Platinum Investment Management Limited v Chief Commissioner of State Revenue (No 2) [2010] NSWSC 1 (2 February 2010)

Last Updated: 3 February 2010

NEW SOUTH WALES SUPREME COURT

CITATION:
Platinum Investment Management Limited v Chief Commissioner of State Revenue (No 2) [2010] NSWSC 1


JURISDICTION:


FILE NUMBER(S):
1140/08

HEARING DATE(S):
26 October 2009 - 27 October 2009

JUDGMENT DATE:
2 February 2010

PARTIES:
Platinum Investment Management Limited (Plaintiff)
Chief Commissioner of State Revenue (Defendant)

JUDGMENT OF:
Gzell J

LOWER COURT JURISDICTION:
Not Applicable

LOWER COURT FILE NUMBER(S):
Not Applicable

LOWER COURT JUDICIAL OFFICER:
Not Applicable



COUNSEL:
B Sullivan SC and M Richmond (Plaintiff)
N Hutley SC, R Seiden and E Bishop (Defendant)

SOLICITORS:
PricewaterhouseCoopers (Plaintiff)
Crown Solicitor's Office (Defendant)


CATCHWORDS:
TAXES AND DUTIES - Stamp duties - share sale deed of scrip for scrip transfer of shares in a NSW company - consideration shares to be held by plaintiff as nominee - declaration of trust in share sale deed by plaintiff as nominee that it would hold the consideration shares in trust for the sellers of the sale shares - whether a declaration of trust over dutiable property - share sale deed dutiable on first execution under the Duties Act 1997, s 12(2) - consideration shares not to be issued until after completion of the sale of the sale shares- whether the consideration shares were future property on first execution of the share sale deed - consideration shares may have been entered in the register of members before first execution of the share sale deed - whether the consideration shares were then identified property or whether completion of the sale of the sale shares was a necessary final step - whether "property", "dutiable property" and "identified property" in the Duties Act include future property - whether the declaration of trust was over the right to the consideration shares

LEGISLATION CITED:
Duties Act 1997
Taxation Administration Act 1996
Stamp Duties Act 1920
Stamp Duties (Amendment) Act 1931
Income Tax Assessment Act 1936 (Cth)
Corporations Act 2001 (Cth)

CATEGORY:
Principal judgment

CASES CITED:
Wm. Cory & Son Ltd v Inland Revenue Commissioners [1965] AC 1088
Tooheys Ltd v Commissioner of Stamp Duties (NSW) [1961] HCA 35; (1961) 105 CLR 602
Truskett v Commissioner of Stamp Duties (1976) 6 ATR 1
Nev Ham Nominees Pty Ltd v Commissioner of Stamp Duties (NSW) 80 ATC 4500
Seppelt v Chief Commissioner of Stamp Duties (NSW) (1987) 19 ATR 911
DKLR Holding Co (No 2) Pty Ltd v Commissioner of Stamp Duties [1982] HCA 14; (1982) 149 CLR 431
Commissioner of Stamp Duties (NSW) v Pendal Nominees Pty Ltd [1989] HCA 19; (1989) 167 CLR 1
Federal Commissioner of Taxation v Spotless Services Ltd (1996) 186 CLR 404
Inland Revenue Commissioners v Duke of Westminster [1936] AC 1
National Westminster Bank Plc v Inland Revenue Commissioners [1995] 1 AC 119
Federal Commissioner of Taxation v Patcorp Investments Ltd [1976] HCA 67; (1973-1976) 140 CLR 247
Jones v Dunkel [1959] HCA 8; (1958-1959) 101 CLR 298
Central Piggery Co Ltd v McNicoll and Hurst [1949] HCA 19; (1949) 78 CLR 594
Federal Commissioner of Taxation v St Helens Farm (ACT) Pty Ltd (1980-1981) 146 CLR 336
Handbury Holdings Pty Ltd v Commissioner of Taxation [2008] FCA 1787
Trident General Insurance Co Ltd v McNiece Bros Pty Ltd [1988] HCA 44; (1987-1988) 165 CLR 107

TEXTS CITED:


DECISION:
The declaration of trust was over the consideration shares as future property. The declaration of trust was not over the right to the consideration shares. There was no declaration of trust over dutiable property. The defendant's assessment is revoked. The matter is remitted to the defendant for determination in accordance with the findings in the reasons for judgment. The defendant is to pay the plaintiff's costs.



