Chief Commissioner of State Revenue v. Pacific National (ACT) Limited [2007] NSWCA 325 (16 November 2007)

Court of Appeal (NSW)|2007-11-16|Before: Hodgson JA, Ipp JA, Basten JA, Gzell J

Australian Provincial Assurance Co Ltd v Coroneo [1938] NSWStRp 35; (1938) 38 SR (NSW) 700

Bendal Pty Ltd v Mirvac Project Pty Ltd (1991) 23 NSWLR 464

Bernstein of Leigh (Baron) v Skyviews & General Ltd [1977] EWHC 1;

Commissioner of Main Roads v. North Shore Gas Co. Limited [1967] HCA 41; (1967) 120 CLR 118

Goldsworthy Mining Ltd v Federal Commissioner of Taxation [1973] HCA 7; (1973) 128 CLR 199

LJP Investments Pty Ltd v Howard Chia Investments Pty Ltd (1989) 24 NSWLR 490

Newcastle-under-Lyme Corporation v Wolstanton Ltd [1947] Ch 92

North Shore Gas Co. Limited v. Commissioner of Stamp Duties [1940] HCA 7; (1940) 63 CLR 52

Pacific National (ACT) Ltd v Chief Commissioner of State Revenue [2007] NSWSC 332

1. Appeal allowed. 2. Orders below set aside, and in lieu thereof summons dismissed with costs. 3. Pacific National to pay the Commissioner's costs of the appeal, and to have certificate under the Suitors' Fund Act if otherwise eligible.

CHIEF COMMISSIONER OF STATE REVENUE V. PACIFIC NATIONAL (ACT) LIMITED

1 HODGSON JA: On 12 April 2007, Gzell J gave his decision in proceedings brought by the respondent (Pacific National) against the appellant (Commissioner) in which Pacific National sought an order setting aside a Duties Notice of Assessment dated 3 September 2004, and other orders. The primary judge ordered that the assessment be revoked, and that the Commissioner to pay Pacific National's costs.

3 The question at issue is whether an agreement to which Pacific National has been a party (the Access Agreement) is chargeable with duty as a lease instrument under the Duties Act 1997 (NSW). The relevant provisions of that Act are ss.164(1), 164A, 165 and 166(1) and (2). Those provisions are as follows:

164 Imposition of duty

(1) This Chapter charges duty on a lease instrument, being an instrument that evidences or effects a lease (as defined in section 164A).

...

164A What is a "lease"?

For the purposes of this Chapter, lease means:

(a) a lease of land in New South Wales or an agreement for a lease of land in New South Wales, or

(b) an agreement (such as a licence) by which a right to use land in New South Wales at any time and for any purpose is conferred on or acquired by a person (who is taken, for the purposes of this Chapter, to be a lessee of the land), or

(c) a franchise arrangement that is held in respect of a place or area located in New South Wales and that is first executed before 1 July 2001.

165 How duty is charged on a lease instrument

Duty is chargeable on a lease instrument:

(a) at the rate prescribed under this Chapter, on the cost of the lease, as determined in accordance with this Chapter, except as provided by paragraph (b), or

(b) in the case of a lease for which there is no consideration in money or money's worth, at the rate prescribed under this Chapter on the unencumbered value of the lease.

166 What is the "cost" of a lease?

(1) The cost of a lease (other than a franchise arrangement) is the aggregate of the following:

(a) the rent payable during the term of the lease or in advance of the lease and any amount paid or payable for the right to use land under the lease,

(b) any premium payable for a lease of premises in a retirement village within the meaning of section 5 of the Retirement Villages Act 1999,

(c) any rates and taxes paid or payable on behalf of the lessor in connection with the lease,

(d) the value of improvements and additions to the leased premises made or undertaken to be made by or on behalf of, or at the expense of, the lessee under an agreement or covenant by the lessee (other than fit-out costs), to the extent provided by section 175,

(e) any royalties payable under the lease, including royalties for the right to enter onto and remove something from the land.

(2) Rent includes any payment under the lease expressed to be rent but does not include any premium paid or payable expressed to be rent.

4 "Land" is defined in the dictionary of the Act to include a stratum. "Land" is further defined in s.21 of the Interpretation Act 1987 (NSW) to include "messuages, tenements and hereditaments, corporeal and incorporeal, of any tenure or description, and whatever may be the estate or interest therein".

5 The Access Agreement must be read against the background of legislation passed with a view to promoting the conduct of rail freight operations on a commercial basis.

6 The starting point is an amendment of the Transport Administration Act 1988 (NSW) (TA Act) by the Transport Administration Amendment (Rail Corporatisation and Re-Structuring) Act 1996 (NSW) (1996 Act). This amendment established the Rail Access Corporation (RAC) as a State-owned corporation in s.19C of the TA Act and provided for the establishment of a NSW Rail Access Regime in s.19B (Sch.1-19). Section 19A, introduced into the TA Act by the 1996 Act, contained definitions of "NSW rail network" and "rail infrastructure facilities", and s.19E(2) set out the principal functions of the RAC:

NSW rail network means the railway lines vested in or owned by Rail Access Corporation (including passing loops and turnouts from those lines and loops and associated rail infrastructure facilities that are so vested or owned).

rail infrastructure facilities:

(a) includes railway track, associated track structures, over track structures, cuttings, drainage works, track support earthworks and fences, tunnels, bridges, level crossings, service roads, signalling systems, train control systems, communication systems, overhead power supply systems, power and communication cables, and associated works, buildings, plant, machinery and equipment, and (subject to section 19B(2)),

(b) does not include any stations, platforms, rolling stock maintenance facilities, office buildings or housing, freight centres or depots, private sidings and spur lines connected to premises not vested in or owned by Rail Access Corporation.

19E Functions of RAC

(1) ...

(2) The principal functions of Rail Access Corporation are:

(a) to hold, manage and establish rail infrastructure facilities on behalf of the State; and

(b) to provide persons with access as rail operators to the NSW rail network.

7 Although the RAC was to hold, manage and establish rail infrastructure facilities, the land on which these facilities were situated was not necessarily to be owned by it; and in fact the facilities have been mainly located on land owned by the State Rail Authority (SRA), and called SRA land by the TA Act.

