Commissioner of State Revenue v Lend Lease Development Pty Ltd; Commissionr of state Revenue v Lend Lease IMT 2 (HP) Pty Ltd ; Commissioner of State Revenue v Lend Lease Real Estate Investments Limited

[2014] HCATrans 243

[2014] HCATrans 243

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Melbourne  No M74 ‑ M79 of 2014

B e t w e e n -

COMMISSIONER OF STATE REVENUE

Appellant

and

LEND LEASE DEVELOPMENT PTY LTD

Respondent

Office of the Registry
  Melbourne  No M80 of 2014

B e t w e e n -

COMMISSIONER OF STATE REVENUE

Appellant

and

LEND LEASE IMT 2 (HP) PTY LTD

Respondent

Office of the Registry
  Melbourne  No M81 of 2014

B e t w e e n -

COMMISSIONER OF STATE REVENUE

Appellant

and

LEND LEASE REAL ESTATE INVESTMENTS LIMITED

Respondent

FRENCH CJ
HAYNE J
KIEFEL J
BELL J
KEANE J

TRANSCRIPT OF PROCEEDINGS

AT CANBERRA ON WEDNESDAY, 5 NOVEMBER 2014, AT 10.17 AM

(Continued from 4/11/14)

Copyright in the High Court of Australia

____________________

FRENCH CJ:   Yes, Mr Solomon.

MR SOLOMON:   If your Honours please.  Good morning, your Honours.  I will be much briefer than the in terrorem 30‑minute estimate I gave yesterday evening.  That was just designed to put my learned friends off for the evening, your Honours.  I have five short points to make to conclude our submissions.  Three of them concern the remaining points we seek to make in relation to our learned friends’ outline.

First of all, if your Honours would turn in our learned friends’ submissions to paragraph 22, our learned friends contend that the starting point in determining the consideration is the amount stated in the agreement between the parties as the consideration.  They cite principally for that submission Bullfinch.  Bullfinch is very short.  I do not want to take your Honours to it in terms, but your Honours may wish to have a look at it.

Even if – and we do not accept this is so – that proposition is in a general way accurate or accurately derived from Bullfinch, in this matter it in any event begs the question as to the agreement being referred to, and we would submit to your Honours that it is not really a useful starting point to seek to identify an agreement to see the consideration.  In truth, it is chaining oneself to an instruments‑based approach to do that, and it is unlikely usefully to cause your Honours to answer accurately the questions set out by the majority in Dick Smith needing an answer.

Secondly, of the three points, the respondent, like the Court of Appeal below, places significant and, we say, inapposite focus on the land at the time of the transfer.  If I could just give your Honours some references - at six points the respondents speak as to whether or not the land is developed - paragraphs 6(a), 20, 33, 46, 49(d) and 50.

At least at paragraph 18 the respondents focus on the condition of the land.  As I have already demonstrated yesterday, there is a real focus on the issue of value in the contentions.  Those matters will each for your Honours be unhelpful diversions.  They will unhelpfully divert attention from the correct inquiry, so do not do that.  Further, moreover, they cause there to be a loss of focus on the dutiable property being transferred which is the fee simple estate.

Finally, while I have before your Honours the respondent’s submissions, the proposition for which our learned friends contend can usefully be seen, I think, at two places read together in the outline.  If your Honours would first of all go to paragraph 9(b) on page 5, there is a submission about the gasworks site remediation contribution.

The case our learned friends press is that the Authority was obliged to carry out remediation and that in return Lend Lease was obliged to pay to VicUrban an amount capped at $27 million, and as a matter of characterisation we cavil with that as usefully being an accurate summation of the application of the statutory test.

More squarely, that is, referring to all of the payments, if your Honours turn to page 8, paragraph 14(b), the case against us there set out is that Lend Lease, it is submitted by our learned friends, promised to make additional payments, that is, other than the stage land payment, the genesis of which I took your Honours to yesterday:

in return for promises by VicUrban to carry out or complete works in relation to other land . . . in order to obtain respondents to carry out the Developer’s Project . . . and to derive profits from that project pursuant to the Development Agreement.

We want to say two or three things about that case.  First, we submit to your Honours that it is merely conclusionary in the way in which it is put forward.  It is not an analysis of clause 4.1 or clause 4.7 or Schedule C or, we respectfully submit, a reasoned response to our submissions on those clauses.

Further, respectfully, it repeats the Bambro fallacy.  It seeks to identify separate and distinct matters.  Once that fallacy is put to one side, we rhetorically ask what the process of reasoning is which permits the respondents to contend that these amounts are to be characterised or evaluated in a narrow sense - remediation payments for remediation, external infrastructure for infrastructure and the like.  They are the matters we wanted to raise in relation to our learned friends’ outline. 

Can I return to the question Justice Keane asked me yesterday which some of us assumed would find its answer in a default clause?  It does, so let me remind your Honours of the question and then provide a satisfactory answer to it.  The question was whether the performance of the obligation to make the payments, that is the payments I took your Honours to yesterday, was something required before further stages were transferred and the answer in substance is yes.  So, let me briefly show your Honours why that is so in the agreement.  If your Honours go to appeal book 1, can I first show your Honours three definitions and then show your Honours one clause.  The first definition is at appeal book 1, page 109, the definition of “financial default”.  It is:

a failure to pay any money to the Authority under this Agreement or a Land Sale Contract when due and payable –

Would your Honours next notice at 114 “Material Default”?  Material default includes:

(a)the occurrence of a Financial Default -

Thirdly, before going to the substantive clause, if your Honours go to 106, “Default Event” and your Honours will see that default event includes at subparagraph (k) “a Material Default”.  If your Honours then would go to page 187 – perhaps 186 to start – at 186 your Honours will see clause 20, “DEFAULT EVENT”.  If your Honours at 187 notice clause 20.4, in substance there is an opportunity under the agreement for defaults to be cured and if that does not occur, your Honours will see at 20.4(b)(iv) that in respect of a Material Default the Authority may terminate the agreement.

For completeness, would your Honours also notice clause 20.6?  It provides what is to occur were the agreement so to be terminated.  Could your Honours notice in particular 20.6(g).  Once stages are forfeited, which intuitively means what your Honours would expect higher up in the clause, in (g)(ii) after the Authority receives loss and damage, the distribution continues - (g)(ii), amounts received by the Authority from dealings by the Authority with the forfeited stages will be distributed:

(ii)by way of reimbursement to the Developer the aggregate of all sums actually outlayed by the Developer on purchasing the Forfeited Stages will be paid to the Developer –

Then your Honours will notice –

including any amounts paid on account of the Project External Infrastructure Contribution and the Project Gasworks Site Remediation Contribution in respect to the Forfeited Stages –

Lastly, your Honours, if I can say two or three things about the orders we seek – two things.  First, unless your Honours are persuaded that the consideration for the transfer of each stage is the stage land payment, the price specified in each land sale contract, it will follow that each appeal will otherwise be allowed. 

Secondly, in two of the appeals – C10 (Montage) M78 and C9 (Myer) M81, both of 2014 - the Commissioner does not press ground of appeal 6(c).  The Commissioner does not seek to maintain the assessment as to the Grand Plaza retention amount.  We have identified that in our submissions.  In those two matters at least, accordingly, the proceedings respectively will need to be remitted to the Court of Appeal.  Subject to any matters your Honours have, those are the submissions for the appellant.  If your Honours please.

FRENCH CJ:   Yes, thank you, Mr Solomon.  Mr Young.

MR YOUNG:   If the Court pleases., our submissions will proceed at two broad levels.  If I can identify them firstly to assist the Court with the direction of the submissions, we will address the statutory question.  It is our submission that the relevant provisions of the Act have been misconstrued and misapplied by the Commissioner in the submissions they have put forward.  Amongst other errors, the Commissioner substitutes other words and a different inquiry for the language of the Act. 

