LIONORE AUSTRALIA (AVALON) PTY LTD and COMMISSIONER OF STATE REVENUE - [2006] WASAT 250

JURISDICTION : STATE ADMINISTRATIVE TRIBUNAL

STREAM: COMMERCIAL & CIVIL

ACT: TAXATION ADMINISTRATION ACT 2003 (WA)

CITATION: LIONORE AUSTRALIA (AVALON) PTY LTD and COMMISSIONER OF STATE REVENUE [2006] WASAT 250

MEMBER: JUDGE J ECKERT (DEPUTY PRESIDENT)

HEARD: 23 FEBRUARY 2006

DELIVERED : 24 AUGUST 2006

FILE NO/S: CC 1979 of 2005

BETWEEN: LIONORE AUSTRALIA (AVALON) PTY LTD
Applicant
AND
COMMISSIONER OF STATE REVENUE
Respondent

Catchwords:

Ad valorem duty Contingency principle Exception to contingency principle Scheme of the Stamp Act 1921 Mere expectancy Consideration Market value Option agreement

Legislation:

Interpretation Act 1984 (WA), s 18
Stamp Act 1921 (WA), s 4, s 16(1), s 33, s 65, s 74, s 75AC, s 75(2), Item 4, Item 4(1)(e), Sch II, Sch III

Taxation Administration Act 2003 (WA), s 16, s 16(1)(d), s 16(2), s 16(2)(a), s 40

Result:

The application for review is dismissed and the Commissioner's assessment is confirmed

Category: A

Representation:

Counsel:

Applicant: Ms CA Searle
Respondent: Mr RM Mitchell

Solicitors:

Applicant: N/A
Respondent: State Solicitor's Office

Case(s) referred to in decision(s):

Archibald Howie Pty Ltd v Commissioner of Stamp Duties (NSW) (1948) 77 CLR 143
Australian Petroleum Pty Ltd & Anor v Commissioner of State Revenue (1999) 99 ATC 4663
Canning (Lord) v Raper (1852) 118 ER 400
Chief Commissioner of State Revenue v Dick Smith Electronics Holdings Pty Ltd [2005] HCA 3
Coventry City Council v Inland Revenue Commissioners [1979] Ch 142
Craig v Federal Commissioner of Taxation (1945) 70 CLR 441
DKLR Holding Co (No 2) Pty Ltd v Commissioner of Stamp Duties (NSW) (1982) 149 CLR 431
Glenepping v Commissioner of Stamp Duties (NSW) (1985) 3 NSWLR 635
Hill 50 Gold Mine NL v Commissioner of State Taxation (WA) (1993) 93 ATC 4880
Humes Ltd v Comptroller of Stamps (Vic) (1989) 89 ATC 4646
Independent Television Authority & Associated – Rediffusion Ltd v Inland Revenue Commissioners [1961] AC 427
Knights Deep Ltd v Inland Revenue Commissioners [1900] 1 QB 217
Lockes Properties Pty Ltd v Commissioner of State Taxation (WA) [1979] WAR 133
Pacific Fair Shopping Centres Pty Ltd v Commissioner of Stamp Duties (Qld) [1979] 9 ATR 553
Queensland Cement Ltd v Commissioner of Stamp Duties (Qld) (1995) 95 ATC 4480
Re Rule's Settlement [1915] VLR 670
Shepherd v Federal Commissioner of Taxation (1965) 113 CLR 385
Underground Electric Railways Company of London Ltd v Commissioner of Inland Revenue [1905] 1 KB 174
Western United Investment Co Ltd v Inland Revenue Commissioners [1958] Ch 392

Case(s) also cited:

Archibald Howie Pty Ltd v Commissioner of Stamp Duties (NSW) (1948) 77 CLR 143

REASONS FOR DECISION OF THE TRIBUNAL:

