FEDERAL COURT OF AUSTRALIA

Australian Securities & Investments Commission v

Perpetual Trustee Co (Australia) Ltd [1999] FCA 250

CONTRACT – construction – deed of indemnity executed by trustee – inter‑trust transaction – trustee a trustee of more than one trust – relevant clause in deed referred to trustee “in its capacity as trustee of” a certain trust – whether clause ambiguous – whether trustee entitled as trustee of other trust under deed of indemnity to enforce obligation on the part of certain parties to deed to pay stamp duty imposed upon trustee

WORDS AND PHRASES – “tax avoidance scheme”

Corporations Law s 1073(1A) and s 1324

Stamp Duties and Taxes Act 1987 (ACT) ss 4(1), 17, 18, 22, Schedule 1

Real Property Act 1925 (ACT) s 138A

Codelfa Construction Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 337 applied

AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION v PERPETUAL TRUSTEE COMPANY (CANBERRA) LIMITED AND TERRENCE MARK SNOW AND GEORGE ROBERT WARWICK SNOW AND BASS INVESTMENTS (ACT) PTY LIMITED

AG 54 OF 1998

MILES, MATHEWS AND LEHANE JJ

25 MARCH 1999

CANBERRA

On appeal from a single judge of the Federal Court of Australia

THE COURT ORDERS THAT:

1.         The appeal be allowed.

2.         The orders of the Court made on 16 June 1998 be set aside.

3.         The question set for separate determination not be answered.

4.         The matter be remitted to the primary judge for further hearing and determination.

5.         The respondents pay the Commission’s costs of the appeal and of the hearing, before the primary judge, of the question set for separate determination.

Note:    Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

On appeal from a single judge of the Federal Court of Australia

REASONS FOR JUDGMENT

THE COURT:

1                     This is an appeal from an order of a judge of the Court (Finn J) by which his Honour ordered that there be judgment for the first respondent (Perpetual) on an application filed by the appellant (the Commission).  His Honour also ordered that there be judgment in favour of the appellant and the second and third respondents (the Snows and CP Co respectively) on cross‑claims against them by Perpetual.  Those results followed from the way in which his Honour answered a question which he had ordered be determined as a separate preliminary issue.  The question was:

“Whether on the true construction of the Deed of Indemnity dated 14 June 1989 and in the events which happened [Perpetual] in its capacity as trustee of the Capital Property Trust was entitled under clause 6 of the Deed of Indemnity to enforce any obligation on the part of [the Snows and CP Co] to pay the stamp duty imposed upon [Perpetual] by notice of assessment dated 9 June 1992.”

Background

2                     The substance of the Commission’s claim against Perpetual was that Perpetual had caused loss to the holders of units in a trust known as the Capital Property Trust (CP Trust) by failing to enforce against CP Co and the Snows rights which, the Commission contended, Perpetual had against them under a deed of indemnity.  That failure, the Commission alleged, was a breach of trust.

3                     The circumstances were these.  Perpetual was throughout the period with which this case is concerned the trustee of the CP Trust.  The CP Trust was a public unit trust and there were numerous unit holders.  The manager of the CP Trust was Capital Property Management Ltd (CP Management) of which the Snows were shareholders and directors.

4                     There was another trust, known as the T & G Trust.  Until 14 June 1989 the trustee of the T & G Trust was CP Co (of which also the Snows were shareholders and directors).  The ultimate beneficiaries of the T & G Trust, at the end of a somewhat complex chain, were members of the Snows’ families and entities connected with them.  By the time of the events giving rise to the proceeding under appeal, the only substantial property held by CP Co as trustee of the T & G Trust was a Crown lease of land in Canberra on which stood an office building known as the Advance Bank Centre (the AB Centre, an expression which we shall use indiscriminately to refer both to the Crown lease and to the building on it).

5                     By May 1989 CP Co and the Snows had decided that the T & G Trust should be brought to an end and the trust property distributed to the beneficiaries.  As part of that plan, they proposed that Perpetual, as trustee of the CP Trust, should acquire, at valuation, the AB Centre.  No doubt that could have been done by arranging for CP Co, as trustee of the T & G Trust, to transfer the AB Centre to Perpetual, for an agreed price.  Such a transfer, however, would have attracted very substantial stamp duty under the Stamp Duties and Taxes Act 1987 (ACT) (the Stamp Duties Act).  Among the instruments on which ad valorem stamp duty is payable under the Stamp Duties Act is “a transfer or an agreement for transfer of a Crown lease”: s 17(1)(b).

