SUPREME COURT OF NEW SOUTH WALES

FARRAR v COMMISSIONER OF STAMP DUTIES

SHEPPARD J

7 April, 30 May 1975 -

Sheppard J This is an appeal by way of a case stated pursuant to the provisions of s 124 of the Stamp Duties Act 1920 (as amended), hereinafter called "the Act". The appellant - the plaintiff in these proceedings - is the trustee under a deed of trust dated 10 September 1973 made between Adele Helene Farrar, therein called "the settlor", and the plaintiff as trustee. The principal beneficiary under the trust is John Joseph Farrar who is the infant son of the plaintiff. During his minority the income from the trust is to be accumulated for his benefit, and upon his attaining his majority he is to be paid the income accrued up to that time. The capital of the fund is to vest in him upon his attaining the age of 22 years. Provision is made for the vesting of the fund otherwise in the event of his dying prior to his 22nd birthday. The deed confers a number of powers upon the trustee. These include powers of investment and by cl 3(i) the trustee is authorized to invest in the purchase of freehold land in Australia. By cl 3(1) the trustee has power to raise moneys required for any purpose of the trust, inter alia, by the mortgage of all or any part of the trust property.

The amount settled by the trust deed was only $25. Stamp Duty of 75¢ (3%) was paid pursuant to the provisions or Sched 6 to the Act upon that sum. The settlor is not otherwise concerned in the transaction which gives rise to the questions here to be determined. Pars 5, 6 and 7 of the stated case are in the following terms:-

"5. On or about the 11th day of September 1973 the plaintiff entered into a contract for the purchase of certain land and factory premises known as 8 East Street Granville from Lennox Developments Pty Ltd. The said contract was contained in an instrument executed by the plaintiff and stated therein to be made 'the 11th day of September 1973 between LENNOX DEVELOPMENTS PTY LTD of 154 Marsden Street, Parramatta (hereinafter called the vendor) of the one part and GEORGE SABA FARRAR as trustee for JOHN JOSEPH FARRAR (hereinafter called the purchaser) of the other part'. By the said instrument the vendor agreed to sell and the plaintiff agreed to purchase the said property for the sum of $70,000.00. The said instrument provided that the plaintiff should upon the signing thereof, pay as a deposit the sum of $7,000.00.

"6. The amount of the said deposit was advanced by the plaintiff to the trust on the 11th day of September 1973 as a loan free of interest and repayable on demand and paid by the plaintiff to the vendor.

"7. The balance of purchase money required to complete the purchase was provided as to the sum of $45,000.00 by loan from the Commonwealth Trading Bank of Australia secured by first mortgage charge upon the said property and as to the balance then remaining by the plaintiff as an advance to the trust by way of loan free of interest and repayable on demand. The said balance of purchase money was paid by the plaintiff to the vendor. No amount was provided by the said John Joseph Farrar in or towards the purchase."

The competing contentions of the parties are to be found in pars 8 and 9 of the case which are in the following terms:-

"8. The defendant in assessing duty on the said instrument claimed that it contained or related to two several distinct matters, the first being an agreement for the sale of property within the meaning of Sched 2 to the Stamp Duties Act 1920, as amended and the second a declaration of trust within the meaning of the heading 'Declaration of Trust' in the said Sched 2. Accordingly the defendant assessed the duty payable on the said instrument at $2800 being the sum of 2% on $70,000, $1400 as on an agreement for the sale of property and 2% on $70,000, $1400 as on a declaration of trust within the meaning of par (2) under that heading.

"9.(1) The plaintiff claims that the said instrument should be treated as one instrument which effects the single purpose of a purchase of realty by an existing trustee previously constituted as such, that there is no severable declaration of trust and accordingly that the duty should be $1400 only.

(2) Alternatively to (1) the plaintiff claims that the said instrument contains no declaration of trust within the meaning of par (2) under the heading 'Declaration of Trust' in Sched 2 to the Stamp Duties Act 1920, as amended."

The questions to be answered by the Court are set out in para (12) of the case and are as follows:-

"(1) Whether for the purposes of the said Stamp Duties Act the said instrument referred to in par 5 of this stated case contained or related to

(a) One matter namely an agreement for the sale of property within the meaning of Sched 2 to the said Stamp Duties Act; or

(b) Two several distinct matters, the first being an agreement for sale of property within the meaning of Sched 2 to the said Stamp Duties Act and the second a declaration of trust within the meaning of par (2) under the heading 'Declaration of Trust' in the said Sched 2 or

(c) Two several distinct matters, the first being an agreement for the sale of property within the meaning of Sched 2 to the said Stamp Duties Act and the second a declaration of trust within the meaning of par (1) or (3) under the heading 'Declaration of Trust' in the said Sched 2?

