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Meridian Energy Australia Pty Ltd v Chief Commissioner of State Revenue [2022] NSWSC 1074
North Shore Gas Co Ltd v Commissioner of Stamp Duties (NSW) (1940) 63 CLR 52
Smith’s Snackfood Co Ltd v Chief Commissioner of State Revenue (NSW) (2013) 97 ATR 904; [2013] NSWCA 470
SPIC Pacific Hydro Pty Ltd v Chief Commissioner of State Revenue (2021) 113 ATR 24; [2021] NSWSC 395
Stephenson v Thompson [1924] 2 KB 240
TEC Desert Pty Ltd v Commissioner of State Revenue (2010) 241 CLR 576; [2010] HCA 49
The Noordam (No 2) [1920] AC 904
Vopak Terminal Darwin Pty Ltd v Natural Fuels Darwin Pty Ltd (2009) 258 ALR 89; [2009] FCA 742
Vopak Terminals Australia Pty Ltd v Commissioner of State Revenue (2004) 12 VR 351; [2004] VSCA 10
Yanner v Eaton (1999) 201 CLR 351; [1999] HCA 53
Background
In the Supreme Court proceeding below, the respondent sought review of a duties notice of assessment issued by the Chief Commissioner to the respondent on 25 August 2021 (“the Assessment”) in respect of the respondent’s acquisition of 100% of the issued shares in GSP Energy Pty Ltd (“GSP”) on 29 March 2018 (“the Acquisition”).
The Assessment was for an amount of landholder duty of $7,979,740, which was calculated based on GSP’s land holdings and goods being valued by the Chief Commissioner in the amount of $145.35 million. At the time of the Acquisition, GSP was the operator of three hydro-electric power stations in New South Wales, located at Lake Burrinjuck, Keepit and Hume (collectively “the Power Stations”) and the lessee of the land on which the Power Stations were situated pursuant to leases entered into in 2014 (“the Leases”). GSP’s access to the water required for the operation of the Power Stations (and its licence to access the Power Stations themselves) was pursuant to water agreements entered into with the State Water Corporation (“Water Agreements”).
The Power Station assets were the subject of a series of vesting orders prior to the Acquisition, including, most relevantly, a vesting order made in 2013 that vested in Green State Power Pty Ltd all of “the assets, rights and liabilities of Eraring Energy” (“2013 Vesting Order”). Green State Power Pty Ltd subsequently agreed to sell these assets to GSP in 2014, and on 17 July 2014 a further vesting order was made that vested various assets of Green State Power in GSP (“2014 Vesting Order”). The Acquisition (being the acquisition by the respondent of the shares in GSP on 29 March 2018) was the subject of this proceeding.
The primary focus of the dispute was whether those interests in the Power Stations were interests in land, or alternatively interests in goods, for the purposes of the Duties Act – and whether in either event the acquisition of the shares in GSP would be dutiable.
Primary judge's decision
The primary judge found that the effect of the vesting orders was that the items of property which were once fixtures situated at the Power Stations were, in law, severed from the land. Her Honour concluded that GSP’s interests in the assets forming part of the Power Station were not interests in land, and further concluded that they were not interests in goods. Rather, her Honour found that the interests were more properly characterised as “innominate sui generis property interests”, so as not to be dutiable. Her Honour further found that GSP’s leasehold interests in the land upon which the assets were situated were, leaving aside the assets themselves, of no material value.
Appeal grounds
The Chief Commissioner appealed from the primary judge’s decision on the following three grounds:
The primary judge erred in characterising GSP’s interest in the power stations, other than the bare leasehold interests in the land, as “innominate sui generis property interests” (“Ground 1”). The Chief Commissioner contended that the interests were interests in fixtures, and therefore interests in land.
In the alternative, if the interests were not in land, then they were interests in “goods” for the purposes of the Duties Act, and therefore were still required to be taken into account in the assessment of duty (“Ground 2”).
The primary judge erred in determining the value of the bare leasehold interests (“Ground 3”).
Decision
The Court (per Kirk JA, with Adamson JA and Griffiths AJA agreeing) upheld the appeal on Ground 2 only.