8 Schedule 6A to the TA Act, introduced into that Act by the 1996 Act, included the following clauses 2 and 5:

2 Ownership of rail infrastructure facilities

(1) RAC is the owner of all rail infrastructure facilities installed in or on land, in or on rivers and other waterways and in or on the beds of rivers and waterways by RAC and of all rail infrastructure facilities vested in or transferred to RAC (whether or not the place on which the facilities are situated is owned by RAC).

(2) RAC may, subject to this Act, inspect, operate, repair, replace, maintain, remove, extend, expand, alter, connect, disconnect, improve or do any other thing that is necessary or appropriate to any of its rail infrastructure facilities that are situated on SRA land or on or in a SRA building to ensure that, in the opinion of RAC, the rail infrastructure facilities are established, held and managed in an efficient, safe and reliable manner.

(3) RAC may, subject to this Act, the NSW Rail Access Regime and the State Owned Corporations Act 1989, sell or otherwise deal with rail infrastructure facilities that it owns.

5 Party to access agreement with RAC authorised to enter SRA land

(1) A person who is a party to an access agreement is authorised to have access to the rail infrastructure facilities to which the access agreement relates, even if the facilities are situated in or on SRA land, if access is exercised in accordance with and as permitted by the access agreement.

(2) A person to whom this clause applies does not require a certificate of authority under this Schedule to enter the SRA land concerned.

(3) In this clause, access agreement means an agreement, entered into by RAC pursuant to the NSW Rail Access Regime, that permits a person to operate rolling stock on the NSW rail network.

9 The NSW Rail Access Regime was established on 19 August 1996 pursuant to s.19B of the TA Act. It defined "Corporation" to mean the RAC, and it contains definitions of "NSW Rail Network" and "Rail Infrastructure Facilities" not materially different from definitions in s.19A of the TA Act. It defined "Access" to mean "access to the NSW Rail Network and the use of the Rail Infrastructure Facilities listed in Schedule 1, Table 1 for Rail Operations". Clause 3.1 of this agreement provided as follows:

3.1 The Corporation shall, subject to the Regime:

(a) permit Access to the NSW Rail Network, and the use of the Rail Infrastructure Facilities listed in Schedule 1, Table 1;

(b) limit Access to the Rail Infrastructure Facilities listed in Schedule 1, Table 1 for the purpose of Rail Operations; and

(c) ensure that it uses the Rail Infrastructure Facilities in Schedule 1, Tables 2 and 3 in a manner that facilitates access to the NSW Rail Network for the purpose of Rail Operations.

TABLE 1: FACILITIES AVAILABLE FOR ACCESS UNDER THE REGIME

Railway track

TABLE2: FACILITIES UTILISED BY THE CORPORATION TO FACILITATE AND CONTROL ACCESS TO THE FACILITIES IN TABLE 1

Rail Infrastructure Facilities (excluding railway track)

TABLE 3: FACILITIES USED AS "OVERHEADS" IN ACCESS

Other facilities owned, leased etc by the Corporation (excluding Rail Infrastructure Facilities).

5.1 Except as required by law, the Corporation must only permit Access through an Agreement.

...

5.5 An Agreement must not confer exclusive permanent or temporary rights of occupancy of facilities listed in Schedule 1, Table 1 in favour of any person, including by way of sale, lease or assignment.

12 Subsequent amendments to legislation have had the effect of substituting Rail Infrastructure Corporation (RIC), the result of the amalgamation of RAC and Rail Services Autority, for RAC, but have not otherwise relevantly affected the above provisions.

13 On 1 July 1996, RAC entered into the Access Agreement with Pacific National (then called National Rail Corporation Limited (NRC)). Its recitals were:

(A) [RAC] is constituted under the Transport Administration Act.

(B) The NSW Rail Access Regime will be established under the Transport Administration Act.

(C) [RAC] is the owner of or has vested in it the NSW Rail Network.

(D) [RAC] has agreed to grant Access to [NRC] and [NRC] has agreed to accept Access rights to the NSW Rail Network on and subject to the terms of this Agreement.

14 The Access Agreement contained a dictionary which:

· defined "Access" to mean "access to or usage of the NSW Rail Network";

· defined "Access Rights" to mean "the non-exclusive rights of access to the NSW Rail Network granted pursuant to this Agreement";

· defined "NSW Rail Network" and "Rail Infrastructure Facilities" in terms equivalent to the definitions in the TA Act; and

· defined "Train Path" to mean "the series of track segments over a particular time interval through which [rolling stock] can travel".

(a) [RAC] grants to [NRC] the Access Rights on the terms of this Agreement.

(b) The Access Rights granted under clause 2.4(a):

(ii.) are for the rights set out in the Train Specification (Schedule D), as determined under clause 3.2(f) or agreed under clause 3.3; and

(iii.) are for Train movements under clause 2.4(b)(ii) where those Train movements are running early or late relative to the Train Path.

(c) Rail Access will provide the Ancillary Services set out in Schedule L upon payment by [NRC] to Rail Access of the relevant charges.

Schedule D defined the route, stopping points and entry and exit of NRC's trains, and provided for timetables.

16 Subsequent amendments have not relevantly affected these provisions.

17 The parties agreed on the following facts stated in par.[11] of the primary judge's judgment:

11 The parties agreed that at all relevant times the NSW rail network was owned by or vested in RIC, that the NSW rail network was attached to, rested upon or was supported by the surface of the land and at all material times the owner of the fee simple in that supporting land was not RIC. With respect to this last concession, the Chief Commissioner reserved the right to argue that the effect of the Transport Administration Act 1988, Sch 6A, cl 2 was to vest an interest in a stratum of the supporting land in RIC.

