ALH Group Property Holdings Pty Limited v Chief Commissioner of State Revenue
[2012] HCATrans 8
[2012] HCATrans 008
IN THE HIGH COURT OF AUSTRALIA
Office of the Registry
Sydney No S285 of 2011
B e t w e e n -
ALH GROUP PROPERTY HOLDINGS PTY LIMITED
Appellant
and
CHIEF COMMISSIONER OF STATE REVENUE
Respondent
FRENCH CJ
HAYNE J
CRENNAN J
KIEFEL J
BELL J
TRANSCRIPT OF PROCEEDINGS
AT CANBERRA ON THURSDAY, 2 FEBRUARY 2012, AT 10.15 AM
Copyright in the High Court of Australia
MR C.J. BEVAN: If it please the Court, I appear with my learned friend, MS A. TSEKOURAS, for the appellant. (instructed by JDK Legal)
MR C.W.J. LEGGAT, SC: May it please your Honours, I appear with my learned friend, MR M.L. ROBERTSON, for the respondent. (instructed by the Crown Solicitor (NSW))
FRENCH CJ: Yes, Mr Bevan.
MR BEVAN: As a result of three concessions made by the respondent in the special leave hearing which involved the adoption of concessions made in the Court of Appeal addressed at appellant submissions 6 to 9, which can be found at transcript page 6, lines 23 to 48, appeal book 203, this appeal raises four issues for determination which for present purposes can be distilled into two issues.
The first is whether the deed of consent dated 27 June 2008 between Oakland Trust Company and ALH, which your Honours will find at page 77, effected a novation of a bilateral contract for the sale of the subject land known as the Parkway Hotel between Oakland as vendor and Trust Company as purchaser dated 5 November 2003, variously referred to in the courts below as the Parkway contract, the hotel contract and the 2003 contract. For present purposes we will adhere to the 2003 contract label. Your Honours will find that contract at page 26. In consequence of which ALH became substituted as the purchaser of the land on the same terms and conditions as the 2003 contract, as the primary judge found, or whether it ‑ ‑ ‑
FRENCH CJ: Our primary question is, is it not, whether the deed of consent and assignment is an agreement for the sale or transfer of a dutiable property?
MR BEVAN: The principal question is whether it ‑ ‑ ‑
FRENCH CJ: It is a statutory characterisation that is fundamental, is it not?
MR BEVAN: It is, and if it is an agreement for the sale of dutiable property then the refund flows under section 50. So much was conceded at the special leave stage.
HAYNE J: Why do we not start, then, in the statute at those relevant provisions?
MR BEVAN: If your Honour please.
CRENNAN J: Could I pick up on what Justice Hayne has said and direct your attention to page 12 of the appeal book where the representative of the Commissioner writes to the effect that:
the Deed of Consent and Assignment is liable to duty under Section 22(2) of our Duties Act.
If you go to section 22(2) that deals with:
The consideration for the transfer of the interest of a transferee under an uncompleted agreement for the sale or transfer of dutiable property –
If you next go to section 11 there is a definition there, a statutory definition, a “dutiable property”, and I think the relevant one is (1)(l):
an interest in any dutiable property referred to in the preceding paragraphs of this section –
and there are exceptions. Then if you go to section 8 in Chapter 2, section 8(1)(a) covers, “a transfer of dutiable property” and 8(1)(b)(i), “an agreement for the sale or transfer of dutiable property”. Then you have – the parties, as I understand it, have provided to the Court a document which looks like this which is headed up “Table 1 – Summary of Outcomes Pursuant to Court of Appeal’s Decision”. The sums shown there are the sums for the consideration for the first agreement, 5 November 2003, then 2.7 million in relation to the deed of consent and assignment and then the consideration on the second contract for sale and transfer, 6.3 million.
As I understand the facts, the consideration for the sale and transfer in relation to the second purchaser was of the order of 9 million and that is broken down into the 2.7 which was paid to the first purchaser under the deed of consent and assignment and 6.3 which was paid in respect of the second contract for sale, suggesting that the first ad valorem duty fell under 8(1)(a) which is consistent with the document I showed you at appeal book page 12. The second ad valorem duty fell under 8(1)(b)(i) and the sums combined represent the consideration of the second purchaser, in relation to the sale and transfer.
MR BEVAN: Now, that was the approach of the Court of Appeal and the Court of Appeal took the view that the deed effected an assignment of the benefit of the 2003 contract from Trust Company to ALH, and characterised that as an 8(1)(b)(i) transaction, attracting duty on the amount which was paid by ALH to Trust Company as consideration for the rescission of the 2003 contract.
CRENNAN J: Just before you go on, was the duty paid – I appreciate in the context of objecting – was the duty paid in relation to the deed of consent and assignment duty which was assessed by reference to section 8(1)(a)?
MR BEVAN: The duty was paid under 8(1)(a). 22(2) is simply a provision for the valuation or the determination of the dutiable value. The Commissioner’s reasoning perhaps appears better from his objection decision which your Honours will find at page 23 where the Commissioner on 7 April 2009 said at that stage:
I agree that the Deed affected a novation of the agreement –
that is, the 2003 agreement, whereby the interest of Trust Company as purchaser was assigned to ALH, and he accepted that that was supported by the deed of termination. The view he took was that the deed of termination only effected a termination of the agreement for sale dated 5 November 2003 and that was the only agreement to which section 50 of the Duties Act would apply.
Now, his position changed in the course of the hearing for the primary judge and the acceptance of a novation became an acceptance of a novation in effect but not in form. So that the novation issue became a live issue before the primary judge but before the primary judge the critical issue was the – depending on the language one uses either rectification or the interpretation of the deed of termination because the deed of termination which your Honours will find at page 91 contains an error.
If one goes to page 92, the deed of termination defines the contract it is terminating as a contract:
dated 5 November 2003 between Oakland Glen and ALHPH –
that clearly is wrong because the contract dated 5 November 2003 was between Oakland and the Trust Company. And, for reasons I will come to, it is apparent that the draftsman has either erroneously referred to 5 November 2003 or erroneously believed that because the 5 November 2003 contract was novated that the contract that came into existence on 27 June 2008 in consequence of a deed of consent incorporated the date of the 5 November 2003 contract. So, the primary judge, Justice Gzell, interpreted the definition of “contract” by omitting the erroneous reference to the words “dated 5 November 2003”. That is apparent from the reasons of the primary judge starting at paragraph 20 because paragraphs 1 to 19 of his Honour’s judgment, which is pages 152 through to 157, is his Honour’s analysis of the characterisation of the deed of consent where his Honour concludes at 19 that it was a novation of the 2003 contract.
Having concluded that, he then moved on at paragraph 20 and following to deal with the termination point and, in effect, said that on the basis there was a novation, the deed of termination actually terminated the new contract that came into existence on 27 June 2008. That is the novated contract, not the earlier contract, and that deed of termination point fell away at the special leave hearing. If one goes to page 203 of the appeal book one sees an exchange between my learned friend and your Honours the Chief Justice and Justice Kiefel where it was conceded that section 50 would apply in a case of a novation – that is, the duty is refundable. The Chief Justice your Honour said:
The question reduces to the question whether the deed of consent is an agreement for the sale of dutiable property. Then if that is so on the basis that it is a novation, then the deed of termination would operate as a cancellation and we would not need to worry about question 5 –
which was the deed of termination question. That was agreed to, and your Honour the Chief Justice said:
Does the incidence of multiple liability or the possibility thereof have any purchase at all on the question of characterisation of the deed of consent?
MR LEGGAT: No –
and it was accepted that that falls away. Indeed, that is accepted in the respondent’s outline handed up.
HAYNE J: Again, this may be so, but we are in the middle of the problem at this point, are we not? We are not at the start of it ‑ ‑ ‑
MR BEVAN: No.
HAYNE J: ‑ ‑ ‑ and going in at the middle I think is prone to lead us into error.
MR BEVAN: If your Honour please. The 2003 contract was an agreement for the sale of land and that contract, as the Court of Appeal noted, your Honours will see at appeal book 5, page 177. The Court of Appeal recognised that the 2003 contract was exempt from duty because it was a corporate reconstruction, and therefore the contract which was the subject of the deed of consent was a contract which was exempt from duty.
The appellant’s case is that the deed of consent was an agreement for sale of land and was dutiable under 8(1)(b)(i) because it was a novation of the 2003 contract. Notwithstanding that it was a novation of an exempt contract the deed of consent was nonetheless liable to duty, and the primary judge so found. Having interpreted the deed of termination the way he terminated it, the primary judge then recognised that section 50 of the Act gave a refund of the duty that was liable to be paid on the novated contract made pursuant to the deed of consent, because the deed of termination had validly terminated that contract after he interpreted that definition of contract, which I have taken your Honours to.
The Court of Appeal, on the other hand, said no, the deed of consent was an assignment of the benefit of the 2003 contract, and notwithstanding that the 2003 contract was exempt, the assignment of the benefit of it was a dutiable transaction under 8(1)(a), and section 50 does not answer a transfer of dutiable property. Section 50 only gives a refund for duty paid on an agreement for sale of dutiable property.
