Vicinity Funds Re Ltd v Commissioner of State Revenue (No 4)
[2024] VSC 658
•30 October 2024
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL COURT
TAXATION LIST
S ECI 2021 00032
| VICINITY FUNDS RE LTD | First Appellant |
| RECO BOURKE PRIVATE LIMITED | Second Appellant |
| v | |
| COMMISSIONER OF STATE REVENUE | Respondent |
S ECI 2021 00033
| VICINITY FUNDS RE LTD | First Appellant |
| RECO BOURKE PRIVATE LIMITED | Second Appellant |
| THE TRUST COMPANY LIMITED | Third Appellant |
| v | |
| COMMISSIONER OF STATE REVENUE | Respondent |
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JUDGE: | Nichols J |
WHERE HELD: | Melbourne |
DATES OF HEARING: | 1–3 November 2023 |
DATE OF JUDGMENT: | 30 October 2024 |
CASE MAY BE CITED AS: | Vicinity Funds RE Ltd v Commissioner of State Revenue (No 4) |
MEDIUM NEUTRAL CITATION: | [2024] VSC 658 |
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TAXATION — Stamp Duty — Assessment of duty — Appeal from determination of objection — Transfer of real property — Where transferred land subject to 299 year lease — Identification of dutiable property — Whether dutiable property fee simple or reversionary interest — Whether Delegate of Commissioner recognised leasehold interest qualified freehold interest — No error in identification of dutiable property — Trust Company Ltd v Chief Commissioner of State Revenue (2007) 13 BPR 25,019 — Chief Commissioner of State Revenue v Centro(CPL) Ltd (2011) 81 NSWLR 462 — Urban Renewal Authority Victoria (formerly Victorian Urban Development Authority) v Obeid [2013] VSCA 371 — Duties Act 2000 (Vic), s 10(1).
TAXATION — Stamp Duty — Statutory power of Commissioner to consider whether to disregard certain interests — Whether lease capable of being disregarded — Whether there is collateral purpose of reducing duty otherwise payable on transfer of land — Statutory regime supplies instructions for valuation — Construction of s 22 in context and according to its ordinary meaning — Comparison between value of dutiable property with interest and value of dutiable property with interest notionally removed — Dutiable property is the property valued but notionally treated as something else — ‘Land or goods’ in s 22(2) looking to subject matter of dutiable transaction — ‘Land or goods’ capable of catching land or goods notionally unaffected by relevant interest — No requirement to hypothesise alternative transaction — Construction of s 22 consistent with anti‑avoidance purpose — Trust Company Ltd v Chief Commissioner of State Revenue (2007) 13 BPR 25,019 — Chief Commissioner of State Revenue v Centro(CPL) Ltd (2011) 81 NSWLR 462 — Commissioner of State Revenue v Pioneer Concrete (2002) 209 CLR 651 — Duties Act 2000 (Vic), s 22.
TAXATION — Stamp Duty — Statutory construction — Meaning of ‘encumbrance’ and ‘unencumbered’ value of land — Where encumbrance historically defined as burden or liability attached to land in the nature of mortgage or charge — Where legislative history suggests no change of definition of ‘encumbrance’ — Whether 299 year lease constitutes ‘encumbrance’ on land — Commissioner of State Revenue v Bradney Pty Ltd (1996) 34 ATR 233 — Duties Act 2000 (Vic), s 20.
TAXATION — Objection to assessment — Procedural fairness — Whether Commissioner under duty to afford procedural fairness when determining objection — Whether determination of objection affects rights interest or expectation of objector — Whether there is legislative intent in Part 10 of Taxation Administration Act 1997 (Vic) to exclude procedural fairness — Whether existence of statutory appeal excludes procedural fairness at first instance — No manifest legislative intent to exclude procedural fairness — Content of procedural fairness derived from statute — Breach of procedural fairness subject to materiality threshold — Where objector had opportunity to address Commissioner — Where Commissioner not obliged to disclose what he is minded to decide — Where objector bears the onus of prove — No breach of procedural fairness — Kioa v West (1985) 159 CLR 550 — SZBEL v Minister for Immigration and Multicultural and Indigenous Affairs (2006) 228 CLR 152 — Twist v Randwick Municipal Council (1976) 136 CLR 106 — Hill v Green (1999) 48 NSWLR 161 — Day v Harness Racing (NSW) (2014) 88 NSWLR 594 — LPDT v Minister for Immigration, Citizenship, Migrant Services and Multicultural Affairs [2024] HCA 12 — Taxation Administration Act 1997 (Vic), Part 10.
TAXATION — Stamp Duty — Statutory construction — Relationship between s 22(2) and s 22A of Duties Act — Where fixtures installed by tenants at own expense are owned by tenants per s 154A of Property Law Act — Where fixtures owned by tenants included in unencumbered value subject to Commissioner satisfaction per s 22A — Where lease disregarded under s 22(2) — Whether s 22A operates subject to s 22(2) — Where neither statutory next nor context requires s 22A be read subject to s 22(2) — Section 22A provides statutory instruction for treatment of tenant’s fixtures when valuing land — Section 22A supplies own rationale for inclusion or exclusion of tenant’s fixtures in valuation — Subject to Commissioner satisfaction taxpayer not levied duty on tenant’s fixtures not acquired — Not paying duty on what was not acquired not avoiding duty — Disregarding interest, agreement or arrangement under s 22(2) does not require such interest, agreement or arrangement to be taken as void — No conflict between s 22A and s 22(2) — Leases did not otherwise provide as to displace application of s 22A — ‘Otherwise provides’ requires inconsistency not just provides in another way — Project Blue Sky Inc v Australian Broadcasting Authority (1998) 194 CLR 355 — Valuer‑General Victoria v AWF Prop Co 2 Pty Ltd (2021) 65 VR 327 — Vopak Terminals Australia Pty Ltd v Commissioner of State Revenue (Vic) (2004) 12 VR 351 — Commissioner of State Revenue v Uniqema Pty Ltd (2004) 9 VR 523 — Duties Act 2000 (Vic), ss 22, 22A — Property Law Act 1958 (Vic), s 154A — Landlord and Tenant Act 1958 (Vic), s 28(2).
TAXATION — Stamp Duty — Statutory construction — Meaning of ‘tenant’s fixtures’ under s 22A of Duties Act — Common law definition of fixtures and tenant’s fixtures — Nature of tenant’s common law right to remove tenant’s fixtures — Whether tenant’s fixtures must be removable without excessive damage to fixtures or land — Where s 28(2) of Landlord and Tenant Act displaces common law — Where s 154A of Property Law Act succeeds and operates in a similar manner to s 28(2) — Applicability of principle of legality to s 154A — Criteria for ownership and removal of fixtures installed by tenants under s 154A — Where tenants built extensive improvements on land pursuant to leases — Whether improvements owned by tenants under s 154A of Property Law Act and therefore ‘tenant’s fixtures’ under s 22A of Duties Act — Whether Commissioner erred in not reaching satisfaction under s 22A(2) — Valuer‑General Victoria v AWF Prop Co 2 Pty Ltd (2021) 65 VR 327 — AWF Prop Co 2 Pty Ltd v Ararat Rural City Council [2020] VSC 853 — Vopak Terminals Australia Pty Ltd v Commissioner of State Revenue (Vic) (2004) 12 VR 351 — Commissioner of State Revenue v Uniqema Pty Ltd (2004) 9 VR 523 — Chief Commissioner of State Revenue v Shell Energy Operations No 2 Pty Ltd [2023] NSWCA 113 — Vesco Nominees P/L v Stefan Hair Fashions P/L [2001] QSC 169 — Re Cancer Care Institute of Australia Pty Ltd (admin apptd) (2013) 16 BPR 32, 529 — Duties Act 2000 (Vic), ss 22, 22A — Property Law Act 1958 (Vic), s 154A — Landlord and Tenant Act 1958 (Vic), s 28(2).
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APPEARANCES: | Counsel | Solicitors |
| For the Appellants | Mr D McInerney KC Dr L Hilly Ms K Chan | King & Wood Mallesons |
| For the Respondents | Mr R Merkel KC Mr C Young KC Ms R Amamoo | Solicitor for the Commissioner of State Revenue |
Table of Contents
Part A – Introduction and Issues for Determination1
Factual Background1
Grounds and Nautre of Appeal3
Duties Act Provisions4
Part B – Ground 1, Particulars 1.1, 1.2, 1.5, Ground 2: Was the Dutiable Property Wrongly Identified and did s 22(2) of the Duties Act Apply?7
Part B.1 Dutiable property9
Appellants’ submissions9
Commissioner’s submissions10
Consideration11
Part B.2 Application of s 22(2)23
The Appellants’ case24
Commissioner’s submissions28
Consideration33
Part C – Commissioner’s Additional Grounds in Support of Assessment: Are the Leases Encumbrances within the Meaning of ss 20 and 22 of the Duties Act?39
Introduction39
Submissions41
Principles – statutory interpretation48
Predecessors to the Duties Act53
Authorities – Bradney and related cases56
Analysis71
Part D – Did the Commissioner Err in Applying s 22(3)?80
Grounds 3 to 1180
The Commissioner’s reasons82
‘The duty otherwise payable’ – the correct approach85
Identification of the scheme95
Purpose, effect and intelligible justification96
Application of s 22(4)107
Findings and state of satisfaction concerning Call Options119
Part E – Procedural Fairness120
Appellants’ submissions121
Commissioner’s submissions126
Consideration131
Part F – Fixtures Grounds153
Introduction and Grounds153
Improvements on the Land156
Determinations160
Statutory Provisions161
Appellants’ submissions162
Commissioner’s submissions169
Consideration – relationship between ss 22(2) and 22A174
Consideration – were the Improvements ‘tenant’s fixtures’ under s 22A?186
Conclusion – Fixtures Grounds214
HER HONOUR:
Part A – Introduction and issues for determination
Factual Background
These proceedings[1] are appeals instituted under s 106 of the Taxation Administration Act 1997 (Vic) (TAA) against the Respondent Commissioner’s Determinations made on 2 March 2021 via his Delegate, disallowing the Appellant taxpayers’ Objections against assessments to duty under the Duties Act 2000 (Vic). The appeals concern the Appellants’ liability to duty consequent upon the transfers to them of two parcels of land which comprise the site of what is now the Emporium shopping centre on Lonsdale Street in Melbourne, and the land on Bourke Street and Little Bourke Street occupied by the Myer shopping centre (the Emporium Land and the Myer Land). The issues in the appeal centrally concern how the dutiable value of the dutiable property transferred, should be determined.
[1]The issues in two appeals S ECI 2021 00032 and S ECI 2021 00033 are identical. The Notices of Determination in each case were substantively identical. The appeals were heard and are determined together, on the same submissions in each proceeding. It is unnecessary for the purposes of these Reasons, to distinguish between the appeals.
