Supreme Court New South Wales Medium Neutral Citation: Marilyn Elizabeth Trethowan v Chief Commissioner of State Revenue [2013] NSWSC 576 Hearing dates: 09.05.13 Decision date: 17 May 2013 Before: Nicholas J Decision: Pars 47-48 Catchwords: TAXES AND DUTIES - stamp duties - instrument of transfer of land under Real Property Act 1900 - instrument not lodged for assessment of duty prior to registration - instrument later deregistered by Registrar-General and withdrawn - assessment for duty issued in respect of transfer to plaintiff - plaintiff's objection disallowed - whether instrument of transfer cancelled - whether transfer of dutiable property to transferee occurred - whether no duty payable under s 50A(1) Duties Act 1997 - whether assessment should be set aside Legislation Cited: Duties Act 1997 Real Property Act 1900 Taxation Administration Act 1996 Cases Cited: Gardiner v Chief Commissioner of State Revenue [2004] NSWSC 107; (2004) 59 NSWLR 549 Category: Principal judgment Parties: Marilyn Elizabeth Trethowan - plaintiff Chief Commissioner of State Revenue - defendant Representation: Counsel: R Horsley - plaintiff J Needham SC/J Mitchell - defendant Solicitors: Jonathan Abbott & Associates - plaintiff Crown Solicitor - defendant File Number(s): 12/195020 Judgment 1His Honour: In these proceedings, under s 97 Taxation Administration Act 1996, the plaintiff appeals from the decision of the defendant against an assessment of duty dated 19 September 2011 (the assessment) in respect of a transfer of land executed on about 21 July 2009. 2The assessment is for duty payable under the Duties Act 1997 (the Act) in the amount of $47,390.95, pursuant to a transfer of land said to be a dutiable transaction under s 8(1)(a) of the Act. The plaintiff contends that the transfer is not liable to duty under s 50A of the Act on grounds that the transfer instrument has been cancelled and the property has not been transferred to her as the transferee, and the transfer was not cancelled to give effect to a sub-sale. The appeal is opposed. The defendant denies that the transfer has been cancelled and that the property has been transferred, and contends that s 50A has no application. It seeks an order that the assessment be confirmed. Background 3The following history was uncontroversial and, in any event, was supported by the evidence. 4On 25 November 1960 the plaintiff married Michael Alfred Trethowan (Mr Trethowan). 5By transfer no. 0909829 dated 1 February 1996 Mr Trethowan became the registered proprietor of three adjacent lots at Galston, New South Wales. These lots are comprised in folio identifiers 1/244305, 2/244305, and 3/244305. No fences divide the lots which have been run together as a single property on which is operated an orchid. The plaintiff and Mr Trethowan reside in a house on lot 3. National Australia Bank Limited (NAB) holds a registered mortgage over each lot. 6In about March or April 2009 Mr Trethowan instructed his solicitor, Mr J L Abbott, to transfer his principal place of residence at Galston to himself and the plaintiff as joint tenants without monetary consideration, and in consideration of mutual love and affection. The one instrument of transfer (the instrument) was prepared which included lots 1, 2, and 3. It was executed by Mr Trethowan as transferor, and by him and the plaintiff as transferees. 7On 21 July 2009 Mr Trethowan attended Mr Abbott's office and made a statutory declaration for the purpose of an exemption under s 67 of the Act. He stated that he was the registered proprietor of lots 1, 2, and 3, and that "... it is my wish that she (the plaintiff) be noted on Title with me as registered proprietor in joint tenancy". The instrument was executed on this occasion. 8Mr Trethowan and the plaintiff had arranged refinancing with NAB to be secured by a separate registered mortgage over each lot. On 21 July 2009 Mr Abbott sent the undated instrument and the statutory declaration to NAB, and requested NAB lodge the documents for registration with the Land and Property Information Management Authority (the LPMA). (In correspondence the Registrar-General's department was referred to by various names. For convenience I will refer to it as the LPMA.) 9Prior to registration the instrument was not lodged for assessment of duty, and it was not otherwise assessed. The mortgages were stamped with nominal duty in the amount of $50. 