ALH Group Property Holdings Pty Limited v Chief Commissioner of State Revenue

[2011] HCATrans 215

[2011] HCATrans 215

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Sydney  No S128 of 2011

B e t w e e n -

ALH GROUP PROPERTY HOLDINGS PTY LIMITED ACN 114 682 969

Applicant

and

CHIEF COMMISSIONER OF STATE REVENUE

Respondent

Application for special leave to appeal

FRENCH CJ
KIEFEL J

TRANSCRIPT OF PROCEEDINGS

AT SYDNEY ON FRIDAY, 12 AUGUST 2011, AT 12.12 PM

Copyright in the High Court of Australia

MR C.J. BEVAN:   If the Court pleases, I appear with my learned friend, MR D. BARLIN, for the applicant.  (instructed by JDK Legal)

MR C.W.J. LEGGAT, SC:   If it please the Court, I appear with my learned friend, MR M.L. ROBERTSON, for the respondent.  (instructed by Crown Solicitor (NSW))

FRENCH CJ:   Thank you.  Mr Bevan, the special leave points seem to be buried under a plethora of appeal grounds which are argumentative in character.

MR BEVAN:   I can say that essentially the point is the novation point.  I was not in the Court of Appeal, but since we drafted the paper work in this matter I have found a concession made in the Court of Appeal which overcomes that drafting problem with the deed of termination in which the Commissioner conceded that, I think, to use the language of Justice Handley, there was a demonstratio falsa and that subject to the deed of consent operating as a deed of novation, as a novation the deed of termination effectively terminated the deed of consent.  So that we essentially come down to one proposition which is ‑ ‑ ‑

FRENCH CJ:   In other words, you get the benefit of section 50 if you have the characterisation right?

MR BEVAN:  Yes, but the stamp duty point flows from the ‑ ‑ ‑

FRENCH CJ:   We are not worried about 8 and 22?

MR BEVAN:   No.  Having looked at it more closely, that will all fall away.  It essentially becomes a question (a) was the deed of consent a novation as distinct from either an assignment or a half assignment and half novation keeping in mind the Court of Appeal have treated it as a novation of burden and an assignment of benefits, and the second question would be, keeping in mind the Court of Appeal conceded that it decided and instructed by authority, does the common law in Australia recognise this new concept of a hybrid tripartite contract in which the burden is novated but the benefits are assigned, leading the taxpayer in this case – and we say it is based on the evidence we plead in this Court, a common commercial transaction leaving the taxpayer in a situation where the antecedent contracts leading to the ultimate contract under which the title to the land moves and on which there is unarguably a liability to overall duty, whether this analysis of the Court of Appeal results in the antecedent contracts which are terminated because of various reasons, changes in zoning, additions of further parcels of land or whatever, whether, in effect, we fall between two stools and become liable for a multiple liability for duty. 

Now, we have a double liability for duty here.  The only reason, on the Court of Appeal’s analysis, we would not have a triple liability is because the very first contract was exempt under 281 as being a corporate reconstruction.  Essentially, although it is an action between a taxpayer and the Chief Commissioner of State Revenue about liability for stamp duty, the critical special leave point is the common law doctrinal point on novation. 

KIEFEL J:   In that regard, is the critical finding or consideration in the Court of Appeal that as to whether the original, the 2003 contract had been rescinded and the parties discharged and their obligations?

MR BEVAN:   That is quite right.  We say the Court of Appeal fell into error because it treated there being no recision because it was not express, but the case law we have cited and the best example we could give was Orica where Justice Sundberg, on a very similar provision, recognised novation in the movement of rights for the distribution of Orica’s products from Zeneca to Zeneca, whatever the ‑ ‑ ‑

KIEFEL J:   You say the original purchase of the trust company, its obligations were discharged?

MR BEVAN:   They were and that ‑ ‑ ‑

KIEFEL J:   Which may not be usual in a mere assignment?

MR BEVAN:   No, you cannot have a release on a mere assignment because otherwise, as a matter of contract law, it is a nonsense.

KIEFEL J:   I focus then upon whether or not the vendor’s obligations were still attached to the 2003 contract.  Is that how his Honour came to this tripartite view?

MR BEVAN:   He did and, of course, we say that once purchaser one drops out, keeping in mind that the 2003 contract is bilateral, a hundred years of contract law says that contract has come to an end.  Not only did it drop out, not only is there a finding at first instance that it dropped out, but it is an agreed fact that it dropped out.  That is agreed fact 7.  We also have the finding of Justice Gzell at first instance that applying the case law of this Court and in England, the test of the novation is the parties mutual intention and his finding is there was a mutual intention here that the trust company drop out and ALH step in.  That was effected not only by a complete release agreed between the parties, but by an indemnity, by both vendor and the new purchaser in favour of the dropped out purchaser, coupled with the, in effect, the various covenants that are set out at AB26.