Further, the Commissioner disregards relevant provisions of the Act in arriving at the so‑called test advanced which is drawn not from the language of the Act but from the factual application of the Act to the particular facts of the Dick Smith Case.  In contradistinction we say that the Court of Appeal has correctly construed and applied the Act.

The second broad level that our submissions will need to address concerns the transactional documents.  By that I mean the contracts of sale, the transfers, all versions of the development agreement, including the stage deeds which were amendments, in effect, to the development agreement.  Our submission here – as it was at both stages below – is that the statutory task requires a consideration of all of the provisions of the transaction documents.  We have never suggested the contrary.  That requires attention being paid to the full context of the development agreement, its nature, function and purpose and the statutory context in which it arises.

On a number of occasions my learned friend characterised our submissions as confining the analysis to the contract of sale.  We have never urged that.  We were the ones, in fact, who urged the Court of Appeal to undertake a careful review of all of the provisions of the development agreement and the Court of Appeal, as evident from the judgment, undertook that careful review of all the provisions. 

There is, in fact, no challenge, no criticism of the Court of Appeal’s understanding of the detailed operation of the provisions of the development agreement.  What my learned friend has done this morning, and yesterday, is to take the Court to a narrow slice of the provisions of the development agreement without explaining the full context and function within which those provisions are to be understood.  That has led to an erroneous set of propositions being advanced.

HAYNE J:   Because the documents are misconstrued or because the documents are misunderstood?

MR YOUNG:   Both.  We do submit that when all the of the transaction documents are properly evaluated there is no basis for concluding that the various contribution payments were provided in consideration for the transfer of the land, and that is the statutory question.  Was it provided in consideration for the transfer of the land?  Noticeably, our learned friend said he was studiously avoiding making any submission about the meaning of the expression “consideration for the transfer” in the context of these particular transaction documents.  He went, not to the statutory language, but to the way in which the language was applied to the facts of a different case.

The other noticeable feature of the Commissioner’s approach to the transaction documents that I will develop is that he has eschewed any reference to the provisions concerned with a number of payments that were the subject of assessment and consideration by the Court of Appeal.  He has focused entirely upon the payment regime in clause 4.7. 

He has not directed any submissions to justify the assessment of the Grand Plaza contribution, the Grand Plaza additional contribution, the additional Authority payment which was a payment for undertaking works that exceeded the initial build‑out limits on the number of apartments, et cetera.  He has not directed any submissions to the non‑monetary items that were assessed, which involved Lend Lease undertaking its own works on land external to the land being purchased. 

There has been no attempt to justify any of those other payments which were the subject of assessment.  The answer is, of course, when one analyses the agreement those assessments are unjustifiable because there is no tenable basis upon which they can be regarded as consideration for the transfer of the land.  They were payments related to the undertaking of other works. 

Now, I will develop all of these points if I may.  One other observation in the broad before I come to matters of detail is this.  The consequence of the Commissioner’s approach to the statute of substituting different language and a different inquiry is to arrive at the proposition in paragraph 31 of the Commissioner’s submissions and this question permeates all of the Commissioner’s submissions.  What is put is that:

the question to be answered is:  “What did VicUrban bargain to receive to render it willing to part with title to the various parcels of land?”

In various places, the answer given is the totality of the promises in the development agreement.  Now, there is a difficulty with that.  Many of the promises related to the performance of work by the Authority or by Lend Lease itself which is addressed in the agreement itself in terms which make it very plain that it is not consideration for the transfer of the land.

I have mentioned some of the additional payments that our learned friend has not sought to justify but there are many others that were not assessed so the proposition, the test that is advanced leads to the answer, the totality of the promises in the development agreement but they were not the subject of the assessment.  The Commissioner has arbitrarily selected a few of them and now seeks to justify just a small subset of them. 

The other problem with that approach that leads to the answer, the totality of all the promises in the development agreement, is that it affords no discrimen to identify which promises are to be regarded as consideration for the land and which are not.  It leads to the conclusion that every piece of development work undertaken by Lend Lease was a promise given under the development agreement and there is no basis for discriminating between Lend Lease’s building of enormous towers, office buildings, apartment complexes and all of the non‑monetary value of what it undertook being excluded from the assessment.  There is no line of discrimination, if you substitute this language for the statutory language.

Now, I will develop, as I said, those submissions.  May I start with something that has not been mentioned, before I come to the statutory question, that is the overall context, function and purpose of the development agreement?  As the Court will have seen from the Court of Appeal’s thorough analysis of the development agreement, it contained multiple interrelated obligations of the developer and VicUrban.  It provided for both parties to undertake future works.  The nature of those works enlarged over time, with amendments to the development agreement and I will point that out. 

There were multiple exchanges of value recorded in the development agreement and some explicitly were expressed in language that made it clear that they were not to be regarded as consideration for the transfer of the land.  The development agreement recorded an agreement upon the joint development of the area - in the language of the development agreement “joint participation in the developer’s project”.  It did that because it was an agreement entered into as required by VicUrban’s statutory charter in the Docklands Authority Act 1991. Can I go to that piece of legislation, please?

FRENCH CJ:   As I understand it, VicUrban was established by a 2003 statute and then became successor in title to Docklands Authority?

MR YOUNG:   It is a 1991 piece of legislation.

FRENCH CJ:   No, no, the Victorian Urban Development Authority itself became the successor in title in 2003, I think.

MR YOUNG:   Yes, yes, that is true.  But the Docklands AuthorityAct is the Act I want to go to ‑ ‑ ‑

FRENCH CJ:   Yes, I understand.

MR YOUNG: ‑ ‑ ‑ because that provides for the objectives and functions of the Authority. Your Honours should have some extracts of that legislation, running from sections 9 to 11. Section 9 states the objective of the Authority being the “development of the docklands area”. The functions of the Authority are set out in section 10. Paragraphs (a), (b), and (c) are particularly relevant to promote private sector involvement and then to oversee that development. But the most important provision is section 11 because it explains what is happening in the development agreement. Section 11(1) provides that:

The Authority must, as far as practicable make sure that by the end of its involvement in the development of the docklands area, it has secured a prudent financial return on its overall commercial investment in the area.

The other works that the development agreement required the Authority to undertake on an ongoing basis were the investments, relevantly in the area, and what the development agreement provides for through these payments is for the Authority to secure a return on that investment in the external infrastructure – the art it puts in place, the gasworks remediation, et cetera.

HAYNE J:   So what follows?  Let it be assumed this was not a statutory authority but was AB Development Company.  AB Development Company might have a statement, if it still had memorandum and articles, in its memorandum which would say that the objective of this company is to secure a prudent financial return on its overall commercial investment in the project.

MR YOUNG:   Several things follow, your Honour.  Firstly, this is not a mere objective.  This is a statutory obligation to secure a return on its commercial investment in the area.  What was the commercial investment by the Authority in the area?  It was not the land.  The land was vested in the Authority.  It was its investment in infrastructure and other works as provided for in the development agreement.  So it was required to secure a return on that investment. 

It is relevant to the characterisation of the works and interrelated payment provisions of the development agreement to see that the purpose – the nature and purpose of the works and the payments that the Authority secured to come back to it were in pursuance of this statutory obligation to secure a prudent financial return on its investment.  That is surely relevant to the characterisation of the payment provisions in the development agreement and it bears directly upon whether those payments were consideration for the land or whether they were payments providing a financial return to the Authority for its external works, et cetera.

KIEFEL J:   The Authority was the vendor of the land?

MR YOUNG:   The Authority was the vendor of the land.

KIEFEL J:   As I understand your argument then, we are looking at effectively two quite distinct aspects of what the Authority negotiates.  One is something that it does not obtain a return on, namely, the land, and the other is something where it may obtain a return on, and that is how you are going to come at the development agreement.

MR YOUNG:   Well, that is relevant to characterisation.  The ultimate question is the statutory one, were these payments consideration for the land, and a relevant consideration is to understand the nature and purpose of the payments and the works to which they related.