10On 15 April 2010 the documents lodged by NAB were registered. These were the discharges of the existing mortgages (dealing nos. AF434767 for lot 1, AF434768 for lot 2, and AF434769 for lot 3; the transfer instrument, AF434770; and the new mortgages AF434771 for lot 1, AF434772 for lot 2, and AF434773 for lot 3). Following registration the certificates of title were returned to NAB in accordance with the usual practice. 11On 6 May 2010 an officer of the Office of State Revenue (the OSR) informed Mr Abbott of an issue concerning the payment of duty on the instrument. 12By letter of 7 May 2010 Mr Abbott advised the LPMA of the following: "We refer to our telephone conversation of 6th May 2010 and confirm the request of our clients that the Transfer registered in April 2010 with respect to the above lots be de-registered. It is apparent that there has been an error in that the Transfer from Michael Alfred Trethowan to Michael Alfred Trethowan and Marilyn Elizabeth Trethowan with respect to the above lots had not been stamped. The NAB was the lodging party as the Transfer had been forwarded to the Bank which was to attend to stamping and registration. Unfortunately the stamping process was overlooked. It has since come to our attention that the Transfer is incorrect in any event in that it refers to three lots when it should refer to one. Mrs Trethowan was coming onto title as the spouse and joint tenant with Mr Trethowan based around their marriage. That transaction would be exempt for stamp duty purposes but the mistake concerning the other two lots had not been recognised because the stamping process was omitted. We have informed the National Australia Bank of these issues and the bank endorses this request for de-registration of the Transfer and return of it to the Bank. We attach with this letter a similar request from the National Australia Bank." 13On 10 May 2010 NAB advised the LPMA as follows: "We refer to letter dated 7th May, 2010 from Jonathan Abbott & Associates, Solicitors of ### ### ###, #### in relation to recent transfer of property ownership of the above Titles. We wish to advise the Bank has examined said letter and endorses the views contained and requests de-registration of the transfers to enable errors to be rectified." 14In his letter of 21 May 2010 to the LPMA Mr Abbott requested deregistration of the instrument in terms similar to those contained in his letter of 7 May 2010. 15On 26 May 2010 the LPMA caused the deregistration of the instrument relating to the three lots, and all the other dealings lodged with it. Deregistration required a departmental dealing which was registered the same day, AF517192D. This dealing included as reasons for its preparation the following statements: "Transfer affecting lots 1,2 & 3 In DP244305 incorrectly recorded without stamp duty. Letters sent to DRD2, attached herewith. Received from solicitor and consented to by the LP (45a) requested deregistration of all documents to enable only one lot to be transferred and mortgages to be amended. This would have happened if a requisition for stamp duty been received. DM.AF34767/68, T.AF434771/72/73 deregistered (all docs authorised by DRD2 CW)." 16By letter of 26 May 2010 the LPMA advised NAB: "Investigation in this Office has revealed that the abovementioned Certificate(s) of Title contain(s) the following error(s): As per letter from Jonathan Abbott & Associates and the letter of consent from yourselves to Cliff Wally regarding our error in the registration of Transfer AF434770 without stamp duty, resulting in the requested deregistration of DM AF 434767/68/69, T. AF434770 & M. AF434771/72/73. These documents have now been deregistered and the titles at the LPMA have been returned to their pre registered state. Quality prints of the Discharges of Mortgage and the Transfer have been supplied herewith. Amendments to the Mortgages must be completed on the original documents. The Transfer AF434770 requires marking by OSR. It appears from the telephone call and correspondence that the references to title require revision. These must all be initialled & the Transfer must be OSR amendment stamped. The original Mortgages will require amendment if the registered proprietor remains MICHAEL ALFRED TRETHOWAN only. If any dealings are no longer required, a formal letter of withdrawal will be required." 17On 1 June 2010 the OSR sought information from the LPMA concerning the deregistration of the instrument. 18On 12 August 2010 the OSR issued the plaintiff with a notice of assessment of duty in respect of the transfer payable in the amount of $39,475.37. The plaintiff was assessed as exempt from duty in respect of lot 2 on application of s 67 of the Act. Ad valorem duty on the transfers of lots 1 and 3 was assessed in the amount of $35,990 with interest of $3,485.37. 