| JURISDICTION : STATE ADMINISTRATIVE TRIBUNAL STREAM : COMMERCIAL & CIVIL ACT : TAXATION ADMINISTRATION ACT 2003 (WA) CITATION : ZODIAC RESOURCES PTY LTD and COMMISSIONER OF STATE REVENUE [2013] WASAT 96 MEMBER : JUDGE T SHARP (DEPUTY PRESIDENT) HEARD : DETERMINED ON THE DOCUMENTS DELIVERED : 25 JUNE 2013 FILE NO/S : CC 155 of 2013 BETWEEN : ZODIAC RESOURCES PTY LTD Applicant
AND
COMMISSIONER OF STATE REVENUE
Respondent
Catchwords: Duty - Agreement for transfer of mining tenement - Consideration - Royalty payment as part of the consideration - Royalty payment contingent - Farmin agreement - Distinction between a farmin agreement and an agreement for the transfer of dutiable property Legislation: Duties Act 2008 (WA), s 3, s 9, s 10, s 11, s 13, s 13(1), s 15, s 16, s 19(1)(a), s 27, s 30, s 32(1), s 41, s 135
Duties Legislation Amendment Bill 2007 (WA)
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State Administrative Tribunal Act 2004 (WA), s 60(2)
Taxation Administration Act 2003 (WA), s 40(1) Result: Application dismissed
Summary of Tribunal's decision: In two separate transactions, the applicant acquired interests in certain mining tenements, one through what the applicant considered to be a farmin agreement, the other through a sale and purchase agreement. The respondent assessed the 'farmin agreement' on the basis that it was in fact a sale and purchase agreement. The respondent assessed the sale and purchase agreement itself on the basis that the consideration was a cash payment on settlement, plus future payments of up to in total $2 million in royalties.
The applicant argued that the 'farmin agreement' should attract nominal duty only. The applicant also argued that the consideration in the sale and purchase agreement should not include the royalty, but should be limited to the cash payable on settlement. Accordingly, the applicant objected to both assessments.
The respondent rejected the applicant's objections and the applicant applied to the Tribunal for a review of that decision.
The Tribunal agreed with the respondent that the 'farmin agreement' was not a farmin agreement within the meaning of the Duties Act 2008 (WA) and should be assessed as an agreement for the transfer of dutiable property. The Tribunal also considered the terms and conditions of the sale and purchase agreement and concluded that the respondent was correct in its conclusion that the royalty payments were part of the consideration and that the document should be assessed accordingly.
Category: B
Representation: Counsel:
Applicant : Self represented
Respondent : Ms R Panetta
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Solicitors:
Applicant : N/A
Respondent : State Solicitor's Office
Case(s) referred to in decision(s):
Archibald Howie Pty Ltd v Commissioner of Stamp Duties (NSW) (1948) 77 CLR 143
Charles Lloyd Property Group Pty Ltd v Commissioner of State Revenue [2011] VCAT 1461
Commissioner of State Revenue v Landrow Properties Pty Ltd and Another (2010) 79 ATR 800
Commissioner of State Revenue v Viewbank Properties Pty Ltd (2004) 55 ATR 501
Comptroller of Stamps v Buckland [1959] VR 517
Hill 50 Gold Mine No Liability v Commission of State Taxation (WA) (1993) 93 ATC 4880
Hill v Terry [1993] 2 Qd R 640
Laybutt v Amoco Australia Pty Limited (1974) 132 CLR 57
London & South Western Railway Co. v Gomm (1882) 20 Ch D 562
Wild Acre Metals Limited and Commissioner of State Revenue [2011] WASAT 173
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REASONS FOR DECISION OF THE TRIBUNAL:
Introduction 1 The applicant, Zodiac Resources Pty Ltd, (Zodiac) applied to the Tribunal under s 40(1) of the Taxation Administration Act 2003 (WA) for review of two decisions of the respondent (Commissioner). 2 The first of the Commissioner's decisions, dated 20 December 2012, was to disallow an objection made by Zodiac to the Commissioner's assessment of the duty payable on an agreement entered into by Zodiac on 1 March 2011 with Empire Resources Limited and Adrian Martin Lambert Jessup (Troy Creek Project). The issue was whether this agreement comprised a 'farmin agreement' as defined by s 13(1) of the Duties Act 2008 (WA) (Duties Act) or an agreement for the transfer of dutiable property under s 11(1)(b) of the Duties Act. 3 The second decision, also dated 20 December 2012, was to disallow an objection made by Zodiac to the Commissioner's assessment of the duty payable on an agreement entered into by Zodiac on 17 February 2011 with Yilgarn Mining (WA) Pty Ltd (Deep Well Project). This agreement relates to the purchase by Zodiac of Mining Lease M39/129. The issue in this case was whether or not money payable by the applicant under a royalty agreement constitutes part of the consideration for the transfer of Mining Lease M39/129. 4 The Commissioner's decision in respect of the Deep Well Project also included a decision to dismiss an application for reassessment. However, that part of the second decision is not the subject of this application. 5 On 30 April 2013, the Tribunal ordered that this matter be determined entirely on the documents pursuant to s 60(2) of the State Administrative Tribunal Act 2004 (WA) (SAT Act).
