Benidorm Pty Ltd v Chief Commissioner of State Revenue [2020] NSWSC 471

Background

On 31 May 2007, Benidorm (as trustee) and Mr Robinson (as sole beneficiary) entered into a deed of trust (the “First Declaration of Trust”) whereby Benidorm declared that it would hold title to an apartment (“the Apartment”) as trustee for Mr Robinson.

On 27 June 2007, the sale of the Apartment was completed and ad valorem duty of

$783,994.00 was paid on the Contract.

On 13 September 2013, Mr Robinson died. By his last will and testament dated 11 September 2013 (“the Will”), Mr Robinson appointed Mr Stubbs as his sole executor and beneficiary.

On 29 January 2015, Benidorm and Mr Stubbs executed the Second Declaration of Trust, whereby Benidorm declared it would hold title to the Apartment as trustee for Mr Stubbs.

On 8 March 2019, the Chief Commissioner issued an Assessment for ad valorem duty in respect of the second declaration of trust.  Benidorm sought a review in these proceedings of the Assessment.

The Statutory Framework

The relevant provisions of the Duties Act 1997 (NSW) (“the Act”) are contained in Section 8 - Imposition of duty on certain transactions concerning dutiable property.

Issues 

The critical issue for determination was whether the Second Declaration of Trust constituted a “declaration of trust” within the meaning of the definition of that term in s 8(3) of the Act.

If this issue was determined in the affirmative, the Plaintiff alternatively contended that the Second Declaration of Trust was liable to nominal duty:

1. of $10.00 under s 18(6) of the Act because it declared the same trust as the resulting trust under which Mr Robinson acquired the Apartment on 16 May 2007;
2. of $10.00 under s 18(6) of the Act because it declared the same trust as declared in the First Declaration of Trust;
3. of $50.00 under s 18(6A) of the Act because: it superseded the First Declaration of Trust; it declared the same trusts as the First Declaration of Trust declared; the beneficiary in each trust was the same; and the trust property in each trust was the same; or
4. of $50.00 pursuant to s 63(1)(a)(i) of the Duties Act as a transfer made under and in conformity with the trusts of the Will.

Plaintiff’s Submissions

The Plaintiff’s primary contention was that the Second Trust Declaration was not liable to duty on the basis that it had no legal consequence. The Plaintiff submitted that a critical element in the statutory definition of “declaration of trust” is the requirement that the declaration operates “to vest” the beneficial estate in the property in such a way as to create a new trust over the property for the benefit of the beneficial owner.

The Plaintiff contended that since the Apartment was already vested in Mr Stubbs, the Second Declaration of Trust merely recorded the historical fact that the beneficial interest of the late Mr Robinson in the Benidorm Shares had already vested in Mr Stubbs as the sole executor of the Will on 13 September 2013. Thus, the Second Declaration of Trust had no work to do as a matter of law and was therefore not liable to ad valorem duty.

Chief Commissioner’s Submissions

The Chief Commissioner submitted that:

• the Second Declaration of Trust fell within the statutory definition in s 8(3) of the Duties Act and the decision to assess ad valorem duty was therefore correct.
• the statutory definition of “declaration of trust” is wider than that at general law and that it was not necessary for the declaration of trust to convey or settle the beneficial interest in the beneficiary;  the existence of relieving provisions tends against a narrow construction of s 8(3) of the Act.
• the authorities demonstrate that it is not necessary to look behind the declaration of trust to determine whether there has been, or will be, a conveyance or settlement of property in the beneficiary as a result of the declaration; rather, all that is necessary is that the statutory definition is satisfied.
• the Second Declaration of Trust fell within the statutory definition of “declaration of trust” in s 8(3) of the Act and is therefore dutiable on the basis that:
  • it identified property (the Apartment);
  • it “vested” the property in the person making the declaration (Benidorm);
  • the property is or is to be held in trust; and
  • it is or is to be held in trust for the person mentioned in the declaration (Mr Stubbs).

Decision

The Court held that the definition in s 8(3) of the Act does not encompass mere acknowledgments of existing trusts. That is to say, in order to come within the definition, a declaration of trust must have “a legal consequence, or consequences, beyond merely acknowledging that which already exists” [at 227].

The Court applied Gageler J’s minority judgment in the recent High Court case of Chief Commissioner of State Revenue v Rojoda Pty Ltd [2020] HCA 7 in the context of similar Western Australian legislation. At [240], Ward CJ found that “Gageler J recognised that a purported ‘declaration of trust’ that does no more than acknowledge the legal position that had already come to exist is not, relevantly, a ‘declaration of trust’”.

Although the Court found some force in the Chief Commissioner’s submission that the existence of specific relieving provisions tends against a narrow construction of s 8(3), it nonetheless preferred a narrower construction of s 8(3). However, the Court dismissed the Plaintiff’s construction that a declaration must “vest” the beneficial interest, as nowhere in section 8(3) of the Act can such a requirement to vest be found.

Accordingly, the Court concluded that the Second Declaration of Trust did not constitute a “declaration of trust” within the definition of that term in s 8(3) of the Act, finding that upon Mr Robinson’s death the relevant provisions of the Probate Act were engaged. Those provisions operated to vest, in accordance with his Will, the beneficial interest in the Apartment under that trust in Mr Stubbs. That had the consequence of effecting a change in the beneficiary and, in effect, created a new and different trust. The Second Declaration of Trust did no more than acknowledge that fact.

Whilst it was not necessary to decide anything further having regard to her Honour’s primary finding that s.8(3) of the Act was not engaged, Ward CJ found in favour of the Chief Commissioner in respect of the remaining issues as follows:

1. in relation to the “transaction issue”, the Court found that the word “transaction” does not have any separate operative effect in s. 8(1)(b) of the Act;
2. the concession in s 18(6) of the Act would not have been available because ad valorem duty was not paid on the transfer – it was paid on the Contract;
3. the concession in s 18(6A) of the Act would not have been available because the two trusts did not have the same beneficiary; and
4. the concession in s 63(a)(i) of the Act would not have been available because the Court accepted the Chief Commissioner’s submission that the Second Declaration of Trust was not a ‘transfer’. Moreover, there was no ‘transfer’ by the legal personal representative of Mr Robinson.

Orders

1. The Chief Commissioner’s assessment dated 6 March 2019 (“the Principal Assessment”), which assessed a deed made on 29 January 2015 between the plaintiff (as trustee) and Derek Stubbs (as beneficiary) described as “Declaration of Trust by Nominee” with ad valorem duty, be revoked pursuant to s 101(1)(a) of the Taxation Administration Act 1997 (NSW).
2. The Chief Commissioner repay any duty paid under the Principal Assessment with interest pursuant to s 101(1)(e) of the Taxation Administration Act 1997 (NSW).
3. The Chief Commissioner pay the costs of this proceeding pursuant to s 101(1)(e) of the Taxation Administration Act 1997 (NSW) and s 98 of the Civil Procedure Act 2005 (NSW).

Link to decision

https://www.caselaw.nsw.gov.au/decision/5eaa10d9e4b0d927f74af5c0