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Emanuel (Rundle Mall) Pty. Limited v. Commissioner of Stamps (S.A.).

Judges:
White J

Court:
Supreme Court of South Australia

Judgment date: Judgment handed down 17 January 1986.

White J.

This is an appeal by way of case stated pursuant to sec. 24 of the Stamp Duties Act 1923 seeking the opinion of the Court as to the stamp duty liability of Emanuel (Rundle Mall) Pty. Limited (``Emanuel'') on four memoranda of transfer (``transfers'' or ``conveyances'') of certain land on which a department store in Rundle Mall, Adelaide is erected (``the land''). By the said transfers, Myer S.A. Stores Limited and several associated companies (``Myers'') transfer to Emanuel the whole of their respective estates in fee simple in the land.

The Commissioner of Stamps assessed the transfers as ``conveyances or transfers on sale of any property'' pursuant to several provisions in the Stamp Duties Act, including sec. 60 which defines a ``conveyance on sale'' as including transfers under the Real Property Act 1886, sec. 60a which defines the value of property transferred as the market value of the property as at the date of the sale, free of any encumbrances, and the Second Schedule which fixes the ad valorem rate of stamp duty. The Commissioner's assessment was made upon the basis of a valuation by the valuer-general which the Commissioner sought when he was dissatisfied with the consideration stated in the contract. The valuer-general assessed the value of the property at $20,000,000 including fixtures valued at $1,834,000 in his valuation. The contract purported to exclude or except the fixtures from the sale and from the consideration; and the parties to the sale, Myers and Emanuel, agreed the value of the land and buildings without fixtures at $18,166,000. The stamp duty on the higher valuation is $798,930 and on the lower $725,570. The difference in stamp duty is $73,360 and Emanuel objects to paying that difference. Hence this appeal.

Emanuel objected to the higher assessment because the contract of sale and purchase (pursuant to which the transfers were executed) excepted or purported to except from the sale of the whole of the respective estates in fee simple, numerous items (``fixtures'') like lifts and lift-wells, escalators and supporting structures, stairways and supporting structures, toilets and associated plumbing - indeed, everything within the building of the department store except the outer walls, floors and roof.

Throughout these reasons, I refer to the situation as it existed at the time when the Commissioner was making his assessment. At that time, he would have noted that fixtures were to remain the property of Myers; they were to be excepted from the sale and from the consideration; they were to be enjoyed by Myers as their exclusive property during the term of a 15-year lease which Emanuel was to grant to Myers and which was annexed to the contract; and they could be removed at the option of Myers at the expiration of the lease or of any extended term.

If the fixtures were validly excluded for stamp duty purposes as claimed by Emanuel, the Commissioner agrees that the correct consideration is $18,166,000 and that the stamp duty will be reduced by $74,360 to $725,570.

The Commissioner does not suggest that the purported exception is a sham or a fiscal nullity. He submits that the fixtures are part of the realty which was to pass with the transfers or conveyances of the land at the time when they were to take effect upon registration at the Lands Titles Office and that it is impossible in law or in equity to create a valid exception of the fixtures for stamp duty purposes. In so far as the fixtures are part of the realty and intended to remain part of the realty (for at least 15 years) they are transferred with the land and legally inseparable from the land. It is not necessary to say what the Commissioner's

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position would have been if the fixtures were intended to be removed before settlement and registration but for some reason they had not been removed on the day when the transfers took effect on registration. In so far as Emanuel based its claim to a stamp duty reduction because Myers had a valid exception in the nature of an equitable interest in the land, the Commissioner said that the equitable interest in Myers would only arise after it had parted with the legal title on registration of the transfers, with the result that the equitable interest constituted a reservation, not an exception. A reservation of this nature could not have the effect of reducing stamp duty. The Commissioner did not dispute Emanuel's claim that equity would protect Myers' continuing property in the fixtures after the legal title passed to Emanuel, equitable protection which could be said to create an equitable interest in the land. He agreed that equity would intervene to protect the right to remove the fixtures in due course. If Emanuel tried to prevent removal, Myers could approach the Supreme Court with the valid equitable claims. Since the equities relate to land, they give rise to an equitable interest of a kind in the land. So much was conceded. Looking at the contract through the Commissioner's eyes, it contemplated that a lease will be registered after transfer and the lease was attached to the contract. The lease recognizes Myers' ownership of the fixtures and its right to remove them on the expiration of the lease. Upon registration of the lease after transfer, Myers' former rights under the contract to the fixtures and their removal will arise under the registered lease rather than under the contract. However, at the stage of assessing stamp duty, the lease could not be registered and Myers' rights to the fixtures and their removal were still governed by the contract. While stamp duty is assessable on instruments, not transactions, the Commissioner was entitled to look beyond the transfers to the contract and the annexed intended lease to ascertain the value of the property transferred; and so is the Court.
Commr of Stamp Duties (Q.) v. Hopkins (1945) 71 C.L.R. 351 at pp. 360, 369, 378.

(I note that the date of the contract is subsequent to the date of the transfers, but neither side relied upon this reversal of the usual order of things for any purpose during the appeal. It appears that the transfers must have been held in escrow for a time.)

