Com State Revenue v Pioneer Concrete (Vic)

[2002] HCATrans 17

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Melbourne  No M52 of 2001

B e t w e e n -

COMMISSIONER OF STATE REVENUE

Applicant

and

PIONEER CONCRETE (VIC) PTY LTD

Respondent

Application for special leave to appeal

GLEESON CJ
HAYNE J

TRANSCRIPT OF PROCEEDINGS

AT MELBOURNE ON FRIDAY, 15 FEBRUARY 2002, AT 9.33 AM

Copyright in the High Court of Australia

MR G.A.A. NETTLE, QC:   May it please the Court, I appear with my learned friend, MR R.R. BOADEN, for the applicant.  (instructed by Commissioner of State Revenue)

MR H.M. WRIGHT, QC:   If the Court pleases, I appear with my learned friend, MR S.G.E. McLEISH, for the respondent.  (instructed by Cornwall Stodart)

GLEESON CJ:   Yes, Mr Nettle.

MR NETTLE: If the Court please. This application for special leave concerns the correct construction of section 63(3)(b) of the Stamps Act 1958. At issue is a question of whether the conception of value “free from encumbrances” includes or excludes from consideration contractual promises in personam which do not affect the quality of the property which is conveyed.

I should say at the outset that the particular section has been repealed more or less, roughly speaking, with effect from 1 July 2001, but the question remains of fundamental importance not only for the replacement section in this State, but also for comparable and cognate sections throughout the Commonwealth.  Your Honours will have seen reference made to some of those in the outline of argument.  Might I, however, hand to your Honours a very brief table in which there is summarised the provisions from each of the States demonstrating unquestionably the importance of the questions to each of the remaining pieces of legislation.

GLEESON CJ:   Where do we find the replacement section in this State?

MR NETTLE:   If your Honours turn to schedule 3 of the document which I have handed to you, you will find the Duties Act Victoria 2000 sections 20, 21, 22 and 23.  If your Honours turn to the tabulation which constitutes the second page in that schedule, being the second‑last page in the bundle, your Honours will see the relevant provision set out:

“Unencumbered value” is the amount for which property might reasonably have sold free from encumbrances -

and contrast that with New South Wales, which follows next.

GLEESON CJ:   Just staying with Victoria for the moment, do you mean that the legislative amendment did not deal with the issue that arose in this case?

MR NETTLE:   It did not.  There is within the Act, both before amendment and replacement, some anti‑avoidance provisions which were brought into effect in 1997 and much is made of them, as your Honours will have seen, in the respondent’s outline of argument to the effect that they were intended to deal with the question the subject of this application, but they do not.  They deal, it is submitted, with the question of whether, when there is a promise which does affect and qualify the property conveyed, it is nonetheless to be excluded from consideration because it was entered into as an exercise in tax avoidance and within a specified period before the day.

HAYNE J:   In this litigation did the anti‑avoidance provision ‑ ‑ ‑

MR NETTLE:   They did not apply, your Honour, because of the time at which the transaction was entered into – entered into in 1995.  Anti‑avoidance provisions did not incept until 1997, therefore not considered.  But it goes more fundamentally, if we may submit, than just anti‑avoidance.  It goes to a fundamental conception of a conveyance duty which affects not only Victorian legislation but also all of the legislation throughout the Commonwealth.

HAYNE J:   Staying with this schedule you have just given us, how does that apply, say, in the New South Wales legislation or the Tasmanian legislation, which seem to be the only two ‑ ‑ ‑

MR NETTLE:   There you have the replacement section where Duties Acts have come in.  If your Honour would turn back to schedule 2, second page of the bundle, your Honour will see all of the Acts listed.  Some of them are asterisked.  Where they are asterisked, they have been replaced with the Duties Acts.  Where not asterisked, they continue as Stamps Acts, over the next page, where the same or cognate conceptions are used.  So either in Duties Act in the leading States, as it were, or, alternatively, still in the Stamps Acts in the other States, the conception remains applicable.

