Central Park Estate (Vic) Pty Ltd v Commissioner of State Revenue
[2018] VSC 1
•23 January 2018
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL COURT
TAXATION LIST
S CI 2017 00895
| CENTRAL PARK ESTATE (VIC) PTY LTD (ACN 086 966 944) | Plaintiff |
| v | |
| COMMISSIONER OF STATE REVENUE | Defendant |
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JUDGE: | CROFT J |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 12 December 2017 |
DATE OF JUDGMENT: | 23 January 2018 |
CASE MAY BE CITED AS: | Central Park Estate (Vic) Pty Ltd v Commissioner of State Revenue |
MEDIUM NEUTRAL CITATION: | [2018] VSC 1 |
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TAXATION – Dutiable property – Goods in Victoria subject to arrangements which include dutiable transaction over estate or interest in land – Exception with respect to goods held or used in connection with primary production – Re Nanaimo Community Hotel Ltd [1945] 3 DLR 225 – Berry v FCT (1953) 89 CLR 653 – G Gramp & Sons Ltd v FCT (1965) 115 CLR 170 – Our Town FM Pty Ltd v Australian Broadcasting Tribunal (1987) 16 FCR 465 – Burswood Management Ltd v Attorney-General (Cth) (1990) 23 FCR 144 – R v Novakovic (2007) 17 VR 21 –Duties Act 2000 ss 3(1) and 10(1).
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Dr J Glover | Hunt & Hunt |
| For the Commissioner | Ms P A Neskovcin QC with Mr O M Ciolek | Solicitor for the Commissioner of State Revenue |
HIS HONOUR:
Introduction
On 28 November 2013, the Commissioner of State Revenue (“the Commissioner”) assessed the Plaintiff for duty under the Duties Act 2000 (“the Duties Act”) on the value of dutiable property comprised in transactions whereby the Plaintiff purchased land and wine making equipment at Dromana. The assessment was made on the aggregate dutiable value of $1,100,000 comprising $450,000—the unencumbered value of the relevant land—and $650,000—the unencumbered value of the relevant equipment (“the Assessment”).[1]
[1]Affidavit of Ferdinando Anthony Ursini (20 April 2017), [10] (“the First Ursini Affidavit).
By letter dated 17 January 2014, the Plaintiff objected to the Assessment on the basis that the equipment consisted of goods that were held or used in connection with primary production, within the meaning of s 10(1)(d)(iv) of the Duties Act. The Plaintiff contended that, accordingly, the equipment was not dutiable property and therefore exempt from duty. By letter dated 2 April 2014, a delegate of the Commissioner wrote to the Plaintiff requesting that the Plaintiff furnish the Commissioner with further information to assist in the resolution of the Plaintiff’s objection.[2] The Plaintiff provided the Commissioner with further information by letter dated 21 May 2014.[3]
[2]Exhibit FU-10 to the First Ursini Affidavit.
[3]Exhibit FU-11 to the First Ursini Affidavit.
On 17 June 2014, a delegate of the Commissioner issued a Notice of Determination, disallowing the Plaintiff’s objection and determining that the equipment did not fall within the scope of s 10(1)(d)(iv) of the Duties Act.[4] By letter dated 15 August 2014, the Plaintiff notified the Commissioner that the Plaintiff was dissatisfied with the outcome of its taxation objection as decided in the Notice of Determination.[5] Pursuant to s 106 of the Taxation Administration Act 1997, the Plaintiff requested that the Commissioner treat the objection as an appeal and cause it to be set down for hearing in this Court.
[4]Exhibit FU-12 to the First Ursini Affidavit.
[5]Exhibit FU-13 to the First Ursini Affidavit.
Factual matters
The transactions
On 6 March 2012, the Plaintiff, as trustee for the Dromana Winery Unit Trust (“the Trust”), entered into a contract to purchase real property from Mount Arrow Pty Ltd (“the Land Contract”). The real property was an estate in fee-simple over the land located at 30 Brasser Avenue, Dromana in Victoria (“the Land”; previously referred to in these reasons as the relevant land). The consideration for the sale of the Land was $450,000.[6] Additionally, on 6 March 2012, the Plaintiff, as trustee of the Trust, entered into a contract for the purchase of certain plant and equipment located at the Land (“the Equipment”; previously referred to in these reasons as the relevant equipment). The consideration for that purchase was $650,000.[7]
[6]First Ursini Affidavit, [4]–[5].
[7]First Ursini Affidavit, [6].
The Land Contract relevantly provided that:[8]
(a)the sale was of a going concern (Particulars of Sale);
(b)it was a condition precedent to the contract that the purchaser enter into a contract with the In-Wine Group Australia Ltd for the acquisition by the purchaser of certain of the plant and equipment located at the premises (Special Conditions, cl 30.1); and
(c)the parties agreed that the combination of the Land Contract, and related contracts including the Equipment Contract, enables the purchaser to take over the contract wine-making business of The In-Wine Group Australia Ltd as a going concern (Special Conditions, cl 30.6).
[8]Exhibit FU-2 to the First Ursini Affidavit.
The Equipment Contract relevantly provided that:[9]
[9]Exhibit FU-3 to the First Ursini Affidavit.
(a) the equipment the subject of the agreement had been used for the storage and/or transfer and/or transportation of wine products (Background, B);
(b) it was a condition precedent to the operation of the Equipment Contract that the purchaser enter into, relevantly, a contract for the acquisition of the Land (cl 1(a)); and
(c) title to the Equipment passed upon the latter of the vendor receiving the whole of the purchase price under the Equipment Agreement and the vendor of the Land receiving the whole of the purchase price under the Land Contract (cl 3.1).