HAYNE J:   But do you or do you not adopt the division which Justice Kiefel has put to you?

MR YOUNG: Well, we adopt a division, but it is not necessary to segregate every provision in the development agreement into one category or another because we are applying section 20 of the Stamps Act.  What is necessary to determine is whether the payments that had been assessed were consideration for the transfer of the land in its then condition.

KIEFEL J: As I understand what you are saying about section 11, it is that the Authority has little responsibility or - interest, is, I suppose, the better word - interest in the return on the land as such.

MR YOUNG:   No, I am not saying that.  Can I take your Honour to section 24, because, to an extent, there is a distinction drawn in this Act between two different functions.  Your Honour will see under section 24(1)(b) there is the power to dispose of the interest in land on terms, including consideration that the Authority considers appropriate, and that no doubt means recovering a proper price reflecting the value of the undeveloped land.  So I am not suggesting that there is anything preventing the Authority seeking an appropriate return on the land.

KIEFEL J:   But you are saying that they are two distinct matters to which it gives different kinds of consideration?

MR YOUNG:   Well, it has a different function and purpose.  Insofar as it makes investments on adjoining land it is required to recover a return on those investments, quite aside from whatever return it recovers on the land.

HAYNE J:   You referred to the unimproved land?

MR YOUNG:   Yes, I did, your Honour.

HAYNE J:   Why should it not derive as much profit as it can in the marketplace on whatever terms are available?

MR YOUNG:   Well, it recovers the negotiated price or, when the Commissioner looks at it, if he thinks the negotiated price is less than the unencumbered value he will assess the higher figure.  But the fact that there is a negotiated price does not obviate the fact that the Authority has a statutory function to recover a return on its other investments, quite aside from what it recovers on the land.  What the Commissioner does is load every promised payment in the development agreement onto the land as the consideration for land, with effectively no return, on his approach, for the investments.

FRENCH CJ:   But we must, must we not - I mean, this is, in a sense, another way of putting the first question, I think, that Justice Hayne put to you.  There is a myriad of ways in which the Authority can exercise its powers and pursue its objectives, some of which may give rise to transactions dutiable on one basis, some of which may give rise to transactions dutiable on another basis.

MR YOUNG:   Of course, your Honour.

FRENCH CJ:   So must not our focus ultimately be on the development agreement?  Is the Authority, for all intents and purposes, no different from a natural person in that sense?

MR YOUNG:   Your Honour, we accept that the entirety of the development agreement is relevant to the characterisation exercise, but ultimately what you must focus on is the consideration for the transfer of the land, which is something less than the development agreement.

FRENCH CJ:   Well, it is a characterisation of the payments which are made and the obligations entered into pursuant to the development agreement.

MR YOUNG:   Yes, of course, but one needs to understand the function and purpose of the development agreement and the context in which the various payments are being agreed because if you characterise the payments in the development agreement without regard to that, you are not undertaking a proper or sensible process of characterisation.  I am not trying to be prescriptive in saying that you cannot look at the development agreement.  Our case is you need to understand the entirety of the development agreement, including the context in which it was entered into and the statutory functions that underpin it.

HAYNE J:   Which include 24(2) which is the route of its power.

MR YOUNG:   Of course.

HAYNE J:   What are we fussed about power?  We see power in 24(2).  What more do we get out of it, Mr Young?

MR YOUNG: Well, I repeat my earlier answer to your Honour that section 11 goes beyond a conferral of power and imposes an obligation. The Authority must secure a return on its investment and that investment includes its investment in the external infrastructure, the gasworks remediation works, its investment in art, its investment in the Collins Street Park, its investment in other items of infrastructure that the agreement deals with.

KEANE J: Is there something in the development agreement that says the development agreement is to be construed in conformity with section 11 of the Docklands Authority Act?

MR YOUNG:   No, not expressly, your Honour, but I am just saying that this is a relevant consideration in the overall characterisation of the exchanges of value.

KEANE J:   But how does it link in to the interpretation of the development agreement with a view to performing this characterisation exercise that you are speaking of?

MR YOUNG:   Well, I will need to take your Honour through particular provisions to demonstrate that, but when you look at say provisions concerned with the Collins Street Park, the Authority is to undertake various works and it achieves a return in respect of those works and that is the exchange of value directly recorded in the development agreement.

KIEFEL J: Are you going so far as to say with respect to section 11 that to be able to say that it has fulfilled its statutory obligation, the Authority must be able to be seen to have dealt with these matters external to the land separately and distinctly? It has to be a kind of accounting?

MR YOUNG:   No, but a relevant consideration in characterising what the development agreement provides for is the recognition that the Authority is bound by statute to obtain a prudent return on those investments.

KIEFEL J:   But - I think it has been put to you before – does any of that really matter because we are not here to determine whether they have fulfilled their statutory duty, but rather what they did?

MR YOUNG:   Of course we are not addressing that question, your Honour.  We are addressing the proper characterisation of the payment regimes in the development agreement and we say you cannot go through and adopt a set of things that you cannot have regard to for the purposes of characterisation.  That is what our learned friends in effect do and I will demonstrate that as I go on.  But can I take Justice Keane’s point and illustrate it with one example?

HAYNE J:   Just before you come to the example, I need to understand the argument.  The argument seems to be that the Authority must obtain a return on its investment, for example, in infrastructure like the Collins Street Park.  Is that right?

MR YOUNG:   Yes.

HAYNE J:   It obtains that investment by the developer paying money.  Is that right?

MR YOUNG:   No.

HAYNE J:   How else – well, where else does it get the return on investment from?

MR YOUNG:   Your Honour put to me it obtains that investment.

HAYNE J:   It obtains that return.

MR YOUNG:   Did your Honour mean obtains that return?

HAYNE J:   Yes.

MR YOUNG:   It makes the investment by expending money on works.  It obtains a return by securing a payment from the developer as set out in the development agreement.

HAYNE J:   You would have the inquiry stop there ‑ ‑ ‑

MR YOUNG:   No, of course not.

HAYNE J:   ‑ ‑ ‑ without regard to the fact that the developer pays the money under an agreement which includes giving the developer the right to develop and sell other parts of the land.

MR YOUNG:   No, I am not excluding that.  I do not mean to keep repeating the point, but we say that this is relevant to characterisation, and can I illustrate it by reference to the Grand Plaza contribution payment?  If the Court goes to volume 1, please, of the appeal book, and I need to – I am sorry, the Court will need to go to volume 3 of the appeal book, clause 13.2, which is at page 944.

Just before I go to the detail of the clause, could I refer to the background to Grand Plaza?  The background is this.  It was originally under the 2001 development agreement an obligation on Lend Lease to build Grand Plaza, so it had the obligation.  Under the 2006 development agreement, Lend Lease was required as a matter of accounting to maintain a Grand Plaza retention account out of which it funded its Grand Plaza works.  Now, that retention account and the accounting measure was assessed.  It was not even a payment, but that has now been abandoned.  That is the background.

The 2008 development agreement altered the arrangement.  The Authority assumed what had previously been Lend Lease’s obligation to build Grand Plaza.  In consideration of the Authority assuming what had formerly been Lend Lease’s obligation to build Grand Plaza, Lend Lease agreed to make certain payments.  That is reflected in clause 13.2(a):

The Authority must now procure the construction –

and that had formerly been Lend Lease’s obligation.  Clause 13.2(b), the explicit agreement of the parties is that:

In consideration of the Authority agreeing to procure the construction of Grand Plaza Works –

the developer must pay the Grand Plaza contribution and the Grand Plaza additional payment.  Those payments have been assessed on the basis that they were consideration for the land.  But a proper analysis of the agreement demonstrates that these payments were being made, not as consideration for the land but as consideration for the Authority agreeing to undertake works that had formerly been the responsibility of Lend Lease under clause 13.2 of the 2001 agreement at page 165 of the appeal book.