If one wants a refund of duty in respect of a cancelled transfer of dutiable property, one must rely on section 50A. Section 50A could not apply here because the deed of termination was bilateral. The deed of termination was bilateral; it applied as between Oakland and ALH. In order for section 50A to be enlivened and give a refund of the duty that would have been payable on the deed of consent had it been an assignment and accordingly a transfer of dutiable property under 8(1)(a), the deed of termination made in October 2008 had to have three parties to it because it had to have the assignor trust company as a party to it.
CRENNAN J: Is it part of your argument – leaving aside the novation point for a moment – that the duty which was paid in relation to the deed of consent and assignment was wrongly imposed by reference to section 8(1)(a) in Chapter 2 and should have been imposed by reference to 8(1)(b)(i)?
MR BEVAN: That is right. Indeed, we say that is what happened. This 22(2) point only really became a live issue in the Court of Appeal. We are saying it is something of a misnomer because 22(2) is not a charging provision. It does not impose duty. It simply provides a mechanism for determining the tax base – that is, to the value of the dutiable property. The only two candidates for liability to duty are 8(1)(a), which would apply if the Court of Appeal is correct, or 8(1)(b)(i) which would apply if the primary judge is correct. Now, in order for 8(1)(a) to apply, one must find there has been an assignment of the benefit of the 2003 contract from purchaser 1, which is the Trust Company, to purchaser 2, which is our client, ALH.
CRENNAN J: The cost of the acquisition to purchaser two, as I put to you at the outset, was a total of the 6.3 duty in relation to what has been called in the papers the new contract and the 2.7 agreed consideration in respect of the duty of 134,105.50, which related to the deed of consent and assignment.
MR BEVAN: Yes.
CRENNAN J: What I am putting to you in broad terms is that the full consideration for the transfer of the land to purchaser two was the sum of those two figures. That is to say, there is no double duty. There are two items of duty which, considered together, represent the full consideration paid by purchaser two for the sale and transfer of the land. As I understand it, the 2.7, the agreed consideration in relation to the deed of consent and assignment, represents the increase in value between the time of the contract of 5 November 2003 and the new contract of 24 October 2008.
MR BEVAN: That was a finding in the Court of Appeal in a case conducted on agreed facts, but there was no agreed fact to that effect.
CRENNAN J: To that effect.
MR BEVAN: What happened is that in 2003, if your Honours go to appeal book 26, your Honours will find the very first contract.
FRENCH CJ: Now, this contract is November 2003.
MR BEVAN: The very first contract 5 November 2003.
FRENCH CJ: Yes, because I just wanted to clear that up as a matter of fact. Paragraph 4 of the Court of Appeal judgment at 177, there is a reference to a contract of sale dated 5 September 2003 ‑ ‑ ‑
MR BEVAN: It is a mistake.
FRENCH CJ: ‑ ‑ ‑ but that is a mistake. That is a reference back to the other piece of land and the agreement with the Devon Group.
MR BEVAN: Development contract, that is right. Nothing turns on that mistake. Now, your Honours will see that the land is being sold for $6.386 million. One then goes to the deed of consent, which on our case rescinds that contract.
KIEFEL J: Might I just interrupt you about a small point? Has the name of the Permanent Trustee Company changed by the time of the deed of consent and assignment?
MR BEVAN: Yes, to Trust Company. Now we say the deed of consent rescinded the first contract for a number of reasons, which I will come to, but just dealing with the consideration point for the moment. If your Honours go to page 79, clause 3.1 provides two components of consideration. $638,000 is payable by ALH to Trust Company to reimburse it for the deposit, and that, in effect, is a payment by direction, as 3.2 makes clear. 3.1(b) provides for a payment of $2.063 million by ALH to Trust
Company. Now, that payment is a payment as consideration for rescission of the 2003 contract; that is, it is a payment for the surrender of Trust Company’s rights under the 2003 contract. If one then moves to the second contract of 2008, that is the 24 October 2008 contract ‑ ‑ ‑
CRENNAN J: Just before you do that, in the chart again which I referred to there is an item of agreed consideration and the second set of figures of 2.7?
MR BEVAN: Well, what the Commissioner has done there – keep in mind this is the Commissioner’s document – what he has done is he has added the ‑ ‑ ‑
CRENNAN J: Yes. I am just asking you to explain that figure in the context of what you have just shown us on page 79?
MR BEVAN: The Commissioner has added the consideration payable by ALH to Trust Company of $2.06 million. That is all Trust Company got out of it, together with the reimbursement because a reimbursement is not a payment, it is just reinstating. So Trust Company, in effect, only ever received $2.063 million, but the Commissioner in his analysis has added the reimbursement of the deposit, together with the actual consideration, so he has added the two figures in 3.1(a) and (b).
CRENNAN J: Thank you.
FRENCH CJ: In the end we are really concerned with the characterisation of the deed of consent and assignment in the terms of section 50(1) ‑ ‑ ‑
MR BEVAN: We are.
FRENCH CJ: ‑ ‑ ‑ and harking back to 8(1)(b)(i) also.
MR BEVAN: That is right, that is correct.
FRENCH CJ: So it is really just that legal characterisation.
MR BEVAN: It is, it is.
FRENCH CJ: In a sense, whilst I appreciate all that is being said about novation and assignment, in a sense the labels do not matter; it is the legal effect of the document, is it not? Is that not what we are looking ‑ ‑ ‑
MR BEVAN: That is right.
HAYNE J: Measured against some statutory words to which we might, at some point, come.
MR BEVAN: If your Honours then go to page 99 your Honours will see the actual operative contract, that is the contract under which the title passed. Under that contract the price remained the original price of $6.386 million. Duty was actually paid on that figure and title conveyed to ALH.
FRENCH CJ: Anyway, that is not in issue.
MR BEVAN: It is not. So, the only consideration, for want of a better word, or duty which is in the balance is the duty on the $2.063 million figure at 3.1(b) back at page 79. That is the payment made by ALH to Trust Company for the surrender of its interest in the 2003 contract, in effect, a payment for the rescission of the 2003 contract.
FRENCH CJ: It is in that characterisation of surrender or rescission that you find a hook into sale or transfer of dutiable property?
MR BEVAN: Yes, we say that if there has been a novation of the 2003 contract under which, in effect, ALH becomes substituted as purchaser on a new contract, having the same date as the deed of consent but a substituted purchaser in place of Trust Company. ALH has, in effect, agreed to purchase the subject land at the same price that Trust Company agreed to purchase it, becomes liable for duty on it and by virtue of the termination of that contract under the deed of termination is entitled to a refund of it under section 50. That is our case in a nutshell.
KIEFEL J: Well, with that background, is it a convenient time to go to the Act and refer to how that works within section 8 and section 50?
MR BEVAN: If your Honours please. If your Honours go to section 8, Chapter 2 of the Act charges duty on:
transfer of dutiable property –
under (1)(a), and then under (1)(b) various transactions. The relevant transaction here is:
an agreement for the sale or transfer of dutiable property ‑
As I have said, the 2003 contract was exempt from a duty, otherwise attracted under 8(1)(b)(i) because of the exemption in 2, (8)(1).
KIEFEL J: I am sorry, would you repeat that?
MR BEVAN: The 2003 contract would have been liable for duty under 8(1)(b)(i) ‑ ‑ ‑
KIEFEL J: But it was exempt because it was a corporate reconstruction. So we can put that to one side. We are only concerned with the deed of consent on assignment.
MR BEVAN: Yes. The deed of consent became liable for duty and there were two candidates for that liability to duty. The first candidate was 8(1)(a) which is:
a transfer of dutiable property ‑
and the relevant dutiable property in that case is an interest in land in New South Wales because if one goes to section 11, dutiable property under 11(1)(a) includes “land in New South Wales”.
Then under 11(1)(l) it includes:
an interest in any dutiable property referred to in the preceding paragraphs –
The 2003 contract gave a trust company an interest in the subject land. If the deed of consent effected an assignment of Trust Company’s interest in the land as purchaser under an executory contract for the sale of land then the deed of consent became liable for duty under 8(1)(a) and because the deed of termination was bilateral and not tripartite – the trust company not being a party to it – it could not have operated to terminate an assignment because the assignor was not a party. Our explanation is the party is treated as a novation and treated trust company as not being a necessary party.
If, on the other hand, the deed of consent novated the 2003 contract, and for reasons I will come to that involves two critical elements, the first is a rescission of the first contract and the second is the creation of a new contract on the same or substantially similar terms.
KIEFEL J: But you are going to come back to that as a ‑ ‑ ‑
MR BEVAN: I will. If the deed of consent operated as a novation then it created a new contract between the same vendor and a new purchaser – that is ALH – on 27 June 2008 on substantially the same terms as the 2003 contract. Now, because that novated contract is an agreement for sale of land it comes within 8(1)(b)(i).
KIEFEL J: It is not an agreement for transfer?
MR BEVAN: It is an agreement for sale or transfer. They are synonymous. The way the Act works is, if you pay a duty on the agreement you get nominal duty on the transfer. You only have to pay duty on a transfer. There is no antecedent agreement that has borne ad valorem duty.
KIEFEL J: Yes, I see.
MR BEVAN: If the novation analysis is correct then 8(1)(b)(i) was enlivened notwithstanding that the subject matter of the novation was an exempt contract under 281. The reason is because the novated contract to a substituted purchaser, of course, did not qualify for a 281 corporate reconstruction exemption. If we are within 8(1)(b)(i) on what I call the common law analysis, which is novation versus assignment analysis, then it follows the event that section 50 applies because that is agreed between the parties.