The Land was transferred to the Plaintiff by Transfer of Land dated 19 July 2013.[10] There was no dissent from the Commissioner’s submission that the Court may infer that title to the Equipment passed to the Plaintiff on or about 19 July 2013.[11]
[10]Exhibit FU-6 to the First Ursini Affidavit.
[11]Exhibit FU-4 to the First Ursini Affidavit.
The Plaintiff’s activities
The Plaintiff is a company which carries on the business of wine-making in the Dromana area.[12] The Plaintiff’s evidence is that it “is not directly involved in the growing or cultivation of grapes”.[13] The Commissioner submits, and the Plaintiff does not contend to the contrary, that the Court should proceed on the basis that, on or immediately before 19 July 2013, no grape growing or other cultivation was occurring on the Land.[14]
[12]First Ursini Affidavit, [4].
[13]Affidavit of Ferdinando Anthony Ursini (30 August 2017), [3] (“the Second Ursini Affidavit”).
[14]There is no evidence to the contrary and the Plaintiff does not submit otherwise; see Submissions of the Plaintiff (17 August 2017).
The Plaintiff’s evidence is that the Equipment:
(a)is used for wine-making purposes, “being processing of harvested wine grapes into the form of wine, which can be sold”; and
(b)is also used for the “storage and/or transfer of processed wine grapes and/or transportation of the wine produce for sale to consumers”.[15]
The Commissioner contends that, in the absence of any other evidence, the Court can infer that the plant and equipment was used for the same purposes as at 19 July 2013. Again, the Plaintiff does not submit that the Court should take any different view.
[15]First Ursini Affidavit, [7].
Issues
Part 2 of the Duties Act—ss 20 to 27—provides for transactions concerning dutiable property and Part 3—ss 28 to 29—provides for rates of duty. The relevant point in time at which the Duties Act falls to be construed in the present circumstances is the time at which the Plaintiff’s liability for duty arose, being 19 July 2013. Nevertheless, for convenience and ease of expression, the present tense is used in these reasons in connection with statutory provisions as these provisions are discussed.
Section 7(1)(a) of the Duties Act relevantly provides that Part 2 (or Chapter 2) charges duty on a transfer of dutiable property, which is defined as a “dutiable transaction” for the purposes of the Act (s 7(2)). Section 11 provides that a liability for duty charged by Part 2 (or Chapter 2) arises when a dutiable transaction occurs, and s 12 provides that any duty charged under Part 2 (or Chapter 2) is payable by the transferee, unless otherwise provided. Section 18 provides that duty is charged on the dutiable value of the dutiable property the subject of the dutiable transaction at the relevant rate set out in Pt 3 of the Duties Act.
Critical in the present proceedings is s 10(1) of the Duties Act, which provides as follows:
(1) Dutiable property is any of the following—
(a)each of the following estates or interests in land in Victoria—
(i)an estate in fee-simple;
…
(d)goods in Victoria, if the subject of an arrangement that includes a dutiable transaction over an estate or interest in land elsewhere referred to in this section, including goods used in connection with a business carried on or in connection with the land, but not including the following—
(i)goods that are stock-in-trade;
(ii)materials held for use in manufacture;
(iii)goods under manufacture;
(iv)goods held or used in connection with primary production;
(v)livestock;
...
The term “primary production” is defined in s 3(1) of the Duties Act to mean:
… the use of land primarily for—
(a)cultivation for the purpose of selling the produce of cultivation (whether in a natural, processed or converted state); or
(b)the maintenance of animals or poultry for the purpose of selling them or their natural increase or bodily produce; or
(c)the keeping of bees for the purpose of selling their honey; or
(d)commercial fishing, including the preparation for commercial fishing or the storage or preservation of fish or fishing gear; or
(e)the cultivation or propagation for sale of plants, seedlings, mushrooms or orchids; ….
The Plaintiff does not dispute that the transfer of the Land was a dutiable transaction under s 10(1)(a). Nor does it dispute that the Equipment constituted “goods in Victoria”, or that those goods were “the subject of an arrangement that includes a dutiable transaction over an estate or interest in land elsewhere referred to in this section”, in each case within the meaning of s 10(1)(d). Thus, the only issue in dispute in these proceedings is the question whether the Equipment fell within the exception provided for under s 10(1)(d)(iv) of the Duties Act, concerning “goods held or used in connection with primary production”, in which case those goods were not dutiable property and the transfer of the Equipment to the Plaintiff was exempt from duty.
Proper construction of s 10(1)(d)(iv) of the Duties Act
Overview
The Plaintiff submits that, properly construed, s 10(1)(d)(iv) applies as an exception if the relevant goods are “held or used in connection with primary production” and that there is no requirement that the excepted goods be held or used in connection with the Land the subject of an arrangement which includes a dutiable transaction over an estate or interest in land or that the goods held or used in connection with primary production be engaged in primary production.
The Commissioner submits, on the other hand, that these provisions, properly construed, operate as follows:
(a)First, s 10(1)(d)(iv) does not apply unless the primary production, in connection with which goods the subject of s 10(1)(d) are at the relevant time held or used, occurs on the land the subject of “the arrangement” that includes the goods (“First Proposition”).[16]
(b) Secondly, s 10(1)(d)(iv) does not apply to goods where the proximate activity in connection with which the goods are held is not primary production, but secondary or some other downstream form of production (“Second Proposition”).[17]
[16]Cf Submissions of the Plaintiff (17 August 2017), [5], [7]–[10].