KEANE J:   Mr Solomon tells us that the Commissioner is not seeking to maintain any assessment in relation to that.  Is that not right?

MR YOUNG:   He is maintaining assessments of the Grand Plaza contribution and the Grand Plaza additional contribution.  What he has abandoned, your Honour - if your Honour goes to the 2006 development agreement in volume 2, same clause, 13.2 at page 547 – there was introduced into the 2000s.  So if your Honour sees at page 547 of the first volume “13.2 Grand Plaza” as I briefly summarised, it was the developer’s obligation:

The Developer must:

(i)construct the Grand Plaza Works –

Does your Honour see that?  Under clause 13.2(d), the developer had to spend at least $5 million by 30 June.  Under 13.2(a)(ii), it was required overall to spend:

not less than $20 million. . . in respect of -

(A)      the Grand Plaza Works –

So, the developer’s original obligation was to spend at least $20 million in undertaking works on external lands for the benefit of the overall precinct.  The 2006 development agreement introduced an accounting provision.  In clause 13.2A at page 549, the Court sees in paragraph (a):

the Developer must maintain books of account . . . 

(b)The Developer must accrue the Grand Plaza Retention Levy in respect of Actual Gross Proceeds of Sale –

So it must save out of its own gross proceeds of sale and put it in a special account – some money and under (c), must use that money to fund its own works.  So this was the mere accounting exercise that has been abandoned.  But the two contribution payments, at pages 944 and 945 of the appeal book, in the 2008 version of clause 13.2 are still maintained.  Not a word has been heard about them.  But I invite the Court to look at the language of 13.2(b):

In consideration of the Authority agreeing to procure the construction of the Grand Plaza Works . . . the Developer must pay the Authority –

these two contributions.  It could not be clearer but that these payments are being paid for the Authority agreeing to assume the obligation to carry out the Grand Plaza works.  These are not payments in consideration for the transfer of the land.  The mere fact that ‑ ‑ ‑

KEANE J:   You say that because they are expressed to be a consideration for procuring the construction they are not for something else, namely, the transfer of the land?

MR YOUNG:   Well, one can look at the history of the development of this, as I did, your Honour.  In the first place, this was Grand Plaza’s obligation to build something somewhere else.  If you take that into account, you take into account the context that if the authority is to invest money in doing works itself it needs to obtain a return.

Then you see that the authority assumes what had formerly been Lend Lease’s obligation to build the Grand Plaza and as the quid pro quo for assuming that obligation they require certain payments, then we would say the proper characterisation is that the quid pro quo, the exchange identifiable, objectively, on the face of all the relevant materials, is that this was an exchange of value, the value being assuming the obligation to undertake the works and receiving payment.

Then when you turn to the statutory question and ask the statutory question, were these payments in exchange for the transfer of the land, consideration for the transfer of the land, in our submission, the Court of Appeal’s answer is correct.  No, they were not ‑ ‑ ‑

HAYNE J:   That is to frame the question in terms of contract, not conveyancing, is it not?

MR YOUNG:   No, it is to frame it in terms of conveyancing, your Honour.  What moved this payment was the authority’s agreement to procure the construction of the Grand Plaza works that had formerly been the obligation of Lend Lease.

KIEFEL J:   You are using this, as I understand it, as an example of how the authority has negotiated for some works in a way which stands quite independently of what passed under the land contract.

MR YOUNG:   Well, to an extent, yes, your Honour, but it is an illustration of the fact that when you pay careful regard to the overall context, the full context of the development agreement, and see all of the provisions and the way in which there are multiple exchanges of value, that bears directly upon the statutory question ‑ ‑ ‑

KIEFEL J:   I was actually leading into this ‑ ‑ ‑

MR YOUNG:   ‑ ‑ ‑ what was the consideration for the transfer of the land.

KIEFEL J:   If I may interrupt.  You are not suggesting, are you, that the arrangements with respect to these payments are of the same character as those which were assessed, or otherwise you would be suggesting, I suppose, that to be consistent the Commissioner should have assessed these payments as part of the consideration?

MR YOUNG:   The Commissioner did assess these two payments and he seeks ‑ ‑ ‑

KIEFEL J:   But you say they are included in the assessment.

MR YOUNG:   Yes, and the Court of Appeal analysed whether they were properly included in the assessment, carefully considered these provisions and said that as a matter of characterisation they were not consideration of the land.

FRENCH CJ:   What does Lend Lease get out of the agreement, apart from the land?  That is not a rhetorical question.

MR YOUNG:   Yes, Lend Lease gets the works that the authority promised to undertake.

HAYNE J:   How?

MR YOUNG:   Because those works flow towards the realisable value of Lend Lease’s own development on the land so that if ‑ just take the gas remediation works that the authority promised to undertake, those works required an area of land to be remediated that partly overlapped some of the stages, but it was also external to the stages.  So that whole area environmentally degraded by the previous gasworks, the authority promised to clean up, make investments to clean up, enter into a contract to clean up, achieve an environmental clearance and so forth.

They were promises it made under this development agreement.  What Lend Lease got through the provision of those works, those promises from the authority, was the benefit of remediation of soil, partly overlapping land it purchased, but adjacent, immediately adjacent to the land it purchased, and that land had to be cleaned up if its ultimate development was to be as valuable as it might be.

BELL J:   That led Justice Pagone, looking at the Grand Plaza payments, for example, at 2791 and 2792, paragraph 34 to set out the history and the changed arrangements respecting the construction of the Grand Plaza, but to conclude that the contributions were similar to other amounts required to be paid on or before actual stage release date under clause 4.7, and that the provision of the Grand Plaza enhanced the amenity of the area and the precinct generally, and it followed on this analysis that it was relevantly for the transfer of the land.

MR YOUNG:   Yes, but what his Honour the trial judge went on to do was to treat the subject matter of the transfer as being land already enhanced by future works, and that was the pinpoint of the criticism made by Justice Tate in the Court of Appeal, that he had treated the subject matter of the transfer as developed land rather than as undeveloped land in relation to which future works were to be undertaken in the surrounding areas.

BELL J:   I understand that aspect of your argument, but on this issue the Grand Plaza payment is not relevantly to be distinguished, is it, from the gasworks remediation?

MR YOUNG:   Yes, it is, for a number of reasons.  These payments were, on proper analysis, quite clearly in exchange for the assumption of construction obligations that had previously fallen on Lend Lease.

KIEFEL J:   Could I ask you ‑ ‑ ‑

BELL J:   So, in this – I am sorry.  In this respect can I just clarify, the variation of the development agreement is material on this analysis insofar as the obligation ultimately?

MR YOUNG:   Well, it must be, your Honour, because these contribution payments only arose under the 2008 development agreement, they were not previously there.

BELL J:   The reason that I raise it, Mr Young, is that I had rather understood both Justice Pagone and the Court of Appeal to approach the matter on the basis that one could treat the development agreement as at May 2001, and though it had been subsequently varied, in terms of the determination of issues material those variations were not of moment.

MR YOUNG:   No, that does not apply across the board.

BELL J:   I see.

MR YOUNG:   Those remarks are largely apposite to the additional complexity that infected the first subparagraphs of 4.7 as one went further, but it does not apply at all to contribution payments that arose for the first time under the 2006 or 2008 development agreement.  One has to look at the later versions of the development agreement because those payment obligations did not previously exist and look at the circumstances that threw up those payment obligations.

BELL J:   So that the changed nature of the payment obligation respecting the Grand Plaza affects the characterisation of the development agreement?

MR YOUNG:   Yes.  Let me give your Honour another example.  The 2008 Construction Licence Agreement required Lend Lease to undertake works on external lands adjoining two of its stages.  That was only entered into in 2008.  The value of those works is the subject of an assessment that goes under the heading “non‑monetary consideration”.  Those works were only agreed to be undertaken under a different agreement in 2008 ‑ ‑ ‑

BELL J:   Could you just give me the name of that agreement again?