Summary of Tribunal's decision

LionOre Australia (Avalon) Pty Ltd applied to the Tribunal for the review of an assessment by the Commissioner of State Revenue of ad valorem duty on an Option Agreement and Notice of Exercise of Option for the purchase of various assets from Bulong Nickel Pty Ltd (Receiver and Manager appointed) and Bulong Operations Pty Ltd (Receiver and Manager appointed).
The Option Agreement provided for the exercise of the option to purchase the assets by 31 March 2004; for payment of $15 000 000 at completion and payment of an additional $7 000 000 on "recommissioning of the plant". That additional $7 000 000 payment was a contingent payment, due only if LionOre decided to recommission the plant. At the date of hearing LionOre had not recommissioned the plant.
The applicant argued that duty should be assessed on $15 000 000; the $7 000 000 was a mere expectancy and not part of the consideration payable under the Option Agreement; the $15 000 000 was in fact the correct market value for the sale of the assets; and if the $7 000 000 was consideration then the contingency principle should not apply and it should not be included in the amount on which duty was assessed by the Commissioner. Finally, the applicant argued that the contingency principle is not specifically provided for in the Stamp Act 1921 (WA) and was therefore not applicable.
The respondent challenged each of those arguments and contended that the $7 000 000 was part of the consideration and the contingency principle applied which entitled the Commissioner to assess the Option Agreement and Option Exercise Notice on the total consideration of $22 000 000. The Commissioner argued that the scheme of the Stamp Act 1921 must be taken into account and that the contingency principle is a tool of statutory interpretation.
The Tribunal found that the Commissioner was entitled to assess ad valorem duty on $22 000 000 as the contingency principle applied to the assessment of the Option Agreement under s 74 and item 4 of the Second Schedule to the Stamp Act 1921. The Tribunal held that Knights Deep Ltd v Inland Revenue Commissioners [1900] 1 QB 217 did not constitute an exception to the contingency principle but that it related to the definition of amount secured by debenture.
The Tribunal found that the $7 000 000 was not a mere expectancy but part of the consideration and that the Commissioner was entitled to assess duty on the amount of the consideration specified in the instrument, being $22 000 000. There was no clear evidence before the Tribunal of whether the unencumbered value of the plant, being the assets sold, was more than $22 000 000. In any event the Commissioner was entitled to charge the greater of the consideration paid and the unencumbered value of the plant.
The Tribunal also found that the contingency principle is a well established principle applied to the Stamp Act 1921 and that the scheme of the Stamp Act 1921 must be taken into consideration and the general common law principles, whilst not constituting taxing provisions, applied to the interpretation of the Stamp Act 1921.
Accordingly the application for review was dismissed and the Commissioner's assessment confirmed.

Background

This is an application for the review of a decision of the Commissioner of State Revenue on an objection made under s 40 of the Taxation Administration Act 2003 (WA). The application to the Tribunal was made on 21 February 2005 and after a series of directions hearings and other proceedings before the Tribunal, I heard the application for review on 23 February 2006.
On 1 November 2005, the applicant and respondent filed with the Tribunal a Statement of Agreed Facts. The respondent and applicant each filed with the Tribunal a Statement of Issues, Facts and Contentions, a written outline of submissions and relevant documents which they agreed would be the agreed bundle of documents in these proceedings.
Both parties, through their counsel, made oral submissions at the hearing. No oral evidence was adduced.
The applicant, LionOre Australia (Avalon) Pty Ltd (LionOre) was formerly known as LionOre Australia (East Kimberley) Pty Ltd.
LionOre Mining International Limited (LionOre International) is the parent company of the LionOre group of companies. The applicant is a wholly owned subsidiary of LionOre International. Both LionOre and LionOre International were parties to the Option and Sale Agreement which is the instrument the subject of this application for review. However, the right to exercise and the obligations on exercise of the option were assigned to LionOre solely and I therefore refer to that company as the applicant in these reasons for decision.
On 10 December 2003, LionOre International executed a Heads of Agreement with Bulong Nickel Pty Ltd (Receiver and Manager appointed) and Bulong Operations Pty Ltd (Receiver and Manager appointed)(the Bulong Companies).
Attached to that Heads of Agreement was an Option Proposal and draft Assets Sale Agreement.
On 16 January 2004, LionOre International lodged that Heads of Agreement and attachments with the Commissioner of State Revenue for assessment.
On 3 March 2004, LionOre International's solicitors wrote to the respondent enclosing letters dated 30 January 2004 and 6 February 2004 and two letters dated 5 February 2004 for assessment of stamp duty and requesting that they be incorporated with the documents lodged on 16 January 2004.
On 19 March 2004, LionOre International forwarded proposed variations to the terms of the Option Proposal to the receiver and manager of the Bulong Companies. On 29 March 2004, the receiver responded to those proposals and on 30 March 2004 the receiver informed the applicant of a revised proposal for purchase of the property that had been the subject of the Heads of Agreement, which included:
a)the exercise of the option to purchase the assets listed in the agreement by 31 March 2004;
b)$15 000 000 option fee payable before the end of April 2004; and
c)$7 000 000 payable on "recommissioning of the plant".
On 31 March 2004, the receiver and manager of the Bulong Companies agreed to amend the Heads of Agreement by extending the dates for payment of the option fee.
On 6 April 2004 LionOre International executed a deed of assignment of its rights and obligations under the Heads of Agreement in favour of LionOre. Also on 6 April 2004, the Bulong Companies, LionOre and LionOre International entered into the Bulong Nickel Project Formal Option and Sale Agreement (Option Agreement). The applicant simultaneously gave notice of exercise of option, under which it exercised the option set out in the Option Agreement.
On 6 May 2004, the deed of assignment, the Option Agreement and the Option Exercise Notice were lodged with the Commissioner, with a covering letter, for assessment.
The Commissioner assessed the various instruments that were lodged and on 8 July 2004 issued the original assessment for $1 533 080.90, setting out his reasons for the assessment in a letter of that date.
In that letter the Commissioner explained that he had assessed the Option Exercise Notice to duty as a conveyance based on the consideration of $15 000 000 (plus GST) payable on the transfer of the assets set out in the Option Agreement. In addition, the respondent advised that he had applied the "contingency principle" and assessed duty on the additional sum of $7 000 000 plus GST. Duty was therefore assessed on a total amount of $22 000 000 plus GST of $2 200 000.
On 30 July 2004, the Commissioner issued a reassessment for the same amount following receipt of a further instrument from LionOre International's solicitors. The parties to these proceedings agree that both the assessment and that reassessment are, for the purposes of these proceedings, referred to as the "the assessment".
On 6 September 2004, the solicitors for the applicant and LionOre International lodged an objection to the assessment.
On 22 December 2004 the Commissioner disallowed the objection.