HAYNE J: But that method of analysis begins by attempting to classify the consequences of what has happened according to a scheme of classification and only then comes to grapple with the words.
MR BEVAN: That is right.
HAYNE J: Does that not invert the proper order of inquiry? Are we not concerned to identify whether on 27 June 08 there was a transaction that bears the statutory description, “an agreement for the sale or transfer of dutiable property”?
MR BEVAN: We do.
FRENCH CJ: Taxonomy can be a distraction, especially when it is elevated to doctrinal status.
MR BEVAN: That is right. To answer your Honour Justice Hayne’s proposition, had the contract which came into existence on 27 June 2008 – that is the new contract between Oakland as vendor and ALH as the new purchaser – not been terminated, it would have been liable for duty and, indeed, the duty was paid, and it would have been liable for duty as an agreement for the sale or transfer of dutiable property.
The question here is which of the two candidates applies – that is, was it a transfer of the benefit of the 2003 contract, because it was an assignment and therefore within 8(1)(a), or was it a new agreement between the vendor and a new purchaser for the sale of the same land at the same price and therefore within 8(1)(b)(i)? That, we say, is the statutory question. That statutory question, we say, is informed by the characterisation of the deed of consent under the doctrines of assignment of choses in action and novation of contracts.
HAYNE J: But at its root 8(1)(a) would be engaged if there were no more than the purchaser assigning its interest in the contract to a new purchaser, if there were a two party transaction.
MR BEVAN: Correct.
HAYNE J: The transaction that occurred was a tripartite transaction.
MR BEVAN: Correct.
HAYNE J: Does that tripartite transaction bear the character agreement for the sale or transfer of dutiable property?
MR BEVAN: We say it does because the transaction did a number of things. The first thing it did was rescind the 2003 contract. It also provided that ALH would agree to purchase the same land at the same price that trust company agreed to purchase it at.
HAYNE J: Those are characterisations of the effect of certain covenants we have to go through, have we not ‑ ‑ ‑
MR BEVAN: We do, your Honour.
HAYNE J: ‑ ‑ ‑ rather laboriously, but we have to identify them.
MR BEVAN: If I can then go to the deed of consent, which is at page 77, your Honours will see that relevantly there are some conditions precedent to its operation. The one that is currently relevant is 2(b); 2(b) provides that Oakland, the vendor on the date of the Deed, must repay to trust company “the Loan together with all interest due but unpaid to the date of repayment”.
FRENCH CJ: Now, that loan was an advance that it had made under the 2003 agreement ‑ ‑ ‑
MR BEVAN: That is right.
FRENCH CJ: ‑ ‑ ‑of the balance of the purchase price ahead of settlement.
MR BEVAN: Correct, and that is to be found at page 62. It is clause 53 of the 2000 contract headed “Loan” and 53.1 provides that:
On the date of this contract, the Purchaser shall lend to the Vendor the Balance of the Price which is payable on settlement (Advance).
Clause 53.3 provides a right of set off against the obligation to pay the balance of purchase money and, perhaps, most relevantly for present purposes, 53.5 provides that:
If this contract is rescinded or terminated then the Vendor must pay to the Purchaser on the date of that rescission or termination the aggregate of:
(a) the Advance;
(b) . . . the Deposit; and
(c) any unpaid interest on the Advance –
Returning to the deed of consent at page 79, the first point we make is that it was a condition precedent to the deed of consent coming into operation that that loan be repaid, and as 53.5 provided, the loan was only repayable in the event of rescission or termination of the 2003 contract. Clause 3.1 then provides the trust company:
assigns to ALHPH all of TCFS’s rights and entitlements under –
the 2003 contract. There is to be a reimbursement of the deposit and a payment of $2.063 million net to trust company as consideration for the rescission of the 2003 contract, we would say, although it just says, “balance of the consideration”, but our case is that there is nothing moving from trust company other than its consent to the rescission. Clause 3.2 provides for the deposit to be payable by direction so that, in effect, it becomes held for the account of ALH:
Oakland consents to the assignment –
in 3.3. That is important for reasons I will come to in the course of the morning because the consent of Oakland was necessary to a novation but it was unnecessary to an assignment. There is no requirement for the second party to a tripartite contract to consent to an assignment between the assignor and the assignee.
KIEFEL J: Or, more specifically, Oakland was a party to a release of trust and the accrual of a new obligation of ALHPH.
MR BEVAN: That is right. Now, 3.4 provides that:
after the assignment TCFS must deliver the original –
2003 contract to ALH. We say the explanation for that is because the novated contract has the same terms and conditions as the 2003 contract. Then we come to some covenants in 4. 4.1 is ALH covenanting with Oakland, and then critically 4.1(b) that:
ALHPH shall perform and observe all obligations of the Purchaser –
that is trust company under the 2003 contract. There is a separate covenant with trust company under which ALH covenants with trust company, so that is a covenant between purchaser 1 and purchaser 2, that ALH will:
perform and observe all the obligations of TCFS as purchaser under the Parkway Contract –
Clause 5 provides an indemnity by ALH for the benefit of trust company. Then perhaps most importantly for present purposes, 6 provides that both Oakland and ALH release and discharge trust company from, firstly:
all claims, actions, demands and proceedings which Oakland or ALHPH may have –
in respect of the subject land or the 2003 contract. Then (b) importantly:
all liability of TCFS arising out of the –
contract. That is the 2003 contract, the subject land, with effect from the date of the deed of consent.
Also importantly for present purposes are the covenants of trust company itself in clause 8. Clause 8.3 provides that for purposes there specified, one of them is clause 54.2(c) which is to be found at page 63 – 63 is the clause headed “Covenants in relation to the Development from the Vendor”. 54.2(c) is a duty on the part of Oakland to:
use its best endeavours to ensure that the Developer performs and complies with its obligations under the Development Agreement –
and clause 6.2(b) in the relationship deed, which is not in the appeal book and has no present relevance. Trust company ‑ ‑ ‑
HAYNE J: Is it possible to read the effect of clause 4.1 as ALH agrees to buy Blackacre from Oakland on the terms and conditions of the identified contract?
MR BEVAN: Yes, yes.
HAYNE J: If that is right it is a rather over‑elaboration of the problem.
MR BEVAN: Importantly for present purposes 8.3 trust company “consents to termination of the” 2003 contract. We say that will also become important in the characterisation of the deed of consent in the context of assignment and novation.
FRENCH CJ: Would you say rescission of the 2003 contract is effected by what, a combination of 6 and 8.3?
MR BEVAN: A combination of (2)(b) being performed, keeping in mind that ‑ ‑ ‑
FRENCH CJ: That is the paying back of the advance?
MR BEVAN: Its genesis is a rescission or termination – 4.1 and 4.2 which is the assumption of all the obligations of the purchaser by ALH, 6 which is the complete release of trust company from the 2003 contract, and 8.3 which is trust company’s consent to the termination of the 2003 contract.
FRENCH CJ: The operative provisions in relation to rescission as distinct from those which might be evidentiary of a characterisation would be that ‑ ‑ ‑
MR BEVAN: Yes. Well, this becomes important because, as will become apparent when I take your Honours to the judgments below, the critical point of departure between the primary judge and the Court of Appeal is express as distinct from implied novation. The Court of Appeal were not prepared to either recognise and apply novation or to give it any operation, whereas the primary judge was. It is common ground between the parties that the deed does not, in its terms, have a clause which says the 2003 contract is rescinded. We can only achieve a novation of the 2003 contract by implication arising from proper interpretation of the deed of consent, which informs the parties’ mutual intention in entering into the deed of consent, which is the approach that was adopted by Justice Gzell. Now, if I could then ‑ ‑ ‑
KIEFEL J: Well, you rely upon what Justice Windeyer said in Olsson v Dyson about tacit agreements?
MR BEVAN: We do, we do. If I could then go to ‑ ‑ ‑
KIEFEL J: That is Olsson v Dyson 120 CLR 365.
MR BEVAN: If I could then take your Honours to Justice Gzell’s judgment first at page 152? Leaving aside the introductory part, his Honour started his analysis with the Commissioner’s contentions before him which was that the deed of consent had the effect of a novation but was not a novation, and that is explained in the written submissions as not a legal novation, and his second point was the deed of termination did not terminate the deed of consent, which I said in my introduction has now fallen away. At 6 his Honour cited Sir Victor Windeyer’s statement of principle at 388 in Olsson v Dyson 120 CLR 365 at 388, paragraph 6. His Honour, critically for present purposes, recognised that, “A novation can be express or implied”, citing Vickery v Woods 85 CLR 336 at 345 and Justice Sundberg’s judgment in the Federal Court in Orica v Commissioner of Taxation.
KIEFEL J: I think it is pointed out in your written submissions that the distinction Justice Windeyer drew was that the requirement for there being an express identification of agreement of a third party taking an interest derived from Roman law but that the common law allowed it to be inferred from the intention of the parties.
MR BEVAN: That is correct, as not only Sir Victor Windeyer ‑ ‑ ‑
KIEFEL J: I think that appears at page 390 of the report.
MR BEVAN: Both Mr Starke and Lord Selborne, the Lord Chancellor in Scarf v Jardine, all recognise that novation is a Roman law doctrine imported into the common law.
KIEFEL J: I am not sure they say it is a Roman law doctrine but there was a problem with the identification of benefits for third parties in Roman law.