MR YOUNG:   I will state it precisely, your Honour.  It is the Construction Licence Agreement of 5 February 2008 at appeal book 2743, and the relevant works are defined in annexure 2 at 2767.  What the Commissioner has done – there is no payment in that case.  Building those works is no different than building an office tower or building the Myer headquarters down in Docklands.  The Commissioner has chosen to assess the value of those works; he has not chosen to assess the value of the Myer building.  It is simply a promise to undertake works by Lend Lease in the wider Docklands area.

KIEFEL J:   With respect to the Grand Plaza works that you referred to, which development agreement is this?  Is it 2008?

MR YOUNG:   2008 introduces those payments for the first time at page 944.

KIEFEL J:   In answer to Justice Bell’s question, you said that the assessments, of course, did not have regard just to the 2001 agreement.  Was the assessment with respect to these Grand Plaza payments, not the retention payment, undertaken with respect to the documentation of the 2008 development agreement, at which time all of these other negotiations had already taken place in the past so it reflects the result of those negotiations?

MR YOUNG:   Yes, but the contribution payments – there is a payments table, your Honour Justice Kiefel, in the judgment of the Court of Appeal at 2901; that is volume 7 for those who have the documents.  If the Court goes to the second page of the table at 2902, the assessments relate to the later stages.  Halfway down the column, the Court will see the “Grand Plaza Retention Amount” – that is the accounting entry, now abandoned – the “Grand Plaza Additional Payment” ‑ ‑ ‑

KIEFEL J:   It is the Grand Plaza contribution you were ‑ ‑ ‑

MR YOUNG:   Yes, the next one, “Grand Plaza Contribution”.  The additional payment and the contribution are both imposed by the 2008 development agreement.

KIEFEL J:   Pursuant to the 2008 development agreement, that was works to be done in connection with any transfer of the standard land contract, the land under the contract?

MR YOUNG:   If it was provided for – if your Honour uses the words “in connection with” ‑ ‑ ‑

KIEFEL J:   Recital D is the same, is it not, in all of the ‑ ‑ ‑

MR YOUNG:   Yes, it is works done under a development agreement that provided for both land to be transferred and for the works to be done, so it has that connection.

KIEFEL J:   Clauses 7.1 and 7.4 are in similar terms to the original development agreement?

MR YOUNG:   Clause 7 or does your Honour mean 4.7?

KIEFEL J:   I am sorry, 4.7.  I have been reading another matter.

MR YOUNG:   Much more complicated, but same basic structure.

KIEFEL J:   Right.  Yes, thank you.

MR YOUNG:   I cannot answer a simple “yes” to that.

KIEFEL J:   All right.

MR YOUNG:   The item I gave your Honour Justice Bell, non‑monetary consideration, it is the last item in the table, and the last item on the previous page, so there are other amounts in issue.

BELL J:   That depends on the particular stage.  So, for example, for Dock 5 the payments are all payments on or before actual stage release date that do not attract the criticisms you have just been developing in relation to the Grand Plaza and ‑ ‑ ‑

MR YOUNG:   Yes, that is because title for that land is transferred long before any obligation arises in respect of Grand Plaza contribution and so forth.

BELL J:   Yes.  But all I am taking up with you, Mr Young, is the necessity to do as the courts below did and that is look at each stage to refer to the land parcel, is it?

MR YOUNG:   Well, insofar as we are dealing with a number of payments that fall into this separate category, which are the additional Authority payment, the Grand Plaza payments, the non‑monetary consideration, you do need to look at the later agreements, yes. 

BELL J:   Yes.

MR YOUNG:   Can I move on, if I may?  The other broader proposition I wanted to address also goes to the overall nature and character of the development agreement.  The Commissioner’s submissions - and I do not need to go to them, but in‑chief at paragraph 12 and in reply at paragraph 6 - proceed from the premise that what the Authority – all which the Authority gave and all that the defendant – all that Lend Lease received was the land.  Now, that is a fallacy because what the Authority gave and what Lend Lease received included the promise to undertake a whole series of works progressively on other areas, and the scale and extent of those works enlarged as you go from one development agreement to the next.

So, there are quite clearly value exchanges beyond the land.  So that the premise of the Commissioner’s submissions is that we are only concerned here with land being exchanged for other things.  There are no other exchanges and that is fundamentally incorrect as a starting point for the characterisation of the relevant payments.

FRENCH CJ:   So what Lend Lease gets out of the agreement, coming back to the question I put earlier, is the land plus the benefit of the enhanced amenity deriving from these additional works?

MR YOUNG:   Yes, the promise to undertake all of these works which inure to the ultimate realisable value of the development.  This was a joint development.  The development agreement is very clear about that.  Can I go to the first development agreement in volume 1?  Mr Solomon went to these provisions but did not emphasise the same matters that we will.  Under clause 2 at page 124 to 125, objective (c) verifies what I said a moment ago.  The agreement and the objective is that the:

Authority and the Developer will participate in the Developer’s Project for the purpose of implementing the Developer’s Project –

So this is a joint participation in development and Justice Tate’s analysis of the detailed provisions bears that out, as I will explain.  When one goes through the development agreement – and I will not take the time to do it – but as you turn the pages from one clause to the other, the developer has a whole set of obligations:  planning, environment, design, public art – and I will come to that - construction.

But then relating to infrastructure the developer has to develop its own infrastructure on the land it is purchasing.  It has to make provision for human services, which are community organisations, to occupy some of the land.  In due course they had to make provision for affordable housing, which was a burden on the development.  They had to build certain external works.  For instance, if the Court goes to clause 11.9 of the first agreement, the Court sees some of these obligations of the developer.  Clause 11.8 at page 156, that is human services; at 157, Bourke Street extension:

The Developer must construct the Bourke Street Extension at its own expense –

That is external to the land it is purchasing.  Clause 11.10, the Authority must build the Collins Street Bridge and, just like the Bourke Street extension, the Collins Street Bridge is in the immediately adjacent area and is going to affect the realisable value of any development.  As we go on, 11.12 at page 163 “the Authority must procure at its cost” Docklands Park, but jointly assisting that, under 11.12(d):

The Developer must:

(i)carry out the Docklands Park Enhancement Works –

So there are intersecting promises to invest in infrastructure in the surrounding area.  Some of them attract particular payments; others do not.  The return on others that do not attract particular payments comes by a sharing of the ultimate proceeds of sale that the agreement itself describes as a profit share.

So when one goes through the agreements one sees these aspects of joint investment, joint development of the wider area and the payments in question are all associated with those matters.  In due course, additional obligations are added.  Can I go to the 2008 development agreement?  I want to start with clause 11 again at page 924 and following.  Can I ask the Court first to go to page 930 – clause 11.8A? 

This is one of the additional obligations the Authority undertook.  It was an obligation to deliver not less than 55 affordable housing apartments.  That obligation enlarged over time and it is the subject of what is called the MKWH transaction.  There, the Authority had to allow in a public housing partner so it actually was only acquiring a 63 per cent interest as a tenant in common and the other 37 per cent was a public housing organisation.

I have mentioned the Bourke Street extension, Collins Street Bridge on the next page, but if we go to page 936 – this is the “Collins Street Park Stage Works”, clause 11.11A, additional infrastructure and what is noticeable about that is that the clause 4.7 payments are now to be redirected to the benefit of those further works that the Authority is to undertake under 11.11A(c).  So the moneys that our learned friend says are for the land are redirected to building the Collins Street Park. 

Additionally, we have new paragraphs dealing with further infrastructure.  At 939 we have further public infrastructure works in 11.13.  These relate to the “Harbour Esplanade” as 11.13(a)(ii) says.  Under paragraph (c) at page 940, if the developer agrees to do that external public infrastructure work, it is going to be paid out of the additional Authority amount.  So that amount allegedly paid as consideration for the land is actually utilised to fund other public infrastructure works that the developer may undertake.