The issue

There was some agreement between the parties as to what is the relevant issue before this Tribunal. Whilst the difference between each party's construction of the issue is largely semantic, it primarily relates to the use of the word "consideration" and the reference to "contingent". However, ultimately I am of the view that little turns on the distinction drawn by the parties.
In my view, the issue for me to decide is whether the Option Agreement is liable for duty pursuant to s 74 and item 4 of the Second Schedule to the Stamp Act 1921 (WA)(the Act) either:
a)on the total consideration of $22 000 000, as set out in cl 5.1(a) of the Option Agreement on the basis that the amount of $7 000 000 is assessable even though payment of that amount is contingent on the applicant "recommissioning" the plant and equipment the subject of the Option Agreement; or
b)only on the consideration of $15 000 0000.
In essence, the question for me to answer is whether the Commissioner is entitled to assess ad valorem duty on the Option Agreement on $15 000 000 or on a total amount of $22 000 000.
There is no dispute that whatever is the correct dutiable amount, GST is payable on it. I do not therefore refer specifically to GST in these reasons.

Option Agreement

I note that the $15 000 000 option fee was paid on 6 April 2004, simultaneously with execution of the Option Agreement and giving of the Notice of Exercise of Option.
As is always the case in matters of this nature, it is necessary to carefully consider the instrument the subject of the assessment. The important provisions of the Option Agreement are set out below. Note the applicant, LionOre, is referred to in the Option Agreement as "Avalon".
The following definitions in the Option Agreement are relevant:
"Assets means:
(a)the Plant and Equipment;
(b)the Tenements; and
(c)the Mining Information,
In each case as varied by notice issued by Avalon [LionOre] to the Sellers in accordance with clause 2.7(a);
Completion means completion of the sale and purchase of the Assets under this agreement after exercise of the Option;
Completion Date means the date on which Completion occurs under clause 8;
Plant and Equipment means the plant, equipment, machinery, tools, furniture, fittings, motor vehicles, spares and consumables in the asset list in Annexure A as varied by notice issued by Avalon to the Sellers in accordance with clause 2.7(a);
Purchase Price means the amount set out in clause 5.1(a);
Recommissioning means the repair and recommissioning by Avalon (whether alone or jointly with any other party) or any of its Related Bodies Corporate of that part of the Plant and Equipment required by Avalon (whether alone or jointly with any other party) or any of its Related Bodies Corporate to construct a commercial nickel concentrate processing and extraction plant at the Bulong site and the operation of that recommissioned plant for a continuous period of 5 days;
Tenements means the mining tenements specified in Schedule 2 as varied by notice issued by Avalon to the Sellers in accordance with clause 2.7(a)."
(Schedule II lists various mining leases and details of permitted encumbrances.)
Under cl 2, the receivers and managers of the Bulong Companies grant LionOre an option to purchase the assets free of all encumbrances, except permitted encumbrances, for the purchase price. The option term began on 10 December 2003 and ended on 29 February 2004. However, under cl 2.2 the option period could be extended, and was extended, to 6 April 2004 on which date the option was exercised by LionOre.
Clause 2.7 provides that LionOre may at any time during the option term exclude any of the assets including any of the tenements. There would be no adjustment to the purchase price if the assets were varied.
Under cl 4 of the Option Agreement if LionOre gives notice of exercise of the option, then on the completion date "the Sellers must sell and Avalon must buy the Assets for the Purchase Price free of all Encumbrances other than Permitted Encumbrances".
The purchase price is defined by reference to cl 5 and is payable in the manner prescribed by cl 6. Those clauses are as follows:
"5.1 Payments
(a)The price payable for the Assets is:
(1)A$15,000,000 less any Option Fee which has been paid before the Exercise Date (First Purchase Price Payment); and
(2)if Recommissioning occurs, the additional amount of A$7,000,000 (Second Purchase Price Payment).
(b)The First Purchase Price Payment for the Assets will be adjusted in the manner set out in clause 11.1 for Outgoings and as set out in clauses 11.2, 11.3 and 11.4 for Plant and Equipment and Material Stores.
5.2Recommissioning
(a)If Avalon decides to proceed with Recommissioning, then Avalon must give the Sellers a notice setting out the date that it is anticipated that Recommissioning will occur.
(b)On request Avalon must provide to the Sellers all reasonable information whether Avalon is preparing to Recommission and the likely date of Recommissioning.
(c)On the date that Recommissioning occurs, Avalon must give the Sellers a notice that Recommissioning has occurred and within 30 days of Recommissioning Avalon must pay to the Sellers the Second Purchase Price Payment.
6.Payment of Purchase Price
Avalon must pay to the Sellers:
(a)the First Purchase Price Payment in Immediately Available Funds at Completion; and
(b)if Recommissioning occurs, then the Second Purchase Price Payment is payable in Immediately Available Funds in accordance with clause 5.2(c )."
Clause 8 provides standard provisions with respect to completion, the settlement statement to be given at completion and both parties' obligations at settlement.
It is clear that at the date of the hearing the recommissioning of the plant has not been undertaken by LionOre; however, press releases indicate that the applicant is in the process of conducting a feasibility study into recommissioning of the plant. Payment of the additional $7 000 000 has therefore not fallen due.
A press release issued on 27 April 2004 by LionOre International advises that the plant had been initially commissioned in 1998 at a cost of over $300 million.
Although assets are defined in the Option Agreement as including various mining tenements as set out in the Second Schedule to the Option Agreement, it is clear from the papers before me and from the submissions made by Ms Searle on behalf of the applicant that LionOre purchased the assets including the Bulong Nickel processing plant, associated equipment and infrastructure but LionOre did not acquire the Bulong Nickel mineral rights. The applicant advises that LionOre does not intend (and did not when it exercised the option) to use the plant for treating lateritic nickel resources.
The April 2004 press release indicated that LionOre International and LionOre were considering a number of options for use of the plant and other assets including "the utilisation of LionOre's [International] 80% owned Activox hydrometallurgical technology for the recovery of nickel metal from sulphide concentrates".
The bulk of the Option Agreement is in fact Annexure A which is the lengthy list of the plant and equipment associated with the various tenements.
The Option Agreement and the Notice of Exercise of Option together constitute the agreement for sale and purchase of the Bulong Nickel assets for the purposes of s 74 of the Act. I refer to both of these documents as the Option Agreement.