The material before the Tribunal 6 In addition to its application, filed with the Tribunal on 7 February 2013, Zodiac filed its statement of issues, facts and contentions dated 4 April 2013 (Zodiac's Statement). 7 The Commissioner filed its statement of facts, issues and contentions on 19 March 2013,and its reply on 26 April 2013. (Page 5)
8 On 14 May 2013, the Zodiac filed responsive submissions in respect of the Commissioner's reply and, in addition, the parties also filed two agreed documents to assist the Tribunal with its deliberations, being a statement of agreed facts (Agreed Statement) and an agreed bundle of documents. Thesewere both filed on 9 April 2013. The agreed bundle of documents is in two volumes. The first relates to the Troy Creek Project and I refer to it in these reasons as the Agreed Bundle. The second relates to the Deep Well Project and I refer to it in these reasons as the Agreed Bundle 2.
The Duties Act 9 Section 10 of the Duties Act provides that duty is imposed on dutiable transactions. 10 Dutiable transactions are set out in s 11(1) of the Duties Act and relevantly include: … (a) a transfer of dutiable property; (b) an agreement for the transfer of dutiable property, whether conditional or not; (c) a declaration of trust over dutiable property; … (f) an acquisition of new dutiable property, on its creation, grant or issue; … (j) a farmin agreement. 11 Dutiable property is relevantly defined in s 15 of the Duties Act to include land in Western Australia (which is defined in s 3 to include a mining tenement). 12 Section 15 of the Duties Act also defines dutiable property to include a right. A right is defined in s 16 of the Duties Act to include an option to acquire dutiable property and a right to acquire dutiable property. 13 A farmin agreement is defined in s 13 of the Duties Act as follows: 13. The term 'farmin agreement' - section 11(1)(j)
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(1) A reference to a farm-in agreement is to an agreement between (a) an owner of a mining tenement, or a person who holds a right to exploit a mining tenement; and (b) another person, to the effect that, after the other person expends the exploration amount specified in the agreement (c) that other person will have (d) the mining tenement, or the right to exploit the mining tenement, will be held with the person referred to in paragraph (a). (2) A reference to an exploration amount in relation to a farm-in agreement means an amount to be expended, after the agreement is made, on exploration or development of the mining tenement carried out after the agreement is made. 14 Section 27 of the Duties Act states that, unless otherwise provided for, the dutiable value of a dutiable transaction is the greater of: 15 Section 9 of the Duties Act provides that in relation to transfer duty, 'consideration has a meaning affected by s 30'. (Page 7)
16 Section 30 of the Duties Act is as follows: 17 Section 32(1) of the Duties Act provides that the Commissioner must (subject to certain conditions) reassess duty on an agreement to transfer dutiable property where the initial assessment was based on consideration which included some amount that was contingent upon the occurrence of a future event and the consideration has not been paid and the event has not and will not occur. 18 Section 41 of the Duties Act provides: 19 Section 135 of the Duties Act provides: (Page 8)
Troy Creek Project