KIEFEL J:   Forgive me for interrupting, Mr Young, and it is probably my problem alone, but I am having difficulty following where this is taking us in relation to an understanding of the development agreement.  I have to say, I have looked at the outline and the full written submissions and that does not assist me either.  It does not tell me where I am going, what I am – could you jump ahead a couple of ‑ ‑ ‑ 

MR YOUNG:   Yes, I will jump ahead, your Honour.

KIEFEL J:   Just to give me an idea of the direction that we are heading in.

MR YOUNG:   The reason I am going to these matters is this.  The next step I am going to take is to go to the statutory question and make submissions about that, but after that I then need to address clause 4.7 and the matters that are relied upon to support the Commissioner’s arguments as advanced in‑chief.  To properly understand the function of clause 4.7 one needs to understand the whole context of the development agreement and the suite of works, infrastructure works and associated payment obligations, because 4.7 is only a thin slice of what the development agreement is providing for.  That is the reason I am going to these matters, your Honour.  Now, the other reason is that the Commissioner’s approach to the construction ‑ ‑ ‑

KIEFEL J:   But could I just ask you:  if it is a thin slice what do we derive from that, that the matters which have been assessed, they all fall under 4.7, are not representative or ‑ ‑ ‑ 

MR YOUNG:   The question when one looks at the 4.7 payments is whether they are to be characterised as payments in consideration for the transfer of the land or whether, when you look at the wider context in which those provisions operate, they are not to be so characterised and relevant to the characterisation question is the question whether they are expressed as a contribution to the cost of other investments made by the Authority of a similar kind to these other investments, other works, that I have now referred the Court to.

KIEFEL J:   So you say there are mischaracterised as a consideration?

MR YOUNG:   Yes, we say they are mischaracterised.

KIEFEL J:   That is really what it comes down to.

MR YOUNG: Yes, and I will come directly to those provisions, but before I descend into that minutiae I wanted to give the overall context of the whole development agreement. Can I turn to the statutory question and explain why, in our submission, the Commissioner’s approach misstates the statutory inquiry and why it is wrong as a matter of construction? In our submission, a number of provisions in the Act make it very clear that the critical first step in applying section 20 is to identify the dutiable property which is the subject of the dutiable transaction. That follows from the provisions that the Court has in some respects been referred to but there are other provisions that our learned friend discounted that are relevant.

BELL J:   Is it not common ground that it is the estate in fee simple?

MR YOUNG:   Yes, but our learned friend goes on to allege that it is an error to have regard to the state and condition of the land at the time title is transferred.  Now, in our submission, that is a fundamental error to adopt that approach.  The Act requires that attention be confined to the state and condition of the land at the time of transfer.  That is not to say that other payments do not have to be assessed and characterised but the Commissioner’s starting point is to say it is wrong, it is an error to examine what is the subject of the transfer in its then state and condition. 

Now, there is a long line of authorities that make it very clear that that is the critical first step in applying section 20 and it is the error that the trial judge fell into because he applied section 20 by reference to an assumption that the land was in its developed state. That was what many of Justice Tate’s criticisms were directed to.

HAYNE J:   Why is the state of the land at the time of transfer of significance to determining the consideration for the dutiable transaction?

MR YOUNG:   Because the dutiable transaction is the transfer of the estate in fee simple in the land ‑ ‑ ‑

HAYNE J:   In Blackacre identified by certificate of title or metes and bounds.

MR YOUNG:   Yes, yes, and ‑ ‑ ‑

HAYNE J:   What is the condition of Blackacre, relevant if one is not engaged in a 20 subsection (1)(b) inquiry?

MR YOUNG:   Well, whether one is engaged in (a) or (b), the question is the same ‑ ‑ ‑

HAYNE J:   Why?

MR YOUNG:   ‑ ‑ ‑ that is, the subject matter of the transfer is the estate in fee simple. The subject matter of the conveyance is the land that is being transferred in its then state and condition. When one looks at the contract of sale and the development agreement together, the purchaser covenants to accept the land in its then state and condition. Focus on the state of the land at that point of time is required by section 11, which imposes duty when the dutiable transaction occurs which is at the time of transfer and as the Authority makes clear, where the dutiable transaction is a transfer of land, that requires one to have regard to that which is being conveyed and all that is being conveyed is the land in its then state and condition.

Now, it is that combination of provisions that has that effect. In our submission, it follows necessarily from the statute. It also follows from the authorities that have considered section 20 and they are unanimous in this view that you address the subject matter of the land at the time of the transfer in its then state and condition and that is so, both in Australia and in England.

Can I refer very briefly to a couple of authorities in that regard?  One is Pioneer, which I hasten to say was a value case, but that does not alter this requirement that arises from the opening words of section 20; that is, the dutiable transaction is the transfer of the fee simple estate in the land. When we are talking about a conveyance, you look at what is conveyed in its then state. In Pioneer, the relevant paragraph is at paragraph 38.

HAYNE J:   This was under the old instruments based version, was it, or was this the transaction based version of the duty legislation?

MR YOUNG:   This is the third schedule of the Stamps Act 1958 ‑ ‑ ‑

HAYNE J:   The instruments?

MR YOUNG:   Yes, but in this respect it does not make a difference, in our submission, and Dick Smith is consistent with the proposition I have just put.  Paragraph 38:

An accurate identification of the estate or interest in real property that is conveyed or transferred . . . is required –

The quotation goes on to refer to the fact that you do not refer to the net effect of the overall transaction. The issue in that case was whether you had regard to contractual rights that were collateral to the actual transfer. The Court rejected the proposition that you have regard to contractual rights for the purposes of paragraph (b) of section 20.

The other passage I would refer to is at paragraph 44 at page 667.  It is the last two sentences of the paragraph.  In this case, all of the transaction documents are transaction documents under which the purchaser accepts the land in its then state and condition.  If the Court goes to volume 4 for one of the contracts, this is the one that reflects the form of most of the contracts.  It is at page 1385, the passage I want to go to; this is the Mosaic land sale contract, the second contract. 

Clauses 4.1 and 4.4 are the relevant provisions at page 1385 to 1386.  Clause 4.4 cross‑references clause 7.9 of the development agreement; that is a provision to the effect that the purchaser “accepts the condition of the Land”.  One can see that – I will just give the reference – at 7.9 of the development agreement, which is at page 147 of the 2001 development agreement.  It is the same in each of the development agreements.  Paragraph (c):

The Developer accepts the condition of the Land at the date of the execution of this Agreement –

and the contract applies that to the date of the contract of sale.  Of course, the provisions of the contract of sale merge in the conveyance.  The title was accepted.

HAYNE J:   There were anti‑merger provisions in there, but perhaps not; do not stay on it.

MR YOUNG: No, no. So applied to this case, the condition of the land is accepted at the date of contract. So, for those reasons, statutory – and I will come to some other authorities. It will be simpler if I come to the other case once. It is prudential. We would say that it is correct when you are applying section 20 to a transfer of land to focus on the condition of the land at the time of the transfer.

KEANE J:   But if you are not concerned with subparagraph (b) which is about the value at that time, if you are concerned with the consideration for the transfer, what does it matter what the condition of the land is?  What matters is what the consideration is.

MR YOUNG:   Your Honour, one has to address that question, I agree with your Honour, but our learned friend’s submission is that you must put out of your mind it is irrelevant to have regard to the condition of the land at the time of the transfer and that it was an error of the Court of Appeal to identify that as a relevant consideration.  That cannot be right having regard to the structure of the Act and the provisions of these agreements.  I am not suggesting it answers the whole question, your Honour.  And just ‑ ‑ ‑

FRENCH CJ:   If one – I am sorry.

MR YOUNG:   I am sorry, your Honour.

FRENCH CJ:   Please finish your answer.

