Reported Decision : 66 NSWLR 551 64 ATR 346 New South Wales Supreme Court CITATION : Trust Co of Australia v Chief Commissioner of State Revenue [2006] NSWSC 792 HEARING DATE(S) : 19/07/06 JUDGMENT DATE : 11 August 2006 JUDGMENT OF : Gzell J DECISION : Matter remitted to Chief Commissioner for determination in accordance with decision. Taxpayer to pay Chief Commissioner's costs. CATCHWORDS : TAXES AND DUTIES - Stamp Duties - Agreement to sell properties for specified sum - Rearrangement of transaction - Long term concurrent leases granted to purchaser - Rent for entire terms prepaid - Leases stamped at 3.5% - Options to purchase properties exercised and contracts for sale for balance of specified sum stamped up to 5.5% - Chief Commissioner acts under antiavoidance provision in the Duties Act 1997, s 24, disregards entry into concurrent leases, and assesses duty on unencumbered value of estates in fee simple - Whether dutiable property the subject of the contracts for sale were estates in fee simple or reversionary estates - Whether reversionary estates were created on grant of concurrent leases or on grant of earlier leases - Whether the dutiable values of the reversionary estates created on grant of earlier leases were affected by the agreements to grant concurrent leases - The nature of a concurrent lease - Whether the same principles apply to a grant of a lease over part only of land and a later lease of the entirety - Chief Commissioner entitled to disregard later leases but dutiable property the reversionary estates before grant of the later leases and not estates in fee simple Duties Act 1997 Taxation Administration Act 1996 Stamp Duties Act 1920 LEGISLATION CITED : Real Property Act 1900 Industrial Arbitration Act 1940 Stamps Act 1958 (Vic) State Revenue Legislation Amendment Bill 2002 DKLR Holding Co (No 2) Pty Ltd v Commissioner of Stamp Duties [1980] 1 NSWLR 510 Commissioner of Stamp Duties (Q) v Hopkins (1945) 71 CLR 351 Lord Ward v Lumley (1680) 5 H & N 87 (157 ER 1112) Commissioner of Taxes (Q) v Camphin (1937) 57 CLR 127 Robinson v Kingsmill (1954) 71 WN (NSW) 127 DKLR Holding Co (No 2) Pty Ltd v Commissioner of Stamp Duties (NSW) (1981-1982) 149 CLR 431 Commissioner of State Revenue (Vic) v Pioneer Concrete (Vic) Pty Ltd (2002) 209 CLR 651 Ingram v Inland Revenue Commissioners [2000] 1 AC 293 United Starr-Bowkett Co-operative Building Society (No 11) Ltd v Clyne (1967) 68 SR (NSW) 331 Travinto Nominees Pty Ltd v Vlattas (1973) 129 CLR 1 Goldsworthy Mining Ltd v Federal Commissioner of Taxation (1972-1973) 128 CLR 199 Wakefield and Barnsley Union Bank Ltd v Yates [1916] 1 Ch 452 CASES CITED : Fairweather v St Marylebone Property Co Ltd [1963] AC 510 De Grey v Richardson (1747) 3 Atk 469 (26 ER 1069) Cole v Kelly [1920] 2 KB 106 Minister of State for the Interior v Brisbane Amateur Turf Club (1949) 80 CLR 123 Buckby v Speed (1959) Qd R 30 Commissioner of State Revenue (Vic) v Bradney Pty Ltd 96 ATC 5,130 Blackstone's Commentaries on the Laws of England, Book the Second, 1766 Challis, Law of Real Property, 3rd ed Megarry and Wade, The Law of Real Property, 6th ed, Sweet & Maxwell Ltd, London, 2000 Peter Butt, Land Law, 4th ed, Lawbook Co, Australia, 2001 Hepburn, Principles of Property Law, 2nd ed Cavendish Publishing Pty Ltd, Sydney, 2001 Hansard, Legislative Assembly, 13 November 2002 PARTIES : Trust Company of Australia Ltd - Plaintiff Chief Commissioner of State Revenue - Defendant FILE NUMBER(S) : SC 2851/05 COUNSEL : Mr T F Bathurst QC/ Mr M Richmond/ Ms V McWilliam - Plaintiff Mr D McGovern SC/ Mr R Hamilton - Defendant SOLICITORS : Allens Arthur Robinson Solicitors - Plaintiff I V Knight Crown Solicitor - Defendant IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION GZELL J FRIDAY 11 AUGUST 2006 2851/05 TRUST COMPANY OF AUSTRALIA LTD v CHIEF COMMISSIONER OF STATE REVENUE JUDGMENT 1 The Uniting Church in Australia Property Trust (Q) and The Uniting Church (NSW) Trust Association owned four properties in Homebush Bay, New South Wales. Each property was subject to a lease or leases. The Uniting Church bodies agreed to sell each of the properties to Macquarie Goodman Industrial Trust for $66 million. Ultimately, however, the Uniting Church bodies granted concurrent leases of 99 years over each of the properties to Trust Company of Australia Ltd. Under each lease the rent for the entire term was payable on the commencing date. The rent totalled $65,120,125. The leases were stamped at 0.35% of the rent under the Duties Act 1997, s 170(1) in the total amount of $227,920.70. 2 Put and call options of sale and purchase of the properties were granted. The total consideration was $1,850,000. The options were exercised and contracts for sale of land were executed with respect to each of the properties. On the first page of the standard form, the box "FEE SIMPLE – ownership" was selected. Clause 52 of the additional clauses contained the following: "… (c) The Purchaser has been in control of the property as Lessee pursuant to a concurrent lease between the parties (Concurrent Lease) and is aware of all matters pertaining to the property, the Leases and occupancies relating to the property and any other issues. (d) The Purchaser acquires its legal interest in the property subject to the Concurrent Lease as existing at the date of this contract. There shall be no further adjustment of the rent paid by the Purchaser to the Vendor pursuant to the Concurrent Lease other than for any rates, taxes or outgoings payable by the Purchaser to the Vendor pursuant to the Concurrent Lease or the Offer Deed pursuant to which this contract arose. …." 3 Transfers of the four properties were then executed. 