Commissioner of State Revenue v Van Dairy (Hong Kong) Group Ltd, Van Dairy (Hong Kong) Group Ltd v Commissioner of State Revenue and Ningbo Kaixin Investment Co Ltd v Commissioner of State Revenue
[2024] TASSC 70
•27 November 2024
[2024] TASSC 70
| COURT: | SUPREME COURT OF TASMANIA |
CITATION: | Commissioner of State Revenue v Van Dairy (Hong Kong) Group Ltd, Van Dairy (Hong Kong) Group Ltd v Commissioner of State Revenue and Ningbo Kaixin Investment Co Ltd v Commissioner of State Revenue [2024] TASSC 70 |
| PARTIES: | COMMISSIONER OF STATE REVENUE |
| v | |
| VAN DAIRY (HONG KONG) GROUP LTD and ANOR AND | |
| VAN DAIRY (HONG KONG) GROUP LTD | |
| v | |
| COMMISSIONER OF STATE REVENUE | |
| AND | |
| NINGBO KAIXIN INVESTMENT CO LTD | |
| v | |
| COMMISSIONER OF STATE REVENUE | |
| FILE NOS: | 1115/2024, 1116/2024, 1117/2024 |
| DELIVERED ON: | 27 November 2024 |
| DELIVERED AT: | Hobart |
| HEARING DATE/S: | 17, 18 October 2024 |
| JUDGMENT OF: | Marshall AJ |
| CATCHWORDS: |
Administrative law – Administrative tribunals – Statutory appeals from administrative authorities to courts – Magistrate correctly held that Sale and Purchase Agreement was legally binding agreement for sale of land – That corporation was a land-rich corporation – Evidence beyond doubt that valid transfer of shares occurred – Magistrate entitled to not remit interest in full - Ningbo not exempt from paying duty under the legislation.
Aust Dig Administrative Law [1147]
Administrative law – Administrative tribunals – Statutory appeals from administrative authorities to courts – Appeal from commissioner of state revenue – Legislation does not require existence of exceptional circumstances for interest on duty payable to be remitted.
Aust Dig Administrative Law [1147]
Taxes and duties – Stamp duties – Assessment and amount payable including fines – Other cases – Tasmania – Whether Ningbo could have acquired land from Mr Lu in manner that involved no change in beneficial ownership of land – Acquisition of land by company makes company owner of land and not the shareholders – Ningbo not exempt from paying duty under the legislation.
Aust Dig Taxes and Duties [1912]
Legislation:
Magistrates Court (Administrative Appeals Division) Act 2001, 47(2)
Duties Act 2001, s 44, s 49 s 60, s 61(1), s 61(4), s 67(a), s 71(1)(a)
Tax Administration Act 1953, s 38, s 40(3), s90
Cases:
Commissioner of State Revenue v Melbourne's Cheapest Cars Pty Ltd [2018] TASSC 47
First Mortgage Managed Investments v Dial A Blind (Australia) Pty Ltd [2024] NSWSC 92
Hall v Busst (1960) 104 CLR 206
ZHI International Pty Ltd [2022] NSWSC 2
REPRESENTATION:
Counsel:
| Appellant/Respondent: | P Jackson SC, L Taylor |
| Respondents/Appellants: | A Young KC, W Wong, P Murray |
| Solicitors: | |
| Appellant/Respondent: | State Litigation Office |
| Respondents/Appellants: | K & L Gates |
| Judgment Number: | [2024] TASSC 70 |
| Number of paragraphs: | 90 |
Serial No 70/2024
File Nos 1115/2024
1116/2024 1117/2024
COMMISSIONER OF STATE REVENUE v VAN DAIRY (HONG KONG) GROUP
LTD AND ANOR
VAN DAIRY (HONG KONG) GROUP LTD v COMMISSIONER OF STATE
REVENUE
NINGBO KAIXIN INVESTMENT CO LTD v COMMISSIONER OF STATE
REVENUE
| REASONS FOR JUDGMENT | MARSHALL AJ 27 November 2024 |
1 The matters before the Court are three appeals under s 47 of the Magistrates Court (Administrative Appeals Division) Act 2001. Section 47(2) of that Act provides that a party to a proceeding before the Magistrates Court of Tasmania may appeal to this Court on a question of law from a decision of the Magistrates Court.
2 The decision, the subject of the appeals, is one made by Deputy Chief Magistrate Daly (as he then was) on 3 April 2024. For reasons of brevity I will refer to his Honour as "the magistrate" hereinafter in these reasons. The magistrate dealt with applications by two related companies to review a decision of the Commissioner of State Revenue ("the Commissioner") to disallow the objections of those companies to assessments of stamp duty made by the Commissioner concerning those companies.
3 In matter 1115/2024 the Commissioner has appealed from one aspect of the decision of the magistrate which concerned the interest payable on the stamp duty assessed by the Commissioner to be owing by the companies.
4 In matter 1117/2024 Ningbo Kaixin Investment Co ("Ningbo") has appealed from aspects of the decision of the magistrate which confirmed the Commissioner's decision that Ningbo was liable to pay stamp duty as assessed save for variations made by the magistrate to the assessment of the Commissioner.