6                     What was proposed instead was a series of transactions, substantially as follows.  First, CP Co would retire as trustee of the T & G Trust and Perpetual would be appointed in its place; a request under s 138A of the Real Property Act 1925 (ACT) would then be lodged so that Perpetual would become the registered proprietor of the AB Centre; next, CP Management, as manager of the CP Trust, would make an investment proposal to Perpetual, proposing the acquisition for the CP Trust of the beneficial interest of the beneficiaries of the T & G Trust in the AB Centre.  Such a proposal, as well, presumably, as being such as to satisfy Perpetual that it should be accepted having regard to the interests of the beneficiaries of the CP Trust, would require approval by resolution of the holders of units in the CP Trust.  It required also the concurrence of the unit holder in the T & G Trust.  If Perpetual accepted the proposal, the unit holder in the T & G Trust concurred and the unit holders in the CP Trust passed the necessary approving resolution, the acquisition of the beneficial interest in the AB Centre would be effected without further document, on payment of the agreed consideration.  No doubt it was considered that such a transaction would give rise to a constructive trust, effectively vesting the entire beneficial interest in the AB Centre in the CP Trust unit holders (the legal title would, of course, already be vested in Perpetual, their trustee).  The proposal did, however, contemplate a final document, a declaration of trust by which Perpetual would acknowledge that it held the AB Centre on trust for the CP Trust.

7                     It is necessary to describe why it was thought that, if the AB Centre were acquired by that series of transactions, no ad valorem stamp duty would be payable.  The Stamp Duties Act is traditional stamp duty legislation in the sense that, at least in relation to transactions of the kinds with which this case is concerned, it imposes duty on instruments not transactions.  The instruments contemplated were a deed of appointment of trustee giving effect to the replacement of CP Co by Perpetual as trustee of the T & G Trust; a request under s 138A of the Real Property Act; and the deed of acknowledgment or declaration of trust.  Of those documents, the last did not constitute, it was confidently believed, a transfer of a Crown lease (there being no other relevant head of duty); since legal title to a Crown lease passes upon registration of the appropriate instrument under the Real Property Act, the deed of appointment, not being a registrable instrument, was considered not to be a transfer (or, for that matter, an agreement for a transfer) of the AB Centre.  The request under s 138A might well be regarded as a transfer but fell, it was believed, within the terms of an exemption from ad valorem duty.  Section 18 of the Stamp Duties Act provided that:

“Stamp duty is not payable on an instrument in respect of a conveyance of a kind specified in Schedule 1.”

8                     Included in the definition of “conveyance” in s 4(1) of the Stamp Duties Act was “… a transfer, assignment or grant of a lease of land” and “an agreement for a transfer, assignment or grant of a lease of land”.  Among the categories of conveyances specified in Schedule 1 was:

“A conveyance: …

(f)        by way of a transfer or assignment of … a lease of land, being … [a] lease held on trust, where the transfer or assignment:

(i)        is made in consequence of the appointment or retirement of a trustee, or other change in the trustees, in order to vest the … lease … in the trustees for the time being entitled to hold it; and

(ii)       is not made in connection with a tax avoidance scheme.”

9                     Both “scheme” and “tax avoidance scheme” were defined in s 4(1) of the Stamp Duties Act.  “Scheme” was defined in familiar and wide terms as:

“(a)     an agreement, arrangement, understanding, promise or undertaking, whether express or implied and whether or not enforceable, or intended to be enforceable, by legal proceedings;

(b)       a scheme, plan, proposal, action, course of action or course of conduct, whether unilateral or otherwise …”

10                  That definition was then incorporated in the meaning given to “tax avoidance scheme”:

“ ‘[T]ax avoidance scheme’ means a scheme where the person who has, or 1 or more of the persons who have, entered into or carried out the scheme or a part of the scheme did so for the purpose of securing –

(a)       that an amount of stamp duty or tax would not be payable by a person, being an amount that would have been, or might reasonably be expected to have been, payable by the person; …

if the scheme had not been entered into or carried out, or for purposes of which that purpose was the dominant purpose …”

