Chief Commissioner of State Revenue v Shell Energy Operations No 2 Pty Ltd

Commissioner of Taxation (Cth) v St Helens Farm (ACT) Pty Ltd (1981) 146 CLR 336; [1981] HCA 4 Cottee Dairy Products Pty Ltd v Minad Pty Ltd (1997) 8 BPR 15,611 Georgeski v Owners Corporation SP49833 (2004) 62 NSWLR 534; [2004] NSWSC 1096 Holland v Hodgson (1872) LR 7 CP 328 Knight v Barber (1846) 16 M & W 66; 153 ER 1101 Meridian Energy Australia Pty Ltd v Chief Commissioner of State Revenue [2022] NSWSC 1074 North Shore Gas Co Ltd v Commissioner of Stamp Duties (NSW) (1940) 63 CLR 52 Smith's Snackfood Co Ltd v Chief Commissioner of State Revenue (NSW) (2013) 97 ATR 904; [2013] NSWCA 470 SPIC Pacific Hydro Pty Ltd v Chief Commissioner of State Revenue (2021) 113 ATR 24; [2021] NSWSC 395 Stephenson v Thompson [1924] 2 KB 240 TEC Desert Pty Ltd v Commissioner of State Revenue (2010) 241 CLR 576; [2010] HCA 49 The Noordam (No 2) [1920] AC 904 Vopak Terminal Darwin Pty Ltd v Natural Fuels Darwin Pty Ltd (2009) 258 ALR 89; [2009] FCA 742 Vopak Terminals Australia Pty Ltd v Commissioner of State Revenue (2004) 12 VR 351; [2004] VSCA 10 Yanner v Eaton (1999) 201 CLR 351; [1999] HCA 53 Texts Cited: Hansard, Legislative Assembly, 17 June 2009, p 16248 Hansard, Legislative Assembly, 6 March 2012, pp 8992-8993 Peter J McMahon, "Legal Nature of a Tenant's Interests in its Fixtures" (2016) 90 ALJ 370 Samantha Hepburn and Steve Jaynes, "The nature and scope of rights of removal" (2013) 2 Property Law Review 123 Stuart Bridge, Elizabeth Cooke and Martin Dixon, Megarry & Wade: The Law of Real Property (Sweet & Maxwell, 9th edn), [22-005] Category: Principal judgment Parties: Chief Commissioner of State Revenue (Appellant)

Shell Energy Operations No 2 Pty Ltd (Respondent) Representation: Counsel:

S Balafoutis SC, S Kanagaratnam and O Berkman (Appellant)

Price Waterhouse Coopers (Respondent) File Number(s): 2022/00273229 Decision under appeal Court or tribunal: Supreme Court Jurisdiction: Equity Citation: Meridian Energy Australia Pty Ltd v Chief Commissioner of State Revenue [2022] NSWSC 1074 Date of Decision: 12 August 2022 Before: Ward CJ in Eq File Number(s): 2020/223736

[Note: The Uniform Civil Procedure Rules 2005 provide (Rule 36.11) that unless the Court otherwise orders, a judgment or order is taken to be entered when it is recorded in the Court's computerised court record system. Setting aside and variation of judgments or orders is dealt with by Rules 36.15, 36.16, 36.17 and 36.18. Parties should in particular note the time limit of fourteen days in Rule 36.16.]

HEADNOTE [This headnote is not to be read as part of the judgment] In 2014 a private company, Green State Power Energy Pty Ltd (GSP), had acquired interests in three power stations pursuant to a State privatisation process: at Burrinjuck Dam, on the Murrumbidgee River; at Hume Dam, on the Murray River; and at Keepit Dam, on the Namoi River. The respondent subsequently acquired all of the shares in GSP on 29 March 2018. The appellant, the Chief Commissioner of State Revenue (the Commissioner), determined that this was a "relevant acquisition" for the purposes of s 149 of the Duties Act 1997 (NSW) and therefore dutiable. The Commissioner considered that GSP was a "landholder" under Ch 4 of the Duties Act because it held property interests in the items constituting the power stations, which items were fixtures and thus part of the land on which they sat. The respondent sought a review pursuant to s 97(1)(a) of the Taxation Administration Act 1996 (NSW). It submitted that the property interests in the items constituting the power stations had legally been severed from the land by reason of two vesting orders made under the Electricity Generator Assets (Authorised Transactions) Act 2012 (NSW) (the EGA Act). The first vesting order was made in 2013, and vested interests in the items constituting the power stations - which were listed in great detail - in a State owned corporation known as Green State Power. A second vesting order in 2014 vested those interests in turn in GSP as part of a sale process. The primary judge, Ward CJ in Eq, determined the review in the respondent's favour. Three grounds were raised on appeal by the Commissioner. The first was whether or not the effect of the vesting orders was legally to sever the items constituting the power stations from the land to which they were affixed. Her Honour had held that that had been the effect of the 2013 vesting order and the interests in the power stations had become innominate sui generis property interests. The second ground was whether, even if the interests in the power station items had been severed form the land, they were nevertheless interests in "goods" for the purposes of Ch 4 of the Duties Act, and therefore remained dutiable. The primary judge had held that they were not. The third ground was whether the primary judge erred in determining the value of the bare leasehold interests, that is, the value of the interests in the land on which the power stations sat (ie without regard to the power stations). Faced with a situation in which all the assets of GSP could be valued save for two - the bare land leases and certain water agreements - the primary judge had regard to which of the two types of assets was the "driver" of value. The Court (per Kirk JA, Adamson JA and Griffiths AJA agreeing) upheld the appeal on the second ground only, and explained: Ground 1: the vesting orders severed the power stations

