Central Pacific Holdings Pty Ltd & Anor v State of Victoria
[2011] VSCA 322
•28 October 2011
SUPREME COURT OF VICTORIA
COURT OF APPEAL
S APCI 2009 3790
| CENTRAL PACIFIC HOLDINGS PTY LTD (ACN 061 811 210) & SOUTHERN CROSS PROPERTIES PTY LTD (ACN 004 449 101) | Appellants |
| v | |
| STATE OF VICTORIA | Respondent |
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JUDGES: | MANDIE and HARPER JJA, ROBSON AJA | |
WHERE HELD: | MELBOURNE | |
DATE OF HEARING: | 16 August 2011 | |
DATE OF JUDGMENT: | 28 October 2011 | |
MEDIUM NEUTRAL CITATION: | [2011] VSCA 322 – First Revision 3 Nov 2011 | |
JUDGMENT APPEALED FROM: | Central Pacific Holdings Pty Ltd & Anor v State of Victoria [2009] VSC 230 | |
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CONTRACT – Sale of land – Sale of the Southern Cross Hotel site – Construction of contract of sale – Vendor agreed to indemnify the purchaser and any related body corporate against liability for payment of any land tax on the hotel site for the period prior to the date of sale – Whether indemnity extended to any related body corporate or only a related body corporate that was substituted as purchaser – In construing contract history of negotiations considered and purpose of the indemnity clause in light of previous land tax issues relating to the site – Held that indemnity only extended to a related body corporate that was substituted as purchaser – Appeal dismissed – s 3(5) of the Melbourne Market and Park Land Act 1933; Land (Revocation of Reservations) Act 1994 considered.
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| APPEARANCES: | Counsel | Solicitors |
| For the Appellants | Dr C L Pannam QC with Mr S Hay | Jacobsons Lawyers |
| For the Respondent | Mr G T Bigmore QC with Mr M N C Harvey | Victorian Government Solicitor’s Office |
MANDIE JA:
I agree with Robson AJA.
HARPER JA:
I also agree with Robson AJA.
ROBSON AJA:
Introduction
This appeal concerns the purchase on 15 September 1994 of the Southern Cross Hotel site (‘the hotel site’) in Exhibition Street by Central Pacific Holdings Pty Ltd (‘CPH’) from the State of Victoria. CPH is owned by the Government of Nauru. Under the contract of sale, the vendor agreed to indemnify the purchaser and any related body corporate against liability for payment of any land tax imposed on the hotel site by the Commissioner of State Revenue for the period prior to the date of sale.
As events transpired, Southern Cross Properties Pty Ltd (‘SCP’), a wholly owned subsidiary of CPH, and tenant of the Southern Cross Hotel, was assessed for land tax by the Commissioner of State Revenue for the period prior to the date of sale. CPH and SPC claimed SPC was entitled to be indemnified under the contract for the land tax so assessed. The State of Victoria denies liability asserting that the indemnity on its proper construction only related to a related body corporate that was the purchaser of the hotel site and not any related body corporate such as SPC that was not the purchaser of the site.
The dispute came on for hearing in the trial division of this Court. The learned trial judge held in favour of the State of Victoria and against CPH and SPC. CPH and SPC have appealed to this Court. They seek orders that the learned trial
judge’s decision be set aside and that in lieu thereof there be judgment for CPH and SCP and that the State specifically perform the obligation to indemnify SCP in respect of the $3,275,000 payment made to the Commissioner in respect of land tax for the period prior to the date of sale.
The background to the purchase
The hotel site was formerly known as the ‘Eastern Market’ site. By operation of s 3(5) of the Melbourne Market and Park Land Act 1933 (Vic) (‘the MMPL Act’), the Governor in Council was empowered to reserve the Eastern Market site permanently for municipal purposes and to grant it to the Melbourne City Council (‘MCC’) for municipal purposes. To that end, and in the exercise of the powers contained in the MMPL Act, the Eastern Market site was:
(a)reserved for municipal purposes by an Order in Council dated 1 May 1934; and
(b)granted to the MCC for municipal purposes by Crown Grant dated 9 May 1934.[1]
[1]Registered in volume 5914 folio 754.