JUDGMENT:

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION


GZELL J

TUESDAY 2 FEBRUARY 2010

1140/08 PLATINUM INVESTMENT MANAGEMENT LIMITED v CHIEF COMMISSIONER OF STATE REVENUE (NO 2)

JUDGMENT

Synopsis

1 In early 2007 it was resolved to convert Queens Hill Pty Ltd (QH) into a public company to make an initial public offering of its shares to the market.

2 As part of a preparatory restructure of the group, Andrew McRae Clifford and Jane Anne Clifford executed a share sale deed on 4 April 2007 by which they agreed to sell to QH their shares in McRae Pty Ltd, a New South Wales company. McRae held shares in Platinum Asset Pty Ltd (PAPL) as did QH and other members of the staff of PAPL.

3 The consideration for the sale by Mr and Mrs Clifford was the issue of shares in QH to be allotted after completion and to be held by Platinum Investment Management Limited (PIML) as nominee. PIML was a wholly owned subsidiary of PAPL.

4 The Chief Commissioner of State Revenue assessed the share sale deed to duty of $1,163,818.80 under the Duties Act 1997, s 8(1)(b)(i) which charges to duty an agreement for sale or transfer of dutiable property. A share in a NSW company is dutiable property in terms of s 11(1)(d)(i).

5 The Duties Act, s 294 provides that an instrument that contains or relates to several distinct matters for which different duties are chargeable under the Act is to be separately and distinctly charged with duty in respect of each such matter as if each matter were expressed in a separate instrument.

6 Acting under that provision, the Chief Commissioner also assessed the share sale deed to duty in the further amount of $1,163,818.80 as a declaration of trust. The Duties Act, s 8(1)(b)(ii) charges duty on a declaration of trust over dutiable property.

7 Both amounts of duty were paid, PIML objected to the declaration of trust assessment and seeks a review of the adverse decision on it by the Chief Commissioner under the Taxation Administration Act 1996, s 97(1).

The central issue

8 The dispute centres upon three provisions in the share sale deed. They are as follows:

“2.1 Sale and purchase

Each Seller sells to the Buyer and the Buyer buys from the Seller, the Sale Shares (together with all benefits, rights and entitlements accrued or attaching to the Sale Shares) free from Encumbrances in exchange for the Consideration Shares being issued to the Nominee and otherwise on the terms of this document.

2.2 Consideration Shares to be held by Nominee

(a) Unless otherwise agreed between the Buyer and the Sellers, all Consideration Shares will be issued to and registered in the name of the Nominee, which shall hold the Consideration Shares on behalf of the Sellers (who shall each be absolutely entitled to their respective Consideration Shares as against the Nominee).

(b) The Nominee shall also retain custody of the share certificates in respect of the Consideration Shares unless otherwise instructed by the Seller on whose behalf it holds an individual parcel of Consideration Shares.”

...

3.3 Obligations of the Buyer

As soon as practicable after Completion the Buyer must:

(a) issue the Consideration Shares to the Nominee to be held by the Nominee for benefit of the Sellers;

(b) register the Nominee as the holder of the Consideration Shares;

(c) deliver share certificates in respect of the Consideration Shares to the Nominee; and

(d) deliver or caused to be delivered to the Shareholder 1 signed copy of the Acknowledgment of Trust executed by the Nominee.”

9 Mr and Mrs Clifford were defined as the Sellers. QH was the Buyer. The Sale Shares were Mr and Mrs Clifford’s shareholdings in McRae. The Consideration Shares were the shares in QH and the Nominee was PIML. Completion was defined as completion of the sale and purchase of the Sale Shares under clauses 3.1 and 3.2. Clause 3.1 provided where Completion was to take place and clause 3.2 contained the obligations of the Sellers at Completion. Acknowledgment of Trust was defined to mean an acknowledgment of trust pursuant to which the Nominee acknowledged and declared that it held Consideration Shares on behalf of a Seller who was absolutely entitled to the Consideration Shares.

10 The central issue between the parties is whether cl 2.2 of the share sale deed is a declaration of trust over dutiable property.

11 The Duties Act, s 8(3) defines a declaration of trust as follows:

“Declaration of trust means any declaration (other than by a will or testamentary instrument) that any identified property vested or to be vested in the person making the declaration is or is to be held in trust for the person or persons, or the purpose or purposes, mentioned in the declaration although the beneficial owner of the property, or the person entitled to appoint the property, may not have joined in or assented to the declaration.”

12 The Duties Act, s 9(1) provides that the duty charged on a dutiable transaction in s 8(1)(b) (which includes a declaration of trust) is to be charged as if the dutiable transaction were a transfer of dutiable property. Section 9(2)(a) and the table to s 9(2) deem the property transferred to be the property vested or to be vested in the declarant.