The relevant clauses of the contract are: cl. 2(c) (read with Item S4) which provides that the land is sold together with ``all buildings, but excluding from this sale the items referred to in Item S6''; cl. 4(b) which provides that the sale is subject to ``any exceptions referred to in Item S6''; a special condition 9 which obliges Emanuel to lease the land to Myer S.A. Stores Limited (one of the vendors) upon the terms of the annexed form of lease to commence on the day after settlement of the sale. This annexed form (cl. 10.3) permits the lessees to remove certain items (set out in a schedule) at the conclusion of the lease and also provides that if these items are not removed within a certain time they shall vest in the lessor. The items subject to this right of removal in the proposed lease are the same items which are excluded from the sale and described in Item S6 of the contract to which I now turn. Item S6 is entitled (so far as relevant) ``Exceptions'' and refers to Annexure B of the contract which sets out a long list of ``items''. The list is introduced by the words, ``The following items are excluded from the sale and shall remain the property of the occupier, Myer S.A. Stores Limited: - ''.

The Commissioner formed the opinion that at least eleven of these items (already described as lifts, elevators, toilet plumbing and the like) were fixtures forming part of the land. Mr Doyle Q.C. who appeared as counsel for Emanuel properly conceded that the eleven items were fixtures, not having been severed from the land at any relevant time. In the Commissioner's opinion the operation of the transfers (upon registration) would be to pass the property in the land and in these fixtures from Myers to Emanuel despite the ``excepting'' provisions of the contract.

Mr Doyle correctly submitted that the Commissioner was required to look beyond the transfers to the contract in order to ascertain what property was conveyed; and to assess duty only on the value of the property so conveyed. He further submitted that if the Commissioner had done that, he would have seen from the terms of the contract that Myers had validly excepted the fixtures from the conveyances (the transfers). The fixtures were not intended to be conveyed nor were they conveyed from Myers to Emanuel either under the contract or under

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the transfers. The fixtures had been the property of Myers prior to the execution of the contract and the transfers and they remained the property of Myers afterwards. They did not, he submitted, ``pass over'' from Myers to Emanuel in any sense; so it could not be said that they ``reverted back'' from Emanuel to Myers in consequence of the conveyance. It followed, he said, that the unconveyed fixtures did not attract stamp duty. That was the primary submission.

Before dealing with the primary submission, I mention a second submission which was put forward but not as fully pressed as the first. Mr Doyle argued that, even if the fixtures had not been validly excepted from the conveyances, the Commissioner should not have assessed any stamp duty upon their value because the fixtures were of little or no value to Emanuel as a ready and willing but not over-anxious buyer. Such a buyer would be unlikely to pay a significant sum of money for fixtures, even though they were to be maintained at the expense of Myers as a lessee, because they were liable to be removed from the building by Myers at the end of the lease. I reject this second submission for three reasons: first, it is contrary to the Commissioner's valuation disclosed in the case stated; second, it is not supported by any expert evidence from Emanuel; and third, because the contract documents themselves reveal that the fixtures had substantial value for Emanuel for 15 years. The contract and lease contemplate that the department store will continue to operate as such after the transfers are registered. Indeed, the rent under the contemplated lease of the premises from Emanuel to Myers will be fixed over the period of the lease by reference to the turnover, a turnover which in turn depends upon the fixtures remaining in situ. There is no substance in the second submission based upon a supposed absence of value in the removable fixtures.

The primary submission must also be rejected because it runs counter to principles of law relating to fixtures. It assumes that it is possible to ``except'' or ``carve out'' from a conveyance something which had and could have no existence prior to the conveyance, namely, fixtures which are intended to remain in situ indefinitely. The authorities to which I refer later show quite clearly, I think, that an exception cannot operate - at least for the purposes of stamp duty on a transfer under the Real Property Act - where the fixtures are unsevered and are intended to remain unsevered and to continue to form part of the realty. At the time of assessment, Myers still had the legal estate in fee simple in the land and therefore owned the unsevered fixtures in the same estate. Myers owned the fixtures by virtue of its ownership of the legal estate in the land. It had no separate legal title to or property in the fixtures apart from its legal title to the land. And so long as Myers remained the legal owner of the land it could not be a trustee for itself of the fixtures; nor could any equitable interest arise in Myers in favour of itself during this interim period before settlement. The equitable interest in Myers (in protection of its fixtures and its later right of removal of fixtures) would only arise and could only arise after the legal title passed to another, to Emanuel. Only then would it be possible for equity to attach to Emanuel's conscience and to impress Emanuel's title with a constructive trust in favour of Myers. Until then, equity would be powerless and Myers' rights would be protected by its legal title with all of the rights of dominion, self-help and protection which go with legal title.

The land being registered under the Real Property Act 1886, the legal estate in fee simple could only pass when the duly stamped transfers had been lodged and registered at the Lands Titles Office. The exact moment of passage of legal title is not relevant. The transfers had not yet been lodged because they had not yet been stamped. It follows that Myers, at the time, remained the owner of the legal estate in fee simple in the land until registration.