Provisions of the relevant statute

The relevant legislative provisions are the provisions of the Act as enacted and in operation at the date of the exercise of the option, being 6 April 2004. I therefore considered reprint 15 of the Act when considering my reasons for decision. The relevant extracts of that reprint are set out below.
The primary obligation to liability to pay duty is set out in s 16(1) of the Act, which refers to the Second Schedule which sets out the rates of duty payable. Generally, duty is payable on an instrument referred to in the Act and the Second Schedule, unless exempted by the Act or by the Third Schedule to the Act.
"33. Valuation of land or other property
(1)When determining the value of any land or other property for the purpose of a stamp Act ¾
(a)the existence of any overriding power of revocation or reconveyance is to be disregarded;
(b)the value of an undivided share in the land or other property, whether held jointly or in common, is to be ascertained by multiplying the total value of the land or other property by the share expressed as a fraction; and
(c)when applying the ordinary principles of valuation ¾
(i)it is to be assumed that a hypothetical purchaser would, when negotiating the price of the land or other property, have knowledge of all existing information relating to the land or other property; and
(ii)no account is to be taken of any amount that a hypothetical purchaser would have to expend to reproduce, or otherwise acquire a permanent right of access to and use of, existing information relating to the land or other property.
(2)When determining the unencumbered value of any land or other property for the purposes of a stamp Act ¾
(a)an encumbrance on the land or other property is to be disregarded; and
(b)an interest, agreement or arrangement (not being an encumbrance) that ¾
(i)has the effect of reducing the value of the land or other property; and
(ii)was granted or made on or after 27 December 1996,
is, subject to subsection (3), to be disregarded."
"74Certain contracts to be chargeable as conveyances on sale
(1aa) …
(1)Every contract or agreement, howsoever executed, for the sale of any estate or interest in any property shall be charged with the same ad valorem duty to be paid by the purchaser as if it were an actual conveyance on sale of the estate, interest or property contracted or agreed to be sold."
"75 Duty chargeable on conveyance for less than full consideration
(1)…
(2)Notwithstanding subsection (1), every conveyance or transfer, or instrument chargeable as a conveyance, that confers a benefit on the person to whom the property is conveyed or transferred because the unencumbered value of the property exceeds the consideration payable in respect of that property, or because of other circumstances, shall be chargeable with duty under item 4 of the Second Schedule as if that unencumbered value were the consideration paid."
"75CA Refund where contingent consideration is not paid
(1)If payment of any part of the consideration (the 'contingent consideration') in respect of which a contract or agreement for the sale of any estate or interest in any property (the 'contract') was charged with ad valorem duty was dependent on the happening of a future event, then if, on an application under subsection (2), it is shown to the satisfaction of the Commissioner that ¾
(a)the contract was executed on or after the day on which this section came into operation;
(b)the contingent consideration has not been paid;
(c)the event did not happen, or did not happen within the time specified in the contract for the happening of the event; and
(d)either ¾
(i)the event cannot happen in the future; or
(ii)the time specified in the contract for the happening of the event has passed or expired,
then the contingent consideration is taken not to be, and never to have been, part of the consideration in respect of which the contract is chargeable and the Commissioner must reassess the duty payable on the contract accordingly.
(2)An application for the purposes of this section ¾
(a)is to be made in an approved form by the person liable to pay the duty; and
(b)cannot be made more than 5 years after the contract was executed.
(3)In this section, a reference to the happening of an event includes a reference to an event not happening."
Item 4 of the Second Schedule of the Act provides:

"4.	CONVEYANCE OR TRANSFER ON SALE OF PROPERTY		Duty Payable $	Person liable to pay duty
(1) Transfer of land under the Transfer of Land Act 1893 on a sale thereof or conveyance or transfer of any other property – Where the amount or value of the consideration		The purchaser
(a)	…
(b)	…
(c)	…
(d)	…
(e)	Exceeds $500 000………..….	$20 700 and $5.40 for every $100 of the amount or value of the consideration and every fractional part of $100 by which the consideration exceeds $500 000"

Summary of submissions

Much of the argument between the parties relates to the application and interpretation of a range of authorities. Where relevant I have dealt with those authorities below.

The applicant's submissions

The applicant sets out its grounds for review in its application to the Tribunal. I deal with each of those below, as being the contentions made by the applicant relevant to the primary issue set out above.
Broadly, the applicant submits that it is not liable to duty on the $7 000 000 because the $15 000 000 payment represents market value for the assets sold and purchased and that is the basis on which the Commissioner should assess the Option Agreement. The $7 000 000 is not consideration in the applicant's view, and at most constitutes a mere expectancy and is therefore not property. As such it is not dutiable.
If I find that the $7 000 000 is consideration for the purposes of the Act then the applicant argues that the contingency principle does not apply as there is a recognised exception to that principle, so that it does not apply where the party to be charged (here LionOre) has complete control over whether or not the contingent amount (here $7 000 000) is paid. The applicant relies on Knights Deep Ltd v Inland Revenue Commissioner [1900] 1 QB 217 as authority for this proposition.
Finally the applicant says that there is no specific provision of the Act that operates to subject the Option Agreement to ad valorem duty on $22 000 000.
The applicant argues each of the above in the alternative and submits that therefore the $7 000 000 is not dutiable, the Commissioner erred and that the assessment should be withdrawn.

The respondent's submissions

In summary, the respondent contends that the $7 000 000 future payment is consideration and the Commissioner is entitled to charge duty on the unencumbered value of the property or the market value, whichever is the greater, and that $22 000 000 is therefore the appropriate amount on which duty should be assessed.
The Commissioner argues that the contingency principle is a tool of statutory interpretation and should not be seen as a taxing provision. The Act must be looked at as a whole and in light of the scheme that it creates and as supplemented by the common law. The contingency principle applies within that framework.
The Commissioner contends that the contingency principle applies to the Option Agreement so that duty is assessable on $22 000 000 which includes a contingent amount of $7 000 000. The contingent future event should not be taken into account when calculating the consideration for the purposes of assessing ad valorem duty.
On the above basis, the Commissioner contends that there is nothing in the Act to alter the general principle in this case that stamp duty is payable on the total consideration ascertained from the Option Agreement ($22 000 000) regardless of the contingent nature of any part of that consideration. The Option Agreement is dutiable under s 74 and if the contingent event does not occur then the applicant may apply for a refund under s 75AC of the Act.

