CITATION: 1 Rocky Point Pty Limited v Chief Commissioner of State Revenue [2010] NSWADT 19 DIVISION: Revenue Division APPLICANT 1 Rocky Point Pty Limited PARTIES: RESPONDENT Chief Commissioner of State Revenue FILE NUMBER: 096091 HEARING DATES: 20 November 2009 DATE OF DECISION: 21 January 2010 BEFORE: Verick A - Judicial Member CATCHWORDS: Dismissal of proceedings – misconceived or lacking in substance Administrative Decisions Tribunal Act 1997 LEGISLATION CITED : Land Tax Management Act 1956 Anti Discrimination Act 1977 Chief Commissioner of Land Tax v Macary Manufacturing Pty Limited [1999] NSWCA 471 Paliflex Pty Limited v Chief Commissioner of State Revenue [2004] 215 ALR 681 BBLT Pty Limited v Commissioner of the Office of State Revenue [2003] ATC 5063 Avitaia and ors v Chief Commissioner of State Revenue (RD) [2008] NSWADTAP 57 Margan v University of Technology, Sydney (EOD) [2003] NSWADTAP 65 CASES CITED: Assal v Department of Health, Housing & Community Services (1992) EOC 92-409 Nagasinghe v Worthington (1994) 53 FCR 175 Ebber v Human Rights and Equal Opportunity Commission (1995) 129 ALR 455 State Electricity Commission of Victoria v Rabel [1998] 1 VR 102 Dey v Victorian Railways Commissioners (1949) 78 CLR 62 Legal Services Commissioner v Ball [2001] NSWADT 86 APPLICANT I S Young, counsel REPRESENTATION: RESPONDENT A H Rider, counsel REASONS FOR DECISION 1 This is an application made by the Chief Commissioner to summarily dismiss the Applicant's application for a review of a decision of the Chief Commissioner to refuse to grant the Applicant the principal place of residence exemption under the Land Tax Management Act 1956 ("the Act") in respect of land situated at Lennox Head ("the Land") for the 2008 Land Tax Year. 2 The Chief Commissioner's dismissal application is made under s 73(5)(g)(ii) of the Administrative Decisions Tribunal Act 1997 ("the ADT Act") "as misconceived or lacking in substance because the relevant land was owned by a company" and that the principal place of residence exemption in s 10(1)(r) of the Act as provided by Schedule 1A of the Act, was denied by cl. 11(1)(a) of Schedule 1A. Factual Background 3 The following facts are not in dispute: 1. The Applicant is an incorporated company with Mr Holmes at the relevant time the sole director and shareholder of the applicant. 2. On 1 March 2005, Mr Holmes appointed the Applicant as his agent to enter into a contract to purchase the Land. 3. On 4 March 2005, the Applicant exchanged and settled the contract for $3.1 million. On the same day, Mr Holmes drew down the amount of $2,953,146.34 from his own National Bank Mortgage Account to pay the settlement monies under the contract. 4. On the taxing date for the 2008 land tax year, the Applicant was the sole registered proprietor of the Land. 5. On 17 January 2008, the Chief Commissioner issued a Land Tax Notice of Assessment to the Applicant to the Applicant for the 2008 Land Tax Year. 6. In a letter dated 5 February 2008, solicitors acting for the Applicant lodged an objection to the assessment on the grounds that the Land was Mr Holmes' principal place of residence who was "an owner of the land for the purposes of the Act and accordingly it was land exempt from taxation under that Act". It was further claimed that no part of Clause 11 of Schedule 1A of the Act "causes Noel John Holmes not to be entitled to the principal place of residence exemption as allowed by (clause) 2 of Schedule 1A of the Act". It was further claimed that Clause 2(3) of Schedule 1A made it clear that "if the owner of land is entitled to the exemption conferred by that clause no other person is liable for taxation under the Act in respect of land during the period of the owner's entitlement to the exemption" and that "accordingly 1 Ricky Point Pty Ltd is not subject to land tax in respect of the Land for the said Tax Year". 7. On 18 February 2008, the Chief Commissioner informed the Applicant's solicitors that the objection to the 2008 assessment was "held in abeyance under the power given by section 92(3) of the Taxation Administration Act pending the outcome of the proceedings for the 2006 and 2007 tax years" which were then at the Supreme Court. 