Agreed Facts 20 The Agreed Statement sets out the facts of the matter not in dispute, which are as follows: 1. On 1 March 2011, Zodiac and Empire Resources Limited (Empire) and Adrian Martin Lambert Jessup (Jessup) executed a document entitled 'Farmin Agreement Troy Creek, Western Australia' (Farmin Agreement) (Pages 9 38 of the Agreed Bundle). 2. On 8 March 2011, Western Tenement Services on behalf of Zodiac lodged the Farmin Agreement with the Commissioner for assessment of duty (Pages 1 - 8 of the Agreed Bundle). 3. On 2 August 2011, the Commissioner issued a duties requisition in relation to the Farmin Agreement to assist in the determination of duties payable (Pages 39 46 of the Agreed Bundle). 4. On 19 and 24 August 2011, Zodiac responded to the duties requisition (Pages 47 50b of the Agreed Bundle). 5. On 16 August 2012, the Commissioner issued a Duties Assessment Notice along with a Statement of Grounds of Assessment in relation to the Farmin Agreement (Pages 51 - 62 of the Agreed Bundle). 6. The Farmin Agreement was assessed for duty in the amount of $63,440 (based on a dutiable value of $1,350,000) plus $20 pursuant to s 135 of the Duties Act (Page 51 of the Agreed Bundle). (Page 9)
The Farmin Agreement 21 It is also not in dispute that the Farmin Agreement contains the following provisions: 1. Empire and Jessup assign to Zodiac a 55% interest (Acquisition Interest) in mining tenements E69/1729, E69/2357, E69/2358 and P69/45 and certain specified tenement applications when granted (Tenements). Zodiac must expend $3,000,000 in prescribed expenditure (Qualifying Expenditure) on the Tenements within three years of the date on which the Farmin Agreement was executed (Effective Date). If Zodiac does not meet the Qualifying Expenditure requirement within three years of the Effective Date, Empire and Jessup may re-acquire the Acquisition Interest from Zodiac at no cost. 2. Under clause 9 of the Farmin Agreement, Zodiac may increase the Acquisition Interest from 55% to 75% if it spends a further $4,000,000 in Qualifying Expenditure on the Tenements within five years of the Effective Date. 3. Zodiac is given the option to acquire the whole of the Tenements within five years of the Effective Date for payment of $5,000,000. 22 Clause 3 of the Farmin Agreement relevantly provides: (Page 10)
[Empire and Jessup] shall hold the Acquisition Interest on trust for the benefit of Zodiac on and from the Effective Date and shall act in respect of the Acquisition Interest as directed by Zodiac. 23 Clause 6.1 of the Farmin Agreement then provides that: Subject to [relevant Ministerial approval], [Empire and Jessup] agree to assign, and Zodiac agrees to accept the Acquisition Interest free of all Encumbrances in consideration of Zodiac agreeing to fulfil its obligations under this agreement. For the avoidance of doubt, the whole of the Acquisition Interest registered in the name of [Jessup] is to be transferred to Zodiac in priority to any part of the Acquisition Interest registered in the name of [Empire]. 24 Clause 6.2 states that assignment and assumption of the Acquisition Interest will take effect from the Effective Date, and title to, and the risk of, the Acquisition Interest will be deemed to have passed to Zodiac on the Effective Date. 25 Clause 7(d) of the Farmin Agreement specifies that Empire and Jessup are not required to contribute any funds toward the Tenements until Zodiac has fully expended its Qualifying Expenditure obligations. 26 Finally, clause 11.1 of the Farmin Agreement provides as follows: If Zodiac has: (a) failed to meet the whole or any part of the Qualifying Expenditure and has failed to rectify that default for a period of 3 months after [Empire] has served a notice of such default on Zodiac; or (b) given [Empire and Jessup] notice under clause 10(e) that Zodiac intends to surrender one or more of [the Tenements] … then [Empire] may acquire [the Tenements] … the Acquisition Interest or the interest of Zodiac in the relevant [Tenement] … (Call OptionInterest) by serving a notice on Zodiac … .
The issue to be determined 27 The parties have identified two issues to be determined by the Tribunal in relation to the Troy Creek Project: (Page 11)
s 13(1) of the Duties Act, or an agreement for the transfer of dutiable property under s 11(1)(b) of the Duties Act? 28 Zodiac says that the latter issue is the primary point for the Tribunal to consider; Zodiac's Statement at para 27. I agree.