11                  The view was taken that the proposal would not be characterised as a tax avoidance scheme: particularly, that the s 138A request was an instrument made in consequence of the appointment of a trustee in order to vest the AB Centre in the new trustee and was not made in connection with a tax avoidance scheme.  In using phrases such as “it was considered” and “the view was taken”, we are referring to views confidently expressed by Mallesons Stephen Jaques, who then acted for CP Co and on whose advice, apparently, all parties were prepared to act.  It may be that Sly & Weigall, who then acted for Perpetual, took a more cautious view.  It will be necessary to consider those circumstances in more detail later.

12                  The proposal as we have described it was put into effect in two stages.  First, Perpetual replaced CP Co as trustee of the T & G Trust.  By a deed of appointment dated 14 June 1989:

“[CP Co] in exercise of the power given to it in clause 25(d)(ii) of the Trust Deed resolves to appoint as substitute trustee of the T & G Trust in place of [CP Co] [Perpetual] and declares that the estate and interest in the property of T & G Trust shall vest in [Perpetual] from the date of this deed.”

13                  On the same day an application was made under s 138A of the Real Property Act to have Perpetual registered as proprietor of the AB Centre.  Subsequently, CP Management made a proposal to Perpetual as trustee of the CP Trust for the acquisition of the AB Centre.  The proposal was amended several times.  Ultimately it was put to a meeting of the unit holders of the CP Trust, who by resolution approved of it.  The purchase price, $49.75 million, was paid.  On 31 August 1989 Perpetual executed a declaration of trust, by which it acknowledged that it held the AB Centre as trustee of the CP Trust.

14                  By a letter to Perpetual dated 9 June 1992 a delegate of the Commissioner for ACT Revenue assessed stamp duty and penalty tax as payable “in relation to the acquisition of [the AB Centre] by [Perpetual] as trustee for the Capital Property Trust”.  The stamp duty assessed was $2,721,765 and the penalty tax $3,180,029.75.  Following some negotiation, the Territory Government Solicitor on 24 June 1992 wrote to Mallesons Stephen Jaques (by then, apparently, acting for Perpetual).  The Government Solicitor confirmed “our verbal advice to you … that the assessment of stamp duty is based on the Deed of Appointment dated 14 June 1989”.  He also said that he had been instructed that the stamp duty assessed should be paid but that payment of the penalty tax “will not be pursued without written notification to you of my client’s intent to do so”.  Perpetual paid the amount of duty assessed from funds which it held as trustee of the CP Trust.  The Commissioner had purported to asses the duty against Perpetual as trustee of that trust, and s 22 of the Stamp Duties Act provided that the stamp duty payable on a transfer or assignment of a lease was payable by the transferee or assignee.  There followed proceedings in the Administrative Appeals Tribunal and this Court concerning a challenge by Perpetual to the assessment.  Ultimately those proceedings were compromised: the amount of duty paid was refunded to Perpetual together with an amount of interest; but the CP Trust remained out of pocket for a substantial amount of interest and legal costs incurred in relation to the assessment and the proceedings in the Tribunal and the Court.

The deed of indemnity

15                  As a condition of its agreement to be appointed trustee of the T & G Trust, Perpetual required CP Co and the Snows to enter into a deed of indemnity.  That deed (the deed of indemnity) was executed on 14 June 1989, immediately before the deed of appointment.  The parties to it were CP Co (described as “Capital Property”), the Snows and Perpetual (described as the “New Trustee”).  The deed of indemnity provided as follows:

“RECITALS:

A.        By deed made 2nd March 1977 between Patrick Joseph McGlade as Settlor and Capital Property (then called ‘Stirling Finance Co Pty Limited’) (the ‘Trust Deed’) the Settlor settled upon Capital Property the sum of $100 and established the ‘T & G Trust’.

B.         Capital Property wishes to be removed from the trusts of the T & G Trust and it is proposed that the New Trustee be appointed as substitute Trustee.

C.        At the request of the Snows the New Trustee is prepared to accept the appointment as Trustee of the T & G Trust subject inter alia to the execution of this deed.