18 In deciding against the Commissioner, the primary judge relied particularly on Commissioner of Main Roads v. North Shore Gas Co. Limited [1967] HCA 41; (1967) 120 CLR 118, in which the High Court held that the Gas Company's rights in pipes which it was entitled to maintain in other persons' land were neither land nor an interest in land. The primary judge held that the vesting of rail infrastructure facilities in RIC did not pass to RIC any interest in land. His reasons concluded as follows:

21 In my view, the effect of the Transport Administration Act 1988, Sch 6A, cl 2(2) was to vest ownership of all rail infrastructure facilities in RIC, whether or not RIC owned the land to which or in which they were affixed or embedded as items other than land or an interest in land. Clause 5(1) empowered RIC to grant access to those facilities under an access agreement, even if they were situated in land owned by another rail authority, or to grant access to a person, a party to an access agreement, to a facility not owned, managed or controlled by that person. I therefore reject the argument of the Chief Commissioner that RIC held an interest in the land to which or in which rail infrastructure facilities were attached or embedded and a right to use that land was given to Pacific National under the access agreement.

22 Land can be divided horizontally or vertically into strata. The Chief Commissioner's alternative argument was based on the notion that RIC gained a stratum in the ambient land in the space in which the rail infrastructure facilities were affixed or embedded and in the space through which Pacific National's rolling stock passed as it journeyed along the rail tracks.

23 I reject that submission. In North Shore Gas it was not only contended that the mains and pipes constituted an interest in land, it was also argued that the space occupied by them constituted an interest land (sic). Both arguments were rejected. I see no reason to depart from that view in this case.

24 It follows that I take the view that the vesting of the rail infrastructure facilities in RIC carried with it no interest in land and RIC had no legal right to grant a right to use land for the purposes of the definition of the term "lease" in the Duties Act 1997, s 164A(b).

25 The Chief Commissioner submitted that the access agreement in conjunction with the Transport Administration Act 1988, Sch 6A, cl 5(1) must have given a right to pass over the ambient land in order to enjoy the use of the rail infrastructure facilities and that was a right to use land for the purposes of the Duties Act 1997, s 164A(b). For Pacific National it was submitted that this right was granted by cl 5(1) alone.

26 This submission was based on the proposition that the word "by" that appears in the Duties Act 1997, s 164A(b) is one of wide import and should not be interpreted as "solely by." The Chief Commissioner cited Fagan v Crimes Compensation Tribunal [1982] HCA 49; (1982) 150 CLR 666, a decision that nervous shock occasioned by learning of the death of the appellant's mother was a compensable injury because it occurred by or as a result of the criminal act and Wardley Australia Ltd v Western Australia [1992] HCA 55; (1992) 175 CLR 514, a decision on the interpretation of the Trade Practices Act 1974 (Cth), s 82(1) that a person who suffers loss or damage by conduct of another person that was done in contravention of portions of the Act might recover the amount of the loss or damage.

27 In my view, the Duties Act 1997, s 164A(b) looks to the legal source of the right to use land. If the right arises under an agreement, the instrument constitutes a lease. If the right arises otherwise, any instrument relating to the right is not a lease. In this case the access agreement provided no more than the right to use RIC's railway network that included rail infrastructure facilities. For the reasons set out above the vesting of the NSW railway network in RIC did not create in it any interest in land. The legal source of Pacific National's right to use land in New South Wales is to be found elsewhere than in the access agreement.

28 In my view, the grant of access in the Transport Administration Act 1988, Sch 6A, cl 5(1) was the legal source of a right to use land in New South Wales. That denies the access agreement as the source of that right.

19 Mr. Slater QC for the Commissioner submitted that there were three bases on which the Access Agreement was an agreement by which a right to use land was conferred on or acquired by Pacific National:

(1) Some of the rail infrastructure facilities, such as cuttings, drainage works, track support earthwork, tunnels, bridges and service roads, were themselves land, albeit land in separate ownership from the land on which they were situated.

(2) The right to use those facilities was a right to use the land which they occupied.

(3) The right to use those facilities was a right to use the land which supported them and the air space above them through which the trains passed.

(1) By severing the ownership of the rail infrastructure facilities from ownership of the land on which they were situated, the legislation treated such things as track support earthworks in the same way as such things as signalling systems, that is, as things other than land, of the same nature as the pipes considered in the later Gas Company case. If the Court were of the view that some of the rail infrastructure facilities were land, such as tunnels or track support earthworks, there would need to be apportionment between what part of the consideration was rent in respect of the use of land and what part was in respect of the use of things other than land.

(2) & (3) The Access Agreement only gives a right to use train tracks to a specified extent, and a right to use other rail infrastructure facilities as necessary or incidental to that specified use of the train tracks. In so far as Pacific National had any right to use land occupied by rail infrastructure facilities, or land which supported them or through which trains passed, that was only because the legislation gave that right. That is, any right to use land in that sense was a right given by statute, not by the Access Agreement; so that there was not by the Access Agreement any right to use land granted to or acquired by Pacific National.

21 In the Gas Company case, the majority judgment of Barwick CJ, McTiernan, Kitto and Taylor JJ stated at 125 that the only question in the case was "whether the mains and pipes, or the space occupied by them, constituted an interest in land". Their Honours held (at 127-8) to the effect that the exercise of a statutory right to lay and maintain pipes in another's land does not vest in the donee of the power an interest in land in which the pipes are laid; and accordingly when that land was acquired by a public authority, the donee of the power was not entitled to any compensation for any land or interest in land of which it had been deprived.

22 In that case, the High Court distinguished an earlier High Court decision in North Shore Gas Co. Limited v. Commissioner of Stamp Duties [1940] HCA 7; (1940) 63 CLR 52, which had held that in similar circumstances, the pipes were not "goods, wares or merchandise". It was held to the effect that, since the pipes had been dealt with in a fashion that would, apart from specific legislative provisions, give them the same legal character as the soil in which they were placed, they did not continue to belong to the legal category of personal chattels.

23 In that case, Dixon J (at 70) stated that: "So much of the earth as the pipes displace formed a space in the occupation of the company and that space constitutes land" and that "The company's occupation of the space is as of right and is exclusive". The majority judgment in the later Gas Company case (at 126-7) doubted that the spaced occupied by the pipes constituted an interest in land.

24 In my opinion the later Gas Company case established that the gas company's right in relation to its pipes did not constitute an interest in land; but it did not establish that the space occupied by the pipes was not land. The concurring judgment of Windeyer J (especially at 131-34) makes it clear that this space is land; and the gas company lost the case because it did not have what could properly be called "an interest" in that land.

