Meridian Energy Australia Pty Ltd v Chief Commissioner of State Revenue [2022] NSWSC 1074
Background
The relevant 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 (collectively “the Power Stations”). GSP was also 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 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 the Acquisition (being the acquisition by the plaintiff of the shares in GSP on 29 March 2018) was the subject of this review.
The issues for determination in this proceeding were:
- whether, at the time of the Acquisition, the Power Stations were “land holdings” within the meaning of s. 146 of the Duties Act 1997;
- what was the correct valuation of the Leases and Water Agreements;
- whether the Power Stations were “goods”;
- if the Power Stations were goods, whether the s. 163G “discretion” should be exercised; and
- the dutiable value of the Acquisition.
The statutory framework
As at the time of the Acquisition (29 March 2018), the key landholder duty provisions of the Duties Act 1997 included:
- s.146 which provided that a landholder included a private company that has land holdings in New South Wales with a threshold value of $2 million or more;
- s.147 which defined a land holding to mean an interest in land other than the estate or interest of a mortgagee, chargee or other secured creditor; and
- s.163G which provided that:
“If the Chief Commissioner is satisfied that the unencumbered value of all goods in New South Wales of a landholder comprises not less than 90% of the total unencumbered value of all land holdings and goods in New South Wales of a landholder, the Chief Commissioner may disregard the value of the goods in determining the duty chargeable under this Chapter.”
Submissions
Issue 1 - Whether the Power Stations were land holdings
The plaintiff submitted that the Power Stations were not land holdings at the time of Acquisition. In particular, the plaintiff submitted that GSP’s interest in the Power Stations was an innominate sui generis property interest (in a class of its own) which could not be classified as land or goods, on the basis that it was created by virtue of a statutory vesting order.
In respect of the 2013 Vesting Order, the plaintiff submitted that, to the extent that the Power Stations had once been part of the freehold on which they are situated, the vesting order had the effect of creating and vesting in Green State Power Pty Ltd a sui generis property interest in the Power Stations to be held in gross; and that, thereupon, the Power Stations lost their character as land (and as interests in land).
The Chief Commissioner submitted that the effect of the statutory vesting orders was not to enact a statutory severance of the Power Stations from the land upon which they were situated; rather, that the vesting orders had the effect of transferring the existing assets of the tenant of the leased land to the future tenant of the leased land (i.e., that Pacific Power’s existing interest in the leased land was transferred to Green State Power Pty Ltd and then transferred again to GSP). In that way, the Chief Commissioner contended that the Leases ought to be valued on the basis that they include the inherent right to exploit the fixtures.
Issue 2 – The value of the Leases and Water Agreements
The plaintiff submitted that the Leases had nil value because the rent paid under the Leases was comparable to market rent, and that the Water Agreements were not interests in land subject to duty.
The Chief Commissioner submitted that the Leases ought to be valued at $144.85 million, adopting the valuation methodology applied by Payne JA in SPIC Pacific Hydro Pty Ltd v Chief Commissioner of State Revenue [2021] NSWSC 395 (“Pacific Hydro Methodology”). The Chief Commissioner’s preferred valuation focused on the right to exploit and use the fixed plant and equipment in the Power Stations, and to the value of the lease of the bare land.
Issue 3 – Whether the Power Stations were goods
The plaintiff submitted that, even if GSP were a landholder, the Power Stations were not “goods” within the meaning of s. 155 of the Duties Act 1997, because they are sui generis interests in property vested in GSP by statute and, alternatively, form part of a continuous system of electricity reticulation connected to a mass electricity distribution network.
The Chief Commissioner submitted that the term “goods” was of sufficient breadth to capture the Power Stations, if they are not otherwise classified as land. He also submitted that even if the vesting orders did create a sui generis property interest in GSP in the Power Stations, those orders only applied to assets that were part of the leased land up to the date of the first vesting order (which was July 2000), and that those assets which were installed after the date of the first vesting order in July 2000 remained as fixtures, forming part of the leased land.
Issue 4 – Exercise of the s. 163G “discretion”
The plaintiff submitted that, in the event that the Power Stations were goods and the value of GSP’s goods at the time of the Acquisition was not less than 90% of the total unencumbered value of all land holdings and goods, then the discretion in s. 163G of the Duties Act 1997 should be exercised, and the value of goods should be disregarded in determining the duty payable by the plaintiff.