Grounds for review

Consideration

The applicant contends that the $7 000 000 payment is not consideration but a mere expectancy not assessable or liable to stamp duty.
The applicant also contends that $15 000 000 represents the market value of the assets the subject of the Option Agreement and that as a result this is the amount on which duty should be calculated.
On the other hand, the Commissioner argues that the $7 000 000 is not a mere expectancy and is part of the consideration payable for the sale or transfer of property. The Commissioner also contends that the market value of the assets the subject of the Option Agreement is not relevant. Rather, Mr Mitchell on behalf of the Commissioner contends that the effect of s 33, s 75(2), and item 4 of the Second Schedule to the Act is that duty is charged on the consideration, or on the unencumbered value of the property, whichever is the greater. The Commissioner argues that the total consideration payable in respect of the acquisition of the Bulong assets is $22 000 000 and accordingly this is the correct amount on which to base the assessment of stamp duty. He relies on cl 5.1(a) of the Option Agreement which sets out the consideration payable as being $22 000 000 being comprised of $15 000 000 and a further $7 000 000 payable if recommissioning occurs. The Commissioner notes that the $7 000 000 is contingent on the happening of a future event, namely recommissioning, but that it nevertheless forms part of the consideration payable for the assets, on the basis of the application of the contingency principle.
Whilst the applicant concedes that the Commissioner is entitled to calculate duty on the greater of the consideration or the unencumbered value of the property, it argues that it is a well established principle of stamp duty law that the substance rather than the form of the instrument should be considered in determining whether the instrument is chargeable with duty. In this case, the substance of the Option Agreement indicates that $15 000 000 is the correct amount on which to assess duty.
Ms Searle, for the applicant, argues that "consideration" should be given its wider meaning or operation (see Archibald Howie Pty Ltd v Commissioner of Stamp Duties (NSW) (1948) 77 CLR 143), so that the assessment is calculated on the market value being the money or value passing and which moves the conveyance or transfer, as endorsed in Chief Commissioner of State Revenue v Dick Smith Electronics Holdings Pty Ltd [2005] HCA 3. She argues that the $15 000 000 payment and not the possible future additional payment of $7 000 000 is the money passing which moved the transfer of the assets and that that is therefore the amount relevant for assessment. She says that, specifically, the uncertainty of the $7 000 000 amount being paid to the vendors and the fact that the payment is at the option of LionOre indicates that the $7 000 000 was not a factor that motivated the vendors to sell the assets to the applicant.
In her written submissions, Ms Searle says that what could be said to be a motivating factor for the transfer of the assets was at best the right to receive a potential future payment and that the "potential payment is only an expectancy and has no value" ([9] Respondent's Outline of further submissions dated 22 February 2006). She says that this right is nothing more than an expectancy with little value as the additional $7 000 000 payment will be payable only at the option of LionOre and is not enforceable by the vendors.
I agree that the $7 000 000 payment is not enforceable by the vendors, but it does become so if and when recommissioning occurs. Ms Searle concedes that.
The applicant provided no law to support its contention that the $7 000 000 potential payment is a mere expectancy and I was unable to find any that persuaded me to that view.
An expectancy is an intention not yet vested in the person purporting to deal with it (see Re Rule's Settlement [1915] VLR 670 at 674). A bare possibility or expectancy is not an interest in property (see Craig v Federal Commissioner of Taxation (1945) 70 CLR 441). In Shepherd v Federal Commissioner of Taxation (1965) 113 CLR 385 the Court compared a mere expectancy and a contingent interest. A mere expectancy is not assignable in the way that property is. It cannot be voluntarily assigned. Barwick CJ held at [20] that a promise may not be fruitful but that does not mean it cannot be assigned. If it can be assigned it is therefore property and not a mere expectancy. If there is a right to something, even though it is conditional on the happening of an event, then it is a chose in action, and as such is property and is assignable. Kitto J also held that a mere expectancy cannot be assigned at law or equity. He used the analogy that "the tree, though not the fruit, existed at the date of the assignment as a proprietary right of the appellant of which he was competent to dispose" [4].
I find that the $7 000 000 is not a mere expectancy, but is a proprietary right which may be assigned. The inclusion of the $7 000 000 in the Option Agreement was, in my view, important to both parties and played a role in their agreement to finalise the transaction. On that basis alone the $7 000 000 is not a mere expectancy. Is it therefore consideration?
Ms Searle stresses that this transaction was at arm's length and that the receiver of the Bulong companies was under an obligation to obtain the best possible price for the sale of the assets, for subsequent distribution to the creditors. Consequently, the $15 000 000 consideration in the applicant's view is representative of the market value for the assets acquired by the applicant as it represents what a willing vendor would sell the assets for and what a willing purchaser would pay for the assets. On this basis Ms Searle argues that $15 000 000 is the money or value passing that moves the transfer of the assets to the applicant and that this is the amount of the consideration payable.
In further support of her contention, Ms Searle refers us to document 25 in the bundle, which is a series of emails relating to the negotiations leading up to the execution of the Option Agreement. She says that the receiver was "less than happy with the renegotiation of the terms … the receiver's advisor in fact has some fairly bitter things to say about the nature of the renegotiation" (T 41). She draws from document 25 the conclusion that the renegotiations were a "hard negotiated arms length transaction".
On the other hand Mr Mitchell refers to document 24 which is the Heads of Agreement executed on 10 December 2003. That document, which was replaced by the Option Agreement, shows a consideration payable of $22 000 000. Mr Mitchell also contends that the terms of the Option Agreement are adequate to ascertain what amount was paid to move the transfer and that the relevant amount is therefore $22 000 000 which can be ascertained without reference to extrinsic material.
The consideration stated in the instrument is not always that which moves the transfer and on that basis extrinsic evidence is admissible in order to ascertain the true consideration for the purposes of item 4 of the Second Schedule to the Act (DKLR Holding Co (No 2) Pty Ltd v Commissioner of Stamp Duties (NSW) (1982) 149 CLR 431). However, the Commissioner is not bound to determine that the "market value" of the property is "the value reflected by the consideration payable even where the consideration is the result of bona fide, arm's length negotiation as part of a genuine commercial transaction" (Quinlan [5.7800] Stamp Duties Western Australia, Thomson, originally by MJM Quinlan, currently updated by JG Young and IG Peek, 2001 and see Lockes Properties Pty Ltd v Commissioner of State Taxation(WA) [1979] WAR 133).
I find that the amount payable is apparent from the terms of the Option Agreement. However, insofar as it is necessary to look at the negotiations, I must look at all of the relevant documentation including documents 24 and 25. There is no doubt that the instrument was negotiated bona fide by parties at arm's length. I have some difficulty in drawing the same conclusions as Ms Searle from the Option Agreement and the evidence before me of the negotiations leading to its execution. I am unable to conclude that the emails bear the construction that the market value or the amount which moved the vendor and the purchaser to enter into the Option Agreement was $15 000 000. It seems clear to me from the documentation that the $7 000 000 payment was important to both parties and that it formed part of their motivation to negotiate and conclude the transaction. It was not out of mere whim of the applicant with the vendor paying no heed to the possibility of receiving the $7 000 000 that the parties entered into the Option Agreement. I find that the $7 000 000 is part of the consideration that moved the transfer from the vendor to the purchaser.
I therefore find on the balance of probabilities that $22 000 000 is the consideration paid under the Option Agreement for the purposes of assessment of duty.
The Commissioner is entitled to assess duty on the greater of the consideration paid or the unencumbered value of the property. We do not know the unencumbered value of the property but in so far as it represents what a willing vendor and a willing purchaser might pay then $15 000 000 may be the unencumbered value of the property, but so might $22 000 000. I note in this regard that the plant was established at a cost of over $300 000 000. The Commissioner is entitled to assess on the greater of the unencumbered value of the property or the consideration paid. As I have concluded that the $7 000 000 is consideration and that the consideration paid is therefore $22 000 000, it follows that the Commissioner is entitled to assess the Option Agreement on $22 000 000. The actual market value becomes irrelevant for these purposes.