MR YOUNG: I was going to just add one thing to my answer to Justice Keane. The fact that these assessments are under paragraph (a) of section 20(1) does not mean that subsection (1)(b) is entirely irrelevant to the construction exercise. Both limbs have a bearing on construction for the reasons given by the two dissenting judges in Dick Smith which appears at paragraph 20 of Dick Smith and can I paraphrase what they said?  It was this:

The section does not assume that there will be a difference between (a) and (b).  It accepts that there may be a difference, and makes provision for that.

The second limb is effectively by way of safeguarding the revenue.  The second limb is consistent with addressing the dutiable transaction which is the transfer of the land in its then state and condition and there is no reason to take a different view of paragraph (a) at that initial step.  Your Honour, the Chief Justice, you had a question.

FRENCH CJ:   Yes.  I just wanted to make sure I am working within the same conceptual framework and that I am not oversimplifying it, but it seems to me that in addressing the statutory question in this case we are looking at a transfer of land from vendor to purchaser.

MR YOUNG:   Yes.

FRENCH CJ:   We are looking at payment of money – designated stage land payments which are specifically related to the land and you say that is essentially what is the dutiable amount, plus from the purchaser promises to either do works or pay for works to be done.  The question really is in relation to those promises to pay for works or to undertake works, whether they in a sense – larger than the contractual sense – constitute consideration, or part of the consideration, for the transfer of the land.

That is the analysis that the Court of Appeal, in our submission, quite accurately and correctly went through.  It is essential.  The Commissioner invites this Court to adopt an approach that would have the consequence that in every composite agreement you simply gather up every promise because the vendor would not have entered into the contract without all those promises and you treat them all as if they moved the conveyance of the title, being the land in its then state and condition.  That is the breadth of the Commissioner’s approach.  That is why the Commissioner does not feel there is any necessity to analyse the nature and purpose of the individual payments or the broad shape and purpose of the development agreement, because it says, “It is unnecessary.  We have a vacuum cleaner in the new test we have formulated.  We suck up everything by way of promises received at the same time”.

That is the ultimate consequence of the Commissioner’s approach and, that being the approach, it provides no way to draw a line between payments that are truly consideration that move the transfer, and payments that were received at the same time and but for which it would not have made the transfer, but in reality are not for the transfer, they are for other things.  That, in our submission, is the way we put it and that is the significance we see in the approach that has until now persistently been adopted here following Bambro.  Bambro was followed in the ACT in a case called Araghi we have referred to in our submissions.

It is the approach adopted in the UK and the approach is not at all the outcome of adopting or the shift from an instruments based duty to a transaction regime, because when you look at the charging provisions, the charging provision we are concerned with is what was the value that moved in exchange for the transfer of title?  That question in the provisions we are concerned with, the substance of the matter is no different than the substance of the inquiry in Bambro, the substance of the inquiry in Dick Smith.  It is just that we have a very different shape of agreements.  We have the Bambro composite agreement.  We have the side by side development transfer of land agreement in Prudential.

HAYNE J:   You referred in that answer to the need to identify the nature and purpose of individual payments.  As best I understand your argument at the moment, Mr Young, there are I think only three criteria which I can identify as bearing upon that inquiry, and they are not intended as either necessarily cumulative or alternative.  Some of them apply I think equally.  First, there is manner of calculation; second, there is agreement about the application of the sum received; and third, there is I think the reason or motive of the vendor for seeking payment of that sum.

MR YOUNG:   Well, the motive of the vendor is no part of our analysis.  It may be subsumed in our opponent’s notion of what were they willing to transfer it for.  It is certainly no ‑ ‑ ‑

HAYNE J:   I was trying to capture in that the purpose to which you were referring in, for example, the gas site remediation.  The Authority sought to recover sums that it would apply, or which it would outlay in respect of the gas site remediation.

MR YOUNG:   I am not referring to motive.  I was referring to the explicit provisions, objectively recorded in the agreement where the parties agreed that these payments were a contribution to the recovery of costs. 

HAYNE J:   So, form of agreement providing for recovery by vendor of costs outlaid or to be outlaid; is that the idea? 

MR YOUNG:   Well, the content of the parties’ agreement is an objective matter that is relevant to the question whether the particular payments moved the transfer of the title, just as the opening words of 4.7(a) are relevant.  They are relevant because that is what the parties agreed was to be the trigger for the making of certain payments, likewise, what they agreed to be, in clause 4.1(a) - the consideration for the transfer of the stage land was the stage land payment.  That is relevant as well.  These were all objective matters.  We do not descend into motivation. 

As to the other two matters, your Honour, we did refer to the manner of calculation.  So do our learned friends.  Our learned friends refer to the percentages as indicating that these payments are connected with an assessed first projected value of the land and then finally realised value of the land.  We point to the calculations to say that in determining the stage land payment in the first place, it built in development potential and then when you go to paragraph 4.7(a)(ii), there is no trigger, there is no connection that requires the payments to be made before the transfer of title. 

On the contrary, the provisions objectively disclose the distribution, a sharing in agreed proportions of the profits on ultimate sale in the context of a provision where both parties are bound to undertake ongoing works contributing to the success of that sale.  The scheme of the agreement is that it makes sense that they share the proceeds because they are both engaging in works to contribute to those proceeds. 

So, our assessment is entirely objective and your Honour’s three matters do not capture all of the matters we have pointed to as being relevant to the characterisation exercise.  They include the nature and the state of the land at the time of the transfer.  They include the absence of any condition precedents that appear.  They include, once development has commenced, the absence of any default provisions, which is concerned with performance, and they concern the broader contextual matters that disclose matters such as the nature and purpose of the development agreement, its statutory context in which it arises and like the construction of any agreement to see what payments were for, you take into account all relevant contextual elements.

We are endeavouring to undertake an objective exercise in characterisation, not by excluding a list of things that our learned friends exclude.  Their outline says that they exclude the condition of the property at the time of the transfer, you cannot have regard to it, you cannot have regard to the time when work is to be performed under the agreement, you cannot have regard to the fact that works are to be undertaken by both parties on external land, what is the basis for saying, these matters are necessarily excluded from a characterisation exercise?  There is none.

Now, I did, I think in what I have said, covered the attempt to suggest that Justice Tate fell into five errors, all of the matters she considered that they say have to be excluded from the characterisation exercise were rightly taken into account and, indeed, it would be an error to exclude them.  Now, there is another point that I need to mention ‑ ‑ ‑

FRENCH CJ:   Sorry, can I just clear one thing in relation to your list of relevant factors?  Obviously, it is an important factor that a performance or a promise may be a necessary condition of transfer.

MR YOUNG:   Yes.

FRENCH CJ:   But is that requirement itself a necessary condition of characterisation or can you have characterisation of consideration as being for a dutiable transaction, notwithstanding that it is simply a linked promise without conditioning the transfer?

MR YOUNG:   Well, if you, for instance, your Honour, if you had a ‑ ‑ ‑

FRENCH CJ:   I am looking at the absence of default, for example.

MR YOUNG:   Well, my answer would be in the context of an agreement different from this it may be that you would still characterise the payment as being consideration that moved the transfer, absent an explicit statement that that is a condition precedent to transfer.  Take Dick Smith, in Dick Smith the Court relied upon the fact that there was an explicit condition precedent that the dividend be funded.

Now, because it was a singular agreement requiring the funding of the dividend and ultimately only one thing was received, the transfers of the shares, and the payment was received in two pathways, but the aggregate payment was 114 million, you could still in the absence of that explicit condition precedent say that the receipt of the two payments moved the transfer, but when you move to a composite agreement where there are multiple exchanges of value and there is no condition precedent then surely you do have to address the nature of those exchanges of value and their purpose to ascertain whether any of those value exchanges are to be properly characterised as payments that moved the transfer.  But you cannot easily jump to that conclusion simply because they are gathered together in the same agreement, which is our learned friend’s approach.