Submissions 29 The Commissioner's position is this: • The 'Acquisition Interest' component of the Farmin Agreement is an agreement for the transfer of dutiable property and is not a farmin agreement for the purposes of s 11(1)(j) of the Duties Act. • The effect of the Farmin Agreement is the immediate creation of a beneficial interest in the Tenements in favour of Zodiac. • Alternatively, clause 3 of the Farmin Agreement is either a declaration of trust under s 11(1)(c) of the Duties Act or the acquisition of new dutiable property under s 11(1)(f) of the Duties Act. • To be a farm-in agreement within the meaning of s 13 of the Duties Act, the Farmin Agreement must provide that Zodiac's right to acquire an interest in the relevant mining tenements needs to have been acquired 'after [Zodiac] expends the exploration amount specified in the agreement'. The Commissioner says that this criterion is not satisfied. Clause 3 of the Farmin Agreement indicates that Zodiac acquires a 55% beneficial interest from the 'Effective Date', namely the date of the Farmin Agreement, which is a date prior to Zodiac expending the exploration amount. • The Commissioner says that it is irrelevant that the arrangement in question might be substantially in accordance with the description of a 'farm-in agreement' specified in s 13 of the Duties Act. • Applying s 41 of the Duties Act, the Commissioner considers that, of the possible dutiable transactions effected by the Farmin Agreement, the dutiable transaction on which duty should be imposed is an agreement for the transfer of dutiable property under s 11(1)(b) of the (Page 12)
Duties Act. This is on the basis that the dominant purpose of the Farmin Agreement can be said to have been to record the parties' agreement for the sale or assignment of the Acquisition Interest. • In any case, the Commissioner says, regardless of which of the dutiable transactions under s 11(1)(b),(c) or (f) of the Duties Act is decided upon, the dutiable value will be the same. 30 Zodiac's position, on the other hand, is that the assignment of the Acquisition Interest in the Tenements under the Farmin Agreement is substantially in accordance with the definition of 'farm-in agreement' in s 13(1) of the Duties Act. Zodiac takes this position because, under s 13(2) of the Duties Act, an 'exploration amount' means an amount to be expended on exploration and development of the mining tenement 'after the agreement is made'. The 'agreement', being the Farmin Agreement, was executed on 1 March 2011 and all expenditure by Zodiac on exploration in relation to fulfilling the requirements for obtaining absolute title to the Acquisition Interest in the Tenements is required to occur after the Farmin Agreement was entered into. 31 Further, under the terms of the Farmin Agreement, Zodiac may acquire the Acquisition Interest either before or after it expends the exploration amount specified in the agreement. Zodiac says that there is nothing in s 13(1) of the Duties Act to provide that an agreement ceases to be a farmin agreement if the 'other person' acquires an interest in a mining tenement prior to the exploration amount having been expended by that other person. Section 13(1) of the Act contemplates the other person having an interest in a tenement both before and after the relevant exploration amount has been expended. 32 Zodiac submits that the Commissioner's assertion that s 13 of the Duties Act requires that the interest in the tenement is acquired after the exploration amount has been expended, is incorrect. 33 In any event, Zodiac says, the Commissioner overlooks clause 11.1 of the Farmin Agreement. Clause 11.1 provides that Empire has an option to reacquire the Acquisition Interest from Zodiac at no cost if Zodiac fails to spend the $3,000,000 Qualifying Expenditure on the Tenements within three years of the effective date. Therefore, Zodiac concludes, it will only acquire absolute title to the Acquisition Interest (Page 13)
after spending $3,000,000 of Qualifying Expenditure on the Tenements and/or the New Tenements. 34 It follows then, in Zodiac's submission, that the assignment of the Acquisition Interest in the Farmin Agreement is a farmin agreement within the meaning of s 11(1)(j) of the Duties Act for no consideration. Accordingly nominal duty is payable on the Farmin Agreement under s 135(1) of the Duties Act.
Findings in relation to the Troy Creek Project 35 Zodiac in effect raises two alternative arguments as to why the Farmin Agreement is a farmin agreement as defined in s 13 of the Duties Act. First, Zodiac argues that there is nothing in s 13 to exclude the possibility of a 'farmee' being entitled to an interest in the relevant tenement before expending the exploration amount, if and so long as the 'farmee' has that entitlement after the exploration amount is spent. 36 However, if this first assertion is incorrect, then Zodiac argues that the effect of clause 11.1 of the Farmin Agreement is that Zodiac does not have absolute title to the Tenements until after it has expended the Qualifying Expenditure. 37 I will address each of these arguments in turn.
