The New South Wales Court of Appeal has today (26 May 2023) in Chief Commissioner of State Revenue v Shell Energy Operations No 2 Pty Ltd partially overturned the decision in Meridian Energy Australia Pty Ltd v Chief Commissioner of State Revenue.
The dispute before the Court turned on whether the primary judge was correct to hold that the acquisition of GSP Energy Pty Ltd was not subject to landholder duty on the value of three hydro-electric power stations located at the Burrinjuck, Hume, and Keepit dams, on the basis that they did not constitute interests in land (i.e. common law fixtures) or “goods of a landholder” for the purpose of the Duties Act 1997 (NSW) (Duties Act). The acquisition, which occurred on 29 March 2018, had originally been assessed by the Chief Commissioner with duty in the order of $8m.
The case is an important reminder that:
- regard needs to be had to the legislative framework which governs a particular asset class or industry, as statutory rights / powers may change the expected duty outcomes. In particular, whether items which would otherwise be fixtures (land interests) are in fact goods/chattels and therefore potential subject to more favourable duty treatment; and
- transactions can give rise to complex valuation issues (e.g. the allocation of value between land and non-land interests) which may have flow on effects to the duty analysis. It is important to engage stamp duty advisors early to ensure that issues can be identified, and appropriate valuation evidence obtained.
However, it is important to recall that the Duties Act was subsequently amended to expand the concept of landholdings to include items which are fixed to land even if they do not constitute fixtures at law.
The Court of Appeal held that:
- the primary judge was correct to hold that the effect of certain vesting orders made by the Minister under the Electricity Generator Assets (Authorised Transactions) Act 2012 (NSW) was to transfer ownership of the items constituting the power stations thereby legally severing the interests in the power stations from the land on which they were situated, with the effect they were not fixtures at law.
- the primary judge erred in holding that the power stations were, as a result of the statutory severance, “innominate sui generis property interests” rather than dutiable “goods”. The Court of Appeal held that there was no reason to read the vesting orders as creating a new species of property right, instead the items resumed their previous legal character as chattels or goods (which the Court treated as relevantly synonymous).
- the primary judge erred in holding that the definition of “goods” did not extend to the kind of “innominate sui generis property interests” constituted by the power stations, if the primary judge’s conclusion immediately above had been correct. The Court of Appeal held that the word “goods” when used in the Duties Act is of incredibly broad meaning and as such a property interest of this nature would still fall within the concept of “goods” as used in Duties Act. This was reinforced by the evident intention of the Duties Act to encompass both one end of the spectrum (land) and the other (goods), and as such the Court considered it difficult to see why something in between the two ends of the spectrum should fall outside the duty regime.
- the primary judge was entitled to accept valuation evidence ascribing the residual value of the business (being some $27.7m after the balance of the business’s value was ascribed to other property) as being entirely allocated to certain water rights (non-dutiable, non-land interests), rather than certain leases (dutiable interests in land) on the basis that the water rights were “fundamentally more important” and accordingly were the driver of the residual value.
Although the result was a partial success for the Chief Commissioner, it may be that the taxpayer’s duty liability will not extend to the value of the power stations as the Chief Commissioner had accepted before the hearing that he would exercise his discretion to disregard the value of the goods if they ultimately constituted at least 90% of the value of the total landholdings and goods of the taxpayer pursuant to s 163G of the Duties Act.
It is unclear at this stage whether there will be an appeal to the High Court.
For further information, please contact:
Nick Heggart, Partner, Herbert Smith Freehills