TEC Desert Pty Ltd & Anor v Commissioner of State Revenue

[2010] HCATrans 131

[2010] HCATrans 131

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Perth  No P8 of 2010

B e t w e e n -

TEC DESERT PTY LTD

First Applicant

AGL POWER GENERATION (WA) PTY LTD

Second Applicant

and

COMMISSIONER OF STATE REVENUE

Respondent

Application for special leave to appeal

GUMMOW J
KIEFEL J

TRANSCRIPT OF PROCEEDINGS

FROM CANBERRA BY VIDEO LINK TO PERTH

ON FRIDAY, 28 MAY 2010, AT 12.56 PM

Copyright in the High Court of Australia

MR J.W. DE WIJN, QC:   If it please the Court, I appear with my learned friend, MR B. DHARMANANDA, for the applicant.  (instructed by Mallesons Stephen Jaques) 

MR G.T.W. TANNIN, SC:    I appear with MR B.P. KING for the respondents by video link.  (instructed by State Solicitor’s Office – Perth)

GUMMOW J:   We will call first on Mr Tannin.

MR TANNIN:   If your Honours please.  In our submission, this matter primarily concerns the construction of what is an unnecessarily complex and unique commercial agreement and the application of the now supplanted Stamp Act 1921. It is not a suitable vehicle for the determination of general principles of property law. The purpose of the agreement was found by all members of the Court of Appeal to be the transfer of all of the vendor’s power and transmission assets, including fixtures, to the applicants. In our submission, that finding was correct.

The purpose was effected by a network of agreements including the primary sale agreement, the nine licence agreements, a power purchase agreement, and a variety of other documents which the Court will find described at paragraphs 5 and 6 of our outline.  The Court of Appeal held unanimously that the agreement for the sale of fixtures was an agreement for a sale of an interest in land in respect of those fixtures that were located on mining tenements.  The majority held that the agreement for the sale of fixtures also constituted an agreement for the sale of an interest in land in respect of those fixtures which were on freehold land.  The terms of the agreement itself - and I would simply give you the reference at application book 234 - defined fixtures as interests in land.  So the case involves no more than the application of the Stamp Act to this particular agreement.

The agreement, the subject of the application, was construed as an agreement for the sale of interests in land and it is therefore a dutiable agreement.  The applicant’s arguments, in their submissions at least, rest upon the application of the Sale of Goods Act.  The Sale of Goods Act definition which is found at paragraph 12 of the summary of the applicant requires that there be an agreement that the relevant things be agreed to be severed before or under the contract of sale.  There was no agreement in this case to sever the fixtures before the licences were to terminate and nor were the terms in the agreement which could be construed as an agreement to sever the fixtures under the contract of sale.  Contrary to the applicant’s assertions in their submissions at paragraphs 12 and 17, there was no obligation on the applicants to remove the fixtures on the termination of the licences.

GUMMOW J:   Where is the actual taxing provision?

MR TANNIN:   It is section 74.

GUMMOW J:   Where do we see that set out?  That is what I am asking.  Page 136, is it not?

MR TANNIN:   Yes, your Honour, it is in the judgment of her Honour Justice McLure.  But that is section 70, so in the applicant’s legal authorities at pages 11 and 12.

GUMMOW J:   Yes.  So what are the particular words of section 70 that fall for application and construction?

MR TANNIN:   Subsection (2), your Honour.

If an instrument –

(a)transfers, or is or includes an agreement to transfer, or evidences the transfer of, a chattel and land; and

(b)is chargeable with duty in respect of the land,

the instrument is chargeable with duty in respect of the unencumbered value of the land ‑ ‑ ‑

GUMMOW J:   Yes.

MR TANNIN:   The agreements definition of the items as fixtures results in a dutiable instrument.  There is no question of public importance that arises in this case.  In further, as we have pointed out, in Western Australia the Duties Act 2008 now supplants the Stamp Act in relation to transactions from 1 July 2008.  The Duties Act applies to transactions rather than instruments, and most other jurisdictions in this country have enacted new duties legislation based on similar principles. 

The applicant’s construction and accessory points both relate to the construction of the agreement by the Court of Appeal.  There is nothing unorthodox in the construction by the court.  I would refer your Honours to application book 89.  To the extent that there were some differences in their Honours’ analysis of the agreement’s meaning, little turns on those differences given the unanimous view that there was a sale of fixtures and that sale was a sale of interest in land. 