8. The Chief Commissioner wrote to the solicitors of the Applicant on 15 June 2009 noting that the proceedings in the Supreme Court had been discontinued on 12 March 2009 and forwarded his decision on the objection. The Chief Commissioner advised that in Chief Commissioner of Land Tax v Macary Manufacturing Pty Ltd [1999] NSWCA 471 at p 68 et seq it "has been held that the Land Tax Management Act ('the Act') contemplates multiple taxable owners of land at the same time. Consequently, 1 Rocky Point Pty Ltd as the registered proprietor is the owner at law within the meaning of the definition of owner contained in section 3(1) of the Act. Similarly, it is accepted that Mr Noel J Holmes, having provided the purchase monies, is the owner of the land in equity within the meaning of the definition of owner contained in section 3(1) of the Act". Further in respect to the Applicant's submissions concerning clauses 2(3) and 11 of Schedule 1A of the Act, the Chief Commissioner advised "that clause 2(5) subjects the entitlement to exemption to the restrictions set out in Part 4, being clause 11" and "that no provision of the Act excludes the company from being an owner (such as for example section 21A(2)(c) of the Act)". 9. On 11 August 2009, an application was filed at the Tribunal for the review of the Chief Commissioner's objection decision. Submissions 4 The Chief Commissioner's case was that the "Tribunal should dismiss the Applicant's case under s.73(5)(g)(ii) of the ADT Act as "misconceived" or "lacking in substance" for the following reasons" - "20. In Chief Commissioner of Land Tax v Macary Manufacturing Pty Limited [1999] NSWCA 471 (17 December 1999), the Court of Appeal considered the fundamental concept of the meaning of 'owner' under s.3(1) of the Act, which applied in the Tax Year. Relevantly, Mason P held at [57] that the registered proprietor of land was an 'owner' for the purposes of the Act. Further, courts and tribunals have consistently followed the decision in Macary Manufacturing that the registered proprietor of land is an 'owner' of that land under the Act (See, for example, Paliflext Pty Ltd v Chief Commissioner of State Revenue (2004) 215 ALR 681 at [39]-[40] and BBLT Pty Limited v Chief Commissioner of the Office of the State Revenue 2003 ATC 5063 at [42]). 21. In this case, the Applicant was the sole registered proprietor of the land as at the taxing date for the Tax Year. The Applicant was therefore the (only) legal 'owner' of the Land for the Tax Year. The Respondent rejects any suggestion that the Applicant was not an 'owner' of the Land on that basis that it merely held the Land as nominee. In Macary Manufacturing , Mason P held at [59]: " The registered proprietor of an estate in fee simple holds (at law) an estate in possession notwithstanding the imposition of a trust requiring the proprietor to hold that estate on behalf of beneficiaries. Nothing turns on whether the trust is active or bare … " (emphasis added) 22. The Respondent accepts that Mr Holmes was an equitable 'owner' of the Land for the Tax Year, on the basis that the Applicant held the Land on a resulting trust for Mr. Holmes, who provided the purchase monies for the Land. However, nothing turns on this in these proceedings. 23. In summary, for the Tax Year, both the Applicant and Mr. Holmes were 'owners of the Land'." 5 It was also submitted that Part 4A of Schedule 1A "prevailed over cl.2(3)" and that as held by the Appeal Panel in Avitaia and ors v Chief Commissioner of State Revenue (RD) [2008] NSWADTAP 57 "Clause 11(1)(a)…precludes the application of the principal place of residence exemption to 'land…owned, or jointly owned, by a company'…". And it was further submitted that: "27. In this case, the Applicant, being a company, was an 'owner' of the Land for the Tax Year and was not a 'trustee company' (as defined in s.3(1) of the Act), nor was it acting in the capacity of trustee of a 'concessional trust' (as defined in s.3(1) of the Act). Therefore, under cl.11(1)(a), the PPR exemption did not apply to the Land. 28. Further, while cl.11(6) provided that cl.11(1) did not prevent the PPR exemption from applying to land owned by a company if a provision of the Act deemed a natural person to be owner of the land, to the exclusion of the company, there was no provision of the Act in the Tax Year which applied to deem any natural person (including Mr. Holmes) to be the owner of the Land to the exclusion of the Applicant – see ss.20 – 27 of the Act." 6 Mr Young for the Applicant submitted that the application should proceed to a full hearing because the issues raised by the Applicant involve serious and complex questions of law as both to the structure of the Act and correct interpretation to various provisions of Schedule 1A of the Act, which have not been previously considered by a court or the tribunal. In particular, it was submitted that no case has considered the position of "owner" under a resulting trust in relation to the principal place of residence exemption. It was also submitted that the cases relied upon by the Respondent can be distinguished. In Macary the court was concerned with a discretionary trust and not directly concerned with a resulting trust. In Avitaiva the land was part owned by the company. 