer then we would not be able to rely on 78. But we rely on paragraph 28 of Henschke to make the point that there is in this case a transfer which is why earlier this morning I was dealing with the analogy of distribution and declaration seeming to occur at the same time.

KEANE J: But, as you see it, Henschke is about transfer of the partner’s share, it is not about the transfer of particular assets.

MR DHARMANANDA: In our submission, paragraph 28 is apposite in analysis to apply both to partner share and partner interests.

KEANE J: Well, not really, because as is apparent from the earlier parts of the case the concern was whether the transaction affected by the deed effected the vesting in the new partners of the partner’s share held by Mrs Henschke in the original partnership. The new partners had vested in them the chose in action consisting of her partner share in the first partnership because she basically stepped out of the second partnership.

MR DHARMANANDA: That is the argument that was put and rejected by the court, your Honour.

KEANE J: No, no, it is the argument that was accepted by the court.

MR DHARMANANDA: The court held that her equitable chose in action was conveyed rather than ‑ ‑ ‑

KEANE J: Because of the definition of “conveyance” which included a transaction or instrument whereby an interest is vested. That is the effect - the court held that that was the effect of the transaction that had occurred in relation to the deed. The relevant provision is at page 515, paragraph 17:

The term “conveyance” is defined in s 60 as including every instrument “by which or by virtue of which or by the operation of which . . . any . . . personal property or any estate or interest in any such property is assured to, or vested in, any person.”

It is at paragraph 20 their Honours accept the submission of the Commissioner:

the Retirement Deed was an instrument, in the terms of the definition of “conveyance” in s 60 of the Act, by which, or by virtue of which, or by the operation of which, personal property vested in the members of the second partnership. That submission should be accepted.

That is what their Honours are explaining in paragraph 28.

MR DHARMANANDA: That is true, your Honour. The point I am making is that the same analysis, if the analysis is conducted on Mrs Henschke’s interest in the property, would entail the same conclusion as in 28.

KEANE J: No, it would not, Mr Dharmananda, because the interest is the partner’s share which is the notional surplus. It is not an interest in the specific assets of the partnership.

MR DHARMANANDA: That is the way the partner’s share, the equitable chose in action was considered. The submission we are making is the idea that there can be an extinguishment and a creation and, in effect, that involves conveyance is an idea that is applicable if one is dealing with an interest in land as well. I am not making the submission they dealt with the underlying interest of Mrs Henschke at all, I am saying the conceptual point is the same.

NETTLE J: Mr Dharmananda, the definition of “transfer” in section 10 of the Duties Act is very different to the definition of “conveyance” to which Justice Keane has just directed you at paragraph 17 of Henschke. Does that detract from the argument at all?

MR DHARMANANDA: In our submission, no. It is inclusive. It is not exclusive. The concept of transfer – as used in this Act and as used in terms of focusing on, is there shift in underlying beneficial interests – not to repeat everything I have said about how the Act works ‑ ‑ ‑

NETTLE J: What I had in mind was that, whereas in Henschke one could well conceive of what was done as vesting an equitable interest in the remaining partners, when you look at this Act – that is to say the West Australian Act – that transfer, in its natural and ordinary meaning, means to convey something which is extant, rather than to vest something which is not necessarily in existence and that the definition of “transfer” in section 10 does not change that, but rather tends to corroborate it by referring to “assignment” and “exchange”.

You have the difficulty, it seems to me, if I may say so, that whereas in Henschke the extensive conception of conveyance was enough to treat what was done as being such – that the natural and ordinary meaning apparently given to “transfer” in section 10 of the Duties Act does not permit that because there was here no transfer of an extant interest but, rather, the extinction of old ones and the creation of new.

MR DHARMANANDA: In our submission, when one appreciates the logic behind section 78, all other things being considered, when there is no movement in underlying partnership proportion the Parliament intended no duty would be payable. Within that section, the idea is as we would put it.

One further point, perhaps, the logic that 78 – the way in which 78 approaches it – given what I have taken the Court to about how it is assumed by the Parliament that the partnership holds property – taking the external perspective, putting it shortly – given that logic, 78’s language reflects that logic, that is, if you assume you hold already, then the very point we are arguing about – how can you declare a trust over something you already hold – is why, as a matter of the way in which the drafter has put it, the drafter is focusing on what is left over. What is left over is if there is a transfer agreement to transfer when there is no movement in proportion of interest no duty ought to be paid. Assumption: of course no duty is paid if you declare a trust over the very same thing. May it please the Court, those are our submissions.