In 2007 interests within the corporate group of the Appellants acquired leasehold interests in the lands for terms of 299 years on payment of annual rents of $1, accompanied by Call Options in favour of the Appellants exercisable for $1 during the life of the Leases.[2] Those interests were acquired on payment of ‘premiums’ of $450,000,000 and $155,000,000 respectively. The Appellants, to whom the Call Options were assigned, exercised the Call Options in March 2018, pursuant to which the estates in fee simple in the lands were transferred to them.
[2]The interests were transferred in 2014 and 2016. It is unnecessary to set out the identity of the original lessees and the transferees.
The facts relevant to the Determinations (which were not in dispute) were more particularly as follows.
The Leases in respect of each of the Lands commenced on 10 August 2007. The relevant provisions of the leases are set out below.[3] The Leases were registered under the Transfer of Land Act 1958 (Vic) (the TLA) on 18 August 2007.
[3]See under Part C Commissioner’s Additional Grounds in support of Assessment: Are the Leases encumbrances within the meaning of ss 20 and 22 of the Duties Act?
Call Options were granted to NB Lonsdale Pty Ltd for the purchase of the Emporium and Myer Lands on 18 July 2007. The grantee in each case acknowledged that upon the exercise of the option it would ‘acquire the property subject to the Lease’. The option fee was in each case specified as $1 (plus GST). The term of each option was the term of ‘the Lease’.
The lessees made substantial improvements to the Lands. The improvements to the Myer Land were completed on about 20 December 2010, at a cost of approximately $321,589,000 to the lessees. The substantial improvements to the Emporium Land were completed in about August 2014, at a cost of about $603,022,000 to the lessees.
On 2 and 8 March 2018, the Appellants exercised the Call Options for the Emporium and Myer Lands respectively. On 28 March 2018, by instruments made under s 45 of the TLA, the Emporium and Myler Lands were respectively transferred to the Appellants in each proceeding.
On 27 August 2015, before the exercise of the call options, the solicitors for the Appellants wrote to the Commissioner requesting a private ruling in relation to their proposed exercise, seeking confirmation that the Commissioner would be ‘satisfied’, as required by s 22(3) of the Duties Act, with the consequence that he would not disregard the Leases for the purposes of assessing duty. In his ruling given on 26 April 2016 the Commissioner stated that he was not satisfied that the Leases were not granted or made as part of an arrangement or scheme with a collateral purpose of reducing the duty otherwise payable on the transfer of the land.
On 26 April 2018, the Commissioner assessed the liability of the Appellants to duty. The Commissioner assessed each transfer as dutiable based on a valuation of the Emporium Land in the sum of $1,020,000,000, on which duty payable was $56,149,500, and of the Myer land in the sum of $480,000,000, of which $26,400,000 was payable. The Appellants lodged Objections, contending that the dutiable value of each of the lands was $1, subsequently requesting that the Commissioner treat their Objections as appeals to this Court and cause them to be set down for hearing. The Commissioner disallowed the Objections and provided written notice of the Determinations on 2 March 2021. The history of the objections, appeals and determinations is as set out in Vicinity Funds v Commissioner of State Revenue [2022] VSCA 176 at paragraphs [34]–[45].
Grounds and Nature of Appeal
The Appellants re‑expressed their grounds of appeal into six issues, to which their submissions were addressed. That they did so reflected the fact that certain grounds were inter‑related or overlapped. I will largely adopt the grouping of the grounds from the Appellants’ submissions, but in order to determine grounds rather than ‘issues’. The Commissioner disputed that some ‘issues’ were properly tied to grounds of appeal. Some grounds of appeal concern the Commissioner’s state of non‑satisfaction under ss 22(3) and 22A(2) of the Duties Act. On the Commissioner’s application (ultimately without opposition) I determined[4] that each appeal, insofar as it concerns the respondent’s state of satisfaction or nonsatisfaction under section 22(3) or, if and to the extent it arises, section 22A(2) of the Duties Act, should proceed by way of judicial review. In respect of those grounds the question is whether the Appellants have shown legal error of the kind identified in Avon Downs Pty Ltd v Federal Commissioner of Taxation,[5] which limits the scope for judicial review. The relevant inquiry is not as to the merits of the Commissioner’s determination decisions but their legal correctness.[6] The remaining grounds concern legal errors said to have affected the Determinations in respects not concerned with the exercise of a statutory power predicated on the formation of a state of satisfaction by the decision‑maker.[7]
[4]By orders made 17 May 2021.
[5]Avon Downs Pty Ltd v Federal Commissioner of Taxation (1949) 78 CLR 353 (Avon Downs); Vicinity Funds RE Ltd v Commissioner of State Revenue (Vic) (No 3) (2023) 70 VR 441, 454 [30], 459 [52] (Vicinity No 3).
[6]Vicinity No 3, 466 [76].
[7]Vicinity No 3, 454 [30].
For the reasons that follow, I have upheld the Appellants’ primary ground concerning ‘fixtures’ (see paragraphs 433 to 436, below). I have not otherwise upheld the Appellants’ grounds of appeal. I have not upheld the Commissioner’s alternative grounds in support of the Determinations (that the Leases were ‘encumbrances’ and that the Improvements were not fixtures under s 154A of the Property Law Act 1958 (Vic)).
Duties Act Provisions
The Duties Act as in force at time of the dutiable transactions[8] relevantly provided as follows:
[8]Duties Act 2000 No. 79/2000 is the version of the Act (authorised version No. 112, incorporating amendments as at 17 December 2017) applicable at the time of the dutiable transactions.
(a) Chapter 2 of the Act charges duty on a transfer of dutiable property, and on the particular transactions listed in s 7(1)(b). A transfer of dutiable property is a dutiable transaction for the purposes of the Act (s 7(2)). A liability for duty charged by Chapter 2 arises when a dutiable transaction occurs (s 11). Where a dutiable transaction is not a transfer of property, duty is charged on the transaction as if it were a transfer of dutiable property (s 8).
(b) Dutiable property is defined by s 10, as follows:
10 What is dutiable property?
(1) Dutiable property is any of the following –
(a)each of the following estates or interests in land in Victoria –
(i)an estate in fee‑simple;
(ia)a life estate;
(ib)an estate in remainder;
(ii)a Crown leasehold estate;
(iii)a term referred to in section 153 of the Property Law Act 1958 that may be enlarged into a fee‑simple under that section;
(v)a land use entitlement;
(ab)a lease, if the lease is of a kind referred to in section 7(1)(b)(v) or s 7(1)(b)(va);[9]
[9]Subsection 10(1)(ab) was inserted in 2009, after the grant of the leases in this case.
(ac)an interest in any of the dutiable property referred in paragraph (a) or (ab) other than
(i)a security interests;
(ii)an option to purchase;
(iii)a lease other than a lease referred to in paragraph (ab);
(b)shares …
(c)units in a unit trust scheme …
(d)goods in Victoria, if the subject of an arrangement that includes a dutiable transaction over an estate or interest in land elsewhere referred to in this section …
(e)an interest … under the will or codicil of a deceased person disposing of property elsewhere referred to in this section … or in or under the estate of a deceased person comprising property elsewhere referred to in this section;
(g)an interest in shares referred to in paragraph (b) or in units referred to in paragraph (c) (other than a an interest as mortgagee).
(c) Duty is charged on the dutiable value of the dutiable property the subject of the dutiable transaction at the relevant rate set out in Part 3 (s 18).
(d) Part 2 of Chapter 2 contains a series of rules for the determination of the dutiable value of dutiable property and related powers and facultative provisions. Section 20(1) provides that the dutiable value of dutiable property that is the subject of dutiable property is the greater of the consideration (if any) for the dutiable transaction and the unencumbered value of the dutiable property.
(e) Section 22 subsections (1)‑(4) provide:
22 What is the unencumbered value of dutiable property?
(1) The unencumbered value of dutiable property is the amount for which the property might reasonably have been sold in the open market –
(a) in the case of a transfer of dutiable property on a sale of the property – at the time the contract of sale was entered into;
(b) in any other case – at the time the dutiable transaction occurred –
free from any encumbrance to which the property was subject at the time.
(2)In determining the amount for which land or goods might reasonably have been sold free from encumbrances, there must be disregarded subject to subsection (3), any interest, agreement or arrangement (other than an encumbrance) granted or made in respect of the land or goods, that has the effect of reducing the value of the land or goods.
(2A)A reference in subjection (2) to an interest includes a reference to an equitable interest that –
(a)was created before the time of the transfer of the land or goods; and
(b)is in existence at that time.
(3)An interest, agreement or arrangement referred to in subsection (2) is not to be disregarded if the Commissioner is satisfied that it was not granted or made as a part of an arrangement or scheme with a collateral purpose of reducing the duty otherwise payable on the transfer of the land or goods.
(4)In considering whether or not he or she is satisfied for the purposes of subsection (3), the Commissioner may have regard to ‑
(a)the duration of the interest, agreement or arrangement before the transfer; and
(b)whether the interest, agreement or arrangement has been granted to or made with an associate, a related corporation or a trustee of the transferor or transferee; and
(c)whether there is any commercial efficacy to the granting of the interest or the making of the agreement or arrangement other than to reduce duty; and
(d)any other matter he or she considers relevant.
(f) Section 22A make provision for the treatment of tenant’s fixtures in the determining the unencumbered value of land.
? Part B – Ground 1, particulars 1.1, 1.2, 1.5, Ground 2: Was the dutiable property wrongly identified and did s 22(2) of the Duties Act apply
By Ground 1 of their notice of appeal the Appellants contended that the dutiable value of the dutiable property was in each case $1 plus GST, which sum was both the consideration for the transfers and the unencumbered value of the dutiable property, determined in accordance with s 22 of the Act.
The Appellants contend that the Delegate misidentified the dutiable property the subject of the dutiable transactions, infecting the Determinations with an error of law that was akin to ‘imposing duty on the wrong house’. The relevant grounds were expressed as follows:
[1.1] The dutiable property is constituted only by a reversionary interest in fee simple of the Emporium Land (the Reversionary Interest), not the unqualified fee simple as wrongly identified by the Delegate at paragraph [47] of the Notice of Determination of Objection to Notice of Assessment.
[1.2] For the purposes of section 22(1) of the Duties Act, the amount for which the Reversionary Interest might reasonably have been sold in the open market, free from any encumbrance to which the property was subject at the time of the Transfer was executed, was $1.
[Ground 2]: The Determination is affected by jurisdictional error, in that the Delegate misidentified the subject of the ‘dutiable property’ upon which duty was imposed.[10]
[10]The particulars to Ground 2 cross‑reference the particulars to Ground 1. By Ground 1 particular [1.3] it was contended that the leases and call options were not encumbrances. The Commissioner had not treated the leases as encumbrances in the Determinations, but subsequently sought and was granted leave to contend in these appeals that the leases were in fact encumbrances. That issue is considered separately.