There is a second fundamental reason why the application is important and it is because it provides to the Court an opportunity to arrest the misconception which the Court of Appeal appears to have placed upon this Court’s decision in Buckle’s Case.  If I can ask your Honours to turn to page 130 in the application book, to the judgment of Mr Justice Tadgell in the Court of Appeal, your Honours will see at line 11 his Honour makes the observation that what was said by this Court in Buckle’s Case suggests that the interpretation which the Commissioner gives to the section goes “beyond its intended purpose”.

It is submitted it is clear that could only have been said by reason that his Honour misunderstood what had been held to be the case in Buckle’s Case.  In Buckle’s Case this Court held that because the lien of the trustee was one which gave rise to a proprietary interest, that interest qualified and left only for the beneficiaries a residual interest, so that what was transferred to them was not the corpus but a residual interest.  Accordingly, it followed that the value of what was conveyed was less than the value of the corpus.  It was the value of the residual interest.

But compare and contrast that sort of situation with what is involved here, where there is no promise or proprietary interests which cuts down, qualifies or informs the proprietary interests conveyed.  What is conveyed is the totality of the unencumbered fee simple.  All that happens is that as part of the consideration for the conveyance there is not only cash but also a promise as to how that will be used following the conveyance.

GLEESON CJ:   Was there not a provision relating to the right to possession?

MR NETTLE:   The answer is yes, and there was an express finding that it was not sufficiently in the nature of an interest to be regarded as a proprietary interest.  It was simply a licence to use, if I can use that expression.  The starting point, in our submission, is application book 109 in the reasons for judgment of the trial judge, Justice Balmford, where she correctly - and, it is submitted, unquestionably correctly - invoked what was said by Justice Mason in DKLR, that is to say in the paragraph which begins at paragraph 4 and runs through to “property right”.       What was conveyed by the transfer is the fundamental question.  It is not a question of what was left, economically speaking, after one takes into account promises which might have been given by the transferee as to the way in which the property will be used.

Can I hand to your Honours in addition to the authorities already referred to just the pages from Justice Mason’s judgment which makes the point clear.  DKLR Holding Company (No 2) v The Commissioner of Stamp Duties.  I ask your Honours to go to page 449 where it is observed by his Honour Justice Mason halfway down:

It is a fundamental principle of the law relating to stamp duties that duty is levied on instruments, not on the underlying transactions . . . As we shall see when we come to consider the liability to duty on each of the instruments, in the case of a conveyance the statutory command is that it attracts duty on the property conveyed . . . 

We cannot substitute for the issues presented by the statute a different issue having no foundation in the statutory provisions.  Nor can we substitute for the property which the parties have chosen by their instruments to convey and make the subject of a declaration of trust the interest in property which in a practical sense represents the alteration –

Over the page, if your Honours will, first line, if:

A conveys an absolute estate in fee simple to B and takes from B a lease back for fifty years –

he has nonetheless conveyed an unencumbered fee simple.  So much the more so than this case, where there was no conveyance back of a proprietary interest, but no more than a promise in personam as to how the property might be used.  What was conveyed by the instrument of transfer, which is in application book at 90, was the unencumbered estate in fee simple in the property.  It is simply that there was, as a matter of contract, a promise by the transferee that the transferor after transfer could use the property in a particular way.

May I ask your Honours to go to the contract of sale.  Your Honours will find it begins in the application book at page 1.  Of significant importance is the schedule which appears at page 5, item (1)(2), about line 15, that it is subject to “certain rights” of retention; page 6, paragraph 1.1, the assumption of certain liabilities; page 8, about line 17, the “Grant Agreement” whereby the tipping rights are granted; page 11, condition 2.1, “Condition Precedent”, that the grant agreement be entered into.

GLEESON CJ:   Where is special condition 5?  Page 13?

MR NETTLE:   I will have to take your Honour to that.  Over the page, page 13.  Then there is the grant agreement itself which follows at page 49, expressly held by the Court of Appeal not to constitute a proprietary interest.

GLEESON CJ:   What is the significance of the concept of retention?  Is that a technical term?

MR NETTLE:   No, it is really a falsa demonstratio because nothing is retained.  What is conveyed is the unencumbered fee simple but there is a promise by the conveyee that the conveyor may use the property in a particular way after conveyance.