Mr Doyle based an argument upon the doctrine of equity that equity regards as done that which ought to be done. Myers was obliged to carry out its agreement to sell the land except fixtures to Emanuel; so an equitable interest arose in Emanuel immediately upon the execution of the contract, that is, an equitable interest in the whole of the land apart from the excepted fixtures. As I understood the argument, Emanuel's equitable interest in the whole of the land was subject to some kind of a parasitic equity in Myers which limited the ambit of Emanuel's equitable interest in the whole of the land, or rather, the whole of the land except the fixtures in which Myers has an

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interest which equity would protect, in that equity would attach Emanuel's conscience and prevent Emanuel from asserting a wider equitable interest in the land than that to which Emanuel was entitled under the contract. It is true that Emanuel had some kind of an equitable interest in the land between the date of the contract and the date of settlement which equity would intervene to protect and force Myers to respect. Non constat that Myers enjoyed an equitable interest in the land so long as it was still legal owner. Equity's protection of Emanuel's interests to the extent of Emaunel's contractual rights does not give rise to an equitable interest in Myers to protect Myer's interests in relation to the fixtures. On the contrary, the limitation as to fixtures was still protected until settlement by the rights and powers arising from Myers' legal ownership. I will soon refer to the authorities which show that this is so. Before referring to them, I will refer to
Oughtred v. I.R. Commrs (1960) A.C. 206. Oughtred's case concerned the effect of equity regarding that as done which ought to be done in the case of a transfer of shares; but the principle is the same. Lord Jenkins said (at pp. 239-240):

``... I am unable to accept the conclusion that the disputed transfer was prevented from being a transfer of the shares to the appellant on sale because the entire beneficial interest in the settled shares was already vested in the appellant under the constructive trust, and there was accordingly nothing left for the disputed transfer to pass to the appellant except the bare legal estate. The constructive trust in favour of a purchaser which arises on the conclusion of a contract for sale is founded upon the purchaser's right to enforce the contract in proceedings for specific performance. In other words, he is treated in equity as entitled by virtue of the contract to the property which the vendor is bound under the contract to convey to him. This interest under the contract is no doubt a proprietary interest of a sort, which arises, so to speak, in anticipation of the execution of the transfer for which the purchaser is entitled to call. But its existence has never (so far as I know) been held to prevent a subsequent transfer, in performance of the contract, of the property contracted to be sold from constituting for stamp duty purposes a transfer on sale of the property in question. Take the simple case of a contract for the sale of land. In such a case, a constructive trust in favour of the purchaser arises on the conclusion of the contract for sale, but (as far as I know) it has never been held on this account that a conveyance subsequently executed in performance of the contract is not stampable ad valorem as a transfer on sale. Similarly, in a case like the present one, but uncomplicated by the existence of successive interests, a transfer to a purchaser of the investments comprised in a trust fund could not, in my judgment, be prevented from constituting a transfer on sale for the purposes of stamp duty by reason of the fact that the actual transfer had been preceded by an oral agreement for sale.''

A little later his Lordship said:

``This difference is of particular importance in the case of property such as shares in a limited company. Under the contract the purchaser is no doubt entitled in equity as between himself and the vendor to the beneficial interest in the shares, and (subject to due payment of the purchase consideration) to call for a transfer of them from the vendor as trustee for him. But it is only on the execution of the actual transfer that he becomes entitled to be registered as a member, to attend and vote at meetings, to effect transfers on the register, or to receive dividends otherwise than through the vendor as his trustee.

The parties to a transaction of sale and purchase may no doubt choose to let the matter rest in contract. But if the subject-matter of a sale is such that the full title to it can only be transferred by an instrument, then any instrument they execute by way of transfer of the property sold ranks for stamp duty purposes as a conveyance on sale notwithstanding the constructive trust in favour of the purchaser which arose on the conclusion of the contract.''

(emphasis mine)

During the course of argument, the constructive trust in favour of Emanuel was spoken of as if it were an equitable estate in fee simple apart from fixtures, or as an equitable interest in such an estate whereas Emanuel's interest is only an equitable interest in having

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the contract performed which is ``a proprietary interest of a sort''. It is not an equitable estate or interest capable of carrying with it or supporting, as it were, a parasitic equitable interest in Myers.

I have made a number of bald statements above about the nature of exceptions and of fixtures and about the relationship between legal and equitable interests. I now turn to the authorities. I find it convenient to begin by quoting from the judgment of Hope J.A. in
D.K.L.R. Holding Co. (No. 2) Pty. Limited v. Commr of Stamp Duties (N.S.W.) 80 ATC 4279; (1980) 1 N.S.W.L.R. 510 in a passage dealing with the differences between exceptions and reservations at ATC p. 4288; N.S.W.L.R. p. 522:

``The conveyor may of course, within established principles, except something out of the property so that it never leaves him, and is not conveyed to the conveyee. But though this possibility must be conceded, it is necessary to appreciate the difference between an exception and a reservation. `An exception is that by which the grantor excludes some part of that which he has already given, in order that it may not pass by the grant, but may be taken out of it and remain with himself. A valid exception operates immediately, and the subject of it does not pass to the grantee':
Cooper v. Stuart (1889) 14 A.C. 286 at p. 289. On the other hand `a reservation... is always of a thing not in esse but newly created or reserved out of the land or tenement demised': Co Litt. 47a. `I understand a reservation in its technical sense to be the regrant out of the subject-matter conveyed of something not previously existing, as a rent or an easement. The retention by the grantor of something already existing in the subject-matter, as mines and the right to work them, is an exception':
Jones v. Consolidated Anthracite Collieries Ltd. (1916) 1 K.B. 123 at p. 135. The word `reservation' is sometimes used loosely to describe what is truly an exception... (but) it does not make them the same in point of law.''