BELL J: Yes, thank you. Yes, Mr Solicitor.

MR THOMSON: Thank you, your Honours. In respect of our own appeal – which is against the reasons of the Court of Appeal – not much has been said in support of that, so I do not want to address that in reply. In respect of the notice of contention, ground 1, the theory of the case advanced by the respondent is that each partner has the same interest as a beneficiary of a bare trust in every partnership asset, subject to a constraint to deal with the assets for the partnership generated by section 30(1) and a partner’s right of indemnity against creditors.

We would respectfully adopt what Justice Nettle said, that the nature of the constraint that is contained in section 30(1), confines the interest and that can be evident from this point. If you look at the nature of the constraint it is to exclusively apply the assets for the purposes of the partnership and its business and that corresponds with the nature of the interest which has been acknowledged by the cases – that is, an interest in the profits of the business and a surplus upon the winding‑up. That is why the constraint has a different effect – has a confining effect – upon the very nature of the interest and does not just exist as some form of annexation to a fixed and specific interest of a beneficiary under a bare trust.

The nature of a business, as I have said previously, allows the dealing with the assets for the purposes of the business. Our friends, we say, have failed to grapple with a number of different things: one, that the cases describe the nature of the partners’ interest as sui generis. On their view, it would not be sui generis, it would be the same, but subject to this annexed constraint.

They have failed, we say, to grapple with the analysis and the understanding of Henschke, and all of the preceding cases since Sze Tu in the New South Wales Court of Appeal. We also say that in Henschke they try to confine it by simply saying that it deals with the individual rights of partners, whereas they are making a point about the collective entitlement of partners.

Well, with respect, Henschke did not try to do that. It was dealing with the nature of partners’ interests generally. We say you have to ask for what purpose the question is posed and we say all of the things that we have made in our primary submissions. But our submission would be that Henschke would need to be overruled in order to allow the respondent to rely upon their argument in ground 1 of the notice of contention.

Can I deal with ground 2 of the notice of contention, which is the question about the conversion agreement? Can I say this - I must apologise -there is no provision with the same strength of section 14‑220 of the Taxation Administration Act (Cth) confining people to the grounds of the objection. However, having said that, the agreement was not raised in the objection stage or, we say, before the State Administrative Tribunal in the context in which it is now relied upon.

If you look at paragraph 106 of the Tribunal’s decision, which is at page 44 of the core appeal book – sorry, it is paragraph 99, page 44 of the core appeal book. The reference to the agreement that is said to arise there was in the context of saying there was an agreement to transfer for the purposes of section 78(2). That is entirely different from the way it is now relied upon. It is relied upon to say that there was an agreement by way of clause 1(d) and, therefore, there was no effect in clause 3 that made it a declaration of trust and, therefore, duty was not properly assessed as a declaration of trust. That is a different way of putting it. I will come back to the significance of that when I come to section 78.

Before the Court of Appeal this question was raised as a ground of further appeal and we put on our position by saying, well, if they are allowed to deal with that then we contend that there was no agreement. In this Court we have appealed on the one ground that the court actually determined – the Court of Appeal determined. They raised the notice of contention about the existence of the agreement. We say as a matter of substance we ought to be able, if it is ever going to be determined, to rely upon the fact that there is no agreement and, if there is an agreement, it would be dutiable, because that is what we were going to contend before the Court of Appeal. But we have not put on any further notice of contention or anything of that nature because it was never determined by the Court of Appeal.

NETTLE J: But he is saying now, as I understood the submission, that the agreement is actually within the deed and therefore that one gets to clause 3. All Maria was doing was affirming what had already been agreed between the other parties should be the change in beneficial interest. So it is not as if he said there is another agreement out there dehors the deed. It is all within it.

MR THOMSON: Precisely. We contended before the Court of Appeal – and this is set out in paragraph 86 at page 106 – that if they were able to raise the fact that it was not clause 3 but clause 1(d) that had that effect, then we said that we should contend that clause 1(d) was itself a dutiable transaction. Now, that is not before the Court because of the way this has come procedurally to the Court, because the Court of Appeal did not determine the existence of the agreement one way or the other and therefore there is no question as to whether, if there was such an agreement under clause 1(d), it would itself be a dutiable transaction.

GAGELER J: That would be a new assessment, would it not?