GLEESON CJ:   How was that concept of retention picked up in the instrument of conveyance?

MR NETTLE:   It is not.  If your Honour looks to the instrument of conveyance, the transfer, it is an unqualified transfer of the unencumbered fee simple.  That is the very point.  If we go back to DKLR and what was said by Justice Mason and thus by the trial judge, we look to what was transferred in order to decide.

GLEESON CJ:   Then how did they give effect to the contractual provision in special condition 5?

MR NETTLE:   First, it was within the contract itself and, secondly, there was the grant agreement itself, to which I have taken your Honour, where as a matter of contract they promised that the transferor would have the tipping right.  So it rested only in contract and not in property.

HAYNE J:   And supported by, was it, some licences and the like?

MR NETTLE:   Yes, it was.

HAYNE J:   Permits, licences and ‑ ‑ ‑

MR NETTLE:   Government licences of the kind which permitted tipping lawfully.  Now, if your Honours please, if one starts with what is said by the trial judge, we contend correctly, at 109 and then contrasts that with what we submit, with respect, was said erroneously by Mr Justice Tadgell at page 132, the point becomes clear.  If one goes to page 132, after at line 5 correctly discerning that the consideration is the full monetary consideration, his Honour then observes in the last four lines:

that the relevant suppositious amounts –

as he terms it –

contemplated in paragraph (B) –

of the section –

is the price that might reasonably have been obtained . . . on the terms on which the vendor did actually sell -

That is to say that his Honour brings to account in the equation of what was the value of that which was transferred not just what was transferred, but also the promise which was made in personam as to how it might be used by the transferor.  That, it is submitted, runs directly counter to DKLR where this Court lays it down that one looks to the property which is transferred and one excludes from consideration that the transferee may have promised as part of the consideration that the transferor may use the property in a particular way.

There it was said that it applied even in the case of a lease back.  Here, a fortiori, for there is no grant of a proprietary interest back which it might be said cuts down or informs or limits the nature of the estate which is transferred.  It is wholly unencumbered and thus transferred.

HAYNE J:   Assume all that to be so for the moment, how does that argument arise under other State legislation?

MR NETTLE:   Because in each case, if this decision of the Court of Appeal be held to be correct, it would mean that when the Comptroller in the particular State comes to ask the question of what is the unencumbered value of the estate transferred, he must consider not only the property which is transferred but also contractual promises which may have been entered into by transferee in favour of transferor as to how the property might be transferred.

HAYNE J:   And would that question be identical under other State legislation?

MR NETTLE:   Absolutely identical and not only under property conveyance, but also under transfer of marketable securities.

HAYNE J:   There is nothing in the Victorian Act which could relevantly distinguish the treatment under that Act from the treatment to be given to a like transaction under other State duty legislation?

MR NETTLE:   Your Honour, I cannot guarantee that it is not beyond the wit of man to think of some argument to make a distinction, but as I stand here, it is submitted it appears to be clear that this question applies, and would apply, to each of the provisions which we have set out in those schedules, because it is such a fundamental question.  The fundamental question is:  does one consider the property which is transferred, as Justice Mason said one must, or does one consider the economic residuum as opposed to the proprietary fascis which is left after one brings to account any contractual promise which might have been made as to how the property would be used.

Your Honours, it is submitted that the error of the Court of Appeal which is made by Mr Justice Tadgell comes about at page 128 of the application book because of a misunderstanding of the effect of the decision of this Court in Buckle’s Case.  In Buckle’s Case, as I have submitted already, this Court held that because the interest of the beneficiaries was cut down and informed by the interests of the trustee, the property the subject of the transfer was a limited estate.  It appears, however, that what Mr Justice Tadgell has taken it to mean at page 130 is that it informs a view which is opposed to the notion that one is to exclude from consideration promises as to how the property is to be used.  That is a fundamental misunderstanding of what was said.

Similarly, Mr Justice Batt has made the same error at page 135, where, although appearing to start out correctly, he concludes in lines 10 through 15 that the matter is in a sense analogous to Promenade Investments, which is the Point Gourde??? principle for valuation, obviously invoking the idea that one is to look to the economic effects of the totality of transactions rather than simply, as he should have, to the value of the property transferred.