MR BEVAN: Yes, and the reason for that discussion by Sir Victor Windeyer was the consideration issue which is – and we have dealt with this in a number of ways in our written submissions but essentially we say the rescission of contract one is the consideration for making of contract two. Further authority for that proposition that a novation can be express or implied from the circumstances because of its importance, indeed it is the principal difference of opinion between Justice Gzell and the Court of Appeal.
KIEFEL J: Is it more accurate to say that it is not the novation that you want implied? The aspects that you require for a novation are the assumption of obligations by a new party and the release of the former party from those obligations, and importantly, the new party agreeing to both of those aspects and that gives you a discharge of the former agreement.
MR BEVAN: That is right, yes.
KIEFEL J: Now, you have got elements of that within the deed of consent and assignment. The point made by Justice Handley was that there was no express rescission. As I understand your argument, the path that you are taking is to say that as a matter of intention it can be seen that the parties were attempting to terminate the former agreement and to discharge the obligations of trust under that agreement and permit Oakland ‑ and Oakland was agreed to take on the new obligations of ALH in substitution for trust. I mean, we do not really need to talk about novation. I mean, that is the conclusion. We actually need to look at the elements, do we not, and importantly the question of and requirement of express rescission as distinct from rescission by inference?
MR BEVAN: Correct. Having outlined the relevant provisions that were said to inform a characterisation of a deed of consent, the critical findings were made by Justice Gzell at paragraphs 11 and following. At paragraph 11 – indeed, 11 to 13 were findings that the Court of Appeal squarely disagreed with – Justice Gzell said:
The intention of the parties to the Deed of Consent and Assignment is clear enough. Trust Company was to drop out and ALH was to be substituted for it. The benefits –
of the 2003 contract –
were assigned to ALH by cl 3.1. Its burdens were assumed by ALH under cl 4.2 with the consent of Oakland under cl 4.1 and cl 6.
With its burdens and benefits removed from Trust Company the Parkway Contract had no content and was extinguished.
Just pausing there for a moment ‑ ‑ ‑
KIEFEL J: Are you adopting this as a correct way to determine the question of how the tripartite agreement operated? Should you not be looking more specifically at the question of releases and where the obligations remained?
MR BEVAN: I am, I just wanted ‑ ‑ ‑
KIEFEL J: I am sorry, I am interrupting; you were giving us the background of the reasons.
MR BEVAN: Yes. Then his Honour concludes at 13:
A new contract was constituted –
Now, his Honour relied, as he has said, on 4.1, 4.2 and 6. As I have already taken your Honours to in the deed, 4.1 and 4.2 involve a complete assumption of the obligations of purchaser by ALH; 5 is the indemnity assuring trust company that it is off the hook with the benefit of indemnification from the new purchaser; in 6 is the complete release by the vendor of trust company from the 2003 contract. The 2003 contract being a bilateral contract, we say that it was a necessary conclusion that it was extinguished by virtue of that complete release of one of the parties to it and that ‑ ‑ ‑
FRENCH CJ: The indemnity in a sense throws in a somewhat confusing element because there is a complete release, is there not?
MR BEVAN: There is. We say that the 2003 contract necessarily had to be extinguished because one of the parties to it ceased to be a party to it and thereafter it served to provide the terms for a new contract for the sale of the land created on 27 June 2008 by the deed of consent.
We say that the parties’ intentions are apparent not only from the terms of that covenant, that indemnity and that release because I have already said to your Honours the recognition that if the 2003 contract was rescinded the loan for the balance of the purchase moneys had to be repaid as a condition precedent to the deed of consent, coupled with the express consent by trust company to the termination of the 2003 contract.
HAYNE J: Following execution of this what right or obligation created by the earlier contract survived or persisted? The answer you give, I understand to be, none?
MR BEVAN: That is correct. The 2003 contract, to quote Justice Gzell, was extinguished, and a new contract for sale came into existence on the same terms at the same price in respect of the same land between the same vendor and a different purchaser.
KIEFEL J: But Justice Handley, importantly, saw the vendor’s obligations to transfer as remaining under the original agreement. How do you answer that?
MR BEVAN: We say that cannot be right once the purchaser ‑ ‑ ‑
KIEFEL J: Is no longer there.
MR BEVAN: Once the promisee – the promise to transfer the land has gone, necessarily the promise to transfer that party must go too.
HAYNE J: The identification of the promise requires identification of to whom is transfer to occur.
MR BEVAN: That is right.
HAYNE J: To speak of an obligation to transfer or convey is accurate, as far as it goes, but complete it, it requires reference to transfer or convey to someone.
MR BEVAN: Correct. His Honour placed a lot of emphasis on the absence of an extinguishment or a release of the obligation in the express terms of the deed of consent of the obligation of Oakland to transfer the land to trust company.
KIEFEL J: Justice Handley seemed to approach the question more as one as to whether the original contract had been varied rather than to focus upon whether there had been a discharge of that agreement, and what might be a variation or creation of a new contract might be either the question of discharge is important to that.
MR BEVAN: It is self‑evidently that ‑ ‑ ‑
KIEFEL J: But do you not have to look for the promise, express or implied, of Oakland to transfer to the new purchaser, ALH, within what was agreed in the deed of consent and assignment?
MR BEVAN: Correct.
KIEFEL J: Is that not how you meet Justice Handley’s concerns?
MR BEVAN: It is.
FRENCH CJ: Can you find that anywhere other than in the clauses providing for assignment, 3.1, given that Oakland is a party to the deed?
MR BEVAN: Yes. It is a combination of Oakland expressly releasing trust company for all purposes.
FRENCH CJ: We are focussing here on Oakland’s obligation.
MR BEVAN: That is right. Oakland has released the promisee of the promise to transfer the land under the 2003 contract. Oakland has repaid the balance of purchase money which it holds pending a right of set off because that right of set off has gone because the concurrent mutually dependent obligation, to use the language of Foran v Wight, on the part of trust company has gone. The covenants made by ALH with trust company are made with the consent of Oakland. Oakland has its own covenant – that is 4.1 – under which it accepts the covenant from ALH to perform the obligations of purchaser under the 2003 contract.
KIEFEL J: Do you rely upon that as a form of incorporation of the terms?
MR BEVAN: We do.
KIEFEL J: Or – I should not use the word “incorporation” – that ALH and Oakland are relying upon the terms of something which will affect their future rights and obligations?
MR BEVAN: Yes.
HAYNE J: What other construction can you give to covenanting with Oakland that ALH shall perform and observe all obligations of the purchaser under the Parkway contract? I would have thought that to arrive at the conclusion Justice Handley has arrived at one needs to somehow what? Say, “Yes, I agree to buy, but ‑ ‑ ‑
KIEFEL J: No transfer.
HAYNE J: ‑ ‑ ‑ nothing is said about whether you are selling to me or you will transfer to me, I am just agreeing to buy from you”. That is an unusual construction of a commercial contract, I would have thought.
KIEFEL J: Dare I use the words “commonsense”? In a commercial sense, it would suggest that Oakland must be agreeing to transfer the property at completion.
MR BEVAN: To ALH.
KIEFEL J: Yes.
MR BEVAN: And to no one else.
FRENCH CJ: Maybe that could be inferred also or is an implication, as I mentioned earlier, of the assignment in 3.1 and 3.3, because the rights of entitlements assigned to ALH – that was their correlative – opens obligations. I mean, there is a right to a transfer, a correlative obligation to transfer. One does not make sense without the other.
MR BEVAN: That is right. Of course, this is an exercise in construing the deed of consent to ascertain its true meaning and its true intent because of the absence of express provisions which state what we say by implication are self‑evident, because what is left unsaid expressly commonsense requires one to infer.
KIEFEL J: I probably should not have encouraged you to use that word, it will get you into trouble with other of my colleagues.
HAYNE J: “On the proper construction of the document” is, I think, the phrase which should more readily trip from the lips.
KIEFEL J: Yes, I was just trying to save you from Justice Hayne before.
MR BEVAN: Just before I go to the Court of Appeal, the conclusion of Justice Gzell appears at 19 where his Honour concluded that there was a novation which is in effect. A new contract came into existence on identical terms between Oakland and ALH – identical terms to the 2003 contract. I need not bother your Honours with paragraphs 20 onwards because that has fallen away. If I can then take your Honours to page 177, which is the analysis in the Court of Appeal?
Some of the reasoning in the Court of Appeal is a little – how can I put this – well, respectfully, imprecise. If we start at 7, the deed of termination is said to have rescinded both the deed of consent and the 2003 contract, which is curious. Of course, we say it rescinded the deed of consent. Moving on to 10, their Honours note the novation finding by Justice Gzell. They set out the relevant clauses at 12.
KIEFEL J: I suppose on one approach the judgment in the Court of Appeal raises the question of what is required for rescission.
MR BEVAN: It does, and can there be an implied rescission as distinct from express.
KIEFEL J: Well, just what is required for rescission?
MR BEVAN: Now, up until paragraph 17, there is no real difference in approach between Justice Gzell and the Court of Appeal. The Court of Appeal draws a conclusion at 17 that:
The overall effect of the Deed was that the purchaser assigned its rights under the 2003 contract to –
ALH under clause 3.1 –
the vendor released the purchaser from its obligations under that contract (cl 6), and the taxpayer assumed those obligations (cl 4.1(b)).