So that what happened, we have, we say, what Justice Gzell found.  We have a fairly straightforward case of a new contract coming into existence on the terms of the old contract and the mere fact that the solicitor drafting it left out an express rescission of the 2003 contract is neither here nor there because, as a matter of law, the combination of the complete release of the purchaser under a bilateral contract, coupled with the assumption of those identical obligations by my client, meant that we necessarily had to have a new contract.  We could not have handed an assignment because for there to be an assignment as a matter of doctrine, trust company had to remain in the picture and the ‑ ‑ ‑

FRENCH CJ:   Can I just clarify one matter with you.  If you take us to page 55 your summary of argument, I just want to identify with precision the special leave question that is, as it were, now live and would I be right in saying that that is really just 1(b) – reading the chapeau with (b)?

MR BEVAN:   Coupled with 2 because 2 raises the validity of this new creature of the common law the Court of Appeal have come up with, this hybrid tripartite contract.  It would be 1(b) as well as 2.

FRENCH CJ:   Yes.

MR BEVAN:   But everything else in a revenue sense would follow the event of that, we say.

FRENCH CJ:   So what would you say to the proposition that this is just a matter of the characterisation of a particular contractual arrangement?

MR BEVAN:   The answer is, in characterising the arrangement the Court of Appeal have faced a brick wall and the only way they can overcome the brick wall, to use their language in paragraph 56 of the judgment which is their ultimate conclusion – it is page 36 of the application book: 

The cases and text writers do not appear to have considered the juristic nature of a hybrid contract . . . and makes the assignee solely responsible for “the concurrent and mutually dependent obligations.”  Uninstructed by direct authority I would have characterised the Deed as an assignment of the benefit of the 2003 contract –

This is not a case of existing ‑ ‑ ‑

FRENCH CJ:   This is all just part of negativing its characterisation as a simple novation?

MR BEVAN:   Well, no, because, with respect, what has happened here, the Court – it has made it perhaps a little clearer back at page 31.  The Court

of Appeal said at 35, “The Deed was not a mere assignment”, at 36, “Nor was it a mere novation.  At 37:

The Deed was a hybrid tripartite contract under which the vendor’s obligation flowed form the assignment ‑ ‑ ‑

FRENCH CJ:   The word “novation” did not adequately describe the character of the contract on the findings of the Court of Appeal?

MR BEVAN:   What we say is, the Court of Appeal accept this cannot be a pure assignment because of trust company dropping out of the equation.

FRENCH CJ:   Yes, I understand that.

MR BEVAN:   The only way they can make an assignment stick is to marry assignment and novation as two distinct different doctrinal concepts, which we say are opposite sides of the coin, to get where they go which is, it is a hybrid tripartite contract.  That, we say, is a new creature of the common law and if that is the basis on which we have to pay two lots of stamp duty, we say the recognition of that new creature of the common law surely should be decided in this Court rather than in the Court of Appeal.

FRENCH CJ:   We might just stop you there and hear from Mr Leggat on the basis we are looking at 1(b) and 2, Mr Leggat, on page 55.

MR LEGGAT:   Thank you, your Honours.  Your Honours, the matter for determination raised by question 1(b) turns on the construction of the deed by the New South Wales Court of Appeal.  As your Honours have seen, the Court of Appeal identified three steps in construing the deed.  The first was that the 2003 contract had not been rescinded and was and remained the only source of the vendor’s obligation to transfer the hotel.  That first reason given by Justice Handley appears to provide a complete answer to the applicant’s point about their being a novation.  However, Justice Handley provided two further reasons. 

The second was that rescission of the 2003 contract which was necessary on the accepted authorities to have occurred for there to have been a novation, rescission of the 2003 contract would have resulted in an increase in value of some $2 million accruing to the vendor, and that did not occur.  Rather, the increase in value was paid to the original purchaser.  That was required by clause 3.1(b) of the deed.  Justice Handley’s final point was even if there had been a novation, his Honour stressed that there had not been a novation, but even if there had been a novation, what was novated was limited to the concurrent and mutually dependent obligations, to pick up the language of Foran v Wight, and that was the obligation to pay the purchase price.  Those were the three reasons identified by the Court of Appeal as to why there was an agreement rather than novation and, in our respectful submission, those reasons appear orthodox and correct and give rise to no novel or important point of law of general application. 