"(2) If the answer to (1)(b) or (c) is yes, whether the said instrument is to be separately and distinctly charged with duty in respect of each of the said matters?

"(3) Whether the duty payable by the plaintiff on the said instrument is

(a) $1400; or

(b) $2800; or

(d) some other and, if so, what amount?

"(4) Whether the costs of this stated case should be borne and paid by

(a) the plaintiff; or

(b) the defendant; or

(c) the plaintiff as to some proportion and the defendant as to some proportion and if so what proportions respectively?"

The provisions of the Act upon which the Commissioner relies for his contention that the document in question is liable to duty both as a contract of sale and as a declaration of trust are s 17(1) and par (2) of that part of Sched 2 to the Act which provides for the payment of duty upon declarations of trust (hereinafter called "par 2"). The paragraph is in the following terms:-

"Any instrument declaring that any property vested or to be vested in the person executing the same is or shall be held in trust for the person or persons or purpose or purposes mentioned therein notwithstanding that the beneficial owner or person entitled to appoint such property may not have joined therein or assented thereto."

The schedule provides that the amount of duty payable is the same duty as if the instrument were a conveyance of the property comprised therein. Section 66 of the Act provides that, subject to the provisions of the Act, every conveyance is to be charged with ad valorem duty in respect of the unencumbered value of the property thereby conveyed. Section 66(3) provides for the amount of duty to be paid upon conveyances made without consideration in money or money's worth. In cases where there is no encumbrance duty is payable at the rate provided for in Sched 6 to the Act but par (i) of subs (3)(a) provides for a lower rate of duty (that provided for in Sched 2 to the Act) where the property is encumbered. By reason of that provision the Commissioner has charged the Sched 2 rate of duty in this case rather than that provided for in Sched 6. I have not myself considered whether, assuming the Commissioner's arguments to be otherwise sound, the paragraph to which I have referred applies to the present case. I have simply assumed that it does.

Section 17(1) of the Act is in the following terms:-

"Except where express provision to the contrary is made by this or any other Act, an instrument containing or relating to several distinct matters is to be separately and distinctly charged with duty in respect of each of such matters, as if each matter were expressed in a separate instrument."

Before dealing with the principal arguments of the parties I should mention that there was a suggestion made that, if the document were not dutiable pursuant to the provisions of par (2) it was nevertheless dutiable either under the provisions of para (1) or par (3) of that part of the schedule which deals with declarations of trust. This matter is raised for consideration in question (1)(c) above and consequentially in question (3)(c). Having considered the provisions of pars (1) and (3) I am of opinion that, if the document does contain a declaration of trust, it is not a declaration of trust within the meaning of pars (1) or (3). If it were, the duty payable would be a flat sum of $3 and that accounts for the amount of $1403 referred to in question (3)(c). In view of the smallness of the amount involved, the clear view that I have that the document is not within either pars (1) or (3) and the fact that the principal submissions addressed to me concerned par (2), I do not consider it appropriate or necessary to set out pars (1) and (3), nor to say more about arguments which were addressed concerning these paragraphs. Questions (1)(c) and (3)(c) should each be answered in the negative.

The case made on behalf of the plaintiff is a simple one. It is said that he is the trustee of the John Joseph Farrar Trust created by Adele Helene Farrar. As such trustee he had power to invest in land and, in order to do so, to borrow money on mortgage. He purchased the property as trustee for John Joseph Farrar. The words in the contract of sale, "as trustee for John Joseph Farrar", were no more than descriptive of the capacity in which the plaintiff acquired the land and were of no different effect than would be the case if a purchaser purchased (assuming the necessary power) as executor or trustee of the estate of a deceased person or as trustee of a settlement using moneys already subject to the trust. The assumption underlying this proposition was that in such case no duty would be payable, but I think a question arises as to whether duty would not be payable under para (3).

The Commissioner submitted that the words in question, "as trustee for John Joseph Farrar", were more than descriptive and operated as a declaration of trust by the plaintiff. He further submitted that unless this were so there would not be any effective creation of a trust of the land because, by reason of the provisions of s 23C(1)(b) of the Conveyancing Act 1919, a declaration of trust respecting any land or any interest therein must be manifested and proved by some writing signed by some person who is able to declare such trust. He referred also to s 23D(1) which provides that all interests in land created by parole and not put in writing and signed are to have the force and effect of interests at will only. The Commissioner drew attention to the fact that there was nothing upon the face of the contract of sale to show that the plaintiff was purchasing as trustee of the settlement. All that can be gleaned from the contract is the fact that he was purchasing as trustee for his son. For all that otherwise appears he was purchasing as a bare trustee. The Commissioner, although pointing to this circumstance, contended, even if it were clear that the plaintiff were purchasing as trustee of the settlement, that there was nevertheless a declaration of trust within par (2) chargeable with ad valorem duty.

In his detailed argument counsel for the plaintiff made a two-pronged attack. He contended that the words relied upon by the Commissioner in the contract did not constitute a declaration of trust within par (2) and he further contended that if, contrary to his first argument, they did, the document nevertheless did not contain two matters within the meaning of s 17(1) of the Act. In this regard he relied upon a number of cases but principally Limmer Ashphalte Paving Co Ltd v Comrs of Inland Revenue (1872) LR 7 Exch 211. In that case Martin B, who delivered the judgment of the Court, said at 217: "There is no better established rule as regards stamp duty than that all that is required is, that the instrument should be stamped for its leading and principal object, and that this stamp covers everything accessory to this object."

It was submitted by the plaintiff that the leading and principal object of the document in question was that of a contract of sale and that once it was stamped as such it was duly stamped, the stamp duty paid covering such operation as the document also had as a declaration of trust. I do not accept this submission because I think it ignores the provisions of s 17(1). If the Commissioners' contention that the words in question constitute a declaration of trust be correct, there are two matters involved: a contract of sale made between the vendor and purchaser and a declaration of trust by which the purchaser - the plaintiff - constituted himself a trustee of the property for his son. It seems to me that the question of difficulty in the case is whether the words relied upon do constitute a declaration of trust.

There are of course many statements of high authority upon the question of what words will and what words will not, constitute a declaration of trust (see Jacobs' Law of Trusts in New South Wales3rd ed p 147). In the words of the learned author of that work express trusts may be created by any language which shows a sufficiently clear intention so to create them. In the way that the matter was argued it is convenient, for reasons which will soon appear, to refer to what Griffith CJ said in Davidson v Chirnside (1908) 7 CLR 325. That was a case dealing with the resettlement of property. At 340 his Honour said: "The question whether an instrument is or is not within the Act must, in my judgment, be determined by examination of the instrument itself and not upon extrinsic evidence. In order that an instrument may be a settlement in the ordinary acceptation of that term it is clearly not necessary that the instrument should itself operate as a transfer of the property settled. For instance, in the very common case of a settlement of money, or shares, or stock the transfer is ordinarily not effected by the deed of settlement, which merely declares and defines the trust upon which the settled property is to be held. Again, in cases in which a trust may be created without writing, an instrument is not the less a settlement in the ordinary sense of the term because the trusts declared by it had been already declared by word of mouth. Nor is it material that the rights declared by the instrument are, so far as regards the effective enjoyment of the property, substantially the same as rights already existing, whether under a previous instrument or otherwise. The rights conferred or declared by the settlement are, in a real and substantial sense, new rights. In the present case the rights under the two instruments are by no means identical."

The Act to which his Honour referred was the Stamps Act 1892 of the State of Victoria and the relevant provision, contained in Div VIII of the Schedule to the Act, was:-

"(1) Any instrument other than a will or codicil whether voluntary or upon any good or valuable consideration other than a bona fide adequate pecuniary consideration whereby any property is settled or agreed to be settled in any manner, whatsoever, or is given or agreed to be given in any manner whatsoever, such instrument not being made before and in consideration of marriage.

"(2) Any instrument declaring that the property vested in the person executing the same shall be held in trust for the person or persons mentioned therein but not including religious, charitable, or educational trusts."

In the same case Isaacs J said in relation to the document there in question (at 345): "On its face it does settle the property on trustees for the daughter, and does so by the authority of the will from which she primarily derives all her rights. The moment that instrument was executed it became for all practical purposes the new starting point of her rights; it is now in effect the source of the powers and duties of the settlement trustees, and regulates henceforth the relations between them and their cestui que trust. The trusts of the will as such no longer apply to her or her legacy; and although the trusts, which do apply, correspond to the trusts of the will, they are not trusts of the will. The document is, therefore, not a mere appointment of trustees, nor a mere recognition of the trusts of the will, but a separate and independent title deed which answers technically and substantially to the description of settlement as generally understood, as applied to it by the testator himself in repeated terms, and as used in the Schedule to the Stamps Act, 1892."

The authority upon which the plaintiff principally relied was Perpetual Executors & Trustees Association of Australia Ltd v Wright (1917) 23 CLR 185. In that case a wife who was the registered proprietor of certain land upon which there was a house signed a document in the following terms, "I hold in trust", the property, specifying it, "for my husband … it's all his." The husband subsequently became bankrupt and it was found that the property had been put into the wife's name as his trustee in order to defraud his creditors. The High Court decided that the fact did not prevent the bankrupt from afterwards recovering the property from his wife's estate provided that the illegal purpose had in no respect been carried into effect. The deed of trust made by the wife was not stamped and one argument relied upon by counsel for her administrator in the proceedings was that the document should have been stamped by reason of a provision similar in effect to par (2) of cl VIII of the Stamps Act 1892 set out above. As to this argument, Barton ACJ said that the document was not within the provision "which relates to deeds of trust in the ordinary sense, and not to mere written statements concerning a trust previously existing." - (at 194). In their joint judgment, Isaacs, Gavan Duffy and Rich JJ said at 198: "A point was raised that s 71 of the Trusts Act 1915, reproducing a provision of the Statute of Frauds, required the trust as relied on in this case to be proved by writing signed by the deceased, that is, so far as the land is concerned. Then it was said that the document put in for the purpose was not stamped under the Stamps Act 1915 Sched 3 cl IX(2). The words of that part of the schedule are 'any instrument declaring that the property vested in the person executing the same shall be held in trust' &c. If the document in question answered that description, the point would present considerable difficulty (Fengl v Fengl (1914) P 274). But having regard to the reasoning in Davidson v Chirnside ((1908) 7 CLR 324), it does not fall within that description and therefore no stamp is required."

As I understand the judgments in Wright's Case the document in question was not within the Act because it was not a deed of trust but only evidence of the fact that a constructive trust was in existence. The plaintiff here sought to use this case by saying that the words in question did not themselves constitute a declaration of trust but were merely evidence of a trust and descriptive of the capacity in which the plaintiff purchased the property.

In my opinion the submissions of the defendant are to be preferred. It seems to me that the question I must answer is whether the words in question are effective to vest an equitable title to the property in the plaintiff's son? Do they create a trust? To adapt, but somewhat change, the words of Isaacs J in Davidson v Chirnside, supra, is the contract of sale a separate and independent title deed from which the equitable rights of the son derive? In my opinion his rights do arise by reason of that document. Without them there would be nothing to bind the plaintiff to hold the property upon trust for his son. Their presence in the contract ensures that he is bound. They constitute a sufficient declaration for the purposes of s 23C of the Conveyancing Act. The present case is to be distinguished from Wright's Case because there there was a pre-existing trust of the property of which the document in question was only evidence. Here there could be no pre-existing trust because the contract of sale was the instrument by which the plaintiff first obtained any title to the property. By the use of the words in question and within the meaning of par (2) it is correct to say that the contract, although a contract of sale by which the property was purchased, was also an instrument declaring that the property dealt with in it and to be vested in the person executing it (that is the plaintiff) should be held in trust for his son.

Before concluding this judgment I should say something more about the declaration of trust executed by Adele Helene Farrar. As earlier mentioned the transaction by which the plaintiff purchased the property did not involve her in any way. She was not a party to it, nor did she contribute any of the moneys with which the property was purchased. She had created a trust which the plaintiff used as a vehicle (although not by any express written language) to acquire the property on behalf of his son. Her declaration of trust did not and could not operate to vest the beneficial interest in the property in question in him. For this to occur there had to be such a declaration by the father himself, and this is, as I have held, to be found by him in the contract of sale. Without them there is no such trust.

For the above reasons the questions asked in the stated case are answered as follows:

(1) (a) No.

(b) Yes.

(2) Yes.

(3) $2800.

(4) By the plaintiff.