19On 11 October 2010 the plaintiff lodged an objection to the assessment. 20By letter of 25 October 2010 NAB informed the LPMA as follows: "I confirm the Bank requests the following dealings be withdrawn to allow registration of the correct dealings as discussed AF434770 - Transfer relating to all 3 Titles AF434768 - Discharge of Mortgage relating to 2/244305 AF434771 - NAB Mortgage in joint names AF434772 - NAB Mortgage in joint names AF434773 - NAB Mortgage in joint names We have requested the original joint name Mortgages from our Security Documentation storage area and these will be forwarded to you as soon as they are to hand. Once the above dealings are withdrawn and correct documents registered then all 3 Titles should be in the sole name of Michael Alfred Trethowan with the only mortgage on each title being to National Australia Bank." 21On 4 November 2010 the LPMA notified NAB of the withdrawal of the instrument and the related mortgage dealings. 22On 23 December 2010 the OSR disallowed the plaintiff's objection. 23On 19 September 2011 the OSR issued the plaintiff with a notice of assessment of duty in the amount of $47,390.95. In this case, she was assessed as exempt from duty in respect of the transfer of lot 3 on the application of s 67 of the Act. Lots 1 and 2 were assessed for ad valorem duty on the transfer in the amount of $38,240, with interest of $9,150.95. 24On 25 November 2011 the plaintiff lodged an objection to this assessment. 25On 23 April 2012 the OSR disallowed the plaintiff's objection. 26A search of the register dated 18 October 2012 shows that Mr Trethowan is the registered proprietor of lots 1, 2, and 3 in DP 244305 pursuant to registration of the original transfer no. 0909829, and that each lot is mortgaged to NAB. 27Mr Trethowan's uncontradicted evidence (aff 24.09.12) was that in May 2010 he was informed by Mr Abbott of the OSR's claim that two of the lots were dutiable, and only one lot would be exempt as his principal place of residence. He and the plaintiff then decided not to proceed with the transfer of any lot, and instructed Mr Abbott accordingly. He said that had he been told at any time that the transfer to him and the plaintiff as joint tenants would attract stamp duty he would not have gone ahead. 28The delay by NAB in lodging the dealings for registration was unexplained. 29The assessment the subject of these proceedings was issued on 19 September 2011. The accompanying letter from the OSR to Mr Abbott included: "The subject transfer is a dutiable transaction under section 8(1)(a) of the Act and duty is payable on the unencumbered value of the interest transferred as at the date of the transfer (secs. 11(1)(a), 12(2), 21(1)). As Mr and Mrs Trethowan's principal place of residence, as at the date of transfer, was Lot 3 in DP 244205, the exemption under section 67 of the Act has been allowed in respect of that property. I have obtained valuations of Lots 1 and 2 in DP 244205 from the Valuer General. Copies of these valuations are enclosed for your information. The valuer inspected the subject properties from the street for the purpose of the valuations and because of this, the market value is expressed to be within a range. The lowest value in each range has been used for assessment purposes. Duty has been reassessed under section 9 of the Taxation Administration Act 1996 and I enclose a Notice of Assessment showing the amount of the reassessment." 30By its letter of 23 April 2012 the OSR provided Mr Abbott with its reasons for disallowing the plaintiff's objection dated 24 November 2011. Relevantly, the letter included the following: "I have considered the Objection and advise, that for the reasons stated below, I disallow the Objection. The Duties Notice of Assessment shows an Issue Date of 19 September 2011 which was accompanied by a covering letter to you dated with that date. That letter noted that although the Transfer referred to three lots, Lot 3 was exempted under s 67 of the Duties Act 1997. The lowest value in each range of the two Valuations for the other two lots obtained from the Valuer General was used. The dutiable value was assessed as one half of the total of those two amounts. ... You state that Mr & Mrs Trethowan abandoned the Transfer. I cannot agree that the Transfer was abandoned because I note that it proceeded to registration. You also refer to the letter dated 26 May 2010 from