Commissioner of State Revenue v Pioneer Concrete

[46]

The EPA is the Environmental Protection Authority.
It is the "tipping rights" the subject of Special Condition 5.2 that gave rise to the present dispute.
The rights the subject of Special Conditions 5.1, and 5.3, referred to in argument as "extraction rights", related, we were told, to sand. Although they also were at one stage a matter of contention, that is no longer so. As will appear, the appellant accepted Pioneer Concrete's argument about those rights.
The dutiable instrument was a Transfer of Land under the Transfer of Land Act 1958 (Vic) entitled "Transfer of Land". It stated that the transferor transferred to the transferee the estate or interest specified in the land described for the consideration expressed and subject to the encumbrances affecting the land including any created by dealings lodged for registration before the lodging of the transfer. No such dealings were mentioned in evidence. The land was described by reference to the Certificates of Title. The estate and interest was said to be "all [Amatek's] estate in fee simple." The consideration was said to be $1,731,053. The transferor was identified as Amatek. The transferee was identified as Pioneer Concrete. The date was 28 November 1995. The instrument was executed under the common seal of Amatek and Pioneer Concrete.
The transfer made no reference to the contract of sale, or to any tipping rights.
The argument was conducted on the assumption that the combined effect of Special Condition 5.2 of the contract and of the grant agreement was that, upon settlement, Pioneer Concrete was contractually bound to permit Amatek and (to the extent to which they were assigned by Amatek to Pioneer Waste) Pioneer Waste, to exercise the rights referred to in Special Condition 5.2. A valuer gave evidence that use for landfill was the highest and best use of the land, and constituted its major source of market value. He valued the land at $7,140,000, and explained the difference between that amount, and the price of $1,731,053 paid by Pioneer Concrete, mainly by reference to the tipping rights. Beyond that, there was no analysis in argument of the precise nature of the rights, save that it was contended by the appellant, and not denied by the respondent, that they rested solely in contract and created no proprietary interest in Amatek or Pioneer Waste. In that respect, it may be noted that the right of possession to the exclusion of third parties referred to in Special Condition 5.4 was for the purpose of tipping operations only.
In the Court of Appeal of the Supreme Court of Victoria, Tadgell JA gave the following summary of the general effect of the retained rights:

[48]

In order to assess stamp duty on the transfer, the appellant obtained from the Valuer-General a valuation of the land, disregarding the effect of Special Condition 5 of the contract of sale. The land was valued at $7,710,000, and duty was assessed accordingly at $424,050. (The difference between the figures of $7,710,000 and $7,140,000 appears to have been solely referable to differences in the opinions of valuers. As will appear, some valuation issues remain outstanding.) The respondent objected to the assessment, contending that the value for duty purposes of the real property was the consideration for sale, which was $1,731,053.
The appellant allowed the objection in part, excluding from the dutiable value of the property an amount of $570,000, which was regarded as the value of the extraction rights. Stamp duty was reduced to $392,700. The distinction thus made between rights the subject of sub-cll 5.1 and 5.3, on the one hand, and sub-cl 5.2 on the other hand, caused some forensic embarrassment to the appellant. At first sight, it appears to involve inconsistency. In this Court, counsel for the appellant took the approach that, although it was now too late to increase the amount of the assessment, the concession made in relation to the extraction rights was erroneous. Alternatively, he argued that it could be justified on the basis that the effect of sub-cll 5.1 and 5.2 was that there was an exception or reservation of the sand the subject of the extraction rights and, although they were not referred to in the instrument of transfer, it was appropriate to assess duty on that basis. In any event, if there is an inconsistency in the appellant's approach to the assessment of duty, that suggests a need for caution in weighing the appellant's arguments, but it does not absolve the Court of the obligation to decide the question as to the tipping rights.
The respondent, pursuant to s 33B(1)(b) of the Act, requested that the objection be treated as an appeal to the Supreme Court of Victoria. The matter came before Balmford J.

[66]

That was said in relation to s 66 of the Stamp Duties Act 1920 (NSW), which was not relevantly different in effect from the statutory provisions presently under consideration. If the argument accepted by the Court of Appeal in the present case were correct, and if, (as would be likely), the contract for sale in the example given by Mason J had stipulated for the lease back, then the result would have been different. In that respect, it should be noted that there is a difference between the case of a pre-existing lease, and a conveyance of the reversion, on the one hand, and a conveyance of an absolute estate in fee simple with a lease back to the vendor. In its effect upon the financial position of a purchaser, the difference may be immaterial; but in considering liability to stamp duty it may be crucial.
An accurate identification of the estate or interest in real property that is conveyed or transferred by a dutiable instrument is required. As Mason J pointed out, this is not necessarily the same thing as a summary of the net effect upon the transferee of the transaction pursuant to which the instrument was executed. This is exemplified by Commissioner of Stamp Duties (NSW) v Perpetual Trustee Co Ltd (Quigley's Case)[6]. A person was beneficially interested in certain real and personal property. Another person had a life interest in part of it. The first person, by a deed of settlement, conveyed the property (which was subject to the outstanding life interest) to a trustee to be held in trust for himself for life with remainders over in favour of others. The taxpayer claimed that either no ad valorem duty was payable on the deed of settlement because no beneficial interest was conveyed by it or alternatively that duty should be assessed only on the value of the remainder expectant on the death of the settlor. This Court rejected both arguments. The second argument had succeeded in the Supreme Court of New South Wales. In dealing with it, Knox CJ, Gavan Duffy and Starke JJ said[7]:

[68]

An example (since reversed by legislation) of a provision in a dutiable instrument qualifying, and thus affecting the value of, the subject property is to be found in Stanyforth v Inland Revenue Commissioners[8], where a deed of partial resettlement of certain estates contained a power of revocation and new appointment. The House of Lords considered that in ascertaining the value, on a sale in the open market, of the property transferred or conveyed, it was necessary to consider the property "with all its incidents, including provisions for defeasance either in whole or in part, powers vested in persons not controlled by the vendor to create charges taking precedence of the property sold, and so forth"[9]. The power of revocation contained in the deed affected the nature, and therefore the value, of the subject matter of the conveyance or transfer.
In the present case, there was no reference in the transfer to any exception or reservation of any kind. The meaning, in ordinary conveyancing usage, of "exception" and "reservation" was explained by Hope JA in the New South Wales Court of Appeal in the DKLR Holding case[10]. By an exception, a transferor excludes some part of that which is transferred, so that it remains with the transferor. It does not pass to the transferee. A reservation is of something newly created and involves a re-grant of something that did not previously exist. In Chirnside v The Registrar of Titles[11], it was held that a transfer under the Transfer of Land Act 1915 (Vic) could validly "except" and "reserve" all coal and lignite and mines thereof under a depth of 50 feet below the surface of the land transferred. As was noted above, the appellant may have assessed Pioneer Concrete as though sand was excepted from the transfer. Whether the nature of the "tipping rights" was such that it might have been possible to deal with them by way of reservation in the transfer is a question that need not be decided; for no attempt was made to do so.
Hope JA also pointed out, in DKLR Holding[12], that in some cases it may be necessary to look outside the instrument of conveyance or transfer in order to identify the property conveyed by the instrument. He gave as an example land under common law title which is subject to an easement created by a registered deed. A subsequent conveyance of the fee simple would be subject to the rights created by the previously registered deed. It may be necessary to look beyond a dutiable instrument to identify the property which the conveyor has available to convey. Again, that is not this case. The tipping rights rested in contract. So long as the land was vested in Amatek, there were no separate tipping rights; they were merely an aspect or incident of Amatek's rights of ownership. When the land was transferred to Pioneer Concrete the provisions of the contract of sale and the grant agreement subjected Pioneer Concrete to contractual obligations to Amatek and Pioneer Waste, but they did not create any proprietary interest which qualified its title to the land. And they did not qualify Amatek's title to the land on the date of the sale, which is the time to which par (B) directs attention.
An acceptance of the need, in some cases, to look outside an instrument of conveyance or transfer to identify the property conveyed is consistent with the decision of this Court in Commissioner of Stamp Duties (NSW) v Buckle[13]. There the dutiable instrument was a supplemental deed varying a deed of settlement under a discretionary trust. In identifying, for valuation purposes, the interests vested by the supplemental deed, the Court held that they must reflect the structure created by the deed of settlement, and accepted the argument that the property conveyed by the supplemental deed, which comprised certain beneficial interests in remainder, was to be valued taking into account liabilities which were incidents of the underlying trust property. The Court decided that, in valuing the interest of beneficiaries vested by the supplemental deed, there was no "encumbrance" which the statute required to be disregarded; the trustee's right to be indemnified out of the assets bound by the trust was a right conferred by law and was a prior proprietary interest to that of the beneficiaries rather than an encumbrance upon that interest[14]. Buckle does not bear upon the situation in the present case.
It is one thing to have regard to matters not referred to in a dutiable instrument for the purpose of understanding the legal effect of the instrument; it is another thing to do so for the purpose of considering the net effect of the transaction pursuant to which the instrument was executed. The example given by Mason J, of a transfer of an estate in fee simple accompanied by a lease back from the transferee to the transferor, which is in some respects analogous to the present case, illustrates the difference, and the significance of the fact that stamp duty is a tax on instruments, not on transactions.
Once it is accepted that the real property to be valued is an estate in fee simple in the land referred to in the relevant Certificates of Title, unqualified by any exception or reservation, or any other outstanding proprietary interest, then it follows that the exercise required by par (B) is a determination of the amount for which such an estate might reasonably have been sold if it had been sold, free from encumbrances, in the open market on the date of the sale. The determination of such an amount is a familiar task, to be carried out in accordance with the principles stated in Spencer v The Commonwealth[15]. The subject of the valuation is the unencumbered estate in fee simple. In determining the value there is no warrant, either in the language of the statute or in principle, for departing from the hypothetical inquiry as to the point at which a desirous purchaser and a not unwilling vendor would come together. The purpose of making the inquiry hypothetical is to isolate the value of the estate or interest to be transferred from factors that are extraneous to the purpose for which such a value is to be ascertained. To introduce into the exercise a special condition for which, on a particular occasion, a particular vendor chose to stipulate, and to which a particular purchaser chose to agree, is to depart from the statutory requirement, which is to determine the value of that which was transferred. It is, rather, to value the net benefit which the transaction conferred upon the purchaser. It is to treat stamp duty as a tax on a transaction.
The Court of Appeal, having decided in favour of Pioneer Concrete for the reasons considered above, found it unnecessary to deal with an alternative argument based upon the 1997 amendments to the Act. Since we are unable to accept the reasoning of the Court of Appeal, it becomes necessary to turn to the argument based on the amendments.