13 Not only are shares in a NSW company dutiable property, rights to shares in a NSW company are also dutiable property because shares are defined in the Dictionary to the Duties Act to include rights to shares and rights to shares are defined to include any right, whether actual, prospective, or contingent, of a person to have shares issued by a company to the person, whether or not on payment of money or for other consideration.

14 The Chief Commissioner argues that the property vested or to be vested in PIML, and therefore deemed to have been transferred, was either the Consideration Shares or the rights to the Consideration Shares.

Property in existence

15 PIML argued that for cl 2.2 of the share sale deed to be exigible to duty as a declaration of trust over dutiable property, the property had to be in existence at the time of first execution of the share sale deed.

16 The Duties Act, s 12(1) provides that a liability for duty arises when a transfer of dutiable property occurs. But s 12(2) provides that if a transfer of dutiable property is effected by a written instrument, liability for duty arises when the instrument is first executed.

17 Liability for duty depends upon circumstances that existed at the relevant time determined by the Duties Act, s 12 (Wm. Cory & Son Ltd v Inland Revenue Commissioners [1965] AC 1088 at 1105).

18 It was argued that the requirement for identified property in the Duties Act, s 8(3) meant that there must be existing property when the share sale deed containing cl 2.2 was first executed.

19 The terms “property”, “dutiable property” and “identified property” in the Duties Act have not been the subject of judicial review.

20 But the forerunner of the Duties Act, s 164A was the Stamp Duties Act, 1920, s 76(1). It defined a lease to include any promise of, or agreement for a lease of any property, or a right to use, at or during any time or times, any property in New South Wales.

21 In JV (Crows Nest) Pty Ltd v Commissioner of Stamp Duties (NSW) 85 ATC 4198 at 4204 Lusher J held that future industrial property was not “property” within the Stamp Duties Act, s 76 as there was none in existence.

22 Paragraph 2(a) under the heading “Declaration of Trust” in the second schedule to the Stamp Duties Act was the forerunner of the definition in the Duties Act, s 8(3). It was in the following terms:

“Any instrument declaring that any property vested or to be vested in the person executing the instrument is or shall be held in trust for the person or persons or purpose or purposes mentioned therein notwithstanding that the beneficial owner or person entitled to appoint that property may not have joined therein or assented thereto.”

23 In all the decisions under that paragraph discussing a declaration of trust over property “to be vested”, the property in question was existing property and not future property (Tooheys Ltd v Commissioner of Stamp Duties (NSW) [1961] HCA 35; (1961) 105 CLR 602; Truskett v Commissioner of Stamp Duties (1976) 6 ATR 1; Nev Ham Nominees Pty Ltd v Commissioner of Stamp Duties (NSW) 80 ATC 4500; Seppelt v Chief Commissioner of Stamp Duties (NSW) (1987) 19 ATR 911; DKLR Holding Co (No 2) Pty Ltd v Commissioner of Stamp Duties [1982] HCA 14; (1982) 149 CLR 431; Commissioner of Stamp Duties (NSW) v Pendal Nominees Pty Ltd [1989] HCA 19; (1989) 167 CLR 1).

24 The words “to be vested” were inserted in the Stamp Duties Act, 2^nd Sch, Declaration of Trust, par 2(a) by the Stamp Duties (Amendment) Act 1931. No mention of this amendment was made in the second reading speeches in either House of Parliament.

25 There is nothing that indicates that the amendment was designed to include future property.

26 PIML argued that there was no reason to suppose that the definition in the Duties Act, s 8(3) effected any change from the Stamp Duties Act, 2^nd Sch, Declaration of Trust, par 2(a).

27 The amount of duty charged under the Stamp Duties Act, 2^nd Sch, Declaration of Trust, par 2(a) was:

“$200.00 or the same duty as would be chargeable if the instrument were a conveyance of the property comprised therein, whichever is the greater.”

28 It was submitted that the reference to property comprised therein meant that the subject of an exigible declaration of trust had to be in existence for only then could property be said to be comprised in a declaration of trust.

29 The Chief Commissioner responded that the Duties Act should be construed and applied according to its terms, not under the influence of “muffled echoes of old arguments” concerning other legislation. That was the phrase used by the High Court in Federal Commissioner of Taxation v Spotless Services Ltd (1996) 186 CLR 404 at 414. The court was considering Part IVA of the Income Tax Assessment Act 1936 (Cth) and commented that the observation of Lord Tomlin in Inland Revenue Commissioners v Duke of Westminster [1936] AC 1 at 19 that: “every man is entitled if he can to order his affairs so as that the tax attaching under the appropriate Acts is less than it otherwise would be” had no significance for the appeal before the court.