5 In matter 1116/2024 Van Dairy (Hong Kong) Group Ltd ("VDHK") appeals in a materially identical way to the appeal of Ningbo.
Historical background
6 In 1827, the Van Diemen's Land Company ("VDL") established a property called Woolnorth in the north-west corner of Tasmania. VDL was established by royal charter on 10 November 1825. King George IV granted 143,000 hectares of land in the region between Burnie and Cape Grim to VDL, encouraged by the ability of the colony to raise fine wool sheep in the 20 years since British colonisation. Cape Grim is at the most northern western part of mainland Tasmania and was part of the original Woolnorth grant. It was also the site of massacre of 30 indigenous Peerapper people by shepherds on 10 February 1828. Since March 2021, the locality of Woolnorth has been known as Woolnorth/Temdudheker. Given that the key events concerning these appeals occurred in early 2016, these reasons will refer to the area as Woolnorth. Woolnorth, as the name suggests, was originally a property servicing the wool industry. However, as at late 2015, it had become the largest dairy property in Australia. At that time, it operated 25 dairy farms and had operations across 17,450 acres.
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Factual background
7 In October 2015, the Woolnorth properties, then owned by VDL and a company called Tasman Ferndale Pty Ltd ("TFPL"), came on the market. Both VDL and TFPL were wholly owned, at all material times, by a company called Tasman Land Company ("TLC"). In turn Tasman Land Company was, at all material times, wholly owned by New Plymouth District Council, which is a local government body based in the Taranaki region of New Zealand.
8 Mr Lu Xianfeng ("Mr Lu") was interested in purchasing the Woolnorth properties and related assets which were proposed to be sold by interests controlled by TLC. As he is a foreign national from China, the purchase by Mr Lu of the land and assets required approval from the Foreign Investment Review Board. Ultimately, that approval was forthcoming. At all material times Mr Lu controlled the corporate appellants in this matter.
9 Mr Lu arranged for the incorporation of a company to be the vehicle for the purchase of the Woolnorth property and related assets. For that purpose, on 30 October 2015, Moon Lake Investments Pty Ltd ("Moon Lake") was incorporated. Moon Lake later changed its name to Van Dairy Limited. I will continue to use Moon Lake to describe the company to save confusion with VDL, except where stated otherwise.
10 On the incorporation of Moon Lake, Mr Lu was the sole shareholder of all five shares in the company. The method of transferring shares in Moon Lake to another person was provided for in cl 105 of Moon Lake's constitution. It required a document setting out the details of the transfer to be signed by the transferor (Mr Lu) and any transferee; being the person or corporate entity to which Mr Lu transferred shares.
11 On 20 November 2015, Mr Lu and Moon Lake on the one hand and TLC on the other hand, executed a written agreement known in the proceeding below as the Sale and Purchase Agreement ("SPA"). Under cl 3 of SPA, TLC agreed "to procure the sale and transfer to [Moon Lake] of the Assets … with affect from Closing …". The Assets were said to be owned by "the group". The group comprised TFPL and VDL, TLC's wholly owned subsidiaries but not TLC itself. The Assets included "the Properties" which were properties with one exception in the Woolnorth coastal region, hereinafter referred to as the Woolnorth property. "Closing" under the SPA was to occur on 31 March 2016. On 26 November 2015 Moon Lake had paid a deposit of $20m.
12 On 12 January 2016, according to the Moon Lake share register held by the Australian Securities and Investments Commission ("ASIC"), Mr Lu's five shares in Moon Lake were transferred to Ningbo. Counsel for Ningbo and VDHK submitted on their appeals that Mr Lu did not sign the transfer document as required by cl 105 of Moon Lake's constitution. That is a matter to which the Court will return to deal with later in these reasons. Suffice to say, it is a matter of contest between Ningbo and VDHK on the one hand, and the Commissioner on the other hand, as to whether the transfer of Mr Lu's five shares to Ningbo on 12 January 2016 was effected legally.
13 On 24 March 2016, according to Moon Lake's share register held by ASIC, Ningbo's shares in Moon Lake were transferred to VDHK. Counsel for the corporate appellants submitted that the transfer was ineffectual because Ningbo did not validly come into possession of shares owned by Mr Lu. The Court will revisit that issue later in these reasons as well.
14 On 30 March 2016, the parties to the SPA, being Moon Lake and Mr Lu on one hand and TLC on the other, varied the SPA to modify the purchase price allocation schedule.
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15 As at 31 March 2016, Moon Lake was obliged to pay to, or at the direction of TLC, the purchase price less the deposit paid. Prior to 31 March 2016, Moon Lake sought funding from VDHK. It received $233m from VDHK. A large number of shares in Moon Lake were issued to VDHK at that time.
16 Moon Lake borrowed an additional $70m in funds from a Dutch multinational banking and finance services company called Cooperative Rabobank and its associated entities.
17 On 31 March 2016, Moon Lake used the funds obtained from VDHK and the Dutch bank to assist in the purchase. It transferred $1.5m to VDL and $190,834,492.97 to TLC as well as other sums to the Dutch bank and the New Zealand local government body which owned and controlled TLC. Each of VDL and TFPL provided Moon Lake with a signed transfer of the property, the subject of the sale previously owned by each of them.