OPERATIVE PROVISIONS:

1.         Capital Property at the request of the New Trustee warrants to the New Trustee as follows:

(a)       Capital Property has not committed any breach of the trusts conferred upon it by the Trust Deed.

(b)       The accounts of the of the [sic] T & G Trust present a true and fair view of the assets and liabilities of the Trust as at the date of the accounts.

(c)        The financial records of the T & G Trust have been kept in such a manner as to enable them to be conveniently audited.

2.         Capital Property and the Snows each warrant and represent to the New Trustee that:

(a)        The T & G Trust is a valid and subsisting trust constituted by deed dated 2 March 1987 and amended only by deeds dated 10  March 1987 and June 1989.

(b)        Capital Property as unit holder holds all of the issued units in the T & G Trust and does so in its capacity as trustee of the Empire Trust constituted by deed dated 24 May, 1984.

3.         The Snows and each of them hereby request the New Trustee to accept the appointment as trustee of the T & G Trust.

4.         Capital Property and the Snows jointly and each of them severally covenant with the New Trustee to at all times indemnify the New Trustee:

(a)        against all actions preceedings [sic] claims demands costs and expenses whatsoever arising from:

(i)         Acceptance by the New Trustee of appointment as trustee of the T & G Trust.

(ii)        In the absence of misconduct by the New Trustee the exercise and purported exercise by the New Trustee of all or any of the powers set out in the Trust Deed and all deeds amending that deed.

(iii)       In the absence of misconduct by the New Trustee [a]ll or any act matter or thing arising as a result of the New Trustee acting or purporting to act as trustee of the T & G Trust.

(b)        for its fees and expenses in relation to the administration or purported administration by the New Trustee of the T & G Trust.

6.         All stamp duty and other taxes imposts and charges payable on or in respect to this deed and the deed of appointment of new trustee and any document evidencing or recording the substitution of the New Trustee for Capital Property as trustee of the Trust or the change in the ownership in the legal estate in the assets of the Trust executed contemporaneously with this deed (including penalties) be payable by Capital Property and the Snows.”

16                  There is no clause 5.  The words in bold type in clause 6 were inserted, in the original, in handwriting, apparently just before the deed of indemnity was executed.  Perpetual has not sought to recover from CP Co or the Snows, under clause 6 of the deed of indemnity, any of the amount paid to the Commissioner for ACT Revenue or any of the costs incurred in relation to the assessment.  Perpetual takes the view that it has no claim against CP Co or the Snows under clause 6 for duties or penalties which it has paid as trustee of the CP Trust: that is to say, in discharge of a liability in respect of which it was entitled to an indemnity out of the property of that trust.  That view, naturally enough, is shared by CP Co and the Snows.  The Commission, however, takes the view that the amount for which the CP Trust remains out of pocket is recoverable by Perpetual under clause 6 and that Perpetual has breached its duty as trustee of the CP Trust by refusing to seek recovery.  That is the basis of the Commission’s claim against Perpetual (Corporations Law, s 1073(1A) – now repealed – and s 1324).  The purpose of the separate question was to determine whether the Commissioner’s construction of clause 6, or that contended for by Perpetual, is correct.  The curious situation thus arises that all parties to the document contend for one construction and the Commission contends for a different construction.

Construction of the Deed

17                  The primary judge took the view that clause 6 of the deed of indemnity was unambiguous.  His Honour’s reasoning appears in the following passage in his judgment:

“For my own part I would have to say that I consider the construction of clause 6 as free from difficulty.  Though, as counsel for the Snows rightly identifies and all parties accept, it contains an implicit promise in the setting of the Deed itself, that promise is to Perpetual as trustee of the T & G Trust.  The Deed was the condition of acceptance of that Trust: the covenants expressly creating obligations relate to Perpetual in virtue of that trusteeship: and clause 6, in the instruments to which it refers, likewise is related to the process of the appointment of, the evidencing of, and any change of legal ownership of T & G Trust assets consequent upon the appointment of, Perpetual as trustee of T & G Trust.

The Deed is silent in [relation] to the CP Trust of which Perpetual was already trustee.  It is inappropriate, given the declared condition the Deed satisfied, for the implicit promise of clause 6 to extend to Perpetual’s trusteeship of that trust and in respect of transactions (even if part of a scheme) that were to occur subsequent to the limited set of events which the instruments in clause 6 were intended to evidence.