4 Aggregating the consideration under the contracts for sale at $1,850,000, Trust Co had the agreements stamped in terms of the Duties Act 1997, s 32(1) at $40,490 plus 5.5% of the consideration exceeding $1 million, a figure of $87,240, and each of the transfers stamped at $2 in accordance with s 18(2). 5 The Duties Act 1997, s 21(1) provided that the dutiable value of dutiable property is the greater of the consideration for the dutiable transaction and the unencumbered value of the dutiable property. 6 The Chief Commissioner of State Revenue assessed the four contracts on an aggregated total unencumbered value of the properties of $66,965,625 at $3,668,607.50. Trust Co lodged an objection to the assessment. The Chief Commissioner disallowed the objection and Trust Co applied to this Court for a review of that decision under the Taxation Administration Act 1996, s 97(1). The legislative provision 7 In making his assessment, the Chief Commissioner relied upon the Duties Act 1997, s 24. That provision has been amended twice since the original enactment of the legislation. Its second version was in operation when the contracts for sale of land were executed. It then provided: "An arrangement affecting the dutiable value of dutiable property that is subject to a dutiable transaction is to be disregarded in determining the dutiable value of the dutiable property if: (a) the dutiable transaction is between associated persons, or (b) the Chief Commissioner is satisfied that a significant purpose of any party to the arrangement was the reduction of the dutiable value of the dutiable property." 8 I am told that this is the first occasion a Court has been called upon to consider this provision. The objection decision 9 In rejecting the notice of objection of Trust Co that the Duties Act 1997, s 24 did not apply, the Chief Commissioner said: "We are satisfied that the substance of the sale arrangement was to reduce the dutiable value of the dutiable property (being the estate in fee simple). That is, we consider that the purpose of entering into the concurrent leases was to reduce the dutiable value of the dutiable property, as the ultimate objective was to transfer the land and buildings to the Purchaser. In support of this contention, we would argue that under the arrangement the concurrent lessee/Purchaser obtained rights equivalent to, or normally associated with that of an owner (such as the entitlement to receive all the rents and profits from the land)." The submissions 10 Trust Co submitted that the dutiable property the subject of the contracts for sale were the reversionary estates of the Uniting Church bodies and since those reversionary estates were created when the concurrent leases were granted, the arrangement identified by the Chief Commissioner could not have given rise to a reduction of the dutiable value of the dutiable property in question. 11 Trust Co raised a secondary argument that the Duties Act 1997, s 24 was an annihilating provision only, the Chief Commissioner had no power to reconstruct the transactions and if, contrary to the primary submission, the concurrent leases were to be ignored, no reversionary estate would exist and the dutiable value of the dutiable property would be the purchase price as its unencumbered value would be nil. 12 Trust Co raised no argument against the proposition that a significant purpose of the rearranged transaction was the reduction of duty. 13 The Chief Commissioner's principal argument was that the dutiable property was the estate in fee simple in each parcel of land. That was how the properties were described. Further, it was submitted that as a matter of law, no reversion arises in a lessor upon the grant of a lease. 14 The Chief Commissioner raised a secondary argument that if a reversionary estate arises on the creation of a lease, that reversionary estate already existed prior to the grant of the concurrent leases because of the existing leases with respect to each property. The reversionary estate argument 15 It was an accepted principle under the Stamp Duties Act 1920, which imposed duty on instruments of conveyance, that in order to identify the estate or interest in real property that was conveyed by the instrument, it might be necessary to look outside the instrument itself (DKLR Holding Co (No 2) Pty Ltd v Commissioner of Stamp Duties [1980] 1 NSWLR 510 at 523). The Chief Commissioner did not dispute this principle. He enforced it by adding a reference to Commissioner of Stamp Duties (Q) v Hopkins (1945) 71 CLR 351 at 360, 378. 16 That principle applies with greater force to the Duties Act 1997, which exacts duty on transactions with respect to dutiable property rather than on instruments. 17 It was argued that the concurrent leases having been granted, all the Uniting Church bodies had to transfer was their reversionary estates in the four properties. 18 As long ago as Blackstone's Commentaries on the Laws of England, Book the Second in 1766, Ch 11 at 175 it was said: "An estate in reversion is the residue of an estate left in the grantor, to commence in possession after the determination of some particular estate granted out by him. Sir Edward Coke describes a reversion to be the returning of land to the grantor or his heirs after the grant is over. As, if there be a gift in tail, reversion of the fee is, without any special reservation, vested in the donor by act of law: and so also the reversion, after an estate for life, years, or at will, continues in the lessor. For the fee-simple of all lands must abide somewhere; and if he, who was before possessed of the whole, carves out of it any smaller estate, and grants it away, whatever is not so granted remains in him. A reversion is therefore never created by deed or writing, but arises from construction of law; a remainder can never be limited, unless by either deed or devise. But both are equally transferable when actually vested, being both estates in praesenti, though taking effect in futuro." 