The applicants, in their submissions, have contended that there are two conflicting lines of authorities in relation to the sale of fixtures.  On the one hand they cite Hallen v Runder, Thomas v Jennings and McDonald’s, and on the other hand, the first North Shore Case and Standard Portland Cement.  The two lines of authorities, in our submission, are not inconsistent.  Rather they deal with different factual situations.  Hallen v Runder, Thomas v Jennings, and McDonald’s Australia all concern the sale of fixtures by a tenant to a landlord, not by a tenant to a third party with no prior interest in the land.

Here there was an agreement for the sale of fixtures by the holder of a mining tenement to a third party with no prior interest in the land.  That does not amount, in our submission, to a waiver in favour of the landlord by the holder of the mining tenement to remove the fixtures.  The purported differences of authority identified by the applicants are misconceived.  If your Honours go to application book 212, the applicants characterise in paragraph 40(a) the reason why special leave should be granted in their submission as being the statement by her Honour Justice McLure that:

“considerable research has not unearthed any binding authority or detailed judicial consideration of the nature of a right of a tenant to remove tenant’s fixtures” -

What the statement there omits is what continues in her Honour’s judgment.  If you look at page 157 of the application book at paragraph 226 of her Honour Justice McLure’s judgment where that quotation is taken from, the first line says, as my friend have quoted it, but then her Honour continues:

There can be little doubt that it is a property right and is thus transferable.  The controversy is whether the right constitutes an equitable interest in the land (either as an incident of the leasehold interest or otherwise).  In this context, the answer does not depend on the contractual intention of the lessor and lessee.  The right arises at law.

The interests of a holder of a mining tenement in its fixtures was considered by all members of the court to be an equitable interest in land that was capable of being sold.  There is nothing in the Mining Act 1978 that contradicts that conclusion. In our submission, that accords with the first North Shore Gas Case ‑ ‑ ‑

GUMMOW J:   Did her Honour refer to Lord Browne‑Wilkinson’s speech in the Melluish Case [1996] AC 454 at 472 to 477? I see it is listed in the cases at 86, but did she ‑ ‑ ‑

MR TANNIN:   I think it is in the judgment of her Honour Justice Wheeler.

GUMMOW J:   I thought so, yes.  I think at 118, somewhere earlier too. 

MR TANNIN:   Our point is that the failure to define the interests with precision does not change the fact that it was an interest in land.  The applicants here rely on the first North Shore Gas Case and they contend that the reliance by the court rather on that case is wrong, and that it somehow overlooks the second North Shore Gas Case.  In our submission, the latter case turned on the operation of the particular statute which rebutted the usual presumption that things are fixed to or embedded in the land of fixtures.  The first North Shore Gas Case was a determination by his Honour Justice Dixon, in our respectful submission, cannily that the nature of ownership of fixtures as constituting an interest in land is self‑evident and it is self‑evident here.

In relation to the freehold land, the applicants contend that even if a right to fixtures is an interest in land capable of attracting duty, the agreement created a new interest in the fixtures on freehold land rather than sold and existing interest.  Therefore if there is no sale there can be no liability to pay stamp duty.  The Court of Appeal here held that the effect of the agreement was the applicants were obliged to purchase the fixtures on termination of the licence agreements.  There was thus an agreement for the sale of the fixtures on the termination of the licences.

That sale contemplated the transfer of the vendor’s title and interests in the fixtures to the applicants because the vendor retained ownership of the fee simple in the land on which the fixtures were located.  The vendor retained the bare legal title to fixtures.  However, full equitable ownership of the fixtures was transferred to the purchaser, and that is to the applicants in this case.  This equitable ownership was in practical terms, sufficiently similar to the full prior ownership of the vendor that there was a sale of an interest ‑ ‑ ‑

GUMMOW J:   What are you reading from, Mr Tannin?

MR TANNIN:   I am just going through my notes, your Honour, but the point is that there is no sufficient doubt that attends the decision of the Court of Appeal, at least in relation ‑ ‑ ‑

GUMMOW J:   The notion of equitable ownership in something that does not have any discrete existence, when you are talking about chattels, is curious, I think.  You may be right in the end, but it just strikes one initially as curious.

MR TANNIN:   The interest in the point is not one that is going to be resolved by resolving this case because there was not any transformation of the fixtures as chattel.  It simply was not the agreement.

GUMMOW J:   We might hear from your opponent.  What do you say about that last point if the construction of the agreement means that this question does not really arise?