For the purposes of the Appellants’ case the identification of the dutiable property and the application of s 22(2) are closely related. Where it applies, s 22(2) requires that in determining the unencumbered value of land or goods there must be disregarded (subject to subsection (3)) any interest, agreement or arrangement (other than an encumbrance) granted or made in respect of the land or goods, that has the effect of reducing the value of the land or goods’. The Appellants said that if the dutiable property comprised only the Reversionary Interest, there could be no ‘interest, agreement or arrangement’ granted in respect of the land that had the effect of reducing its value because an interest granted in respect of land (i.e. the Lease) that itself ‘creates’ dutiable property (the reversion expectant upon the Lease) does not have the effect of reducing the value of that property. Grounds 1.4 and 1.5 read as follows:
[1.4] Additionally or in the alternative, for the purposes of s 22(2) of the Duties Act, the Ground Lease and the Call Option (or either individually) were not granted or made in respect of the land and accordingly cannot be disregarded.
[1.5] Additionally or in the alternative, for the purposes of s22(2) of the Duties Act, the Ground Lease and the Call Option (or either individually) do not have the effect of reducing the value of the land, and accordingly cannot be disregarded by reason of the following:
(a)The Emporium Land was subject to the Ground Lease at the time the Transfer was executed and the only property transferred or able to be transferred at that time was the Reversionary Interest; and
(b)The Reversionary Interest had a value of $1, which was not reduced by either the Ground Lease or the Call Option (together or individually).
If s 22(2) was not engaged there was no statutory warrant for disregarding the Leases in valuing the lands (unless they were disregarded under s 20(1) because they were encumbrances). If the Leases were not to be disregarded it must be accepted that the dutiable value of the dutiable property was in each case $1. The Appellants expressed the issue to which these parts of Ground 1 were addressed in interrogative form: Did the dutiable property comprise only each respective reversionary interest in the properties in issue such that there would be no ‘interest, agreement or arrangement that had the effect of reducing the value of that interest for the purposes of s 22(2)?
These grounds then, were concerned with the identification of the dutiable property and relatedly, whether s 22(2) had any application to the facts.
Part B.1 Dutiable property
Appellants’ submissions
The Appellants submitted that the assessment of duty requires, as a first step, the accurate identification of the dutiable property that was the subject of the dutiable transactions. Where the transaction involves a transfer of land, a central consideration in the assessment of duty is the effect in law of the transfer of the legal construct of land (meaning, I infer, the relevant estate or interest in land) and not the ‘physical thing’. It may be necessary to look outside the instrument of conveyance or transfer in order to identify the property conveyed by the instrument.[11] Section 10(1) of the Duties Act supplies an exclusive list of dutiable property for the purposes of the Act. Relevantly, dutiable property may be constituted by any of the estates or interests in land in Victoria enumerated in s 10(1)(a), which list includes an estate in fee simple. By s 10(1)(c), it may also be constituted by an interest in any of the property referred to in sub‑paragraph 10(1)(a). The Delegate described the dutiable property as falling within s 10(1)(a) whereas it was properly described as an interest in the estate in fee simple in each of the Lands, falling within s 10(1)(ac). A reversionary interest expectant upon a lease was an interest in an estate in fee simple. It was that interest that was the subject of the dutiable transaction in each case.
[11]Trust Company Ltd v Chief Commissioner of State Revenue (2007) 13 BPR 25,019, 25,024 [37]–[38] (Trust Co).
The High Court in Commissioner of State Revenue v Pioneer Concrete,[12] considering the effect of contractual terms on the conveyance of an estate in fee simple under the Stamps Act 1958 (Vic), accepted that where a freehold interest is sold subject to a pre‑existing lease, the lease qualifies the nature and extent of the proprietary interest that is available to be transferred, and in that case what is transferred is the reversion expectant upon the lease.[13]
[12]Commissioner of State Revenue v Pioneer Concrete (2002) 209 CLR 651 (Pioneer Concrete).
[13]Pioneer Concrete, 668–9 [49]–[50].
In Chief Commissioner of State Revenue v Centro[14] the New South Wales Court of Appeal considered a dutiable transaction of a very similar kind to the transactions in this case, under 24 of the Duties Act 1997 (NSW) (NSW Duties Act). There, the sale to the taxpayer of a freehold interest in a commercial property was subject to a 300 lease that the vendor had granted to another company some 20 months earlier, requiring the payment of large premium but at nominal rent. The vendor executed a transfer of the estate in fee simple and upon registration the taxpayer became the registered proprietor of the estate in fee simple subject to the lease. The proper identification of the dutiable property was not in issue in Centro. However, on that subject Sackville AJA (with whom Giles and MacFarlan JJA agreed), adopting the reasoning in Trust Co, said that,
… the dutiable property taken to be transferred under a contract for the sale or transfer of an interest in land is the interest that is the subject of the contract of sale. In the present case, the terms of the contract of sale make it clear that the interest was GPT’s fee simple estate as tenant in common subject to the concurrent Long Lease: that is, what I have described as the Reversionary Estate.[15]
[14]Chief Commissioner of State Revenue v Centro(CPL) Ltd (2011) 81 NSWLR 462 (Centro).
[15]Centro, 482 [112]. Section 9(1) of the Duties Act 1997 (NSW) provided that the duty on a dutiable transaction, including an agreement for the sale of dutiable property, was to be charged as if each such dutiable transaction were a transfer of dutiable property.
It was submitted that in this case, consistent with well‑established general law principles, the interest in land transferred to the appellants was not the unqualified fee simple of the lands but the reversionary estate subject to each Lease. The Appellants accepted as they must, in light of the reasoning in Centro, that ‘it does not matter whether the interest is labelled the estate in fee simple subject to the lease, or the reversion expectant on the lease.’[16] Accordingly their grounds, and parts of their submissions, concentrated upon the distinction between reversionary interest in fee simple of the Lands and the unqualified fee simple estate. However, aspects of their submissions went further. It was put orally that ‘the grantor did not have the fee simple, and the transferees did not acquire the fee simple’.
Commissioner’s submissions
[16]Trust Co, 25,031 [74].
The Commissioner submitted that as a matter of substance and form, and as the Delegate correctly recorded, the dutiable transaction was the transfer of the fee simple estate in the land pursuant to the exercise of the call option, with consequences provide by s 45 of the TLA which is in these terms:
(1) A registered proprietor may transfer his estate or interest in land by an instrument in an appropriate approved form.
(2) Upon the registration of the transfer the estate or interest of the proprietor as set out in such instrument or which he is entitled or able to transfer or dispose of under any power, with all rights powers and privileges thereto belonging or appertaining, shall pass to the transferee; and such transferee shall thereupon become the registered proprietor thereof.
The dutiable property was correctly described, notwithstanding that the Appellants hold the estates in fee simple subject to the Leases. In defining dutiable property as including an ‘estate in fee simple in land in Victoria’ in s 10(1)(a), the Duties Act does not distinguish between qualified or unqualified estates, each of which falls within that subsection. It does not distinguish between estates in fee simple in possession absolutely or estates in fee simple subject to other interests including leases.
Consideration
It is implicit in the structure of Chapter 2 of the Duties Act, which charges duty on the transfer of dutiable property, that it is necessary as a first step to identify the dutiable property that was the subject of the dutiable transactions.[17] In this case, the question was what was conveyed by the transfers that occurred on 29 March 2018. As ground 1.1 expressed it, the issue was whether the dutiable property was in fact constituted only by a reversionary interest in the fee simple of the lands and not the unqualified fee simple, the implication being that the Delegate characterised the dutiable property as comprising in each case an unqualified fee simple estate.
[17]See Pioneer Concrete, 664–5 [38], Centro, 470 [38]; Konann Pty Ltd v Commissioner of State Revenue (2015) 100 ATR 772, 809 [77] (Konann).
Whether the Delegate was in error in characterising the dutiable property is to be assessed by reference to the relevant provisions of the Duties Act, the proper legal characterisation of the dutiable transactions at law, and the Delegate’s reasons. I will consider each in turn.
First, to the Duties Act. The property that may be the subject of a dutiable transaction is defined by an exclusive list, in s 10 of the Duties Act. In respect of interests in land (as opposed to shares or the other forms of property included within s 10) dutiable property is one of the nominated estates or interests in land in Victoria (including an estate in fee‑simple), or an interest in one of those estates or interests in land. The Duties Act does not define ‘estate in fee simple’ or an interest in an estate in fee simple. It is necessary to resort to the general law to give meaning to those terms. When a word used in a statute has an established legal meaning it is presumed that the word has that meaning unless the context indicates otherwise.[18]
[18]Davies v Western Australia (1904) 2 CLR 29, 42–43; A‑G (NSW); Ex rel Tooth & Co v Brewery Employees’ Union (NSW) (1908) 6 CLR 469, 531; City Mutual Life Assurance Society Ltd v Smith (1932) 48 CLR 532, 541; Yorke v Lucas (1985) 158 CLR 661, 668; Urban Renewal Authority Victoria v Samir Obeid [2013] VSCA 371, [29] (Obeid).
Sub‑paragraph 10(1)(ac) includes within the definition of dutiable property, ‘an interest in any dutiable property referred to in paragraph (a) or (ab)’. I do not consider that the presence of s 10(1)(ac) requires s 10(1)(a)(i) to be read as referring only to estates in fee simple that are ‘unqualified’. Prima facie, the expression ‘an estate in fee simple’ is bears its meaning at general law. For the reasons discussed below, at general law an estate in fee simple may be qualified or unqualified. Sub‑section 10(1)(ac) might apply, for example, to an equitable proprietary interest of a third party in an estate in fee simple. Reading the expression that way is contextually sound. Section 10, which sits in Part 1 of Chapter 2, is applied in order to identify dutiable property the subject of a dutiable transaction. That property is then to be valued by applying the rules expressed in Part 2 of Chapter 2. In this case, the relevant rules are found in ss 20, 22 and 22A. Those sections (and the other parts of Chapter 2 that concern the valuation of land) do not supply different valuation rules for those estates and interests in land as defined in s 10(1)(a), and those defined in s 10(1)(ac).
Next, what is proper legal characterisation of the property transferred in the dutiable transaction?
In Pioneer Concrete, in the course of considering a transfer of an estate in fee simple in the context of the Stamps Act, a plurality of the High Court (Gleeson CJ, Gummow, Kirby and Hayne JJ) said that liability to duty arises because the dutiable instrument transfers an estate or interest in real property and it is by reference to the value of that which is transferred, that duty is imposed.[19] In that case the relevant estate and interests were described in the instrument of transfer as all of the transferor’s estate in fee simple. The contract of sale was subject to retention by the render of certain rights relating to the extraction and tipping of waste. It was held that the tipping rights, resting in contract, were merely incidents of the transferor’s rights of ownership and irrelevant to the valuation of the interest in land transferred. By way of comparison with contractual rights, the Court discussed the significance of other kinds of interests for the purposes of valuing dutiable property, including what had occurred in Commissioner of State Revenue (Vic) v Bradney,[20] which concerned the sale of a freehold interest subject to a pre‑existing 50 year lease. Of what occurred in Bradney, the Court said,
The assumption on which the argument [in Bradney] proceeded is consistent with what was said by Mason J in DKLR Holding. It was not a case of a transfer and lease back. What was sold was the freehold interest subject to the pre‑existing lease; the reversion. The pre‑existing lease qualified the nature and extent of the proprietary interest that was available to be transferred. Subject to the possibility that it might be said to be an encumbrance, it was taken into account in considering the nature, and therefore the value of the property that was transferred.[21]
[19]Pioneer Concrete, 663 [34].