[17]Cf Submissions of the Plaintiff (17 August 2017), [6], [11]–[26].
For convenience and clarity, the matters in contention between the parties are addressed in terms of the two propositions articulated by the Commissioner in his submissions.
First proposition — primary production must occur on the relevant land
Legislative history of s 10(1)(d)(iv)
Both parties, in the course of their submissions, made reference to the legislative history of these provisions as a relevant consideration in the task of their interpretation in the context of these proceedings. It is, therefore, to this legislative history to which I now turn.
The origin of s 10(1)(d)(iv) of the Duties Act lies in s 63 of the Stamps Act 1958 (“the Stamps Act”), which in 1983 was substituted in its entirety by operation of the Stamps (Further Amendment) Act 1983.[18] As substituted, s 63(3) of the Stamps Act provided that a reference in the relevant subdivision of that Act to real property or property included a reference to chattels:
(i)that, by reason of the sale of or agreement to transfer the real property or property to the transferee, are sold or transferred to the transferee (within the meaning of section 75(3)); or
(ii)the sale or transfer of which to the transferee or any other person forms, in the opinion of the Comptroller of Stamps, substantially one transaction with the conveyance of the real property or property; …
[18]Stamps (Further Amendment) Act 1983, s 8.
The policy underlying of s 63(3) was to reduce the practice of evading the levying of stamp duty on the transfer of real property in certain transactions by undervaluing the real property the subject of the sale and overvaluing chattels purchased as part of the same transaction. Thus, in the Second Reading Speech for the Bill which became the Stamps (Further Amendment) Act 1983, the Treasurer said:[19]
A second widespread evasion practice outlined in the Budget speech relates to stamp duty payable on transfers of real property. The value of, or the price paid for, chattels purchased with house and land is frequently overvalued for the specific purpose of decreasing the purchase price attributable to the real property so that the correct amount of stamp duty is not paid.
A new scheme to overcome this practice is contained in clauses 8 and 9 of the Bill. Chattels involved with the sale of land used for primary production have been excluded from the scheme.
[19]Victoria, Parliamentary Debates, Legislative Assembly, 16 November 1983, (Rob Jolly).
The exclusion to which the Treasurer made reference—the exclusion of chattels involved with the sale of land used for primary production—was found in s 63(4) of the Stamps Act, which provided:
Notwithstanding sub-section (3) where—
(a)in connexion with a conveyance of real property used for primary production, there is a sale or transfer of stock, implements or other chattels held or used in connexion with the use of the real property for primary production;
(b)the conveyance is lodged with the Comptroller of Stamps for stamping together with the prescribed form signed by or on behalf of the transferor; and
(c)the Comptroller of Stamps is satisfied that the real property is used for primary production—
the value of the stock, implements and other chattels shall be disregarded in ascertaining the value of the real property within the meaning of this subdivision.
The term “real property used for primary production” was defined using terms closely analogous to those employed in the definition of “primary production” in the Duties Act. For completeness, it is noted that the Explanatory Memorandum for the Stamps (Further Amendment) Bill 1983 relevantly stated:
Clauses 8 and 9. The purpose of these amendments is to implement the Budget announcement to take duty in respect of chattels that are transferred with real property. Clause 8(1) substitutes a new section 63 in the Act. Sub-sections (1) to (5) of section 63 have the effect that where real property is sold and chattels are sold as an integral part of that sale, duty will be taken on the combined value of the chattels and realty. Special provision has been made to ensure that stock, implements or other chattels held or used in connexion with the use of real property for primary production, will not bear duty in respect of their value when the real property to which they relate is transferred.
As the Commissioner submits, it should be noted that the exception for which s 63(4) of the Stamps Act provided applied to stock, implements or other chattels held or used in connection with the use of the real property for primary production, rather than to stock, implements or other chattels held or used in connection with the real property used for primary production. The significance of that distinction is discussed further in the reasons which follow.
The Duties Act repealed the Stamps Act and sought to replace the latter Act with “a modern statute expressed in clear language and with a more contemporary conceptual foundation”.[20]
[20]Explanatory Memorandum, Duties Bill 2000 (Vic), 1. In the Second Reading Speech for that Bill, the Treasurer, relevantly stated that “The primary purpose of the Duties Bill is to replace the current Stamps Act 1958 with simple, clear and equitable legislation drafted in contemporary language and modern style”: Victoria, Legislative Assembly, Debates, 5 October 2000 (John Brumby).
At the time it was enacted, s 10(1)(d)(iv) of the Duties Act provided as follows:
(1)“Dutiable property” is any of the following—
…
(d)goods in Victoria held or used in connection with a dutiable transaction in respect of any estate in land elsewhere referred to in this section, including goods used in connection with a business carried on or in connection with the land, but not including the following—
…
(iv)goods held or used in connection with land used for primary production; …
In contrast to s 63(4) of the Stamps Act, the exception contained in s 10(1)(d)(iv) of the Duties Act, as enacted, was expressed to apply to goods held or used in connection with land used for primary production, rather than to goods held or used in connection with the use of the land for primary production. However, consistently with s 63(4) of the Stamps Act, there was nothing in the text of s 10(1)(d)(iv) of the Duties Act, as enacted, to suggest that the “land used for primary production”, to which sub-paragraph (iv) referred, was intended to encompass something other, or broader, than the land the subject of the “dutiable transaction” referred to in paragraph (d), in connection with which the relevant goods are held or used.