25 The question in the present case is not whether by the Access Agreement an interest in land was conferred on or acquired by Pacific National, but whether a right to use land was so conferred or acquired. In my opinion, there is no doubt that the combined effect of the Access Agreement and the legislation was that rights to use land were conferred on or acquired by Pacific National.

26 Dealing with the first basis identified by Mr. Slater, in my opinion there are some classes of rail infrastructure facilities that have the character of land and are not deprived of that character by their treatment by the legislation.

27 In my opinion, cuttings, drainage works, track support earthworks, tunnels and service roads are either themselves configurations of land, or else are so much integrated into land as not to be distinguishable from land; and the statutory vesting of ownership of these items in an owner who is not owner of the land on which they are situated does not make them other than land.

28 On the other hand, railway tracks, signalling systems, train control systems, communications systems, overhead power systems, and power and communications cables, are such that the statutory vesting of ownership of these items in an owner who is not the owner of the land could ensure that they are not themselves land.

29 In my opinion, the similar treatment of these two categories by the legislation does not have the effect of making both land or both not land; and in my opinion, the first category is land and (on the basis of the later Gas Company case) the second category is not.

30 As regards the second and third bases identified by Mr. Slater, in my opinion a right to use rail infrastructure facilities in situ carries with it a right to use the space which they occupy, which is land. Mr. Gageler submitted that such a conclusion would be absurd, because it would mean that a right to use a computer would be a right to use land. However, in my opinion, if a right is effectively granted to use a computer fixed at a particular location, that would be a right to use the land occupied by that computer. The right to use the rail infrastructure facilities also in my opinion carries with it the right to use the land supporting these railway infrastructure facilities, especially that supporting the railway tracks, and also the right to use the air space over the railway tracks through which the trains pass.

31 The question then is, are the rights I have identified rights to use land conferred on or acquired by Pacific National "by" the Access Agreement, or are they not so because they arose by operation of cl.5 of Schedule 6A of the TA Act?

32 It is commonplace that powers to grant rights to use land are given by statute. The right to deal with much land in the State is given by the Real Property Act, and other statutes give public authorities the right to deal with land and authorise other persons to use land. The fact that a power to grant such rights is given by statute does not mean that the rights are not conferred on or acquired by the other persons "by" instruments exercising the power.

33 I do not think there should be any different conclusion in this case. The legislation authorised RAC (now RIC) to grant rights which effectively carried with them the right to use land. Accordingly, the Access Agreement was an agreement by which a right to use land was conferred on or acquired by Pacific National within the meaning of s.164A(b) of the Duties Act.

34 For those reasons, in my opinion the following orders should be made:

1. Appeal allowed.

2. Orders below set aside, and in lieu thereof summons dismissed with costs.

3. Pacific National to pay the Commissioner's costs of the appeal, and to have certificate under the Suitors' Fund Act if otherwise eligible.

35 IPP JA: The issues in this appeal are set out in the reasons for judgment of Hodgson and Basten JJA which I have had the benefit of reading.

36 Section 164(1) of the Duties Act 1997 (NSW) provides that duty is charged on a lease instrument "being an instrument that evidences or effects a lease" (that is, a lease as defined by s 164A). Relevantly, s 164A defines a lease as "an agreement (such as a licence) by which a right to use land in New South Wales at any time and for any purpose is conferred on or acquired by a person (who is taken, for the purposes of this Chapter, to be a lessee of the land)" (s 164A(b)).

37 The appeal turns on whether the Rail Access Agreement (which allowed the respondent to operate rail services on railway track now owned by RIC) is an agreement that falls within s 164A(b). That is, whether the Rail Access Agreement entered into between the RAC (the predecessor of RIC) and the respondent is an agreement by which a right to use land in New South Wales was "conferred on or acquired by" the respondent within the meaning of s 164A(b).

38 By the express terms of the Rail Access Agreement, RAC granted to the respondent non-exclusive rights of access to its rail network and "rail infrastructure facilities". The RAC owned the rail network and facilities. The SRA owned the land that supported the network and facilities.

39 Thus, to define the question in the appeal more closely, it is whether the Rail Access Agreement (which gave the respondent non-exclusive rights of access to RAC's - now RIC's - rail network and rail infrastructure facilities) is an agreement by which a right to use the SRA land was conferred on or acquired by the respondent.

40 Clause 5(1) of Schedule 6A to the Transport Administration Act 1988 (NSW) (the "TA Act") provided, at the relevant time:

"A person who is a party to an access agreement is authorised to have access to the rail infrastructure facilities to which the access agreement relates, even if the facilities are situated in or on SRA land, if access is exercised in accordance with and as permitted by the access agreement."

41 The Rail Access Agreement is silent as to the respondent's rights of access to SRA's land, but, as the Rail Access Agreement expressly granted to the respondent non-exclusive rights of access to the RIC's rail infrastructure facilities, the effect of cl 5(1) of Sch 6A to the TA Act was to give to the respondent access to SRA land.

42 The short point is whether, in these circumstances, the Rail Access Agreement either conferred on the respondent a right to use the SRA land or, by that agreement, the respondent acquired the right to use the SRA land.

43 I do not think that it can be disputed that, by reason of cl 5(1) of Sch 6A to the TA Act, the legal effect of the Rail Access Agreement was to authorise the respondent to have access to (and thereby use) the SRA land.

44 Nothing in the terms of the Rail Access Agreement provided for the grant of access to the respondent. Relying on this fact, the respondent argued that the statute (that is, cl 5(1)) is the source of the respondent's authority to have access to and use the SRA land, not the Rail Access Agreement. The respondent submitted that the Rail Access Agreement was concerned only with the use of RIC's rail infrastructure facilities and had nothing to say about access to and use of the SRA land that supported the rail infrastructure facilities.

45 Applying the conventional canons of construction, the expression "conferred on", in s 164A(b) of the Duties Act, should be construed as having a different meaning to "acquired by", in that section. That is not a difficult task as the natural meaning of the words "an agreement by which a right to use land is conferred on a person" differs from the natural meaning of the words "an agreement by which a right to use land is acquired by a person".