[20]Commissioner of State Revenue v Bradney Pty Ltd (1996) 34 ATR 233 (Bradney).
[21]Pioneer Concrete, 668–9 [49].
The Court was in that passage referring to the argument in Bradney. But the balance of the Court’s reasoning is consistent with an acceptance of the correctness of the basis on which that argument proceeded.[22] The Court’s reasoning more broadly was that proprietary interests granted in respect of the subject matter of a conveyance or transfer may qualify the nature and extent of what is transferred. A lease is one example of such an interests, where the purchaser takes the interest conveyed subject to the lease.
[22]See in particular Pioneer Concrete at 669 [52].
The Stamps Act charged duty on instruments. In Commissioner of State Revenue v Lendlease[23] Maxwell ACJ explained that although, under the Duties Act it is the transaction and not the instrument which now attracts duty, the approach to be taken to ascertaining dutiable value was essentially the same and that what was said by the High Court in Pioneer Concrete remained applicable. Now, as previously, the question is: ‘what was the property conveyed by the transfer?’[24] What is required is to identify the property conveyed by the transaction. That, in turn, requires the identification of any interest which alters, or qualifies, the nature of the property transferred.[25]
[23] Commissioner of State Revenue v Lend Lease Funds Management Ltd (2011) 33 VR (Lend Lease Funds Management), 221 [70]–[72].
[24]Lend Lease Funds Management, 221 [72], citing PioneerConcrete at [34]. See further below as to the statutory history considered under Part C – Predecessors to the Duties Act.
[25]Lend Lease Funds Management, 223 [80]. Maxwell ACJ dissented in Lend Lease Funds Management, in the result. I do not read the other members of the Court (Tate JA and Pagone AJA) as adopting reasoning inconsistent with Maxwell ACJ on the issue discussed here. See also the discussion in Vopak Terminals Australia Pty Ltd v Commissioner of State Revenue (Vic) (2004) 12 VR 351 at 374–380 [56]–[71] (Vopak).
Both Centro and Trust Co concerned transactions of a substantively similar kind to those in issue in this case. Neither case was concerned with a dispute about the proper identification of dutiable property. Rather, each was concerned with the implications for valuing the dutiable property said to flow from the fact that the taxpayers had received only the reversionary interests expectant upon long leases. The analysis of the property interests by Giles JA in Trust Co (with whom Mason P agreed in that case on that issue) was adopted in Centro. Relevantly and in summary, Giles JA said on that issue:
(a) In the case in issue, what was to be sold was the vendor’s interest in the land. The purchaser was to acquire its interest in the property subject to long leases which were concurrent with shorter leases. What was given to the purchaser was subject to the disclosed tenancies, whereby the interest was subject to what the law recognised as proprietary interests.[26] The transfers were in the standard form and expressed transfers of ‘an estate in fees simple’.
[26]Trust Co, 25,027 [51].
(b) Ownership of an estate in fee simple is for almost all practicable purposes equivalent to ownership of the land itself. On creation of a lessee’s interest the lessor is said to have a reversion, also called a reversionary estate. When land is demised for a term of years, the effect is to create two estates – the estate of the lessee and the reversion of the lessor.[27]
[27]Trust Co, 25,028 [55].
(c) The Chief Commissioner had submitted that the lessee’s interest in the land did not ‘cut down’ the fee simple estate and a conveyance or transfer of the reversion is in true a conveyance or transfer of the fee simple, albeit subject to the lease. The property agreed to be sold was, if not the land as physical property, the fee simple and the existence of various leases went only to its value. The taxpayer had submitted that that the grant of the lease created a reversionary estate distinct from the fee simple, and what is transferred is the reversion. The grant of a lease could be contrasted with the creation of a trust over land, the creation of a trust reducing the value of the fee simple but not altering its nature. [28] Of those submissions his Honour said,
[28]Trust Co, 25,028–9 [61]–[62].
… I do not think that the identification of the interest in land in the present case is a choice between the fee simple and the reversion. The fee simple remains in the lessor, although the lessor parts with the right to possession, and the lessee’s interest, which has been described as being ‘carved out of the freehold’ co‑exists with the estate in fee simple. But the lessor’s freehold estate subject to the lease is regarded as an interest in land, the reversion, and it is correct to refer to it as such. Thus, in Commissioner of State Revenue v Pioneer Concrete (Vic) Pty Ltd at [49] Gleeson CJ and Gummow, Kirby and Hayne JJ said of Commissioner of State Revenue (Vic) v Bradney Pty Ltd, in which the freehold was sold subject to a long term lease, ‘what was sold was the freehold interest subject to a pre‑existing lease; the reversion’. The same correspondence between the fee simple subject to a lease and the reversion, although differently expressed, can be seen in City of Rockingham v PMR Quarries Pty Ltd where Hasluck J said at 98 –
Once a lease has been created, the continuing interest in the land held by the landlord is the leasehold reversion. A further consequence of the doctrine of estates, whereby legal entitlements are separated from the land itself, is that the landlord as owner of the leasehold reversion, is at liberty to sell the freehold estate during the term of the lease.[29]
[29]Trust Co, 25,029 [63].
The choice between the fee simple and the reversion was a false dichotomy. Rather, it is necessary to consider the nature and extent of the interest in land. Labels given to estates or interests according to ancient principles of land law are not taken up by the Act, which refers in general terms to an interest in land and elucidates that reference to the inclusory definition of an estate or proprietary right. The enquiry just seek to accurately identify the interest in land, not just by a label.’[30]
(d) Implicit in the reasoning of the High Court in Pioneer Concrete was that the property was not the fee simple without regard to other interests in land, and that in identifying the property a proprietary interest which ‘affected the nature’ of the property or ‘qualified the title’ to the property would be taken into account, which reasoning was confirmed in Bradney.[31]
(e) It is always necessary to attend to the language of the relevant statute. However, it was in accord with that description in the NSW Duties Act of dutiable property as an interest in land, expanded to an estate or proprietary interest, to identify the interest in land agreed to be sold or transferred taking account of a leasehold interest subject to which it is sold. What is agreed to be sold or transferred is a qualified interest in the land, and it would mis‑identify the interest not to recognise the leasehold interest qualifying it. It does not matter whether the interest is labelled the fee simple subject to the lease or the reversion expectant on the lease.
[30]Trust Co, 25,029 [63]–[64], citations omitted.
[31]Trust Co, 25,029–25,030 [65]–[68]. See also 25,030‑25,031 [69]–[73].
In Centro, Sackville AJA adopted that reasoning in describing the dutiable property in the case of a contract for the sale of the freehold subject to a lease, as the reversionary interest expectant on the lease.[32]
[32]Centro, 483 [118]–[119].
Turning to the dutiable transactions in this case, it was not in dispute that immediately prior to the dutiable transactions occurring the respective transferors held the estate in fee simple in the Emporium and Myer Lands subject to the Emporium and Myer Leases, as reflected on the register of titles at the time. It was also accepted that by the transactions the estate and interest of each of the vendors in each of the Lands was transferred to the respective transferees including the Appellants, by written instruments executed on 29 March 2018. The transfer documents executed in each case under s 45 of the TLA, described the relevant estate and interest in the land as the as the ‘FEE SIMPLE’.
Section 45 of the TLA provides that a registered proprietor may transfer his estate or interest in land by instrument in an appropriate approved form and upon the registration of the transfer the estate or interest of the proprietor as set out in such instrument, pass to the transferee.
The effect of s 42(2)(e) of the TLA is that where the holder of an estate in fee simple in land had leased land to a tenant who is in possession, the owner’s interest in the land is held subject to the tenant’s leasehold interest, whether or not that interest is recorded in the register. As the Victorian Court of Appeal said in Urban Renewal Authority Victoria (formerly Victorian Urban Development Authority) v Obeid, the leasehold interest qualifies the nature and extent of the proprietary interest of the freehold owner.[33]
[33]Urban Renewal Authority Victoria (formerly Victorian Urban Development Authority) v Obeid [2013] VSCA 371 (Obeid), [16]–[17].
Although it was conducted for a different purpose and did not concern the Duties Act, the analysis in Obeid is instructive as to the general law position. There, the Authority had sought to compulsorily acquire land under the Land Acquisition and Compensation Act 1986 (Vic) (LAC Act). The land was encumbered by a lease. The notice of acquisition referred only to the acquisition of the interest of the registered proprietor and not to the interest of the lessee. The appellant lessee sought a declaration that the Authority had also acquired his leasehold interest. The Court found s 42(2)(e) of the TLA to be dispositive of the case. Citing Pioneer Concrete, the Court said that the leasehold interest qualified the nature and extent of the proprietary interest of the freehold owner and was, in that sense, a defining feature of the owner’s interest. If, on the other hand, there was no lease, the owner’s interest in the land would be unqualified.[34] The Court said that in identifying the nature and extent of the interest being acquired in that context, there was a direct analogy with the question which arises in relation to the dutiability of a conveyance of land, namely what interest in land was conveyed.[35] It was held that the divestment of the appellant’s leasehold interest was not necessary to give effect to the acquisition of the registered proprietor’s interest for the purposes of the LAC Act. More particularly,[36]
It was not ‘necessary’ in that sense, because the Authority was able to acquire the fee simple estate without the leasehold interest having to be divested. A legal estate in fee simple is not diminished, nor is a vesting of it at law restricted, when the registered proprietor is not in actual physical occupation of the land but is in receipt of its rents and profits.
[34]Obeid, [16]–[17].
[35]Obeid, [18].
[36]Obeid, [39]–[40].
The Court then went on to say that a fee simple estate is properly described as being ‘in possession’ even though the registered proprietor has granted a lease,[37] citing Megarry and Wade in The Law of Real Property to this effect:[38]
From its very nature it follows that a reversion is a vested interest; for it is the remnant of an estate which has never passed away from the grantor, and he or (if he is dead) his representatives stand ready to receive the land as soon as the particular estate determines. According to feudal principles, moreover, a freehold reversioner on a term of years has an estate which is vested not only interest but also in possession, for the grant of a lease does not deprive a grantor of seisin, and he therefore has what is properly called a freehold in possession subject to the term. From this point of view a reversion on a lease is not a reversion or, indeed, a future interest at all. This technicality is a relic of the ancient doctrine that leases were not even estates and were to be disregarded for feudal purposes. But, as has been seen, leases have long since achieved the status of estates, and it is therefore common and correct to speak of a landlord’s reversion.
