Chief Commissioner of State Revenue v Mr Espresso Group Pty Ltd

[2012] NSWADTAP 1

Administrative Decisions Tribunal

New South Wales

Case Title:	Chief Commissioner of State Revenue v Mr Espresso Group Pty Ltd
Medium Neutral Citation:	[2012] NSWADTAP 1
Hearing Date(s):	27 July 2011
Decision Date:	27 January 2012
Jurisdiction:	Appeal Panel - Internal
Before:	J Needham SC, Deputy President M Hole, Judicial Member C Bennett, Non Judicial Member
Decision:	1.Application for leave to extend the appeal to a review of the merits is allowed. 2.The appeal is allowed. 3.Order that the following order be substituted: The application to the Tribunal appealing the original decision of the Chief Commissioner of State Revenue made on 31 July 2008 is dismissed. 4.No order as to costs.
Catchwords:	Dutiable property - goods and fixtures
Legislation Cited:	Duties Act 1997 (NSW) Taxation Administration Act 1996 (NSW)
Cases Cited:	McDonald's Australia Ltd v Chief Commissioner of State Revenue [2005] NSWSC 6 Commissioner of State Revenue v TEC Desert Pty Ltd [2009] WASCA 128 Vopak Terminals Australia Pty Ltd v Chief Commissioner of State Revenue [2004] VSCA 10 DKLR Holding Co (No2) Pty Ltd v Commissioner of Stamp Duties (NSW)(1982) 149 CLR 431] Hallen v Runder (1834) 1 CM & R 266 (149 ER 1080) Eastern Nitrogen Ltd v Commissioner of Taxation (2001) 108 FCR 27 Commissioner of Taxation v Metal Manufactures Ltd (2002) 108 CR 150 North Shore Gas Co Ltd v Commissioner of Stamp Duties (New South Wales) [1940] HCA 7; (1940) TEC Desert Pty Ltd v Commissioner of State Revenue (WA) [2010] HCA 49
Texts Cited:	6th Edition Benjamin Sale of Goods
Category:	Principal judgment
Parties:	Chief Commissioner of State Revenue (Appellant) Mr Espresso Group Pty Ltd (Respondent)
Representation
- Counsel:	Counsel C J Leggett (Appellant) M L Robertson (Appellant)
- Solicitors:	Crown Solicitor's Office (Appellant) V Chorafitis (Respondent, agent)
File number(s):	099079
Decision Under Appeal
- Court / Tribunal:
- Before:	Revenue Division
- Date of Decision:	25 November 2009
- Citation:	Mr Espresso Group Pty Ltd v Chief Commissioner of State Revenue [2009] NSWADT 291
- Court File Number(s)	096054
Publication Restriction:

REASONS FOR DECISION

1. The Appellant has appealed against the decision made by Judicial Member A Verick in the Revenue Division of the Tribunal on 25 November 2009. That decision set aside the determination of the Chief Commissioner made on 31 July 2008 and remitted it to the Chief Commissioner to make a determination according to law by disregarding fixtures that were included in the assessment.

2. The facts of the dispute between the parties related to an Assets Sale Agreement ("the Agreement") dated 18 December 2007 which provided that the respondent purchase a business previously carried on by the vendor. The relevant parts of the Agreement were set out comprehensively in paragraph 4 of the reasons of the learned Judicial Member.

3. The decision of the Chief Commissioner made on 31 July 2008 assessed as dutiable property the "furniture and fittings" as referred to in the Agreement.

4. The Agreement provided that the vendor to the respondent carried on "the business of the sale of coffee and coffee related supplies". The Agreement also recited that the vendor "is desirous of selling and the purchaser is desirous of purchasing the assets relating to the business (both those hereinafter defined) as a going concern ...". The learned Judicial Member did not decide that the Agreement reflected a sale of business, that it was an agreement to sell assets.

5. The Agreement provided that the respondent would have the right to use the fixtures, this would not be consistent with an asset sale agreement. The Agreement provided as part of the 'Operative Provisions' at "Assets" as set out in paragraph 4 of the reasons of the learned Judicial Member as meaning "(f) other assets referred to in clause 3 hereof to be sold, transferred or assigned by the vendor to the purchaser of this Agreement which are required to operate the business as a going concern".