For this reason I would answer the preliminary question: “No”.  The indemnity did not extend to a liability incurred by Perpetual in its capacity as trustee of the CP Trust.”

18                  Having formed that view, his Honour did not need to consider alternative arguments about the way in which clause 6, if it were held to be ambiguous, should be construed having regard to the surrounding circumstances.

19                  There is no doubt that the deed of indemnity itself makes it clear that the context of its execution was the proposal that Perpetual be appointed trustee of the T & G Trust.  Equally, there is no doubt that all the provisions preceding clause 6 are directed to protecting Perpetual against liabilities which it might incur by accepting appointment as trustee of the T & G Trust and by acting in that capacity.  No doubt all the liabilities covered by the first four clauses were liabilities for which, if there remained sufficient trust property and if matters were as warranted by CP Co and the Snows, Perpetual would have a right of indemnity or recoupment out of property held by it as trustee of the T & G Trust.  Equally, it is true that all the documents referred to in clause 6 related to Perpetual’s appointment as trustee of the T & G Trust and to its acquisition of the legal title to the trust property consequent upon that appointment.

20                  Nevertheless, with great respect, we do not agree that clause 6 unambiguously limits itself to duty etc. payable by Perpetual in its capacity as trustee of the T & G Trust (that is, duty etc. for which it would be entitled to an indemnity out of the property of that Trust).  The drafting of the clause reflects, no doubt, a degree of haste in its composition.  The word “shall” has been omitted in the phrase intended to be “shall be payable” (but the phrase should be read as if “shall” were included); and the clause is not expressly cast in the form of a promise to Perpetual by CP Co and the Snows, though it should be read (and there was no dispute about this) as if that were its form.  The effect of the clause, read in that way, was that CP Co and the Snows undertook to pay the duty, taxes, imposts and charges referred to so that Perpetual would be relieved of their burden.  The clause is not limited, however, by reference to the circumstances which might cause any of the documents to attract duty or tax or by reference to any alternative source of indemnity or recoupment that might be available to Perpetual.

21                  It is, we think, to cloud the issue to speak of the capacity in which Perpetual acted when it obtained the benefit of the promise in clause 6 of the deed of indemnity.  If any of the documents were dutiable, all parties accepted in argument that that could be so only if it were properly to be regarded as a transfer or assignment of (or an agreement to transfer or assign) a lease.  If it had that character, and was dutiable, then Perpetual was liable to pay the duty.  The effect of the Stamp Duties Act does not depend on the capacity in which a transferee or assignee acts: it imposes liability on the transferee or assignee regardless of capacity.  (The notice of assessment of 9 June 1992 purported to assess Perpetual “as trustee for the Capital Property Trust”; but the quoted phrase must be regarded as surplusage).  Once that is seen, the real question, it seems to us, is whether clause 6 applies only in circumstances where Perpetual has no recourse, in respect of the duty, taxes and imposts, to any persons or funds other than the beneficiaries of the T & G Trust or the property held as trustee of that trust.  For that reason, we are inclined to think that it might have been better not to include in the question for separate determination the words “in its capacity as trustee of the Capital Property Trust”.

22                  The letter of 24 June 1992 from the Government Solicitor makes it clear that the assessment of 9 June 1992 was issued on the basis that duty was payable on the deed of appointment of 14 June 1989.  The effect of that assessment was that the duty was payable by Perpetual.  If in clause 6 “payable on or in respect to” includes circumstances where duty is payable by reason of an assessment (whether correctly made or not) of duty on the deed of appointment ‑ and that is a question on which the argument did not touch – then the duty assessed by the Commissioner for ACT Revenue fell within the literal terms of the provision.  If clause 6 is to be construed – without regard to surrounding circumstances – so as to exclude it, that is so, we think, not by reason of the capacity in which Perpetual did things but because clause 6 is properly to be viewed as not extending to duty charged on one of the documents to which it refers where the charge to duty arises not merely because of the execution of the document upon Perpetual’s appointment as trustee, but because of later events or transactions not necessarily consequential on the particular transactions with which the deed was immediately concerned.  In our view, and with respect, the clause is not unambiguous in the sense that, construed by reference only to its context within the deed, it must be read as subject to that limitation.  Indeed, in our opinion, there is much to be said for the view that the clause unambiguously means what literally it says.