JUDGMENT

1. KIRK JA: This appeal concerns the duty payable upon the acquisition by the respondent of all of the shares in a company said to be a "landholder" for the purposes of Chapter 4 of the Duties Act 1997 (NSW). The amount paid for the acquisition was over $160 million. That company had interests in items which formed part of three hydro-electric power stations in this State. The primary focus of the dispute is whether those interests were interests in land, or alternatively interests in goods, for the purposes of the Act - so that in either event the acquisition of the shares would be dutiable - or whether instead the interests were more properly characterised as innominate sui generis property interests, as found by the primary judge, so as not to be dutiable. The acquisition occurred before the introduction of s 147A of the Duties Act, which now provides that "land" includes anything fixed to the land.
2. The context of the dispute is the privatisation of State-owned electricity generation assets a decade ago. The Electricity Generator Assets (Authorised Transactions) Act 2012 (NSW) (the EGA Act) was passed in order to facilitate carrying that policy of privatisation into effect. The Act gave the Treasurer powers to transfer assets owned by the State or by State-owned entities between public sector entities and from public sector entities to the private sector. Three hydroelectric power stations were subject to the privatisation process and are now at the centre of this dispute: at Burrinjuck Dam, on the Murrumbidgee River; at Hume Dam, on the Murray River; and at Keepit Dam, on the Namoi River. Transfers of assets associated with the power stations were made pursuant to the EGA Act. Those transfers had the ultimate effect of vesting certain interests in those assets in a privately owned company, GSP Energy Pty Ltd (GSP).
3. The respondent is now called Shell Energy Operations No 2 Pty Ltd, but was at relevant times known as Meridian Energy Australia Pty Ltd. It acquired all the shares in GSP on 29 March 2018. The appellant, the Chief Commissioner of State Revenue (the Commissioner), determined that this was a "relevant acquisition" for the purposes of s 149 of the Duties Act and therefore dutiable. The Commissioner was of the view that the effect of the various instruments used to effect privatisation of the power stations was, by vesting land in GSP, to render GSP a "landholder" under Ch 4 of the Act. The Commissioner accordingly issued a Duties Notice of Assessment.

The legal context

1. Chapter 4 of the Duties Act, as it applied in March 2018 when the shares in GSP were acquired, was headed "Acquisition of interests in landholders". Part 2 of that chapter was headed "Charging of duty on acquisitions of interests in landholders". Section 148 provided that a liability for duty under that Part arose when a "relevant acquisition" is made. What constituted a "relevant acquisition" was spelt out in s 149. Part of that definition involved acquiring an interest in a "landholder". There is no dispute that the respondent's acquisition of the shares in GSP was a relevant acquisition.
2. Section 155 relevantly provided, in effect, that duty was chargeable at the general rate (as set by s 32) on a relevant acquisition on the amount of the "unencumbered value of all land holdings and goods of the landholder" acquired in that transaction.
3. It is now not in dispute that some duty was payable. The respondent accepted in this Court that the acquisition was dutiable on the basis that GSP had unencumbered land holdings and goods valued at some $3.4 million. The matter in dispute is whether the interests GSP held in the three power stations generally constituted either "land holdings" or "goods" within the meaning of s 155 such that the value of those interests was dutiable. As indicated, the primary judge held that they were neither.
4. The general law relating to fixtures is an important part of the legal context here: as to which, see the useful summaries in Vopak Terminal Darwin Pty Ltd v Natural Fuels Darwin Pty Ltd (2009) 258 ALR 89; [2009] FCA 742 at [50]-[72] per Lindgren J (Vopak FCA); SPIC Pacific Hydro Pty Ltd v Chief Commissioner of State Revenue (2021) 113 ATR 24; [2021] NSWSC 395 at [72]-[92] per Payne JA. There was no dispute that the things comprising the three power stations were affixed to the land and would, at general law, be fixtures. Something "annexed to the land becomes part of the land": Holland v Hodgson (1872) LR 7 CP 328 at 334. Thus so long as the items constituting the power stations were affixed to the land, and subject to any contrary contractual provision, they were owned by the owner of the land.
5. The general law also recognises that things affixed by a tenant may be reclaimable by the tenant. This category is labelled "tenant's fixtures" and encompasses things installed by a tenant for trade, domestic or ornamental purposes: see eg Vopak FCA at [67]. It was not disputed that the items constituting the power stations were affixed for the purposes of trade. The primary judge noted at [16] that, under general law principles, "tenant's fixtures remain part of the land and are thus owned by the landlord; and that, while the tenant has a right under law to remove the fixtures during or at the end of the tenancy, if the tenant fails to do so the tenant loses that right and the fixtures become the absolute property of the landlord"; see further North Shore Gas Co Ltd v Commissioner of Stamp Duties (NSW) (1940) 63 CLR 52 (North Shore Gas (No 1)) at 67-68 per Dixon J; TEC Desert Pty Ltd v Commissioner of State Revenue (2010) 241 CLR 576; [2010] HCA 49 at [25]-[26]. Ownership of a thing affixed to the land may thus move from the tenant to the landlord when the thing is affixed, then back to the tenant if and when they exercise the right to remove those fixtures which are tenant's fixtures.