Section 10(1)(d) of the Duties Act was amended in 2002 by the State Taxation Legislation (Further Amendment) Act of that year,[21] such that the phrase “held or used in connection with a dutiable transaction in respect of any estate in land” was substituted with the phrase “if the subject of an arrangement that includes a dutiable transaction over an estate in land”. The Commissioner contends that the extrinsic material demonstrates that in making that amendment it was not intended to alter the effect of s 10(1)(d), but rather “to clarify the policy intention that any goods used in connection with land and sold with the land are subject to duty”.[22] In my view, the extrinsic material does demonstrate the position for which the Commissioner contends; accepting also that this extrinsic material is consistent with a construction of s 10(1)(d)(iv) of the Duties Act which confines its scope to goods held or used in connection with the land to which paragraph (d) refers.
[21]Section 4(b). It is also noted that, in 2004, the words “or interest” were inserted after “estate” by the State Taxation Act (Tax Reform) Act 2004, s 4(c).
[22]Explanatory Memorandum, State Taxation Legislation (Further Amendment) Bill 2002.
The present controversy really arises as a result of amendments made to s 10(1)(d)(iv) of the Duties Act by the State Taxation Acts (Miscellaneous Amendments) Act 2003,[23] which brought these provisions into their currently relevant form. The Plaintiff contends that the point of the amendment, which deleted the words “land used” from paragraph 10(1)(d)(iv) was to exclude “ordinary household goods” sited on primary production land and used for relevant purposes from the definition of primary production goods. Thus, the Plaintiff says that, as a consequence of this amendment, it is no longer arguable that the goods “held or used in connection with primary production” in the Duties Act exception in paragraph 10(1)(d)(iv) must relate to a use of the land. This is in support of the Plaintiff’s broader proposition that there is no requirement under the legislation that goods held or used in connection with primary production be engaged in primary production.
[23]State Taxation Acts (Miscellaneous Amendments) Act 2003, s 5(2).
The Explanatory Memorandum for the 2003 amending legislation stated that:
Sub-clause (2) amends section 10(1)(d)(iv) of the Act to clarify that goods held on primary production land must be used for primary production purposes to be exempt from duty.
The Plaintiff, however, makes the point that the Second Reading Speech of the Honourable John Brumby, as Treasurer, does not refer to the amendment. Nevertheless, for the reasons which follow, I do not regard this as material.
The Commissioner contends that the extrinsic material indicates that the intention informing the 2003 amendment to s 10(1)(d)(iv) was to remove from the exception goods that might be said to be held or used in connection with land which is used for primary production, but which are not held or used in connection with the primary production occurring on that land. Such goods, it is said, might be thought to include ordinary domestic goods—for example, a refrigerator situated inside a farmhouse on land that is sold—where those goods are also sold as part of the same arrangement as the sale of the land. Thus, the Commissioner contends that the policy underlying the carving-out of such goods from the exception in s 10(1)(d)(iv) is able to be clearly enough inferred: the purpose of such goods is only incidentally connected to primary production, unlike, for instance, farm equipment or machinery. In this way, the amendment to s 10(1)(d)(iv) can be seen as directed to giving the exception an operation substantially the same as that for which s 64(3) of the Stamps Act provided, as discussed previously.
Concluding, with respect to the 2003 amendments, the Commissioner contends that there is nothing in the extrinsic materials to suggest that, in amending s 10(1)(d)(iv), Parliament intended to sever the connection between the primary production to which that sub-paragraph speaks, and the land to which paragraph (d) refers. To the contrary, it is said, the Explanatory Memorandum clearly contemplates that the goods to which s 10(1)(d)(iv) speaks are goods “held on primary production land”. In my view, this is a fair and accurate assessment of the state and effect of the extrinsic material and one, for the reasons which follow, which is supported by the proper construction of s 10(1)(d)(iv) of the Duties Act.
Text and context of s 10(1)(d)(iv)
In terms of the structural features of the text of s 10(1)(d) of the Duties Act, the Commissioner submits, applying the approach to statutory interpretation reiterated by the High Court, as follows:[24]
[24]Submissions of the Defendant (21 September 2017), [38] (emphasis in original); and see Commissioner of Taxation (Cth) v Consolidated Media Holdings Ltd (2012) 250 CLR 503.
…
(a)First, paragraph (d) forms part of a provision (s 10(1)) which defines the term ‘dutiable property’, for use elsewhere and throughout the statutory scheme.
(b)Secondly, paragraph (d) provides that ‘goods in Victoria’ are ‘dutiable property’, if those goods satisfy a particular criterion. That criterion is that the goods be ‘the subject of an arrangement that includes a dutiable transaction over an estate or interest in land elsewhere referred to in’ s 10.
(c)Thirdly, paragraph (d) provides that such goods include a particular subset of goods in Victoria; namely, goods ‘used in connection with a business carried on or in connection with the land’. That part of paragraph (d) should be understood as clarifying, for the avoidance of doubt, the scope of what ‘goods in Victoria’ is intended by Parliament to encompass (subject to the satisfaction of the criterion of those goods being the subject of an arrangement).
(d)Fourthly, paragraph (d) goes on to provide that goods in Victoria’ do not include the categories of goods set out at sub-paragraphs (i) to (v). It can be noted that, in context, each of those categories describes goods that are, in the ordinary course, used or held in connection with a business. Specifically in the case of sub-paragraph (iv), we note that ‘primary production’ is defined narrowly to mean ‘the use of land primarily for’ cultivation; the maintenance of animals or poultry; the keeping of bees; fishing; and the cultivation of plants; but in each case for a commercial purpose.