6. It will be necessary for three issues to be decided being:

   1 should the Appeal be extended by leave to a review of the merits of the decision under the Appeal;
   2 does the Appeal raise questions of law and if so how those questions should be answered. The questions are as set out at paragraph 22; and
   3 should costs be awarded in relation to the Appeal.

Issue 1

1. The appellant has asked that the Appeal be extended to the merits on the following basis:

   1. The Tribunal did not decide the merits, namely it failed to determine on the evidence before it whether each item of the furniture and fittings was affixed to land, and had that degree of affixation necessary to be treated in law as part of the land rather than a good.
   2. Accordingly, a decision was not, but needed to be made, on the basic dispute of fact.
   3. The material the respondent relied on was placed before the Tribunal.
   4. That material was not probative evidence of the asserted fact. It does not discharge the respondent's onus of proving the assessment to be excessive, namely the factual basis for its case that each and every item of furniture and fittings was not a good.
   5. Accordingly, even before considering the legal character of an agreement to sell fixtures, the respondent failed to establish in fact that each and every item of furniture and fittings assessed as a good was not a good.

2. The dispute between the parties related to whether the furniture and fittings were affixed to land and had the degree of affixation necessary to be treated in law as part of the land rather than a good. A decision was necessary in relation to this dispute of fact. A decision was not made on this basis by the Tribunal rather reference was made to duty being assessed on the furniture and fittings.

3. The respondent was required to place before the Tribunal below all necessary information to allow a decision to be made in respect of the dispute of fact. The material relied on by the respondent did not discharge the respondent's onus of proving that the assessment was excessive as it was not established in fact that each and every item of furniture and fittings assessed as a good was not a good.

4. The respondent contended that the Tribunal had addressed "the primary issue" being that "the furniture and fixtures were neither goods (s 11(1)(j) Duties Act ) nor an interest in land (s 11(1)(a) and (l) Duties Act ). This contention was on the basis that pictures in the submissions made had identified what constituted furniture and fittings "-ie what was affixed and what was not." Further that the Tribunal "did in fact find that there was no sale of goods or a transfer of an interest in land..." at paragraph 25. The Tribunal noted that it was bound by his Honour Justice Gzell's view as expressed in McDonald's Australia Ltd v Chief Commissioner of State Revenue [2005] NSWSC 6 ("McDonald's"). On the basis of this there was no sale of goods or interest in land and that therefore there was no dutiable transaction within s 8 of the Duties Act .

5. The Appellant's Counsel made comprehensive written submissions which included those set out below.

6. The structure of the Agreement provided that the purchase consideration for the assets was to be allocated as set out in clause 4.1 of the Agreement. It is necessary to consider whether the assets referred to in the Agreement were goods or fixtures. The material provided to the learned Judicial Member included a financial report for the year ended 30 June 2007. This financial report disclosed relevant property, plant and equipment and described the items and values as:

   ·plant & equipment $13,947.48

   ·office furniture & equipment $4,243.29

   ·furniture and fittings $611,953.40

   ·The Agreement also provided that the vendor "as beneficial owner" sold those assets. Accordingly the degree of annexation and object of annexation of the assets must have been such that the assets were capable of being sold by the vendor as beneficial owner and/or if any assets had been tenant's fixtures then prior to completion the vendor/lessee must have dealt with the fixtures in such a manner as to enable them to be sold to the purchaser.

7. The Agreement , referred to as an "Asset Sale Agreement" was for the purchase of a going concern which included as assets those referred to in Clause 3 which are required to operate the business as a going concern. Clause 3 provided that the Vendor sell, transfer or assign (inter alia) "the goods used in connection with the Business" and "the fixtures used in connection with the Business". The right to use fixtures is not consistent with an Asset Sale Agreement. The fixtures were described in Schedules to the Agreement as being located at 4 properties although the benefit of the Leases included in the Agreement refers only to 3 of the properties.

8. The Agreement provided for the consideration payable as $660,703.00 which included an item described as "fixtures" as $475,495.00, and an item described as 'goods' as $22,000.00.

9. The financial report for the Mr Express Trading Trust for the year ended 30 June 2007 disclosed as "Property, Plant and Equipment" items being Plant and Equipment - $13,947.48, "Office Furniture & Equipment - $4,243.29 and "Furniture & Fittings" - $611,953.40. These items were included in the assessment for duty by the appellant as dutiable in the total sum of $630,146.17 and thus duty was calculated as $23,851.00.