Does s 13 of the Duties Act envisage a farmee having an interest in a tenement both before and after the relevant exploration amount has been expended? 38 The parties agree and submit that the starting point to interpreting a statute is to take the plain and natural and ordinary meaning of the words of the legislation and the discernment of the legislative intention from the terms of the legislation viewed as a whole; Commissioner of State Revenue v Viewbank Properties Pty Ltd(2004) 55 ATR 501 at [512]-[513]; Commissioner of State Revenue v Landrow Properties Pty Ltd and Another(2010) 79 ATR 800 at [816]-[817]. 39 The parties also accept that tax statutes are technical documents which should be interpreted in a technical manner; Charles Lloyd Property Group Pty Ltd v Commissioner of State Revenue[2011] VCAT 1461 at [17]. 40 Section 13(1) of the Duties Act, which describes what is meant when a farmin agreement is referred to, needs to read as a whole. The subsection is in fact a single sentence, divided into (Page 14)
subparagraphs (a) to (d) inclusive, each subparagraph leading to the next and in total describing what a farmin agreement must comprise. Relevantly, if the Farmin Agreement is a farmin agreement within the meaning of s 13 of the Duties Act, then it must constitute an agreement between Empire and Jessup as the holder of the Tenements on the one hand and Zodiac on the other hand under which, after Zodiac expends the exploration amount under the agreement, Zodiac will acquire an interest in the Tenements. The Tenements 'will be held with' Empire and Jessup. 41 The effect of this, and in particular para (d) of s 13(1), is that until the exploration amount has been expended, Empire and Jessup must hold the Tenements, not Zodiac. 42 This interpretation, to the extent that there is any doubt about it, is consistent with the explanatory memorandum to the Duties Legislation Amendment Bill 2007 (WA) which states that: Subclause 1 describes a farm-in agreement as an agreement between an owner of a mining tenement and another person whereby the other person can earn an interest in the tenement or the right to exploit by expending the exploration amount. 43 Under the Farmin Agreement, Zodiac does not earn the 55% Acquisition Interest in the Tenements by spending the exploration amount. Rather, Zodiac acquires the Acquisition Interest before spending the exploration amount, subject to the condition that Zodiac spends the exploration amount. 44 The fact that Zodiac continues to have an entitlement to the Acquisition Interest in the Tenements after spending the Qualifying Expenditure does not bring the Farmin Agreement within the definition in s 13 of the Duties Act. 45 Further, even if I considered that the arrangement under the Farmin Agreement is substantially what is required under s 13 of the Duties Act, which I do not, there is no provision in the Duties Act or as a matter of interpretation generally for substantial compliance with the criteria set out in s 13(1). The Farmin Agreement is not a farmin agreement under the Duties Act.
The effect of cl 11.1 of the Farmin Agreement 46 I turn now to Zodiac's alternative argument. I agree that because Empire may acquire the Acquisition Interest in the Tenements in circumstances where Zodiac fails to spend as required under the (Page 15)
Farmin Agreement, but that does not alter the conclusion that Zodiac acquired an interest in the Tenements before expending the exploration amount. The fact that Empire is given the power to reacquire the Tenements under some circumstances emphasises that Zodiac had acquired an interest in the relevant tenements prior to expending the exploration amount. 47 Zodiac appears to be suggesting that, through the option granted to Empire under clause 11.1, Empire holds or retains some beneficial equitable interest in the Tenements that passes to Zodiac upon spending the Qualifying Expenditure. An option to purchase land has been described as a conditional contract to purchase, and it is well settled that such an option confers an interest in the subject land: Laybutt v Amoco Australia Pty Limited(1974) 132 CLR 57 at [71][76]; London & South Western Railway Co. v Gomm(1882) 20 Ch D 562. 48 However, this position was qualified in Hill v Terry[1993] 2 Qd R 640 when Ryan and Byrne JJ held at [648]: At least that is so in the case of an unqualified option, in terms of which fulfilment of the relevant condition lies entirely within the power of the option holder and is not dependent on action by another partyor body over whose decision the holder has no direct control: cf Meehan Jones (1982) 149 CLR 571 at 581-582). 49 In this case, Empire cannot exercise its option to acquire the Acquisition Interest unless and until Zodiac defaults on its obligations under the Farmin Agreement or if Zodiac intends to surrender the Tenements. It follows that it is doubtful whether Empire has an interest in the Tenements, but in any event Zodiac does not acquire any further or better title to the Tenements once it spends the exploration amount. Rather, fulfilling Zodiac's expenditure obligations under the Farmin Agreement simply precludes Empire from exercising its option.
Conclusion in relation to the Troy Creek Project 50 The Tribunal finds that the assignment of the Acquisition Interest in the Tenements under clause 6 of the Farmin Agreement is not a 'farm-in agreement' as described in s 13 of the Duties Act and therefore does not fall within the scope of s 11(1)(j) of the Duties Act. The arrangement falls within the scope of s 11(1)(b) of the Duties Act (Page 16)
51 The parties have agreed that if this is the finding of the Tribunal then they accept that the dutiable value of the Troy Creek Project transaction is $1,350,000; Zodiac's Statement at para 72.