the Department of Lands. That letter notes that the Transfer was deregistered and the titles at the LPMA returned to their pre-registered state. ... However, the letter from the Department of Lands dated 26 May 2010 contradicts any notion that the Transfer was cancelled. That letter indicates that the Transfer required marking by OSR, ie that nothwithstanding de-registration, the Transfer was still operable. The de-registration only altered the registered proprietor on the title; it did not actually cancel the Transfer. ... I note that s 50A(1) contains two requirements; firstly that the Transfer be cancelled and secondly that 'the dutiable property has not been transferred to the transferee'. Even if the Transfer was cancelled, where for the reasons stated above, I do not think that it was; the second requirement was not met because the dutiable property was transferred to the transferee. There is no dispute that the Transfer was registered. Upon registration the dutiable property was transferred. That is a historical event that cannot be altered. Whether or not the effect was reversed does not change the fact that the Transfer actually took place. I cannot agree that policy considerations require a different interpretation. The plain meaning and intention of s 50A(1)(a) is that both requirements must be met. If dutiable property has been transferred, then s 50A does not apply. Kindly now arrange for your client's payment of outstanding duty and interest." 31Relevantly, the Act provides: "8 Imposition of duty on certain transactions concerning dutiable property (1) This Chapter charges duty on: (a) a transfer of dutiable property, and ... (2) Such a transfer or transaction is a dutiable transaction for the purposes of this Act. ... 10 What form must a dutiable transaction take? It is immaterial whether or not a dutiable transaction is effected by a written instrument or by any other means, including electronic means. ... 12 When does a liability for duty arise? ... (2) ... if a transfer of dutiable property is effected by a written instrument, liability for duty charged by this Chapter arises when the instrument is first executed. ... 50A Cancelled transfers of dutiable property (1) A transfer of dutiable property that is effected by a written instrument is not liable to duty under this Chapter if the Chief Commissioner is satisfied that: (a) the transfer instrument has been cancelled and the dutiable property has not been transferred to the transferee, and (b) the transfer was not cancelled to give effect to a subsale. ... (4) In this section, cancelled includes abandoned. ... 301 Registration of transactions and instruments (1) A person must not register in a register of legal or beneficial interests in dutiable property a dutiable transaction, an instrument that effects a dutiable transaction or an instrument chargeable with duty unless: (a) it is duly stamped, or (b) it is stamped by the Chief Commissioner or in a manner approved by the Chief Commissioner, or (c) it bears an endorsement, or is otherwise effected, in accordance with an approval under section 37 of the Taxation Administration Act 1996. Maximum penalty: 100 penalty units." 32Under the Real Property Act 1900 (RP Act) the Registrar-General is empowered to correct errors and omissions in the register. Relevantly, the provisions are: 12 Powers of Registrar-General (1) The Registrar-General may exercise the following powers, that is to say: ... (d) The Registrar-General may, subject to this section and upon such evidence as appears to the Registrar-General sufficient, correct errors and omissions in the Register. ... (3) Where the Registrar-General, in the exercise of the powers conferred upon the Registrar-General by subsection (1) (d), makes a correction in the Register: ... (b) to the extent that, but for this paragraph, the correction would prejudice or affect a right accrued from a recording made in the Register before the correction, the correction shall be deemed to have no force or effect, (c) subject to paragraph (b), the Register shall, as so corrected, have the same validity and effect as it would have had if the error or omission had not occurred, and". Consideration 33The plaintiff contended that, in the circumstances, the defendant erroneously failed to find that the transfer is not liable to duty under s 50A(1) of the Act. The plaintiff submitted that the transfer instrument has been cancelled in that it has been abandoned altogether by the plaintiff and Mr Trethowan who do not intend to proceed to transfer the lots described in it. It is put that abandonment is established by the evidence of the requests from Mr Abbott and NAB to the LPMA for deregistration of the instrument and related mortgage dealings. In particular, reliance is placed on NAB's letter of 25 October 2010 the LPMA in response to the requirement of the LPMA for a formal letter of withdrawal if any dealings were no longer required in which NAB confirm the request for these dealings to be withdrawn to allow registration of the correct dealings. 