Thus, the Commissioner contends that it follows that a careful textual analysis suggests that the categories of goods described in sub-paragraphs 10(1)(d)(i) to (v) are not intended to carve out from the category “goods in Victoria” any and all goods answering the bare descriptions of those paragraphs—for example, any livestock in Victoria. Rather, it is submitted that they are directed to carving out those categories of goods only insofar as such goods are used “in connection with the business carried on or in connection with the land” [Commissioner’s emphasis].[25] On that construction of s 10(1)(d)(iv), the primary production, in connection with which goods the subject of s 10(1)(d) are held or used, must occur on “the land” the subject of the arrangement that includes the goods. It is said that this construction is wholly consistent with, and is confirmed by the legislative history of, these provisions, which has already been considered in detail.
[25]Submissions of the Defendant (21 September 2017), [38(c)].
The Plaintiff, on the other hand, places considerable weight on the use of the words in s 10(1)(d)(iv) of the phrase “in connection with”. Before moving to consideration of the Plaintiff’s submissions directed particularly to the proper interpretation and effect of this phrase, it is convenient to make reference to its submissions with respect to the “livestock” exemption to which reference has been made arising out of the Commissioner’s submissions. In this respect, the Plaintiff submits:[26]
[26]Plaintiff’s Submissions in Reply (12 October 2017), [4], [5].
4.It is incorrect to suggest that each of Duties Act paragraphs 10(1)(d)(i) to (v) should be qualified with the words “in connection with a business carried on or in connection with the land”. In the first place, the legislature expressly removed “land used for” from exception (iv) in 2003. In the second place, taxpayers are not required to be in business in order to qualify for any of the exceptions.
5.Consider an example concerning the ‘(v) livestock’ exception.
The taxpayer has retired. He owned a hobby farm. The taxpayer’s farm and its livestock were sold separately in a transaction which attracted paragraph 10(1)(d). SRO auditors discover that the taxpayer’s livestock had for some time been on agistment at a neighbour’s nearby farm. No livestock was on the taxpayer’s farm on the day of the sale. The defendant’s interpretation of the livestock exception outlined in the previous paragraph will defeat the taxpayer’s claim.
As the “livestock” exemption is not the subject of these proceedings, hence has not been fully argued, it is not appropriate that I express any definitive or final views as to its operation. Nevertheless, for present purposes I will say that I reject the Plaintiff’s submissions with respect to that exemption as, in my view, the proper construction of s 10(1)(d) of the Duties Act, as indicated in these reasons, will not produce the effects which the Plaintiff says would follow from such a construction. Also, as the Plaintiff’s example is a “hobby farm”, it would not constitute a business such as to bring it within the inclusionary provisions in the first place.[27]
[27]Commissioner’s oral submissions, Transcript, 55.
In developing this position, the Plaintiff makes reference to the definition of “primary production” in s 3(1) of the Duties Act as including the use of land “primarily” for five disjunctively defined activities, including:
(a)cultivation for the purpose of selling the produce of cultivation (whether in a natural, processed or converted state).
In this context, the Plaintiff observes that it does not assert that it is engaged in the cultivation of grapes or in primary production. Rather, two associated companies of the Plaintiff are so engaged and own approximately 200 hectares of land used for the cultivation of grapes. Instead, the Plaintiff is engaged in an activity connected to primary production in that it converts harvested grapes into a form in which they can be sold. Thus, it is said a causal relationship exists between the Plaintiff’s winemaking and the cultivation of grapes by grape growers. The Plaintiff submits, and it is not contended otherwise, that the sale of wine grapes inevitably involves the conversion of wine grapes into wine, as wine grapes in an unprocessed state are not marketable and have an astringent taste. However, whether or not this position is factually correct as a generalisation is not in any way critical to the outcome of these proceedings. In any event, the Plaintiff makes clear that it does not claim to be engaged in primary production activity.
Turning to the text of s 10(1)(d)(iv), it is submitted by the Plaintiff that in order to give meaning to the exemption so provided, there is no reason why the word “directly” should be implied after the word “used” in the expression “goods held or used in connection with primary production”. In support of this position, reference is made to a number of court decisions, to which I now turn.
In support of a broad meaning attached to the phrase “in connection with”, reference is made by the Plaintiff to the statement by Wilcox J in Our Town FM Pty Ltd v Australian Broadcasting Tribunal that:[28]
[28](1987) 16 FCR 465 at 479.
The words ‘in connection with’ have a wide connotation, requiring merely a relation between one thing and another. They do not necessarily require a causal relationship between the two things.
Moreover, it is contended that the relationship contemplated by the phrase, “in connection with”, includes events happening before and after the occurrence of things connected. Thus, in Re Nanaimo Community Hotel Ltd, the British Colombia Court of Appeal said:[29]
included matters occurring prior to as well as subsequent to or consequent upon, so long as they are related to the principal thing.
[29][1945] 3 DLR 225 at 229.
More directly connected factually, the Plaintiff contends, is the decision of Prior J in EIFRA Services Pty Ltd v Commissioner of Stamps,[30] where the South Australian Commissioner of Stamps sought the Supreme Court’s opinion on the application of a duty exemption similar to s 10(1)(d)(iv) of the Duties Act which applied in respect of “stock, implements and other chattels used in connection with primary production”. In his Honour’s judgment it was noted that the relevant primary production activity was “grape-growing”. Wine-making, his Honour said, was not primary production.[31] Concluding, Prior J found that the width of an exemption for “stock, implements or other chattels held or used in connection therewith” is apt to include both winemaking equipment and stocks of wine on land.