Contingency principle

The applicant's second contention is that if I find that the $7 000 000 is consideration then the contingency principle does not apply and the $7 000 000 is therefore not liable to assessment of duty. The applicant therefore argues that the only relevant consideration for assessment purposes is $15 000 000.
Briefly, the contingency principle provides that where there is a sum payable on a contingency, that is on an event that is yet to happen and may in fact never happen, then duty is levied on the maximum sum payable, so long as that amount is quantifiable and regardless of however unlikely it is to become payable. For the purposes of assessment of stamp duty, the Commissioner is entitled to ignore the contingency and assess the instrument on the total amount referred to in the relevant instrument. (See Canning (Lord) v Raper (1852) 118 ER 400, Independent Television Authority & Associated – Rediffusion Ltd v Inland Revenue Commissioners [1961] AC 427 and Underground Electric Railways Company of London Ltd v Commissioner of Inland Revenue [1905] 1 KB 174.)
Whilst the applicant seems to ultimately accept the application of the contingency principle as a principle of revenue law (subject to its arguments regarding the scheme of the Act below), it contends that there are two exceptions to its application. The first is where a provision of a contract comes into operation on default (Western United Investment Co Ltd v Inland Revenue Commissioners [1958] Ch 392) which is not relevant to these proceedings and is not in my view an exception, as a default in performance of a contract is not a contingency.
The second exception argued by the applicant and which is relevant in these proceedings, is that where a provision is only operative "at the option of the party to be charged" then the contingency principle does not apply. The applicant relies on Knights Deep Limited v Inland Revenue Commissioners for that contention. That case, argues the applicant, supports the proposition that the contingency principle will not apply to a payment that is only payable at the option of LionOre where LionOre has, at its complete discretion, an option to do something – in this case being the decision as to whether or not it recommissions the plant.
In the Knights Deep case, Knights Deep Ltd issued a series of debentures for £100 each, which were redeemable at par. However, each debenture contained a provision that the company might, on giving six months notice to the debenture holders, redeem the debentures not at £100 but at £103. The additional £3 was payable for the early repayment of the debentures, the effect of which would be to deprive the debenture holders of their right to interest during the balance of the term. The Court of Appeal in that matter held that the amount secured by the debenture was £100 and not £103 and that therefore the additional £3 payable on each debenture was not part of the "amount secured" for the purposes of calculating ad valorem duty. The additional £3 was a premium payable for early repayment by the company; it was not part of the value of the debenture.
The respondent argues that the Knights Deep case does not apply. The basis of this reasoning is that the Knights Deep case dealt with a debenture and the issue was whether or not the additional £3 was an "amount secured" for the purposes of the relevant revenue legislation. The additional £3, the respondent argues, was not a contingent amount payable but an amount that was a premium for the early repayment of the debenture. The respondent therefore distinguishes the Knights Deep case as not relating to the contingency principle.
I agree with the respondent's argument with respect to the Knights Deep case. The Court referred to the £3 as a liquidated sum that the company undertakes to pay if it thinks it worthwhile to pay off the debenture holder early. It is a premium payable if a certain decision is made. Here there is no premium payable for the right to make a decision to recommission the plant. Rather, consideration of $7 000 000 is payable if that decision is made. In Knights Deep the par value of the debenture was the amount secured. Here the total consideration is $15 000 000 plus $7 000 000. If an analogy can be drawn, the additional $7 000 000 is part of the consideration equivalent to part of the original £100 par value amount secured in the Knights Deep case. It is not a penalty or premium but it is the amount that might be payable on the happening of a contingent event.
I refer also to the case of Humes Ltd v Comptroller of Stamps (Vic) (1989) 89 ATC 4646 where Kaye J referred to the Knights Deep case as relating to a debenture and that "the premium paid for the sum secured is not part of the amount secured" (4652). Again this case is about an amount secured by a debenture; it is not about a contingency.
The applicant relied on Queensland Cement Ltd v Commissioner of Stamp Duties (Qld) (1995) 95 ATC 4480. In my view this case is about whether an accepted offer of a financial facility from a bank is a debenture. It does not turn on the application or otherwise of the contingency principle.
There was argument between the parties regarding the applicability or otherwise of the contingency principle in a range of authorities relating to a variety of instruments including leases, conveyances and various types of security arrangements and as to whether any of those authorities could be relied on in these proceedings (see, for example, Australian Petroleum Pty Ltd & Anor v Commissioner of State Revenue (1999) 99 ATC 4663, Glenepping v Commissioner of Stamp Duties(NSW) (1985) 3 NSWLR 635, Pacific Fair Shopping Centres Pty Ltd v Commissioner of Stamp Duties (Qld) [1979] 9 ATR 553, Queensland Cement Ltd v Commissioner of Stamp Duties (Qld))
I agree with the respondent's contentions regarding the disputed applicability of the relevant authorities. It is irrelevant that some of the authorities relate to leases, some to securities and that this matter relates to a conveyance. The subject matter of the actual instrument or transaction does not affect the application of the contingency principle and its meaning. It also does not alter the fact that the contingency principle and its applicability in these circumstances must be looked at in the context of the statutory regime created by the Act.

