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Pacific Fair Shopping Centres Pty. Limited v The Commissioner of Stamp Duties

 

[1979] FC 10

Appeal No. 57 of 1978

BETWEEN:

PACIFIC FAIR SHOPPING CENTRES PTY. LIMITED and AUSTRALIAN MUTUAL PROVIDENT SOCIETY

(Appellants)

AND:

THE COMMISSIONER OF STAMP DUTIES

(Respondent)

___________________________________

CHIEF JUSTICE

LUCAS J.

CONNOLLY J.

___________________________________

Reasons for Judgment delivered by Connolly J. on 23rd February, 1979 the Chief Justice and Lucas J. concurring.

___________________________________

“QUESTIONS ASKED TO BE ANSWERED (a) “YES”; (b) “$26,500,000”, AND THAT COSTS OF THE COMMISSIONER OF STAMP DUTIES OF AND INCIDENTAL TO THE STATING OF THE CASE AND THE APPEAL THERETO TO BE TAXED AND PAID BY THE APPELLANTS.”

___________________________________

IN THE SUPREME COURT OF QUEENSLAND

Appeal No. 57 of 1978

PACIFIC FAIR SHOPPING CENTRES PTY. LIMITED and AUSTRALIAN MUTUAL PROVIDENT SOCIETY

-v-

THE COMMISSIONER OF STAMP DUTIES

JUDGMENT - CONNOLLY J.

On 22nd December, 1977 Pacific Fair Shopping Centres Pty. Limited entered into a contract for the sale to Australian Mutual Provident Society of the Pacific Fair Shopping Centre at Broadbeach and certain associated assets. The purchase price was expressed to be the sum of $22 million together with a variable sum calculated in the manner provided in the Fourth Schedule to the agreement. In very broad terms the consideration on sale was to be an approximation of a sum arrived at by capitalising the net rental returns at 9%. However the ingredients in the calculations were defined with some elaboration in the Fourth Schedule. The receipts were to be the aggregate of-

  1. $2,020,637.00;
  1. The amount by which the percentage rentals (an expression defined in the leases which were not before the Commissioner and which were to reflect the trading results of tenants) in respect of the calandar year 1978 exceeded the base rentals payable by tenants in respect of the rental year commencing 24th August, 1978;
  1. Variable outgoings payable by tenants;
  1. Insurance monies receivable in lieu of the above.

The expenses to be brought to account were defined as being the aggregate of the variable outgoings and an agreed sum of $160,940.00. The net income was to be calculated by deducting the expenses from the receipts and was to be capitalised at 9%. The variable sum was then to be the amount by which the capitalized value so arrived at exceeded $22,000,000.00. However Clause 5 of the Fourth Schedule provided that notwithstanding anything contained or implied to the contrary in the Fourth Schedule the variable sum was not to exceed $4,500,000.00. It is common ground that as at the date of the execution of the instrument the variable sum could not have been calculated exactly if only because the percentage rentals could not be known until the results of trading for the calandar year 1978 were to hand. In addition, while the base rentals are set out in the Tenth Schedule for the first rental year and in some cases for further rental years, some at least were subject to annual review and their amount in the rental year commencing 24th August, 1978 was not ascertainable.

The respondent assessed stamp duty in the sum of $924,150.00 under the head of charge “Conveyance or Transfer” being $14,150.00 plus $3.50 for every $100 or fractional part of $100 of the value of the consideration in excess of $500,000.00. He took the value of the consideration for the sale to be $26,500,000.00 and in so doing treated the value of the variable sum as $4,500,000.00.

Both vendor and purchaser appeal against this assessment. It is conceded that duty falls to be assessed under the head of charge adopted by the Commissioner but it is said that the value of the consideration should be confined, to the sum of $22,000,000.00, the value of the variable sum being unascertainable.

It will be convenient to commence an examination of the case law with the decision of the Court of Appeal in Underground Electric Railways Company of London Ltd. -v- Commissioners of Inland Revenue (1905) 1 K.B. 174. The instrument in question was a contract for the sale of the undertaking of one company to another and in addition to certain sums in relation to which there was no controversy, the consideration included the payment of an annual sum from the profits of the new company available for dividend equal to a dividend of 3% each year on the amount for the time being paid up on the issued capital of the new company from its original ordinary share capital of £5,000,000. This sum was payable after the payment of a cumulative dividend of 5% on the paid up capital of the new company. The Commissioners found that the whole of the ordinary share capital of £5,000,000 had been issued of which £1,300,000 was paid up and a dividend on the latter sum for a year would amount to £39,000. The receipt by the vendor in any year of this sum of £39,000 was obviously contingent upon the profits of the new company available for dividend being sufficient to pay the 5% cumulative dividend as well as the amount payable to the vendor. They were of the opinion that the sum of £39,000 was “money payable periodically” within the meaning of S. 56(2) of the Stamp Act 1891 (our s. 51(2)) and they charged ad valorem duty on twenty times that sum in accordance with the sub-section. It was contended that the word “payable” in s. 56(2) referred to money payable absolutely and could not be taken to mean money which is payable only upon a contingency. This argument was rejected by the Court. At p. 182 Collins M.R. said that there is a principle underlying the construction of the Act that the word “debt” applies to money payable whether upon a contingency or as an absolute and unconditional certainty and that the principle was equally applicable to the words “money payable” in s. 56(2) See also per Stirling L.J. at p. 183. Here the obligation to pay the $4,500,000.00 depends upon the contingency of the net rental receipts being sufficient to lead, on the doing of the calculations required by the Fourth Schedule, to that sum. Mr. Macrossan argued that the decision was distinguishable on the footing that there at least the basic facts (the amount of issued and paid up capital) required for the calculation were ascertainable at the date of the contract whereas here they are not.