18 On or about 4 April 2016, the land transfers from VDL and TFPL to Moon Lake were lodged with the Commissioner to be assessed for stamp duty by the State Revenue Office ("SRO"). Solicitors for Moon Lake provided the Commissioner with a bank cheque for stamp duty in the sum of $8,246,011.50.
19 On or about 8 June 2016, Moon Lake's solicitors received correspondence from the SRO seeking information about the corporate appellants. On 17 June 2016, the SRO stated that the reason for seeking information was to determine if a relevant acquisition in a land-rich entity had occurred. At all material times s 60 of the Duties Act 2001 provided as follows:
"(1) A private corporation is land-rich if
(a)
it has land holdings in Tasmania where the unencumbered value is $500,00 or more;
(b)
its land holdings and all places, whether within or outside Australia, comprise 60% or more of the unencumbered value of all its property."
Section 61(1) defined "land holding" as any interest in land with some immaterial exceptions.
20 After a further chain of correspondence, the SRO told Moon Lake's solicitors on 22 June 2016 that it would give further consideration as to whether Ningbo and/or VDHK had any liability to pay duty separately to Moon Lake's liability to pay duty at the time of the acquisition of the Woolnorth properties.
21 In November 2021, Moon Lake received a notice of assessment to pay an additional sum of duty. That amount was $135,085.50. It paid that amount, and nothing turns on that assessment.
22 Nothing further was heard from SRO by Moon Lake's solicitors regarding any duty that might be assessed as against Ningbo and VDHK until about 28 January 2021, when the corporate appellants received a notice from the SRO that it intended to investigate whether Ningbo and/or VDHK had acquired any relevant interest in a land-rich corporation in January and March 2016.
23 On 20 April 2021, Moon Lake (by which time had changed its name to "VDL") received correspondence by email from an officer at the SRO, which included the following statement:
"The acquisition by shares by [Ningbo] on 15 January 2016 and then subsequently by [VDHK] on 24 March each resulted in a separate dutiable transaction under s 66 of the Act as at the time of each of those majority acquisitions, Moon Lake was deemed to be a land-rich company."
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24 On 5 July 2021, the SRO informed VDHK's solicitors that Ningbo and VDHK was each liable to pay duty interest and penalty tax in the sum of approximately $10.5M.
25 On 2 September 2020, Ningbo and VDHK each lodged notices of objection with the Commissioner regarding the 5 July 2021 assessments.
26 On 1 November 2022, Ningbo and VDHK received a "Notice of Decision and Statement of Reasons", dated 31 October 2022 from the Commissioner, disallowing their objections in part.
27 The variation to the position taken by the Commissioner and SRO on 5 July was as follows:
• The unencumbered value of the relevant land as at 12 January 2016, was assessed at $165,222,000.00 instead of $182,374,464.00; • The liability of Ningbo was reduced in total to $9,995,100.45 (consisting of $7,430,085.00 duty, $1,078,998.45 interest and $1,486,017.00 penalty tax); and • The liability of VDHK was reduced in total to $9,964,547.80 (consisting of $7,430,085.00 in duty, $1,048,445.80 in interest, and $1,486,017.00 in penalty tax). 28 The assessments, as reviewed on 31 October 2022, were the subject of challenge in the court
below.
Issues before the court below
29 At [10] of his reasons for judgment, the learned magistrate observed that the parties were agreed that the "central and dispositive issue" before him was whether Ningbo and VDHK had made a "relevant acquisition" for the purposes of s 67(a) of the Act. That provision stated that, for the purposes of the relevant division:
"A person who –
(a) acquires an interest in the land-rich private corporation
(i) that is of itself a majority interest in the corporation; or (ii)
that when aggregated with other interests in the corporation held by the person, or an associated person, results in aggregation that amounts to majority interest in the corporation…."
Section 60 referred to at [19] above deals with what a land-rich corporation is.
30 The learned magistrate divided the matters requiring determination in the proceeding below into seven issues and additionally dealt with an issue concerning the question of remittal of interest payable.
31 The first issue concerns the status of the SPA. That is, whether or not it was an uncompleted agreement for the sale of land. This matter is of significance because if the SPA did not result in a concluded agreement, there was no binding contract for the sale of the land. The position of Ningbo and VDHK was, and remains on appeal, that Moon Lake did not acquire an interest in land until it received the signed transfers from TPFL and VDL as at closing on 31 March 2016. That occurred after the alleged dutiable transactions on 12 January 2016 and 24 March 2016. Counsel for Ningbo and VDHK took the view that s 61(4) did not deem Moon Lake to be entitled to the whole of the land the subject of the SPA because it was not a vendor under an uncompleted agreement for the sale of land. The magistrate disagreed. He was satisfied the SPA was a concluded and binding agreement for the sale of land in the context of s 61(4) which provided that:
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"For the purposes of this Part, the vendor and the purchaser under an uncompleted agreement for the sale of land are taken to be separately entitled to the whole of the land."
32 The second issue dealt with by the court below was whether Moon Lake was the purchaser under the uncompleted agreement for the sale of land, so to be deemed by s 61(4) of the Act to be entitled to the whole of the property. This issue is related to the first issue. The magistrate noted that the SPA described Moon Lake as a purchaser. At [45] the learned magistrate said:
"I am satisfied that Moon Lake was a purchaser under an uncompleted agreement for
the sale of land".
