Commissioner of State Revenue v Rojoda Pty Ltd

• Jurisdiction: Australia Federal only
• Court: High Court
• Judge: Bell,Keane,Nettle,Gageler J.,Edelman JJ.
• Judgment Date: 18 March 2020
• Neutral Citation: [2020] HCA 7
• Docket Number: P26/2019
• Date: 18 March 2020

[2020] HCA 7

HIGH COURT OF AUSTRALIA

Bell, Gageler, Keane, Nettle and Edelman JJ

P26/2019

Commissioner of State Revenue

Appellant

and

Rojoda Pty Ltd

Respondent

Representation

J A Thomson SC, Solicitor-General for the State of Western Australia, with E C Salsano for the appellant (instructed by State Solicitor's Office (WA))

B Dharmananda SC with S K Grimley for the respondent (instructed by Ernst & Young Law Pty Ltd)

Partnership Act 1895 (WA), ss 30, 32, 33, 50, 57.

Duties Act 2008 (WA), ss 11(1)(c), 78.

Stamp duties — Declaration of trust — Partnership — Dissolution — Partnership assets — Nature of partners' rights in relation to partnership assets — Where freehold titles to land held by two partners as joint tenants — Where other partners not registered title holders — Where partnerships dissolved but not wound up upon death of one partner holding titles — Where surviving partner declared trusts over freehold titles for benefit of other partners in proportion to partnership interests — Where Commissioner assessed declaration of trust as “dutiable transaction” within meaning of Duties Act 2008 (WA), s 11(1) — Whether partner holding freehold titles trustee for other partners — Whether declaration of trust by surviving partner holding freehold titles created new interests in land — Whether declaration of trust dutiable transaction.

Words and phrases — “beneficial interest”, “conveyance”, “declaration of trust”, “dissolution”, “dutiable transaction”, “equitable interest”, “non-specific interest”, “partners' interest”, “partnership property”, “right to account and distribution”, “transfer”, “trust for partnership”, “winding up”.

ORDER

• 1. Appeal allowed with costs.

• 2. Set aside the orders of the Court of Appeal of the Supreme Court of Western Australia made on 21 December 2018 and in their place order that the appeal be dismissed with costs.

Bell, Keane, Nettle and Edelman JJ.

Introduction

1 What is the nature of the interest of partners in partnership property? This is the question at the heart of this appeal. The appeal concerns declarations made in two deeds in 2013 between the partners and their successors in title of two dissolved partnerships that had not yet been wound up. The deeds provided that freehold titles registered in the names of two partners, which were part of the partnership property of the two dissolved partnerships, be held on trust for the former partners or their representatives in fixed shares according to their partnership shares. The appellant, the Commissioner of State Revenue, imposed duty upon the declarations of trust that were made in each of the two deeds. The central submission of the respondent, Rojoda Pty Ltd, is that the deeds merely confirmed the existing position in relation to the partnership property of the dissolved partnerships: the property had been held on trust for the partners in fixed shares and this position continued.

2 The State Administrative Tribunal dismissed Rojoda's application for review of the Commissioner's decision on the basis that the deeds involved declarations of new trusts that were dutiable under the Duties Act 2008 (WA). However, the Court of Appeal of the Supreme Court of Western Australia held that the deeds did not involve any dutiable transaction because after the dissolution of the partnerships the practical reality that liabilities would be discharged from current assets meant that the freehold titles were then held on fixed trust for the partners according to their partnership shares.

3 Rojoda's submission in this Court is that, subject to the partnership agreement, a partner's legal title to partnership property is held on trust for all the partners. That submission should be accepted. However, the nature of the partners' rights under that trust is unique. They differ significantly from the rights under a fixed trust and their nature does not change before winding up is complete. The creation of fixed trusts by the two deeds in 2013 involved the extinguishment of these unique equitable rights and the dutiable event of the creation of new fixed trusts. Rojoda's further contentions that the two deeds involved conversion agreements rather than declarations of trust and that they involved agreements to transfer partnership property to the former partners and their successors under s 78 of the Duties Act should also be dismissed. The appeal should be allowed.

Background

4 The background to this appeal concerns the business affairs of the Scolaro family. For clarity, and with no disrespect intended, reference is made in these reasons to the family members by their first names.