19 In Lord Ward v Lumley (1680) 5 H & N 87 at 93-94 (157 ER 1112 at 1114) Martin B, with whom the other members of the Court agreed, said: "When a man demises land for a term of years, reserving to himself a rent, the effect of it is to create two estates, viz the estate of the lessee, and the reversion of the lessor, and the rent is incident to the reversion." 20 A similar view was stated by Latham CJ, with whom the other members of the High Court agreed, in Commissioner of Taxes (Q) v Camphin (1937) 57 CLR 127 at 133: "When an owner of land grants a lease the lessee obtains a proprietary interest in the land, which is personal property, but the owner has not sold this personal property to the lessee. He himself never was the owner of that personal property. He has created a term in the lessee, and the lessee owns a proprietary interest which he did not own before, but that interest has not been sold to him. The transaction is properly described by saying that the owner of the land has leased his land and has created a term in the tenant and a reversion in himself." 21 In Robinson v Kingsmill (1954) 71 WN (NSW) 127 at 133, Brereton J adopted what had been said by Martin B in Lord Ward. 22 The High Court has since, on at least two occasions, recognised that when a lease is granted by the owner of a freehold estate, a reversionary estate is created in the owner of the freehold. In DKLR Holding Co (No 2) Pty Ltd v Commissioner of Stamp Duties (NSW) (1981-1982) 149 CLR 431, a company resolved that a proposed trustee should hold only the legal estate in land and it should retain beneficial ownership. The proposed trustee executed a declaration of trust that it would hold the land absolutely for the company. The company then executed a memorandum of transfer of the land to the trustee. It was held that the entire legal estate and not a bare legal estate was comprised in the declaration. At 450 Mason J gave an example that recognised a reversionary estate expectant on a lease: "A. conveys an absolute estate in fee simple to B. and takes from B. a lease back for fifty years. If the appellant is correct, A. has conveyed, not an absolute estate in fee simple, but the reversion expectant on the determination of a lease for fifty years and the conveyance is to be assessed for duty on this footing. How the lease is to be assessed on this approach does not emerge. Fortunately we do not have to solve this problem for the true position is that each instrument is to be separately assessed, the conveyance being assessed to duty on the property conveyed, viz. an absolute estate in fee." 23 In Commissioner of State Revenue (Vic) v Pioneer Concrete (Vic) Pty Ltd (2002) 209 CLR 651 the Court cited the above passage and went on at [49] to speak of the sale of land subject to lease as a sale of the reversion: "The assumption upon which the argument proceeded is consistent with what was said by Mason J in DKLR Holding . It was not a case of a transfer and a lease back. What was sold was the freehold interest subject to a pre-existing lease; the reversion. The pre-existing lease qualified the nature and extent of the proprietary interest that was available to be transferred. Subject to the possibility that it might be said to be an encumbrance, it was to be taken into account in considering the nature, and therefore the value, of the property that was transferred." 24 In Ingram v Inland Revenue Commissioners [2000] 1 AC 293, Lady Ingram conveyed land to her solicitor to hold as her nominee. He granted her two leases over separate parts of the land for a term of years. The next day, he conveyed the land subject to the leases to trustees to hold on trust for Lady Ingram's children and grandchildren. Upon her death, the question was whether the transaction involved a reservation of a benefit out of the property comprised in the gift. As a matter of conveyancing practice, the leases did not come into existence until the freehold was vested in the trustees. It was held that there was no such reservation because all Lady Ingram transferred was the reversion. At 303-304 Lord Hoffmann said the real nature of the transaction was that the trustees and beneficiaries never acquired the land free from Lady Ingram's leasehold interest and the need for a conveyance to be followed by a lease back was a mere matter of conveyancing form. 25 That body of law supports the proposition advanced by Trust Co that consequent upon the grant of the concurrent leases, all the Uniting Church bodies had left to convey, and all they agreed to convey under the agreements for sale, were their reversionary estates expectant upon the leases. The estate in fee simple argument 26 The Chief Commissioner pointed out that the Uniting Church bodies were the registered proprietors of estates in fee simple in the four parcels of land. That was the description of the estate or interest when the Registrar-General created a folio of the register for each of the lands in terms of the Real Property Act 1900, s 32(1). Section 40(1A)(b)(iii) provides that a computer folio certificate of a folio in the register is conclusive of the estate of the registered proprietor and s 42(1) provides that, except in the case of fraud, a registered proprietor holds the estate or interest recorded in a folio absolutely free from all other estates and interests that are not recorded, but subject to specified exceptions. The exceptions include, in s 42(1)(d), a lease not exceeding three years of which the registered proprietor had notice before registration. 27 It was submitted that reference was to be made alone to the register since the properties in question were registered and, in consequence, what was sold under the agreements for sale were the estates in fee simple held by the Uniting Church bodies. 