Relevant facts before 2013

1. The three power stations in question in this appeal were constructed over the course of the 20th Century. Construction of the dam at Burrinjuck began in 1907 and was completed in around 1928. Construction of the first power plant at the site began in the 1920s, and a second power station was built in the 1930s. The first power station was destroyed by flood in 1974. Construction of the Hume dam began in the 1920s and was completed in the 1930s. A power station was completed in the 1950s. Work on the Keepit dam began in 1939 and was completed by 1960, at which point the power station also came into service. Numerous works appear to have been done on each of the sites over the course of their existence. There is no clear evidence about the precise nature of such works or on whose behalf they were done.
2. The land on which the three power stations are situated is now owned by the Water Administration Ministerial Corporation (WAMC). Prior to 2013 the situation was as follows: 1. As to Burrinjuck, a lease dated 6 July 1998 (the 1998 lease) indicates that the land was owned by WAMC at that time. 2. As to Hume, there is in evidence a request dated 19 May 2014 made by WAMC under the Real Property Act 1900 (NSW) which seeks that it be recorded as the registered proprietor of the relevant land at the Hume power stations. The registered proprietor at that time was the Water Resources Commission, being a statutory predecessor of WAMC. The request referred to the title having been issued in 2009. This would suggest that WAMC has been the owner since at least 2009, though recorded on the register as the Water Resources Commission, despite that body having become WAMC in 1986 (see cl 10 of Sch 4 to the Water Administration Act 1986 (NSW)). 3. As to Keepit, the evidence does not disclose ownership prior to 2013, but it was common ground between the parties that some State entity owned the land. By at least the time of the 2014 vesting order it is apparent that the land in question was owned by WAMC, because around the same time a lease was entered for the land recording WAMC as the lessor. Given that fact, given that the land for the other two power stations was owned by WAMC, and given the parties' acceptance that some State entity owned the land, I infer that it is also likely that at least by the time of the 2013 vesting order (made on 30 July 2013) the land in question was owned by WAMC.

The privatisation process and the respondent's acquisition of GSP

1. The EGA Act was enacted in 2012, the long title of which says that it is an Act "to authorise and provide for the transfer of the electricity generator assets of the State". In particular, the Act facilitated the privatisation of those assets.
2. On 30 July 2013, in furtherance of the government's policy of privatisation, the then Treasurer, Mr Mike Baird, made a vesting order which, on its face, was purportedly made under s 13 and Sch 4 of the EGA Act. The order was directed largely at the transfer of certain assets, rights and liabilities from Eraring Energy to a company named Green State Power Pty Ltd (Green State Power). Green State Power had been incorporated under the Corporations Act 2001 (Cth) as a state-owned corporation on 4 June 2013. The apparent purpose of Green State Power's incorporation was to create an entity in which could be vested various assets before their ultimate privatisation. The order encompassed assets at the three power stations. The text of the vesting order is considered below when addressing Ground 1.
3. On 11 July 2014 leases were executed in respect of each of the three power stations. The lessor on each lease was WAMC and the lessee was Green State Power. The leases were registered on 15 July 2014. They were expressed as commencing on 18 July 2014.
4. On 23 June 2014 the government, Green State Power and GSP entered into a sale agreement relating to the three power stations. Under that agreement GSP agreed to buy defined "Green State Power Assets" from Green State Power. It was agreed that the sale would be effected by way of a vesting order under the EGA Act.
5. On 17 July 2014 Mr Andrew Constance, the then Treasurer, made a vesting order which, like the 2013 vesting order, indicated on its face that it was made under s 13 and Sch 4 of the EGA Act. It vested various assets of Green State Power in GSP, which is referred to as "the Purchaser" in the order. Those assets included the three new leases.
6. In December 2017 the respondent entered into an agreement with the owner of the shares in GSP to acquire all the shares in that company. The acquisition completed on 29 March 2018. It is that acquisition which raises the duty question here.

Power to make the 2013 vesting order

1. The Commissioner's position is that the 2013 and 2014 vesting orders should not be construed as transferring to Green State Power or GSP (respectively) the property interests held by WAMC in any fixtures in the land at the three sites. He raises a preliminary point about power to make those orders. In 2013, prior to the vesting orders, WAMC owned the fixtures as the owner of the land at the three sites, save that any fixtures which were tenant's fixtures were subject to a right of removal. That remained true in 2014, subject to consideration of the 2013 vesting order. He submitted to this Court that the EGA Act did not authorise vesting orders dealing with the property interests of WAMC. I reject that submission.
2. The two vesting orders in question are expressed on their face as being made under s 13 and Sch 4 of the EGA Act. Section 13 provided at the relevant times that "[t]he Treasurer may make vesting orders under Schedule 4 for the purposes of an authorised transaction". Clause 2 within Sch 4 provided: The Treasurer may, by order (a vesting order), vest assets, rights and liabilities of a public sector agency that is an electricity generator or transaction entity in a person specified in the order as the transferee.
3. An electricity generator was defined in s 3 to mean "a statutory State owned corporation constituted by the Energy Services Corporations Act 1995 as an electricity generator under that Act". Eraring Energy fell within that category: note the Energy Services Corporations (Eraring Energy) Regulation 2000 (NSW). Thus its assets could be dealt with pursuant to this power, as occurred pursuant to the 2013 vesting order. But WAMC was not an electricity generator.
4. A "transaction entity" was defined in cl 1 of Sch 1 to mean "a transaction SOC or a transaction company" each of which is defined in the same clause to mean, respectively, "a SOC established as a transaction SOC pursuant to this Act" and "a company established as a transaction company pursuant to this Act" (a SOC being a State owned corporation). Green State Power was a transaction company: PJ [25]. There is no suggestion that WAMC fell into either of these categories.
5. The respondent sought to emphasise that cl 2 in Sch 4 authorises the transfer of "assets", where that term was defined broadly in cl 1 of Sch 1 to mean "any legal or equitable estate or interest (whether present or future, whether vested or contingent and whether personal or assignable) in real or personal property of any description …". It argued that the reference to "future" property was broad enough to encompass the rights Eraring Energy (and then Green State Power) held to reclaim tenant's fixtures in the power stations. Yet the broad definition of "assets" does not alter the fact that cl 2 in Sch 4 authorises the vesting of assets, rights and liabilities of entities which do not include WAMC. The issue here is from whom the assets (etc) may be transferred, not what may be transferred.

