Commissioner of State Taxation v Cyril Henschke Pty Ltd [2010] HCA 43

HIGH COURT OF AUSTRALIA

FRENCH CJ,

GUMMOW, HAYNE, HEYDON AND KIEFEL JJ

COMMISSIONER OF STATE TAXATION APPELLANT

AND

CYRIL HENSCHKE PTY LTD & ORS RESPONDENTS

Commissioner of State Taxation v Cyril Henschke Pty Ltd [2010] HCA 43

1 December 2010

A4/2010

ORDER

1. Appeal allowed with costs.

2. Set aside the order of the Full Court of the Supreme Court of South Australia made on 29 May 2009, and in its place order that the appeal to that Court be dismissed with costs.

On appeal from the Supreme Court of South Australia

Representation

M G Hinton QC, Solicitor-General for the State of South Australia with M J Wait for the appellant (instructed by Crown Solicitor (SA))

M T Flynn with M St J R Butler for the respondents (instructed by Finlaysons Lawyers)

Notice: This copy of the Court's Reasons for Judgment is subject to formal revision prior to publication in the Commonwealth Law Reports.

CATCHWORDS

Commissioner of State Taxation v Cyril Henschke Pty Ltd

Stamp duties – Conveyance – Partnership – Dissolution of partnership – Retirement Deed effected retirement of one partner and reconstitution of partnership and continuation of business by remaining partners – Nature of partner's interest in partnership assets – Whether Retirement Deed a conveyance of interest in personal property – Whether satisfaction of retiring partner's interest and creation of new partnership assured or vested interest in personal property.

Words and phrases – "conveyance on sale", "dissolution of partnership", "equitable interest of partner".

Stamp Duties Act 1923 (SA), s 60.

Partnership Act 1891 (SA), ss 20, 39.

1. FRENCH CJ, GUMMOW, HAYNE, HEYDON AND KIEFEL JJ. For some 50 years a partnership as constituted from time to time has been carrying on a winemaking business under the name CA Henschke & Co. The trade marks under which the wine has been sold have included "Hill of Grace" and "Mount Edelstone". 2. The partnership has produced the wine from grapes purchased from independent growers or grown by the partnership at vineyards owned by entities and persons associated with the Henschke family under unwritten licences or similar arrangements. These vineyards include the Eden Valley vineyard and the Hill of Grace vineyard. At no relevant time has the partnership itself owned real property. 3. Immediately prior to 23 December 2004 the partnership was conducted under a written agreement dated 17 January 1986 ("the 1986 Partnership Agreement"). This provided that the interests in the partnership were held as to one‑third by Cyril Henschke Pty Ltd ("Cyril Henschke"), the first respondent; as to one‑third by Henschke Cellars Pty Ltd ("Henschke Cellars"), the second respondent; as to one‑sixth by Stephen Carl Henschke ("Mr Stephen Henschke"), the third respondent; and as to the remaining one‑sixth by Mrs Doris Henschke, the mother of Mr Stephen Henschke. Subject to the terms of the 1986 Partnership Agreement, the provisions of the Partnership Act 1891 (SA) ("the Partnership Act") applied to the conduct of the partnership. Clauses 22 and 23 of the 1986 Partnership Agreement provided for retirement of partners upon the giving of particular notice, with an option for the continuing partners to purchase the share of the retiring partner, and, in default of such purchase, for dissolution and winding up of the partnership. 4. The issue on this appeal by the Commissioner of State Taxation for South Australia ("the Commissioner") is whether an instrument identified as a Deed of Retirement dated 23 December 2004 ("the Retirement Deed") was a "conveyance on sale" within the meaning of s 60 of the Stamp Duties Act 1923 (SA) ("the Act") and thereby was charged with stamp duty pursuant to s 4 of the Act. 5. Section 4 of the Act is a provision which attracts the general principle that stamp duty is levied on instruments, not on the underlying transactions to which they give effect, so that it is a matter, in the present case, of ascertaining the subject matter with which the Retirement Deed deals according to its terms[1]. 6. Section 3 of the Act requires that the statute be read in conjunction with the Taxation Administration Act 1996 (SA), with the result that in the present case an "appeal" lay to the Supreme Court of South Australia from the determination by the Treasurer of South Australia upholding the assessment to stamp duty in the sum of $316,669 upon the Retirement Deed which had been made on 16 March 2006 by the Commissioner. The dispute came before the Supreme Court (Gray J) upon a Statement of Agreed Facts. The primary judge dismissed the appeal[2]. However, an appeal to the Full Court (Doyle CJ, Bleby and Layton JJ)[3] was successful and the assessment to duty was set aside. For the reasons which follow, the appeal by the Commissioner to this Court should succeed and the decision of the primary judge should be restored. 7. Clause 4 of an instrument dated 8 December 2004 ("the Sale and Purchase Agreement"), the parties to which included, but were not limited to, the parties to the Retirement Deed (set out below), had required the execution of the Retirement Deed in the form of a schedule to the Sale and Purchase Agreement. The Sale and Purchase Agreement dealt also with the sale of certain shares in Cyril Henschke and Henschke Cellars, the sale and lease of the "Home Gardens Vineyard" and the "Eden Valley Vineyard" respectively, and other matters. Stamp duty has been assessed and paid on the Sale and Purchase Agreement. Its execution followed lengthy negotiations between members of the Henschke family which had commenced in December 1997. 8. The Sale and Purchase Agreement did not deal with the assets of the partnership. The principal asset shown in the accounts of the partnership as at 22 December 2004 was "goodwill" valued at $35,218,559. In previous accounts no value had been shown for "goodwill" in the balance sheet of the partnership. The "goodwill" represented that associated with the "Henschke" brand name and the trade marks to which reference already has been made. 9. The parties to the Retirement Deed were Cyril Henschke, Henschke Cellars, Mr Stephen Henschke and Mrs Doris Henschke. The Retirement Deed recited that those parties were partners in the partnership constituted by the 1986 Partnership Agreement trading under the name "CA Henschke & Co". It recited the respective interests of the partners in the partnership, that Mrs Doris Henschke "wishes to retire from the Partnership" and that the instrument set out "the terms upon which [Mrs Doris Henschke] shall retire from the Partnership". 10. It is fundamental to an appreciation of the issues which arise on this appeal that the partnership conducted before the date of the Retirement Deed and under the 1986 Partnership Agreement had no legal personality distinct from that of the individual partners[4]. It follows that the partnership carried on with Mrs Doris Henschke as a partner before the Retirement Deed was not the partnership conducted thereafter without her. 11. The general principles with respect to retirement of partners were explained as follows by Eichelbaum CJ in Hadlee v Commissioner of Inland Revenue[5]: