The High Court continues to deliver judgments during the COVID-19 pandemic. The Court recently handed down its decision in Commissioner of State Revenue v Rojoda Pty Ltd [2020] HCA 7 (Rojoda), confirming that a partner's interest in partnership property (both during the partnership and on its dissolution, but before winding up) is different to the interest of a beneficiary under a trust. 

In Rojoda, a partner that held land on behalf of two partnerships executed deeds to 'confirm' that the partner held the land in proportion to each partner's partnership share. The High Court held that the 'confirmations' amounted to dutiable declarations of trust under the Duties Act 2008 (WA) (Duties Act). 

The High Court (4-1 majority) confirmed the line of case authority that a partner's interest in a partnership constitutes an equitable chose in action that is a right to receive a proportion of the surplus after the realisation of the assets and payment of the debt and liabilities of the partnership. A partner also has a beneficial interest in the totality of the underlying partnership assets but that interest can only be ascertained when the winding up has been completed and until then it is a non-specific interest. 

Importantly, the High Court observed that a partnership interest is not the same as a specific beneficial interest under a fixed trust. Because of the 'confirmations' made by the relevant partner, the two deeds extinguished the unique equitable rights (the partnership interests) in the land, and created new fixed trusts over the land. 

Implications from the High Court's decision

There is a clear distinction recognised both at law and in equity between partnership interests (before winding up being completed) and interests under a trust.

Any attempted dealings in such partnership interests (including 'transfers' or 'conversions' or 'confirmatory trust' statements) should be approached with caution to avoid inadvertently triggering a stamp duty liability. 

This is the case even where the legal and beneficial interest of a partnership interest is economically comparable to the interest of a beneficiary of a fixed trust.

As demonstrated in Rojoda, it is insufficient to simply assert in a document that no new trust is created. Whether a new trust is created in a specific situation turns on the rights the subject of the transaction and the proposed transaction.

Factual background to the case

Mr and Mrs Scolaro carried on a property ownership and investment business in Western Australia through two partnerships:

• The SIC partnership - the partners being Mr and Mrs Scolaro and their three children; and the partnership property included six parcels of land;
• The AMS partnership – the partners being Mr and Mrs Scolaro only; and the partnership property included five parcels of land. 

All 11 parcels of land were registered in the names of Mr and Mrs Scolaro as joint tenants.

When Mr Scolaro died in 2011, both partnerships dissolved (but were not wound up) and Mrs Scolaro became the sole registered proprietor of the 11 parcels of land. 

One child (who had been a partner in the SIC partnership) later died in August 2012. 

In 2013, deeds were executed (2013 Deeds) declaring that Mrs Scolaro continued to hold the parcels of land on trust for the surviving partners and the legatees of the deceased partners in their respective partnership shares. 

The 2013 Deeds also appointed Rojoda Pty Ltd as trustee of the land in place of Mrs Scolaro. The 11 parcels of land were then transferred to Rojoda Pty Ltd as trustee. 

The key clauses of the 2013 Deeds are set out below:

(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).
…
(3) Two final clauses (misnumbered in the SIC Deed): (i) Maria "confirms" that she holds the Properties on trust for the partners and the legatees of Anthony and John in their respective shares; and (ii) Maria resigns as trustee of the Properties and the parties agree that Rojoda be appointed as the new trustee with transfers of the legal title to the Properties to be made to Rojoda.

 The Western Australian Commissioner of State Revenue (Commissioner) assessed duty on the 2013 Deeds as if each gave rise to a dutiable declaration of trust.

Objections to the assessments were lodged and rejected by the Commissioner. Rojoda Pty Ltd sought a review of the decision with the Western Australian State Administrative Tribunal (WASAT). The key objection ground was that no duty was payable because the 2013 Deeds had not created new trusts, and the 'confirmations' merely sought to confirm existing trusts over the parcels of land. 

WA Administrative Tribunal

The WASAT confirmed the Commissioner's assessment in deciding that the 2013 Deeds declared a bare trust over the legal title to the properties held by Mrs Scolaro in favour of each of the former partners. Therefore, the transactions in the 2013 Deeds involved a creation of new equitable interests and were dutiable under the Duties Act. 

WA Court of Appeal

 On appeal by Rojoda Pty Ltd, however, the Western Australian Court of Appeal held that the 2013 Deeds involved no dutiable transaction because after the dissolution of the partnerships the practical reality that liabilities would be discharged from current assets meant that the land was then held on fixed trust for the partners according to their partnership shares. The Court of Appeal concluded that the confirmations made by Mrs Scolaro in the 2013 Deeds merely acknowledged these existing trusts.

Issue for the High Court

On appeal to the High Court, the Commissioner argued that the 2013 Deeds created new trusts due to the change in character of the rights of the former partners or their estates from a unique equitable interest in partnership property to a new equitable interest under a fixed trust. 

Findings of the High Court

The High Court (4-1 majority, Gageler J dissenting) found for the Commissioner. Mrs Scolaro's 'confirmations' of fixed trust in the 2013 Deeds had a substantive effect. They extinguished the unique equitable rights of the partners to the land under the partnership and created new fixed trusts over the parcels of land.

The 2013 Deeds effectively removed all the land from the property of each partnership.  Each partner had new ascertained equitable rights in relation to the land held on fixed trust. The declarations were therefore dutiable transactions under the Duties Act.

It was also clear that it could not be said that the 2013 Deeds merely confirmed existing trusts. Instead the High Court found that the 2013 Deeds declared trusts whereby the legal owner was initially Mrs Scolaro and then subsequently Rojoda Pty Ltd as trustee. These new trusts changed the rights of the former partners or their estates in the partnership property by replacing those rights with freshly created specific beneficial interests, as beneficiaries of a trust.

The High Court criticised the Court of Appeal's application of the equitable maxim that equity regards as done that ought to be done. The Court of Appeal held that no new trusts had been created because on a general dissolution of each partnership, if the 'practical certainty' was that liabilities would be discharged from current assets, equity would regard as done that which ought to be done and would treat the freehold land as held on fixed trusts according to the shares of each partner. The High Court found the Court of Appeal's reasoning did not support the application of the maxim. 

Gageler J (dissenting) held that the 2013 Deeds did no more than acknowledge the legal position that occurred on the dissolution of the partnerships, and (and unlike the Court of Appeal's reasoning), did not require the application of the maxim that equity regards as done that which ought to be done. Instead, Gageler J held the 2013 Deeds involved nothing more than recognising, as ascertainable and as ascertained, the fixed share that each partner on dissolution of each solvent partnership had as a tenant in common in the beneficial interest in the land held on trust for the partnership. On this basis, Gageler J concluded that no liability to duty arose on the 2013 Deeds.

While Rojoda Pty Ltd raised alternative submissions, these were also rejected by the High Court.

Highlights from the case

In Rojoda, the trusts recited in the 2013 Deeds were not confirmatory of the trusts that already existed. The High Court reiterated the key legal and beneficial interests of the partners before a winding up, and that it was incorrect to say that just because the interests of the partners were similar to the interests to be held on trust under the 2013 Deeds, the 2013 Deeds had not created new trusts.

The case further highlights that stamp duty may apply where the legal and beneficial effect of the transaction is the extinguishment of existing rights and the creation of new rights, even if the economic position pre and post the transaction may be similar.