23                  Having reached that conclusion, it is appropriate, we think, to proceed on the basis that either the literal construction or the limited construction, which the primary judge preferred, is open: that is, that clause 6 is ambiguous.  On that basis evidence of the surrounding circumstances, known at the time to all parties, may be taken into account as an aid to construction: Codelfa Construction Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 337 at 352 per Mason J; see also per Brennan J at 401.  In taking surrounding circumstances into account, however, it is necessary to bear in mind the purpose of the inquiry:

“… prior negotiations will tend to establish objective background facts which were known to both parties and the subject matter of the contract.  To the extent to which they have this tendency they are admissible.  But in so far as they consist of statements and actions of the parties which are reflective of their actual intentions and expectations they are not receivable …

Consequently when the issue is which of two or more possible meanings is to be given to a contractual provision we look, not to the actual intentions, aspirations or expectations of the parties before or at the time of the contract, except in so far as they are expressed in the contract, but to the objective framework of facts within which the contract came into existence, and to the parties’ presumed intention in this setting.”

(Codelfa at 352 per Mason J).  There is a further potential difficulty in this case.  Because the trial judge concluded that clause 6 was unambiguous, it was not necessary for him to consider surrounding circumstances as an aid to construction.  To the extent that we do so, we are embarking on an inquiry into the effect of evidence in the case without the benefit of the primary judge’s assessment of that evidence.  However, the evidence is before us, is documentary and is not particularly voluminous; and we have heard argument about it.  In those circumstances it is appropriate for us to consider for ourselves the way in which any ambiguity in clause 6 should be resolved in the light of the circumstances, known to the parties on 14 June 1989, as revealed by the evidence.

24                  Two aspects of the surrounding circumstances seem to us to be particularly important.  One is that the proposal that Perpetual be appointed trustee of the T & G Trust was made only in the context of a larger proposal in which that was a first step, the ultimate goal being the acquisition by the CP Trust of the AB Centre.  Certainly it is true that, though the first step was taken, the ultimate goal might not be reached: the terms which CP Management was to put to Perpetual, as trustee of the CP Trust, might not be acceptable to Perpetual, or the acquisition might not be approved by the unit holders of the CP Trust.  But the evidence makes it quite clear that there was no particular purpose to be served by the appointment of Perpetual as trustee of the T & G Trust if the later steps were not taken.  The point of the appointment was that it would facilitate the acquisition of the AB Centre by the CP Trust on advantageous terms.  The second aspect is that Mallesons Stephen Jaques, acting for CP Co and the Snows, provided a detailed opinion on the stamp duty consequences of the entire proposal.  In its developed form, that opinion was given by a letter dated 8 June 1989.  Notes made on the letter by a solicitor in Sly & Weigall, acting for Perpetual, indicate at least some preliminary reservations about aspects of the advice (we shall return to the question of the admission, in evidence, of a later letter written by Sly & Weigall).  The burden of the opinion expressed by Mallesons Stephen Jaques was that none of the documents contemplated would attract stamp duty.  The deed of appointment, Mallesons Stephen Jaques said, “cannot itself be liable for stamp duty and hence presents no problems”.  The request under s 138A, properly regarded, was not a transfer or assignment and accordingly was not dutiable.  Even if that request were treated as a transfer or assignment, however, it would be exempt as a transfer or assignment made in consequence of the appointment of a trustee and in order to vest the property in the trustee.  On the facts, the request, regarded as a transfer or assignment, would not correctly be treated as made in connection with a tax avoidance scheme.  Even if that were wrong, since what was transferred was a bare legal title, the better view was that the value of the property transferred was nil, or a nominal value, so that no ad valorem duty would in any event be payable.  Finally, the declaration of trust (acknowledging that the AB Centre ultimately was held by Perpetual as trustee of the CP Trust), not being a transfer or assignment, or an agreement to transfer or assign, would not be liable to duty.