Ground 1: whether either vesting order severed the power stations

1. The primary judge said at [136] that "there is at first blush much to support the argument of the Chief Commissioner that all that was conveyed by the respective Vesting Orders was an interest in the Power Stations as fixtures (and hence that GSP held an interest in land in the Power Stations for the purposes of considering the landholder duty provisions)". However, her Honour went on to hold that the effect of the vesting orders was "a statutory severance of the Power Stations (as fixtures) from the land on which they were situated": PJ [140].
2. Her Honour's core reasoning was as follows: [141] … However, the force of Meridian's argument in my opinion derives from the way in which the 2013 Vesting Order is framed; and particularly the inclusion in the Schedule of the Hume and Keepit Dams not in the category of real property or leasehold property but as "things" falling within the second part of the Schedule under the heading "Property, Plant and Equipment" and enumerated in Annexure 2 to the Vesting Order. Thus, I find that the Power Stations do not meet the description of land (or of interests in land) insofar as they fall within the catch-all description of "tangible property" within par 2 of Sch 1 of the 2013 Vesting Order. I therefore consider that the Power Stations were conveyed, in gross, to Green State Power under the 2013 Vesting Order as an innominate sui generis property interest. As such, the effect of the 2013 Vesting Order was that Green State Power did not acquire an interest in the freehold land, nor was that interest dependent on the grant of any lease by the registered proprietor of that land. Such a conclusion is consistent with the parties' subsequent treatment of the Power Stations (though I do not suggest this is in any way determinative) in the warranties in the Privatisation Agreement. [142] Thus, upon the making of the 2014 Vesting Order, the Power Stations held by Green State Power as an innominate sui generis property interest became vested, in gross, in GSP, and GSP continued to hold those Power Stations as innominate sui generis property. Nothing in the making of the 2014 Vesting Order, which was in materially identical terms to the 2013 Vesting Order, caused the Power Stations to change their character, or in effect "undid" the statutory severance of the Power Stations from the land. [143] Therefore, I have concluded (although I accept that this runs counter to the traditional dichotomy between chattels and fixtures) that the interest in the Power Stations vested in GSP is not an interest in land. …

2013 vesting order

1. The 2013 vesting order is titled "Vesting Order - Eraring Energy Excluded Assets". The notion of "excluded assets" reflected the fact that a purpose of the order was to separate out from Eraring Energy certain renewable energy generating assets, including the three hydroelectric power stations the subject of this case. The order refers to the existence of an agreement for the sale of shares in Eraring Energy - still containing other assets, including the Eraring power station - to Origin Energy Power Ltd.
2. The operative provision in the 2013 vesting order is cl 3, which reads as follows: The assets, rights and liabilities of Eraring Energy listed or described in Schedule 1 to this Order, being assets, rights and liabilities of a public sector agency that is an electricity generator, are vested in the public sector agencies as set out in this Order with effect from the Effective Time, subject to the terms and conditions set out in this order.
3. Paragraph 1 of Schedule 1, titled "Real Property", refers to: The assets, rights and liabilities of Eraring Energy in, attaching to or running with any of the property identified below, or arising as a result of ownership occupation or possession of the property, including: (a) the benefit and burden of any leasehold interests, licences, easements, covenants, restrictions on use or other affectations attaching to the property; and (b) any improvements on the properties.
4. Under this paragraph there appears a table, with several headings, one of which is "Part B: Leasehold Property". Under that heading falls the following item: Lease ID # Lessor Registration No Title Reference Expiry Date Transferee Agreement for Lease (Burrinjuck Power Station) Water Administration Ministerial Council (WAMC) Not registered Part Lot 1 in DP 597680 30 years from 1 March 2002 (there are 3 options to renew, each for an additional 10 years). GSP [meaning Green State Power]

1. It was not disputed that the reference to the lease which commenced from 1 March 2002 was to the 1998 lease. This schedule did not list any lease for the Hume or Keepit power stations. As discussed above at [18]-[25], there is no evidence that there were then leases in place for them.
2. The respondent did not argue that this vesting of the 1998 lease at Burrinjuck had the effect of causing a legal severance of the fixtures at that power station. All that this entry did was transfer the benefits and burdens that Eraring Energy held under the lease to Green State Power.
3. The second paragraph in the Schedule is headed "Property, Plant and Equipment", and reads: (a) The assets, rights and liabilities of Eraring Energy in all fixtures, chattels, plant, equipment, infrastructure, facilities and other tangible property located at or on the Property and to the extent owned, benefitting, burdening or used by Eraring Energy in connection with the Excluded Assets Business, including the chattels and other tangible property located in the Sydney office at Level 16, 227 Elizabeth Street Sydney; (b) Any personal IT products assigned to Renewables Employees including, mobile telephones and iPads; and (c) The other property listed in Annexure 2, all of which is vested in GSP [ie Green State Power], except for those in respect of which the "Location Description" is stated as Warragamba, in which case the items of property are vested in SCA.
4. The capitalised word "Property" in subparagraph (a) is defined in cl 4.1 to mean "the real property identified in paragraph 1 of Schedule 1". No real property in respect of the Hume and Keepit power stations is identified in paragraph 1 of Schedule 1. Accordingly, paragraph 2(a) did not transfer any assets or rights in respect of those two power stations. Neither side raised this point, which was identified by the Court in the course of argument. It appears neither side had drawn this point to the attention of the primary judge. The point is not insignificant. A step in the reasoning of the primary judge, at [141], was that "the Power Stations do not meet the description of land (or of interests in land) insofar as they fall within the catch-all description of 'tangible property' within par 2 of Sch 1 of the 2013 Vesting Order". The only reference to "tangible property" in paragraph 2 of Sch 1 is in subparagraph (a), which does not encompass any assets or rights in two of the three power stations.