He held that view in respect of the date of each relevant acquisition, which was 12 January and 24 March 2016 respectively. As a result, s 61(4) operated, according to the court below, to deem Moon Lake to be separately entitled to the whole of the land the subject of the SPA. The submission of the appellant companies before the magistrate on this issue, was related to their submission on issue one.
33 Issue three was described by the magistrate as "was the deemed entitlement to the whole of the properties a 'landholding' within the meaning of s 61(1)". This issue concerned whether Moon Lake was land-rich as at the date of each acquisition. That is, 12 January 2016 and 24 March 2016. The magistrate accepted the construction of the Act raised before him by the Commissioner. He held that s 61(1) creates the statutory concept of a land-rich corporation which extends beyond notions of land ownership by registration and title or equitable interests arising from trust. He considered that the purpose of s 61 is to provide a basis for deeming under s 67 whether a relevant acquisition has then been made which would enliven liability for duty.
34 The magistrate considered that a purchaser under uncompleted contract for the sale of land is beneficially entitled to the whole of the land as though having an interest in fee simple. He concluded at [54] that Moon Lake had a deemed entitlement to the property under the SPA which was a "landholding" under s 61(1). This issue is also closely related to issues one and two.
35 Issue four in the magistrate's reasons, is whether Moon Lake, by virtue of its landholding, was a land-rich corporation under s 60. The magistrate determined that Moon Lake was a land-rich corporation for the purposes of the Act. He held that the landholdings of Moon Lake in all places comprised in excess of 60% of the unincumbered value of all of its property.
36 Issue five was, "Did Ningbo and/or VDHK acquire an interest in Moon Lake within the meaning of s 67 in January 2016 and March 2016 respectively?" On this issue, which took up a considerable portion of the judgment below, the learned magistrate concluded that Ningbo and/or VDHK did acquire a relevant interest in Moon Lake in January 2016 and March 2016. The objection by the corporate appellants to that conclusion was based on a submission rejected by his Honour that there was no valid transfer from Mr Lu to Ningbo in January 2016, and therefore no valid transfer from Ningbo to VDHK in March 2016. The magistrate rejected that submission and held that the transfer from Mr Lu to Ningbo was "intended, planned and implemented according to instructions given to legal advisors …".
37 Issue six concerned whether the corporate appellants were entitled to an exemption from duty on each relevant transaction under s 44 of the Act. Section 49 provided that "the duty chargeable on a transfer of dutiable property is $50 if the Commissioner is satisfied there is no change in the beneficial ownership of the property." The magistrate held that s 49 did not operate in relation to the acquisition of shares. Further, the magistrate held that exemption from duty which is provided by s 72(1)(a) of the Act also did not apply. That provision stated that "(1) an acquisition by a person of an interest in a private corporation is an exempt acquisition – (a) if the land the subject of the interest concern could
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have been acquired by the person in a matter that does not result in any liability to pay ad valorem
duty under Chapter 2; …".38 Issue seven concerned penalty tax under s 40(3) of the Tax Administration Act 1953. Penalty tax is not payable if the taxpayer or person acting on behalf of the taxpayer took reasonable care to comply with taxation law. The magistrate considered that reasonable care had been taken to comply with taxation law by the solicitors acting for Ningbo and VDHK.
39 The magistrate dealt separately with the question of interest in the context of s 38 of the Tax Administration Act, which gives the Commissioner discretion to remit interest payable by a taxpayer in any amount. The magistrate considered that interest should be remitted from between the dates of the acquisitions and 28 January 2021 when the SRO recommenced to engage with Ningbo and VDHK on the question of duty payable. The Commissioner has taken issue in his appeal with this aspect of the magistrate's decision.
40 The magistrate affirmed the decisions of the Commissioner to disallow the objections of Ningbo and VDHK to the duty assessed by the Commissioner to be payable. However, the magistrate varied the decisions on the topics of interest and penalty tax. He accepted that no penalty tax is payable and that interest payable should commence from 28 January 2021 based on the market rate.
The Commissioner's appeal
41 The Commissioner sought to have set aside that part of the determination of the magistrate
which held that:
"Interest is payable [in respect of each of Ningbo and VDHK] from 28 January 2021, based on the 'market rate' being the 90 day Bank Accepted Bill Rate published by the Reserve Bank of Australia for the month of May preceding the start of each financial year."
42 Counsel for the Commissioner submitted that the magistrate erred in law by failing to consider whether the delay relied on by Ningbo and VDHK amounted to exceptional circumstances so as to make it appropriate to remit all interest during the period of delay by the SRO in the exercise of the magistrate's discretion under s 38 of the Taxation Administration Act.
43 Section 38 of the Taxation Administration Act does not require the existence of exceptional circumstances for interest on duty payable to be remitted. That provision gives a broad discretion to the decision-maker to remit interest "in any circumstances", which the decision-maker considers "appropriate". That discretion would miscarry, as a matter of law, if the relevant facts showed that the remission of interest would be inappropriate. It is not inappropriate to remit interest if the period in which interest is not to operate on account of the remission is a period during which the tax payer was not on notice that any investigation was being conducted into its liability for duty and consequent penalty interest. As the magistrate observed, the SRO ceased communications with the companies about the land-rich issue after 21 June 2016 and did not resume discussions on that matter until about 28 January 2021. At [172], the magistrate described the "delay" as a "significant matter which enlightens the discretion to remit interest".