MR DE WIJN:   With respect, the question arises squarely.  There is now, as a result of the decision of the Court of Appeal, a plain inconsistency between the Hallen v Runder line of authority and the so‑called new line of authority.  It does not turn on the construction of the agreement.  Your Honours will see that Justice Wheeler rejected the Hallen v Runder line of authority as being incorrect.  Her Honour does that at page 127 of the application book starting about line 10 and finishing at that paragraph.

So the basis of her Honour’s decision was not a decision that turned on the peculiar terms of the agreement.  It was a rejection of the Hallen v Runder line of authority which was adopted by the Supreme Court of New South Wales in McDonald’s and there has already been one case in the Administrative Decisions Tribunal which has had to deal with this conflict.

We have referred to it in our bundle.  It is the Mr Espresso Case and that was a simple case of a sale of business from A to B with an assignment of a lease and some tenant’s fixtures, and the Commissioner for Stamp Duties in New South Wales sought to assess the transaction under the 1997 Duties Act which focused on transactions rather than instruments, sought to assess the sale of business agreement as selling an interest in land and relied upon the decision of the Court of Appeal in Western Australia in the case we are concerned with at present. 

Now, as it turned out, the Administrative Appeals Tribunal followed the decision in McDonald’s as it was bound to do.  That was a decision of the New South Wales Supreme Court.  The Tribunal in that case sought, perhaps by way of courtesy, to distinguish the decision of the Court of Appeal but really without success.  When one looks at page 127, there cannot be any doubt that what Justice Wheeler and for that matter Justice McLure did, was reject the Hallen v Runder line of authority and that is basis of it.

GUMMOW J:   What do you say about the suggestion that this case is to be understood differently because there was severance and transfer of the tenant’s fixtures to a third party, that it was not a purely a landlord and tenant transaction?

MR DE WIJN:   There was no severance in fact of the fixtures.  What happened in this case was that the agreement was structured so that there was a licence to use the fixtures and the land on which the fixtures were contained for 15 years plus an option for another 15 years, and what the Court of Appeal relied upon, or one of the grounds they relied upon, was a provision which was to take effect effectively at the end of the agreement, 17.5, and that was effectively the provision that they dragged in to say there is a sale of a interest in land and we say, if you are looking at what happens at the end of the licence period, when the licence in relation to the use of the fixtures terminates, and when the power supply agreement terminates, what is one going to do with the fixtures?

The only right that could be had in relation to the fixtures at that point in time was to sever them and take them away because the purchaser was given no right to come onto the land after the licence expired, so with respect, this is a case where the principles that were applied are precisely the same principles in Hallen v Runder.  One looks at what happens when one assigns a tenant’s fixtures to a third party.  My learned friend’s point about those cases dealing with waiver is really not to the point.  They do not all deal with waiver.  In fact Lee v Gaskell dealt with a sale to a third party.

GUMMOW J:   He also relies on North Shore Gas Case, I think.

MR DE WIJN:   Your Honour, we rely on that because what Justice Dixon said in the first North Shore Gas Case was that the gas company did not have an interest in the pipes that were lying in the streets on someone else’s land and in the second North Shore Gas Case this Court said that was wrong, or doubted that it was correct.  The decision of this Court in the second North Shore Gas Case, and we have set out the extract in the submissions, said that Justice Dixon was wrong, or doubted that. 

Now, when one looks at Melluish in the decision of the House of Lords, again the House of Lords did not have to decide it because the question was who owned the “fixtures” for taxing purposes, but the House of Lords severely doubted whether there was an equitable interest in the land and distinguished the mortgage cases and put those to one side.

Your Honours, that is probably why Justice Sundberg in the Metal Manufactures Case, which was one of the sale and leaseback tax cases, said it was not necessary for the purpose of determining the tax deductibility of the so‑called lease payments to actually identify what was the nature of the interest which the bank held in the assets that had been affixed to Metal Manufactures’ land.  Your Honours, we say it is a classic case for the grant of special leave, both in relation to the fixtures point and the other points.  If your Honours please.

GUMMOW J:   Thank you.  There will be a grant of special leave in this case.  Are we correct, gentlemen, in assuming it will be a one‑day appeal?

MR DE WIJN:   Yes, your Honour.

GUMMOW J:   I would have thought so.  Very well, we will now adjourn until 2.00 pm Canberra time.

AT 1.16 PM THE MATTER WAS CONCLUDED