Deep Well Project
Agreed facts 52 The Agreed Statement sets out the agreed facts in relation to the Deep Well Project as follows: 1. On 17 February 2011, Zodiac and Yilgarn Mining (WA) Pty Ltd (Yilgarn) executed the 'Sale and Purchase Agreement' (Pages 718 of the Agreed Bundle 2) and the 'Royalty Agreement' (Pages 21 - 30 of the Agreed Bundle 2). 2. On 21 February 2011, Yilgarn as transferor and Zodiac as transferee executed under the Sale and Purchase Agreement a transfer form for the transfer of Mining Lease M39/129 (Pages 19 - 20 of the Agreed Bundle 2). 3. On 8 March 2011, Western Tenement Services on behalf of Zodiac lodged the Sale and Purchase Agreement with the Commissioner for assessment of duty (Pages 1 - 6 of the Agreed Bundle 2). 4. On 2 August 2011, the Commissioner issued a duties requisition in relation to the Sale and Purchase Agreement to assist in the determination of duties payable (Pages 31 38 of the Agreed Bundle 2). 5. On 19 and 24 August 2011, Zodiac responded to the duties requisition (Pages 39 - 42b of the Agreed Bundle 2). 6. In the meantime, on 9 July 2012: (Page 17)
Royalty Agreement and Saracen agreed to assume the obligations under the Royalty Agreement (Pages 69 - 76 of the Agreed Bundle 2). 7. On 16 August 2012, the Commissioner issued a Duties Assessment Notice along with a Statement of Grounds of Assessment in relation to the Sale and Purchase Agreement (Pages 43 - 50 of the Agreed Bundle 2). 8. The Sale and Purchase Agreement was assessed for duty in the amount of $108,914.50 on the basis of a dutiable value of $2,233,000 (made up of a cash component of $30,000, $2,000,000 in royalties, capped under the Royalty Agreement and GST of 10%) (Pages 43 and 48 of the Agreed Bundle 2). 9. On 30 August 2012, Zodiac applied for a reassessment of the Sale and Purchase Agreement under s 32 of the Duties Act (Pages 51 - 86 of the Agreed Bundle 2). 10. On 12 September 2012, the Commissionerdeclined the reassessment application (Pages 87 - 88 of the Agreed Bundle 2). 11. On 13 September 2012, Zodiac lodged an objection to; 12. On 20 December 2012, the Commissionerdisallowed the objections (Pages 95 - 102 of the Agreed Bundle 2).
The relevant agreements 53 The Sale and Purchase Agreement and the Royalty Agreement relevantly provide as follows:
Sale and Purchase Agreement 54 The 'Introduction' section of the Sale and Purchase Agreement provides that the sale and purchase of the Tenement is 'on the terms of this (Page 18)
agreement'. Clause 1 of the Sale and Purchase Agreement contains the defined terms, including: … Effective Date means the date on which this agreement is executed. … Royalty Agreement means the royalty agreement between the Parties in relation to the Tenement. … Tenement means the following tenement registered with the Western Australian Department of Mines and Petroleum (a) Mining Lease (M39/129). … 55 Clause 3(a) of the Sale and Purchase Agreement relevantly provides: With effect from the Effective Date, Yilgarn assigns to Zodiac, free of encumbrances (other than the Permitted Encumbrances), free of any overriding royalty interests (other than that granted under the Royalty Agreement), mortgages, charges, pledges, liens, caveats and other adverse interests of any kind, all of its beneficial right, title and interest to and in (1) the Tenement … 56 Clause 3(e) states: At the same time as Zodiac executes this agreement, Zodiac must duly execute, and deliver to Yilgarn, the Royalty Agreement. 57 Clause 5 provides that, with some exceptions, Zodiac assumes from the Effective Date all of the obligations of Yilgarn in respect of the Tenement. Clause 5 also provides that Zodiac indemnifies Yilgarn against any and all liability, damage, loss, cost, charge or expense suffered or incurred by Yilgarn in connection with any failure by Zodiac to assume and perform its obligations. 58 Clause 6 of the Sale and Purchase Agreement is as follows: (Page 19)
(a) In consideration of the transfer of the Tenement, Zodiac will pay to Yilgarn the sum of A$30,000 by Immediately Available Funds within 5 Business Days of Completion. (b) The Parties agree to sign and give promptly and when required all directions, instructions and enter into the Royalty Agreement, under which Zodiac grants Yilgarn an overriding royalty on the terms specified in the Royalty Agreement. 59 The remaining provisions in the Sale and Purchase Agreement deal with matters such as warranties, the process for gaining Ministerial approval and registration, notices under the agreement, goods and services tax and the costs and expenses incurred in relation to the agreement.