If your Honours stop and consider it, if you will, if this is right, it means not only in the case of property transfers but in the case of all sorts of transfers, such as, for example, marketable securities, let us say trading at $10 per share, if they are transferred for $5 together with a promise that they will be voted in a particular way at the next meeting, the Comptroller is to take it the unencumbered value of the property, because it was transferred on those terms, is $5 and not $10.  If there is a man in Toorak that owns a vast estate who is prepared only to deal with his son on terms that his son take it at much less than its market price and use it in a particular way for the benefit of the family but only resting in contract, is the Comptroller to take the small amount of cash consideration which is paid or is he to take the unencumbered value as determined by a market valuer?  The answer, it is submitted, is clear and that is why DKLR is correct.

Your Honours, much is made in our learned friend’s submission in response to our own about the anti‑avoidance provisions which were enacted with effect from 1997 in section 32.  It really does miss the point, it is submitted.  Those provisions in short require that where there has been a transaction entered into within a short period of time before the transaction the subject of duty which has the effect of reducing the unencumbered value, the unencumbered value is to be treated as not so excluded if the Commissioner, having regard to a raft of considerations, reaches the view that it was an exercise in tax avoidance.  That says nothing about what is the unencumbered value.

HAYNE J:   What part of the provision requires consideration of whether it was an exercise in tax avoidance, as you describe it?  Where do I find the provision?

MR NETTLE:   If your Honour goes to section 63(3A), there is the exclusion (3B):

arrangement or scheme with a collateral purpose of reducing stamp duty ‑ ‑ ‑

HAYNE J:   Yes, I see.

MR NETTLE:   But there is no reduction in stamp duty if a contractual promise does not have the effect of reducing the unencumbered value, just as in DKLR.  If the grant of the lease back did not have the effect of reducing the unencumbered value of the fee simple, then there has been no reduction in the unencumbered value for stamp duty purposes. 

Of course it might be otherwise if, as part of an exercise in stamp duty avoidance, a transaction was entered into within the specified period of time which cut down and qualified the nature of the estate which was transferred.  Take, for example, the old sort of death duty schemes that we used once to use whereby a life interest was granted and what was conveyed was the remainder.  Clearly in those circumstances the transfer would carry only the remainder and the unencumbered value of the estate transferred would be only that of the remainder, and it used to work very well.

That would be an exercise in avoidance with these provisions would strike at, preventing the exclusion from the totality of the value of the unencumbered fee simple of the life estate.  But they have nothing to say, it is submitted, about a case of this kind where what is done does not affect the unencumbered value, and nor should they.

Your Honours, given the fundamental nature of the question, given that it affects virtually every revenue statute in the country not only for the conveyances of real property, but for marketable securities, and given, it is submitted, that the error which is made is manifestly so fundamental, it is submitted that leave should go.  If the Court pleases.

GLEESON CJ:   Thank you.  Yes, Mr Wright.

MR WRIGHT:   If the Court pleases.  The fundamental flaw in the Commissioner’s approach, in our respectful submission, is that it is treating this case as an exercise in the identification of the property conveyed, or the interests in property conveyed, rather than an exercise in the valuation of those interests.  It is, in our submission, essentially a valuation case, not a case which requires the identification of what it is that was conveyed.

HAYNE J:   How do you value anything without first determining what the thing is that is to be valued?  You have to start there surely.

MR WRIGHT:   That, of course, is the first step.

HAYNE J:   What is the subject to be valued in this case?

MR WRIGHT:   The subject to be valued in this case is the fee simple that was conveyed subject to the contractual restrictions that, on any view, must have an effect upon the value of that interest.  In our submission, the Court of Appeal correctly identified that error.

GLEESON CJ:   How does the Victorian legislation work if the owner of an estate in fee simple in black acre subdivides black acre into two parcels and conveys parcel A subject to an easement in favour of parcel B?