[37]Obeid, [41].
[38]Obeid, [41] citing Megarry and Wade, The Law of Real Property (Steven & Sons Limited, 5th ed, 1984) 237 (citations omitted).
That passage was approved in the context of Torrens title in Perpetual Trustee Company Ltd v Valuer‑General (No 2),[39] and, on appeal, by the Full Court of the Supreme Court of South Australia.[40] It is also consistent with the reasoning of Croft J in Challenger Property Asset Management Pty Ltd v Stonnington City Council.[41]
[39]Perpetual Trustee Company Ltd v Valuer‑General (No 2) (2007) 99 SASR 251, 261–2.
[40]Trust Company of Australia Ltd v Valuer‑General (2008) 101 SASR 110, 126 [56] (Bleby J, with Duggan and Anderson JJ agreeing).
[41]Challenger Property Asset Management Pty Ltd v Stonnington City Council (2011) 34 VR 445, 477 [63] (Challenger).
The authorities discussed make clear that as a matter of general law when a fee simple estate subject to a lease is transferred, the transferee acquires exactly that: the fee simple estate subject to, or qualified by, the lease. It is correct to describe the estate acquired as the fee simple estate. That estate is qualified by the leasehold estate for the duration of the lease but it is an estate in fee simple none the less. The fee simple remains in the lessor. The lessor freeholder has parted with possession, subject to the terms of the lease. The lessor remains ‘in possession’ by the receipt of rents or profits or the right to receive the same. This case does not raise any specific issue concerning possession. I make reference to it only to amplify the discussion about the estate in fee simple. As is evident from the judgments in Trust Co and Centro, it does not matter whether a freehold interest in land encumbered by a lease is described as an estate in fee simple subject to a lease, or as a reversionary interest. Both descriptions may be used to describe the same interest in land that is the dutiable property. To say that the grant of a leasehold interest creates a reversionary interest in the landowner is to say no more than that the landowner’s estate in fee simple has become subject to that leasehold interest.
It may be concluded by reference to the registered instruments and the effect of the relevant provisions of the TLA (consistently with the authorities discussed), that what was transferred in the dutiable transactions in each case was the estate in fee simple which was held subject to the tenant’s leasehold interest.
In the Determinations, the Delegate said or did the following:
(a) Set out particulars of the Leases granted in respect of the Lands.[42]
[42]Determinations, [3], [5] and [7].
(b) Analysed certain terms of the Leases.[43]
[43]Determinations, [6]–[12].
(c) Recorded that the Call Options granted to the grantees by deed, options to acquire the fee simple interests in the Lands. The Delegate set out particulars of the options, recording that the property the subject of the options was ‘the fee simple interest in the land described in Annexure A [to the option deed] subject to the Lease’.[44]
[44]Determinations, [14]–[16].
(d) Recorded that by clause 11.1 of the Call Option the grantees ‘acknowledged that it would acquire the Property subject to the Lease.’ [45]
[45]Determinations, [19].
(e) Said that, ‘by instrument under s 45 of the TL Act,[46] signed by the transferor on 29 March 2018 the estate in fee simple in Lot 1 only of the Emporium Land was transferred from NBPL to Vicinity Funds RE Ltd and Reco Bourke Private Limited (the Emporium Transfer) as tenants in common for $1 (the Emporium Land Transfer)’.[47]
[46]i.e. the Transfer of Land Act 1958 (Vic).
[47]Determinations, [25]; [27] (the Myer Land Transfer).
(f) Said that after the grant of each Lease but before each Transfer, the Lessees made very substantial improvements to the Land.[48]
[48]Determinations, [28]
(g) Recorded the grounds of the objection. Those grounds did not include what are now Grounds 1.1 and 1.2 of the present appeal.
(h) Said that,
Chapter 2 of the Duties Act is headed, “Transactions concerning dutiable property”. Chapter 2 charges duty on “a transfer of dutiable property”: section 7(1)(a). “Dutiable property” includes an estate in fee simple: section 10(1)(a)(i). The Emporium Land Transfer was a transfer of the estate in fee simple of the Emporium Land and the Myer Land Transfer was a transfer of the estate in fee simple in the Myer Land.
A liability for duty under Chapter 2 arises when a dutiable transaction occurs: section 11(1). … Duty is charged on the dutiable value of the dutiable property at the relevant rate in Part 3: section 18. Here, each transfer was recorded in writing, duty is payable by the Transferees, and is charged on the dutiable value of the estate in fee simple transferred.
The dutiable value of the dutiable property that is the subject of the dutiable transaction is the greater of (a): the consideration for the dutiable transaction; and (b) the “unencumbered value” of the dutiable property: section 20(1).
Here, the dutiable property was the estate in fee simple in the land transferred in each case by written instrument signed 29 March 2018. The consideration paid for each transfer was $1.[49]
[49]Determinations, [46]–[49]. Emphasis added.
(i) Referring to s 22(1), said that,
The unencumbered value of the amount for which the Emporium Land and the Myer Land, respectively, might reasonably have been sold on the open market at the time the dutiable transaction occurred (in each case, the Transfer of 29 March 2018), free from any encumbrance to which the property was subject at the time. The Commissioner does not consider the leases to be an encumbrance for the purposes of s 22(1) (see Commissioner of State Revenue v Bradney Pty Ltd (1996) 34 ATR 233).[50]
[50]Determinations, [56].
(j) Referring to section 22(2), said that,
The Emporium Lease is an interest, agreement or arrangement (other than an encumbrance), granted or made in respect of the Emporium Land. At the time of the transfer on 29 March 2018 (and, if it matters, at all material times as from the date of entering the Emporium Lease until 29 March 2018), the Emporium Lease had the effect of reducing the value of the Emporium Land.[51]
[51]Determinations, [57]; [58] (Myer Lease).
The question that would expose error in the Determinations is whether in identifying the dutiable property (and then assessing it for duty) the Delegate failed to have regard to the fact that in each case the fee simple estate transferred to the Appellants was qualified by the Lease. The Appellants formulated the question, ‘did the dutiable property comprise only each respective reversionary interest in the properties …?’. The question tends to fix attention on labels, rather than on how the Delegate in fact identified that which was transferred in the dutiable transaction, as disclosed by the reasons for the Determinations as a whole.
By reference to the principles discussed earlier, the following conclusions may be drawn about the Delegate’s reasoning.
The statement set out at sub‑paragraph 42(e) above is a correct statement about the transfer to the Appellant, in the dutiable transaction.
The Delegate did not, however, go on to refer to the operation of s 42(2)(e) of the TLA or describe the dutiable property as, ‘an estate in fee simple qualified by the lease’. It is nevertheless plain from the statements set out in sub‑paragraphs 42(c) and (d) above, that the Delegate understood that the property acquired by the predecessors in title to the Appellants, was the fee simple estate in the land and that it was subject to the Lease. Further, it is plain from the statements set out in sub‑paragraphs 42(i) and (j) above, that the Delegate understood that the land was encumbered by the lease at the time of the transfer.
The Delegate did not engage with the language of qualified estates in fee simple or reversionary interests expectant. That the Delegate did not do so may be explained by the fact that the contention reflected in the Appellant’s ground 1.1 was not put before the Delegate in the notice of dispute, but added later by amendment in this appeal. Regardless, the exercise required the proper identification of dutiable property.
Accepting that the Delegate understood that the land was encumbered by the lease at the time of the transfer, I do not consider that the Delegate’s description of the dutiable property as, ‘the estate in fee simple in the land transferred in each case by written instrument signed 29 March 2018’ discloses error, without more.
On the Appellants’ case, the manner in which the Delegate applied s 22 might nevertheless disclose that the Delegate proceeded on the basis that the estates in fee simple were not subject to the leases in each case. The Appellants’ essential point is that had the Delegate understood that the Appellants took their interests subject to leases, the Delegate could not have concluded that the Lease reduced the value of the Land (for the purposes of s 22) because an interest granted in respect of the Land could not at the same time create the dutiable property and have the effect of reducing the dutiable property. The Appellants’ case on this ground rests both on the Delegate’s reference to the ‘estate in fee simple’ and on the necessary implication of the Delegate’s application of s 22.
For the reasons discussed below, I do not consider that the Delegate’s application of s 22 disclosed error and by implication, the application of s 22 does not reveal error in the identification of the dutiable property. It was stated in the Determination that the leases had the effect of reducing the dutiable value of the property. The reasoning in which the Delegate said that the Leases could be disregarded was scant, but it did not of necessity support the conclusion that the Delegate dealt with the dutiable property without regard to the Leases. The application of s 22 was in my view correct, on the assumption that the dutiable property was the estate in fee simple subject to the lease.
The Commissioner submitted in effect that the same result could be arrived at by a shorter path of reasoning. The Commissioner said that the Duties Act is focused on the subject matter of the dutiable transaction as described in the instrument of transfer, and as understood by s 45 of the TLA. This contention was linked to the Commissioner’s emphasis of the statutory choice in s 22, of the expression, ‘land or goods’ rather than ‘dutiable property’. The Commissioner’s submissions were in some respects, opaque. They are addressed further in the consideration of s 22(2).
Part B.2 Application of s 22(2)
Section 22(2) of the Duties Act provides,
In determining the amount for which land or goods might reasonably have been sold free from encumbrances, there must be disregarded subject to subsection (3), any interest, agreement or arrangement (other than an encumbrance) granted or made in respect of the land or goods, that has the effect of reducing the value of the land or goods.
Ground 1.5 reads as follows:
Additionally or in the alternative, for the purposes of s 22(2) of the Duties Act, the Ground Lease and the Call Option (or either individually) do not have the effect of reducing the value of the land, and accordingly cannot be disregarded by reason of the following:
(a)The Emporium Land was subject to the Ground Lease at the time the Transfer was executed and the only property transferred or able to be transferred at that time was the Reversionary Interest; and
(b)The Reversionary Interest had a value of $1, which was not reduced by either the Ground Lease or the Call Option (together or individually).
The Delegate’s reasoning is set out above. In respect of s 22(2) it was as follows:
The Emporium Lease is an interest, agreement or arrangement (other than an encumbrance) granted or made in respect of the Emporium Land. At the time of the transfer on 29 March 2018 (and if it matters, at all material times as from the date of entering in the Emporium Lease until 29 March 2018) the Emporium Lease had the effect of reducing the value of the Emporium Land.[52]
…
Subject to subjection 22(3), section 22(2) therefore requires that … the Emporium Lease is to be disregarded in determining the amount for which the Emporium Land might reasonably have been sold free from encumbrances.[53]
The Appellants’ case
[52]Determinations, [57]–[58] (the Myer Lease); [59]–[60] – Call Options for the Myer and Emporium Lands.