2014 vesting order

1. The respondent relied on the 2014 vesting order as an alternative basis for arguing that full ownership of the items constituting the power stations was transferred to GSP at least as when that order took effect. At first blush it would seem unnecessary to resolve the issues of construction for this order given my conclusion with respect to the 2013 order. However, the Commissioner argued that even if his arguments were rejected on the 2013 order, any items affixed to the land after that order took effect would become part of the land and subject to duty as such, unless divested in turn by the 2014 vesting order. The respondent contended that this argument should not be permitted as it had not been run before the primary judge and could have been answered by evidence if it had been.
2. In my view the 2014 vesting order should also be construed to have transferred ownership of the listed assets from Green State Power to GSP. That conclusion makes it unnecessary to consider whether the Commissioner should be permitted to mount this argument.
3. Clause 3 of the order is in materially the same terms as cl 3 of the 2013 vesting order, this time vesting the assets, rights and liabilities of Green State Power as listed in Schedule 1 in entities identified in the schedule (relevantly including GSP). In paragraph 1 of the schedule, headed "Real Property", the three 2014 leases over the power stations were listed as being transferred to GSP. Paragraph 2 was in somewhat different terms to the equivalent paragraph in the 2013 order: The assets, rights and liabilities of Green State Power in all fixtures, inventory, chattels, plant, equipment, infrastructure, facilities and other tangible property including those located at or on the property, or located at or on the property the subject of (or affected by) a real property interest identified in Section 1 (Real Property) of this Schedule 1, to the extent owned or used by Green State Power in connection with the Green State Power Business, including the property identified below: (a) all of the fixed assets listed in Annexure 1 - Green State Power Generation Assets; (b) all of the moveable assets listed in Annexure 2 - Green State Power Moveable Assets …
4. As with Annexure 2 to the 2013 vesting order, these annexures itemise in great detail structures and equipment at the three power stations. I note in passing that the fact the drafter was of the view that the items constituting the three power stations were owned by Green State Power is consistent with the conclusion I have reached above. In any event, my conclusion that the 2013 vesting order had severed those items and transferred ownership to Green State Power means that the core question that arose with respect to that earlier order - whether severance and transfer could occur given that the actual owner, WAMC, was not named in cl 3 - does not arise here with respect to items addressed in the 2013 vesting order. Those items had been owned by Green State Power since the 2013 vesting order took effect and cl 3 and Schedule 1 of the 2014 vesting order operated to transfer ownership of them to GSP.

Ground 2: Were the items in the power stations "goods"?

1. Ground 2 was raised by the Commissioner in the alternative to Ground 1. Although not stated in terms, the thrust of this ground was that if the items constituting the power stations had legally been severed they were then "goods" for the purposes of s 155 of the Duties Act. That section provides that duty relevantly is chargeable on the "unencumbered value of all land holdings and goods of the landholder".
2. Before addressing this argument, it should be noted that another argument would appear to be open that even if the vesting orders did vest all the assets listed in the relevant annexures in Green State Power and then in GSP, nonetheless those interests remained "land holdings" for the purposes of the Duties Act. For example, it could have been argued that even if they were not fixtures in the eyes of the general law, nonetheless the physical affixation of the power stations to the land meant that GSP's interests in the power stations were interests in land for the purposes of the Act. That argument was not run. The Commissioner seemed to accept that if the vesting orders operated to vest the power stations in Green State Power and then in GSP then the power stations no longer constituted land holdings for the purposes of the Duties Act. The Commissioner did submit that "even if GSP owns all rights to the Power Stations, they remain properly characterised as an interest in land". But that sentence was part of the submissions on Ground 1 relating to the construction and effect of the vesting orders.
3. The primary's judge's critical reasoning dismissing the Commissioner's argument as to "goods" was as follows: [296] I accept that, as recognised in The Noordam, the word "goods" is of very general "and quite indefinite import" and primarily derives its meaning from the context in which it is used (here, s 163K of the Duties Act) and that it may be accepted that the intent of the legislature was to levy tax on "the unencumbered value of all land holdings and goods of the landholder" requiring a determination of the value of all assets of the landholder that may be classified as land or otherwise be in a tangible form. I have great difficulty in seeing the Power Stations as being "goods" under any ordinary meaning attributed to tangible personal property. The fact that the Power Stations (formerly fixtures or items "part and parcel of the land" if that classification be correct) have been statutorily severed from the land (and exist as an innominate sui generis property interest) does not transmute them into goods simply because it might be thought that this should be treated as part of the assets on which an impost for landholder duty should be made.