The point of departure between Justice Gzell and the Court of Appeal occurs at 18. The first finding which is a major point of departure is:
The 2003 contract was not, in terms, rescinded –
so the Court of Appeal are saying there was no express rescission of the 2003 contract. Secondly, the Court of Appeal found that:
the vendor did not undertake any new or express obligation to transfer the hotel to the taxpayer on payment of the balance of the purchase money under the 2003 contract –
which is correct. And, thirdly:
No further or other deposit was paid.
We take issue with that because we say 3.1 and 3.2 were, in effect, a refund with a payment of a new deposit by direction. The Court of Appeal then said:
The source of the vendor’s obligation to transfer the hotel remained the 2003 contract ‑ ‑ ‑
HAYNE J: What is meant by the words, “The source of”? Yes, the text of, I can understand, but “The source of”?
MR BEVAN: Well, it must mean the repository of legal obligations on the part of the vendor.
CRENNAN J: Well, it must relate to what you described as the second point in paragraph 18.
MR BEVAN: That is right. And, indeed, 28, that is repeated in the context that your Honour Justice Crennan has just said. What is critical is that the 2003 contract was not rescinded and was the only source of the vendor’s obligation to convey. What the Court of Appeal have done is to, in effect, find that in the absence of, firstly, an express rescission and, secondly, an express assumption or statement of the new obligation to convey to ALH there can have been no new contract, there can have been no novation of the 2003 contract. That really is what the Court of Appeal’s reasoning in departing from the conclusion of Justice Gzell comes down to.
It is curious because it is accepted at 26 that having analysed quite appropriately from 21 to 25 the authorities on what constitutes a novation, starting with the words:
Given these principles –
the Court of Appeal found that “the fact that” ALH –
assumed “the obligations” of the purchaser under the 2003 contract and the vendor released the purchaser from “all liability” did not prevent the Deed operating as an assignment –
Now, we say, with great respect, that is inconsistent with the principles that have been analysed because the mutual intention of the parties was that trust company drop out and ALH be substituted. And, indeed, that was accepted back at paragraph 17 on page 181 in what I characterise as the last paragraph in the Court of Appeal judgment before there was the departure of reasoning from Justice Gzell.
The second finding there was the vendor released the purchaser from its obligations under the contract citing clause 6 of the deed. Now, we submit that it is very difficult to see how the principles of novation analysed at 21 to 26 are not enlivened here where you get the concurrent assumption of all of the obligations of purchaser 1 by purchaser 2, coupled with the complete release of purchaser two from what was a bilateral contract, and that becomes stark when one considers the requirements for an assignment. An assignment requires the 2003 contract to remain in existence because the assignor continues to owe its obligations to the other party. That is, trust company must continue to owe its obligations to Oakland as vendor and the assignee must rely on the assignor to insist on performance by the ‑ ‑ ‑
FRENCH CJ: Ordinarily, the assignment in itself – if you just have an assignment of benefits the obligation on Oakland would still be found in the 2003 contract. Your contention, as I understand it, is that when you look at the assignment in conjunction with the releases then the only way it works is if the obligations of Oakland arise under this contract.
MR BEVAN: Correct.
KIEFEL J: And importantly, what was intended was something more than a mere assignment of the benefits of the contract because that could have been effected without Oakland being a party to it. The fact that Oakland was a party indicates that you were looking at something more than an assignment.
MR BEVAN: Yes, for an assignment Oakland’s consent was otiose.
KIEFEL J: That is right, yes.
MR BEVAN: But for novation it was critical. At paragraphs 29 and 30 there is the unequivocal rejection of the rationale for novation by the primary judge where his reasoning is rejected, and that rejection is informed by 26. Our contention is that the refusal to recognise the bringing or the creation of a new contract under the deed of consent for the sale of the land is because of a refusal to recognise the – whether one calls it the creation of a new contract or novation of the 2003 contract – by implication from the surrounding circumstances, and having regard to the mutual intention of the parties discerned from the proper interpretation of the deed of consent.
FRENCH CJ: To what extent do you disagree with what appears at paragraph 37? Put to one side the label. That is, under the deed:
the vendor’s obligation flowed from the assignment and the taxpayer’s “concurrent and mutually dependent obligations” flowed from the Deed.
The assignment, of course, was part of the deed.
MR BEVAN: It was – 37 is curious in that ‑ ‑ ‑
KIEFEL J: It seems to be accepting that the vendor’s obligations arose under the deed.
MR BEVAN: Yes. Well, firstly, it is curious for the reason your Honour Justice Kiefel gave, but secondly, it is curious in that, as your Honour the Chief Justice observes, it treats the assignment as a separate transaction to the deed.
If the assignment occurs under the deed one then must ask what is the real source of the flow of the vendor’s obligation which is different to the flow of the concurrent and mutually dependent obligations? That is the term of art that comes from Foran v Wight. Paragraph 37 I think is saying that because there is no express rescission and because there is no express promise by Oakland to transfer the land to ALH there is an assignment of the benefit of the obligation – that is trust company’s right to a transfer – that has been assigned to ALH, but ALH’s concurrent mutually dependent obligations to pay for the land flows from the deed. Now, of course, the deed must mean something different to the assignment. Paragraph 38 then informs 37, we would say, where it says:
The Deed may have effected a novation of the “concurrent and mutually dependent obligations.” At the same time it effected an assignment of the benefit of the vendor’s obligation to transfer the hotel on payment of the balance of purchase money.
Now, 38 really gives meaning to 37, and 38 is a recognition, we would say, that at one level this cannot be an outright assignment, and that appears to be a recognition that the first purchaser has gone, for all purposes.
KIEFEL J: His Honour appears to give little weight to the fact that Oakland was a party to the deed of consent and assignment.
MR BEVAN: I know.
KIEFEL J: The search in the cases involving novation such as Olsson v Dyson is for the promise from, usually, the debtor to pay. It is much easier to find such a promise when there is a tripartite agreement to which that person becomes obliged and his Honour, with respect, appears to have dealt with matters as if they were in separate compartments rather than pulling them together to see what intention could be inferred from the combination of the provisions.
MR BEVAN: Correct. Indeed, Sir Victor Windeyer in Olsson, as do a number of the other judges in other cases we have cited, point out that in the case of a bilateral contract the assignment is bilateral but the novation must always be tripartite because the novated contract must have as parties to it both parties to the original bilateral contract plus the new party who has been substituted. We would say that that conclusion by Justice Handley to the effect that Oakland’s consent was of no great moment is doctrinally unsound.
CRENNAN J: Do you say the second paragraph of paragraph 38 of his Honour’s reasons is incorrect?
MR BEVAN: We do. We say that 39 is equally incorrect. We say it cannot be correct to say that the 2003 contract continued to determine the date in consideration for the vendor’s disposal. Oakland cannot possibly have continued to be obligated to transfer the land to trust company after the deed of consent because of the complete and unequivocal release of trust company. By virtue of that release, the 2003 contract had to come to an end, and what follows in that paragraph really does not assist that or otherwise support that conclusion.
FRENCH CJ: The date for settlement of the 2003 contract had been tied to the development approvals and so forth, had they not, and all that had, sort of, fallen in a heap?
MR BEVAN: That is correct.
KIEFEL J: You would say, would you, that the terms for the date and consideration for the vendor’s disposal are contained in the document which was the former 2003 contract?
MR BEVAN: As varied by the deed.
KIEFEL J: Well, it is not varied by the deed.
MR BEVAN: In the sense that the deed substituted ‑ ‑ ‑
KIEFEL J: It cannot be varied – there is a difference between variation and discharge. If it is rescinded, it is not varied. The parties are still having regard to some of the terms in that it is a document; it is not an existing contract any more.
MR BEVAN: That is correct. The terms are imported into the new contract.
CRENNAN J: I expect that you would characterise the 2,060,389 referred to in paragraph 39 as, I expect, consideration for rescission – implied rescission.
MR BEVAN: Correct, which was to be expected commercially. If trust company had the right to complete the contract and take the land and a new purchaser came in and wanted it and ultimately pay the same price for it, it was at liberty to extract whatever it considered it could extract to rescind that contract and that is exactly what it did. We say Justice Gzell’s conclusion that that was what they intended, that trust company would drop out and ALH stepped in, that was the price for that rescission.
FRENCH CJ: ALH assumed the obligation of TCFS to pay the consideration under the 2003 contract but the date for the payment of that consideration is to be derived from what?
MR BEVAN: Correct. Well, the date in the 2003 contract remained operative. It was to be completed when the development was completed.
FRENCH CJ: That was still tied to the development prognosis or future ‑ ‑ ‑
MR BEVAN: Yes. Things were to happen and ultimately, because that was not achievable ‑ ‑ ‑
FRENCH CJ: Then you had the termination.
MR BEVAN: ‑ ‑ ‑ they terminated that under the deed of termination, made a new contract and completed a little bit later under the third contract on which duty was borne. The Court of Appeal, at paragraph 56, makes what we say is probably the ratio of a decision:
The cases and text writers do not appear to have considered the juristic nature of a hybrid contract which assigns the benefit of an executory contract, and makes the assignee solely responsible for “the concurrent and mutually dependent obligations.”
Just pausing there for the moment, one of the problems which the Court of Appeal has is that historically it has only been possible for a party to a contract to assign the contract when that party has executed its obligations under it. A statement of principle to that effect was made by the Master of the Rolls in Tolhurst v Associated Portland Cement Manufacturers [1902] 2 KB 660 at 668 to 669.