7 In relation to the principal place of residence exemption, Mr Young submitted that this "is particularly the case concerning the interaction between clauses 2(3) and 11(6) then in turn impacting on clause 11(1)(a) of Schedule 1A". That when these provisions are properly examined, Mr Holmes as an owner is entitled to the principal place of residence exemption. Discussion and Reasons 8 Section 73(5) (g) of the ADT Act provides that the Tribunal "may dismiss at any stage any proceedings before it if it considers the proceedings to be frivolous or vexatious or otherwise misconceived or lacking in substance". In this matter, the Chief Commissioner seeks to have the application dismissed on the grounds that it is "misconceived or lacking in substance". 9 Neither party made submissions about the nature of the test that the Tribunal should apply under s 73(5)(g). 10 The terms "misconceived" and "lacking in substance" are not defined in the ADT Act nor have the terms been given any definitive meaning in cases where their interpretation has been considered. But some guidance is found in cases where the scope of these terms to dismiss proceedings summarily have been examined, particularly in cases relating to claims under the anti-discrimination legislation, for example s 111 of the Anti-Discrimination Act 1977. There is a useful discussion of the main cases in Margan v University of Technology, Sydney (EOD) [2003] NSWADTAP 65. In that case the Appeal Panel considered when an application can be dismissed under s 111(1) of the Anti-Discrimination Act, which is in similar terms as s 73(5((g). 11 The discussion indicates that essentially there are two different approaches as to when a matter should be dismissed without the need for a full and proper hearing. 12 The Federal Court in a number of cases (for example in Nagasinghe v Worthington (1994) 53 FCR 175 and Ebber v Human Rights and Equal Opportunity Commission (1995) 129 ALR 455) have adopted the approach suggested by Sir Ronald Wilson, sitting as the President of the Human Rights and Equal Opportunity Commission, in Assal v Department of Health Housing and Community Services (1992) EOC 92-409, 78,897, where his Honour said: "The meaning of the term 'lacking in substance' has been considered in a number of decisions of this Commission. My view … is that a claim which presents no more than a remote possibility of merit and which does no more than hint at a just claim would ordinarily, I think, be found to be lacking in substance." 13 The majority of the Court of Appeal of the Victorian Supreme Court have in State Electricity Commission of Victoria v Rabel [1998] 1 VR 102 disagreed with the approach suggested by Sir Ronald Wilson. The Court of Appeal was considering similar words found in s 44C of the Victorian Equal Opportunity Act 1981. Ormistan JA In regard to the test suggested in Assal Ormistan JA, who handed down the principal judgment, made the following observation: "I confess that I find that the test proposed, coming though it does from a very learned source, is neither precise nor helpful and should not be applied in interlocutory applications before the board or tribunal where it is sought to 'strike out' a claim on grounds expressed in the terms appearing in s. 44. Whether it is any more helpful when a commission is deciding whether to refer a claim to a tribunal or where, as in Assal 's case itself, it can fairly be applied during a hearing when effectively the whole of the complainant's evidence has been adduced, must remain to be decided at another time." 14 His Honour noted that "misconceived" usually connotes a misunderstanding of legal principle, whereas "lacking in substance" connotes an untenable proposition of law or fact and made the further observation that - "… the expression 'lacking in substance'… is synonymous with, and in no real sense different from, the expression used to describe those claims which are vexatious or otherwise such as be peremptorily terminated. In my opinion there is very good reason indeed for courts and tribunals to act with the greatest caution before dismissing a claim as groundless, whatever adjective or phrase is used to give (or reiterate) that power. It is expressed in a passage from the judgment of O'Connor J in Burton v Shire of Bairnsdale at 92, a passage repeated with approval by Dixon J. in Dey v Victorian Railway Commissioners at 91-2, as follows: "Prima facie every litigant has a right to have matters of law as well as of fact decided according to the ordinary rules of procedure, which give him full time and opportunity for the presentation of his case to the ordinary tribunals, and the inherent jurisdiction of the Court to protect its process from abuse by depriving a litigant of these rights and summarily disposing of an action as frivolous and vexatious in point of law will never be exercised unless the plaintiff's claim is obviously untenable that it cannot possibly succeed". 