Fixtures, chattels and goods

1. The primary judge referred to Lord Sumner's observation in The Noordam (No 2) [1920] AC 904, at 908-909, that "the word [ie 'goods'] is of very general and quite indefinite import and primarily derives its meaning from the context in which it is used". That point was reiterated by Gleeson JA in Smith's Snackfood Co Ltd v Chief Commissioner of State Revenue (NSW) (2013) 97 ATR 904; [2013] NSWCA 470 at [131].
2. Even so, it is useful to refer to how the ordinary meaning of "goods" has been understood. The issue has been considered in cases from time to time where, for example, the word is used in statutory provisions but not defined. The usages have been broad, and largely synonymous with the notion of "chattels". In Browning v Australia and New Zealand Banking Group Ltd [2014] QCA 43, at [6], McMurdo P referred approvingly to a Macquarie Dictionary definition of "goods" as "possessions, especially moveable effects or personal chattels". Ninety years before, in Stephenson v Thompson [1924] 2 KB 240 at 249, Atkin LJ said: I think there can be very little doubt that the word "goods" is one of the widest terms that can be used to describe personal property. In connection with the word "chattels" - goods and chattels - I think it is admitted that it covers in substance the whole of personal property, and, as far as I know, nobody has been able to draw a real distinction between goods and chattels; they are over and over again stated as synonymous.
3. The word "chattels" is often used in contrast with "fixtures" (it is not necessary here to discuss further distinctions as to, for example, chattels personal and real). As Jordan CJ said in Australian Provincial Assurance v Coroneo (1938) 38 SR (NSW) 700 at 712, "[a] fixture is a thing once a chattel which has become in law land through having been fixed to land". Conversely, if and when a fixture is removed it becomes a chattel again. If "a house is pulled down, the person who severs the materials from the building converts them from land into chattels": Stuart Bridge, Elizabeth Cooke and Martin Dixon, Megarry & Wade: The Law of Real Property (Sweet & Maxwell, 9th edn), [22-005]. The point is illustrated by Dixon J's explanation of tenant's fixtures in North Shore Gas (No 1) (at 68, emphasis added): removable tenants' fixtures may during the term be detached and become chattels belonging to the tenant, yet the better opinion appears to be that unless and until the tenant exercises his right of removal they form part of the realty … and for this reason, subject to the exercise of the tenant's right to convert them again into chattels, pass with the land.

Innominate sui generis property interests and the North Shore Gas cases

1. The primary judge, however, treated the severance effected by the 2013 vesting order as producing a different result. Her Honour stated at [141] that "the Power Stations were conveyed, in gross, to Green State Power under the 2013 Vesting Order as an innominate sui generis property interest". At [142] she indicated that when conveyed to GSP in 2014, nothing in the 2014 vesting order "caused the Power Stations to change their character, or in effect 'undid' the statutory severance of the Power Stations from the land", and thus the interests retained their character as an innominate sui generis property interest. Earlier, her Honour had referred to the respondent's submissions on the issue as follows (at [86], see similarly [279]): In this regard, emphasis is placed by Meridian on the decision in Commissioner of Main Roads v North Shore Gas Co Ltd (1967) 120 CLR 118; [1967] HCA 41 (North Shore Gas (No 2)) where the plurality (Barwick CJ, McTiernan, Kitto and Taylor JJ) at 127 pointed to the fallacy of assimilating the exercise of a statutory right (there, the power to lay and maintain pipes) to categories of interest in land known to the common law. Their Honours there cited the judgment of Evershed J (as his Honour then was) in Newcastle-under-Lyme v Wolstanton Ltd [1947] Ch 92 (Newcastle-under-Lyme) at 103, where reference is made to the general rule that no greater rights or interests should be treated as conferred (on the donee of the relevant power) than are necessary for the fulfilment of the object of the statute. Meridian notes that Windeyer J, in his concurring judgment in North Shore Gas (No 2) said (at 133) that where Parliament confers innominate statutory rights "there is no need for lawyers to insist on finding an old name for them, when they are in fact sui generis".
2. Both parties referred to the two North Shore Gas decisions of the High Court; the Commissioner was enthusiastic about the second of these, and the respondent more keen on the first. Both cases related to gas mains and service pipes in northern Sydney, used to supply gas to consumers, which had been laid by a private utility company pursuant to statutory rights. The statutory provisions in question gave the utility a (conditional) right to place infrastructure in and on land owned by others for the purposes of the gas system, which infrastructure it owned and was entitled to remove.

"Goods" as referred to in s 155

1. The issue then becomes whether this conclusion based on the general law is altered by consideration of the Duties Act. For the reasons explained below, it is not. As noted, the ultimate question is whether items constituting the powers stations could, after having legally been severed by the vesting orders, be characterised as "goods" for the purposes of s 155 of the Duties Act.
2. The meaning of the word "goods" in Ch 4 of the Act is addressed by s 163K: 163K Goods of a landholder (1) In this Chapter: goods does not include the following: (a) goods that are stock-in-trade, (b) materials held for use in manufacture, (c) goods under manufacture, (d) goods held or used in connection with land used for primary production, (e) livestock, (f) a registered motor vehicle, (g) a ship or vessel. (2) For the purposes of this Chapter, goods are goods of a landholder if the landholder has any interest in the goods, other than an interest as mortgagee, chargee or other secured creditor.
3. Subsection (1) does not define "goods" but merely carves out certain things from what it encompasses. The fact that the notion itself was not defined suggests that its ordinary meaning, as recognised in the case law, is applicable. Subsection (2) extends the reach of the notion to clarify what type of interest in goods will suffice for the purposes of the Chapter. Subsection (1) reflects the terms of s 11(1)(j) of the Act, which section provides that goods may be "dutiable property" in some circumstances for the purposes of Ch 2 of the Act, and defines that notion to exclude the same seven categories as identified in s 163K.
4. It is then necessary to consider the nature and purpose of Ch 4, to ascertain how that might affect interpretation of the notion. The chapter is concerned with the imposition of duty on the acquisition of interests in landholding entities. The present Ch 4 was introduced by the State Revenue Legislation Further Amendment Act 2009 (NSW). The previous regime, under the then Ch 4A of the Duties Act, levied duty on the acquisition of "land rich landholders". Duty was calculated under this regime without reference to the interests of landholders in "goods", but rather only with reference to the value of their land holdings: see s 163K(1) of the old Ch 4A.
5. In the second reading speech for the bill these changes were explained by Parliamentary Secretary John Aquilina as follows (Hansard, Legislative Assembly, 17 June 2009, p 16248): The bill implements the decision announced in the mini-budget on 11 November 2008 to replace the land rich provisions of the Duties Act with a landholder model. From 1 July 2009, under the new landholder model, transfer duty will be payable when a 50 per cent or more interest is acquired in an unlisted company or unit trust that owns land in New South Wales with a value of $2 million or more. … To provide consistency with the tax treatment of direct transactions, landholder duty will apply to the acquisition of land and goods.