5 The Scolaro family ran a business of property ownership and investment. The business was conducted through two partnerships. The first was the Scolaro Investment Company Partnership (“the SIC Partnership”). The SIC Partnership was established by a Deed of Partnership in 1972 with five equal partners. The partners were Anthony and Maria Scolaro and their three children, Rosana, John, and David. The second partnership was the A&MMR Scolaro Partnership (“the AMS Partnership”). The AMS Partnership was established by a Deed of Partnership in 1986 with two equal partners. Those partners were Anthony and Maria.

6 Anthony died on 12 February 2011, leaving his estate to be divided equally between three testamentary trusts for his children: (i) the JASCO Testamentary Trust (with John as the primary beneficiary); (ii) the RASCO Testamentary Trust (with Rosana as the primary beneficiary); and (iii) the DASCO Testamentary Trust (with David as the primary beneficiary).

7 Upon Anthony's death, each of the partnerships dissolved. The partnership deeds had provided a mechanism for this dissolution to be “technical” or “notional” with the other partners to continue the business of the partnership. But this did not occur. Instead, on 12 May 2011 and 15 March 2012, respectively, each of the AMS Partnership and the SIC Partnership was subject to a general dissolution in accordance with the respective partnership deeds. The combined value of the properties of the AMS Partnership at dissolution was $14.2 million and, in relation to the SIC Partnership, $11.65 million. For each partnership, the value of cash and other current assets exceeded the value of the liabilities.

8 Anthony and Maria had been registered as joint tenants of six freehold titles (four of which as to a half-share) which were partnership property of the SIC Partnership. They were also registered as joint tenants of five freehold titles (one of which as to a half-share) which were partnership property of the AMS Partnership. Following Anthony's death, Maria, as the surviving joint tenant, became registered as proprietor of the freehold titles. None of the properties was sold.

9 John died intestate on 7 August 2012. By operation of s 14 of the Administration Act 1903 (WA), one-third of his estate passed to his wife and two-thirds passed to his children. John's wife, Bianca, and his daughter, Diana, became the trustees of the JASCO Testamentary Trust. Diana became the administrator of John's estate.

10 Until December 2013, the partnership freehold titles were accounted for as assets in the balance sheets of the partnerships. None of the partnership freehold titles had been sold and this litigation proceeded on the basis that the partnership liabilities had not been discharged. On 1 December 2013, Maria, her two surviving children (Rosana and David), Diana and Bianca, and Rojoda entered into two deeds concerning, respectively, the SIC Partnership (“the SIC Deed”) and the AMS Partnership (“the AMS Deed”) (together “the 2013 Deeds”). Each of the 2013 Deeds takes the same approach in relation to the freehold titles of each partnership. The relevant recitals to the SIC Deed are replicated in the AMS Deed with relevant changes to reflect the different freehold titles of each partnership and the half-shares of each of Anthony and Maria in that partnership.

11 The 2013 Deeds each recite, in Recital C, the detail of the freehold titles that were held by “Anthony Scolaro and Maria Scolaro … jointly as joint trustees for the Partnership”. Those freehold titles are referred to as “the Properties” in each deed. In Recital E, the 2013 Deeds each recite that “[o]n the passing away of Anthony Scolaro, Maria Scolaro became the sole surviving trustee of the Properties. The Properties continued to be held on trust for the Partnership as before.” Recital F describes the properties as to which the legal title was transferred “into the sole name of Maria Scolaro as the sole surviving trustee” and states that the “beneficial ownership … remained unchanged”. Recital J of the SIC Deed and Recital I of the AMS Deed reiterate that on dissolution of the partnerships the “beneficial interest in the assets” was held by the former partners or their estates. Recital W of the SIC Deed and Recital Q of the AMS Deed recite that the parties “consider it prudent to appoint a new trustee … to replace Maria Scolaro as trustee of the Properties”. That new trustee was Rojoda.

12 The operative clauses of the 2013 Deeds are as follows:

• (1) Clause 1: the parties “acknowledge and agree” various matters, including that on dissolution of the partnerships the “Properties and other assets that were previously held by the Partnership were beneficially owned” as to shares of 20 per cent for each of the partners (in the SIC Deed) and 50 per cent for each of the partners (in the AMS Deed).

• (2) Clauses 2 and 3 in the SIC Deed and cl 2 in the AMS Deed: the executors of Anthony's estate and the administrator of John's estate, and in the case of the AMS Deed Anthony's estate, “hereby transmit” the deceased's beneficial shares of “the Properties” according to the terms of Anthony's will (with respect to Anthony) and the Administration...