The problem the Court of Appeal had with its assignment analysis is that as at the date of the deed of consent the 2003 contract is executory on both sides. No one has paid for the land and no one has conveyed the land because they are still waiting for the development conditions to be satisfied. That, as we would suggest, created something of a doctrinal problem because the Court of Appeal recognised there is difficulty in recognising an assignment by an assignor – in this case trust company – which has wholly executory obligations under the contract which is assigning the benefit of. Ordinarily you cannot assign the benefit of something until you are given the consideration for it, and that had not happened here. That explains the next statement by the Court of Appeal at 56:
Uninstructed by direct authority I would have characterised the Deed as an assignment of the benefit of the 2003 contract as varied. It was not a novation of the whole contract because it did not impose a new obligation on the vendor to transfer the hotel and it varied the old contract, without rescinding it.
Again, this comes back to the absence of an express rescission and an expression statement of an obligation by Oakland to convey to ALH. If I could then ‑ ‑ ‑
HAYNE J: But it also masks the statutory question, namely, whether there was a transaction capable or properly described as an agreement for sale or transfer of dutiable property.
MR BEVAN: Correct, your Honour. The conclusions here at 84, and this becomes relevant to the status of this alternative hybrid tripartite contract analysis which was discussed back at 37 and 38, on page 193 of the appeal book at the bottom of the page, paragraph 84, the Court of Appeal said – and this is Justice Handley –
I would prefer to characterise it as an assignment of the benefit of the 2003 contract to a new purchaser.
Now, we would say that that is the ratio of the Court of Appeal’s decision, that it ultimately plumbs for an outright assignment of the benefit of the 2003 contract between the Trust Company as assignor and OH as assignee and then the alternative analysis is at 85:
Even if, contrary to my view, there was a novation –
and just pausing there for the moment, that is the recognition of the novation back at 38 on page 184. That is the recognition that:
The deed may have effected a novation of the “concurrent and mutually dependent obligations”.
So at 85:
Even if, contrary to my view, there was a novation, it was limited to “the concurrent and mutually dependent obligations”. The benefit of the vendor’s obligation was not novated, but assigned.
We would say in respect of that alternative analysis, you cannot have a novation and an assignment in the one transaction because the novation of its very essence requires a rescission of the contract which is the subject matter of the assignment. They just simply cannot co‑exist.
FRENCH CJ: But you rest your characterisation of this deed as an agreement for the sale of the relevant land upon the combined effect, do you not, of the assignments within it and the releases?
MR BEVAN: Correct, your Honour.
FRENCH CJ: So it is a little too broad to say that an assignment – I mean, what you are really saying is there is a novation of which an assignment is a component, but you characterise this as a novation by looking at all of the provisions and their combined effect.
MR BEVAN: Correct. That explains why – I cannot remember whether it is Olsson v Dyson or - I think it is Olsson v Dyson where Sir Victor Windeyer said that the ultimate result of an assignment and novation are often very similar in the sense that the novation involves an assignment of the rights under the first contract, but the correct terminology is really a rescission of those rights and the vesting of new rights under the new contract which the novation brings into existence so that the use of the term “assignment” in a novation, we would say, is something of a loose use of language because an assignment is actually a transfer of an existing right, whereas a novation is a rescission of the rights and the creation and vesting of new rights in the third party.
We have to live with the assignment language here because the draftsman of the deed of consent has used “assignment” in the context of what we contend is a rescission of the first contract and the creation of a new contract. We say that new contract which is a contract dated 27 June 2008 which is on the same terms as the 2003 contract but with a new purchaser is an agreement for sale of land within the meaning of 8(1)(b)(i) of the Duties Act and it was terminated on 24 October 2008 by the deed of termination and became the subject of an entitlement or refund under section 50 which was enlivened by the terms of the deed of termination as interpreted by the primary judge.
CRENNAN J: If there was a novation and duty payable under section 8(1)(b)(i) because it was possible to characterise the deed as “an agreement for the sale or transfer of dutiable property”, would the ad valorem duty have been greater than that that was imposed by the reference to the consideration passing between the first purchaser and the second purchaser?
MR BEVAN: Yes, the consideration would have been the 2003 contract price plus that additional $2 million because 21 of the Act provides that you pay duty on:
the greater of:
(a) the consideration –
or any “dutiable value” so that we would be bound to pay duty not only on the $6 million value of the land but the $2 million we paid to become substituted as the purchaser so we would have an $8 million liability.
CRENNAN J: Well, closer to 9, on the figures.
MR BEVAN: A liability to pay a duty on $9 million and that would then be the subject of a deed of termination in October 2008 which would enliven section 50 and that would come back to us because we then go into a new contract which is the contract we entered into on the same date as the deed of termination on which we pay duty and there is no issue, but let there be no doubt that the ‑ ‑ ‑
CRENNAN J: In practical terms, the two sets of duty you have paid would be the same in total as if the duty on the deed of assignment and consent had been assessed by reference, not only to the purchase price under the November 2003 agreement, but also by reference to the consideration passing between the two purchasers.
MR BEVAN: Correct. Can I just correct one thing your Honour said – perhaps we are at cross‑purposes. Just going back to the Commissioner’s outcome schedule, we would say the consideration that we are liable for on the deed of consent and which comes back under section 50 is actually 8.4 because if you treat it as 9 – if you add the 6.3 and the 2.7 you are double counting deposit because the 2.7 is wrong, it should actually be 2.06.
CRENNAN J: Be .06 or whatever it was.
MR BEVAN: Yes.
CRENNAN J: So that would be the double counting involved, the deposit?
MR BEVAN: Yes, and we would not have to pay two lots of duty just because we were reimbursed purchase and one for the deposit. It would be 6.386, plus 2.06, so it is about 8.4 million.
CRENNAN J: Thank you.
MR BEVAN: That is the appellant’s submissions.
FRENCH CJ: Thank you, Mr Bevan. Yes, Mr Leggat.
MR LEGGAT: Your Honours, turning to the statutory question, can I take your Honours to section 8 of the Duties Act 1997 (NSW).
HAYNE J: Do you accept that that is where we must begin?
MR LEGGAT: Yes, your Honour. A relevant question can be formulated in this manner. Does the deed of consent and assignment meet the statutory description, “a transfer of dutiable property”? The respondent’s answer to that question is yes because what is being transferred is an interest in land being an assignment of the purchaser’s right under an existing contract for sale of land. So there is a transfer of dutiable property being transfer of an interest in land, being an assignment of the purchaser’s right under an existing contract.
Now, we know that that is a correct characterisation because of the definition in section 11(1) of “dutiable property”. Can I take your Honours to section 11, “What is “dutiable property?” As your Honours will recognise “dutiable property” is the expression that is used in section 8(1)(a). If we are looking at what is a transfer of dutiable property, we ask the question, what is dutiable property? That takes us to section 11. Section 11(1):
Dutiable property is any of the following:
Relevantly, for present purposes, if I can take your Honours to section 11(1)(l):
an interest in any dutiable property referred to in the preceding paragraphs of this section -
with the exception of, and the exceptions are not relevant. The interest in dutiable property referred to in the preceding paragraph takes us back to the definition in section 11(1)(a) being “land in New South Wales”. So where there is transfer of an interest in land being here, the purchaser’s rights, an assignment of the purchaser’s rights under the 2003 contract, then there is dutiable property and the deed of consent and assignment is transferring dutiable property.
Now, that is the way the respondent identified the liability for stamp duty of the deed of consent and assignment. The reason why there is not an agreement for the sale or transfer of dutiable property, that is, why the deed of consent and assignment is not a section 8(1)(b) transaction is because for there to be an agreement for the sale of transfer of dutiable property created by the deed of consent and assignment, there need to be two components in the deed.
The first was an obligation on the vendor to sell or transfer the dutiable property, the hotel, to the second purchaser, to ALH. The second component is that there needed to be an extinguishment of the 2003 contract. Now, looking at the first proposition, that is does one find in the deed of consent and assignment a covenant by the vendor to transfer the hotel to the second purchaser, the answer is no.
What one sees in clause 3 is whether the topic of the transfer of the hotel is dealt with and it is dealt with in terms of the assignment of purchaser 1’s interest under the contract is being assigned to purchaser 2. That is the highest point that the taxpayer can point to, to identify a sale of dutiable property, but it falls short.
HAYNE J: Why not 4.1(b)?
MR LEGGAT: Your Honour, 4.1(b) is a covenant whereby purchaser 2 promises to pay. It is a covenant to pay money. It is not a covenant by the vendor to convey the hotel upon the payment of the price. It is contained in the 2003 contract. It is not there in clause 4.
HAYNE J: Clause 4.1(b) obliges the purchaser to:
perform and observe all obligations of the Purchaser –
under the contract.
MR LEGGAT: Yes, your Honour. It neither creates nor recognises an obligation on the vendor to transfer the hotel.
KIEFEL J: What do you infer from the fact that Oakland is a party to clause 4.1(b) and to the release of trust under clause 6?
MR LEGGAT: Yes, that, of course, was very important commercially for Oakland to ‑ ‑ ‑
KIEFEL J: Yes, but as a matter of contract Oakland is agreeing to these things. So what do we infer that Oakland is saying to ALH and to Trust?