Pursuant to a lease dated 1 June 1960 (‘the Lease’) the MCC leased the land to SCP between about 1960 and 1993.
Prior to the sale of the land by the State to CPH, by operation of the Land (Revocation of Reservations) Act 1994 (Vic) (‘the LRR Act’):
(a)both the Order in Council and the Crown Grant referred to above were revoked with effect from 15 June 1994;
(b) on 15 June 1994:
(i)the hotel site reverted to the Crown as un-alienated land of the Crown; and
(ii) the Minister, on behalf of the Crown, was empowered to sell the hotel site.
The purpose of the LRR Act included the revocation of the reservations over the Southern Cross Hotel (Eastern Market) site and to authorise the sale of the hotel site.
Prior to the contract of sale made on 15 September 1994, the lessee of the Southern Cross Hotel, SCP, had fallen into receivership. SCP was owned by the Fink family. In about July 1994, CPH acquired all the shares in SCP. It did not lodge a notice with ASIC notifying the change of ownership until 5 March 2009. There is no evidence to suggest that the State of Victoria was aware that CPH had acquired SCP before the contract of sale to CPH was agreed to.
The land tax disputes
There were a series of disputes between the MCC and the State Revenue Office (‘the SRO’) and the Commissioner about lands owned by the MCC that were leased to third parties for commercial purposes. The disputes related to land tax assessments for the years 1982 to 1989. The hotel site was the subject of such a dispute. Generally, the disputes related to:
(a)the liability of the MCC and each lessee (including SCP) for the annual land tax payable in respect of the leased land (which included the hotel site);
(b)the Commissioner’s statutory obligations under the Land Tax Act 1958 to determine the annual land tax payable by the MCC and each lessee (including SCP) in respect of the land (including the hotel site) and the steps that the Commissioner should take to assess each such party for such land tax.
The disputes referred to above were the subject of extensive litigation in both the Trial and Appeal Division of the Supreme Court. In particular, the Commissioner issued to the MCC, SCP and other relevant lessees land tax assessments for the 1989 year assessing each party (both lessor and lessee) for 100 per cent of the land tax payable in respect of the leased land, including the hotel site. The objections to those assessments lodged by the MCC, SCP and other lessees were referred to the Supreme Court by way of a test case which resulted in the decision of Ashley J in Lord Mayor, Councillors & Citizens of the City of Melbourne & Ors v Commissioner of Land Tax (Vic) on 5 December 1991.[2] SCP was a party to that decision. The matter was appealed to the Appeal Division.
[2](1991) 91 ATC 5043
In Commissioner of Land Tax (Vic) v Lord Mayor, Councillors & Citizens of the City of Melbourne[3] the Appeal Division, in effect, affirmed the decision on appeal. It was held, in effect, that during the term of the Lease (and the other leases):
[3][1994] 1 VR 486.
(a)section 42 of the Land Tax Act1958 applied to such land (including the hotel site) to make SCP and each other lessee directly and personally liable to the Commissioner for a portion of the land tax otherwise payable by the lessor (the MCC) in respect of the land (including the hotel site); and
(b) the Commissioner was required to:
(i)first, determine the amount of land tax that the MCC must pay in respect of the land and in respect of each of its other leased lands for an assessment year;
(ii)second, apportion the share of the land tax liability of the MCC as between the MCC, on the one hand, and SCP and each of the other lessees, on the other; and
(iii)finally, assess each party, being the MCC, SCP, and the other lessees, for that party’s share of that land tax.