[30](1990) 58 SASR 539 (“EIFRA Services”).
[31](1990) 58 SASR 539 at 540; and noting that Windeyer J in G Gramp & Sons Ltd v FCT (1965) 115 CLR 170 reached the same conclusion.
On the basis of the decision in EIFRA Services, the Plaintiff contends that, as it was found that winemaking equipment was used “in connection with” grape growing and that it was immaterial, in that case, by whom the grapes were grown or on which land the grapes were grown, this decision provides support for the Plaintiff’s interpretation of s 10(1)(d)(iv) of the Duties Act. A problem, however, with this submission was highlighted by the Commissioner in his submissions, where it was pointed out that the question of equipment did not arise for consideration by Prior J in this case.[32] Moreover, the Commissioner submitted that minimal or no weight ought to be given to this decision because Prior J was dealing with a unique set of facts. Additionally, it is said that on the face of the judgment the reasoning is not clear how his Honour arrived at the conclusion he reached, other than accepting the principles that are set out in the decision. For these reasons and those which follow with respect to this decision, I accept that the EIFRA Services decision is of little significance in these proceedings.[33]
[32]Transcript, 62.
[33]See below, [51].
In relation to s 10(1)(d)(iv) of the Duties Act, I am of the view that, as submitted by the Plaintiff, it is well-established that, at least in general terms, a phrase such as “in connection with” is to be regarded as an expression with a broad meaning. It must, nevertheless, be an expression which is interpreted in the context of the legislative provisions and the legislative structure in which it is found. In the present circumstances, I am of the view that the Commissioner’s submissions in this respect are to be preferred for the reasons advanced in support of those submissions and in light of the legislative history of s 10(1)(d)(iv), both of which have been considered in the preceding reasons. The phrase “in connection with” cannot be construed divorced from its legislative context—content and structure—which is what, in my view, the Plaintiff seeks to do.
Second proposition — proximate activity cannot be secondary or other form of downstream production
The Plaintiff submits that downstream and subsequent activities are included in the reference to primary production in s 10(1)(d)(iv) as a result of the reference to “in connection with” cultivation; this, in effect, conflating the provisions of this sub-paragraph with the definition of “primary production” in s 3(1) of the Duties Act. Thus is it said that winemaking is connected to grape growing and that it is irrelevant whether the connection is within the scope of “cultivation”. Moreover, it is said that activities connected with cultivation may be of a different type or genus, and that, for this reason, it is immaterial for the Commissioner to state in his determination that:[34]
the processing and storage of grapes/wines is beyond the scope of cultivation, as the grapes (i.e, the crops) have already been raised, harvested and gathered.
Clearly, wine grapes are the product of cultivation; but winemaking from them is another process.[35]
[34]Notice of Determination, Exhibit FU-12 to the First Ursini Affidavit.
[35]Cf Plaintiff’s Submissions in Reply (12 October 2017), [13]–[16], [18], [19].
The Commissioner submits, on the other hand, that where the proximate activity in connection with which goods the subject of s 10(1)(d)(iv) are held is not primary production, but secondary or some other downstream form of production, the exception in sub-paragraph (iv) does not apply to the goods.
The Commissioner does, however, accept that the expression “held or used in connection with” is, on its face, of potentially wide scope. In Collector of Customs v Pozzolanic Enterprises Pty Ltd, it was stated that the words “connected with” or “in connection with” are words “capable of describing a spectrum of relationships ranging from the direct and immediate to the tenuous and remote”.[36] The Commissioner submits, however, that because the words “in connection with” are ambiguous in this way, in order to determine the degree or nature of the connection which Parliament intended the goods the subject of s 10(1)(d)(iv) to bear with primary production, it is necessary to look to other textual features of the statutory provision—as the phrase “in connection with” “takes colour from its context”.[37] For these reasons, which I accept, it is of little assistance to consider the specific meaning which courts have given to the phrase “in connection with” in other cases.[38] Moreover, and in particular, I think it is quite clear that there is relevant ambiguity in the meaning of the expression “in connection with” in the context of phrases such as “goods held or used in connection with primary production”—and more generally having regard to the matters considered in detail in these reasons.[39]
[36](1993) 43 FCR 280 at 288.
[37]R v Novakovic (2007) 17 VR 21 at 32 [59]. See also, eg, Burswood Management Ltd v Attorney-General (Cth) (1990) 23 FCR 144; Minister for Immigration and Multicultural Affairs v Singh (2000) 98 FCR 469 at 477 [29].
[38]Burswood Management Ltd v Attorney-General (Cth) (1990) 23 FCR 144.
[39]Cf Plaintiff’s Submissions in Reply (12 October 2017), [3] and [6].
I do not take it to be in contention between the parties that the term “primary production”, in its ordinary meaning, means anything but the production of basic materials or crops, rather than of products made from them. Indeed, the Plaintiff’s submissions to which reference has already been made, are consistent with this position. Reflecting the ordinary meaning of this term, the Duties Act definition is, however, cast more narrowly to mean “the use of land primarily for” cultivation, the maintenance of animals or poultry, the keeping of bees, fishing, and the cultivation of plants, in each case for a commercial purpose. Again, in ordinary usage, primary production is contrasted with secondary production, or some form of downstream production, by which is meant the manufacturing of goods, as opposed to production of raw materials, or inputs.