10. The Agreement also provided that leases of various properties disclosed as three in one part of the Agreement and as four properties in another part of the Agreement were to be assigned to the respondent although the Agreement could be completed in the absence of assignment and on the basis that the parties do everything to complete the assignment of the leases after completion. The relevant clauses of the Agreement relating to the current contracts of the vendor and the leasing agreements provided that the respondent accept liabilities and indemnify the vendor in relation to those current contracts and leasing agreements and provided for the vendor to use its endeavours to obtain any necessary consents or agreements from third parties.

11. In response to a request for information concerning the transaction the solicitors for the respondent submitted that no valuation be furnished in relation to the plant and equipment. OSR agreed that no valuation be obtained.

12. The issue as to whether the assets in the Agreement were goods or fixtures was referred to by the learned Judicial Member at paragraph 13 of the Tribunal's decision. Then at Paragraph 14 the learned Judicial Member referred to McDonald's and to the decision of His Honour Justice Gzell wherein he held that the proper characterisation of the transaction "is that contained in Hallen" a reference to Hallen v Runder (1834) 1 CM & R 266 (149 ER1080) (Hallen).

13. The Appellant has discharged the onus as to whether leave should be granted to extend to a review of the merits of the decision under appeal.

Questions of law

1. The Appellant raises three questions of law being:

   1 whether the Tribunal failed to carry out one of its principal statutory functions, namely to find facts accordingly to the evidence presented and having regard to the onus of proof set out in section 100(3) Taxation Administration Act 1996 (NSW);

   2 whether the furniture and fittings - the subject of the agreement for sale - are dutiable property within section 11(1) (a),(j) or (l) of the Duties Act ; and

   3 if the answer to (2) is yes then whether the agreement for sale was a dutiable transaction within section 8 Duties Act .

The Appellant contends:

(a) The Tribunal failed to address the primary issue of fact, namely - on the evidence before it - whether the furniture and fittings assessed by the appellants to duty as goods were, as contended by the respondent, not goods but fixtures. The Tribunal, although recording the issue at para [12], commenced wrongly at para [13] with the assumption that furniture and fittings were fixtures. The Tribunal failed to determine whether the respondent discharged its legal and evidential onus of proving that furniture and fittings were not goods. Accordingly, the Tribunal's decision has no factual basis and must be set aside.

(b) Furniture and fittings are either goods or an interest in land - there is no third category. If some of the furniture and fittings were on the evidence found to be fixtures, then the furniture and fittings formed part of the land to which they were affixed - fixatur solo , solo credit . The "owner" of the fixtures in law owned an equitable interest in the land owned by that third party. Accordingly, ex hypothesi , the fixtures were dutiable property with s 11(1)(a) of the Duties Act . Further, the sale of the fixtures would also fall within s 11(1)(l) Duties Act as being an interest in dutiable property (being land) referred to in a preceding paragraph (being s 11(1)(a) Duties Act ).

(c) The respondent, in agreeing to purchase the furniture and fittings, thereby purchased dutiable property under s 11(1)(a) (Land), s 11(1)(l) (an interest in Land) and under s 11(1)(j) (goods) of the Duties Act . Thus the agreement was a dutiable transaction within s 8. This was not the very special case of the owner of the land agreeing to purchase fixtures in law owned by him from the tenant, but the ordinary case of a purchaser agreeing to purchase the goods or interest in land - however the items are characterised - owned by the vendor. The Tribunal misunderstood the authorities cited, which were unanimous in treating a sale of fixtures in the ordinary case as a sale of an interest in land.

1. Section 11(1) Duties Act provides that dutiable property is any of the following:

   "...
   (j) goods in New South Wales, if the subject of an arrangement that includes a dutiable transaction over any dutiable property (other than intellectual property) elsewhere referred to in this section, 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 land used for primary production,
   (v) livestock,
   (vi) a registered motor vehicle,
   (vii) a ship or vessel,
   ... "

2. The Appellant excluded the items being stock-in-trade and the registered motor vehicle from the assessment of duty. The respondent bore the onus of proving to the Tribunal that furniture and fittings were not goods. If this onus was not discharged the first question of law must be answered on the basis that one of the principal statutory functions had not been carried out.