Ground 1: Whether either vesting order severed the power stations
The Court considered a preliminary issue as to whether the Treasurer had power under the Electricity Generator Assets (Authorised Transactions) Act 2012 (“EGA Act”) to vest the interests in the power stations in Green State Power Pty Ltd in 2013. The land on which the power stations were situated was owned by the Water Administration Ministerial Corporation (“WAMC”). The provision of the EGA Act relied on by the Treasurer in making the vesting orders only extended to the transfer of assets of an “electricity generator” or “transaction entity”, and WAMC was not either of those things. However, there were broader grants of power under the EGA Act, including the power to do anything “necessary or convenient for the purposes” of the transfer, or anything “ancillary or incidental to or consequential on” the transfer of assets of electricity generators. The Court found that these powers were broad enough to support the transfer at issue in the present case. In this regard the Court placed reliance on the second reading speech for the EGA Act which supported “construing the powers in a broad and flexible manner to enable moving around assets owned, in one manifestation or another, by the State” (at [44]).
The Court found that the primary judge did not err in concluding that the vesting orders transferred ownership of the items in question, and thereby legally severed the interests in the items constituting the Power Stations from WAMC’s ownership of the land. The Court noted that there were significant textual and contextual considerations that militated against finding there was such a severance – in particular, the 2013 Vesting Order on its face, purported only to vest the interests which another State entity, Eraring Energy, had in the Power Stations, and did not address the interests of WAMC. However, the Court ultimately found those considerations were outweighed by purposive considerations, and noted that “textual considerations are of somewhat reduced importance in circumstances where it is evident that the instrument is not well-drafted” (at [77]). In this regard the Court found that “what is most significant is that this is a practical document meant to achieve a practical end: to gather assets for sale in a new company in a clear and certain way, and in that way to seek to achieve the highest possible sale price for the State. That factor tilts the scales in favour of the respondent’s construction” (at [77]).
Accordingly, the Court agreed with the primary judge (albeit for different reasons) that the 2013 Vesting Order transferred full ownership in the listed assets in the Power Stations to Green State Power, and in that way caused legal severance of the items constituting the Power Stations from WAMC’s ownership of the land. However, the Court did not agree with the primary judge’s finding that the resulting ownership interests should be characterised as “innominate sui generis interests” (at [78]).
Ground 2: Were the items in the power stations “goods”?
The Court found that each of the “items constituting the power stations had the legal character of goods prior to being incorporated into the power stations and thus affixed to - and becoming part of - the land. On general law principles if the legal affixation was ended by way of severance then they would return to being characterised as goods” (at [97]). The Court found that such a severance was effected by the vesting orders.
The Court found that the vesting orders did not create any new species of statutory rights or property. Rather, the 2013 Vesting Order transferred ownership of the identified items from (relevantly) WAMC to Green State Power. In so doing it had the effect of legally severing those items from the land. However, nothing in either vesting order addressed the nature of the rights of ownership, or created innominate sui generis property interests. Accordingly, “the effect of the legal severance was that the items resumed their previous legal character, as chattels or goods” (at [113]).
It followed from this that the items comprising the Power Stations were found to be “goods” for the purposes of the Duties Act, with the result that Ground 2 was upheld.
Ground 3: The valuation of the leases as unimproved land
The Court found that there was no error in the primary judge’s reasoning and conclusion in respect of the valuation of the Leases. In this regard the Court found:
in respect of the allocation of value between the Leases and the Water Agreements, given the evidence of both expert witnesses “it cannot be said that the primary judge erred in principle by asking which asset class was the “driver” of value” (at [141]);
determining whether the evidence established that one of the assets was fundamentally more important than the others was a question of fact and degree. Given there was evidence from one of the experts (Mr Samuel) that the Water Agreements were “fundamentally more important”, it was open for the primary judge to accept that evidence and allocate no value to the leases. Accordingly, it “cannot be said that the primary judge “mistook” the facts in the House v The King sense in determining this question of fact and degree” (at [149]); and
it was “not persuaded that there was any House v The King type error in the primary judge’s conclusion accepting Mr Samuel’s analysis. It was open to her Honour to find that in substance the residual value should be attributed only to the water supply agreements” (at [154]).
Conclusion
Having upheld Ground 2 only, the Court did not make final orders, to allow the parties time to consider the potential operation of s.163G of the Duties Act. Under that section the Chief Commissioner has a discretion to disregard the value of the goods if they constitute at least 90% of the value of the relevant assets. The Chief Commissioner has indicated that if the threshold is reached then, in this case, he will exercise the discretion to disregard the value of the goods.
Orders
Allow the appeal on Ground 2 only.
Any proposed consent orders should be filed within 21 days of these orders.
To the extent that the parties are not agreed on orders to resolve the appeal they may file and serve:
submissions of no more than 4 pages relating to what final orders the Court should make, together with any relevant supporting materials, within 21 days of these orders; and
submissions in reply of no more than 2 pages within 28 days of these orders.
Subject to any further order, final orders will be made on the papers and without a further oral hearing.