15 Ormiston JA concluded by formulating the test as follows: "In the absence of a proper hearing at which the complainant has an opportunity to call all relevant evidence there can be no satisfactory way of determining that a complaint should be dismissed at a preliminary stage, unless it can be demonstrated, either from the materials by which the complaint has instituted the claim or by reference to facts which would undoubtedly deny the complainant relief, that the complaint is so hopeless that it should be summarily brought to an end… a complaint cannot be dismissed ... unless it is clear beyond doubt that the complaint is lacking in substance, that is, that the complaint has no arguable case which should allowed to be resolved at a full hearing." 16 In Margan the Appeal Panel agreed with and adopted Ormiston JA's approach. 17 Although the cases regard these two as distinct tests, but as pointed out by the Tribunal in Legal Services Commissioner v Ball [2001] NSWADT 86 at [27] the distinction between the two tests is "of such subtlety as to make it unlikely that a choice between one formulation or the other would affect the decision in any but an exceptional case". 18 The onus was on the Chief Commissioner to show that the Applicant has no arguable case, in fact or law, which should proceed to a full and proper hearing. Broadly, the Chief Commissioner's case was that decision of the Court of Appeal in Macary was authority for the proposition that land owned by a company, as legal owner, made the company the owner for purposes of the Act and that a company is clearly not entitled to a principal place of residence exemption under Schedule 1A, a position confirmed by the Appeal Panel in Avitavia. 19 In Macary the Court of Appeal was asked to set aside certain assessments made against a trustee company because the land was held by it as a bare trustee on behalf of two individuals. In addition, the court was required to consider that if the trustee was the "owner", was there a special trust. The facts were not in dispute. The Commissioner had issued land tax assessments for the 1988-1996 land tax years on the basis that it was the owner of the land subject to a 'special trust" at the relevant dates. The trustee objected against the assessments on the ground that it held the land as a bare trustee for the individuals and alternatively, that if it was the owner, the land was not subject to a "special trust" and liable to tax at lesser rates. 20 The principal judgment was handed down by Mason P and on the first issue, Mason P (with Spigelman CJ and Sheller JA agreeing) held that the trustee was the owner for purposes of the Act for the following reasons: "In my view, the trustee was the 'owner' as defined, under both arms of par (a) of the extended definition. As the registered proprietor of an estate in fee simple the trustee was, by definition, 'at law … entitled to the land for [an] estate of freehold in possession'. The estate was in possession because the registered proprietor had a present right of enjoyment, as distinct from a reversion, remainder or expectancy: Glenn v Commissioner of Land Tax (Cth) (1915) 20 CLR 490 at 498, 501, 507. The registered proprietor of an estate in fee simple holds (at law) an estate in possession notwithstanding the imposition of a trust requiring the proprietor to hold that estate on behalf of beneficiaries. Nothing turns on whether the trust is active or bare. There will be an equitable estate or interest according to the terms of the trust. However, 'an equitable interest is not carved out of a legal estate but impressed upon it': DKLR Holding Co (No 2) Pty Ltd v Commissioner of Stamp Duties (NSW) (1982) 149 CLR 431 at 474, per Brennan J. In other words, the recognition of a trust does not detract from the estate in possession enjoyed by the trustee at common law. Indeed, the full enjoyment of that trust interest depends upon the trustee's capacity to defend against third parties the plenitude of the legal estate vested in the trustee." 