The Chief Commissioner submitted that, even if it was held that the Power Stations were goods, the value of GSP’s goods was less than 90% of GSP’s total land holdings and goods, meaning the discretion in s. 163G of the Duties Act 1997 was not enlivened.
Issue 5 – Dutiable value of the Acquisition
The plaintiff submitted that the dutiable value of the Acquisition was nil because the Pacific Hydro Methodology was not applicable to valuing GSP’s Leases, the value of GSP’s leasehold interest was nil, and the Acquisition was not a relevant acquisition.
The Chief Commissioner submitted that the Assessment was correct, on the basis that the dutiable value of the Acquisition was $145.35 million, comprised of the Leases having a value of $144.85 million and GSP’s goods having a value of $500,000.
Decision
Issue 1 - Whether the Power Stations were land holdings
Ward CJ in Eq found that GSP’s interest in the Power Stations was not an interest in land.
Her Honour focused on the terms of the 2013 Vesting Order, and in particular the schedules to that vesting order which sought to identify the interests being vested in Green State Power, to conclude “that what was effected was indeed a statutory severance of the Power Stations (as fixtures) from the land on which they were situated” (at [140]).
Her Honour’s reasoning for the above conclusion was that the way the 2013 Vesting Order was framed, “particularly the inclusion in the Schedule of the Hume and Keepit Dams not in the category of real property or leasehold property but as “things” falling within the second part of the Schedule under the heading “Property, Plant and Equipment” and enumerated in Annexure 2 to the Vesting Order” meant that “the Power Stations do not meet the description of land (or of interests in land) insofar as they fall within the catch-all description of “tangible property” within par 2 of Sch 1 of the 2013 Vesting Order” (at [141]).
Accordingly, her Honour found that “the Power Stations were conveyed, in gross, to Green State Power under the 2013 Vesting Order as an innominate sui generis property interest. As such, the effect of the 2013 Vesting Order was that Green State Power did not acquire an interest in the freehold land, nor was that interest dependent on the grant of any lease by the registered proprietor of that land” (at [141]).
Issue 2 – The value of the Leases and Water Agreements
Ward CJ in Eq found that it was not appropriate to apply the Pacific Hydro Methodology in this case, in light of her conclusions as to the nature of the interest held by the plaintiff in the Power Stations.
Her Honour also found that, to the extent that there was a difference between the market value of GSP’s shares at the time of Acquisition and GSP’s assets and liabilities other than the Water Agreements and the Leases (the “residual”), the whole of the residual should be allocated to the Water Agreements and not the Leases. This was because her Honour was “persuaded that the fundamental driver (the go, no-go asset) is the Water Agreement, without which the Lease could have no value” (at [271]).
Issue 3 – Whether the Power Stations were goods
Her Honour noted that the word “goods” was of very general “and quite indefinite import” (at [296]), and primarily derived its meaning from the context in which it was used. Her Honour stated that she had “great difficulty in seeing the Power Stations as being “goods” under any ordinary meaning attributed to tangible personal property” (at [296]). Her Honour also noted that the fact that the Power Stations (formerly fixtures or items “part and parcel of the land”) have been statutorily severed from the land (and exist as an innominate sui generis property interest) “does not transmute them into goods” (at [296]). Accordingly, had the issue arisen, her Honour would have concluded that the Power Stations or Power Station assets were not goods.
Issue 4 – Exercise of the s. 163G “discretion”
Her Honour noted that, on the basis of the conclusions reached on the other issues in this proceeding, the question of whether the s. 163G discretion should be exercised did not arise.
Issue 5 – Dutiable value of the Acquisition
Her Honour ultimately found that the dutiable value of the Acquisition was nil on the basis that the Power Stations were not “land holdings”.
Orders
- Set aside the defendant’s Further Amended Assessment, dated 25 August 2021, in whole.
- The parties are to file and serve submissions on the question of costs within 14 days of the publication of these reasons (including whether, and if so why, an oral hearing on costs is sought or that issue can be dealt with on the papers).
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