The decision was affirmed on appeal (1906 A.C. 21). Lord Lindley at p. 22 pointed out that the sum was a minimum one, in the sense that the paid up capital was liable to be increased but he thought that the possible insufficiency of the profits to pay the amount occasioned the only difficulty. On consideration, however, his Lordship concluded that the words of s. 56 were wide enough to include all monies which might become payable and further that s. 57 (our s. 52) which says that money payable on a contingency is to be taken into account removed any doubt which might otherwise arise as to the inclusion of contingent payments in the earlier provision. Lord Halsbury agreed in this speech and the decision is therefore direct authority for the proposition that the contingency of a sufficiency of profits will not prevent the charging of stamp duty upon so much of a consideration for sale as depands upon that contingency.

I turn next to Underground Electric Railways Company of London Ltd. -v- Commissioners of Inland Revenue (1914) 3 K.B. 210 (the second Underground Electric Railways case). The instrument in question was between the Underground Electric Railways Company and trustees and dealt with a proposed takeover of the stock of the Central London Railway Company. The issued capital of this company was £3,000,000 and the Underground Company proposed to issue to the stockholders in exchange for their stock, a stock carrying a guaranteed dividend of 4%. The instrument was conditional upon sufficient stockholders of the Central London Rallway Company agreeing to exchange, and as at the date of the instrument it was not known whether sufficient would so agree. Further the obligation of the Underground Company to pay the 4% dividend was conditional upon the Central London Railway Company not making sufficient profits. The instrument was charged with ad valorem stamp duty under the heading “Bond Covenant or Instrument” as being the only or principal or primary security for the sum of £120,000 at stated periods for an indefinite period. This was of course the maximum liability of the Underground Company if all the holders exchanged and if the Central London Railway Company made no profits in any year (being 4% on £3,000,000). It may be seen that no less than four contingencies were involved here. The required percentage of stockholders might not have converted; it was wholly conjectural whether £3,000,000 worth of guaranteed stock would be issued; the Central London Railway Company might have earned the necessary profits; and the Underground Company might not have had the necessary funds to pay the guaranteed dividends. The assessment was nevertheless upheld. Scrutton J. at p. 220 said:—

“These and other cases seemed to me to establish that there may be a sum, or a definite and certain sum, though it is payable on a contingency and may never become payable, and though the amount payable may depend on contingencies.”

His Lordship had then dealt with an argument which was raised by Mr. Macrossan in this case namely that there must be a specified sum or sums at the date of the deed and if there are no sums specified at the date of the deed no stamp duty is payable. Mr. Macrossan's proposition was that for stamp duty to be payable on the variable sum it must be a specified sum even though liable to variation up or down depending upon contingencies. The sum of $4,500,000.00 is not a specified sum but merely an upper limit of the variable sum. Scrutton rejected a similar argument in the following passage at p. 220:—

“I do not think this is true of the first Underground Railway case, where any sum up to 3% might be payable depending on the amount of profits, and the deed was assessed on the maximum payment which might be required. “This is what the Commissioners have done in this case in assessing on the maximum payment which the deed may secure, though it depends on contingencies whether that payment may have to be made.”

I pause to say that it is only partly correct to say that in the first Underground Railway case the deed was assessed on the maximum payment which might be required. It was assessed on the maximum payment which might be required in relation to the paid up capital at the date of the instrument. The assessment could have gone further and looked to the maximum payment which might be required if all the ssued capital became paid up.

The critical passage in this judgment will be found at p. 221:—

“For these reasons I am of the opinion that under the heading ‘bond’ where the maximum sum which can be secured by the instrument is ascertainable from the instrument itself, the ad valorem stamp must be estimated with reference to that sum though it never may become payable, and it cannot be told at the date of the instrument whether that sum, or any less sum, or any sum at all will in fact be payable.”

It is clear from the judgment of Scrutton J. that the requirement is not that there be a specified sum at the date of the deed but that, to stamp ad valorem, one must be able to ascertain from the instrument a fixed sum which may become payable though on contingencies. It will be necessary to recur to this decision in discussing the speech of Lord Radcliffe in Independent Television Authority and Associated Rediffusion Ltd. -v- Inland Revenue Commissioners (1961) A.C. 427.