3. Unless the goods fell within one of the exceptions then they were dutiable.

4. The learned Judicial Member referred to the judgement of Gzell J in McDonald's .

5. It was submitted by the Appellant that McDonald's case is authority for the proposition that in certain circumstances a landlord will not be liable to pay duty on the transfer to it of tenant's fixtures where the tenant has waived its right to remove fixtures. That for the following reasons McDonald's is distinguishable as, the respondent was a purchaser from a tenant where that tenant had not waived its right to remove its fixtures. The tenant remained liable under certain leases as referred to in the Agreement and the Agreement envisaged the respondent becoming the lessee by way of an assignment or otherwise. At the time of the Agreement the respondent was not the tenant of the landlord. Nor was the vendor the tenant of the respondent.

6. In the present case the facts are not within the proposition in McDonald's case.

7. In Hallen the tenant had purchased fixtures which he had a right to remove during his tenancy. He agreed with the landlord to refrain from removing those fixtures on the basis that the landlord agreed to take them at a valuation to be made by two brokers. A tenant was held entitled to take an action for the price of those fixtures. The landlord agreed to the tenant buying the fixtures then sought to rely on the statute requiring the agreement to be in writing to avoid paying for the goods. This was considered to be an unmeritorious claim by the landlord and Parke B found the landlord liable to the tenant. The waiver of the right to remove the fixtures overcame the requirement of the Statute of Frauds and it was also held that it was not a sale of any interest in land and writing was therefore not required. Then at 277(ER 1084):

   "We are quite satisfied that this is not a sale of any interest in land, for the reasons given in the course of the arguments".

8. At paragraph 70 of McDonald's Gzell J commented:

   "In my view, Eastern Nitrogen and Metal Manufactures dealt with a different point: a sale by the owner of land of fixtures annexed to it. In the instant circumstances and in Hallen the issue was the proper characterisation of "sale" by a tenant of tenant's fixtures to a landlord. I am of the view that the proper characterisation of the transaction is that contained in Hallen."

9. The Appellant submitted that the fixtures in the Agreement were capable of being sold by the Vendor as Clauses 4.2 and 3.1 disclose the Vendor as being "beneficial owner". If any assets had been tenant's fixtures then prior to completion the Vendor/Lessee must have dealt with them in such a manner to enable them to be sold to the purchaser. If that had not been so the fixtures could not have been offered to the Purchaser.

10. In the event that the assets were not capable of being sold by the vendor as beneficial owner then the vendor would not have been able to offer the assets for sale to the purchaser. No evidence was brought or suggested by the respondent that it could not take good title to the assets or that the lessors are asserting legal title to the assets subject of the Agreement.

11. S11 (1) Duties Act defines dutiable property as including (inter alia) goods in New South Wales, if the subject of an arrangement includes a dutiable transaction over any dutiable property elsewhere referred to in s 11. S11 (1) (a) describes 'land in New South Wales' as dutiable property. S11 (1) (l) excepts the interests set out at (i), (ii) and (iii) thereof from an interest in any dutiable property referred to in any preceding paragraph of s11. S11 (1) (g) includes described items as dutiable property and being part of a business asset; this clause was not a focus of the Appellant in this matter.

12. The Appellant submitted that the Agreement included goods that were capable of being sold and that they were dutiable property within the definition set out at s11 (1) (j) Duties Act . That those goods were not within the exception to s11 (1) (j) Duties Act and that the stock in trade and registered motor vehicles were not included in the assessment by the Office of State Revenue.

13. The Appellant submitted that the opinion of the authors of the Sixth Edition of Benjamin Sale of Goods at (1 - 095), where consideration is given to the unsevered tenant's fixtures by a tenant to an incoming tenant or purchaser was regarded at common law as merely a surrender or abandonment of rights to sever them and was not a sale of goods, is incorrect. The reasons set out by McLure JA in Commissioner of State Revenue v TEC Desert Pty Ltd [2009] WASCA 128 (TEC) for this were not criticised by the High Court in TEC Desert Pty Ltd v Commissioner of State Revenue (WA) [2010] HCA 49 ( TEC Desert), further that Gzell J in McDonald's was dealing with, and focusing on, the issue of a sale by a tenant to the landlord.