34Further, the plaintiff submitted that the reality is that the property has not been transferred to her and Mr Trethowan, and thus the second component of s 50A(1)(a) is established. In short, it was put that the effect of deregistration of the dealings on 26 May 2010 was to return the register to the state in which it was prior to their registration on 15 April 2010. Accordingly, the register demonstrates that the property has not been transferred. 35The defendant submitted that s 50A(1) has no application in this case and the Commissioner did not err in disallowing the plaintiff's objection. It was put that deregistration by the Registrar-General in exercise of the power of correction under s 12(1)(d) RP Act did not have the effect of cancelling the transfer instrument, or of nullifying the transfer to the transferees. It was put that liability for duty was incurred when the instrument was executed. Registration of the instrument vested the legal estate in the lots in the plaintiff and Mr Trethowan, and established conclusively the transfer of those properties to them. It followed, so it was put, that registration effectively precluded the Commissioner being satisfied of the matters specified in subs (1)(a), a consequence which was unaffected by later deregistration. In other words, it was put that the effect of registration was to preclude the application of s 50A(1) because at that point of time it was no longer open to contend that the instrument had been cancelled and the property had not been transferred. 36It was also put that the fact that the instrument had not been duly stamped prior to registration contrary to the requirements of s 301 of the Act did not undermine the effect of registration. 37Alternatively, the defendant submitted that by reason of s 12(3)(b) RP Act the deregistration of the instrument and related mortgage dealings which constituted the correction had no force or effect. It was put that deregistration was prejudicial to NAB as mortgagee of the lots. The defendant's written submissions proceeded as follows: "4.15 In short, the Registrar-General, by combination of its actions within power on 15 April 2010 and actions without power on 26 May 2010, left the National Australia Bank unsecured as against the Properties until such time as the National Australia Bank saw fit to lodge the November Mortgages. That in turn effectively forced the National Australia Bank to forgo its rights against Mrs Trethowan as debtor and mortgagor pursuant to the April Mortgages that were indefeasible under s 42. 4.16 The Registrar-General did not have the power to correct the register and thereby prejudice the mortgagee in this way. By reason of s 12(3)(b) of the Real Property Act, the transfer of 15 April 2010 remains effective. That is because any correction should not prejudice or affect rights accrued under the April Mortgages: FNCB-Waltons Finance Ltd v Crest Realty Pty Ltd (1977) [sic] 10 NSWLR 621 at 630 per Wadell J." 38I turn first to the defendant's submission that s 12(3)(b) RP Act applies so that the deregistration should be deemed to have no force or effect. In my opinion the submission must be rejected. The application of the provision requires demonstration that the correction would prejudice or affect a right accrued from a recording made in the register before the correction. The evidence is to the contrary. NAB has made no complaint that its interests were prejudiced or adversely affected by deregistration. The correspondence between NAB and the LPMA shows beyond argument that NAB was instrumental in, and procured, the deregistration and withdrawal of the dealings. It is self-evident that it perceived it was in its interest to do so. In my opinion, s 12(3)(b) has no application in the circumstances of this case. 39Under s 12(2) of the Act, if a transfer of dutiable property is effected by a written instrument, liability for duty arises when the instrument is first executed. As explained by Gzell J in Gardiner v Chief Commissioner of State Revenue [2004] NSWSC 107; (2004) 59 NSWLR 549, par 20 an advance payment mechanism requires some form of relief in the event that the transfer does not eventuate. The legislative intention underlying s 50A(1) is to relieve from duty, under specified conditions, a transfer that was subsequently transferred, and s 50A(2) provides that if a duty has been paid the Chief Commissioner is obliged to reassess and refund the duty (Gardiner pars 21, 22). 