46 In my opinion, by its natural meaning, the expression, in s 164A(b), "an agreement ... by which a right to use land ... is conferred on" connotes an agreement which, by its terms, gives to a person a right to use land. On the other hand, by its natural meaning, the expression "an agreement ... by which a right to use land ... is ... acquired by a person" connotes an agreement the legal effect of which results in the acquisition by a person of a right to use land.

47 I accept that, in accordance with the analysis referred to in the preceding paragraph, the Rail Access Agreement does not confer on the respondent a right to use land. But, it cannot be gainsaid that the legal effect of the Rail Access Agreement was that the respondent, thereby, acquired a right to use land.

48 In the circumstances, the Rail Access Agreement is a "lease" in terms of s 164A of the Duties Act and the respondent is liable to pay duty on it.

49 I agree with the reasons and orders proposed by Hodgson JA.

50 BASTEN JA: Between 1 July 2000 and 31 December 2003 the Respondent made payments in excess of $162 million to Rail Infrastructure Corporation ("RIC") pursuant to an access agreement which allowed the Respondent to operate rail services on railway tracks owned by RIC. On 3 September 2004 the Appellant ("the Commissioner") issued an assessment of duties payable on the agreement in an amount of $736,614.44, to cover the period referred to above. The question on the appeal was whether the Respondent was liable to pay duty on the access agreement.

51 According to the Commissioner, the access agreement was subject to duty pursuant to Chapter 5 of the Duties Act 1997 (NSW) as a "lease instrument": s 164. The person liable to pay the duty was the lessee: s 168. Although the access agreement was not a lease in the ordinary sense of that term, the Commissioner asserted that it fell within the extended definition of "lease" in s 164(b) of the Act (as it then was) which read as follows:

"(b) an agreement (such as a licence) by which a right to use land in New South Wales at any time and for any purpose is conferred on or acquired by a person (who is taken, for the purposes of this Chapter, to be a lessee of the land) ...."

52 The Respondent argued that it had no liability, for two primary reasons. The first was that it had no interest in land, but only in what were described in the Transport Administration Act 1988 (NSW) as "rail infrastructure facilities". It was an agreed fact that those facilities were on land which was mostly land vested in the State Rail Authority, but was in any event not land vested in RIC. Accordingly, the Respondent contended that RIC could not have (and did not purport to) grant any right to use land. Secondly, it contended that, in so far as it did use land, it did so pursuant to the terms of the Transport Administration Act, and not pursuant to the access agreement.

53 The primary judge, Gzell J, upheld each of the arguments put forward by the Respondent and revoked the assessment made by the Commissioner: see Pacific National (ACT) Ltd v Chief Commissioner of State Revenue [2007] NSWSC 332. In my view his Honour was in error in each respect and the appeal should be upheld.

54 The dutiable instrument was the "Rail Access Agreement", originally executed on 1 July 1996 by the Respondent (then known as National Rail Corporation Ltd) and a predecessor of RIC, namely Rail Access Corporation (referred to in the agreement as "Rail Access"). The agreement was renewed on 1 July 1997, with amendments and it was the renewed agreement which was apparently in operation throughout the relevant period. The key operative clause in the agreement was clause 2.4 which provided as follows:

(a) Rail Access grants to National Rail the Access Rights on the terms of this Agreement.

(b) The Access Rights granted under clause 2.4(a):

(ii) are for the rights set out in the Train Specification (Schedule D), as determined under clause 3.2(f) or agreed under clause 3.3; and

(iii) are for Train movements under clause 2.4(b)(ii) where those Train movements are running early or late relative to the Train Path.

(c) Rail Access will provide the Ancillary Services set out in Schedule L upon payment by National Rail to Rail Access of the relevant charges."

55 Nothing turned on the right to ancillary services, which may be disregarded. The term "Train Specification" referred to certain technical specifications of trains and their operation, and also to "the timetable maintained by or for Rail Access of all scheduled Train Paths of the Operator on the NSW Rail Network": see Dictionary of Terms and Interpretation, being Schedule 1 to the access agreement, at p 11. The term "Train Path" was defined to mean "the series of track segments over a particular time interval through which a train can travel and may include stopping points and intervals and fuelling stations and other set down or changeover points". The term "track" was also defined:

"'Track' means the rails, ballast sleepers and all items used to fix the rails to the sleepers and to the ground underneath."

56 The Respondent was at pains to emphasise that RIC did not "own" the "ground underneath". Rather, that which was vested in it was that identified as "rail infrastructure facilities" which were affixed to the "ground". Thus, Schedule 6A, clause 2 of the Transport Administration Act relevantly provided at all material times (although the numbering of the sub-clauses varied):

"(2) RIC is the owner of all rail infrastructure facilities installed in or on land, in or on rivers and other waterways and in or on the beds of rivers and waterways by RIC and of all infrastructure facilities vested in or transferred to RIC (whether or not the place on which the facilities are situated is owned by RIC)."

57 The term "rail infrastructure facilities" was defined (either in s 19A or, later, in s 3 of the Transport Administration Act):

"(a) includes railway track, associated track structures, over track structures, cuttings, drainage works, track support earthworks and fences, tunnels, bridges, level crossings, service roads, signalling systems, train control systems, communication systems, overhead power supply systems, power and communication cables, and associated works, buildings, plant, machinery and equipment, but

(b) does not include any stations, platforms, rolling stock, rolling stock maintenance facilities, office buildings or housing, freight centres or depots, private sidings or spur lines connected to premises not vested in or owned by or managed or controlled by [RIC]."

58 It may be appreciated that most, if not all, of the matters described as railway infrastructure facilities, would normally constitute fixtures and would therefore fall within both the general law and statutory definitions of "land": see, eg, Australian Provincial Assurance Co Ltd v Coroneo [1938] NSWStRp 35; (1938) 38 SR (NSW) 700, 712-713 (Jordan CJ, Davidson and Nicholas JJ agreeing), and the Law of Property Act 1925 (UK), s 205. Thus, in the agreement, there is express recognition that the "track" is fixed to the ground underneath and that all "items" used to affix the rails in that manner were part of the "track". To similar effect, the definition in Schedule 6A, clause 2 expressly recognises that infrastructure facilities are installed both "in" and "on" land. These features give rise to two questions, namely:

(a) do they confer on RIC some legal interest in the land to which the facilities are affixed, and

(b) even if the answer to (a) is no, are rail infrastructure facilities nevertheless, in part or in whole, "land" owned by RIC?