After the Appeal Division’s ruling (which was handed down on 11 August 1993), the following occurred:
(a)on 18 May 2000, the Commissioner issued complementary sets of amended assessments for the years 1982 to 1994 (inclusive) to SCP and the MCC apportioning between them the land tax payable by MCC for each year in respect of the land (‘the Initial Amended Assessments’). The apportionments were made in accordance with the Court’s decisions referred to above as applied by the Valuer-General for each of the years 1982 to 1994;
(b) SCP did not lodge an objection to the Initial Amended Assessments;
(c)the MCC did lodge objections to the complementary Initial Amended Assessments that the Commissioner had issued to MCC;
(d)a review of the objections was conducted by a delegate of the Commissioner;
(e)after being consulted by the Commissioner’s delegate, the Valuer-General revised the initial apportionments referred to above and provided amended apportionments;
(f)as a result of the Valuer-General’s revised apportionments, the Commissioner’s delegate informed SCP:
(i) about the Valuer-General’s amended apportionments;
(ii)that the Commissioner would provide SCP with an opportunity to discuss any concerns arising out of the amended apportionments; and
(iii)that if no response was received by 13 July 2001, the SRO would proceed to issue further amended assessments for land tax based on the amended apportionments.
Subsequently, on 30 November 2001, the Commissioner issued amended notices of land tax assessments (the Final Assessments) for the years 1982 to 1994 to SCP.
On 27 March 2003, the Commissioner issued a statutory demand to SCP based on the Final Assessments. On 17 June 2003, the statutory demand was set aside.
On 11 February 2004, the Commissioner commenced Supreme Court proceedings[4] against SCP for, inter alia, the amounts sought in the Final Assessments (the Recovery Proceeding).
[4]Number 4494 of 2004.
By terms of settlement dated 14 February 2007, the Commissioner agreed to settle the Recovery Proceeding on terms agreed (which terms were amended on 23 March 2007 when the Commissioner agreed to allow a discount).
Pursuant to the terms of settlement (as amended), SCP paid the Commissioner a total of $3,275,000.00, which sum represented SCP’s liability for land tax assessed on the hotel site by the Commissioner pursuant to the Final Assessments.
The negotiations over the contract
In about July 1994, the Republic of Nauru agreed in principle with the Minister for Finance of the Government of the State of Victoria to buy the hotel site. Mr Parker, Director of the Asset Management Division of the Department of Finance, negotiated with Mr Graham Sherry, Partner, Baker & McKenzie solicitors, over the terms of the sale.
On 1 July 1994, Mr Parker sent to Mr Sherry a draft contract of sale. Under general condition 4.5 it was provided that from the day of sale the purchaser would be deemed to be the owner of the hotel site for the purpose of any Act that imposed any obligation or liability on an owner of land. Under the heading of special condition it was provided that the purchaser would be liable as owner of the hotel site for payment of land tax assessed on the hotel site by the Commissioner of State Revenue in respect of the period commencing on the day of sale until the settlement date and for any land tax accruing thereafter.
On 14 September 1994, Mr Sherry suggested to Mr Parker that following the special condition a clause should be inserted under which the vendor would indemnify the purchaser against any liability for any land tax assessed on the hotel site by the Commissioner of State Revenue for the period prior to the settlement date.
After discussion, on 15 September 1994 Mr Sherry forwarded a marked up copy of the draft to Mr Parker. Mr Sherry amended the purchaser from CPH to CPH and/or nominee. Mr Sherry made amendments to condition 4.5 by hand that provided that the reference to purchaser be amended to ‘the purchaser, or any related body corporate as defined in s 9 of the Corporations Law, nominated by the purchaser.’ Mr Sherry further added by hand to the special condition a clause that provided that the vendor would indemnify the purchaser and any related body corporate as defined in s 9 of the Corporations Law against liability for payment of any land tax assessed on the hotel site by the Commissioner of State Revenue for the period prior to the settlement date.[5] The reference to the related body corporate was itself a hand written amendment to the proposed hand written clause.
[5]B60.
Later that day, a further draft contract was sent by Mr Sherry to Mr Parker with the amendments to clause 4.5 of the general terms and the additional special term typed in. For the purposes of this appeal, it is to be taken that the contract was then executed in that form.
One can see that the reference to a related corporation was initially introduced when Mr Sherry amended the purchaser from CPH to CPH and/or nominee. Further the introduction of the special condition and the indemnity was made at the same time provision was made for any related body corporate nominated by the purchaser to take possession of the hotel site from the date of sale and be deemed the owner of the hotel site.