28 But the above provisions do not deny either the creation of a leasehold interest or a reversionary estate. A lease for more than three years is required to be registered under the Real Property Act 1900, s 53(1). Section 14(2)(b) enables an application to be made to register an estate in possession, or in reversion or in remainder and s 40(3) specifically recognises a reversion consequent upon the grant of a registered lease. It provides: "The person recorded in any folio of the Register as entitled to the land therein described shall be held in every Court to be seised of the reversion expectant upon any lease that may be recorded thereon, and to have all powers, rights, and remedies to which a reversioner is by law entitled, and shall be subject to all covenants and conditions therein expressed to be performed on the part of the lessor." 29 The leases here in question were registered. The provision constitutes a statutory recognition of a reversion expectant upon a lease. 30 The Chief Commissioner relied upon United Starr-Bowkett Co-operative Building Society (No 11) Ltd v Clyne (1967) 68 SR (NSW) 331. That was a case in which an unregistered weekly tenancy was granted by the registered proprietor of land. He subsequently mortgaged the land to the building society which had knowledge of the lease. The registered proprietor having fallen into arrears, the building society signed a judgment in default of appearance against him to recover possession of the land. The tenant was held entitled to appear and defend an action in ejectment. It was held that a tenancy for a term not exceeding three years was excluded from the general operation of the Real Property Act 1900, s 42. 31 The Chief Commissioner relied upon a statement by Walsh JA at 345. His Honour noted the submission that what the mortgagee obtained was not a security over the whole estate in fee simple, but a security only over the reversion expectant on the tenancy, which reversion, to the knowledge of the mortgagee, was the whole of the interest which the mortgagor had and was, therefore, the whole of the interest over which he could give security. His Honour said that while that was the practical effect of the transaction of mortgage, care was needed in expressing the effect of the transaction in terms of the relevant provisions of the Real Property Act 1900. The effect was to be determined by what appeared on the register as a mortgage over the fee simple estate, subject to the tenant's interest because of the specific exclusion for unregistered leases of three years or less in s 42(1)(d). His Honour said: "The Ninth Schedule to the Real Property Act provides a form of mortgage. In accordance with that form, each mortgage was a mortgage by Clyne, being registered as the proprietor of an estate in fee simple, subject to such encumbrances, liens and interests as were notified by memoranda underwritten or endorsed on it, of "all my estate and interest as such registered proprietor as aforesaid". The interest of the tenant was not endorsed on the mortgage. When it was registered, the nature of the estate and interest dealt with by the mortgage and accruing to the mortgagee under the provisions of the Act was not to be measured by means of inquiries concerning the extent of the estate or interest with which the mortgagor had the right to deal, or concerning the knowledge of the mortgagee as to the mortgagor's rights, but was, prima facie, and subject to any other relevant provisions of the Act, to be measured by what appeared on the register, and in the registered instruments entered on it. See s 40(1) and s 41(1). But the estate or interest thus vested in the mortgagee by way of security may be "subject to" some other estate or interest, if the statute so provides. If the tenant here can assert against the mortgagee a right to remain in possession until his tenancy is properly brought to an end, this is not because what the mortgagee obtained was not a mortgage over the fee simple estate, but was only over some lesser estate. It is because the right which the mortgagee did obtain is subject to the tenant's interest, because s 42(d) has that effect. This may be thought to be a distinction without a difference. Nevertheless, I think that the real questions as to the effect in these cases of ss 42, 43 and 43A of the Act are not solved, but rather may be obscured, if the view is taken that the mortgage should be construed as a mortgage of the reversion only, although the tenancy is not mentioned in it." 32 The other members of the Court of Appeal, however, accepted the submission that what was involved was a mortgage of a reversionary estate. Herron CJ at 337-338 said: "The mortgagee claimant societies base their claim on Clyne's default. But his interest was in reversion and by registration under the Act held an estate or interest expectant on the tenancies. As the law stands, no attornment is necessary and each of the tenants paid rent to the defendant Clyne and was recognized by him as tenant. These were legal interests, the validity of which did not depend on the Real Property Act . They were, in my opinion, excepted from the paramount title provisions by s 42. The mortgages of the reversion by Clyne thus did not overreach the tenancies at law. Hence, on the facts, the transactions stand outside ss 43 or 43A." 33 Sugerman JA held to similar effect at 341: "Although the registered mortgage describes the mortgaged land as the whole of the land comprised in the relevant certificate of title, and the recited title of the mortgagor, Clyne, is not expressed to be subject to the tenant's interest, by force of s 42(d) the mortgage in substance was, as Mr Stuckey has graphically expressed it, a mortgage of the reversion only. It was, that is to say, in this aspect of it the equivalent of a mortgage at common law of land which was subject to a lease by the mortgagor granted before the mortgage was given. In such a case the mortgagee is not entitled to eject the tenant as a mere trespasser or at most a tenant on sufferance." 