[53]Determinations, [61], which includes the same statements in respect of the Myer Lease and the Call Options.
The Appellants made the following submissions.
It follows from the natural and ordinary meaning of the word ‘reduce’, in s 22(2), that the Leases (and Call Options[54]) are not interests or arrangements to which s 22(2) applies, for these reasons:
[54]The same grounds and submissions were relied upon in respect of the Leases and Call Options without differentiating between them.
(a) Only if an arrangement has the effect of reducing the value of the ‘land or goods’ is it to be disregarded. It is not enough that the arrangement affects the dutiable property. Reducing is a comparative, not an absolute concept. Its ordinary meaning is to lower, diminish, lessen.[55] Only an arrangement that applies to existing property that lessens the value of that property can be said to ‘reduce’ the value of that property
[55]Oxford English Dictionary Online.
(b) Determining whether an arrangement ‘has the effect of reducing the value of the land’ under s 22 requires a comparison between the effects of the presence or absence of the claimed interest or arrangement on the dutiable property actually transferred. There must be an ‘alternative postulate’ by reference to which the value may be seen to have been reduced.[56] That alternative postulate (that there was or would have been a value from which the value of the land or dutiable property is ‘reduced’) must necessarily be founded on a dutiable transaction involving the same dutiable property. Thus, in s 22(2) the reference to ‘land’ must a reference to the same land that is the subject of the ‘dutiable property’ that is the subject of the transfer or dutiable transaction in s 22(1). The text of s 22(2) is unequivocal in stating that the relevant interest, arrangement or agreement ‘has the effect of reducing the value of the land or goods’, thereby aligning the identity of the property the subject of the dutiable transaction with the identity the subject of the reduction in value. That is consistent with the core structure of the Duties Act.
(c) In this case, the dutiable property (for s 22(1)) and the land (for s 22(2)) that was transferred to the Appellants (namely the reversionary estates expectant upon the leases granted to other parties) was identical before and after the dutiable transaction. The Appellants acquired only the reversion expectant upon those Leases, which, carrying no right to possession, had only a nominal value from the moment it was created. That value was not ‘reduced’, as it was the only value the reversionary estates ever had.
(d) As a basal proposition the Duties Act ought not seek to impose tax on a transaction that has not occurred. The Appellants never acquired or proposed to acquire any other interest or estate in the subject land than the worthless reversions which had no value that could be reduced. The Appellants did not acquire what before the ‘arrangement’ complained of by the Commissioner (the granting of the Leases and Call Options) had been owned by the then vendor. Were the legislation to impose duty on a transaction that has not occurred it would need to be unequivocally clear. To the contrary, s 22(2) is unequivocally clear in aligning the identity of the property the subject of the dutiable transaction with the identity of the property the subject of the reduction in value.
[56]The Appellants cited Commission of Taxation v Hart (2004) 217 CLR 216, 243 [66] in relation the ‘tax benefit’ defined in s 177 of the Income Tax Assessment Act 1936 (Cth).
The outcome of this reasoning may be as Sackville AJA postulated in Centro in respect of s 24 of the NSW Duties Act (as to which, see below),[57] with s 22(2) having no application in this case. But as the High Court has repeatedly said, the perceived intention of parliament must not be substituted for the text of the law; the words of the statute, not non‑statutory words seeking to explain them, have paramount significance. Purposive construction does not extend to expanding the scope of a provision beyond its textual limits.[58] The language which has been employed in the text of the legislation is the surest guide to legislative intention.[59] There is in any case, nothing in the statutory context or extrinsic materials that dictates any construction of the provisions that do not reflect the statutory text, even if the text is imputed with an anti‑avoidance purpose as the Commissioner submits.
[57]Centro, 485–6 [131].
[58]Re Bolton; Ex parte Beane (1987) CLR 514, 518; Nominal Defendant v GLG Australia Pty Ltd (2006) 228 CLR 529, 528, [22].
[59]Alcan (NT) Alumina Pty Ltd v Commissioner of Territory Revenue (2009) 239 CLR 27, 46–47 [47].
In Centro, an argument to the same effect was rejected by the New South Wales Court of Appeal. The Appellants said that the outcome in Centro on this point was distinguishable because of a material difference in the text of the relevant provisions. Subsections 24(1) and (2) of the NSW Duties Act, with which the decision in Centro was concerned, provided as follows:
(1)In determining the dutiable value of the dutiable property under this Part, any interest, agreement or arrangement (other than an encumbrance) granted or made in respect of the dutiable property that has the effect of reducing the dutiable value is to be disregarded, subject to subsection (2);
(2)An interest, agreement or arrangement is not to be disregarded if the Chief Commissioner is satisfied that it was not granted or made as part of an arrangement or scheme with a collateral purpose of reducing the duty otherwise payable on the dutiable transaction.[60]
[60]Subsection 24(3) is in the same terms as s 22(4) of the Duties Act.
Subsection 24(1) differs from s 22(2) of the Duties Act by reason of the omission of the words, “of the land or goods” (or equivalent words) after the words, ‘reducing dutiable value. The differences, in mark up, are these:
(x)In determining the
dutiable value of dutiable property under this Partamount for which land or goods might reasonably have been sold free from encumbrances, there must be disregarded subject to subsection (3), any interest, agreement or arrangement (other than an encumbrance) granted or made in respect of thedutiable propertyland or goods that has the effect of reducing thedutiablevalue of the land or goodsis to be disregarded, subject to subjection (y).(y)An interest, agreement or arrangement referred to in subjection (x) is not to be disregarded if the Chief Commissioner is satisfied that it was not granted or made as part of an arrangement of scheme with a collateral purpose of reducing the duty otherwise payable on the
dutiable transactionstransfer of the land or goods.
The issue in Centro concerned the dutiable value of a reversion expectant upon a 300 year lease. There was no dispute about the proper identification of the dutiable property. The court at first instance had found that the dutiable property acquired by the taxpayers was not subject to any interest, agreement or arrangement that had the effect of reducing its dutiable value. The New South Wales Court of Appeal (Sackville AJA with whom Giles and Macfarlan JJA agreed) disagreed. The Court said in substance that the comparison envisaged by s 24(1) is between the dutiable value of the dutiable property (the reversion expectant on the 300 year lease) and its dutiable value on the assumption that the lease had had never been granted. There is no difficulty, where the dutiable transaction is the sale of a freehold estate subject to a lease, in determining the value of the freehold on the assumption that the lease was never granted. The common element in each dutiable transaction — on actual and the other hypothetical or counterfactual — is the fee simple estate. Relevantly, Sackville AJA said, of this reasoning,[61]
I accept that, for the reasons I have given, this comparison introduces a hypothetical or counter‑factual estate of interest that is different in certain respects from the estate of interest constituting the dutiable property. Clearly enough, a reversionary freehold estate expectant upon a 300 year concurrent lease at a nominal rental is not identical to a reversionary freehold estate subject to short term commercial leases. But if an interest to which the dutiable property is subject at the time of the dutiable transaction can never have the effect of reducing the dutiable value of the dutiable property, it is difficult to see how s 24(1) could have any impact on the use of long leases (or other mechanisms) to avoid duty. Perhaps it is for this reason that s 24(1) uses the expression, ‘has the effect of reducing dutiable value’ rather than ‘has the effect of reducing the dutiable value of the dutiable property. [emphasis added]
[61]Centro, 485–6 [131].
As the Appellants put it, the Court reasoned that the fact that the words, ‘of the dutiable property’ were not included in s 24(1) meant that there need not be identity between the dutiable property in fact transferred, and a hypothetical interest that was relied upon to conclude that there was a reduction in dutiable value. In this respect (as the Appellants put it) Sackville AJA founded his analysis in the statutory text in a manner that quite precisely distinguishes that text from the Duties Act. It was submitted that the outcome would be different in this case because the analysis in Centro was predicated on the omitted words, which allowed non‑identity of actual dutiable property and its hypothetical counterpart. In Victoria, the reasoning in Centro cannot be applied. Section 22(2) of the Duties Act does not permit of an alternative postulate other than the value of the same ‘land or goods’ by reference to which the dutiable value may be seen to have been ‘reduced’. It requires a direct comparison between ‘the amount for which [land or goods] might reasonably have been sold’ in s 20, and a potential reduction in ‘the value of the land or goods’, being the same land or goods that constitute the dutiable property in respect of which duty is levied.
Commissioner’s submissions
The Commissioner submitted that the Delegate correctly applied s 22(2), and made the following submissions.
The Appellants’ case concentrated upon the qualified nature of their interests, which may be described as reversionary interests because they hold the estates in fee simple subject to the Leases. That they held the estates in fee simple subject to the Leases must be accepted. However, that does not affect the proper approach to the valuation of the dutiable property as determined by application of s 22. If the Duties Act provided for the valuation of dutiable property only under s 22(1) and did not also include s 22(2), the outcome would be as the Appellants contend: the value of the estates in fee simple subject to the Leases would be $1. But subsections 22(2)‑(4) provide a special regime for valuing the dutiable property the subject of transactions involving land or goods. Section 5 (marketable securities) has the same structure, same operation and effect as subsection (2) but in a different category of subject matter of dutiable property. Section s 22(2) it is concerned with the subject matter of the transaction, not the legal consequences of the transfer. The text of s 22(2) requires identification of ‘land’ the subject of the dutiable transaction and requires the comparison of the value of ‘the land’ subject to the identified interest, agreements or arrangements and the value of the land not subject to those interests, agreements or arrangements in order to determine whether the relevant effect is a reduction of that value.’ The process of valuation required by the section is to identify the ‘land’ that has been transferred, what are the interests affecting it, and (subject to subsection (3)) subtract from it or ‘disregard’ only the items that the statute instructs, namely any interest, agreement or arrangement of the kind described, and nothing else. That exercise does not require a counterfactual analysis by reference to a different transaction.
Where, as in this case, the category of dutiable property is ‘land’, the section concentrates on the transfer of the land by the registered proprietor in accordance with the TLA. Section 22(2) directs that (subject to subsection (3)) there must be disregarded any interest, agreement or arrangement (other than an encumbrance) ‘granted or made in respect of the land’. “In respect of” covers a wide range of connections. It is the broadest phrase used to capture a connection.[62] The leases and options were granted or made ‘in respect of’ the land that was the subject matter of the dutiable transaction. The expression, ‘that has the effect of reducing the value of the land or goods’ connotes reducing value in a practical sense. In this case, the value of the Land was reduced from half a billion dollars to one dollar by reason of the Lease.
[62]Centro, 484 [121].
The Commissioner went on to emphasise the implications of the use of the word ‘land’ in the relevant parts of the Duties Act which, not being defined in the Act, was defined as provided by s 38 of the Interpretation of Legislation Act 1984 (Vic) (ILA), which definition includes physical land and estates and interests in land. It was said that the word ‘land’ does not itself refer to the dutiable transaction but to the subject matter of the dutiable transaction.