59 Answers to those questions were sought to be derived from two judgments of the High Court relating to gas mains and pipes, namely North Shore Gas Co Ltd v Commissioner of Stamp Duties (NSW) [1940] HCA 7; (1940) 63 CLR 52 and Commissioner of Main Roads v North Shore Gas Co Ltd [1967] HCA 41; (1967) 120 CLR 118. In the earlier case, the question was whether gas mains and pipes installed under roads, which were sold as part of the undertaking of a gas company, constituted chattels, so that to the extent they were separately valued as part of the agreement, that part was not subject to duty. The Court unanimously held they were not chattels. As explained by Dixon J at p 67:

"Ordinarily when the chattel elements by which a permanent system or apparatus is formed are assembled and embedded in the soil or established as part of a building they lose their independent nature and for the purpose of the law take on the character of land. Thus, if the land in which the mains were laid had belonged to the company for an estate in fee simple or for any less estate or interest and the company had not acted under its special statutory powers, the mains until removed would have formed part of the realty."

60 However, as his Honour further noted, the pipes and mains were not placed in land owned by the gas company, but in land owned by a third party, namely the road authority; nevertheless, property in the pipes and mains remained in the gas company as did the right to remove them from the land. Dixon J continued at pp 69-70:

"There is therefore no doubt about the purpose, the degree nor the enduring nature of fixation of the pipes or their identification with the soil. So much of the earth as the pipes displaced formed a space in the occupation of the company and that space constitutes land. The company's occupation of the space is as of right and is exclusive."

61 The Court held that the pipes and mains, whilst in situ, were not chattels or tangible moveables and were therefore not exempt from duty. The fact that, by statute, they remained the property of the company, so that ownership did not vest in the owner of the soil, did not mean that they retained their character as chattels. As Rich J explained at p 62:

"The statute prevents many of the consequences which would ensue from such a transition from the category of chattels personal to that of land, but it stops short of preventing the transition itself."

62 The later North Shore Gas case involved the acquisition of land, including land in which lay pipes owned by the gas company, for the Warringah Expressway; the issue was whether there had been an acquisition of an interest in land held by the gas company. The Court held that there had not and treated remarks in the judgments of Rich and Dixon JJ in the earlier case as both obiter and incorrect. The joint judgment (of Barwick CJ, McTiernan, Kitto and Taylor JJ), in casting doubt on the proposition that the gas company obtained some legal interest in the land in which the pipes lay, asked "why should it be assumed that the exercise of a specific statutory right to lay and maintain pipes, as in the present case, operates to vest in the donee of the power an interest in the land in which the pipes have been laid?" The judgment continued (p 127):

"The conclusion that it does seems to us to result from a lawyer's inherent tendency to assimilate such a right to some category known to the common law. It is, of course, a very special right."

63 Their Honours (at pp 127-128) preferred and adopted the reasoning of Evershed J in Newcastle-under-Lyme Corporation v Wolstanton Ltd [1947] Ch 92 where, in relation to a similar statutory right to lay pipes or cables, his Lordship reached the following conclusion (at p 104):

"It follows that, if I am right so far, the interest of the undertakers must be that of licensees without any title, legal or equitable, in the land itself."

The interests of the gas company were thus assimilated to a different common law category.

64 The objection to the adoption of common law categories is made clear in the judgment of Windeyer J. He too stated (p 131):

"It seems to me futile really to try to classify and describe the respondent's rights in respect of mains and pipes under streets and roads according to the traditional categories and terminology of the law of real property."

The reason for avoiding established categorisation is because the focus is not on the description which may be said to engage, at least by analogy, the category in question, but the consequences which flow from the adoption of a particular category.

65 Windeyer J was in no doubt that the gas company was, absent statutory provision to the contrary, in occupation of the land where the pipes lay, for rating purposes: pp 131-132. He continued:

"To my mind it is pedantic logic-chopping to suggest that because a pipe is hollow the space of the earth which it occupies when embedded in the soil is not 'land'.

66 However, he did not accept that because the gas company was in occupation of land it therefore had an interest or estate in land, in the general law sense, even though its right could not be reduced to that of a revocable licence. He continued (p 133):

"However there is here an analogy to an easement as known to the common law; and if it be necessary to [give] some name to the right in relation to land which the respondent enjoyed, it was what is nowadays very often called a 'statutory easement'."

67 Noting that an Act creating a right need not, and in the present case did not, give the rights any particular name, he noted that "the respondent hopes that by putting some known label on them they will be shown to create an 'estate' or 'interest' in 'land' within the meaning of the Public Works Act". His Honour concluded (p 134):

"It is thus, I think, fallacious to say that because the privilege of the respondent can be called, or miscalled, an 'easement' the rights of the gas company are an incorporeal hereditament and therefore an estate or interest in land."

68 To derive any answer to the present question from the two North Shore Gas Co cases would be to overlook the basic principle for which they stand. The correct approach is to identify the nature of any power or interest conferred on a statutory authority pursuant to its constituting regime, or any other Act relevant to it, and to identify such consequences as may flow from that scheme without assuming that the legal consequences will be those which would flow from an analogous general law categorisation of the power or interest.

69 Importantly for present purposes, the Transport Administration Act does not confer on RIC any express power to establish or operate rail infrastructure facilities in or on the land of another. Rather, it confers ownership of all such facilities which are installed in or on land by RIC or which are vested in or transferred to RIC, without regard to the ownership of the "place on which the facilities are situated": Schedule 6A, clause 2(2). To the extent that rail infrastructure facilities are situated on land owned by another party, there will be a statutory reversal of the common law principle which would vest ownership of the facilities affixed to the land in the owner of the land. It may be that RIC thus obtained an interest in that stratum of the solid surface of the earth which itself comprises part of the rail infrastructure facilities and the space above the physical facilities, to the extent necessary to carry out the ordinary operations of a railway business: see Bernstein of Leigh (Baron) v Skyviews & General Ltd [1977] EWHC 1; [1978] QB 479 (Griffiths J); Bendal Pty Ltd v Mirvac Project Pty Ltd (1991) 23 NSWLR 464 (Bryson J) and LJP Investments Pty Ltd v Howard Chia Investments Pty Ltd (1989) 24 NSWLR 490.