44 As counsel for the Commissioner submitted, a taxpayer whose activities are the subject of enquiry by the SRO, has an interest in a quick resolution of the issue given its potential liability for interest to be paid by it to the Commissioner. However, it may also be also reasonable for a taxpayer to consider that, as the SRO has been silent on a particular matter of concern for almost five years, the SRO is no longer concerned about the issue. This is a much more natural course for a party subject to an enquiry by the SRO to take, rather than to seek to have the SRO finalise the issue as soon as possible, given that there may be no issue to finalise.
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45 The Commissioner submitted that the magistrate "impliedly" imposed on the decision-maker an obligation to ensure the discretion under s 38(1) of the Taxation Administration Act is exercised favourably to the taxpayer, unless satisfied of the existence of a "disentitling" factor. I see no reason to view the magistrate's decision that way. He placed no onus on the Commissioner's counsel to come up with some disentitling factor to overcome a prima facie position in favour of remittal. The magistrate, in the exercise of his discretion, considered it appropriate to remit interest because delay in pursuing the alleged outstanding duty was not the responsibility of the taxpayer to overcome, but for the SRO to police the State taxation law. Remission was not open-ended and only applied to 28 January 2021.
46 In Commissioner of State Revenue v Melbourne's Cheapest Cars Pty Ltd [2018] TASSC 47, Blow CJ referred to a policy position of the Commissioner to remit the market rate component of interest on duty "only in exceptional circumstances". It may be reasonable for the Commissioner to adopt a policy position as a starting point. However, on appeal to the Magistrate's Court, a magistrate is not bound by any such policy position of the primary decision-maker. The magistrate stands in the shoes of the primary decision-maker and exercises the discretion contained in s 38(1) having regard to the terms of that sub-section, and the particular factual circumstances.
47 The discretion, on its face, is only confined to what the magistrate considers to be "appropriate" and not governed by considerations of exceptional circumstances. However, it can be rightly considered an exceptional circumstance, that the SRO did not take any active position with respect to the contested duty liability for a period of almost five years. If exceptional circumstances were required, as counsel for the Commissioner contends is the effect of the judgment of the Chief Justice in Melbourne's Cheapest Cars, they did exist to allow the magistrate to exercise the discretion in the way he did, given the length of the delay by the SRO before re-agitating the matter in late January 2021. However, the exercise of the discretion confined to a finding that exceptional circumstances existed, in my view, would amount to the application of an inflexible rule of policy in any event. The discretion would thereby be unduly fettered by a consideration not expressed in the legislation. If it was a relevant consideration to this matter, it applied in any event given the length of delay in question. If the delay is considered not to be an exceptional circumstance, and that the need for a finding of exceptional circumstances flows from Melbourne's Cheapest Cars, I would not follow that decision, albeit a decision of another single judge, because it would amount to fettering the discretion of the single decision-maker by the application of an inflexible rule of policy.
48 The above discussion deals with grounds one to four of the Commissioner's grounds of appeal. Ground five alleges that an error of law occurred by the magistrate considering that Ningbo and VDHK acted reasonably in obtaining legal advice as to their potential liabilities.
49 That observation of the magistrate repeated an earlier observation he had made about the taxpayer's acting reasonably in relying on legal advisors in the context of the taxpayers being relieved of liability to pay penalty tax. It is equally relevant to the exercise of discretion not to remit interest between June 2016 and 28 January 2021. The taxpayers would not have acted unreasonably in taking the position that their lawyers were dealing with the SRO and that their lawyers would tell them if the SRO sought to re-agitate the issue of duty payable on the respective transactions which occurred in January and March 2016.
50 The magistrate did not err in the exercise of his discretion to remit interest under s 38 of the Taxation Administration Act. The Commissioner's appeal is dismissed. The respondents to that appeal are entitled to their costs of that appeal.
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Ningbo's appeal
51 Ningbo appealed from the decision of the magistrate in five respects. First, it claimed that there was no agreement for the sale of land between Moon Lake and Ningbo. Second, it claimed that Moon Lake was not a land-rich corporation. Third, it claimed that there was no valid transfer of Mr Lu's shares in Moon Lake to Ningbo. Fourth, it claimed that Ningbo was entitled to exemption from liability to duty. Fifth, it claimed that interest should have been remitted in full under s 38(1) of the Taxation Administration Act.
Ground 1 - Was there an agreement for the sale of land?
52 This topic is the subject of ground one of Ningbo's grounds of appeal. It takes issue with the findings and conclusions of the magistrate on three matters dealt with him. They were:
• Was the SPA and uncompleted agreement for the sale of land? • Was Moon Lake a purchaser under the uncompleted agreement for the sale of land so as to be deemed by s 61(4) of the Act to be separately entitled to the whole of the properties? • Was the deemed entitlement to the whole of the properties a "land holding" within the meaning of s 61(1) of the Act? 53 Central to the resolution of these issues is the proper interpretation of s 61 of the Act. The section deals with "land holdings of private corporations". It is found in Part 2, Division 1 of the Act. Part 2 is entitled "Acquisition of interest in certain land holdings". Division 1 is headed "Land-rich private companies". Section 60 deals with the definition of "land-rich companies" and is the subject of appeal ground two, discussed later in these reasons. Section 61 is headed "Land holdings of private corporations". Section 61(4) is set out at [31] above.