21 Mason P then went on to examine the position of the trustee, as owner, in the context of the various provisions dealing with an owner's position under the Act - "Nothing in the definition of 'owner' in s 3(1) suggests that there can only be one taxable owner of land at any point of time. Indeed, there are overwhelming indications to the contrary, because of the words 'every person … whether at law or in equity' and because of the group of persons deemed to be owners by virtue of par (d) of the definition. A trustee is answerable as a taxpayer, obliged to submit returns and armed with various rights (s 64). Section 24 provides that any person in whom land is vested as a trustee shall be assessed and liable in respect of land tax as if beneficially entitled to the land. The owner of an equitable estate or interest is also liable as if he or she were the legal owner (s 25). Several provisions of the Land Tax Management Act contemplate multiple taxable 'owners' in respect of the same land at the same time: see ss 23, 24, 25, 26, 27, 30, 32. Double taxation is avoided through recognition of 'primary' and 'secondary' taxpayers, with the secondary taxpayer being entitled to a deduction for such amount (if any) as is necessary to prevent double taxation. As between the legal and equitable owner, the owner of the legal estate is deemed to be the primary taxpayer (s 25). However, that owner's rights of recoupment, retention and indemnity are recognised by s 64. None of these provisions assists the trustee's argument. And no question of double taxation arises in the present case. The trustee submitted that Sendall v Commissioner of Land Tax (Cth) (1911) 12 CLR 653 established that s 24 of the Land Tax Management Act could not be used as an independent ground of assessing a trustee who is not an 'owner'. I agree. But s 24 is not invoked in that way in this case." 22 The majority in this case also found that the trust was a special trust. 23 In Avitaia the relevant land was owned jointly by a number of individuals and a company. The individuals had claimed that the assessment for land tax in respect of the land should be reduced to take into account of the circumstances under which the individuals occupied the land. In particular, it was submitted that each individual occupied a defined portion of the subject land in the years under review as their principal place of residence. They claimed that "they should be relieved of the proportion of the overall land tax bill that matches those defined proportions" and that clause 11 of Schedule 1A to the Act did "not apply to preclude them being granted an exemption". The applicants had also submitted that their defined portions could be ascertained from a Deed entered into between all the relevant persons. The Appeal Panel agreed that "it was open to the Tribunal to conclude, as it did, that the relationship between the parties was primarily constructed as one based on the possession of separate share-holdings, rather than alienation of various portions of the property to separate equitable ownership". And as such they were not entitled to be considered as 'owners' for purposes of the Act. 24 The Appeal Panel also in passing, made "some brief comments on the arguments" as to operation of clause 11 of Schedule 1A, on the assumption that the applicants were equitable owners, as follows: "58 Had equitable partition occurred the appellants' submission was that the owners in equity are entitled in respect of their portions of land to be granted the exemption. This is said to be consistent with s 25(1), quoted earlier. It is also said to be consistent with cl 2(3) of sch 1A which provides: '(3) if the owner of land is entitled to the exemption conferred by this clause, no other person is liable to be assessed for taxation under this Act in respect of the land during the period of the owner's entitlement.' 59 The Commissioner contended that it is 'legal ownership, not equitable ownership, that forms the basis for valuation of land'. These valuations underpin the land tax assessment system. The basic provision of the Act is s 7 which provides: 'Land tax at such rates as may be fixed by any Act is to be levied and paid on the taxable value of all land situated in New South Wales which is owned by taxpayers (other than land which is exempt from taxation under this Act),' 60 The valuation of land takes place under the Valuation of Land Act 1916 . The primary provision is s 6A which provides at sub-section (1): ' 6A Land value (1) The land value of land is the capital sum which the fee-simple of the land might be expected to realise if offered for sale on such reasonable terms and conditions as a bona-fide seller would require, assuming that the improvements, if any, thereon or appertaining thereto, other than land improvements, and made or acquired by the owner or owner's predecessor in title had not been made.' 61 The Commissioner's argument is that the valuation made by the Valuer General is made in respect of the allotment as shown on the certificate of title. The Commissioner submits that 'there is no mechanism within the [Act] for assessment of land for a notional – but not legal – subdivision of property. Such a parcel of land is treated as one parcel for both valuations and land tax assessment'. 