70 Whether that is the correct conclusion may depend upon the relationship between RIC and the owner of the underlying land, which is said (usually but not universally) to be the State Rail Authority of New South Wales ("the SRA"). Beyond that fact, little is known about the relationship. For example, Schedule 6A, clause 2 of the Transport Administration Act envisages that rail infrastructure facilities will be installed by RIC or vested in or transferred to RIC. Each of these concepts implies a contractual arrangement or a conveyance the terms of which are not defined by the statute. It would be unfortunate if this case sought to identify such terms, in the absence of relevant evidence, in such a way as might affect the relationship between RIC and the SRA. Nor is it necessary to do so, as may appear from the terms of the Duties Act relevant in the present circumstances. What the Transport Administration Act does provide is a right in RIC, in accordance with its objectives and functions, to "hold, manage, maintain and establish rail infrastructure facilities on behalf of the State": s 19E(2). The nature of the relationship between RIC and the land owner is to some extent governed by the terms of Schedule 6A and perhaps by regulations made pursuant to clause 15 of the Schedule 6A: however, the parties placed no emphasis on these matters. It may be noted that Schedule 6A now contains a clause 13A pursuant to which RIC is empowered to "acquire" rail infrastructure facilities and to do so pursuant to the Land Acquisition (Just Terms Compensation) Act 1991 (NSW). Whether the express provision that "a reference in that Act to land includes a reference to rail infrastructure facilities and any interest in such facilities" (sub-cl 3(a)), and the provision that the clause applies "in respect of rail infrastructure facilities severed from the land by operation of this Act or any other law" (sub-cl (8)), imply that rail infrastructure facilities would not otherwise constitute "land" for those purposes was not addressed and may be put to one side.

71 There are also possible indications in Schedule 6A that RIC, as the owner of rail infrastructure facilities is the holder of an interest in land. Thus, clause 3 permits an "infrastructure owner" (defined in clause 1 to mean an owner of rail infrastructure facilities) to enter and occupy, amongst other areas, "land adjacent to railway land". Subclause 3(6) provides:

land adjacent to railway land means land that is adjacent to or adjoins land owned or occupied by a rail authority, or land in or on which rail infrastructure facilities are or a railway building is situated in which an infrastructure owner or a building owner has an interest by way of easements or stratum parcel."

72 The reason why these questions may be avoided is that the liability to pay duty on the agreement does not depend on the lessee having any estate or interest in the land, but arises if the agreement confers or gives rise to a "right to use land". It was the unanimous view of the High Court in Commissioner of Main Roads v North Shore Gas Co Ltd that the gas company had the right to use the land by laying pipes in it. The joint judgment accepted the description of the company as having an interest of a "licensee"; Windeyer J referred to the company's "right of occupation". There can be no doubt that RIC, having ownership of rail infrastructure facilities, including tracks, and their supports, has a right of occupation of land not merely for the purpose of occupying the land by holding and maintaining the facilities, but also to the extent necessary to allow for their use by rolling stock.

73 Definitions of 'land' often encompass both the physical nature of land and the legal concept of rights in the physical resource. Thus, as noted by Professor Butt in Land Law (4th ed, Lawbook Co, 2001) p 8:

"The Oxford English Dictionary gives the primary meaning of 'land' as 'the solid portion of the earth's surface, as opposed to sea, water'. This may accord with the term's everyday meaning, but it is not an adequate definition for legal purposes. In law, 'land' is not restricted to the earth's surface, but extends below and above the surface. Nor is it confined to solids, but can encompass such things as gases and liquids.

In its common law meaning, 'land' is an area [sic] of three-dimensional space, its position identified by natural or imaginary points located by reference to the earth's surface. This three-dimensional space may include the earth's surface, or it may be wholly above it or wholly below it. It may have physical contents or it may be a void, for any three-dimensional quantum of the space - even airspace - can be 'land'."

74 The same concept is to be found in K. Gray and S. Gray, Elements of Land Law (4th ed, OUP, 2005) at [1.40]:

"As a matter of strict definition 'land' may include a cubic quantum of airspace which is separate from the physical solum. From this there follows the initially improbable notion that an individual can literally own an estate in thin air - a proposition which neatly gives the lie to any assumption that land is necessarily a tangible resource. A three-dimensional quantum of airspace can exist as an 'independent unit of real property'. Such airspace can be conveyed in fee simple; it can be leased; it can be subdivided; it can even be subjected to land taxes."

Indeed, the one thing which probably cannot constitute "land" for any practical legal purpose is a two-dimensional plane forming the earth's surface. It is only a cubic dimension which can be utilised. A boundary may have two dimensions, but not land.

75 Land may in some contexts include the seabed: Goldsworthy Mining Ltd v Federal Commissioner of Taxation [1973] HCA 7; (1973) 128 CLR 199. As noted by the High Court in Risk v Northern Territory of Australia [2002] HCA 23; (2002) 210 CLR 392 (Gleeson CJ, Gaudron, Kirby and Hayne JJ), a case involving a claim under the Aboriginal Land Rights (Northern Territory) Act 1976 (Cth), the claim, if granted, would encompass parts of the seabed. The joint judgment noted at [31]:

"It would follow that, if granted, the claimants' interest in the seabed would, on its face, appear to permit them to control access to the superjacent waters."

"... [I]t may be observed that there is nothing in the Land Rights Act which appears to limit the rights of the holder of an estate in fee simple in land granted under the Act to rights over only the solid substance of the earth's crust, as distinct from those parts of the superjacent fluid (be it liquid or gas) which can ordinarily be used by an owner."