MR LEGGAT: Oakland is saying in clause 3 and in clause 4 that upon the assignment from purchaser 1 to purchaser 2 of purchaser 1’s interest under the 2003 contract, the payment by purchaser 2 rather than purchaser 1 is something that Oakland is prepared to accept.
KIEFEL J: What about the release under clause 6? Oakland is releasing Trust and it is releasing Trust in light of ALH under clause 4.1(b), assuming the obligations that Trust previously had. Is that not rather telling?
MR LEGGAT: No, your Honour, with respect. It is telling commercially, but legally it says nothing contrary to the proposition that the vendor’s obligation to convey the property is still under the 2003 contract.
HAYNE J: Let me explore that with you a bit. That is acceptance, is it, of the proposition that after execution of the deed of consent and assignment on 27 June, Oakland was bound by contract on tender of the purchase price by ALH to convey Blackacre to ALH? Is that right?
MR LEGGAT: Your Honour, the answer to that is yes, but for this reason. Your Honours will recall that in Vickery v Woods, Mr Vickery was a person who brought a company into existence to buy real property and at the date when Mr Vickery entered into the contract his company had not yet come into existence. Now, Mr Vickery said that the clear intention of the parties was always that the vendor would convey to his company and not to him.
Justice Dixon identified that an important feature of a contract for sale of land was that once the vendor has received the purchase price the vendor is under an obligation to convey. The question to whom the obligation is – that is, who is it that is entitled to the conveyance of the property – is a matter between those who have provided the purchase price. Justice Dixon, on page 348 in the volume that has been provided to your Honours ‑ ‑ ‑
FRENCH CJ: It is (1952) 85 CLR.
MR LEGGAT: Yes, if it please your Honours. Your Honour, at 343, about halfway down the page ‑ ‑ ‑
HAYNE J: On payment would be bound to convey the land to the company when formed, if so directed by the purchaser.
MR LEGGAT: Yes. The passage I was seeking to take your Honours to was this:
“A vendor’s obligation is to execute a conveyance of the land sold to the purchaser or as he shall direct ” . . . and doubtless the appellant could, therefore, in any case, have required the vendors to execute transfers in favour of the company.
Your Honour, that is a very important passage here because what the deed of consent and assignment is doing, in effect, is providing a direction to the vendor that the interest under the 2003 contract will, as between purchaser 1 and purchaser 2, result in purchaser 2 acquiring the property.
HAYNE J: The obligation of the vendor is owed to the purchaser, is it not?
MR LEGGAT: The obligation of the vendor is owed to the party named as purchaser in the document which contains the vendor’s promise to convey. In our situation, the 2003 contract was the contract which contained the vendor’s promise to convey the hotel ‑ ‑ ‑
HAYNE J: There is no doubt that is where it is written down. We all understand that is where it is written down. After the execution of the deed of consent and assignment, to whom was Oakland obliged in respect of the transfer of land on tender of price?
MR LEGGAT: Purchaser 1 because ‑ ‑ ‑
HAYNE J: Despite release, release and discharge of purchaser 1.
MR LEGGAT: Yes, it works this way, your Honour. It is like a call contract. If a purchaser wants to purchase shares in the Commonwealth Bank at $50, the purchaser can buy those shares outright for $50 or can enter into a call contract pursuant to which the vendor of the shares agrees that upon tender of the purchase price the shares will be transferred to the purchaser, but there is no obligation on the purchaser to pay the money, and that is the position that purchaser 1 was in following the deed of consent and assignment.
KIEFEL J: If you are right and the obligation is still owed to Trust under the original contract, you are saying that Trust could sue for specific performance – could sue for performance of the contract?
MR LEGGAT: Yes, it could. Now, of course, purchaser two would be a necessary party in that suit and purchaser two would seek relief.
KIEFEL J: We are not sure you quite get to that point. How do you deal with the release? Oakland has released Trust so how can Trust sue for performance of the agreement?
MR LEGGAT: Because no one has released the vendor from its obligations to purchaser 1, and the reason why that occurred ‑ ‑ ‑
KIEFEL J: You mean Oakland releases Trust but it still remains obliged to Trust?
MR LEGGAT: Yes, indeed, like ‑ ‑ ‑
KIEFEL J: It is a very unusual situation.
MR LEGGAT: No, with respect. It is a commonplace commercial agreement in terms of a core contract, that what happened is purchaser 1 no longer has an obligation to the vendor to come up with the purchase price but if the purchase price is provided then the vendor has an obligation to transfer the hotel, and as we know from Vickery v Woods the transferee is going to be purchaser two because that is the arrangement between purchaser 1 and purchaser 2.
CRENNAN J: That has the effect, surely, that the vendor’s obligations are assigned.
MR LEGGAT: No, no, with respect. There is – and I need to ‑ ‑ ‑
CRENNAN J: The benefit of them I implicitly meant ‑ ‑ ‑
MR LEGGAT: The benefit was assigned, yes. The benefit was assigned but not the obligations, and that is the crucial difference. Clearly, the obligations could not have been assigned and they were not.
FRENCH CJ: Oakland is a party to a contract under which the rights of Trust are assigned to ALH. The rights of Trust include the right to acquire a transfer of the land upon tender of the purchase price. Oakland is a party to that assignment. Why can one not say in that context that Oakland under the deed has assumed an obligation correlative to the assigned right to transfer to ALH upon tender of the purchase price?
MR LEGGAT: One could say that, but that does not answer, with respect, the question which precedes that, which is what is the nature of that obligation? And the nature of the obligation that the vendor has is to transfer the hotel that obligation arising under the 2003 contract.
KIEFEL J: Why is not the effect of the combination of clause 4.1 and 6 of the deed of consent and assignment to substitute ALH for trust, so far as Oakland is concerned, to effect a legal substitution?
MR LEGGAT: It has that commercial effect, but it does not have the legal effect.
KIEFEL J: Why not?
MR LEGGAT: It does not have the legal effect ‑ ‑ ‑
KIEFEL J: Why not because ALH is undertaking, with Oakland’s agreement, to perform under the agreement and Oakland is agreeing to release Trust because ALH has agreed to take Trust’s place?
MR LEGGAT: Yes, but it falls short ‑ ‑ ‑
KIEFEL J: That looks awfully like a substitution.
MR LEGGAT: No, with respect. There is no relevant substitution of the vendor’s promise to convey to purchaser two. As between purchaser 1 and purchaser two there has been an arrangement whereby purchaser 2 will provide the purchase money ‑ ‑ ‑
KIEFEL J: If there is a substitution it follows ‑ ‑ ‑
CRENNAN J: But it is not just to provide the – I am sorry I am cutting across Justice Kiefel.
KIEFEL J: If there is a substitution it follows that Oakland must be agreeing to transfer to the substituted purchaser.
MR LEGGAT: No, with respect.
KIEFEL J: Why not?
MR LEGGAT: Because of the example of the call option that purchaser 1 is being released ‑ ‑ ‑
KIEFEL J: Let me just stay with the terms of this agreement instead of talking about another commercial document.
MR LEGGAT: Very well. The release of purchaser 1 and the promise by purchaser 2 to pay the purchase price says nothing about the continued existence or the rescission of the vendor’s promise to convey under the 2003 contract.
KIEFEL J: Well, I know you keep saying that, but I do not think you are coming to grips with the terms of the deed of assignment.
MR LEGGAT: With respect, your Honour ‑ ‑ ‑
CRENNAN J: And not really giving proper consideration to the fact that the benefit of the vendor’s obligations has been assigned.
MR LEGGAT: Yes, indeed.
CRENNAN J: I would have thought on your own case.
MR LEGGAT: It is one thing to assign the benefit, but the obligation of the vendor has not changed from under the 2003 contract. Your Honours, I am starting to repeat myself. I identified there being two components which provide an answer to the section 8(1)(b) point. Your Honours, I identified two components. The first was that there was, to use the Court of Appeal’s language, the sole source of the vendor’s obligation to convey the hotel was in the 2003 contract – that is the first point. Now, I move to a second point, which is there was no rescission of the 2003 contract. For the statutory question to be answered in favour of the appellant, the appellant needs to satisfy your Honours of both points, that is, that there was also a rescission.
KIEFEL J: Sorry to interrupt you, I know that rescission is given various meanings depending upon the context in the contract in which it is used, but in this context what does rescission require? What is required for there to be rescission?
MR LEGGAT: Your Honour, it requires the extinguishment of the vendor’s obligation to convey the hotel under the 2003 contract.
KIEFEL J: And the absolution of the purchaser, the original purchaser, from future obligations under the agreement?
MR LEGGAT: Yes, and that has occurred, so that is taken ‑ ‑ ‑
KIEFEL J: We know that that has happened, do we not?
MR LEGGAT: Yes, indeed, that is the first part, that is the problem.
KIEFEL J: That is what Justice Handley acknowledged and he saw that as a difficulty because his Honour acknowledged that the deed of consent and assignment was something more than an assignment because it had discharged trust as purchaser from its obligations under the original agreement. So, for rescission ‑ you only get back to your first point – for rescission, you only need to deal with whether or not the vendor’s obligations to Trust have been discharged and in their place the vendor has taken on an obligation to the purchaser, namely ALH, who has stepped in in place of Trust, and if that has occurred you have got a rescission, have you not?