25                  The significance of the stamp duty advice is, in my view, not so much that it gave the “all clear” but that it indicated that a stamp duty liability might arise only if there were found to be a “tax avoidance scheme”; and the only such scheme in prospect was one which might be thought to exist if the entire proposal were regarded as a means of transferring the AB Centre from the T & G Trust to the CP Trust in such a way as to avoid the duty which would be payable if the transaction took place more directly.  In other words, so far as the advice went (and in this respect there is no reason to doubt its correctness) there was no prospect that duty, taxes, imposts or penalties would be payable in respect of any of the documents referred to in clause 6 of the deed of indemnity unless the CP Trust acquired the AB Centre and the proposal, structured as it was, was regarded as a tax avoidance scheme.  In that context, in my view, the handwritten insertions in clause 6 are revealing.  Apart from the deed of appointment, the only document contemplated which related to the transfer of legal title from CP Co to Perpetual was the request under s 138A.  One might well not suppose that an informal document of that character would attract stamp duty (and no doubt in ordinary circumstances it would not).  But one of the matters which plainly emerged from the opinion of Mallesons Stephen Jaques was that, to the extent that there was a risk that any of the contemplated documents might be assessed as attracting ad valorem duty, the document that might be so assessed was the s 138A request.

26                  That being so, it is not, we think, particularly significant that clause 6 did not explicitly refer to a possibility that duty might become payable by reason of the transfer of the AB Centre to the CP Trust.  Duty, if it were assessed, would, under the Stamp Duties Act, necessarily be assessed on a document; the opinion of Mallesons Stephen Jaques made it clear that in their view the only realistic candidate was the s 138A request; and it was a realistic candidate only if the CP Trust actually acquired the AB Centre following Perpetual’s appointment as trustee of the T & G Trust.  The same considerations suggest also that the circumstance, relied on by the respondents, that at the time the deed of indemnity was signed the acquisition of the AB Centre had not been agreed upon and might not take place, is not of any great consequence: the acquisition was expected and, if it happened, would provide the only reason why any of the documents referred to in clause 6 might be dutiable.  It is true, of course, as some of the correspondence between the solicitors suggests, that another way in which duty might have been imposed was by a (presumably retrospective) change of law: but it is not easy to see why, and there is no sign that anyone contemplated that, the law would have been changed to impose duty otherwise than because the whole exercise was regarded as a scheme to avoid duty properly payable but not caught by the existing law.

27                  Certainly there seems little doubt that a principal reason for the execution of the deed of indemnity, as a whole, was the circumstance that the assets of the T & G Trust were to be fully distributed once the AB Centre had been sold; there was also some apprehension that the trust might not be valid because CP Co, the outgoing trustee, was also (albeit as trustee of a further trust) the sole beneficiary.  No doubt it is true that the indemnities and warranties were required to protect Perpetual against the possibility that it might not have any effective recourse against T & G Trust property.  But there was simply no cause for concern that there was a need for protection against a stamp duty liability for which Perpetual might have been able to recoup itself from T & G Trust property, if there were any.  And the insertion of the handwritten words suggests a genuine concern much more readily to be explained by the legal opinion received than by reference to a liability which no one had suggested might arise.

28                  The respondents relied on the fact that successive versions of the proposal put by CP Management to Perpetual (as trustee of the CP Trust) to acquire the AB Centre included a clause in these terms:

“Indemnities:  CPT [ie the CP Trust] is to pay all stamp duty and related costs in respect of the acquisition, or indemnify the T & G Trust against any stamp duty, not exceeding the ad valorum [sic] duty on the acquisition cost of $49,750,000, if so levied against it at any time in the future.”

29                  There are difficulties, however, in giving weight to that.  One problem is that the proposal for acquisition may very well not have been admissible because the first version came some four weeks after the deed of indemnity was executed.  There is nothing to suggest that the precise terms of the proposal were already in the parties’ minds on 14 June.  Secondly, even if that problem is ignored, the terms of the proposal do not particularly suggest any conclusion.  To discover that the acquisition of the AB Centre ultimately took place on terms which made it appropriate to cast the burden of ad valorem stamp duty (and no more) on the CP Trust does not suggest any doubt as to the likelihood that, on 14 June, Perpetual required an indemnity from substantial parties against a considerable liability, for penalties as well as duty, to which, because of the character of the entire proposal, it might be subjected.