14. In Commissioner of State Revenue v TEC Desert Pty Ltd [2009] WASCA 128 ("TEC") McLure JA considered McDonald's and Hallen and commented at Paragraph 223 that "In any event, the concept of waiver of a tenant's right can only apply to the landlord (or subsequent purchaser of the land) who, as the owner of the land, is also the owner of the unsevered fixtures. The waiver of a right, title or interest by a tenant in tenant's fixtures cannot confer on an incoming tenant or stranger ownership of, or the right to sever and remove the fixtures." Further at paragraph 226 after analysing various references concluded that "....a tenant's right to claim and remove tenant's fixtures gives rise to an equitable interest in the land to which they are attached. Thus, the tenant's interest would have priority over a subsequent equitable interest in the land created by the freehold owner."

1. The approach taken by Emmet J in Commissioner of Taxation v Metal Manufacturers (2001) 108 FCR 150 ('Metal Manufacturers') is consistent with the approach taken by the Court of Appeal of the Supreme Court of Victoria in Vopak Terminals Australia Pty Limited v Commissioner of State Revenue [2004] VSCA 10 at (80) ('Vopak') and with observations made by the High Court in TEC in affirming the observations of Dixon J in North Shore Gas Co Ltd v Commissioner of Stamp Duties (NSW I (1940) 63 CLR 52 at 68-69) .". The Appellant submitted that many authorities on the point were collected by Wheeler JA in TEC:

   117 "As a matter of principle, however, the starting-point is that it is now to be accepted, in my view, that an interest in a fixture, held by a person other than the owner of the land, is an interest in land. That is, I would accept the "better opinion" of Dixon J in North Shore Gas Co Ltd v Commissioner of Stamp Duties (New South Wales) [1940] HCA 7; (1940) 63 CLR 52 at 68 (see also Rich J at 62). On that basis alone, one would have thought that the sale of a tenant's fixture by the tenant was the sale of an estate or interest in land. Since the tenant is not the owner of the absolute estate in the land, the type of questions discussed in relation to DKLR Holding Co (No2) Pty Ltd v Commissioner of Stamp Duties (NSW)(1982) 149 CLR 431 do not arise; the tenant has only a limited interest, and can sell only that.
   118 The following cases would also appear to support the propositions that ownership of a fixture, by a person who does not own the land on which it is situated, is an interest in land, and that that interest, whatever its precise nature, can be assigned or sold. They do not all concern tenants, but the broad principle would appear to be capable of application to tenants. "

2. It was submitted that this appeal is distinguishable from Hallen as:

   there is an agreement for sale rather than a waiver,
   the transferee is a third party not the lessor, and
   an interest in the assets passed immediately under the Agreement, unlike Hallen where fixtures would accrue only when the premises were vacated.

3. The respondent filed documents on 23 July 2009 for consideration by the Tribunal which includes a reference to the dispute. This refers to the interpretation by the respondent that there was neither a transfer of goodwill nor an assignment of existing leases. The Appellant drew attention to the inclusion of the goodwill in the assets shown in the Agreement albeit as shown 'Nil' value. Attention was also drawn to the provision in the Agreement to Clause 5.2 which contemplates assignment of the leases.

4. The Appellant noted s 26 Duties Act provides a discretion to the Chief Commissioner in respect of certain transactions concerning goods and other property. This discretion is not available where the value of goods used in connection with a business in respect of which the goodwill of the business is, or is part of the dutiable property. The Agreement included "goodwill of the Business" as part of the "Sale of the Business and Assets". This discretion is therefore unavailable.

5. The Appellant's representative drew attention to the time at which the transfer of dutiable property occurs is, in this matter, when the Agreement was entered into, being 18 December 2007 in accordance with s 9 Duties Act .

6. The Respondent's representative noted that the Agreement was entered into to provide new capital for restructure. That the company now had no further resources to find legal representation.

7. The Respondent's representative submitted that the Tribunal had found the facts in accordance with the evidence presented being the photographs supplied to the Tribunal. That the fitout of the premises were annexed to the ground and the fixtures were all the items that were set on top of that fit out.

8. The Respondent's representative submitted that the facts were similar to McDonald's. That the decision of the learned Judicial Member was correct.