30 But Part IVA was very different from s 260 of the 1936 Income Tax Assessment Act, which it replaced. Here the draftsman of the Duties Act has followed the wording in the Stamp Duties Act with the presumed intention that judicial consideration of the latter should inform the former.

31 The Chief Commissioner submitted that there was no reason to construe the word “property” in the Duties Act as excluding future property. This was so particularly, it was submitted, of “dutiable property” in s 8(1), “identified property” in s 8(3), “dutiable property” in s 9(1), “property” in s 9(2) and “dutiable property” in s 11(1).

32 Counsel for the Chief Commissioner conceded that there were some items in the Duties Act, s 11(1) which were restricted to property in existence at the relevant time. Section 11(1)(g) included in dutiable property a business asset being: the goodwill of a business if goods had been supplied in New South Wales; intellectual property used or exploited in New South Wales; or a statutory licence or permission exercised in respect of New South Wales, each during the period of 12 months before the relevant time.

33 Since there was a user requirement up to the relevant time, it was conceded that that form of property had to be in existence at the relevant time.

34 PIML submitted that there was no reason to suppose that the other forms of property in the Duties Act, s 11(1) were also to be in existence at the relevant time determined under s 12. The Chief Commissioner submitted that the fact that one item in the list in s 11(1) was confined to existing property did not mean that the other forms of property within that provision did not apply to future property. The Chief Commissioner submitted that the Duties Act, s 11(1) was a definition provision and did not indicate one way or the other whether dutiable property must be property in existence at the relevant time.

35 PIML responded that while the Duties Act, s 11(1) is definitional, s 8(1)(b)(ii) requires an exigible declaration of trust to be “over” dutiable property and s 8(3) requires the property to be identified and that connotes existing property and there is nothing in s 11 to suggest that future property was intended to fall within the ambit of s 8(1).

36 It was submitted on behalf of the Chief Commissioner that if PIML’s contention was correct it would lead to the absurd result that rights to shares could not be the subject of duty unless the shares existed.

37 But, as pointed out on behalf of PIML, a right to shares encompasses a right to be issued shares by a company in terms of the definition of “right” in the Dictionary to the Duties Act to which reference has already been made. It might be thought that the draftsman who extended the definition of “shares” and included the definition of “right” in the Dictionary was aware that, otherwise, it might be that agreements with respect to shares to be issued and not then in existence might not constitute dutiable property unless the extensions were made. The result is that a right to shares is existing property even though the shares to be issued may not be.

38 The Chief Commissioner submitted that the words “to be vested” were wide enough to encompass property not yet in existence. It was submitted that this is the very situation that the words “to be vested” are intended to cover. Reference was made to Mason CJ making this observation in Pendal at 167 CLR 18.

39 In that case, shares were purchased under an agreement, a term of which required the vendor on completion to deliver to the purchaser transfers of the shares in favour of a subsidiary of the purchaser, which agreed to hold them as nominee for the purchaser, a provision similar to cl 2.2 of the share sale deed:

“R.D.C. shall on completion deliver to B.T.A. transfers of the ... shares in favour of P.N. and P.N. shall hold such shares as nominee for B.T.A.”

40 Ad valorem duty was paid on the agreement for sale and nominal duty on the transfers of the shares. The majority of the High Court held that the agreement for sale was also liable to duty under the Stamp Duties Act, 2^nd Sch, Declaration of Trust, par 2(a). Nominal duty was payable if par 3(b) applied. It was as follows:

“Any such instrument as aforesaid by which ... (b) the trusts declared are the same trusts as those upon or subject to which the same property was conveyed to the person declaring the trust by an instrument duly stamped with ad valorem duty under this Act ...“

41 Mason CJ concluded that the Stamp Duties Act, 2^nd Sch, Declaration of Trust, par 3(b) did not apply because it was the sale deed that was stamped with ad valorem duty and not the transfer. It was in that context that the Chief Justice made the observation upon which reliance is placed by the Chief Commissioner:

“In the result, however, it is unnecessary for me to decide upon the meaning and operation of the phrase. This is so, because in my view the property was not conveyed "by an instrument duly stamped with ad valorem duty". The instrument which was stamped with ad valorem duty was the sale deed, which conveyed only an equitable interest in the shares to P.N., by virtue of the agreement for sale contained in cl. 1.4. But the property in relation to which the declaration of trust was made, and thus the property referred to in par. (3)(b), was the legal interest in the shares. It cannot matter that at the time when the declaration of trust was made, PN did not possess this legal interest and could only pass an equitable interest in property to be acquired by it, because this is the very situation which the words "to be vested" in par (2)(a) are intended to cover and which par (3) deals with by the use of its opening words "[a]ny such instrument as aforesaid”.”