76 In the present case, it may be accepted that there has been, pursuant to statutory authority, a division of ownership between parts of the land and objects which would normally constitute parts of the land, such as fixtures and structures which become part and parcel of the land. How that separation has been effected is a matter which was not addressed in the evidence. For example, a tunnel may include an open space and a space filled with construction materials, such as a wall or ceiling or floor. No attempt was made to explain where the boundaries of such a tunnel lay. Rather, it appears to have been the Respondent's case that so much of the particular structure as lay within the ownership of the SRA might be land, whereas that part which lay within the ownership of RIC was not. However, it is trite to say that land may be divided both vertically and horizontally. There is no reason why a structure cannot be separated from the land above, below or beside it. In the general meaning of "land" the identity of the owner is rarely if ever a relevant criterion for determining whether or not the thing owned is land or not.

77 The Duties Act itself is not helpful in this respect. Although it contains, in its Dictionary, a reference to land, it merely notes that "land includes a stratum". "Land" is also defined in s 21 of the Interpretation Act 1987 (NSW), again inclusively, by reference to "messuages, tenements and hereditaments, corporeal and incorporeal, of any tenure or description, and whatever may be the estate or interest therein". This language does not take the matter any further: but see Butt, at [1601].

78 There is no doubt that RIC has a statutory right to occupy land in or on which are rail infrastructure facilities which it owns. Its principal objective "is to ensure that the part of the NSW rail network vested in or owned by Rail Infrastructure Corporation enables safe and reliable passenger and freight services to be provided in an efficient, effective and financially responsible manner": Transport Administration Act, s 19D(1). To that end, it is required to "promote and facilitate access to the part of the NSW rail network vested in" it: s 19D(2)(a). It does that by entering into access agreements which permit others to operate rolling stock on the NSW rail network. As the owner of the facilities which constitute the NSW rail network, it has statutory power to control access and to confer rights of access on operators such as the Respondent. The access agreement the subject of the present proceedings confers on the Respondent a right to use the tracks which constitute part of the NSW rail network for the purpose of operating rolling stock. Subject to the second question addressed below, as to the precise role of the access agreement in this respect, the Respondent has a right to use so much of the land as is constituted by the upper surface of the tracks and the superjacent air space to such height as is reasonably necessary for the operation of rolling stock. It matters not for that purpose whether the right should properly be understood to extend to the land on which the tracks rest or whether RIC itself has an interest in the land constituted by the space occupied by the tracks. It is sufficient that the Respondent has a contractual licence to use the overlying space. That right constitutes a right to use land for the purposes of s 164(b) of the Duties Act.

79 It is, of course, true that read literally, s 164 (and now s 164A) of the Duties Act may cover a multitude of instruments which evidence or effect a right to use land. However, in a practical sense, the kind of instrument captured may not be as wide as would appear. Thus, a ticket to enter a parking station might appear to be a "lease instrument" but it would not be chargeable, because of the exemption in s 179 of the Duties Act. A contract of employment might also provide a licence by which a right to use land is acquired, but the owner of the land (the employer) makes the payment and thus the licensee (employee) would not be subject to any cost which would be chargeable: see s 166. In any event, the argument by way of absurd examples has nothing to say about the particular exception contended for by the Respondent, based upon a division of ownership of things which might usually constitute realty in the form of structures and land. Thus, the parking station operator may equally be the owner, lessee or a licensee of the parking station.

80 The second basis upon which the Respondent sought to escape liability was that any right to use land which it might acquire for the purpose of its rail operations, was not conferred by the access agreement, but by the Transport Administration Act itself. That flowed, so it was said, from Schedule 6A, clause 5 of the Transport Administration Act, which read as follows:

"5 Party to access agreement with owner authorised to enter railway land, railway buildings or rail infrastructure facilities

(1) A person who is a party to an access agreement is authorised to have access to the rail infrastructure facilities to which the access agreement relates, even if the facilities are situated in or on railway land, or to a railway building or rail infrastructure facility that is not vested in, owned by or managed or controlled by the person, if access is exercised in accordance with and as permitted by the access agreement.

(2) A person to whom this clause applies does not require a certificate of authority under this Schedule to enter the railway land or railway building or rail infrastructure facility concerned.

(3) In this clause, access agreement means an agreement, entered into by the owner pursuant to the current NSW rail access undertaking, that permits a person to operate rolling stock on the NSW rail network."

81 Clause 5, however, confers no right on the Respondent: any right which the Respondent acquires, of a kind defined by clause 5, depends upon it entering into an access agreement with RIC. It must pay for the right which it thus acquires and agree with RIC as to the terms of the acquisition. In that respect, the right is no different in kind to the right acquired by the purchaser of any other right, power or privilege in relation to a thing or a structure. The scope of the right is defined in part by law; the power to exercise it is conferred by agreement with the owner or any person having power to confer it. Thus, the purchaser of land acquires rights in relation to the land which are defined and limited both by principles of the general law and by statute.

82 Further, the Duties Act expressly encompasses not only an agreement by which a right to use land is conferred on a person, but also an agreement by which a person acquires such a right. If there is doubt as to whether the access agreement can be described as conferring a right to use the rail tracks (and I do not think there is) it would be sufficient that the Respondent acquires the right to use the tracks by entering into the access agreement. Either is sufficient to satisfy the terms of s 164(b).

83 It follows, in my view, that the conclusion of the trial judge to the contrary was in error. The appeal should be allowed and the orders made in the Equity Division set aside. The summons issued by the Respondent seeking orders and declarations based on the invalidity of the assessment, should be dismissed with costs. The Respondent should be ordered to pay the Appellant's costs in this Court.

19/11/2007 - Correction to spelling of Counsel's name - Paragraph(s) coversheet

Transport Administration Amendment (Rail Corporatisation and Re-Structuring) Act 1996(NSW)

Administration Act 1988

Owned Corporations Act 1989

Transport Administration Amendment (Rail Corporatisation and Re-Structuring) Act 1996(NSW)

Administration Act 1988

Owned Corporations Act 1989

At a glance

Court

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Before

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Judgment (157 paragraphs)

Legislation Cited (8)

Cases Cited (8)