Ground 3: The valuation of the leases as unimproved land

1. The final ground of appeal concerns the value to be ascribed to the leasehold interests in the unimproved land alone - that is, excluding such leasehold interests as existed in the power station assets - for the purpose of determining the duty payable by the respondent. On appeal, the parties did not dispute the application of a "residual value methodology". That approach involves subtracting from GSP's overall valuation the value of all the company's assets other than the asset being valued, being the leasehold interests in the unimproved land (which I will refer to as the "bare land leases").
2. The difficulty was that there was also uncertainty about the value of another class of assets, being the water agreements into which GSP entered with the State Water Corporation (SWC) for use of the water, the flow of which is used to generate electricity in the power stations. Thus there were two types of asset to which the residual value had to be attributed. The Commissioner's expert, Mr Grant Kepler, and the respondent's expert, Mr Tony Samuel, agreed that goodwill was not a relevant asset for the GSP business. They also agreed that the residual value to be allocated to the two asset classes was $27.7 million. Mr Kepler allocated half of the residual value ($13.85 million) to each of the asset classes. Mr Samuel allocated all the residual value to the water agreements and none to the bare land leases.
3. The notion of valuing the leases requires further explanation. The experts explained in their joint report that: a contract can have "value" if the terms documented in the subject contract are more favourable (resulting in an asset) or less favourable (resulting in a liability) than the terms that would be agreed if the contract were negotiated "to market" at the relevant valuation date.
4. Thus the value to be attributed to the leases from the perspective of the respondent (as lessee) was dependent upon the following, assessed as at the date of valuation. If the leases represented a better deal for the lessee compared to what it would have obtained renegotiating them on market at that date, then the leases were something of value and an asset. If they represented a worse deal when so compared, they were a liability. If the amounts payable and terms applicable under the leases simply represented what would have been obtained on market as at the valuation date then the value of the leases was neutral (ie nil value). Her Honour concluded that there were no comparable properties for the purposes of valuation, such that whether or not the amounts payable under the leases represented market value could not be determined in that way: PJ [266]. This conclusion is not challenged.

Whether permissible to consider what was the "driver" of value

1. The Commissioner contends that there is "no connection" between whether or not the terms of the contract are more or less favourable than would have been obtained at market and whether or not the leases were a "driver" of value. However, that ignores the context in which the issue arose, as outlined above, in which the value of the business had gone up and consideration was being given to the extent, if any, to which that could be attributed to the two residuary asset classes.
2. The criticism also ignores the evidence of both experts. The following exchange occurred between the primary judge and Mr Samuel at the end of his cross-examination on the topic: HER HONOUR: Before we move to remediation costs, can I ask you this, Mr Samuel: Let's assume for what ever reason a valuer is in the position where it is just not possible to attribute a market value to the lease of the land, and it's not possible to attribute a value to the water agreement. As I understand it, the proposition that is being put is that in those circumstances, one would just - as a valuer - one would just say, well then, the residual should be apportioned equally? WITNESS SAMUEL: No, I wouldn't - I wouldn't do that. HER HONOUR: No, that's what I want to test with you. WITNESS SAMUEL: Oh, I see. HER HONOUR: As I understand it, you wouldn't accept that it is appropriate valuation practice in those circumstances just to say well, I can't determine A and B, therefore I'll just attribute equally. As I am understanding the tenor of your answers to the other questions, you would look at what you considered to be the fundamental driver - WITNESS SAMUEL: That's correct. HER HONOUR: - of value. WITNESS SAMUEL: Yes. HER HONOUR: - of the overall business, say - WITNESS SAMUEL: Yes. HER HONOUR: - and then you would, in some way, apportion it - WITNESS SAMUEL: Yes. HER HONOUR: - more heavily towards that, but it still would be, would it, somewhat of an evaluative judgement? WITNESS SAMUEL: It would be totally - at that point, totally judgemental. So, the way you should properly do it is determine the market rent for the lease first and then do the residual for the water agreement. That would be the ideal way, in your hypothetical in which you can't value either, and you are forced into making a judgement, by definition it's a judgement and it's a judgement based on the fundamentals of the assets, and you're right, I would say the water agreement is Go/No-Go asset, it's the key asset, whereas a lease is not more than a contributory like the PPE is, and therefore I would, in my judgement be putting certainly by far the bulk of the value onto the water agreements. HER HONOUR: Yes. WITNESS SAMUEL: But it would have to come with a caveat because you just don't have enough information to say what the lease agreement is actually worth.