40The question for the Chief Commissioner under s 50A(1) is whether the instrument has been cancelled and whether there has been a transfer of dutiable property. Upon its proper construction, in my opinion, the language of the provision requires determination of the question by the Chief Commissioner with regard to the whole of the evidence at the time the determination is to be made. It appears from the terms of the OSR's determination of 23 April 2012 that this was the approach taken by the Chief Commissioner in disallowing the objection. 41As to the issue of cancellation, it was common ground that cancellation of the instrument was not brought about by its deregistration. 42The evidence established that the intended operation of the instrument was to effect the transfer from Mr Trethowan to himself and the plaintiff as joint tenants of their principal place of residence with the benefit of the exemption under s 67(1) of the Act. Had the instrument been assessed for duty prior to registration it would have been made known to the parties that the exemption did not apply, or applied to only one lot. In those circumstances, the parties would not have proceeded with the transfer, and the instrument would not have been registered. Had this been the case, it is unlikely there would have been difficulty in obtaining relief from duty under s 50A(1). 43Shortly after registration the claim of liability for duty was made known to the plaintiff on about 6 May 2010. In his letter to the LPMA of 7 May 2010 Mr Abbott pointed out the mistaken inclusion of the three lots in the instrument and sought, with NAB's consent, the deregistration of the instrument and its return to NAB. As requested, NAB wrote to the LPMA on 10 May 2010 in similar terms. Following deregistration the instrument and related mortgage dealings were withdrawn by the LPMA on 4 November 2010 in accordance with NAB's request of 25 October 2010. Withdrawal proceeded on the basis that the dealings were no longer required. 44The evidence established, and I find, that since 7 May 2010 the plaintiff and Mr Trethowan no longer had any intention to proceed with the transfer of the three lots with the use of the instrument for that purpose, or that it should have any operative effect. Abandonment was confirmed when the dealing was withdrawn on 4 November 2010. Accordingly, I find the instrument has been cancelled within the meaning of s 50A(1)(a). 45As to the issue of transfer of the dutiable property for the purposes of s 50A(1)(a), the evidence established, and I find, that it has not been transferred to the transferees. Pursuant to departmental dealing AF517192D the relevant dealings were deregistered on 26 May 2010 to correct the erroneous registration without prior payment of duty. The effect of this process is that the register has the same validity and effect as it would have had if the erroneous registration had not occurred (s 12(3)(c) RP Act). It restored the status quo ante with the result that the plaintiff and Mr Trethowan were divested of the title evidenced by registration of the instrument on 15 April 2010. Thus the register shows that Mr Trethowan is the registered proprietor of each of lots 1, 2, and 3 which he became upon registration of dealing no. 0909829. It follows, in my opinion, that the dutiable property has not been transferred to the transferees. I reject the defendant's submissions to the contrary. 46There was no issue under s 50A(1)(b) that the transfer was not cancelled to give effect to a sub-sale. 47For the above reasons, in my opinion the application of s 50A(1) is enlivened, and the Chief Commissioner erred in concluding otherwise. The appeal should be allowed and the assessment of 19 September 2011 should be set aside. 48I direct the parties to bring in short minutes of orders to give effect to these reasons. They should have the opportunity to be heard on the issue of costs. Arrangements are to be made by 4pm 23 May 2013 with my associate to re-list the matter. ********** 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. Decision last updated: 17 May 2013