30                  For those reasons, the correct construction of clause 6 is in our view the literal one:  CP and the Snows were to pay all stamp duty and other taxes, imposts and charges payable in respect of any of the documents referred to.

Admissibility of documents

31                  Two questions of admissibility were argued before us.  It is convenient to deal first with the tender by the Commission of a letter dated 4 July 1989 from Sly & Weigall to Perpetual.  The existence of that document had not been known to the Commission until it appeared, unheralded, as an attachment to Perpetual’s written submissions in the appeal.  Plainly it was evidence which was not available to be tendered before the primary judge nor could notice of the intention to tender have been given until, at the earliest, very shortly before the hearing of the appeal.  The relevance of the letter is that it throws light on the surrounding circumstances at the time the deed was executed.  That being so, on the view which Finn J took, it would not have affected his Honour’s decision: there was no ambiguity to be resolved.  On the footing, however, that the clause is ambiguous, in our view the letter is admissible and should be received by this Court on the appeal.  The importance of the letter is that it records advice given by Sly & Weigall to Perpetual on 14 June.  Particularly, the letter recorded:

“We were unable to give you any assurances that the transactions do not constitute or would not be seen to constitute a ‘tax avoidance’ scheme.  Having considered the opinion of Messrs Mallesons Stephen Jaques and our views on the matter, Perpetual resolved to proceed notwithstanding our opinion.

Capital Property Corporation Pty Limited and the Snows, covenanted to meet any stamp duty, other taxes and imposts arising from the appointment of the new trustee or the change in ownership of the property.”

32                  The letter went on to refer to the “second stage” of the transactions.  It proceeded to report on “settlement” (that is, the conclusion of the transaction under which Perpetual became trustee of the T & G Trust), suggested certain matters in relation to the “second phase of the transactions” and recorded that Sly & Weigall awaited further instructions on the second phase.

33                  Senior counsel for the Commission relied, of course, on the passage I have quoted and the references to a transaction in two stages.  Senior counsel for Perpetual, on the other hand, stressed the way in which the “covenant” was described (that is, duty etc. arising from the appointment of the new trustee or the change in ownership of the property) and the circumstance that the letter made it plain that the writer’s instructions extended only to the first stage, the second stage being then inchoate.  In our view, although I have reached a conclusion favourable to the Commission without reference to the letter, the letter is admissible evidence in favour of the Commission.  The opinion of Mallesons Stephen Jaques was explicitly given with reference to the entirety of the transaction, in both phases.  If anything was to give it the character of a tax avoidance scheme, it was the second phase, following upon the first.  It was in that respect that Sly & Weigall were unable to assure Perpetual that “the transactions do not constitute or would not be seen to constitute a ‘tax avoidance’ scheme”.

34                  The second matter can be dealt with briefly.  The primary judge rejected the tender of a letter from Perpetual to the Commission dated 4 November 1996 in answer to a letter from the Commission requesting information about the 1989 transactions.  In the letter, which its writer said had been considered and approved by the board of Perpetual, views were expressed as to the reason why the indemnity had been “put in place”.  In our view the judge was right to reject the tender.  If the letter admits anything, it admits a subjective intention on the part of Perpetual and thus is not to be admitted as evidence of part of the (objective) surrounding circumstances.  In any event, given the lapse of time since the events in question, there is in our view much to be said for the approach taken by the primary judge that the letter should be rejected, as a matter of discretion, on the basis that its probative value was significantly outweighed by its potentially prejudicial effect.

Submissions received after hearing of appeal

35                  Since the hearing of the appeal we have received further submissions relating to the way in which Perpetual, in argument before us, relied on the investment proposals made to Perpetual by CP Management.  The Commission, having regard to Perpetual’s submissions based on those proposals, asked us to receive certain other documents not previously admitted into evidence.  Since, taking the proposals into account as we have done, we propose in any event to allow the appeal, it is unnecessary to consider the admissibility of the additional documents on which the Commission seeks to rely.

Conclusion

36                  The appeal in our view should be allowed.  The orders of the Court made on 16 June 1998 should be set aside.  The question set for separate determination should not be answered.  The matter should be remitted to the primary judge for further hearing and determination.  The respondents should pay the Commission’s costs of the appeal and of the hearing, before the primary judge, of the question set for separate determination.

Associate:

Dated:              25 March 1999