54 Ningbo contends that the SPA was not an agreement for the sale of land within the meaning of s 61(4) because the owners of the land were not parties to the agreement. It observes that the SPA is a contract between TLC and Moon Lake for TLC to procure a sale of land to Moon Lake as distinct from TLC itself selling land to Moon Lake.
55 The expression "agreement for the sale of land" is not defined in the Act. The ordinary natural meaning of the words is to provide a description of an agreement which results in the sale of land. The words in the section are not "an agreement for the sale of land by a vendor and its purchase by a buyer". The words "for the sale of land" are descriptive of the agreement. An agreement by which a corporate entity, which wholly controls two other corporate entities, undertakes to arrange for its alter egos to sell land held by it to a buyer, is an agreement for the sale of land. I accept the submission of counsel for the Commissioner that s 61(4):
"Contemplates any legally binding agreement, the performance of which is intended, regardless of any outcome it might produce to bring about a conveyance or transfer of title to land, to a purchaser for valuable consideration."
56 The words in s 61(4) should not be read in a narrow or pedantic manner. They are directed to agreements by which the sale of land is effected. In the SPA there was never any doubt that the TLC was able to secure the sale of the relevant land to Moon Lake, and that is exactly what happened. As a party to the uncompleted agreement for the sale of land, Moon Lake thereafter held an interest in the land amounting to a land holding for the purposes of s 61(1) of the Act. That is what the magistrate decided, and he was correct in so deciding.
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57 Given that the SPA constituted an "uncompleted agreement for the sale of land" within the meaning of s 61(4) of the Act, ground 1 of the grounds of appeal fails. There was a relevant agreement for the sale of land which, in fact, led to the sale of land and other assets contemplated to be sold to the proposed purchaser named in the agreement.
58 Before leaving this topic, it is important to refer to the judgment of Fullager J in Hall v Busst (1960) 104 CLR 206 at [222], where his Honour said that there were "three essential elements" required for a concluded agreement. They are "the parties", "the subject matter" and "the price". All three were satisfied in this case. The SPA contained all three elements. The parties are clearly stated. The price was contained in the schedule dealing with price, as amended by agreement. The subject matter was the sale of land and non-land assets owned by two companies controlled by TLC, which were intended to be sold to a company controlled by Mr Lu. That was the stark reality and that was the stark eventuality.
Ground 2 – Was Moon Lake a "land-rich private corporation"?
59 The critical issue for determination on this ground is the factual matter as to whether, at the relevant time, that is at the time that Moon Lake acquired the land, Moon Lake's land holdings in all places comprised 60% or more of the unencumbered value of all its property. That invites the further question as to what was the value of Moon Lake's land holdings and what was the value of other property held unencumbered at that time.
60 Counsel for Ningbo submitted that the magistrate did not make a proper assessment of whether the value of Moon Lake's land holdings comprised 60% or more of the unencumbered value of all its property.
61 The Commissioner's determination, the subject of the appeal to the magistrate by Ningbo, contained reasons in which the Commissioner found, at the time of Moon Lake's acquisition of the land, it had no other interests than its deemed interest under s 61(4) of the Act in the land. Before the magistrate, the Commissioner contended that Moon Lake had non-land assets, including chose in action, which was limited by the terms of the SPA, to a right to sue for up to $10,000,000.
62 Counsel for Ningbo submitted that s 90 of the Taxation Administration Act prevented the Commissioner from relying on a new ground to support his determination than the one he originally advanced in the decision the subject of the appeal to the magistrate.
63 In response, counsel for the Commissioner submitted that no new ground was advanced before the magistrate. The relevant ground was that Moon Lake was a land-rich corporation. All that changed was the basis for the calculation, given that Moon Lake's land holdings were not 100% of the unencumbered value of all its properties, but a slightly lesser percentage which would nonetheless still qualify for it to be a land-rich corporation. The Commissioner did not raise a new ground but a different basis for the same ground.
64 There is a distinction to be made between what a new ground is and the changing basis for reliance on an existing ground. In any event, the task for the Court to determine, on appeal, is whether the magistrate made an error of law in finding that Moon Lake was a land-rich corporation. For the reason that follows, I consider that his reasoning on the topic disclosed no legal error.
65 Apart from Moon Lake's deemed land-holdings, its only other property, at the relevant time, was its contractual right under the SPA in respect of non-land assets. As at the date of closing under the SPA, Moon Lake had a proprietary right to sue for damages for any breach of the contractual obligation of TLC to deliver possession of and title to the non-land assets under the SPA. This was a chose in action possessed by Moon Lake. The chose in action was derived from contractual rights
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given to Moon Lake by the SPA in respect of non-land assets covered by the SPA. They were contractual rights to receive, as at closing on 31 March 2016, possession and control of non-land assets and other documents of title, which did not relate to the title Moon Lake had in the land under the SPA. The chose in action, as counsel for the Commissioner submitted, consisted of the causes of action which would arise if TLC happened to not meet its contractual obligations regarding those rights of Moon Lake to the non-land assets.