42 The shares the subject of the sale deed were in existence at the time the sale deed that contained the declaration of trust was executed. The observation of the Chief Justice does not assist the Chief Commissioner’s argument that property not in existence can be the subject of an exigible declaration of trust because of the phrase “to be vested”.

43 Of considerable weight in this debate is the argument that “dutiable property” and “identified property” must be construed in the context of the Duties Act as a whole. That context includes s 19 that provides that duty is charged on the dutiable value of the dutiable property subject to the dutiable transaction and s 21 which provides that the dutiable value of dutiable property that is subject to a dutiable transaction is the greater of the consideration (if any) for the dutiable transaction (being the amount of a monetary consideration) or the value of a non-monetary consideration and (b) the unencumbered value of the dutiable property.

44 At first execution of an instrument containing a declaration of trust, the legislation requires the property, the subject of the declaration of trust, to be capable of being valued and that suggests, strongly, that the property must be in existence at that time.

45 An estimate of the value of future property can be, and is commonly, made. But it is only an estimate. Until the property comes into existence, its unencumbered value cannot be ascertained. A change in the nature or size of the property and a change in value in the time before the property comes into existence will result in an unencumbered value upon coming into existence different from the estimate made of its value while it remained future property.

46 In DKLR at 149 CLR 455, Mason J pointed out that a declaration of trust over any property that the declarant might thereafter acquire would be effective to create a trust. But it would not fall within the Stamp Duties Act, 2^nd Sch, Declaration of Trust, par 2(a). His Honour said:

“Yet the class of declarations in par. (2) cannot embrace every declaration capable of operating as an effective declaration of trust in the technical sense. We have already noted that the liability of the instrument to duty is to be ascertained upon its execution. More importantly the amount of duty is equated to the amount of duty payable on a conveyance of "the property comprised therein". This indicates that the paragraph looks to a declaration affecting property which is capable of identification at the time of execution of the instrument so that it is then possible to compute the duty which would be payable on the conveyance of that property. The expression "the property comprised therein" is certainly apt to refer to a declaration which identifies a particular parcel or piece of property whether it is then vested in the declarant or whether it is intended to be vested in him sometime thereafter, even though in the latter case he has not then acquired any enforceable legal or equitable right to it.”

Mason J was talking about existing property as capable of identification. The draftsman’s inclusion of “identified property” in s 8(3) of the Duties Act enforces the view that the expressions in the legislation “property”, “dutiable property” and “identified property” mean property in existence at the relevant time prescribed in s 12.

47 While not free from doubt, the better view, which I adopt, is that the property the subject of a declaration of trust exigible to duty under the Duties Act, must be in existence at the relevant time specified in s 12.

Were the shares in existence?

48 There is a distinction between the issue of shares and the right to an issue of shares. In National Westminster Bank Plc v Inland Revenue Commissioners [1995] 1 AC 119 at 126, Lord Templeman put it this way:

“The Act of 1985 preserves the distinction in English law between an enforceable contract for the issue of shares (which contract is constituted by an allotment) and the issue of shares which is completed by registration. Allotment confers a right to be registered. Registration confers title. Without registration, an applicant is not the holder of a share or a member of the company: the share has not been issued to him.”

49 Before first execution of the share sale deed, a circulating resolution of the directors of QH was executed by which the company resolved to implement the restructure; resolved that the company execute specified documents; and resolved that any two directors were authorised to do all things necessary or desirable in connection with the restructure, including signing on the company’s behalf any other document, deed or agreement that the directors in their discretion considered appropriate or desirable to be executed for giving effect to restructure.

50 Initially, the Chief Commissioner argued that by these resolutions QH appropriated or created the Consideration Shares and they were in existence before first execution of the share sale deed. In final address, however, counsel for the Chief Commissioner conceded that the time at which the shares became distinct property was the time they were entered in the register of members of QH.

51 The restructure was effected by a tightly controlled sequence of events, the order of which was set out in a completion checklist. Clause 3.3 of the share sale deed made it plain that the Consideration Shares were not to be issued until after completion of the sale of the Sale Shares. The completion checklist recognised this and provided for the issue of the Consideration Shares after completion.

52 Roger Malcolm Halstead was a director and the company secretary of QH. He knew that he could not finalise the updating of the QH register of members until he received confirmation from the solicitors that the restructure had been completed. That occurred in the evening of 5 April 2007 when he received an email from the solicitors confirming the completion of the restructure.