MR LEGGAT: Your Honour, if I might approach it in this manner? If one looks for terms in the deed of consent evincing an intention to rescind the 2003 contract, there are at least three fundamental problems. The first is that the deposit under the 2003 contract was under the deed, expressly kept, in the hands of the vendor. There was no, under the deed, repayment of the deposit and a fresh deposit paid.
KIEFEL J: ALH paid Trust for it. It reimbursed Trust for what it had paid, so it stood in Trust’s shoes in relation to the deposit.
MR LEGGAT: That may have been a convenient shorthand, commercial way for the parties to deal with that.
KIEFEL J: 3.1(a), what was called the assignment to ALH of Trust rights and interest, are in consideration, inter alia, of ALH paying to Trust by way of reimbursement of the deposit paid by Trust that sum.
MR LEGGAT: Yes, and that is very important because what that meant was that the deposit that was held under the 2003 contract was available to be paid to purchaser 2 in the event that the 2003 contract did not proceed, that there is no payment of a deposit under the deed of consent.
HAYNE J: There is no movement of funds, but really, that is all you are saying.
MR LEGGAT: No, your Honour, it is not a point about movement of funds, it is a point about contractual obligation for there to be ‑ ‑ ‑
HAYNE J: The first point is that the deposit was kept with the vendor. You said you had three points, I think.
MR LEGGAT: The first point, deposit is kept with the vendor. The second is that there is no release of the vendor in clause 6 or anywhere else in the deed of consent.
KIEFEL J: At the sake of interrupting you, the release there would only be necessary with respect to its obligations to Trust.
MR LEGGAT: Yes, yes, indeed. Finally – and this is a slightly rolled up proposition – in our submissions in paragraphs 20 to 27, we work our way through each of the provisions in the deed of consent and assignment and look for whether those covenants are consistent with an intention to keep the 2003 contract on foot, or are consistent with there being an intent to novate the 2003 contract and to create a fresh agreement, in particular, one containing the vendor’s obligation to convey. When one works through the analysis of each and every provision as we have then the submission is that the creation of the new obligations on the second purchaser and the extinguishment of the first purchase obligations, do not give rise to a conclusion that the 2003 contract was to be rescinded.
HAYNE J: The bottom line of the submission is, is it not, that the only party obliged to the vendor was ALH and the only party that Oakland was obliged to was Trust? Is that the position at which we arrive?
MR LEGGAT: Yes, it is, your Honour.
HAYNE J: It is a remarkable commercial result.
MR LEGGAT: Well, your Honour, with respect, Justice Gzell would certainly agree with that, but the three justices of the Court of Appeal did not, with respect, see anything remarkable in that. In my attempt to point out the analogous situation with a call contract whereby, to use the language of Mr Bailey, the academic writer, the vendor was still in the hook to purchaser 1.
KIEFEL J: Well, perhaps, if what Justice Hayne has pointed out brings to mind, perhaps more directly than your example, what Justice Windeyer said in Olsson v Dyson 120 CLR at 390, that to overcome the problem in Roman law, the original problem, Justinian allowed an express declaration by the parties of the making of a new contract and the extinguishment of the prior obligation.
MR LEGGAT: Yes.
KIEFEL J: Justice Windeyer’s point is that the common law – our common law – does not require an express declaration and is satisfied, his Honour says:
by a tacit agreement to extinguish the former obligation, and this is inferred when an inconsistent obligation is by agreement substituted.
MR LEGGAT: Yes.
KIEFEL J: And, the inconsistent obligation here would be that ALH is now to assume the role of purchaser.
MR LEGGAT: The appeal ought not be determined on the question of whether there is an inconsistent obligation or not, but I will address that, with respect. The obligation is not inconsistent.
KIEFEL J: It is inconsistent with the first contract. The obligation is no longer met by Trust. The obligation, by agreement with Oakland, is to be met by ALH performing the obligations under an agreement for purchase.
MR LEGGAT: Yes. That is in the context of the parties choosing to keep the 2003 contract on foot. Your Honour, I fear I am repeating the proposition that your Honours are clearly well on top of.
KIEFEL J: Yes, perhaps we both are.
FRENCH CJ: Incidentally, just coming back to the very beginning of your submissions – I noticed there was no analysis, I do not think, of the concept of dutiable property under section 11 in the judgment then.
MR LEGGAT: No, that is so.
FRENCH CJ: And, indeed, at 86 the deed is characterised as transferring the benefit of the 2003 contract which is there said to be the dutiable property.
MR LEGGAT: Yes.
FRENCH CJ: But you say that that just equates to an interest in land in this setting?
MR LEGGAT: Indeed, your Honour, yes.
CRENNAN J: As I understand it from Mr Bevan, the sum of duty assessed in relation to the deed of consent and assignment was assessed by reference to section 8(1)(a) in Chapter 2. Is that correct?
MR LEGGAT: Yes, that is so.
CRENNAN J: Do you agree with Mr Bevan that if he is right and the deed of consent and assignment should have been assessed for duty under section 8(1)(b)(i), if one leaves aside double accounting of the deposit, the sum would have been of the order of $8.4 million?
MR LEGGAT: Yes. This observation perhaps needs to be made. When one is looking at the law in relation to novation its heritage is very important, that is, it arose out of debtor/creditor contracts where there is one simple obligation on one party and that is to repay the debt. So when one is talking about novating, as almost all of the early cases are, the language and the legal concepts that are being used are being expressed in a context where there is one obligor and that obligor has a simple obligation to pay money.
Where one is dealing with a contract for sale of land, as we are here, my learned friend described there being executory obligations on both parties, that is, there are – putting it another way – two obligors. The vendor has obligations as an obligor and the purchaser has obligations as an obligor.
That difference needs to be kept in mind when one is looking at an intention to extinguish a contract. It is one thing to find an intention to extinguish a simple debt contract by the substitution of a party. Where there are three parties involved and there are at least two obligors or, putting it the other way, that the vendor is an obligor, then one needs to, with respect, dig slightly more deeply to resolve the question of whether or not the parties intended for both obligors to be released.
Here it is clear that the first purchaser was to be released but, in our respectful submission – this is what seemed to be important to the Court of Appeal – the obligations of the other obligor were – the indicia pointed towards an intention to keep those obligations on foot, for the reasons that I have identified.
FRENCH CJ: Can I just ask this? If it be right that the assignment to which Oakland is a party under the deed in clause 3, the assignment of rights under the contract to ALH - and of course its assumption of obligations under the contract to ALH carries with it the correlative assumption by Oakland as a party to the contract, not simply someone notified of an assignment, but as a party to the contract – to make a transfer so that those rights can be enjoyed, otherwise they are nonsensical, does it matter or is it necessary to go into any analysis or exploration of the question whether its obligation under the 2003 contract has formally been extinguished? The real question must be whether the deed itself creates an obligation on the part of Oakland to transfer to ALH, not whether the previous agreement has been extinguished in that respect.
MR LEGGAT: The judgment of this Court in Vickery v Woods and in Olsson v Dyson appears to support the proposition that there needs to be two components that have occurred, the first being the creation of the fresh obligation and the second being an extinguishment of the first. It does not seem ‑ ‑ ‑
FRENCH CJ: We are asking simply what happened in this case. What was the effect of the deed in this case?
MR LEGGAT: The question may be what did the parties intend to be the effect. With respect, the question as to whether the parties intended the 2003 contract to be rescinded is not determined simply by imputing an obligation upon the vendor to transfer to the second purchaser.
FRENCH CJ: Once one finds an obligation on the part of the vendor to transfer under the deed, then you have all that is necessary, have you not, to characterise the deed as an agreement for the sale of dutiable property?
MR LEGGAT: Your Honour, I would need to concede that. At that stage, however, one probably still has a transaction that is properly characterised under section 8(1)(a) also because at that stage there is an
assignment of the purchaser’s interest in the property. It is at the rescission stage where one gets to determine which of those two potential transactions have actually occurred. In the absence of the rescission of the assignment, then section 8(1)(a) would make the transaction liable for duty under that head. May it please the Court.
FRENCH CJ: Thank you, Mr Leggat. Yes, Mr Bevan?
MR BEVAN: Just two points, your Honours. In respect of the contention that there is no express release of the vendor in clause 6 or anywhere else in the deed, we would say in response that the express release of the promisee of the promise to convey the land, that is the express release of Trust Company in clause 6 renders any express release of Oakland as promisor otiose.
The only other thing we wish to say is, in respect of Vickery v Woods. In Vickery v Woods at page 345 reliance was placed on the statement:
The fact is that the transaction took the course which the contract entered into by the appellant contemplated and the company paid the purchase money and took the transfer because that is what the parties to the contract intended.
What is important is what is said earlier on that page by Sir Owen Dixon when he said –
Rescission and novation ultimately depend on intention, and here none existed in fact and nothing was done from which such an intention must necessarily be implied.
That is quite distinguishable from the facts in this case, as found by Justice Gzell in paragraphs 11 and 12 where he said the intention of the parties was quite apparent from the terms of the deed of consent and that intention was to let Trust Company off the hook and to substitute ALH as the new purchaser for land under a contract created by the parties entering into a deed of consent. If your Honours please.
FRENCH CJ: Thank you, Mr Bevan. The Court will reserve its decision. The Court adjourns until 10 o’clock tomorrow morning.
AT 12.28 PM THE MATTER WAS ADJOURNED
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