Royalty Agreement 60 The 'Introduction' section of the Royalty Agreement provides as follows: 61 Clause 1 of the Royalty Agreement contains the defined terms, including: Production means the production of ounces of gold recovered from the Tenement Area to which Zodiac is entitled, or may be entitled to at any given time. … Royalty means the royalty referred to in clause 3(a). Sale and Purchase Agreement means the sale and purchase agreement between the parties in relation to the Tenement. Tenement means the following tenement registered with the Western Australian Department of Mines and Petroleum: (a) Mining Lease (M39/129). Tenement Area means the area to which the tenement relates at any given time. Termination Date means the date referred to in clause 6(a). (Page 20)
62 Clause 3 of the Royalty Agreement relevantly provides as follows: Overriding Royalty (a) Zodiac grants and assigns to Yilgarn for valuable consideration, the adequacy of which is hereby acknowledged, from the Production of ounces of gold recovered from the Tenement Area, an overriding royalty equal to $20 per ounce of Production (Royalty). … 63 Clause 5 provides that, in the event that Zodiac transfers or assigns its interest in the Tenement, Zodiac must obtain a covenant under which the transferee or assignee agrees to perform Zodiac's obligations under the Royalty Agreement. 64 Clause 6(a) of the Royalty Agreement states: Termination (a) Notwithstanding any other provision of this agreement, this agreement will terminate on the date on which the total amount of the Royalty paid to Yilgarn under this agreement equals $2,000,000 (Termination Date). For the avoidance of doubt, Yilgarn acknowledges and agrees that his [sic] maximum entitlement to receive Royalties under this agreement is limited to $2,000,000. 65 The other provisions in the Royalty Agreement relate to notices, goods and services tax and other matters.
The issue to be determined 66 The parties have identified two issues to be determined by the Tribunal in relation to the Deep Well Project: 67 Zodiac says that the latter issue is the primary point to be determined by the Tribunal; Zodiac's Statement at para 29. I agree. (Page 21)
The parties' submissions 68 Both parties agree that it may be necessary to look outside the Sale and Purchase Agreement to the agreements referred to in the Sale and Purchase Agreement itself and the facts which gave rise to their operation; Comptroller of Stamps v Buckland [1959] VR 517 at 529 (Buckland). The Commissioner says that it is not critical that the obligation to pay royalties arises under the Royalty Agreement separately from the Sale and Purchase Agreement. However, Zodiac rejects this proposition. 69 Zodiac agrees that clause 6 of the Sale and Purchase Agreement deals with the 'consideration' aspect of the Sale and Purchase Agreement. Zodiac says that the agreement provides that Zodiac is to pay to Yilgarn the sum of $30,000 'in consideration of the transfer of the Tenement'. Zodiac says that it is clearly ascertainable from the wording of clause 6(a) that $30,000 is the entire consideration of the transfer of the Tenement. 70 The Commissioner says that the surrounding circumstances and context of the Sale and Purchase Agreement reveal that clause 6(b) does in fact form part of the consideration for the Sale and Purchase of the Tenement. The Commissioner says that the Sale and Purchase Agreement must be considered as a whole. 71 Further, the Commissioner points out that the introduction to the Royalty Agreement states that the parties have agreed to enter into the Royalty Agreement 'pursuant to the Sale and Purchase Agreement'. 72 Zodiac says that it does not follow that the royalty actually payable under the Royalty Agreement is part of the consideration for the Sale and Purchase Agreement. It submits that its only agreement under clause 6(b) of the Sale and Purchase Agreement is to sign and enter into the Royalty Agreement, not the subsequent payment of any royalty amounts. 73 Zodiac then goes on to say that if, notwithstanding its submissions, the Tribunal concludes that royalties under the Royalty Agreement are included in the consideration for the Sale and Purchase Agreement, it does not consider that the royalties 'can be ascertained' pursuant to s 30(2) of the Duties Act. 74 Further, Zodiac says that under clause 6(b) of the Sale and Purchase Agreement, if the agreement to enter into the Royalty Agreement constitutes consideration, then the value of the agreement to enter into the Royalty Agreement is nominal, because it is an agreement to agree and 'is technically incomplete and unenforceable until such point as a final and (Page 22)
binding agreement between the parties is made'; Zodiac's responsive submissions at para 33.