53 Mr Halstead went to the office on 6 April 2007, Good Friday, to attend to the making of the necessary entries in the corporate records of QH, McRae and PAPL.

54 On a register of members sheet entitled “Summary – Queens Hill Pty Ltd” where the name of a shareholder would otherwise appear, with the ABN of QH where the address of a shareholder would otherwise appear, a number of entries going back to 1990 and showing the movements in the shareholding of QH had been entered by Michele Martinez, Mr Halstead’s operations manager.

55 The last entry that Ms Martinez made on the summary page with respect to certificate numbered 3, was an acquisition by Judith Lydia Patricia Neilson of 1 share, making the balance of the shares held by her 100.

56 As part of the restructure, QH split the 100 shares into 435,181,783 shares on 3 April 2007. On the summary page, Mr Halstead made an entry dated 3 April 2007: “Stock Split – JLP Neilson” with an acquisition of 435,181,683 shares giving a balance of 435,181,783 shares and a certificate numbered 4.

57 The Consideration Shares to be issued to PIML as nominee for Mr and Mrs Clifford totalled 38,793,950. The completion of the sale of the Sale Shares occurred on 4 April 2007. Mr Halstead made an entry on the summary page dated 4 April 2007: “PIML (McRae – Scrip for Scrip)” in that amount bringing the balance of the shareholding to 473,975,733 with share certificate number 5.

58 The restructure involved the staff of PAPL who held shares in QH selling those shares to QH in consideration for the allotment of QH shares to PIML as nominee for them. The number of shares to be issued by QH with respect to the staff was 87,024,267. The sale part of this restructure was completed on 5 April 2007.

59 As the last entry on the summary page, that Mr Halstead dated 5 April 2007, he put: “PIML (Balance – Scrip for Scrip)” and entered the number of shares to be issued bringing the balance to 561,000,000 with respect to share certificate number 6.

60 Mr Halstead said he regarded the summary page as part of the register of members of QH.

61 Share certificate 5 was partly completed by Ms Martinez. It was sealed and signed by Mr Halstead on 6 April 2007 and signed by Mr Neilson on 10 April 2007.

62 In the week commencing 2 April 2007, Mr Halstead asked Ms Martinez to prepare entries required to be made in the allotment journal and register of members of QH for his review and finalisation.

63 In the register of members of QH, Ms Martinez created a new sheet with the name and address of Mrs Neilson and an entry dated 3 April 2007 recording the share split and the issue of certificate number 4.

64 Ms Martinez created a sheet with the name and address of PIML showing the scrip for scrip transaction dated 4 April 2007 with respect to McRae and the 38,793,050 shares held under certificate numbered 5.

65 Ms Martinez also created a sheet with the name and address of PIML showing the scrip for scrip transaction dated 5 April 2007 with respect to PAPL staff and the 87,024,267 shares held under certificate numbered 6.

66 Ms Martinez entered a date of entry as a member of Ms Neilson of 3 April 2007, of PIML with respect to McRae of 4 April 2007 and of PIML with respect to the staff of 5 April 2007. This was appropriate. In Federal Commissioner of Taxation v Patcorp Investments Ltd [1976] HCA 67; (1973-1976) 140 CLR 247 at 272, Mason J said:

“The requirement in s. 151 that there should be entered in the register “(b) the date at which the name of each person was entered in the register as a member“ in my view refers, not to the date on which the entry was physically made, but to the date on which he should have been entered in the register as a member, that is, in the case of a subscriber to the memorandum, the date on which he subscribed and, in the case of a transferee, the date on which the directors approved the transfer, or resolved that it be registered.”

67 But that does not mean that shares come into existence retrospectively. In the case of an allotment, they come into existence when a three-stage process to which reference is made hereunder is complete.

68 Even if, contrary to my view, the effect of the entry in the register of members was that the shares came into existence at the date ascribed to the transaction in the register, that could only be by relation back to completion of the sale of the Sale Shares and that occurred late in the afternoon of 4 April 2007 and after first execution of the share sale deed.

69 Mr Halstead could not say when Ms Martinez entered these details in the register of members of QH. It might have been before the first execution of the share sale deed.

70 I do not regard the summary page on which Mr Halstead made entries on 6 April 2007 as being part of the register of members of QH for the purpose of determining when the McRae shares were issued to PIML.

71 The Corporations Act 2001 (Cth), s 169(1) requires a register of members to contain with respect to each member: the member’s name and address; and the date on which the entry of the member’s name in the register was made. The sheets created by Ms Martinez comply with that requirement. The summary sheet does not. It does not contain the address of the shareholders, nor their date of entry as members. It is what it purports to be, a summary of the entries in the register of members.