The decision of Scrutton J. was affirmed by the Court of Appeal ((1916) 1 K.B. 306).

These authorities are sufficient to conclude this case in favour of the Commissioner unless subsequent authorities have cast any doubt upon them. It is appropriate therefore to turn immediately to the decision of the House of Lords in Independent Television Authority and Associated Rediffusion Ltd. -v- Inland Revenue Commissioners (1961) A.C. 427. The instrument in that case was an agreement between I.T.A. and Associated Rediffusion for the provision of programmes to I.T.A. to be broadcast at a fee of £495,600 per annum for 2½ years and £536,900 per annum for the balance for the term which was just under nine years. The specified fees were to increase or decrease with retail prices. It was held that stamp duty was properly charged under the head “Bond Covenant or Instrument” and on the sums specified even though those sums were liable on the contingency nting of a rise or fall in retail prices to be increased or reduced. The speech of Lord Radeliffe (in which Lords Tucker and Morris of Borth-y-Gest concurred) emphasizes at p. 442 that it would be impossible from studying the agreement to say how much money would eventually be paid under it before it expired and that is the position here. His Lordship went on to say that it was the presence of the variation clause to which I have shortly referred upon which the appellants' argument concentrated to make good its claim that there could be no total ascertainable amount under the agreement. He then said:—

“My Lords, in my opinion this argument misconceives the significance of such words as ‘money payable’ when used in the Stamp Act in relation to the stamping ad valorem of contracts or other instruments.”

Lord Radcliffe then cited with approval the statement of principle set out in judgment of Collins M.R. in the first Underground Railway case (supra) to the effect that the word “debt” applies to money payable whether upon a contingency or as an absolute and unconditional certainty, and that the words “money payable for an indefinite period” include money which may never become payable unless the particular event happens.

At p. 443 his Lordship used language upon which Mr. Macrossan particularly relied and which-should therefore be set out in full. It reads:—

“What is necessary is that it should be possible to ascertain from the agreement that there is some specified sum agreed upon as the subject of payment which may perhaps fairly be called the prima facie or basic payment. Even that minimum condition may have to be restated in relation to certain kinds of securities, such for example as guarantees, in which the ad valorem charge is calculated according to the maximum sum contingently payable or to put it another way the amount of the guarantee; see the second Underground Electric Railways Company case.”

It was strongly urged that the sum of $4,500,000.00 cannot be called a prima facie or basic payment as it merely sets the upper limit of the variable sum. In truth however, this argument begs the question for the upper limit will be payable upon the contingency of there being a sufficiency of rental income. It must be remembered that Lord Radcliffe was dealing with a case in which prima facie or basic payments were in truth specified. His Lordship recognized, in the same passage, that his formulation could not be regarded as a universal proposition. No doubt is cast in the speeches in the House of Lords on either of the Underground Electric Railways cases and, in particular, on the judgment of Scrutton J. in the second case to which reference has been made earlier. The speech of Lord Cohen at p. 449 would seem to accept without question the correctness of all of the decisions in the Underground Railways cases and the speech of Lord Keith casts no doubt upon them.

In the light of all of the authorities no distinction is to be drawn between an ascertained sum which is liable however to be increased or decreased depending upon contingencies and an ascertainable sum which may not however in fact become payable except upon contingencies.

The authorities were reviewed very recently by Brightman J. in Coventry City Council -v- Inland Revenue Commissioners (1978) 2 W.L.R. 857. The case concerned an underlease at an annual rent which included a sum which was to be the equivalent of 8.142 ? of the total expenditure of the underlessor up to but not exceeding £1,300,000. It was held that ad valorem duty was properly assessed on the basis that a sum of £105,846 (being 8.142% of £1,300,000) was included as part of the annual rent. That case is very close to the present. In my judgment it accords fully with authority and it follows that the assessment should be confirmed. The Commissioner was entitled to assess on the basis that the agreement is an instrument of conveyance or transfer where the value of the consideration of the sale is $26,500,000.00. The questions for the decisions of the Court should be answered:—

  1. Yes
  1. $26,500,000.00
  1. The costs of the respondent, The Commissioner of Stamp Duties of and incidental to the stating of the case and of the appeal thereon should be taxed and paid by the appellants.
Close

Editorial Notes

  • Published Case Name:

    Pacific Fair Shopping Centres Pty. Limited v The Commissioner of Stamp Duties

  • Shortened Case Name:

    Pacific Fair Shopping Centres Pty. Limited v The Commissioner of Stamp Duties

  • MNC:

    [1979] FC 10

  • Court:

    QSC

  • Judge(s):

    Lucas J., Connolly J.

  • Date:

    23 Feb 1979

Litigation History

No Litigation History

Appeal Status

No Status