66 The question becomes what value is to be ascribed to Moon Lake's chose in action given that it was part of its property as at 31 March 2016. The value of a chose in action is the ability to enforce a right to damages to breach of contract. The value, therefore, is not more than any limit on recoverable damages. In this context, cl 10.4(c)(ii) of the SPA is important. It limits damages which may be obtained enforcing a chose in action to the maximum of $10,000.
67 As at 31 March 2024, the value of land holdings by Moon Lake, as found by the magistrate, was $165,220,000. Adding the $10,000 value of the chose in action, the total unencumbered value of all Moon Lake's property was $175,220,000. The land holding, thereby, constituted 94.29% of the total unencumbered value of Moon Lake's property, making it a land-rich corporation as defined by s 60 of the Act because its land holdings comprised more than 60% of the unencumbered value of all of its properties.
68 Ground 2 of the grounds of appeal also has no merit.
Ground 3 – Valid transfer of shares?
69 Ground 3 of the grounds of appeal alleges that no valid and effective share transfer occurred of Mr Lu's shares in Moon Lake to Ningbo.
70 Mr Lu gave evidence, that was not the subject of challenge below, that he did not sign any transfer document to enable his five shares to be transferred in accordance with the constitution of Moon Lake at cl 105. Mr Lu gave evidence that he did not authorise anyone to have his electronic signature placed on the share transfer document.
71 Ms Ling was, at all material times, an employee of companies controlled by Mr Lu. She was based in China. In January 2016, Ms Ling was asked by Mr Lu's secretary in Australia to arrange for some documents to be signed by him urgently. Ms Ling understood the documentation was required to have Mr Lu's signature and the signed documents were required to be returned to Australia that day.
72 Ms Ling was unable to locate Mr Lu on the day in question. After she received the documents to be signed, she made unsuccessful attempts to locate Mr Lu by telephone. Having been told that Mr Lu's signature was required very urgently to be placed on the documents, Ms Ling placed an electronic signature of Mr Lu's, which she found on her office computer, on the documents. She understood the signature to be Mr Lu's English signature. She then returned the documents to Australia as soon as possible. At no time did Mr Lu tell her to add a signature to the documents. At no time had she discussed the transfer of the shares with Mr Lu.
73 It is immediately apparent that Ms Ling was acting on the instructions of Mr Lu's Australian secretary who, in turn, was acting on the instructions of Mr Lu. Why else would Mr Lu's Australian secretary be seeking that Ms Ling, in China, urgently obtain Mr Lu's signature to be placed on the document?
74 It was in Mr Lu's interests to have his shares in Moon Lake transferred to Ningbo in accordance with the requirements of Chinese law, as will be seen below. To suggest that Mr Lu never intended for his electronic signature to be attached to the share transfer document is devoid of
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commercial reality. The fact that there was no direct communication between Mr Lu and Ms Ling is
not determinative of what Mr Lu was intending to do.75 Correspondence in evidence supports the position set out in the preceding paragraph. On 26 May 2021, a partner in the law firm acting for Ningbo, wrote to the SRO a letter in which he stated that:
"(i) On 15 January 2016, Mr Lu transferred 100% of the shares in [Moon Lake] to [Ningbo] …"
Further, in the objection of Ningbo to the assessment of the Commissioner, dated 2 September 2021, at paragraph 3.8, the following is stated:
"On 12 January 2016, Mr Lu transferred 100% of the shares in Van Dairy to the
taxpayer."
"Van Dairy" is the current name for Moon Lake. The taxpayer is Ningbo and 12 January was the
actual date of transfer, not 15 January.76 At 3.9 of the same document, the following is said:
"The Assessed Transaction was undertaken to facilitate access in the Chinese market in order to fund the purchase of assets under the [SPA]. In particular, to comply with Chinese capital and currency controls, it was necessary for finance to be sought through a Chinese entity, rather than by an individual such as Mr Lu."
At 3.11, the objection notice said:
"On 24 March 2016, the taxpayer transferred 100% of his shares in Van Dairy [Moon
Lake] to VDHK."
The terms of the notice objection and the letter from the partner of the law firm, put beyond doubt that it was in Mr Lu's interests to arrange for the transfer of his shares. To claim now, on some narrow technical basis, that Mr Lu did not personally authorise his electronic signature to be attached to the document, is totally at odds with what happened in reality. Although his evidence that he did not authorise the transfer was not challenged, unchallenged evidence is not required to be accepted. Mr Lu wanted to transfer the shares and effected that transfer through his Australian secretary, giving instructions coming from him, to his Chinese secretary. To find otherwise is not in accordance with the reality of the situation.
77 Ground 3 is rejected.
Ground 4 – Exemption from duty?
78 Ground 4 contests the conclusion of the magistrate that Ningbo was not exempt from paying duty under the Act. Ningbo contends that under s 49 of the Act, the duty on the transaction on 12 January 2016 should only be $50.00. Section 49 provides that:
"The duty chargeable on a transfer of dutiable property is $50.00 if the Commissioner
is satisfied that there is no change in the beneficial ownership of the property."
