CITATION: Sanders -v- Chief Commissioner of State Revenue [2002] NSWADT 251 DIVISION: Revenue Division APPLICANT PARTIES: Basil Charles Sanders RESPONDENT Chief Commissioer of State Revenue FILE NUMBER: 026013 HEARING DATES: 04/09/2002 SUBMISSIONS CLOSED: 11/12/2002 DATE OF DECISION: 11/29/2002 BEFORE: Block J - Judicial Member APPLICATION: Duties Act - property passing to beneficiaries MATTER FOR DECISION: Principal matter LEGISLATION CITED : Duties Act 1997 CASES CITED: Darcy v Commissioner of Stamp Duties (unreported, Sup Ct, NSW, CA 11 September 1967 Vickery v Woods (1952) 85 C.L.R 336 APPLICANT REPRESENTATION: In person RESPONDENT H Roberts, solicitor ORDERS: 1. The decision under review is affirmed. 1 The decision under review in this matter is the disallowance by the Respondent of an objection by the Applicant dated 30 August 2001 against the stamp duty assessed in respect of a transfer dated 13 June 2001 of certain real property in Hornsby, Sydney (the "property") by Derek Reginald Sanders ("Derek") and the Applicant as transferors (and as executors and trustees in the estate of their late father) to the Applicant as transferee. The instrument of transfer (the "transfer") before me indicates that it relates to Folio Identifier 22/216367; paragraph (D) of the transfer and under the heading "Consideration" records that "The transferor acknowledges receipt of the consideration of $335000." Duty of $105656 was assessed and paid in respect of the amount of $335000. There is no dispute about the fact that the value of the property ascertained in accordance with clause 3 (d) of the will (referred to below) was in fact $335000. 2 This matter originally came before me for directions on 20 June 2002; I directed each party to file its submissions and a list of authorities within one month and set the matter down for a half-day hearing on 4 September 2002. 3 On the 28 August 2002 the Tribunal received a fax from solicitors representing the Applicant (Makinson & D'Apice) indicating that they had received instructions to act for the Applicant, that they intended to brief counsel and that they would appear on 4 September 2002 to seek an adjournment and to which the Respondent, having been approached, would not offer any objection. 4 On 4 September 2002 I attended at the Tribunal anticipating that the hearing would be of short duration in that it would be necessary only to fix a new hearing date. However the Applicant appeared in person and advised the Tribunal that he no longer intended to brief solicitors or counsel. The hearing before me on 4 September 2002 was nevertheless comparatively brief more particularly having regard to the fact that the documents and papers before the Tribunal (and including a written submission by the Applicant) appeared to cover the relevant facts. Accordingly I directed the parties to file submissions on the law, and for this purpose allowed 4 weeks to the Applicant, 4 weeks thereafter to the Respondent, and a further 2 weeks thereafter to the Applicant if he desired a right of reply. 5 The Applicant did not file any submissions within the period of 4 weeks allowed. On the 29 October 2002 the Registrar of this Tribunal notified the parties that I had extended the timetable for submissions, and in particular so as to allow the Applicant a further period until 12 November 2002 within which to file his submissions; the Registrar's letter noted that in default of submissions the matter would be decided without them. . 6 The Applicant did not file any submissions by 12 November 2002 or thereafter. I have considered the documents and the law and have come to the conclusion that I am able to issue a decision without waiting for submissions and notwithstanding that the period allowed to the Respondent has not as yet expired. I note in this context that the documents in the Tribunal file do include submissions by both parties as to the facts coupled with some references to the applicable law. 7 The late Reginald Charles Sanders (the "deceased") died on 29 October 1998. Clause 3 (d) of his will (the "relevant clause") reads as follows: "If at the date of my death I stand possessed of any real estate, such is to be sold for the best price reasonably obtainable and the proceeds thereof be paid to my Trustees upon the trusts in this my Will PROVIDED THAT in the event that either the said DEREK REGINALD SANDERS, BASIL CHARLES SANDERS or PAMELA DAWN COOKE wish to purchase any of such real estate the property is to be valued by two independent valuers and sold by my Trustees to such named beneficiary for a sum being the medial figure between the two independent valuations and the proceeds be part of the residue of my estate and be distributed upon the trusts in this my Will PROVIDED THAT if the property is purchased in accordance with this paragraph of this my Will then the sum payable by either of the said DEREK REGINALD SANDERS , BASIL CHARLES SANDERS or PAMELA DAWN COOKE , as the case may be shall be reduced by the expected distribution that the purchaser being either of DEREK REGINALD SANDERS BASIL CHARLES SANDERS or PAMELA DAWN COOKE as the case may be would have received from the sale of the property and payment of those proceeds into the residue of my estate BUT IN THAT EVENT the distribution to that person form the residue of my estate shall be adjusted to take into account the provisions of this clause of this my Will" 8 In accordance with clause 3(e) of the will the residue devolved upon each of Derek and the Applicant as to two fifths or 40% and as to Pamela Dawn Cooke ("Pamela") as to one-fifth or 20%. The deceased appointed Derek and the Applicant as his executors and trustees (the "trustees") 9 In a written submission dated 4 September 2002 by the Applicant the Applicant contended that in fact he bought 60% only of the real property, and that duty should have been charged only on 60% or $201000; he contended furthermore that an agreement of sale (not before me) had been prepared only at the request of the bank which provided him with finance, that it was not valid having been signed by only one of the Trustees, that the agreement of sale was not the "defining instrument in the transaction" but that rather the court orders (referred to below) were.. He went on to contend that the transfer was "prepared under the Court Orders to reflect the market value of the property, but this does not reflect the value of the consideration passing as I was only paying 60% proportion of the property to which I was not already entitled under the trusts of the Will"; (refer clause 4 of the Applicant's submission.) 