72 Mr Martinez was not called and no explanation for the failure to call her was given. I was invited to draw the inference that her evidence would not have assisted PIML (Jones v Dunkel [1959] HCA 8; (1958-1959) 101 CLR 298).

73 It was submitted that I could not be satisfied that the entries in the register of members of QH were made after the first execution of the share sale deed and PIML had failed to discharge its onus of proof that the Consideration Shares were not in existence at that time.

74 The complete allotment of shares in a company involves three stages. First, there is an executory contract with the company to take up a given number of shares, the company agreeing to appropriate that number (Ford’s Principles of Corporations Law, Looseleaf Service, [17-170]). Secondly, the allotment of the shares in the sense of an enforceable contract for the issue of the shares (National Westminster, supra). And thirdly, the issue of the shares, usually by entry of the allottee in the register of members.

75 The identification of the issue of the shares with entry in the register of members is because that is usually the last act in the three-stage process. But entry in the register of members may sometimes occur before allotment and if it does, it is not the final act in the process.

76 In Central Piggery Co Ltd v McNicoll and Hurst [1949] HCA 19; (1949) 78 CLR 594, McNicoll and Hurst applied for shares in the company; the directors resolved to allot the shares and they were registered as shareholders. But there was no notification of acceptance of the offers to take up the shares until a later date. Dixon J held that until that later date the shares had not issued notwithstanding registration:

“In the present case it is clear that neither McNicoll nor Hurst had become parties to a binding contract before 5^th October. There had been no communication to either of them accepting their offers, and there could be no contract until there was an acceptance. They were not masters of their shares and were in the position that they could repudiate. When they became the servants of the company they were not shareholders. The transaction was inchoate and did not become effective until there was a communication of the acceptance. On communication there was a culmination of the process and the shares were issued.”

77 That this was an appropriate analysis was confirmed by Aickin J in Federal Commissioner of Taxation v St Helens Farm (ACT) Pty Ltd (1980-1981) 146 CLR 336 at 427:

“It must be remembered that no person is a “member“ of a company (i.e. the holder of shares therein) unless and until his name is entered in its share register – see per Bowen L.J. in Nicol’s Case ((1885) 29 Ch D at 444) in the passage quoted above. That may not be conclusive for the register may be rectified, but it is essential as appears from s. 16 (5) of the Companies Ordinance 1962 (A.C.T.), a provision found in the Companies Acts of all the States and having its origin in the Companies Act 1862 (U.K.). That however is a step which may in some cases occur before allotment is complete by, e.g. communication to an applicant for shares of acceptance of his offer by “allotment” of shares to him, as was the case in Central Piggery Co Ltd v McNicoll [1949] HCA 19; (1949) 78 CLR 594.”

78 Central Piggery was cited with approval recently by Kenny J in Handbury Holdings Pty Ltd v Commissioner of Taxation [2008] FCA 1787 at [73].

79 In the instant circumstances there could not be an allotment in the sense of an enforceable contract to issue the Consideration Shares until consideration was given by completion of the sale of the Sale Shares and that did not take place until the afternoon of 4 April 2007.

80 So that, even if Ms Martinez made her entries before completion of the sale of the Sale Shares on 4 April 2007, there was no culmination of the process by which the Consideration Shares issued until allotment in the sense of an enforceable contract for the issue of the Consideration Shares.

81 It follows that on first execution of the share sale deed the Consideration Shares were not in existence and cl 2.2 did not constitute a declaration of trust over them as dutiable property.

82 If I be wrong in that view, I conclude that Ms Martinez carried out preparatory acts for Mr Halstead and the Consideration Shares were not registered until he approved those preparatory steps on 6 April 2007.

83 It was Mr Halstead as the secretary of QH who had the authority to enter up the register of members. Ms Martinez assisted in that process in an administrative way. But her actions were to have no effect unless and until Mr Halstead approved them.

84 On this basis, as well, it follows that the Consideration Shares were not in existence at first execution of the share sale deed and there was no declaration of trust over them as dutiable property.

Right to shares

85 The Chief Commissioner raised an alternative argument that the property the subject of the declaration of trust in cl 2.2 of the share sale deed was the right to the Consideration Shares in terms of cl 2.1.

86 There is a short answer to that. The clear intention of the parties was that the trust in cl 2.2 of the share sale deed was over the Consideration Shares and nothing else.