The claimed error in considering only the water agreements to be the driver of value

1. The Commissioner then contended that the primary judge erred in finding that the water agreements were the fundamental driver of value - and therefore erred in allocating all of the residual value to the water agreements - when there was evidence that the land was also a driver of value. The Commissioner said: The Power Stations could not function without the use of the land on which they were situated. Mr Samuel accepted that the efficiency and therefore the profitability of the Power Stations was enhanced by the features of the Leased Land, being their proximity to the dam wall, such that the Leased Land contributed value. Further, the Water Agreements and Leases were interdependent with each other. Without one contract, the Power Stations could not function, that that the other contract had no value. In addition, the Water Agreement could be terminated by State Water 90 days after the Leases terminated.
2. Mr Samuel had accepted that the location of the leased areas in proximity to the three dams was no coincidence, and was "[p]resumably because it's more efficient", and that in those circumstances, the site of the land was "a contributor to the value". However, he distinguished this from being a "driver" of value: I think the water agreement is the driver of value. Sorry, at the risk of stating the obvious, a hydroelectric plant can't operate without water. It is the fundamental core asset that enables you to build a power plant in the first place.
3. Earlier he had stated that "[t]he land is a replaceable asset, whereas the water is not".
4. The Commissioner attacked this view below and on appeal on two bases in particular: that proximity of the land was essential to efficient power generation, and that in any event given that the power stations had been placed on the land the lessor was in a position to extract value from GSP (a point Mr Samuel characterised as the lessor saying "I've got you over a barrel now because you don't want to move your equipment, so I can charge you more").
5. As to the former, Mr Kepler said in his report that "whilst it is possible for the hydroelectricity turbines and generators to be placed at the location other than adjacent to the dam wall, the operation will not be as efficient due to turbulence and friction of the water flows". This statement by a valuer sounds entirely plausible to those of us who have done high school physics. However, there was no evidence before the Court from an appropriately qualified person as to how significant it was for the power stations to be very close to the dam. There is reason to think it is a matter of degree. So much is supported by a footnote to the quoted statement in which Mr Kepler noted that "[b]y way of example, the original Burrinjuck turbine and generators were some 800 metres downstream of the dam wall". Even apart from the lack of expert assistance on the topic, this note of itself undercuts the claim that it is critical that the particular leased areas be used because of their close proximity to the dams.

Whether erroneous to accept Mr Samuel's views given his assumptions

1. The final alleged error was that the primary judge erred in basing her finding on Mr Samuel's view when that view was itself premised on the two assumptions noted above, namely, first, that the leases entered in 2014 represented market value and they had been not mispriced at the time; secondly, that there were no changes in the four year period that would have resulted in an increase in the market price for rent beyond the CPI increase that was built in to the leases. Mr Samuel accepted that whether those assumptions were made out was a matter for the Court to determine.
2. As to the first assumption, Mr Kepler gave evidence that it was a common practice when engaging in privatisation for governments to charge a higher price upfront in return for a lower rental payment into the future, because governments undertaking privatisations are "interested in headline values". But he also accepted that there was no reason to think that WAMC was not acting at arm's length when the leases were negotiated in 2014. Mr Samuel accepted that he did not know if the lease had been mispriced, but added that "I have no reason to believe there wasn't an arm's length agreement". Mr Kepler's evidence as to what occurred in respect of the transaction in the present case was never more than speculative. In that context, and given that it was open to find that the leases were negotiated at arm's length, it was open to find that the first assumption was made out.
3. As for the second assumption, that hinged on the debate about what were the drivers of value, as addressed above.
4. Moreover, even if it were accepted that the two assumptions were open to some question - such that there was some reason to think that the leases had acquired some value in the four years since they had been signed - that still left open the question of how much of the residual value should then be attributed to the leases. Mr Kepler's approach involved effectively saying it was not possible to give any particular value so the residual value should be allocated equally to both asset classes. But there was no necessity to adopt that view. As senior counsel for the Commissioner acknowledged, "[t]here is clearly not a lot of science to sharing them equally between the two items". Mr Samuel kept returning in his evidence to the points that the bare land leases were replaceable assets, that they were not the drivers of value, and that, in contrast, it was the water agreements which were the fundamental assets.

Conclusion

1. I would allow the appeal in respect of Ground 2 but not Grounds 1 and 3. The parties indicated at the appeal that they sought to be heard as to the appropriate final orders, including as to costs. In part that request related to the potential operation of s 163G of the Duties Act, under which the Commissioner has a discretion to disregard the value of the goods if they constitute at least 90% of the value of the relevant assets. The Commissioner indicated that if the threshold is reached then he will exercise the discretion to disregard the value of the goods. It is to be hoped that the parties will be able to agree, in whole or in part, as to what consequences should flow from this judgment with respect to the decision of the Court below and, in turn, the original decision of the Commissioner. The orders of the Court should therefore be as follows: 1. Allow the appeal on Ground 2 only. 2. Any proposed consent orders should be filed within 21 days of these orders. 3. To the extent that the parties are not agreed on orders to resolve the appeal they may file and serve: 1. submissions of no more than 4 pages relating to what final orders the Court should make, together with any relevant supporting materials, within 21 days of these orders; and 2. submissions in reply of no more than 2 pages within 28 days of these orders. 1. Subject to any further order, final orders will be made on the papers and without a further oral hearing.
2. ADAMSON JA: I agree with Kirk JA.
3. GRIFFITHS AJA: I have had the advantage of reviewing Kirk JA's reasons in draft. I agree with them and with the proposed orders.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 26 May 2023