MR THOMSON: Yes, that is exactly right. There are time limits upon assessments. If the time limit runs from the original assessment, it is five years. If the original assessment was on 25 August 2014, we would be out of time. But if it runs from the amended assessment, it would be 8 December 2015 and we would be able to amend it. All of this is a very procedurally unhappy situation that we find ourselves in by reason of this being an effective new ground that has never been adjudicated upon by any court prior to this stage.

GAGELER J: If you can issue a new assessment because you are not out of time, what is stopping you from doing it?

MR THOMSON: Well, no one has determined as yet that clause 1(d) contains a dutiable transaction.

GAGELER J: I am merely questioning whether this is something to be raised in these proceedings or in further proceedings if you take a particular administrative step.

MR THOMSON: Yes. I think our point is that the difficulty of raising it in the way that it has been raised as a notice of contention point leads to unfairness potentially, because we may or may not then have an argument as to whether or not we are able to have an amended assessment.

EDELMAN J: But that is only because the Court of Appeal did not deal with it.

MR THOMSON: Yes, I accept that, and because it did not deal with it is not a ground before this Court.

NETTLE J: It is one of those cases in which Kuru is not bad law; that is to say, the need for appellate courts to decide all of the grounds before them.

MR THOMSON: Yes. In any event, can I say these things about clause 1(d) and the fact why we say it does not have any promissory effect. There are no words in clause 1(d) which suggest that by that clause the parties agreed that there was a conversion of property into separate property of a fixed interest and, indeed, against the context of what the respondent says is the primary position that there was no need for that, it is an astounding thing to suggest that the parties thought that that was what they were doing and particularly against the context that there are contentions in the objection.

We say that in substance the effect of clauses 1(c) and 1(d) was that the parties agreed that their affairs should be governed by the acknowledgements made in the recitals and that the percentages specified in clause 1(d) and that was to avoid confusion about their entitlements and it was based upon an assumption about what had happened not because there was any promise to convert preceding equitable entitlements into the fixed entitlements under a bare trust.

We also point out that the effect of separating the property into fixed parts did not include all of the ultimate beneficiaries so that if you look at clause 1(d) it does not refer to everyone that would ultimately have the fixed entitlement and so for that reason we say that you could not construe clause 1(d) as having the effect of an agreement to convert. So, those are our submissions on the conversion agreement. In relation to section 78 ‑ ‑ ‑

NETTLE J: Just before you depart, presumably clause 1 is to be construed as permission from the beneficiaries to the trustee to change the terms of the trust or otherwise she would not be permitted to do so, would ‑ ‑ ‑

MR THOMSON: Yes, that is right, with the effect that she can do what she did in clause 3.

NETTLE J: You accept that is the correct construction?

MR THOMSON: Yes. Can I then deal with section 78 and the basis upon which section 78 operates? My friend in an exchange with his Honour Justice Edelman said that the basis upon which it is said to operate is that there is an agreement to transfer. The agreement to transfer, as we understand it, must be the agreement that comes from the so‑called conversion agreement so that was really our point. So, if you do not establish the conversion agreement you do not get to section 78. Somehow it is said that section 78 might have some application even if the conversion agreement ground fails. We are not quite sure how but let us make these points about the proper construction of section 78.

Section 78 deals with transfers. Can I point out that section 10 – sorry, section 11 of the Act, which is the provision that imposes duty, distinguishes between, on the one hand, transfers in section 11(1)(a) and declarations of trust in section 11(1)(c). What is suggested here is that somehow section 78 should be construed as relating to a declaration of trust as well as a transfer. We say that it is confined only to transfers and that is consistent with the statutory purpose of this provision.

The statutory purpose of the provision, we say, at a policy level is that the Duties Act taxes transfers of partnership property on the way into a partnership, and not on the way out of the partnership, but when new trusts are declared of the partnership property, that policy does not apply because that is a resettlement of the partnership property.

So that if what happens is you transfer property into a partnership and then it is just simply distributed out to the partners, then because you have paid the duty on the way in you do not have to pay it on the way out. But there is no intention not to catch up a new transaction, which is a declaration of trust in respect of the partnership property.

So as a matter of policy we say that it does not apply to resettlements and in truth what has happened here is a resettlement for all of the reasons that we have been through. In substance we say that is the complete answer to section 78 and those are our submissions.

BELL J: Thank you. The Court will reserve its decision in this matter. The Court will adjourn until 10.00 am on Tuesday, 12 November.

AT 12:37 PM THE MATTER WAS ADJOURNED