(emphasis mine)

Pausing there, one might be excused for thinking that there is some valid analogy between mines and fixtures since each kind of property is in its own way part of the land. It could be said to follow that just as mines are capable of being excepted, so too are fixtures. Mines and unsevered minerals are in or buried below the surface of the land while unsevered fixtures are likewise buried, as it were, in buildings above the surface of the land. However, the seeming cogency of the analogy tends to diminish in those cases where the parties to a transfer of land intend the fixtures to remain in situ affixed to the land; and the analogy tends to disappear altogether in the context of stamp duty provisions which fix duty in relation to the value of the property, the subject-matter of the conveyance, when that property includes the fixtures at all relevant stages, especially at the stage when title passes.

Nevertheless, I propose to digress a little into the nature of fixtures, especially those fixtures which are intended after conveyance to remain in situ; and to distinguish between them and minerals. It is not necessary for me to say whether it is possible under our present mining legislation to except minerals at all; and even if it were, whether purported exception would affect the stamp duty assessment if the minerals were in situ and capable of valuation at the time that the conveyance took effect.

``A fixture is not a chattel but is part of the land... it is part of the realty... it is realty.'' Stonham, Vendor and Purchaser 257 400A. And see
Commr of Stamps (W.A.) v. Whiteman Ltd. (1940) 64 C.L.R. 407 at p. 411 per Rich A.C.J.:

``... the machinery was affixed to and became part of the land. That required the Commissioner to assess it as land. It is clear that he was entitled to examine the instrument to ascertain whether the consideration set out in the instrument was the real consideration for the sale.''

See also Mayo K.C. (as he then was) 3 A.L.J. 405. Here the fixtures are intended to be used and enjoyed in situ. In no way could these fixtures be spoken of or discussed as chattels. See
Wake v. Hall (1883) 8 A.C. 195 at p. 204; and Whiteman's case (supra) where an effort was made, not to except the fixtures from the sale but to have them treated as chattels without removing them; and see Stonham ibid.

Fixtures in situ and intended to remain in situ are intrinsically part of the land and have no separate legal existence or entity apart from the land. It is true that fixtures can by agreement be excluded from sale and removed; but if they are

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not severed by the time when the conveyance operates, they are still part of the soil and pass with the conveyance of the land. In my opinion, they cannot be validly excepted in any relevant sense for stamp duty purposes. The effect of reserving a right to property in the fixtures and at the expiration of a lease to remove them, amounts, in my opinion, to a reservation rather than an exception notwithstanding the analogy with minerals. On the other hand, fixtures to be removed prior to settlement seem to bear a closer analogy to mines and minerals which under old law could be excepted. I will be referring later to a case where land with a mill erected on it as a fixture was sold subject to the exclusion of the mill from the sale. It could be said that the exclusion would be effective as an exception if the mill had been removed prior to the transfer of the land taking effect by registration; but once the title passed to the purchaser and the mill remained affixed thereto, the contract merely reserved the right to come in and remove it. Even with relation to minerals (and the right to take trees, crops and profits a prendre) the rights of ingress and egress, of working and removal, savour more of the reservation of rights (at least after the date when title passes to the new owner) than exceptions. Indeed, rights of ingress and egress and of working the land in relation to the mines and minerals were recognized more as reservations than exceptions. See generally Stonham (supra) 279-280, para. 442-443. The empty spaces left after the minerals had been extracted became the property of the purchaser not of the vendor who had excepted the minerals. Stonham, when discussing working rights and rights of ingress and egress and of removal, seems to speak in terms of reservation. I do not wish to digress any further into any analogy between fixtures to land and mines and minerals in land except to indicate that rights surrounding the extraction of minerals, even under the old law, were uncertain, and might not have represented true exceptions but been in the nature of rights which were in part exceptions and in part reservations. The language in many of the old cases is confused and the differences were not kept clear. I would draw a distinction between fixtures which are intended to remain in situ by the parties and fixtures which are intended to be removed by the parties. Fixtures which are intended to be removed might well, like minerals which are intended to be removed, be the subject-matter of exceptions; but the removal would have to take place prior to the conveyance for them to escape stamp duty. These fixtures are intended to remain in place for at least 15 years and perhaps twice that time. Further, Myers will enjoy the possession of the land under a lease and, as such lessee, be there in possession to protect the physical condition of the fixtures. What is really reserved to Myers under the contract (and under the lease) is a right to prevent any interference with the fixtures in the interim and to remove them in the end. To my mind that is more in the nature of a reservation than an exception.

There being no separate tangible property to except, Mr Doyle, as I understood him, then turned to an argument that Myers enjoyed, at a relevant time, some kind of equitable interest in the fixtures. I have already stated why it is impossible for Myers to create any trust or equity in the fixtures in favour of itself so long as it remained the legal owner in fee simple. It would, no doubt, have been possible to create some kind of an equitable interest in the fixtures in a third party at some time prior to the execution of the Emanuel contract if Myers, for example, had transferred to X company for $y all of its title to the fixtures. X company might then have been able to caveat its equitable interest and apply to equity to protect any threat to its interests. Whatever might be the position of X company in such circumstances, the fact remains that equity would not in the present circumstances intervene to recognize or protect Myers' interest in the fixtures so long as Myers was the legal owner of the estate in fee simple in the land and in that sense the legal owner of the fixtures. The land and the fixtures are one. See Whiteman's case (supra).