Findings in relation to the Deep Well Project 75 In my opinion, the consideration in the Sale and Purchase Agreement for the transfer of the Tenement to Zodiac is what is set out in the entirety of the clause headed 'Consideration', clause 6. Clause 6 is in two parts, clause 6(a) and clause 6(b). Under the Sale and Purchase Agreement, the promise by Zodiac to Yilgarn, is that in return for the transfer of the Tenement, Zodiac will pay Yilgarn $30,000 and execute the Royalty Agreement. 76 Up to this point, Zodiac would agree with me. 77 However, the execution by Zodiac of the Royalty Agreement carries with it the clear intention by Zodiac to be bound by the terms of the Royalty Agreement. If, as Zodiac contends, that part of the consideration is to merely execute the Royalty Agreement, then on those terms Yilgarn would not transfer the Tenement to Zodiac. 78 I therefore do not accept Zodiac's contention in this regard. Nor do I accept what I understand to be Zodiac's contention that the consideration is limited to the payment of $30,000 and the obligation to make royalty payments is limited to the operation of the Royalty Agreement. That would, in the words of Lowe J in Buckland 'shutting one's eyes to realities'. When I take into account the terms and conditions of the Sale and Purchase Agreement as a whole and the terms and conditions of the Royalty Agreement as a whole, I consider that the consideration for the transfer of the Tenement is the sum of $30,000, plus a royalty on gold recovered from the Tenement Area at the rate of $20 per ounce of gold. 79 The reason why clause 6(b) is not expressed to include such words as 'and to pay the royalties under the Royalty Agreement' is because title to the Tenement passes on the Effective Date and it is not the intention of the parties that a failure to pay royalties sometime in the future will result in the Tenement reverting back to the seller. Clearly, any default under the Royalty Agreement will be dealt with under the provisions of the Royalty Agreement itself. However, what moved Yilgarn to transfer the Tenement was the payment of $30,000 and future royalties on any gold recovered from the Tenement Area. It is the money or value passing which moves the transfer; Archibald Howie Pty Ltd v Commissioner of Stamp Duties (NSW) (1948) 77 CLR 143 at 152. (Page 23)
80 I turn now to the issue raised by Zodiac as to whether the royalty payable under the Royalty Agreement is consideration that can be ascertained for the purposes of the Duties Act. 81 Whether or not any royalty is in fact paid is contingent on, first, gold being recovered from the Tenement Area and, second, the total amount of royalties of $2 million not being exceeded. 82 In Wild Acre Metals Limited and Commissioner of State Revenue [2011] WASAT 173 (Wild Acre), I considered a similarly structured royalty and concluded that the royalty was 'an amount payable periodically' under s 30(2) of the Duties Act, that the royalties comprised an amount 'to be paid' within the meaning of the same section and that it was an amount that 'can be ascertained'. That conclusion was supported by the decision in Hill 50 Gold Mine No Liability v Commission of State Taxation (WA) (1993) 93 ATC 4880 where at 4882, Nicholson J explained that a contingency will be dutiable and, where a maximum is stated for the contingency, duty will be levied upon that amount. 83 I do not depart from my decision in Wild Acre. I consider that, in addition to the cash payment of $30,000, the consideration for the dutiable transaction in respect of the Deep Well Project consists of an amount payable periodically, namely the royalty under the Royalty Agreement. That part of the consideration can be ascertained by reference to the maximum amount stated, $2 million dollars. 84 I note Zodiac's submission that the provisions of s 32(1) preclude Zodiac from applying for a reassessment of duty at some future time. The reason for this is that there is no end date on the obligation to pay royalties under the Royalty Agreement, only a maximum amount. Zodiac says that it is therefore manifestly unjust to require Zodiac to pay duty on the royalty component of the consideration. 85 While I agree that it will not be open to Zodiac to seek a reassessment of duty, this arises from the commercial terms of the agreement between the parties, not because of a flaw in the Duties Act or in its application. 86 Finally, for completeness, I should add that under s 19(1)(a) of the Duties Act, liability for duty in a transaction arises when the agreement is made, in this case 17 February 2011. Accordingly, the subsequent sale of the Tenement by Zodiac is irrelevant. (Page 24)
Conclusion in relation to the Deep Well Project 87 I conclude that the Sale and Purchase Agreement should be assessed on the basis that the dutiable value of the agreement for the transfer of Mining Lease M39/129 to Zodiac from Yilgarn is the total of $30,000 plus the maximum amount of the royalty being $2 million plus the GST component of 10%.
Orders |