My learned friend referred to a concession being made to the effect that if the deed was characterised as a novation, then there was no question about the deed of termination terminating that document.  That concession was not made, in our respectful submission.  Such a concession would be wrong in law for this reason.  The deed of termination expressly identifies the contract as being the 2003 contract and if that was sought to be read as something other than the 2003 contract, then there would need to have been a repayment at some stage of the $2 million consideration that was paid to the original purchaser who, of course, was not a party to the deed of termination.  That not having occurred, it does not appear possible to have recourse to the force of demonstrating a principle to merely substitute the names of the document in question because of this absence of repayment of consideration. 

The applicant in its written submission put the point as high as this.  No other construction gives the instrument any meaning in light of the identity of the parties and the date on which it was executed.  With respect, that is wrong because if one accepts that the deed of termination was understood by the parties to be addressing itself to the 2003 agreement, then the deed of termination operates satisfactorily on its terms and there is no occasion for the force of demonstrating a principle to operate.

KIEFEL J:   If there was a novation, is it accepted by your side that there was a cancellation within the meaning of section 50, cancellation of the agreement?  There is no hidden question there is really what I am asking.

MR LEGGAT:   Would your Honour just give me a moment to think about that?  My concern includes that the applicant ‑ ‑ ‑

FRENCH CJ:   This really goes to whether question 5 of the special leave questions is a live question.

MR LEGGAT:   Yes, that is my concern, your Honour.  The concession made by the applicant that section 50A of the Act was not enlivened by the deed of termination.  That is at application book 356 paragraph 20.  Your Honours, it is common ground that 50A does not apply but it is accepted that section 50 would apply ‑ ‑ ‑

KIEFEL J:   In the case of a novation.

MR LEGGAT:   Indeed, yes. 

FRENCH CJ:   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.

MR LEGGAT:   Yes.  Your Honours, it was suggested that double liability for duty has arisen.  The response of the respondent to that is that liability has arisen for three reasons.  The subject land that was being conveyed was different between the two contracts.  There was a sale of only part of a lot of land ‑ ‑ ‑

FRENCH CJ:   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.

FRENCH CJ:   I mean, that falls away once you confine the question to that issue.

MR LEGGAT:   Indeed.  What I was simply responding to was perhaps in the nature of a cri de coeur by the applicants.  May it please your Honours.

FRENCH CJ:   Yes, Mr Bevan.

MR BEVAN:   In respect of my learned friend’s reference to the $2 million consideration, that would involve enunciating a new test, the test being a novation, does it not occur where the rescission is supported by consideration as was the case here.  Undoubtedly, the rescission here was supported by $2 million consideration but in order for my learned friend to succeed, he would need to enunciate a new principle, which is the current principles enunciated by this Court in Olsen v Dyson and Vickery v Woods and so forth – is subject to a qualification, which is that the rescission once found to have been within the mutual contemplation of the parties does not effect a novation because it was supported by consideration, in this case moving from the incoming purchaser to the outgoing purchaser.  We say that $2 million under the existing test of novation is irrelevant because it cannot affect the finding of mutual intention of trust company dropping out and my client being substituted, as found by Justice Gzell. 

I do not know that it is still relevant, but the concession that my learned friend and I disagree on is at 297 of the application book where the Commissioner’s counsel said in response to the President when noting the error in the deed of termination the concession was made:

If Gzell J is correct on his construction of the Deed of Consent and Assignment, the appellant –

that is the Commissioner below –

concedes it necessarily follows that there must have been a mistake in termination.

That is when Justice Handley labelled it “falsa demonstratio”.  The section 50 point, there is a little bit of confusion there.  Section 50 gives a refund in the case of the termination of an agreement where an agreement has borne duty under 8(1)(b) and 50A gives a refund of duty where the duty has attached to an actual transfer, a dutiable transfer.  The Court of Appeal here said you are liable under 8(1)(a) because this is an assignment and you do not rely on 50A.  We could not because in order to enliven 50A we had to have trust company in the deed of termination.  We could not possibly have trust company in the deed of termination because that undercuts the novation analysis.  The trust company dropped out in the first place.  We rise or fall on section 50 because we either sheet this home as a novation and a liability under 8(1)(b)(i) as an agreement for sale of dutiable property which was terminated by the deed of termination and we get a refund under 50 or we are up for the second lot of duty.  Section 50A is, we say, just a furphy.  If your Honours please.

FRENCH CJ:   There will be a grant of special leave with respect to questions 1(b) and 2 subject to a new notice of appeal being filed to raise those questions.  Could I, just by way of indication, say that looking at the draft notice of appeal it seems to be that grounds 2(c) and (e) and 3(b) probably raise all the issues.  That is a matter you will need to consider, Mr Bevan.  The Court will now adjourn until 1.45 this afternoon.

AT 12.37 PM THE MATTER WAS CONCLUDED