D.K.L.R. appealed to the High Court 82 ATC 4125; (1981-1982) 149 C.L.R. 431. Gibbs C.J. said at ATC p. 4132; C.L.R. p. 443:

``I have pointed out that 29 Macquarie had the whole right of property in the land and transferred it to D.K.L.R. The fact that on the very instant when the transfer took effect the declaration of trust became effective does not mean that the real effect of the transfer was any different from its apparent effect. The transfer did what it purported to do, i.e., to transfer the whole property in the land to D.K.L.R. Before the transfer

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there had been no severance of the legal and equitable interests in the land. It was only when the declaration of trust took effect, which of course was immediately after the transfer, that there was a severance of the legal and equitable interests.''

In the case before me, there has been ``no severance of the legal and equitable interests'' in the fixtures and only after the passage of legal title could there be a ``severance'' of Myers' equitable interest in the fixtures from Emanuel's legal interest in the land.

Aickin J. said at ATC pp. 4144-4145; C.L.R. p. 463:

``It was said that immediately prior to the transfer 29 Macquarie (the transferor) held both the unencumbered legal estate and the entire equitable interest in that property and that all that it had done was to transfer the legal estate. In my opinion this argument is based upon a fundamental misconception as to the nature of legal and equitable interests in land or other property. If one person has both the legal estate and the entire beneficial interest in the land he holds an entire and unqualified legal interest and not two separate interests, one legal and the other equitable... (H)e holds a single entire interest - he is the absolute owner of an estate in fee simple in the land. The equitable interest merges into the legal estate to comprise a single absolute interest in the land. It is a fundamental principle of both the common law and of equity that the holder of an estate in fee simple cannot be a trustee of that fee simple for himself for what he holds is a single estate, being the largest estate in land known to the law.

The authorities for this proposition go back a long way but it is sufficient for present purposes to refer to In
re Douglas (1885) 28 Ch.D. 327, at p. 331; In
re Selous (1901) 1 Ch. 921, at p. 922; and In
re Cook (1948) Ch. 212, at pp. 214-215. See also Lewin on Trusts 16th ed. p. 4 and Scott on Trusts, 3rd ed. vol. II pp. 795-797.''

(emphasis mine)

At the moment before the contract was signed, Myers had ``both the legal estate and the entire beneficial interest in the land''. Myers therefore had at that time ``an unqualified legal interest and not two separate interests, one legal and the other equitable'' in the land and fixtures.

Brennan J. said at ATC p. 4151; C.L.R. pp. 473-474:

``Before the transfer (the transferor, 29 Macquarie) it did not hold legal and equitable estates in the property: it held the legal estate alone. There was no equitable estate, for a person cannot be trustee for himself alone... After the transfer, D.K.L.R. held the legal estate, and it held it as trustee, and 29 Macquarie had as against D.K.L.R. what Maitland calls `the benefit of an obligation' (Equity (2nd ed. 1947), p. 112). By virtue of the transfer, D.K.L.R. acquired the property which it holds in trust for 29 Macquarie; by virtue of the declaration 29 Macquarie became the holder of the equitable estate in that property. The declaration was not ineffectual to create the equitable estate held by 29 Macquarie merely because 29 Macquarie was the owner of the property before the transfer to D.K.L.R. (see
Commr of Stamp Duties (N.S.W.) v. Perpetual Trustee Co. Ltd. (Quigley's case) (1926) 38 C.L.R. 272). 29 Macquarie could not except or reserve an equitable estate from the property transferred by it to D.K.L.R., nor could D.K.L.R. become a trustee of an interest excepted or reserved from the transfer. A transferee does not become a trustee by failing to acquire an interest in the property transferred; a trustee holds on trust only such interest as he acquires. An equitable interest is not carved out of a legal estate but impressed upon it.''

(emphasis mine)

This last sentence of Brennan J. encapsulates what I endeavoured to express earlier. An equitable interest in favour of Myers in the fixtures could not be ``carved out'' of the legal estate of Myers nor could it be ``carved out'' of Emanuel's ``proprietary interest of a sort'' which arose by force of the principles of equity which regard that as done which ought to be done. Rather, Myers' interest rested upon its legal ownership in possession impressed with the obligation to carry out the contract; and when the legal title did pass to Emanuel, a constructive trust in favour of Myers was impressed upon Emanuel to recognize Myers' equitable interest in the fixtures. It would be a new interest.

I complete the references to the High Court judgments by mentioning that Mason J. (at ATC p. 4142; C.L.R. pp. 459-460), while

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contemplating the possibility that in some circumstances a bare legal estate might be transferred, observed (without deciding) that:

``Perhaps it may be otherwise with transfers of land under the Real Property Act... A transfer in statutory form of an estate in fee simple may on registration operate to vest in the transferee the whole of the registered estate. But I do not need to decide this question.''

And Mason J. did not have to turn his attention in that case to the interim position between execution of a contract for the sale of land and registration of the transfer of the land at the Lands Titles Office.

The other Judges of the High Court made it clear that there could be no transfer of a bare legal estate in fee simple and that the owner of the legal estate was, by virtue of that estate, entitled to every right which equity could in other circumstances protect, with the result that when the owner transferred away his legal estate he transferred with it all conceivable interests. Naturally, it would be open to the owner to reserve some equitable rights and interests in the land to himself or to himself and others but such equitable rights and interests would only be reserved as they would arise by way of regrant and be impressed upon the new estate in fee simple of the transferee. Being in the nature of a regrant, any such new interests would be characterized as reservations not as exceptions.