MR WRIGHT:   Parcel A would be treated as a conveyance of the fee simple subject to that easement and in valuing that, the diminishing or enhancing effect of the easement would be taken into account.  But the matters which bear upon value are not necessarily matters which are necessarily proprietorial in nature.

HAYNE J:   Your base proposition is that encumbrance includes contractual restriction?

MR WRIGHT:   No, your Honour.

HAYNE J:   No?

MR WRIGHT:   Our base proposition is that it does not.

HAYNE J:   Sorry, it does not?

MR WRIGHT:   It does not, because if it is an encumbrance ‑ ‑ ‑

HAYNE J:   I thought you said the subject matter of valuation was the fee simple subject to the contractual restriction.

MR WRIGHT:   If the easement is to be regarded as an encumbrance – and we say it is not – then the land is to be valued without regard to the easement.

GLEESON CJ:   An encumbrance does not reduce the value of the land for relevant purposes, does it?

MR WRIGHT:   That is right, your Honour.

GLEESON CJ:   So if there is a mortgage back to the vendor, you disregard that?

MR WRIGHT:   Exactly.  Encumbrance has been identified in the existing authorities as being an encumbrance in the strict sense relating to security charges on land such as a mortgage or a charge.  Now, the Court of Appeal identified this point on page 124 – in our submission, it goes to the heart of the matter – at paragraph 11:

The reasons record that the learned judge treated question (a) as being, “…in effect, … ‘What was the property conveyed by the transfer?’”, and answered it, consistently with the reasons given upon the first stage as I have noted, namely, (in terms of the instrument of transfer) “all the vendor’s estate in fee simple in the land”.  Perhaps the question might have been more directly expressed but, with respect, its purport is not, as it seems to me, to ask for identification or description of the property conveyed, or the nature of it, for that was not in doubt:  rather, the question concerned the value to be attributed to the interest in real property that was indubitably conveyed.

GLEESON CJ:   Can I take you to the passage on the bottom of page 132 at line 27.  Does that mean that if a person purchases a dwelling house but agrees to permit the vendor to remain in occupation of the house for three years after completion of the sale, because, for example, the purchaser lives overseas, wants to buy it now but does not need to occupy it for three years, you assess duty on the basis that the value is diminished by the vendor’s right of occupancy for three years after completion?

MR WRIGHT:   Yes, your Honour.  In that particular example one imagines that the duty would be assessed on the actual consideration which presumably would reflect the fact that the purchaser was not entitled to immediate possession, but if that for some reason was not the case, as was the position in Bradney, then it would be necessary to have regard to valuation evidence to determine the value of the property subject to that particular restriction, because it stands to reason, we suggest, that a property with a right to immediate possession has a greater value than a property where possession is deferred for three years.  Ultimately it is a question of identifying the value and you can get some guide from the ‑ ‑ ‑

GLEESON CJ:   The value of what?  The value of an estate in fee simple in the land the subject of the transfer, or the value that such an estate would have if sold on terms that the vendor was entitled to remain in possession for three years?

MR WRIGHT:   The Act requires you - if you do not accept the consideration as reflecting the dutiable figure, you look to the market value.  Now, the market value requires you to look at a number of factors.  Indeed, the Victorian legislation is quite specific as to what you do look to.  That, so far as I am aware, is legislation particular to Victoria.  If I perhaps could refer it to your Honours.  It is cited towards the end of the Court of Appeal’s decision on page 133 in a footnote.  Perhaps before I go to that ‑ ‑ ‑

GLEESON CJ:   Just before we leave what appears on page 132, the reference in lines 21 and 21 to “the concept of a hypothetical sale in the ‘open market’” seems possibly to be inconsistent to the reference on lines 26 and 27 to “the terms on which the vendor did actually sell it”.

MR WRIGHT:   Save as to price.  That is the critical exception.  In the open market the hypothetical purchaser is presumed to be acquainted with all circumstances affecting value, including the terms upon which the vendor is prepared to sell the land, and he will assess the purchase price accordingly.  Perhaps if I could just go back for one moment to your Honour the Chief Justice’s example of the sale subject to the retention of possession.  If there was any question that that transaction was designed to reduce the incidence of stamp duty, then it would be open to the revenue to avail itself of the provisions that were specifically enacted to meet the type of situation ‑ ‑ ‑

GLEESON CJ:   No, I was not intending to inject any element of revenue avoidance in the example I gave.