In Pioneer Concrete, Gleeson CJ, Gummow, Kirby and Hayne JJ considered an argument based on the 1997 amendments to the Stamps Act by which s 63(3A), (3B) and (3C) were inserted into that Act. Those provisions did not apply to the case before the High Court. But in considering those provisions the Honours observed that the 1997 amendments only touched interests, agreements or arrangements that reduced the value of the subject property, and that ‘the pre‑existing lease in Bradney was such an interest.’[63] The lease in Bradney was for a 50 year term, for which rent was payable. Those observations , relating as they do to the predecessor provisions to s 22(2) of the Duties Act, support the construction and application of that provision for which the Commissioner contends.
[63]Pioneer Concrete, 669 [52].
The Commissioner said three things about the decision in Centro. First, it is not open to interpret s 22(2) by applying the reasoning of the New South Wales Court of Appeal on the NSW Duties Act, in the way that the Appellants do. It is erroneous as an approach to statutory construction to reason backwards from a decision of that court in respect of a differently worded Act by pointing to differences between that Act and the Duties Act, seeking to import a particular meaning so s 22(2) of the Victorian Act. Second, the general proposition notwithstanding, the essential reasoning in Centro does not in fact support the Appellants’ case. The Court rejected the argument that the Appellants have mirrored in this case. It did so including on the basis that construing the legislation so that an interest to which the dutiable property is subject at the time of the dutiable property could never have the effect of reducing the dutiable value of the dutiable property, would not be a purposive construction. The NSW Duties Act has a similar background and purpose to the Victorian Act.[64] The Court held that the comparison envisaged by s 24(1) in the case of dutiable property consisting of the freehold estate expectant on a concurrent long lease, was between ‘the value of the freehold reversionary estate (that is, the estate subject to the lease) and the freehold estate on the assumption that the concurrent long lease had never been granted’.[65] Whilst the New South Wales authorities cannot determine the proper approach to the question in this case, the very same logic and analysis can be applied to the Victorian Duties Act.
[64]Centro, 485–6 [131].
[65]Centro, 485 [127].
Third, the emphasis given to the reversionary estate expectant on the leases in the reasoning in the Centro was unnecessary in the context of the Victorian Duties Act because, as the Commissioner put it, the Duties Act ‘has a very different focus when it comes to the land a subject matter of the transaction rather than the reversionary estate as defining the transaction. … we look at what the amount for which land or goods might be sold and land is the physical product of the land, the realty and what’s constructed on it being the improvements.’
The Commissioner emphasised that subsections 22(2), (3) and (4), which are in broadly similar terms to ss 63(3A), (3B) and (3C) of the Stamps Act, have an anti‑avoidance purpose. The mischief to which the insertion of the Stamps Act provisions was directed was explained in the second reading speech, namely ‘to prevent the use of various schemes to avoid stamp duty’, including by dealing with ‘arrangements designed to reduce artificially the dutiable value of interests of land upon transfer’.[66] To construe s 22(2) such that it cannot take effect in relation to the transfer of an estate in fee simple subject to a 299 year lease because the value of the reversionary interest created by the lease is ‘already reduced’ by its creation, would be to undermine rather than to give effect that statutory purpose. The mischief to which the provisions are addressed is important in construing textual ambiguities.
[66]Victoria, Parliamentary Debates, Legislative Assembly, 9 October 1997, 448.
Returning to the Appellants’ case, in response to the Commissioner’s arguments addressed to the word ‘land’ as it appears in s 22, the Appellants submitted that:
(a) The Commissioner analyses s 22(2) and the identification of ‘land’ in that provision as if it operated independently of, and not ancillary to, s 20. But s 22(2) is only concerned with land insofar as it is dutiable property the subject of a dutiable transaction. The Commissioner’s argument does not start with the identification of dutiable property the subject of a dutiable transaction (the orthodox application of the Act) but in the middle, as it were, with a reference to ‘land’ in s 22(2) which is concerned with the valuation of dutiable property. No rationale supports that approach and none was given.
[452]Spyer v Phillipson [1931] 2 Ch 183, 209. Muir J also cited the judgment of Starke J in Geita Sebea; Denning LJ in New Zealand Government Corporation and Holland v Hodgson, discussed below.
[453]Hellawell v Eastwood (1851) 6 Ex 295, 312.
Muir J went on to say that quite substantial items have been held to be tenant’s fixtures, notwithstanding a high degree of annexation to the demised premises.[454] On the balconies in issue, his Honour held that they have one of the basic characteristic of a tenant’s fixture in that they were fixed to or placed upon the demised premises at the cost of the tenant and for the purposes of the conduct of the tenant’s business[455] and that they were not, and are not intended to be, permanent additions to the structure of the demised premises.[456]
[454]Vesco Nominees, [24].
[455]Vesco Nominees, [25].
[456]Vesco Nominees, [27].
In Re Cancer Care Institute of Australia,[457] Black J addressed an argument concerning tenant’s fixtures (although not needing to decide it). His Honour cited Land Law, 6th ed, 2010,[458] saying that the author ‘refers to the approach adopted by the common law’ in permitting tenants to remove fixtures they had brought onto the land, provided that the fixtures are installed for trade, domestic or ornamental purposes, and ‘also points to the qualification that a tenant cannot remove items that are so firmly fixed that removal would destroy their essential character or value or would substantially damage the reality [sic]…’[459] The (later) seventh edition of the text cited in Re Cancer Institute,[460] states the proposition that a tenant cannot remove items that are so firmly affixed that removal would destroy their essential character or value, or would substantially damage the realty and that these fixture are called landlord’s fixtures, to distinguish them from (severable) tenant’s fixtures. Three authorities are cited for that proposition: Elliott v Bishop (1854) 10 Ex 496; Boswell v Crucible Steel Co [1925] 1 KB 119 and New Zealand Government Property Corporation v HM & S [1982] QB 1145. Only New Zealand Government Property Corporation stands for the stated proposition.[461] The text goes on to state that in determining whether an item is a tenant’s fixture two questions are involved, the first whether the item is a fixture and the second whether the fixture ‘is for trade, domestic or ornamental purposes’.
[457]Re Cancer Care Institute of Australia Pty Ltd (admin apptd) (2013) 16 BPR 31,529.
[458]Land Law (6th ed, 2010), [15 248].
[459]Re Cancer Care Institute, 31538–9 [36].
[460]Butt on Land Law (7th ed, 2017), [7.2180].
[461] Elliot v Bishop (1854) 156 E.R. 534 does not establish the proposition. The case turned on the construction of a lease. There was no dispute about whether the fixtures in question were tenant’s fixtures. Boswell v Crucible Steel Co [1925] 1 KB 119 does not establish the proposition. In Boswell, a tenant leased premises for use as a warehouse and offices. The whole of certain walls of the building consisted of plate glass windows. The tenant covenanted to keep the landlord’s fixtures in good repair. The Court of Appeal held that in the lease of a house, the term ‘fixture’ means something affixed to the premises after the structure of the house is completed, and not something that forms part of the original structure itself. The windows were part of the original structure and not fixtures at all.
It may be seen that in this context the authorities tend to indicate that, among other considerations, the more likely the removal of a chattel would destroy the attached the property and damage the land, the more suggestive that the purpose of annexation is permanent rather than temporary, indicating that it has become a fixture. On the other hand, those same factors are also relevant for determining whether a fixture (having already passed the degree and object annexation test for fixture) is a tenant’s fixture (which attaches a right of removal) or remains a landlord’s fixture. In this context, those factors apply ‘in reverse’ as it were. If one were to concentrate only on this issue, it might be said that a chattel must have a sufficient degree of annexation to disclose an intention that it becomes part of the land (intention being objectively determined) but, if it is to remain a tenant’s fixture, not so much as to render it a landlord’s fixture.
In Commissioner of State Revenue (WA) v TEC Desert Pty Ltd (2009) 40 WAR 344, Wheeler JA made the following observations,[462]
There is no clear principle running through the law concerning tenant’s fixtures. The principal difficulties relevant to the present case are these. First, in many reported cases it is not clear whether a tenant’s right to remove or mortgage certain large items attached to the land derived from the classification of those items as chattels, or derived from the nature of the tenant’s right in in relation to trade, ornamental or domestic fixtures. A number of authorities, particularly in the late 1800s and early 1900s, may be read as expressing a view that tenant’s fixtures are to be viewed as chattels owned by the tenant until, on termination of the lease, if the tenant had failed to exercise the right to remove those chattels, they would be treated as part of the realty: see Vopak (at [24]‑[29) per Ormiston JA.
A related difficulty is that it is difficult to distinguish between those tests which assist in ascertaining whether an item is a fixture, and those which assist in ascertaining whether an item understood to be a fixture is either a tenant’s fixture (which may be removed), or landlord’s fixture (which may not). The degree and object of annexation are the two issues to be considered in determining whether an item is a fixture. In order to determine the object of annexation, the court will have regard to a number of factors: see MetalManufacturers Ltd v Federal Commissioner of Taxation (1999) 43 ATR 375 at [165] (and Federal Commissioner of Taxation v Metal Manufactures Ltd). However, the degree of annexation (at least to the extent of considering whether an item can be severed without causing undue damage) and the object of annexation are also factors which determine whether particular fixtures are tenant’s fixtures or landlord’s fixtures (Vesco Nominees Pty Ltd v Stefan Hair Fashions Pty Ltd [2001] Q ConvR 54‑555 at [25] ff). These overlapping concepts make it difficult to ascertain, when reading many of the authorities, whether the conclusions expressed about a tenant’s right to a particular item have been arrived at because it is considered as a chattel or as a fixture and, if it is a fixture, whether it is considered as a tenant’s fixture or a landlord’s fixture.
[462]Commissioner of State Revenue (WA) v TEC Desert Pty Ltd (2009) 40 WAR 344, 374 [115]. The Western Australian Court of Appeal was overturned by the High Court, but not on a basis that would render this reasoning incorrect.
The foregoing discussion is a brief survey, not a comprehensive statement of the law. However, from that survey the following conclusions may be drawn:
(a) Prima facie, whatever is fixed to the land becomes part of the land and thus becomes the property of the landowner.
(b) A long‑standing and important exception to that general rule, ameliorating its harshness, is that a tenant will have the right to remove those fixtures regarded as ‘tenant’s fixtures’. Legal title to fixtures is in the landlord unless and until the tenant chooses to exercise his power and sever the tenant’s fixtures during the tenancy or within a reasonable time thereafter. As JA put it recently in Shell Energy, ownership of a thing affixed to land may thus move from the tenant to the landlord and back to the tenant, if and when the right to remove is exercised.