79 Ningbo also submits that s 72(1)(a) of the Act operates to make its acquisition in Moon Lake an exempt acquisition because the land, the subject of its interest, could have been acquired in a manner that did not result in a liability to pay ad valorum duty under Div 2.
80 There is no merit in this ground. As counsel for the Commissioner had pointed out, where s 49 is relied upon for the purposes of s 71(1)(a), the actual acquisition of land is not relevant. What is
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relevant is a hypothetical acquisition of land holdings of the land-rich private corporation in which a
majority is acquired.81 The land in this case, being all freehold land subject to the SPA, is the property of Moon Lake by virtue of s 61(4). So the relevant question for Ningbo is whether it could have acquired the land from Mr Lu in a manner that involved no change in the beneficial ownership of the land. Ningbo could not have acquired the land in such a fashion because of the separate entity doctrine which provides that where a person acquires an interest in a private corporation, that person acquires for himself or herself no interest in land owned by the corporation. As Davies J said in First Mortgage Managed Investments v Dial A Blind (Australia) Pty Ltd [2024] NSWSC 92 at [57]:
"While the corporation is an artificial person, it is in law an entity distinct from those who are its directors and shareholders and is employed for commercial purposes precisely because it has that independent and distinct existence."
See also re ZHI International Pty Ltd [2022] NSWSC 2 at 11 per Rees J.
82 As counsel for the Commissioner contended, acquisition of land by a company, makes the company the owner of land and not the shareholders. Further, as submitted by counsel, whatever the ultimate underlying interest Mr Lu had in the parent company at the time of the corporate structure controlled by him, he did not personally own any of its assets.
83 At [142]-[144] the magistrate said as follows:
"142 The Act, s 49 is not a route via which the acquisitions are exempt, for the
following reasons:
- s 49 is in Ch 2, which is expressly concerned with 'duty chargeable on a
transfer of dutiable property';- the relevant acquisitions in this case are not transactions in relation to
'dutiable property' as defined in Ch 2, s 9;- s 49 is in Ch 2, which deals only with transactions concerning dutiable
property (as defined in s 9);- the liability for duty on the 'relevant acquisitions' in this case arises under Ch 3 of the Act, which commences with s 58 and explains: "This Chapter charges duty on certain transactions that are not dutiable transactions under Chapter 2" (my emphasis); - because Ch 2, s 49 does not apply to a liability for duty which arises under Ch 3, Part 2 in respect of the making of a 'relevant acquisition', it is not a provision of the Act which gives the Commissioner any discretion in respect of a liability for duty charged under Ch 3, Part 2.; - s 49 therefore has no application to a liability for duty which arises under
Ch 3, Part 2 (s 66,67).143 For completeness, I acknowledge the respondent's contention that the exemption in s 72(1)(a) cannot apply because 'the land subject of the interest' (the land to be transferred to the purchase Moon Lake under the SPA) could not have been acquired by Ningbo (as 'the person' contemplated by s 71(1)(a)) in a manner that would not result in a liability to pay ad valorem duty under Chapter 2. That is because a transfer of land under the Land Titles Act 1980 would be required to effect the transfers from the TLC subsidiaries to Ningbo under this example – and transfers would necessarily have resulted in a liability to pay duty. The respondent elaborated more fully in his oral submissions and in the RSOA, but this is the nub of it. I accept the respondent's submissions in this regard.
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144 For the foregoing reasons I reject the applicant's contentions that s 49 does not operate in relation to the acquisitions of the shares. I accept the respondent's contentions in relation to the construction and operation of the Act, s 72(1)(a). I therefore reject the applicants' contention relating to the exemption under s 72(1)(a)."
84 No error of law is disclosed in that reasoning process. Ground 4 also fails, in addition to the reasons expressed at [78]-[82] above.
Ground 5 – Remittal of interest
85 Ground 5 of Ningbo's ground of appeal challenges the magistrate's decision not to remit interest in full under s 38(1) of the Taxation Administration Act.
86 The magistrate, in the exercise of his discretion, was entitled to draw a line from when the exemption he granted would not apply. Drawing the line at 28 January 2021, as the magistrate did, was entirely reasonable because as from that date, Ningbo and its advisors were alive to SRO's new interest in its potential liability to pay duty.
87 Ground 5 also fails.
Conclusion on Ningbo's appeal
88 As each of Ningbo's appeal grounds have been rejected, the Court will order that the appeal be
dismissed with costs.
VDHK's appeal
89 The grounds of appeal in VDHK's appeal, being appeal 116-2024, are materially identical to the grounds in Ningbo's appeal. Consequently, each of them is rejected. On VDHK's appeal, the Court will make the same order as in Ningbo's appeal.
Orders on each appeal
90 In appeal 115 of 2024, the Court orders as follows:
(1) The appeal is dismissed. (2) The appellant pay the respondents' costs of the appeal. In appeal 116 of 2024, the Court orders that:
(1) That the appeal is dismissed. (2) The appellant pay the respondent's costs of the appeal. In appeal 117 of 2024, the Court orders as follows:
(1) The appeal is dismissed. (2) The appellant pay the respondent's costs of the appeal.
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