MR WRIGHT:   Yes.  Well, it becomes a valuation question and in looking at that question, in Victoria the matter is governed by the Valuation of Land Act, the relevant section of which is extracted in a footnote at the bottom of page 133.  Subsection (1) says that it applies to all valuations required by “the provisions of any Act”.  Subsection (2) deals with sales evidence and it says:

regard shall be given to the time at which such a sale took place, the terms of such sales, the degree of comparability of the lands in question and any other relevant circumstances.

So, given that the terms of the sales are a relevant factor in applying the sales evidence, it stands to reason that what is being valued must also have account of the same matters.

GLEESON CJ:   I am not sure I follow that.  That affects comparability, does it not?  If you are looking at other sales for the purpose of seeing how comparable they are to the present sale, then there might be more to them than the price, but that does not touch the issue that we are concerned with, does it?

MR WRIGHT:   But, your Honour, if you are valuing an interest that was conveyed subject to a contractual reservation of the right of possession for three years, then in applying comparable sales, you would say, “Well, these sales were not subject to any such restriction, therefore, they indicate a higher value than would be the case if it were subject to the reservation or possession”.

GLEESON CJ:   Yes.

MR WRIGHT:   Your Honour, the primary question which is said to justify the grant of special leave was never raised below, either at first instance or in the Court of Appeal, and that question ‑ ‑ ‑

HAYNE J:   Sorry, I thought the whole thrust of the Court of Appeal judgment was whether or not you took account of these contractual restrictions and that, as I understand it, is the point which it is now sought to agitate.  What do you say did not arise?

MR WRIGHT:   The point that is now sought to agitate is whether these contractual restrictions are to be regarded as encumbrances for the purpose of paragraph (b) of the Act and, as I understand it, the importance of the case hinges upon that proposition.

GLEESON CJ:   Mr Wright, I had the impression from the written submissions – but I may have misunderstood something – that you were contending that the point that arose in this case has been overtaken by legislation in Victoria.

MR WRIGHT:   Yes.

GLEESON CJ:   Not anti‑avoidance legislation – or were you talking about anti‑avoidance legislation?

MR WRIGHT:   We were talking about the amendments to the Act that were made in 1997.

GLEESON CJ:   The anti‑avoidance amendments?

MR WRIGHT:   Yes.

GLEESON CJ:   But this case has nothing to do with revenue avoidance, has it?

MR WRIGHT:   Well, what the Commissioner sought to do initially was to aggregate the consideration in the two transactions on the basis that they were effectively a single transaction.  When it became clear that that could not be done, because the grants agreement was not the conveyance of an interest in real property, the Commissioner was left in the same sort of situation that it had faced in Bradney, namely the conveyance of an interest in property subject to a contractual restriction which affected value but which was not an encumbrance.

GLEESON CJ:   But can I just come back again to the example that I gave of a person who owns a dwelling house in Victoria and he sells the house to someone who lives in England.  The person who lives in England says, “I am not planning to move to Melbourne for three years, so I want to close this deal now.  I want to take advantage of the relative values of the pound sterling and the Australian dollar.  I want to take title to that land now but you can remain in possession and I will pay the land tax for three years”.  So there is a sale of the dwelling house completed now but on a contractual term that the vendor can remain in possession for three years – no element of revenue avoidance at all.  How does the Commissioner assess that to duty?

MR WRIGHT:   The Commissioner should assess duty on the consideration stated in the transfer, which presumably would reflect the fact that the purchaser was not entitled to immediate possession because in the hands of the purchaser, if the purchaser now wished to resell that property, he would be obliged to do so subject to that restriction as to possession and the property would then have a lesser value.

GLEESON CJ:   So that example raises the same question as this case raises and it is not affected by the anti‑avoidance provisions?

MR WRIGHT:   Well, save to the extent that the transaction in this case was somewhat more sophisticated than the example that your Honour puts to me and it would have been open to the Commissioner ‑ ‑ ‑

GLEESON CJ:   Well, that is an example of the fact, is it not, that the anti‑avoidance provisions do not touch this problem?