62 As to the Act's definition of ownership of land so as to include equitable ownership, the submission is that this extended meaning (per s 25) is, in effect, a one-way provision designed to protect the revenue. It is directed to ensuring that arrangements that might otherwise escape the ambit of the Act are captured, not to widen the principal place of residence exemption. 63 The courts have referred to the close inter-relationship of the valuation system and the land tax system: see, for example Ryan v Chief Commissioner of Land Tax [1972] 1 NSWLR 305, McMillan v Chief Commissioner of Land Tax [1972] 1 NSWLR 545. It is difficult to see how the Commissioner could operate this system other than on the face of the Register and having regard to valuations made on the face of the Register. In `our view, the Commissioner's arguments have merit." 25 I do not think either case assists the Chief Commissioner. The cases dealt with matters and issues that only arise indirectly in this matter. The real issue that the application raises is the position of an individual who is for the purposes of the Act an 'owner' in addition to the legal owner, which is a company and bare trustee. The real question is whether there is any provision in Schedule 1A that clearly precludes the equitable owner from the exemption in those circumstances. Schedule 1A merely speaks of "owner" and precludes an owner which is a company. The Schedule makes no provision as to the position of any other owner where the owner is a company and the question arises if there is a lacuna in Schedule 1A in respect of this issue. I think there are several other issues that need to be considered in this matter. Clause 11 needs to be fully considered to determine whether it excludes the exemption to the equitable owner, even if he or she otherwise satisfies all the requirements set out in Schedule 1A where the legal owner is a company. Whilst s 25 makes a distinction between the primary owner and the secondary owner but treats the "owner of an equitable estate or interest in land as if he or she were the legal owner of the estate or interest". 26 The Court of Appeal in Macary was only required to consider if a trustee company that was merely a bare trustee was owner of the land. The Court of Appeal held that the trustee company, being entitled to the land for any estate of freehold in possession, was an owner under the definition of 'owner' in s 3 of the Act. The Applicant in this matter accepts that the trustee company is the legal owner but takes the view that that should not affect the position of the equitable owner for purposes of the exemption under Schedule 1A. That was not an issue considered in Macary. Nor was that an issue in Avitaia. In Avitaia the Appeal Panel was only required to determine if under the Deed the individuals in question acquired any equitable or legal interest in the land. It decided that the individuals merely acquired shareholding interests. In passing, the Panel expressed its opinion that, even if each individual was entitled to some portion of interest in the relevant land, the scheme of the Act did not allow assessments to be made to tax each individual separately because of the problems associated with valuation of each portion. That problem does not arise in this matter. Quite indirectly, the Panel did say that where land is jointly owned by a company and individuals, the exemption was precluded by Clause 11. That difficulty does not arise in this matter either. The equitable owner is an individual. In any case, the Panel did not conclusively deal with that issue. 27 I do not think in considering the Chief Commissioner's dismissal application I need to express conclusive views on the issues raised in the Applicant's principal application. All the Tribunal needs to do is to decide if the matter can be summarily dismissed because the application is, using Ormiston JA's words, "so hopeless that it should be summarily brought to an end". The application in this matter, however, raises issues of real substance, which have not been previously considered. The Application should therefore be allowed to proceed to a full and proper hearing. 28 The Chief Commissioner's dismissal application is accordingly dismissed. 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