The relevant authorities cited by the parties which relate to the contingency principle are therefore Canning (Lord) v Raper, Underground Electric Railways Company of London Ltd v Commissioner of Inland Revenue, Independent Television Authority & Associated – Rediffusion Ltd v Inland Revenue Commissioners, Coventry City Council v Inland Revenue Commissioners [1979] Ch 142, Pacific Fair Shopping Centres Pty Ltd v Commissioner of Stamp Duties (Qld), Hill 50 Gold Mine NL v Commissioner of State Taxation (WA) (1993) 93 ATC 4880 and Australian Petroleum Pty Ltd & Anor v Commissioner of State Revenue.

Scheme of the Act

There was some argument as to the applicability of the West Australian case of Hill 50 Gold Mine NL v Commissioner of State Taxation. In my view that case can be relied on for the statement by Nicholson J (4882) that the authorities relating to contingency payments "establish that, subject to the statutory regime creating liability, a contingency will be dutiable and, where a maximum amount is stated for the contingency, duty will be levied upon that amount". Although that case eventually turned on the application of s 65 of the Act, Nicholson J held that the contingency principle applied to revenue law but that it could not override the specific statutory charging provision in s 65 of the Act.
I agree with the respondent's contention that there is nothing in the Act that alters the general application of the contingency principle as supported by a long line of authorities relating to liability of contingent payments to assessment of ad valorem duty. In these circumstances, the additional $7 000 000 is payable on recommissioning occurring and that this is in the hands of LionOre, is, in my view irrelevant.
Ms Searle argues that there is no provision in the Act that says that a contingency is to be assessed as part of the consideration payable. However, it is a firm principle that each section of the Act must be read in the context of the scheme created by the Act and that general common law principles apply within the framework of the Act. Section 18 of the Interpretation Act 1984 (WA) provides that the construction of an Act should promote its purpose or object; the scheme of the Act must therefore be considered.
There is no distinction in item 4 of the Second Schedule to the Act between absolute and contingent payments. There is no definition in s 4 of the Act providing for that differentiation. There is no provision in s 74 or any of the other charging provisions in the Act allowing for a distinction between absolute and contingent payments.
I find that the contingency principle is applicable to conveyances under s 74 of the Act. The Option Agreement and the Option Exercise Notice together form the instrument liable to duty under s 74 and are assessable accordingly.

Section 75AC of the Act

The parties disagree as to the applicability of s 75AC of the Act and its relevance to these proceedings. Section 75AC was enacted after the execution of the Option Agreement and is not therefore directly applicable. However, I agree with the respondent that s 75AC is a clear acknowledgement of the applicability of the contingency principle to the assessment of instruments pursuant to the Act. Section 75AC is relevant in these proceedings, insofar as if the recommissioning of the plant is never undertaken by the applicant, then it may apply for a refund of the duty on the $7 000 000.

Conclusion

I am therefore of the view that the application for review fails and that the Commissioner properly assessed the Option Agreement to ad valorem duty on $22 000 000, which constitutes the consideration under the Option Agreement. The contingency principle applies to the Option Agreement which means that the Commissioner is entitled to ignore the likelihood of recommissioning of the plant occurring, being the future contingent event that gives rise to the payment of the $7 000 000. The principle in Knights Deep is not an exception to the contingency principle; rather it is authority for the calculation of the amount secured by a debenture.
As I have concluded that the Commissioner correctly assessed duty on $22 000 000, it is unnecessary for me to rule on whether or not the matter should be referred back to the Commissioner to make a reassessment and if, in his view, it is necessary to obtain a valuation. In any event, the Commissioner has the power under s 16(2) of the Taxation Administration Act 2003 to make a reassessment on his own initiative if it appears a previous assessment is or may be incorrect for any reason.

Orders

The Tribunal makes the following orders:
1.the application for review is dismissed; and
2.the Commissioner's assessment is confirmed.

I certify that this and the preceding [94] paragraphs comprise the reasons for decision of the State Administrative Tribunal.
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JUDGE J ECKERT, DEPUTY PRESIDENT