In the D.K.L.R. case, Hope J.A. said (at ATC p. 4285; N.S.W.L.R. p. 519):

``Several consequences follow. Firstly, an absolute owner in fee simple does not hold two estates, a legal estate and an equitable estate. He holds only the legal estate, with all the rights and incidents that attach to that estate. If he were to execute a declaration that he held the land in trust for himself absolutely, the declaration would be of no effect; it would give him no separate equitable rights; he would remain the legal owner with all the rights that a legal owner has. At least where co-extensive and commensurate legal and equitable interests are concerned, `... a man cannot be trustee for himself.'... `You cannot have a legal estate in trust for yourself.'''

(emphasis mine)

In the D.K.L.R. case, the legal and equitable interests were ``co-extensive and commensurate''. In the case before me they were not and will not be. Myers' legal estate in the land was the largest estate known to the law while its interest in the fixtures passed through several stages:

  • (a) initially, Myers' interest in the fixtures was as large as the fee simple;
  • (b) on execution of the contract, Myers' interest in the fixtures remained part of its legal estate in fee simple subject to its obligation to leave the fixtures in situ so that the promise to accept a lease of a department store can be meaningfully fulfilled;
  • (c) after settlement, Myers came into possession of the fixtures by virtue of its legal estate as lessee for 15 years;
  • (d) at the end of the 15 years, Myers' right to remove the fixtures will be protected by its legal rights under the lease and the equitable interest (to remove) given by the lease; and
  • (e) after removal, Myers will have the fullest legal interest in the fixtures.

Meanwhile, at the time of assessment for stamp duty, Myers' interest in the fixtures was a full legal interest subject to the above equities. And the instrument to be assessed for duty conveyed to Emanuel all of Myers' legal interest in the fixtures notwithstanding all of these changes in the legal and equitable position at various times. Whatever the future changes might be, the transfers were to pass the title to the fixtures to Emanuel.

I return to a passage from Hope J.A. at ATC p. 4287; N.S.W.L.R. p. 521:

``When the transfer is registered, the plaintiff (transferee) will undoubtedly be the registered proprietor of the land for an estate in fee simple, and will have, at law, all the rights and powers in respect of the land which the ownership of the fee simple will give. However consequent upon its becoming entitled to these rights and powers, there will be created, at the same time as it becomes so entitled, an equitable estate in the land in 29 Macquarie (transferor), an estate which will entitle 29 Macquarie to require the plaintiff to hold and exercise its rights and powers, so far as practicable, as

ATC 4013

29 Macquarie shall direct... (T)he interest so arising in 29 Macquarie... will arise... because of the intention of the parties evidenced by the resolutions and the declaration of trust. The interest will arise only because the rights and powers which were previously vested in 29 Macquarie have been transferred to the plaintiff. It would not have been possible for 29 Macquarie to have acquired its equitable interest by some kind of exception from the transfer of the legal title. In a loose or popular sense it may be said that 29 Macquarie transferred a bare legal title to the plaintiff and retained for itself the beneficial ownership, but that is not a correct description of what the memorandum of transfer, and the resolutions and declaration of trust achieved. They achieved a transfer of the estate in fee simple, and thereupon the creation of an equitable estate in 29 Macquarie.''

(emphasis mine)

That passage applied, it is true, to a case where there was a transfer of the whole legal estate and a reservation of the whole equitable estate. In my opinion, the principle applies equally here where there is a transfer of the whole of the legal estate in fee simple and a ``reservation'' of changing interests in fixtures - for the reasons already given.

It must be acknowledged that there are some statements in some of the authorities which seem to recognize the possibility of an exception in analogous circumstances. For example, Mason J. entertained the possibility of an exception of the whole equitable interest at least at common law but perhaps not under the Real Property Act. Stephen J. agreed with Mason J. without giving reasons. Aickin J. reserved his opinion as to whether there could be an exception of the equitable interest from a transfer of the legal interest ``by an appropriate form of transfer''.

Notwithstanding some obiter about the possibility of carving out an exception with an appropriate form of conveyance, I do not think it was possible to except these fixtures for stamp duty purposes, as they were to remain in situ.

For completeness, I refer to a few of the cases cited to me by Mr Doyle.

In
Standard Portland Cement Co. Pty. Ltd. v. Good (1982) 47 A.L.R. 107 (P.C.), the Privy Council was dealing with a problem arising out of the failure of a party to a contract to remove a huge mill standing on land. The mill was obviously a fixture. The former owner of the land and mill was tardy in arranging the removal. The purchaser purported to treat time as being of the essence and to rescind unilaterally the vendor's right of removal. Time was not of the essence of the contract. The Privy Council said (at p. 112):

``If the `O' Mill is excluded from the sale, the appellants have at all times been and still are the owners of the `O' Mill. That ownership could not and did not pass to Mr Good on 4 December 1980 merely because the `O' Mill had not been removed by that date. If the ownership of the `O' Mill remains with the appellants, they are entitled, as incident of that ownership, to enter and remove the `O' Mill.''