[77]

We were informed that this was a legislative response to the decision of O'Bryan J in Commissioner of State Revenue v Bradney Pty Ltd[16].
Bradney concerned premises in the central business district of Melbourne which were subject to a 50 year lease expiring in 2036. In 1994 the taxpayer purchased the freehold, subject to the lease, for $380,000. The value of the freehold, if there had been no lease, was $11,700,000. The Commissioner of State Revenue assessed the transfer of the freehold estate to duty, under s 63(3)(b) of the Act, on the basis that the lease was an encumbrance within the meaning of the Act, and was therefore to be disregarded. The taxpayer objected, and succeeded before the Administrative Appeals Tribunal. The Commissioner appealed to the Supreme Court of Victoria. We have been provided with a copy of the Notice of Appeal, which identified as the questions of law raised on the appeal the meaning of the expressions "encumbrance" and "free from encumbrances", and whether a lease is an encumbrance within the meaning of s 63(3)(b). O'Bryan J dismissed the appeal, holding that the lease was not an encumbrance, which should be understood as "something in the nature of a mortgage or charge"[17]. The correctness of that conclusion is presently irrelevant. It has not been suggested that the tipping rights constituted an encumbrance.
The assumption upon which the argument proceeded is consistent with what was said by Mason J in DKLR Holding. It was not a case of a transfer and a lease back. What was sold was the freehold interest subject to a pre-existing lease; the reversion. The pre-existing lease qualified the nature and extent of the proprietary interest that was available to be transferred. Subject to the possibility that it might be said to be an encumbrance, it was to be taken into account in considering the nature, and therefore the value, of the property that was transferred.
It was suggested in argument in this Court that what occurred in Bradney either constituted, or opened the way to the possibility of, stamp duty avoidance. As to the facts in Bradney, there is nothing that appears from the report of the case that suggests it had anything to do with avoidance of duty. However that may be, the amendments to s 63 enacted in 1997 widened the operation of the section, but only in relation to arrangements or schemes with a collateral purpose of reducing stamp duty. The present case, it is agreed, is not in that category.
Pioneer Concrete contends that, although the new provisions, which operated from 10 October 1997, have no direct application to the present case, they show an acceptance by the Victorian Parliament that, apart from encumbrances, the only interests, agreements or arrangements that should now be disregarded for the purpose of assessing duty under par (B) are those granted or made as part of an arrangement or scheme with a collateral purpose of reducing stamp duty. That, it is said, assumes that there may be interests, agreements or arrangements (other than encumbrances) having the effect of reducing the value of the real property within par (B), which must not be disregarded unless they fall within the amendments. Pioneer Concrete contends that this amounts to a legislative recognition of the very principle for which it argues in the present case, and seeks support from what was said by Dixon J in Grain Elevators Board (Vict) v Dunmunkle Corporation[18].
It is unnecessary to explore the difficulties involved in using an amending Act to construe earlier legislation[19]. In any event, the 1997 amendments, properly understood, do not advance Pioneer Concrete's argument. The amendments only touch interests, agreements or arrangements that reduce the value of the subject property. The pre-existing lease in Bradney was such an interest. For the reasons already explained, the tipping rights in the present case were not. They did not reduce the amount for which the relevant real property, that is, the estate in fee simple in the land the subject of the relevant Certificates of Title, might reasonably have been sold free from encumbrances at the date of sale. The amendments have work to do, even assuming the correctness of the appellant's argument in the present case, and are not inconsistent with that argument.

Commissioner of State Revenue v Pioneer Concrete - [2002] HCA 43 - HCA 2002 case summary — Zoe

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