34 I do not regard the decision in United Starr-Bowkett as compelling me to reject the argument of Trust Co that it was the reversionary estates of the Uniting Church bodies that were the subject of the dutiable transactions constituted by the agreements for sale of the four properties. I am not bound by the opinion of Walsh JA, but by those of the majority of the Court of Appeal. The case does not support the Chief Commissioner's contention that the dutiable property was not the reversionary estates, but was the estates in fee simple. 35 The Chief Commissioner also relied upon some observations of Barwick CJ in Travinto Nominees Pty Ltd v Vlattas (1973) 129 CLR 1. In that case an option to purchase land provided for vacant possession upon exercise of the option subject to a specified lease of part of the land for a period of five years from a specified date for use as a hairdressing salon. The lease contained an option to renew it for a further five years. The option to renew was not mentioned in the option to purchase. The purchaser sought compensation under the provisions of the option for error or misdescription of the property. Amongst other matters, it was held that the omission did not amount to an error or misdescription of the property. 36 At 12 Barwick CJ expressed the view that the inclusion of a condition of sale, "subject to existing tenancies and occupancies" did not convert the subject matter of the sale from land into a reversion or reversionary interest in land. But his Honour did say at 13 that in every case the actual contract between the parties must be construed in order to decide whether the subject matter is land or some particular estate or interest in land. And at 14 the Chief Justice noted that the leases in question covered part only of the land: "Earlier I indicated that, in my opinion, a sale of land subject to existing tenancies and occupancies is not a sale of a reversion. It is erroneous, in my opinion, to regard the subject matter of this sale as a reversion expectant on the two registered leases. Indeed the land was sold as one parcel subject to two leases of lock-up shops, those shops not being the whole of the buildings on the land. Apparently a motion picture theatre was erected on the land, presumably in part at least above or round the lock-up shops. Of this vacant possession was to be given." 37 While McTiernan J agreed with the Chief Justice's reasons (at 26), none of the other members of the Court dealt with this issue. Menzies J held there was no misdescription (at 29). The Industrial Arbitration Act 1940, s 88B provided that a contract for lease of premises for the work of hairdressing, where an award or agreement fixed the price or rate payable to employees, could not be entered into without the prior approval of the Commission or a specified committee. Menzies J agreed with the Chief Justice that the provision rendered the lease containing the option void (at 29) and agreed with Gibbs J on the questions of indefeasibility and estoppel (at 30). Gibbs J concluded that the lease was illegal (at 32), that registration did not give rise to an indefeasible title under the Real Property Act 1900, s 42 because the later Industrial Arbitration Act 1940 overrode any inconsistent provisions of the former (at 35), and that no basis for estoppel arose (at 36). Stephen J agreed with the Chief Justice and Menzies J that there was no misdescription, agreed with the Chief Justice and Gibbs J that the Industrial Arbitration Act 1940, s 88B rendered the lease void, agreed with the Court of Appeal that there was no basis for estoppel, and agreed with the Chief Justice that registration did not avail the appellant (at 37). 38 I do not regard the observations of the Chief Justice as supporting the proposition that in no case does the grant of a lease also create a reversionary estate. His Honour was dealing with the questions of misdescription, illegality and indefeasibility and his judgment should be understood in that context. It was also given in the context of leases of part of the land. It does not deal with the situation of concurrent leases, said to arise in this case. Nor, in my view, can Travinto stand for the proposition that the grant of a lease over part of a parcel of land does not create a reversionary estate. Such a proposition would be inconsistent with the House of Lords decision in Ingram (and see Goldsworthy Mining Ltd v Federal Commissioner of Taxation (1972-1973) 128 CLR 199). 39 The Chief Commissioner submitted that although a reversionary estate arose when the holder of an estate granted a lesser estate in possession to some other person, no reversionary estate arose in a lessor upon the grant of a lease. The lessor, it was submitted, had an estate in possession subject to actual physical possession by the lessee. 40 For this proposition the Chief Commissioner relied upon Wakefield and Barnsley Union Bank Ltd v Yates [1916] 1 Ch 452. Freehold land was mortgaged in fee simple. At the date it was granted, the property was subject to a lease for 21 years. The mortgagees commenced foreclosure proceedings. Those proceedings were statute-barred unless a provision of the legislation could be invoked to the effect that where the estate claimed was an estate or interest in reversion, or remainder, or other future estate or interest, the right should be deemed to have first accrued when it became an estate in possession. 