10 As to how or why the matter came before the Equity Division of the Supreme Court (Bryson J) is not known to me. The relevant clause contained a regime where a child wished to purchase the property; there was no evidence before me, which would suggest that there was competition between the children as to the purchase of the property. If the Applicant wished to purchase the property and his siblings did not, I would have thought that the property would have been valued pursuant to the relevant clause and that the sale and transfer to the Applicant would have proceeded on the basis that he would pay the value so arrived at but taking into account the share of residue which he would receive in consequence of the sale. (I note in this particular context that the relevant clause did not provide for the possibility of competition between the siblings; furthermore and although it did provide for the purchaser to set off and deduct an amount referable to his or her share of residue resulting from the sale, it did not provide for the possibility that for other reasons and for example connected with debts of the estate, there might not be any or sufficient residue for this purpose) Be that as it may, directions were given by Bryson J in June 2001 inter alia as follows "If the defendant is to exercise the right of purchase confirmed by clause 3(e) of the will of the testator, the defendant is to comply with the following directions: (a) Plaintiff and Defendant or their respective attorney to attend before Registrar Berecry on the 2 July 2001 at 2pm to settle the sale of the property by the two executors to the defendant for the sum of $335000 (b) On settlement the plaintiff is to execute a Memorandum of Transfer of $335000 which the defendant is to produce at or before settlement. (c) The plaintiff and defendant are to cause the Certificate of Title to be delivered to the defendant/ (d) The defendant is to pay into Court on account of these proceedings subject to further directions of this Court in this estate the sum of $147500 and pay to the plaintiff the sum of $75000 and to Mrs Pamela Cook the sum of $37500." (I note that references in the direction to the defendant are in references to the Applicant and that references to the Plaintiff are references to Derek; there was apparently a dispute between Derek and the Applicant but I do not know whether that dispute related to them as trustees or as heirs; nothing turns on the fact that these aspects are not known to me; I note furthermore that I assume that the Applicant complied with the directions and made payments as directed. It will be noted also that the directions refer to clause 3(e) of the will whereas the relevant clause is contained in clause 3(d); it is clear that the directions relate to the relevant clause) 11 It will be noted that the Applicant was directed to pay into court $147500 and to pay $75000 to Derek and $37500 to Pamela The proceedings before Bryson J indicate that the amount payable by the Applicant was calculated by reference to 60% (or $201000) of the valuation of $335000 plus $59000 for "further consideration of entitlement and distribution" and more particularly "whether relating to any other matter which ought to be adjusted among the beneficiaries, whether relating to rates or other charges, costs, rent or any other charge". The payments to Derek and Pamela directed by the Supreme Court were calculated so as to have the effect that each of them received an amount which took into account their respective proportionate contributions to the costs and other items referred to. 12 The Respondent contends (and see his submission filed on 26 July 2002) in clauses 9 to 12 (inclusive) as follows: "9. In the respondent's submission, the correct interpretation of the will and the sequence of events is as follows. Derek Sanders and the Applicant as executors and trustees were the legal owners of the real estate. The applicant purchased the whole of the real estate from the executors and trustees pursuant to an "option" (for want of a better expression) in the will, by paying to the Estate the value as determined by the will. 10. In the respondent's submission, the transaction in question was a sale of the relevant property by the legal representatives of the deceased person to Basil for valuable consideration of $335000. The relevant "dutiable property" is a 100% interest in the land 11. The applicant argues that the consideration paid was only 60% for the value of the property and 40% was a "transfer [not made for valuable consideration]" thus, although the applicant does not refer to it, potentially invoking the section 63 exemptions in the Duties Act . This construction of the transaction is however contrary to the terms of the will which requires the purchase of the whole of the property by the relevant purchaser. The whole of of that purchase price then forms a part of the residue. The will does not provide for a transfer to the purchaser of a particular portion of the property in specie for no consideration and so section 63 does not apply. 