I note that the members of the Board did not have the benefit of argument from the purchaser's counsel nor the benefit of judgments of the New South Wales Court of Appeal. The appeal was taken directly from the decision of Waddell J. to the Privy Council. In particular the Privy Council did not make any reference to the law of fixtures nor to the effect of a transfer or conveyance of land whether or not the land was registered under the provisions of the New South Wales' equivalent of our Real Property Act. In relation to ``ownership'' of the mill as a fixture the Privy Council must have meant that the vendor was initially the owner of the mill (as owner of the land) and that he reserved the right to remove the mill after the contract (and settlement), a right which equity would recognize and enforce. Indeed, at p. 108, the Board said:

``It was the intention that the (vendors) who thus reserved to themselves the `O' Mill should remove the `O' Mill from the... land.''

After the purchase was complete and the title to the land passed to the purchaser, the latter naturally enjoyed the whole legal estate in fee simple in the land (including the mill fixture) but this legal estate was subject to the vendor's equitable interest therein, that is, the right to enter and remove the mill pursuant to their mutual intention and agreement. To the extent

ATC 4014

of the vendor's equitable interest in the land, it could be said in a loose way that the vendor was entitled to be treated as if he ``remained the owner of the Mill''. He continued to have an equitable interest in the land to enforce the right to sever the mill and to remove it as a chattel in due course. In a loose sense, law and equity were prepared to intervene and maintain the vendor's ``chain of title'' and it could be said that the vendor has ``at all times been and still (is) the owner of the Mill''. The Privy Council spoke both in terms of the mill being excluded (excepted) and the vendor's rights being ``reserved'', terminology which blurs the distinction between exception and reservation.

Mr Doyle relied upon the Privy Council's description of continuous ownership of the mill as supporting his argument that even a huge fixture like a mill could be capable of exclusion or exception from the sale even though not to be removed for a year or more. However, it was not necessary in the Standard Portland case to advert to or to analyse the nature of the ownership of the mill beyond asserting the vendor's ultimate right to remove, nor how and why the nature of the ownership changed at the time the land vested in the purchaser. In particular, the Privy Council was not concerned with a stamp duty problem. I do not find the case of any assistance. Construed in the way Mr Doyle suggested, the decision ran counter to centuries of authority on fixtures including Whiteman's case.

Mr Hall, counsel for the Commissioner, pointed out that Mr Doyle seemed to concede that title to the fixtures passed legally to Emanuel with the passing of the legal estate in fee simple in the land. Stamp duty is assessable on the instrument of conveyance and upon the value of everything included in the instrument of conveyance. The conveyance necessarily includes the fixtures. Stamp duty is therefore payable on the value of the fixtures. Mr Hall also relied upon passages in D.K.L.R. to some of which I have referred. He also referred to the decision of Sheppard J. at first instance in
D.K.L.R. 78 ATC 4147; (1978) 1 N.S.W.L.R. 268 especially at ATC pp. 4151-4152; N.S.W.L.R. pp. 274-275 where his Honour distinguished the English case of
William Cory & Sons Limited v. I.R. Commrs (1966) A.C. 1088 (the English legislation is different from that in New South Wales and from that in South Australia) and relied upon the New Zealand case of
Farm Products Co-operative (Tararua) Ltd. v. Commr of I.R. (1969) N.Z.L.R. 874 (where the legislation is essentially similar to that in New South Wales and South Australia). The English decision turned upon the words ``conveyance on sale'' whereas in the Australasian jurisdictions the stamp duty is assessable on the conveyance, whether on sale or on voluntary disposition.

In the Farm Products case, Turner J. said (at p. 883):

``I have no doubt at all that what was conveyed was the shares. This is what the transfer says was transferred, and it is therefore the value of the shares with which s. 65 is concerned. It seems to me meaningless to speak of the transfers as transferring the `bare legal estate' in the shares, or of valuing this `bare legal estate'. The shares were property. They were transferred. He who takes a transfer or conveyance of the legal estate in property takes a transfer or conveyance of that property. The property of which he takes a transfer or conveyance may be the subject of equitable interests vested in equity in another. But this does not affect the position at law; and at law he becomes the proprietor of the property of which he has taken a transfer or conveyance. It is the value of the property transferred or conveyed which determines assessment, and this is unaffected by the existence of any outstanding equitable interest.''

(emphasis mine)

Sheppard J. went on to say:

``There is what at first sight may be thought to be a difference of substance between the facts in the Farm Products case (supra) and those in question here. In the Farm Products case the intention of the parties was to vest the property ultimately in the transferee. The transfers to it were a first step in that exercise. Here the transferee (the plaintiff) was not intended to become the beneficial owner of the land. It was to remain a trustee; the beneficial interest was to remain vested in the transferor (29 Macquarie). But the duty is imposed upon instruments and not upon transactions. In both cases the transfers were intended by the parties to be no more than transfers of the bare legal estate. Such difference as there is between the facts of the two cases is, therefore, of no

ATC 4015

consequence so far as the present problem is concerned.''