It follows, necessarily, as the Commissioner contends, that any goods, plant, tools or machinery used in secondary production processes—that is, in the processing or conversion of raw materials and other primary products into secondary products—will at some level of abstraction be capable of being described as being “held or used in connection with” primary production. This follows, necessarily, because the inputs in any form of secondary production derive ultimately from some kind of primary production. As I observed in the course of the trial in relation to this point, everything does ultimately come from the Earth. However, as the Commissioner contends, it cannot follow that the phrase “held or used in connection with primary production”, as it appears in s 10(1)(d)(iv), should be given a construction such that goods that are held or used principally, chiefly or proximately in connection with secondary production are, for that reason, also, “held or used in connection with” the primary production of the inputs, where the production of those inputs answers the statutory definition of “primary production” under the Duties Act.
If s 10(1)(d)(iv) of the Duties Act were to be given such a broad construction, it would effectively negate, or substantially negate, any boundaries that Parliament sought to establish with respect to the exclusionary provisions contained in the sub-section, particularly sub-paragraph (iv). This is illustrated by the example cited by the Commissioner in his submissions that it would follow that any goods associated with the sale of a whisky distillery in Victoria, if the subject of an arrangement that includes a dutiable transfer of land, would constitute goods “held or used in connection with primary production”. The Court can indeed take judicial notice of the fact that whisky is, ordinarily, the product of aging distilled spirits produced from fermented primary products, usually barley; although rye and other grains are also used. Moreover, a similar argument would apply in respect of goods associated with, for example, the sale of a cheese or a butter factory in Victoria. As the Commissioner submits, examples of this kind can be multiplied as a result of thinking through various secondary production products.
For these reasons, I accept the Commissioner’s contention that the previously identified consequence of a broad construction of s 10(1)(d)(iv) of the Duties Act would result in absurdity and that it would extend the operation of the exception beyond any purpose or logic discernible on the face of the legislation or the extrinsic materials. Moreover, it is also the position, in my view, that there is no question that a broad construction would not have been available on the text of s 10(1)(d)(iv), as enacted, which referred to “goods held or used in connection with land used for primary production”, at least in circumstances where no primary production occurred on the subject land. The consequences of such a broad construction tend strongly to suggest that Parliament did not intend s 10(1)(d)(iv) to have that operation. Moreover, as the Commissioner submits, I am of the view that Parliament ought not to be taken to have intended to extend the operation of s 10(1)(d)(iv) in that way—without any explanation or indication to that effect in the extrinsic materials—by amending the sub-section under the State Taxation Acts (Miscellaneous Amendments) Act 2003.
It follows, for the preceding reasons, that s 10(1)(d)(iv), properly construed, means that where the proximate activity in connection with which goods the subject of those provisions are held is not primary production, but secondary or some other downstream form of production, the exception in sub-paragraph (iv) does not apply to those goods.
In this respect the Plaintiff submits that the Commissioner’s approach implicit in the position which I have reached involves the supplying of missing words or reading additional words into the legislation.[40] In support of its position in this respect, the Plaintiff submits that the classic Australian test for implying words into legislation is expressed by McHugh JA in Bermingham v Corrective Services Commission of New South Wales.[41] His Honour suggested that it was appropriate to supply a missing word in a statutory formulation, if this was necessary to avoid a “strained interpretation” and give effect to the purpose of the legislation. Three conditions then applied:[42]
[40]See Submissions of the Plaintiff (17 August 2017), [22]–[24].
[41](1988) 15 NSWLR 292 (“Birmingham”); and see Thompson v Gould [1910] AC 409 at 420 (Lord Mersey); Wentworth Securities Ltd v Jones [1980] AC 74 (142); Taylor v Owners of Strata Plan No 11564 (2014) 253 CLR 531; and Lowe v The Queen (2015) 48 VR 351.
[42]Bermingham v Corrective Services Commission of New South Wales (1988) 15 NSWLR 292 at 302.
First, the court must know the mischief with which the Act was dealing. Secondly, the court must be satisfied that by inadvertence Parliament has overlooked an eventuality which must be dealt with if the purpose of the Act is to be achieved. Thirdly, the court must be able to state with certainty what words Parliament would have used to overcome the omission if its attention had been drawn to the defect.
The Plaintiff contends that the second condition as articulated by McHugh JA in Bermingham is not satisfied in the present circumstances. Rhetorically, the Plaintiff submits that: [43]
It is surely incorrect to say that Parliament ‘overlooked’ the nature of the connection between the ‘use of goods’ and ‘primary production’ when it supplied the words ‘in connection with’. A likelier inference is that Parliament intended the connection in [Duties Act] paragraph 10(1)(d)(iv) to be very broad.
[43]Submissions of the Plaintiff (17 August 2017), [23].
Moreover, the Plaintiff submits that where the activity of “reading in words” into legislation is concerned, the position in Victoria may differ from the other states and territories.[44] The Plaintiff contends that the Victorian approach is stricter, referring in this respect to Director of Public Prosecutions v Leys,[45] where the Court of Appeal, having considered the statement of McHugh JA in Bermingham said:[46]
McHugh JA must be taken to have intended that the second condition extend to those circumstances where words have been inadvertently used or omitted where the statute proceeds on a mistaken assumption, where the purpose of a provision indicates that Parliament did not intend the grammatical meaning to apply, or where the words must be omitted to avoid absurdity.
[44]See D C Pearce and R S Geddes Statutory Interpretation in Australia (8th ed, LexisNexis, Sydney, 2014) at [2.36].
[45](2012) 44 VR 1.
[46]Director of Public Prosecutions v Leys (2012) 44 VR 1 at 20 [58].