9. The Respondent's representative referred to Revenue Ruling DUT004 in respect of Dutiable Transactions Relating to Goods and their Property. It was submitted that this ruling excluded goods, however, 'goods' did not include 'fixtures'. That as the leases were expired and the vendor was holding over on a month to month basis, then the fixtures were not an interest in land. The Appellant's representative submitted that RR DUT004 must be considered on the basis that Clause 8 of RR DUT004 excludes "fixtures" in the context of the ruling. The context was a reference to Clause 9 which recites s 11 (j) Duties Act being inclusions that are defined which does not include "tenants fixtures". It was noted that "tenant's fixtures" are not "goods" until severed and taken away.

10. The Respondent's representative referred to TEC and noted that at paragraph 24 the following comment was made as to the objective intentions with which the item was put in place:

    "To this may be added the statements by Conti J in National Australia Bank Ltd v Blacker . There, with reference to a number of decisions, including that of Walsh J in Anthony v The Commonwealth , he said:
    'There is a variety of general principles which should be considered in assessing whether an item of personal property has become attached to land in a manner designed to achieve a specific objective or a variety of objectives, such as to become a part of the realty and therefore, a fixture. Whether an item has become a fixture depends essentially upon the objective intention with which the item was put in place. The two considerations which are commonly regarded as relevant to determining the intention with which an item has been fixed to the land are first, the degree of annexation, and secondly, the object of annexation.'"

    The submission was that it was the intention of the respondent to establish the items as fixtures. Further that as it was the intention to sever the fixtures they were not an interest in land. There was no evidence of this contention.

Leave to extend to a review of the merits

1. Leave is extended as set out in Paragraph 19.

Questions of Law

1. The renaming of the Agreement as an Asset Sale Agreement does not change the effect of the Agreement that it was a sale of a going concern and that the items referred to as being the assets subject of the purchase consideration and referred to as "the fixtures" must be categorised as either a tenant's fixture or a good within the definition of section 11(1)(j) of the Duties Act .

2. The Tribunal failed to find facts according to the evidence presented and having regard to the onus of proof born by the Respondent.

3. The Tribunal below did not make a finding whether the items referred to in the Agreement as 'furniture and fittings' were fixtures or goods on the basis of the evidence provided. The respondent bore the onus to establish that the 'furniture and fittings' were not goods. The evidence provided to the Tribunal was insufficient to establish that they were not goods.

4. The characterisation of the Agreement is a sale of a business as a going concern including goods used and fixtures used in connection with the business. It is a sale from a tenant to a third party with the benefit of leases and provisions to assign those leases and provisions to overcome a delay in assignment of those leases.

5. S 11(1)(a) Duties Act includes land as dutiable property. Fixtures and fittings, as an interest in land or as an interest in dutiable property (being the land) are dutiable property.

6. The furniture and fittings described at paragraph 15 included as fixtures used in connection with the business the subject of the Agreement are dutiable property within the provisions of s 11(1)(a), and s 11(1)(l) Duties Act as they are an interest in land or an interest in dutiable property being in the lease of the land.

7. The fixtures and goods as described at paragraph 14 are dutiable property within the provisions of s 11(1)(j) Duties Act .

8. The Agreement is an agreement for the sale of a business including dutiable property and is a dutiable transaction as referred to in s 8 Duties Act

Costs

1. The Notice of Appeal was filed on 22 December 2009 being 2 days earlier than expiry of the time to file. The Appellant submitted that the tardiness was due to indecision within the OSR and awaiting the decision in TEC Desert Pty Ltd v Commissioner of State Revenue in the Court of Appeal S.C. of W.A. [2009] WASCA 128 (5) . Then deferral of this matter was sought awaiting the decision in TEC Desert which was handed down on 15 December 2010. The Appellant has not asked for costs and the requirement for interest on the unpaid duty between the date of the Tribunal decision on 25 November 2009 and the date of this decision has been waived .

Decision

1. Application for leave to extend the appeal to a review of the merits is allowed.
2. The appeal is allowed.
3. Order that the following order be substituted:

The application to the Tribunal appealing the original decision of the Chief Commissioner of State Revenue made on 31 July 2008 is dismissed.

4. No order as to costs.

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