41 Phillimore LJ at 458 pointed out that the bank was not seeking to recover a reversion expectant on the termination of the lease. No such interest was carved out and mortgaged to the bank. What was mortgaged was the fee simple and that was what the bank was seeking to foreclose. His Lordship said that the section under consideration was for cases where the reversion had been severed from the particular estate and the reversioner alone was suing. 42 A similar view was expressed by Warrington LJ at 460. His Lordship said that the estate claimed was not an estate or interest in reversion or remainder or any other future estate. It was a present estate in fee simple. His Lordship observed that for the purposes of the statute, an estate in fee simple subject to an occupation lease was an estate in possession. 43 Lord Cozens-Hardy MR also observed at 457 that the section spoke of the estate claimed and it was certain that the estate claimed by the bank was the fee simple in possession. It was that approach to the construction of the limitation provision that was ratio decidendi. But the Master of the Rolls went further and said: "An estate in fee simple, though subject to a lease, is an estate in possession, and not an estate in reversion or remainder." Challis, Law of Real Property , 3rd ed, at 100 was quoted. 44 It used to be the case under feudal law that a grant of a lease did not deprive the grantor of seisin and hence a freehold reversioner expectant on a term of years had an estate vested not only in interest but also in possession. But as is explained in Megarry and Wade, The Law of Real Property, 6th ed, Sweet & Maxwell Ltd, London, 2000, at 7-010 that technical rule no longer applies: "From its very nature it follows that a reversion is a vested interest; for it is the remnant of an estate which has never passed away from the grantor, and he or (if he is dead) his representatives stand ready to receive the land as soon as the particular estate determines. According to feudal principles, moreover, a freehold reversioner on a term of years has an estate which is vested not only in interest but also in possession, for the grant of a lease does not deprive a grantor of seisin, and he therefore has what is properly called a freehold in possession subject to the term. From this point of view a reversion on a lease is not a reversion or, indeed, a future interest at all. This technicality is a relic of the ancient doctrine that leases were not even estates and were to be disregarded for feudal purposes. But, as has been seen, leases have long since achieved the status of estates, and it is therefore common and correct to speak of a landlord's reversion. Although seisin as such is no longer important, a landlord's reversion is still an ambiguous interest, for as explained above, it is regarded as being an estate in possession for the purposes of the Law of Property Act 1925." 45 But the view of the Master of the Rolls and of Warrington LJ that an estate in fee simple subject to a lease is an estate in possession and not an estate in reversion was rejected by the House of Lords in Fairweather v St Marylebone Property Co Ltd [1963] AC 510. At 536-537 Lord Radcliffe said: "It is true that in Wakefield v Barnsley Union Bank Ltd v Yates [1916] 1 Ch 452 at 457, 460 both Lord Cozens-Hardy MR and Warrington LJ were at pains to point out in relation to section 3 of the Act of 1833 that an estate in fee simple subject to a lease is an estate in possession not an estate in remainder or reversion. And so in many senses it is: but I think that in stating their proposition in such an unqualified form they were to some extent seduced by the vigour of language and clarity of thought that distinguishes Mr Challis's book on Real Property. In my opinion, both for the purposes of section 2 of the Real Property Limitations Act, 1874, and for the purposes of section 6(1) of the Limitation Act, 1939, which has taken the place of the relevant portion of that section, an owner in fee simple subject to a term of years has an estate or interest in reversion or remainder and, consequently, his right of action against a squatter on the demised land is to be deemed to have accrued at the date when the preceding estate or interest represented by the term determines in such manner that his estate or interest falls into possession." 46 The Chief Commissioner submitted that a reversion must necessarily be coextensive in quantum with the grantor's original estate since it was only the original estate deprived of its immediate benefit of seisin. The registered proprietor, it was argued, still retains the same freehold estate in land, namely the estate in fee simple. Peter Butt, Land Law, 4th ed, Lawbook Co, Australia, 2001, at [609] was cited as authority: "A reversion must necessarily be co-extensive in quantum with the grantor's original estate, since it is only that original estate deprived of its immediate benefit of seisin." 47 I do not understand that passage. The point was that a grant of a lease did not deprive the grantor of seisin (De Grey v Richardson (1747) 3 Atk 469 at 472 (26 ER 1069 at 1071). And see Butt, op cit, at [622]). So far as the observation as to quantum is concerned, the matter is, in my view, better expressed in Hepburn, Principles of Property Law, 2nd ed, Cavendish Publishing Pty Ltd, Sydney, 2001, at [3.5.2.4]: "All reversion interests, whilst constituting future estates, must nevertheless be identical in status to the original estate held by the grantor. This is a consequence of the fact that, unlike the remainder estate, the reversion is an estate in abeyance, retained by the grantor until the expiration of the grantee's estate. Therefore, what reverts to the grantor must necessarily be identical in status to the estate which the grantor held in the first place: it cannot be a greater or lesser estate." 