(c) ‘Tenant’s fixtures’ are those things affixed to the land by the tenant in respect of which the tenant has those rights, and are defined as to distinguish them from fixtures whose ownership remains with the landlord once they are annexed to the land (‘landlord’s fixtures’). Whether or not a fixture is a tenant’s fixture is a question of fact. The considerations that inform that question of fact may be numerous. It is not hard to identify those that have been accepted in the authorities, but they are not readily reducible to a clear statement of principle. The considerations include the purpose for which the tenant brought the fixtures onto the land (traditionally, ‘for the purpose of trade’, later extending to domestic or ornamental purposes), the ‘general character and object’ of the structures placed on the land, the mode and extent of annexation. The latter consideration might be seen as a search for intention (determined objectively), meaning an indication of whether the fixture was intended to benefit the freehold by becoming permanently part of the premises, or was for the tenant’s purposes and benefit. Fixtures of varying degrees of annexation (even those with a ‘high degree’ of annexation) have been held to tenant’s fixtures. The proposition that a tenant cannot remove items where removal would substantially damage the realty or destroy their essential character, is adopted in a number of cases. Its most prominent source is the judgment of Lord Denning in New Zealand Government Corporation. It does not appear as a criterion for finding fixtures to be tenant’s fixtures, universally. It would not be correct to describe it as a stand‑alone test, or a factor that can be considered in isolation. It is probably correct to say that it, too, is concerned fundamentally with whether the fixture is intended to benefit the freehold by becoming permanently part of the premises, or was for the tenant’s purposes and benefit. The answer to that question will be informed at least by the purpose and nature of the demise of the premise to the tenant.
(d) The Victorian, New South Wales and Western Australian Courts of Appeal have recognised that there is complexity and uncertainty in relation to the precise nature of, and conceptual basis for a tenant’s right to reclaim fixtures. In Vopak, that uncertainty was recognised as at the point of enactment of the predecessor to s 154A (s 28(2) of the LTA).
I return now to the legality principle, leaving to one side for the sake of analysis, the effect of the codification of the law by s 28(2) of the LTA.
At common law a landlord’s property in tenant’s fixtures is subject to the rights afforded to the tenant in respect of those fixtures. Those rights are significant because if they are exercised and the fixtures removed, the landlord loses property in the fixtures. The rights of landlord and tenant are correlative in that sense. The common law determined the metes and bounds of those respective sets of rights, and was attended by some uncertainty.
Whatever the extent of those rights, in my view, for the reasons already given, the legislature evinced a clear intention to displace the existing law in respect of the ownership of tenant’s fixtures and the criterion for the exercise of the tenant’s rights in relation to those fixtures, in enacting s 154A of the PLA. Section 154A of the PLA replaced s 28(2) of the LTA, which had displaced the common law. Section 154A declares that a tenant owns such fixtures (and alterations, additions and renovations) that the tenant attaches or creates at its own cost and expense. Those fixtures may be removed by the tenant during the period stated. That provision could not sensibly live side by side with the common law position that ownership of the fixtures resides with the landlord during the currency of the lease. The category of objects to which s 154A applies, and to which the rights of the tenant (ownership and removal) attach, is that described in the provision. The criteria for the exercise and ownership of those rights are as stated explicitly in the statute, for the reasons discussed earlier. Those criteria cannot be read as intending to operate in conjunction with unexpressed criteria and residual rights in respect of fixtures brought onto the land by tenants, whether those rights are vested in tenants or landlords.
Furthermore, there are several difficulties with attempting to read the statute narrowly so as to minimise the encroachment upon landlord’s rights, even assuming that the principle of legality operates in that way. One difficulty is the inter‑relationship between tenant’s and landlord’s rights in respect of fixtures, and the manner in which the common law approaches the basis for tenant’s rights. The Commissioner’s submission concerned at its core, the class of fixtures to which tenant’s rights attach under s 154A. By the test (or caveat or criterion) that the Commissioner articulated, it was sought to limit the application of s 154A to those things that can be removed without substantially damaging the land and the fixture itself. It cannot be said definitively that at common law a landlord had property in any fixtures annexed to the land by a tenant, subject to the rights of the tenant to remove such fixtures during the lease, but in every case, only where those fixtures could be removed by the tenant without substantial damage to the land and the fixture. The nature of the landlord’s ‘property right in tenant’s fixtures’, affected as it is by the tenant’s rights, is an uncertain foundation on which to discern a legislative intention to encroach minimally on that right. Even if that conclusion was not correct, more fundamentally, as Edelman, Steward and Gleeson JJ said in Hurt v R, the principle of legality is ultimately one of interpretation, concerned with the intention Parliament is taken to have had. In this case, for the reasons discussed, I consider that the intention of Parliament in enacting s 154A was clear. It was relevantly to replace the existing codification of s 28(2) of the LTA with a modern re‑statement that, like its predecessor, definitely stated the criteria for the ownership by a tenant of fixtures brought onto the land by the tenant, and for the existence and exercise of the rights and obligations of a tenant therein. It follows that I reject the Commissioner’s contention that s 154A must be read down by application of the principle of legality.
It remains necessary to mention the Commissioner’s reference to the ‘three categories’ of objects annexed to land. The Commissioner referred to the decision in Vopak Terminal Dawrin[463] in which Lindgren J said that, based on English and New Zealand authority, that a chattel which is brought onto land may remain a chattel, become a fixture, or in a third category become ‘part and parcel of the land itself’.[464] His Honour gave the example of bitumen, line paint and other material that may be brought onto land and used in the construction of a road of car park, and similarly observed that it would be odd to classify a house that can be removed only by being destroyed, as a chattel affixed to land. Lindgren J acknowledged that the third category had not been ‘authoritatively recognised’ in Australia, and did not need to further consider the issue. In Elitestone v Morris[465] the issue was whether a bungalow on the land was a chattel or had become part of the land. Lord Lloyd of Berwick said that in framing the issue he had avoided the word ‘fixture’, including because the term does not always bear the same meaning in law as it does in everyday life. One would not ordinarily think of a building itself as a fixture. Further, the category of tenant’s fixtures was apt to be confused with chattels that had never become fixtures at all. His Lordship preferred the three‑fold classification for objects brought onto land, to which Lindgren J referred in Vopak Terminal Dawrin.[466] Lord Clyde agreed that use of the word ‘fixture’ gave rise to ambiguity and said that the question was whether the bungalow was ‘a chattel or realty’, to be answered by a consideration of all of the facts and circumstances.[467] The reasoning in Elitestone was applied in Wessex Reserve Forces and Cadets Association v White.[468] There, the test for whether an object had become ‘part of the land’ was explained in similar terms to the test for whether an object has become a fixture in Australian law, although it appeared to incorporate the notion of categories of property which are prima facie considered real property.[469] The tripartite classification in Elitestone was adopted by the New Zealand Court of Appeal in Auckland City Council v Ports of Auckland.[470] It was not submitted that in this case the tripartite classification should be adopted. There is occasional support for the view that some things brought onto land become part and parcel of the land.[471]
[463]Vopak Terminal Darwin v Natural Fuels Darwin (2009) 259 ALR 89.
[464]Vopak Terminal Darwin, 99 [51], citing Elitestone Ltd v Morris [1997] 1 WLR 687, 690–1 (Elitestone); Wessex Reserve Forces and Cadets Association v White [2005] EWHC 983 (QB) and Auckland City Council v Ports of Auckland Ltd [2000] 3 NZLR 614, 632 [74]–[75].
[465]Elitestone v Morris [1997] 1 WLR 687.
[466]Elitestone, 691.
[467]Elitestone, 696.
[468]Wessex Reserve Forces and Cadets Association v White [2005] 3 EGLR 127 (QB) (Wessex Reserve Forces).
[469]Wessex Reserve Forces, [21]–[24], [45].
[470]Auckland City Council v Ports of Auckland [2000] 3 NZLR 614, 632 [73]–[76].
[471]See for example, Starke J in Geita Sebea v The Territory of Papua (1941) 67 CLR 544, 553–4, to the effect that improvements in the form of runways, drainage and parking areas ‘were inherent in the land itself and did not depend upon annexation or affixation’. In Chief Commissioner of State Revenue v Shell Energy Kirk JA said that some parts of the reasoning of members of the High Court in North Shore Gas Co Ltd v Commissioner of Stamp duties (NSW) (1940) 63 CLR 52 lent support to an argument that things can have a legal character somewhere between being an ordinary fixture and a chattel, but that that reasoning was overtaken in Main Roads v North Shore Gas Co Ltd (1967) 120 CLR 118 (Shell Energy at [105]–[111]).
Ultimately the point went nowhere. Section 154A is concerned with fixtures. Authorities concerned with a nomenclature that avoids that expression and instead directly considers whether a thing remains a chattel or had become part of the realty, are of doubtful assistance. In any case, the Commissioner did not submit that the Improvements on the land (or parts of the Improvements) should not be considered fixtures. The Commissioner conceded that the Improvements were fixtures. In fact, the Commissioner’s case rested on the conclusion that the Improvements were fixtures at common law. For that purpose the Commissioner considered the Improvements, on which duty was levied, in globo. The ‘three categories’ point might have been made as indirect support for the contention that certain parts of the Improvements could not be considered ‘tenant’s fixtures’. But having accepted that the Improvements in whole were fixtures, the argument had to traverse the construction of s 154A, about which no more need be said.
Conclusion – Fixtures Grounds
Returning to the factual question, as noted earlier, the parties approached this ground of appeal on the basis that no factual findings would be required if the Appellants’ construction of s 22A was correct, and the Commissioner was wrong on his construction of s 154A. That approach was consistent with the parties’ construction arguments and the Commissioner’s accepting that the Improvements were fixtures on the land. The arguments did not leave open a general factual inquiry about the nature of the Improvements, unless I accepted the Commissioner’s construction of s 154A.
It follows that the Commissioner’s alternative ground fails.
It is unnecessary to consider the Appellants’ alternative grounds.
The Appellants’ primary fixtures ground was said to involve a legal error in the construction of ss 22A and 22(2) and, in the Commissioner’s failure to consider whether the fixtures were sold or transferred to the taxpayer, an error of the Avon Downs kind. It was not disputed that the Commissioner’s Delegate did not make a determination for the purposes of s 22A(2), because the Delegate considered that s 22A was subject to s 22(2). It follows from the reasoning above that I accept the Appellants’ submission that, having proceeded on the wrong assumption that s 22A was not engaged (legal error in the construction of ss 22(2) and 22A), the Delegate erred in failing to consider whether to be satisfied for the purposes of s 22A(2) of the Duties Act. I uphold the Appellants’ primary fixtures ground.
The parties requested the opportunity to consider these Reasons and make submissions if necessary, upon the appropriate disposition of these Appeals. I will allow that opportunity. That said, subject to any submissions the parties might make, It ought follow that the appropriate disposition of this ground is an order setting aside the Determinations and remitting them to the Commissioner for determination in accordance with law.
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Vicinity Funds Re Ltd v Commissioner of State Revenue (No 4) [2024] VSC 658
Vicinity Funds RE Ltd v Commissioner of State Revenue (No 5) [2025] VSC 132
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