12 Alternatively the applicant argues that the consideration paid for the whole of the land was only $201000. However, if this is the case then one returns to section 21 (1) to determinate the "dutiable value." To determine the "dutiable value" on must first determine the "dutiable property", which in this case is the whole of the interest in the land. The "dutiable value" is the greater of the consideration paid and the value of the "dutiable property". On the scenario the "dutiable value" would still be $335000" 13 Section 63 (a) of the Duties Act 1997 (the Act) provides: "(a) a transfer of dutiable property not made for valuable consideration by the legal personal representative of a deceased person to a beneficiary, being: (i) a transfer made under and in conformity with the trusts contained in the will of the deceased person or arising on an intestacy, or (ii) a transfer of property the subject of a trust for sale contained in the will of the deceased person, and ........". (subsections (b) and (c) not relevant) 14 The commentary on section 63 of the Act in Hills Duties Legislation provides (at page 1431) that: "Paragraph (a) of the section will only apply where the conveyance to the beneficiary is made without valuable consideration. In this context "valuable consideration" is to be equated to "full consideration in money or money's worth": Darcy v Commissioner of Stamp Duties (unreported, Sup Ct, NSW, CA 11 September 1967. The commentary then proceeds: "The transfer must be both under and in conformity with the trusts upon which the property is held. It is not sufficient that the transfer not be inconsistent with those trusts. Where there has been a family arrangement to vary the trusts of a will, a transfer to give effect to that arrangement will not be a transfer under and in conformity with the will". 15 In Darcy's case (supra) a majority of the Court of Appeal held that a transfer was not in conformity with the trusts of the relevant will. And in Vickery v Woods (1952) 85 C.L.R 336 the High Court held that a transfer was not in conformity with the sale agreement. Having regard to those decisions, and by way of example only assume that a testator leaves his estate to trustees on trust for his three minor children to be held on trust for them conditionally upon their attaining majority but provided that pending the attainment of their majority the trustees have power to advance property for the education and maintenance of any of them. A transfer of property to or on behalf of one of them in the exercise of that power of advancement would in my view not be in conformity with the trusts of the will even though it is not inconsistent with the trusts of that will. 16 The Applicant in this case has advanced a contention, which in my view is fundamentally incorrect. He argues that he had an entitlement to 40% of the property and so that in purchasing the whole property he purchased in reality 60% only. In fact and pursuant to the will he had an entitlement to residue but not to the real property, which was bequeathed to the trustees on trust for sale. The transfer to him of the property was not in conformity with the trusts of the will although it was arguably not inconsistent with the trusts of the will. On this basis the transfer cannot comply with subsection (i) of section 63(a). (a) of the Act. The possibility that subsection (ii) might apply was not raised by either party 17 In any event, each of subclauses (i) and (ii) can in its terms apply only to a transfer without consideration. The Applicant argued that he has paid consideration for 60% only and thus should not have paid duty in respect of the remaining 40% of the property. It is my view that the Applicant's contention does not accord with the relevant clause. On a proper analysis the Applicant as purchaser was obliged to pay the whole value for the property ($335000) but against which he was given a right to set off what he would receive from his share of the residue in consequence of the sale of the property; put in other words he was given the right to utilise a part of his residue entitlement by way of set off against the purchase consideration payable. Where a person makes a payment by set off he nonetheless makes a payment in accordance with principles of general law; (see "Payment Obligations in Commercial Transactions" by Professor Goode). This being so, there can be no doubt, in my view, that the Applicant gave full consideration for the property. The Supreme Court directions are consistent with this analysis and so for that matter is the transfer, which despite the Applicant's contentions to the contrary, was in fact the instrument pursuant to which he received the property from the trustees. 18 It follows then that section 63 can have no operation since each of the subsections on which the Applicant might seek to rely cannot operate where there is consideration, and as I have said, there was full consideration in respect of the whole of the property 19 If only for the sake of completeness, I note that I think that there is much to be said for the proposition advanced by the Respondent that the Applicant exercised an option to acquire the whole and not a part only of the property. This is not a case where it is possible to say that he was entitled to 40% of the property since his entitlement was to 40% of the residue only. And although it is my view that he paid for the whole property and as to a part through a set off utilising for this purpose his entitlement in respect of the residue, the provisions of section 21 of the Act which impose duty on the higher of the purchase consideration and the value (and it is common cause that the value was $335000) would then and in any event operate against him. But as I have indicated, I do not think that it is necessary to go that far since in accordance with the relevant clause he paid full consideration for the whole property. 20 It follows then that the transfer was correctly stamped and accordingly the decision under review must be affirmed. DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.