48 That does not assist the Chief Commissioner in any argument that the unencumbered value of a reversionary estate is equal to the unencumbered value of an estate in fee simple. 49 In my view, modern text writers, modern decisions of the Courts and the express terms of the Real Property Act 1900, recognise that a reversionary estate is created when a lease is granted. The nature of a concurrent lease 50 When a landlord, who has granted a lease, grants another lease of the same land to a different tenant for some or all of the term of the first lease, a concurrent lease is created. The two leases operate concurrently during the period of their overlap. The landlord has granted to the second lessee a pro tanto disposition of the reversionary estate (Cole v Kelly [1920] 2 KB 106). A concurrent lease operates as an assignment of the reversion upon the first lease for the term of the second or concurrent lease (Minister of State for the Interior v Brisbane Amateur Turf Club (1949) 80 CLR 123 at 162). Or, as Professor Butt puts it, the second lease is a lease of the reversion (Butt, op cit at [1530]). The relationship of landlord and tenant is created between the second and first lessee without attornment (Buckby v Speed (1959) Qd R 30), and it supplants the relationship of landlord and tenant between the landlord and the first lessee (Megarry and Wade, op cit at [14-104]). The reversionary estates as the dutiable property 51 In the instant circumstances, I am of the view that reversionary estates in the four properties were created when the existing leases over them were granted. The concurrent leases operated concurrently with the earlier leases during the period that their terms overlapped. They constituted pro tanto dispositions of the reversionary estates or leases of the reversionary estates. The reversionary estates, and not the fee simple estates, were the dutiable property the subject of the dutiable transactions under the four contracts for sale. Effect of concurrent leases on dutiable value 52 Trust Co argued that since the grant of the current leases created the reversionary estates, the relevant arrangement identified by the Chief Commissioner could not affect the dutiable value of the reversionary estates because they did not exist prior to the grant of the concurrent leases. 53 In my view, that argument should be rejected. When the existing leases were created by the Uniting Church bodies, the residue of those bodies' interests in the properties constituted their reversionary estates. When the concurrent leases were granted, the concurrent leases constituted pro tanto dispositions of the reversions or leases of them. 54 In the case of the concurrent leases here in question, therefore, the Uniting Church bodies held reversionary estates when the concurrent leases were granted. The effect of the grants of the concurrent leases was to reduce the dutiable value of the reversions because the rent payable by the existing tenants to the Uniting Church bodies became payable to Trust Co during the term of the overlap between the leases. 55 In my view, therefore, the grants of the concurrent leases were arrangements affecting the dutiable value of the reversionary estates of the Uniting Church bodies. It follows that since purpose was not put in issue by Trust Co, the Chief Commissioner was entitled to disregard the grants of the concurrent leases under the Duties Act 1997, s 24. The Chief Commissioner was thereby entitled to treat the dutiable property as the original reversionary estates created upon the creation of the existing leases and to charge duty on the unencumbered value of those reversionary interests. 56 Those values are not necessarily the same as the unencumbered values of estates in fee simple in the properties upon which the Chief Commissioner based his assessment. The values of the reversions will depend upon the value of the rent payable by the existing tenants. Non-concurrent leases 57 In its submissions in reply, Trust Co raised, for the first time, the suggestion that it might not be correct to classify all the leases to it as concurrent leases at the time they were granted or when the contracts for sale were entered into. 58 The searches forming part of the contracts for sale, however, refer to the leases to Trust Co as concurrent leases. If they were not, in the sense that the earlier leases were for part only of a property, I am of the view that the same analysis applies. 59 In accordance with the decision in Ingram, a reversionary estate was created in a Uniting Church body that granted an earlier lease over part only of its land. When the later lease was granted to Trust Co, there was a pro tanto disposition of the reversionary estate, or a lease of it, so far as the portion already leased was concerned. And there was a reduction in the reversionary estate for that part of the lease to Trust Co that was over portion of the land not already leased. To the extent to which the earlier lease and the lease to Trust Co overlapped there was a reduction in the dutiable value of the reversion because, with respect to the portion already leased, Trust Co became entitled to the rent in place of the Uniting Church body. 60 Since the arrangement under which the Uniting Church body granted the lease to Trust Co thus affected the dutiable value of the reversion, the Chief Commissioner was entitled to form the satisfaction, that was not challenged, that a significant purpose was the reduction of the dutiable value of the dutiable property in terms of the Duties Act 1997, s 24. 61 Again, however, it is the unencumbered value of the reversionary estate created upon the grant of the earlier lease by the Uniting Church body that is dutiable. That may or may not be equivalent to the unencumbered value of an estate in fee simple. That will depend upon the value of the rent payable under the earlier lease. The new reversionary estate argument 62 Trust Co submitted that the grant of each lease, whether concurrent or not, involved the creation of a new reversionary estate. I reject that submission. 