The further point I was going to mention is addressed in paragraph 51 of our submissions.  This point is reminiscent of Pioneer, although Pioneer was a value limb case; a paragraph (b) case.  The obligations under the development agreement were covenants that ran with the land under an express provision of the development agreement, and the transferee of the land was required to enter a registrable agreement on title.  Those future payment obligations were a burden on the title.  They were not something paid for the title; they were in fact a burden on the title, and it would burden any successor in title.  They were not encumbrances within the meaning of the Duties Act.  They were restrictions of the kind spoken of by the High Court in Pioneer.

As we say in paragraph 51, the fact that the payment obligations were a burden on the title is inconsistent with those obligations being characterised as consideration for the transfer of the title.  They cannot be both, and here they were manifestly the latter.  Unless I can ‑ ‑ ‑

HAYNE J:   Mr Young, what is the difference between that and the vendor’s mortgage?

MR YOUNG:   Between that and the vendor’s mortgage?

HAYNE J:   The paragraph 51 matters that you have mentioned; the purchaser, here Lend Lease, remains bound to the Authority to make payments into the future.  Is that right?

MR YOUNG:   Yes.

HAYNE J:   That is registered on title?

MR YOUNG:   They are treated as covenants, yes.

HAYNE J:   Yes.  What is the difference between that and a vendor leaving money in the property and taking a mortgage in support of it?

MR YOUNG:   There are differences when you look at the authorities.  This point was contested below; there is no appeal against the rejection of the encumbrance argument.

HAYNE J:   I understand that, but you are making a point which is that somehow this is positively inconsistent with the Commissioner’s case.  I am not following that at all.

MR YOUNG:   We say that the fact that these payment obligations would bind a successor in title, and so would diminish any return on sale so long as those obligations were unfulfilled, that is a factor to be taken into account in determining whether these ongoing payment obligations are obligations that can be regarded as payments that moved the transfer of title in the first place.  I was about to say that unless I can assist the Court further, those are our submissions, and I am grateful for the tolerant hearing I have received.

FRENCH CJ:   Always, Mr Young.  Thank you.  Yes, Mr Solomon.

MR SOLOMON:   If your Honours please, your Honours, I will be brief.  Would your Honours turn please to Court book 2902 in volume 7.  I want to do this task really to answer a question Justice Kiefel raised earlier this morning.  I want to briefly comment on the types of payment by reference to whether or not each type is or is not provided for in clause 4.7.  I will be brief.  The stage land payment obviously is; the infrastructure contribution is; the remediation contribution is; the art contribution is; both the final land payment and the additional authority payment – and I am going to develop this in a moment just a little – also both are; the estimated payments are not the subject of submission but in any event they are estimates of clause 4.7 payments.  So there are only three payments that are not relevantly envisaged or provided for in clause 4.7.

First of all, the non‑monetary consideration – I will say something about that in a minute – and secondly and thirdly, the Grand Plaza additional payment, and the Grand Plaza contribution.  As your Honours know, the Commissioner is not pressing the retention amount, but as my learned friend explained to your Honours this morning, the other two amounts remain in issue; the Grand Plaza additional payment and the Grand Plaza contribution.

So I want to say something more about three of those types of payments, and that is really all I seek to do in reply.  Starting with the two Grand Plaza payments, my learned friend took you this morning to clause 13.2 of the 2008 development agreement.  I do not want to be repetitive and do that as well.  That is where the contributions are provided for.  The only submission I seek to make in reply is to notice that the provision for the payment in fact occurred in advance of the transfers which here took place, and my learned friend did not suggest to the contrary.

I now want to say just a little about two other types of payment, first of all, the authority payment.  Would your Honours please go to appeal book 503, volume 2.  With a little encouragement from the Bench, I skipped over this yesterday afternoon, but I will need to stay just for a moment with it.  This is in form, as I submitted yesterday – in form is not capturing it correctly.  This is materially, we submit, structured equivalently to clause 4.7 in the 2001 development agreement.  I want to show your Honours two features of it in relation to the additional authority payment.  First of all, would your Honours notice in 4.7(a) that the payments are to occur:

On or before the Actual Stage Release Date –

that is a defined term.  Your Honours saw it yesterday in the earlier agreement.  It is at 471.  I do not want to take your Honours to the definition but in substance it means before title.  That was an inaccurate description – before title passes.  So that before title passes all of those payments are to be made, and your Honours will see that one set of those payments is the 4.7(a)(ii) “Additional Build Out” payments.  So that my learned friend identified for your Honours this afternoon the way in which on a particular parcel of land there could be further building, and in fact, the negotiated position was to treat that initial payment in the same way as the other initial payments, and then further, and equivalently, in 4.7(b) on page 504:

On or before the Initial Reconciliation Date –

that is, at about when sales commence, there needs to be a distribution so that 2.74 per cent of gross proceeds are paid, 1.35 per cent of external infrastructure is paid, 1.55 per cent of gasworks site remediation is paid and as your Honours will see, 2.8 per cent of the additional authority payment is paid.  So that, if your Honours otherwise accept the submissions we present, it inevitably will follow that this payment type will fall into the same class or category as the other payment types which my client assessed and which we seek to defend.

That is what we wanted to say about the additional authority payment.  While I have got this folder open, can I notice one thing just for completeness?  If your Honours would go to clause 20.4 at page 572.  I took your Honours this morning to the equivalent clause in the 2001 development agreement but for these purposes it is suitable as you have got the folders to go to this. 

My learned friend observed this afternoon about the non‑applicability of clause 20.6 for non‑payments which under the agreement are to occur after title has passed but of course, as your Honours will note in 20.4, looking at (b)(iv), for a material default, which your Honours saw this morning was a financial default and includes non‑payment of all of the sums specified, there is an entitlement on the part of the authority to terminate the agreement and, as my learned friend pointed out this afternoon, there is an inhibition further on exercising or enforcing the clause 20.6 rights.  Finally, in respect of the payments, could I briefly take your Honours please to one feature of the non‑monetary consideration payment at appeal book 5, page 2007.

I am sorry, if your Honours would go to 2000, appeal book 5, 2000.  I mentioned briefly to your Honours yesterday that there were three stage deeds.  There is a C9 stage deed which we have got in front of us.  There is an MWKH stage deed and there is a V5 Convesso stage deed.  Generally they are in similar forms.  They certainly speak to similar subject matters, and I wanted to show your Honours this.  Would your Honours first of all notice clause 4.3 at page 2007?  This is the non‑monetary consideration clause in relation to this stage.  There were two stages on which this sum was assessed.

What I want your Honours to notice is clause 2.2 on page 2004.  Your Honours will see that the parties provided in advance of title

transferring that for the C9 stage certain provisions are to apply, a regime is to apply, and what I want to notice for these purposes is the inclusion of sums for the initial build out sale, the additional build out sale, and then the works components to which I just took your Honours and then, turning over to 2005 in a form your Honours generally will recognise, references to the external infrastructure, the gasworks site remediation, the additional authority payment, and the like.

So that when your Honours evaluate the payments on which my learned friend has placed reliance today, and in particular the additional authority payment and the non‑monetary consideration and the Grand Plaza contribution amounts – there are two of them - your Honours will notice generally the way in which the parties equivalently treated them in the arrangements into which they entered and to which in part I have just taken your Honours.

In conclusion, your Honours, we seek in each appeal for the appeal to be allowed, for the orders of the Court of Appeal to be set aside, for the appeal to that court to be dismissed, for the costs in that court to follow – that is, for our costs to be paid by the appellants respectively in that court – and for costs in this Court.  Because we have conceded, or not pressed, two payments, the matter needs to go somewhere.  We proposed it be remitted to the Court of Appeal.  Our learned friend has said it would be preferable for it to be remitted to the Commissioner, and we do not seek to express a preference on that remitter position.  Subject to anything your Honours have, those are the matters for the appellant.

FRENCH CJ:   Thank you, Mr Solomon.

MR SOLOMON:   If your Honours please.

FRENCH CJ:   The Court will reserve its decision.  The Court adjourns until 10.15 tomorrow morning.

AT 3.47 PM THE MATTER WAS ADJOURNED