87 An express trust is dependent upon the intention of the parties. As Mason CJ and Wilson J said in Trident General Insurance Co Ltd v McNiece Bros Pty Ltd [1988] HCA 44; (1987-1988) 165 CLR 107 at 121:

“...the courts will recognize the existence of a trust when it appears from the language of the parties, construed in its context, including the matrix of circumstances, that the parties so intended. We are speaking of express trusts, the existence of which depends on intention. In divining intention from the language which the parties have employed the courts may look to the nature of the transaction and the circumstances, including commercial necessity, in order to infer or impute intention.”

88 Commercial necessity did not dictate that the clear language of cl 2.2 should be extended to include the right to the Consideration Shares.

89 As has been mentioned, PIML also executed acknowledgements of trust. In the one with respect to Mrs Clifford, PIML declared that it held 38,406,010 ordinary shares in QH and all dividends and rights attaining thereto upon trust for Mrs Clifford who provided the full consideration for the shares and was the sole beneficiary of such trust.

90 This document was executed on 4 April 2007 after completion of the sale of the Sale Shares. There was clearly no intention that the right to the Consideration Shares should be included in that trust.

91 That enforces the conclusion that arises from a consideration of the language used in cl 2.2 of the share sale deed that the subject of the trust was the Consideration Shares and not the right to them.

92 Reference was made to a number of provisions in the share sale deed and it was submitted that they were for the benefit of PIML as well as for the benefit of Mr and Mrs Clifford. I doubt that is the case with respect to cl 4.2 which provided that the Buyer warranted and represented to the Sellers as an inducement to the Seller to enter into the document that each statement in sch 5 was true. The provision means what it says. The warranties are extended to the Sellers and not to the Nominee.

93 There are provisions in the share sale deed that, arguably, are for the benefit of PIML as well as Mr and Mrs Clifford. But that does not alter the clear language of cl 2.2.

94 Reliance was placed upon an observation of Brennan J in Pendal at 167 CLR 20:

“If the shares are to be held on trust for B.T.A. when vested in P.N., P.N.’s right to enforce the contract for the sale of the Seven Hills shares is also held upon trust for B.T.A.”

95 This statement was made immediately following the following observation:

“Clause 1.4 does not wait upon the vesting of the trust property before it has effect. By cl. 9, P.N. acquires a right “both for itself and as nominee for B.T.A. in its capacity as trustee of the B.T.A. Property Trust” to enforce the agreement for the sale of the Seven Hills shares.”

96 If not a declaration of trust in its own right, cl 9 indicated that the parties intended that the promises in favour of PN would also be held on trust. That is not the situation in the instant circumstances.

97 The Chief Commissioner has failed to make out his alternative argument that cl 2.2 of the share sale deed is a declaration of trust of the right to the Consideration Shares.

Conclusion

98 It follows that cl 2.2 is not a declaration of trust over dutiable property and the Chief Commissioner’s assessment should be revoked.

99 In light of what I have said it is unnecessary for me to deal with the other issues joined in these proceedings.

100 It is unnecessary for me to determine whether the dutiable value of the Consideration Shares was $193,969,800, upon which the Chief Commissioner raised his assessment, or some lesser amount.

101 The Duties Act, s 55(1)(a) provided for a concessional rate of duty of $50 with respect to:

“a declaration of trust made by an apparent purchaser in respect of identified dutiable property:

(i) vested in the apparent purchaser upon trust for the real purchaser who provided the money for the purchase of the dutiable property, or

(ii) to be vested in the apparent purchaser upon trust for the real purchaser, if the Chief Commissioner is satisfied that the money for the purchase of the dutiable property has been or will be provided by the real purchaser,”

102 This provision emanates from the Stamp Duties Act, 2^nd Sch, Declaration of Trust, par 1. It provided for duty of $10 on:

“any instrument declaring that a person in whom property is vested as the apparent purchaser thereof holds the same in trust for the person or persons who have actually paid the purchase-money therefor.”

103 The Chief Commissioner accepted that the Duties Act, s 55(1)(a) applies to consideration in kind as well as a payment of money. He relied on the decision in Pendal at 167 CLR 32 that PN was neither the purchaser nor the apparent purchaser of the shares for the purposes of the Stamp Duties Act.

104 PIML pointed out that the Duties Act, s 55(2) provides that for the purpose of the section purchase includes an allotment. It submitted that PIML was the apparent allottee.

105 In light of my reasons PIML does not need the aid of the Duties Act, s 55(1)(a) and I do not need to resolve this issue.

106 The Chief Commissioner’s assessment dated 16 April 2007 is revoked. The matter is remitted to the Chief Commissioner for determination in accordance with the findings in these reasons. The Chief Commissioner is to pay PIML’s costs.

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LAST UPDATED:
2 February 2010