In the Farm Products case an attempt was made to transfer the whole legal and equitable estate in the shares by way of a declaration of trust and an option agreement, together with an oral acceptance of the latter, in an effort to avoid stamp duty as was done in Cory's case. The attempt in the Farm Products case was unsuccessful because stamp duty in New Zealand was not only payable on sale but also on conveyance without consideration. In the D.K.L.R. case an attempt was made to split the whole of the bare legal interest from the whole of the equitable interest but again the attempt was unsuccessful. In the Myer-Emanuel conveyance, Emanuel seeks to avoid stamp duty on part of the value of the land being conveyed by showing that the contract underlying the conveyance ``excepts'' the fixtures from the land conveyed. This case is unlike both the Farm Products case and the D.K.L.R. case (where the whole of the legal and equitable interests and the whole of the legal interest respectively were intended to be transferred) in that here an attempt is being made to transfer part only of the legal and equitable interest in the estate in fee simple in the land, namely, all except the unsevered and indivisible fixtures. This attempt is quite unlike an attempt to carve out and except one block of land from a larger area of land (which could be done subject to the consent of planning authorities). This is also unlike an attempt to except a term of years or a life estate from the fee simple (the latter could be done if the transferee were a natural person). In this case, an attempt is made to except what might be described as part of the total interest. In that sense it bears some remote analogy to the claim to have carved out or excepted a life estate in
Quigley's case (1926) 38 C.L.R. 272. That attempt failed because the wrong form of words was used in the conveyance and because the substance of the transaction was against the arguments supporting the attempt. If the right words are used, a lesser estate or an estate determinable on the happening of a future event can be carved out of a greater estate. See Cheshire's Modern Law of Real Property (12th ed.) 1976, pp. 366 et seq.

In Quigley's case, a stepson, who was beneficially interested in certain real and personal property subject only to the life interest of his stepmother in part of it, executed a deed of settlement whereby he conveyed his interest in the property to a trustee in trust for himself for life with certain remainders over in favour of others. It was contended that the conveyance should be stamped under sec. 73(1) of the New South Wales Act for nominal duty as on the appointment of a new trustee and not under sec. 66(1) as a conveyance attracting ad valorem duty. The High Court rejected the submission. In a joint judgment, Knox C.J., Gavan Duffy and Starke JJ. said (at pp. 277-278):

``The learned Judges of the Supreme Court, however, were of opinion that the life interest limited to the settlor was within the exemption contained in sec. 73(1)(b) of the Act, because it was a beneficial interest that had previously existed and in substance remained unaffected; but this is inaccurate unless the limitation of a life interest to the settlor is regarded as a reservation to himself of that interest out of the property conveyed by him to the trustee upon the trusts of the settlement. Neither in form nor, in our opinion, in substance did the settlor make any such reservation. He granted and assigned unto the trustee the whole of his property, and then proceeded to create new interests including a beneficial interest for himself. He held that interest under the settlement and under no other title. The settlement is what Griffith C.J. termed the charter of his rights and obligations in respect of that interest.''

(emphasis mine)

In the sentence beginning ``unless'', the joint judgment twice mentions ``reservations'' when it intended to refer to an ``exception''. Cf. Hope J.A. in D.K.L.R. at ATC p. 4288; N.S.W.L.R. p. 522 G and Denman J. in
Doe d. Douglas v. Lock (1835) 2 Ad. & E. 705 at p. 745; 111 E.R. 271 at p. 287. Leaving that confusion in terminology aside, it is clear that Myers' equitable interest in this land, like that of the stepson in Quigley's case, would only arise after the transfer of the legal title in the estate in fee simple to Emanuel. Applying the passage in Quigley's case, ``(Myers) granted and assigned unto the trustee (Emanuel) the whole of (its) property and then proceeded to create new interests including a beneficial interest in (itself). (Myers will hold) that interest under the (completed conveyance) and under no other title. The (completed

ATC 4016

conveyance and lease will be)... the charter of (Myers' equitable) rights and obligations in respect of that interest'' - ``that interest'' being Myers' equitable interest in removal of the fixtures from Emanuel's land at its option in due course and its legal and equitable interest in the fixtures in the meantime.

In my opinion, the authorities and the principles to be derived from them show:

  • (i) that it is possible to ``exclude out'' fixtures from a sale of land (Standard Portland Cement case);
  • (ii) that the ``exclusion out'' may properly be characterized as an exception or potential exception leading to a reduction in stamp duty if, but only if, the fixtures are in fact severed and removed prior to the date when the title to the land (and therefore fixtures) passes to the purchaser pursuant to the stampable transfer or conveyance of the land;
  • (iii) that the failure to sever and remove the fixtures from the land prior to settlement frustrates the intention (of the party liable to pay) to reduce stamp duty to the extent of the value of the fixtures;
  • (iv) that the failure to sever and remove fixtures does not, however, frustrate the intention of the parties that the vendor will ultimately obtain the property in the fixtures which are affixed to the land;
  • (v) that for stamp duty purposes under our present Stamp Duties Act, it does not matter whether the contractual exclusion of fixtures from the sale is characterized as
    • (a) an exception or
    • (b) an inchoate exception depending for perfection upon actual severance and removal before settlement or
    • (c) an inchoate exception which becomes a reservation of an equitable interest in the land for the purposes of severance and removal of the former fixtures; and
  • (vi) that for the purposes of assessment of stamp duty in the circumstances of this contract, the value of the fixtures must be included in the value of the property passing under the transfer or conveyance for sale.

I answer the questions in the case stated as follows:

  • Question (1): Whether the Memoranda of Transfer annexed hereto and marked ``A1'', ``A2'', ``A3'' and ``A4'' are liable to duty as assessed by me? - Answer: Yes.
  • Question (2): If not, to what duty are they liable? - Answer: Not necessary to answer.


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