It is not, in my view, necessary to take the matters raised by the Plaintiff in these submissions further because, as submitted by the Commissioner, I accept that this is not a case of supplying missing words or reading additional words into the legislation. Rather, the ambiguity introduced into s 10(1)(d)(iv) of the Duties Act and inherent in its use of the phrase “in connection with” requires this Court to construe that sub-paragraph and to determine, by reference to its text, context and purpose, Parliament’s intention as to the degree of connection necessary to satisfy the statutory provision. Moreover, as previously observed in more general terms, this analysis is not advanced by the Plaintiff’s submissions with respect to the decision of the Supreme Court of South Australia in EIFRA Services. As discussed previously, the legislative and factual circumstances of this case make it readily distinguishable from the present circumstances.[47] More particularly, I am of the opinion that the EIFRA decision should be given minimal weight for the reasons and on the basis as contended for by the Commissioner in his written submissions:[48]
58.The Commissioner submits that EFIRA Services should be given minimal, to no, weight in construing s 10(1)(d)(iv) of the Duties Act and in applying that provision in this case:
(a)First, Prior J arrived at the preferred construction of s 31A(a) with minimal explication of his Honour’s reasoning, and without any explicit consideration of alternative available constructions of the provision.
(b)Secondly, given that Prior J held that s 31A(a) required the Court to determine whether the thing in question had “‘a substantial relation in a practical business sense” to the use of the land mainly for grape growing’, it is misleading for the plaintiff to suggest, as it does in its written submissions, that ‘[i]t was immaterial in [EFIRA Services] by whom the grapes were grown or on which land the grapes were grown’.[49] It is plainly the case that it was essential to the outcome of the decision in EFIRA Services that the grapes from which the wine was made were grown on the land the subject of the transaction.
(c)Thirdly, it is clear that the Court’s holding, that the wine situated on the land was stock held ‘in connection with’ the primary production occurring on the land, applied in the circumstances of that case and that in other cases a different outcome might apply.
(d)Fourthly, it is not the case, as the plaintiff submits, that the Court in EFIRA decided that wine-making equipment on the land was comprehended by the exemption.[50] That issue did not arise for judicial determination, having been (it seems) conceded by the Commissioner.
[47]See above [38]-[39]; also the Submissions of the Defendant (21 September 2017), [55]–[58].
[48]Submissions of the Defendant (21 September 2017), [58] (emphasis in original).
[49]Submissions of the Plaintiff (17 August 2017), [20].
[50]Cf Submissions of the Plaintiff (17 August 2017), [20].
Application of the proper construction of s 10(1)(d)(iv) of the Duties Act
As I have accepted both of the propositions for which the Commissioner contends as to the proper construction of s 10(1)(d)(iv) of the Duties Act, the Plaintiff’s appeal fails.
The first proposition for which the Commissioner contends is that s 10(1)(d)(iv) does not apply unless the primary production, in connection with which goods the subject of s 10(1)(d) are, at the relevant time, held or used, occurs on the land the subject of the arrangement that includes the goods. The Plaintiff does not contend that winemaking constitutes primary production for the purposes of s 10(1)(d)(iv) of the Duties Act, and nor does it contend that it conducts grape growing, or any other kind of primary production, on the Land.[51] As indicated previously, on or immediately prior to 19 July 2013, no grape growing or other cultivation was occurring on the Land. It follows that s 10(1)(d)(iv) of the Duties Act does not apply to the Equipment.
[51]Submissions of the Plaintiff (17 August 2017), [12], [14].
The second proposition for which the Commissioner contends is also one which I accept for the preceding reasons, namely, that where the proximate activity in connection with which goods the subject of s 10(1)(d)(iv) of the Duties Act are held is not primary production, but secondary or some other downstream form of production, the exception in sub-paragraph (iv) does not apply to the goods.
The evidence is that the Plaintiff conducts winemaking activities at the Land and that the Equipment is used for winemaking purposes, as well as for the storage or transfer of processed wine grapes or the transportation of wine for sale to consumers.[52] As indicated previously,[53] the Commissioner accepts that, in the absence of any other evidence, the Court can infer that the Equipment was used for the same purposes as at 19 July 2013. In all the circumstances, it is, for the preceding reasons, appropriate that the Court make such an inference.
[52]See above, [9].
[53]See above, [9].
As the Commissioner submits, the Plaintiff does accept that winemaking is not primary production within the meaning of the Duties Act.[54] The Commissioner also submits, and the Plaintiff accepts, that winemaking is a form of production that is downstream from the primary production involved in cultivating wine grapes. It is a form of production which involves a conversion of wine grapes into wine.[55]
[54]Submissions of the Plaintiff (17 August 2017), [12], [14].
[55]Submissions of the Plaintiff (17 August 2017), [13].
It follows that, the Court having accepted the second proposition, the Equipment was not, at the relevant time, held to have been used in connection with primary production. Rather, put at its highest, the Equipment was, at the relevant time, held or used in connection with secondary production, or production that was downstream from primary production, and that it therefore falls outside the scope of s 10(1)(d)(iv) of the Duties Act.
The position which I have reached in relation to the issues the subject of this proceeding is not affected by the fact that the director of the Plaintiff is the director of two companies, each of which own land on which grapevines are planted and on which wine grapes are grown.[56] For the preceding reasons, this is clearly irrelevant to the question whether the Plaintiff, as a separate corporate entity, is or is not entitled to the benefit of the excepting provisions in s 10(1)(d)(iv) of the Duties Act.
[56]Second Ursini Affidavit, [3].
Conclusion
For the preceding reasons, the Plaintiff’s appeal will be dismissed.
The parties are to bring in orders to give effect to these reasons. I otherwise reserve the question of costs.
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