The appellants’ submissions
The appellants contend that under s 10(1)(a) of the LRR Act[6] CPH, as purchaser of the site, acquired the hotel site free of any existing land tax liability that was a charge on the hotel site. Under s 66 of the Land Tax Act 1958, the land tax is a first charge on the land in respect of which it is payable and ‘not withstanding any disposition of the land it shall continue to be liable in the hands of any purchaser or holder thereof for the payment of such tax so long as the same remains unpaid.’
[6]Section 10(1)(a) provides: Subject to this section, on the revocation by this Act of an Order in Council reserving land –
(a)that land is deemed to be unalienated land of the Crown, freed and discharged from all trusts, limitations, reservations, restrictions, encumbrances, estates and interests; and
….
This proposition was not disputed by the State of Victoria. On the other hand, the State of Victoria submits that the liability only attached to land in respect of an assessment made by the Commissioner under s 17 or an amended assessment under s 19 of the Land Tax Act 1958. The State of Victoria contends that accordingly the assessments issued by the Commissioner of State Revenue in 2000 and 2001 attached to the hotel site as a charge over the hotel site owned by CPH. In other words, s 10(1)(a) of the LRR Act did not operate in relation to future land tax assessments in respect of the hotel site even if those related to periods before the date of the contract of sale between CPH and the State of Victoria. The appellants did not take issue with this proposition either.
The appellants contend that the special condition of indemnity should be given its literal meaning and should not be read down to be limited to a related corporation who was nominated as the purchaser of the hotel site by CPH under the contract of sale. The appellants point out that if CPH had nominated SCP as the purchaser of the hotel site then in the events that have happened the indemnity would have been triggered even on the State’s case. The State does not dispute that proposition but says that that is because SCP would have become the owner of the hotel site under the contract of sale and entitled to the protection that was intended to be given to ‘the owner’ by the indemnity.
The appellants contend that the assessments issued by the Commissioner for State Revenue in 2000 and 2001 against MCC and SCP for the period prior to the date of sale became charges on the hotel site and thus exposed CPH to liability that was intended to met by the indemnity. The appellants contend that a prudent commercial solicitor would not rely on the goodwill of the State not to enforce those charges and accordingly would ensure that the indemnity extended to the liability imposed on any related company.
The State of Victoria’s submissions
The State of Victoria contends that the background fact known to both parties was the imminent issue of land tax assessments on SCP and MCC for periods prior to the date of sale. On 18 August 2003, the Appeal Division had set aside the assessments issued prior to the date of sale and referred the matter back to the Commissioner of State Revenue to issue fresh assessments according to law. The parties were aware that land tax assessments for the period prior to the date of sale would be forthcoming in due course and that liability would attach to the hotel site. On the other hand, the State knew nothing about SCP being acquired by CPH. There is no evidence of the acquisitions being mentioned during the negotiations.
The State says that the purpose of the indemnity was clear. It was to indemnify ‘the owner’ of the site against the potential liability that would arise by reason of s 66 of the Land Tax Act 1958 when the expected assessments ultimately issued against MCC and SCP. That, it says, was the commercial purpose of the clause. This purpose was reinforced when, during the course of the negotiations, the purchaser under the proposed contact was amended to include ‘and/or nominee’ which is well understood to mean the nominee of the named purchaser.
Conclusion
I agree with the submissions of the State of Victoria. I can see no commercial purpose in indemnifying a related corporation that did not become owner under the contract of sale of the hotel. The parties were not aware that CPH may be exposed to some financial expense because it had acquired SCP. That was known only to CPH. The position of SCP could not have been a concern of the parties. The purpose of the clause was to protect the purchaser of the hotel site against any liability under any charges that might arise in the future to secure the payment of land tax relating to the period before the date of sale.
The learned trial judge’s analysis of the law and principles was correct. Her finding on the construction of the contract of sale was correct. The reference to a related body corporate in special condition 2 is to be construed as a reference to any related body corporate nominated as purchaser by CPH.
I would dismiss the appeal.
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