63 The reversionary estate in land constitutes the residue of the grantor's estate that has not been the subject of a disposal by grant. That residuary estate may be affected by later disposals by subsequent grants. Upon a later disposal, the reversionary estate does not cease to exist to be supplanted by a new one. The very nature of a reversion is that it is that interest in the land that has not been conveyed away. It is the retention by the grantor of the remaining interest in land consequent upon a grant of an estate that is less than the whole interest held by the grantor. As further dispositions are made, the reversionary estate is reduced. And, correspondingly, as one of a number of leases determines, the reversionary estate is augmented. But there must always be a reversionary estate when lesser estates have been carved out of land, because, as Blackstone said, the fee-simple of all lands must abide somewhere. Other submissions 64 In Commissioner of State Revenue (Vic) v Bradney Pty Ltd 96 ATC 5,130 the taxpayer purchased freehold subject to a long-term rent-free lease. The Stamps Act 1958 (Vic) provided that the value of real property was the consideration for sale or the amount for which it might reasonably have been sold if it had been sold free from encumbrances in the open market. The Court held that a lease was not an encumbrance and could not be ignored in determining the value of the freehold. 65 In Pioneer Concrete at [47], the High Court noted that amendments made in 1997 to the Victorian legislation was a legislative response to the decision in Bradney. 66 It was submitted by the Chief Commissioner that I should infer that the Duties Act 1997, s 24 was a New South Wales legislative response to Bradney in keeping with the co-operative effort between the States to harmonise their stamp duty legislation. 67 It is unnecessary and undesirable to draw any such inference. The anti-avoidance purpose of the Duties Act 1997, s 24 is clear on its face and needs no inference of intended operation with respect to any particular arrangement for its proper construction. 68 Of the Victorian legislative amendments, the High Court said in Pioneer Concrete at [52] that the amendments touched interests, agreements or arrangements that reduced the value of the subject property. Their Honours observed that the pre-exiting lease in Bradney was such an interest. 69 It was submitted that it followed that the concurrent leases in the instant circumstances therefore fell foul of the Duties Act 1997, s 24. I reject that argument. There was but passing mention of the pre-exiting lease in Bradney and the observation formed no part of ratio decidendi in Pioneer Concrete. 70 The amendment to the Duties Act 1997, s 24 was not included in the State Revenue Legislation Amendment Bill 2002 when it was originally introduced to Parliament. During the course of the second reading of the bill, the government introduced a number of amendments, including the amendment to s 24. In course of the debate, Mr J H Turner, Deputy Leader of the National Party, commented (Hansard, Legislative Assembly, 13 November 2002, at 6726): "… these amendments seek to close a loophole with regard to the use of long-term leases rather than the freehold ownership of a property. As the rate of stamp duty on a lease, which is 35¢ per $100, is far lower than the rate of duty on the transfer of land – up to 5.5% - there is significant incentive to structure a property deal in this way." Mr Whelan, Parliamentary Secretary, responded: "I foreshadow amendments to the bill. Since the introduction of the bill the Government's attention has been drawn to the need to make further amendment to the Duties Act to counter an increase in duty avoidance practices. The Office of State Revenue monitors business practices to identify emerging trends that may result in revenue leakage. Recent evidence suggests an escalation in the use of certain practices to avoid duty. Any delay introducing these amendments has the potential to encourage more widespread use of the practices at significant risk to revenue. I commend the bill to the House." 71 But what the mover of the amendments thought, cannot be substituted for the text of the legislation. If authority be needed for that proposition, it was recently stated in Nominal Defendant v GLG Australia Pty Ltd (2006) 80 ALJR 688 at [22]: "The words of the statute, not non-statutory words seeking to explain them, have paramount significance." Conclusion 72 I have concluded that the Chief Commissioner was in error in treating the dutiable property in question as a fee simple estate in the four properties. He should have regarded the dutiable property as the reversionary estates held by the Uniting Church bodies immediately prior to the agreements to lease the properties to Trust Co. That was the dutiable property in question once the arrangement identified by him was disregarded under the Duties Act 1997, s 24. I have concluded that the Chief Commissioner was entitled to disregard the entry into the leases to Trust Co under that provision. 73 Since the Chief Commissioner assessed the unencumbered value of an estate in fee simple in each of the properties, and because the unencumbered value of the reversionary estates may not be equal to that value, I propose to act under the Taxation Administration Act 1996, s 101(1)(d). Orders 74 I dismiss the plaintiff's amended summons. I remit the matter to the defendant for determination in accordance with my decision. I order the plaintiff to pay the defendant's costs. ********** 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.