MR WRIGHT:   Well, the anti‑avoidance provisions, with respect, do touch it because ‑ ‑ ‑

GLEESON CJ:   May I put that more accurately.  In cases that involve no element of revenue avoidance, this problem can still arise.

MR WRIGHT:   If you look at subsection (3A), which is on page 118, the effect of that is to require collateral arrangement, if I can compendiously so describe them, to be taken into account if those arrangements have the effect of reducing the value.  So that is the prima facie situation.  It is then a matter for the taxpayer to demonstrate to the Commissioner that a collateral purpose was not the reduction of stamp duty and then the factors which are to be taken into account by the Commissioner are then set out in (3C).

So the sections were enacted to nullify the effect of Bradney’s Case, which raised precisely the situation that your Honour puts to me, namely a sale which was subject to a 40‑year, I think, unregistered lease and which obviously had a significant depressing effect on the value of the interest that was conveyed.  His Honour Mr Justice O’Bryan said that is not an encumbrance and therefore is not to be necessarily disregarded in assessing the value of the interest.  In response to that – and this was conceded both at first instance and in the Court of Appeal – subsections (3A), (3B) and (3C) were enacted and they ‑ ‑ ‑

HAYNE J:   I understand that, but if we can turn away a moment from the anti‑avoidance provisions, do you dispute Mr Nettle’s contention that other State legislation is in a form today which would present a substantially identical problem of assessing a transaction of this kind to duty?

MR WRIGHT:   Firstly, we would say that the proposition simply has not been demonstrated.

HAYNE J:   Yes, I understand that, Mr Wright.  My question was much more precise.  Do you dispute that other State legislation is comparable?

MR WRIGHT:   To the very confined extent that there are references to unencumbered value or value free of encumbrances, but apart from that each State has different consequential provisions and a different context which, in our submission, really prevents the point from being said to be one of general application through the nation.

Now, so far as free of encumbrances is concerned, that was never debated in this case.  It was conceded at first instance and in the Court of Appeal that these contractual reservations and restrictions were not encumbrances within the meaning of paragraph (b) and that is the point which is now sought to agitate and there is a direct challenge to the correctness of Bradney, as we understand it.  That is what emerges from the written submissions in support.

In our submission, it would be inappropriate to permit the applicant to ventilate that question for the first time before this Court in circumstances where those concessions have been made below and this Court does not have the benefit of the reasons of either the trial judge or the Court of Appeal as to the meaning of the expression “free from encumbrances”.  But quite apart from that – and perhaps I should add it was dealt with by the Court of Appeal and the Court of Appeal discussed the decision in Bradney but it did not discuss that decision in the context of a challenge by the Commissioner to the correctness of that decision.  It discussed it in the context of a submission on our part to the effect that because the contractual restrictions were not encumbrances and therefore

were not to be disregarded, they must necessarily be regarded in the consideration of value.

Now, the Court of Appeal did not accept that Bradney went that far but that was the context in which the decision was discussed.  Moreover, we would say that the decision in Buckle is quite consistent with Bradney and both of those decisions confine encumbrances to charges on the property in the nature of security interests, as I indicated before.  In Buckle on page 245 there is reference to section 66 of the New South Wales Act which uses the expression “unencumbered value” and they say at about line 48:

This suggests that “unencumbered” is used in s 66(1) not in a loose sense but to refer to security interests in, or charges or other liabilities which attach to, the property in question.

GLEESON CJ:   Thank you, Mr Wright.  I think your time is up.  In this matter there will be a grant of special leave.  Call the next case, please.

MR WRIGHT:   If your Honours please, we would submit, with respect, that if special leave is to be granted, it should be conditional upon the Commissioner undertaking to pay the costs of the appeal given that it is raised by the revenue in relation to the basic interpretation of a revenue statute.

GLEESON CJ:   Yes, we have noted that submission.  We will not alter the order we have made.

MR WRIGHT:   If the Court pleases.

AT 10.14 AM THE MATTER WAS CONCLUDED