Commissioner of State Revenue v Vopak Terminals Australia Pty Ltd [2001] VSC 232

5. At an initial hearing on 14 June, I permitted the application to proceed on the basis that, if leave be granted, the question of law for determination be whether in the circumstances of the case the relevant value of the property was $15,058,569 or $340,000, and directed that the application for leave to appeal and the appeal be heard together. I refused leave on two other related questions.

9. Under s. 17 and Part 2 Division 3 subdivision (6) of the Stamps Act 1958 ("the Act") and Heading VI in the Third Schedule to the Act, ad valorem duty is payable on every transfer of real property unless one of the stated exemptions applies. (No exemption is claimed in this case.)

12. Section 63(3)(b) of the Act contains a definition of value. There is an almost identical definition directly under Heading VI. As currently relevant, they provide that a reference to the value of real property in relation to a conveyance on sale of the real property is a reference to the greater of:

(a) the consideration for the sale; or

(b) the amount for which the real property might reasonably have been sold if it had been sold, free from encumbrances, in the open market on the date of the sale.

Under s. 63(1) "conveyance" includes transfer and "real property" includes any estate or interest in real property.

2. The facts

18. During the hearing I was provided with a copy of the application book used in the Tribunal, a copy of the relevant instrument of transfer, and a valuation report of Nicholas Charles Munn dated 8 May 2001 which was an exhibit to his affidavit sworn on 9 May 2001 and tendered and relied on by the respondent before the Tribunal. Based on these materials and the exhibits to affidavits in this proceeding, the relevant facts are as follows.

21. The property in question is a petroleum storage terminal at 5 Barclay Crescent, Hastings on land more particularly described in certificate of title volume 8892 folio 540 and crown grant volume 8821 folio 793. As at 20 October 1995, the land and the plant and equipment then on it were owned by Whitemark Pty Ltd ("Whitemark"). I will refer to the plant and equipment that was at the terminal at this stage as the "Whitemark plant and equipment".

24. By a Terminal Acquisition Agreement dated 20 October 1995, Whitemark granted to Wickland Oil Terminals Pty Ltd ("Wickland") [1] a lease over the land and improvements and an option to purchase them; there was also a right to alter and expand the terminal's facilities at Wickland's own cost. The agreement provided for Wickland to remove any additional plant and equipment, including fixtures, upon vacating the terminal; in any event, regardless of the agreement, any fixtures added by Wickland were tenant's fixtures which Wickland was entitled to remove (subject to Whitemark's election to purchase them) under s. 28 of the Landlord and Tenant Act 1958.

27. In accordance with the agreement, Wickland proceeded at its own expense to expand the terminal facility by adding further plant and equipment and improving the Whitemark plant and equipment. I will call the additional plant and equipment the "Wickland plant and equipment".

30. By a Share Sale Deed dated 11 April 1997, all issued shares in Wickland were sold to Vopak Terminals Australia Pty Ltd, the respondent.

33. On 8 May 1998 a number of agreements were executed, in the following order. I first mention that, as at the start of that day, Whitemark owned all the issued shares in Whitemark Rollover Pty Ltd ("Whitemark Rollover").

* Asset Purchase Agreement--Whitemark agreed to sell assets including the Whitemark plant and equipment, and Whitemark Rollover agreed to buy them.[2] The purchase price was $9,560,000.

* Share Sale Agreement--Whitemark agreed to sell its shares in Whitemark Rollover, and Wickland agreed to buy them.[3]

* Contract of Sale--Whitemark agreed to sell the land, and the respondent agreed to buy it. The purchase price was $340,000.

42. A transfer in respect of the land was duly executed, and was lodged on or about 19 June 1998. The estate transferred was stated to be "all [Whitemark's] estate in fee simple". The consideration stated on the transfer was $340,000, and this was the basis on which stamp duty of $16,060 was initially paid.

45. Following an investigation by the State Revenue Office, on 18 February 2000 the Commissioner issued assessment A93908 based on a value of $15,058,569 for the property. The duty payable on the transfer was assessed at $828,221, to which was added a penalty of $243,648.30 and interest of $77,893.92.

48. A work sheet accompanying the assessment lists items of plant and equipment considered to be fixtures. A value is attached to each item, in the case of Whitemark plant and equipment based on the Share Sale Agreement, and in the case of Wickland plant and equipment based on written down values from Wickland's asset register as at 31 December 1997. The figure of $15,058,569 was the total of $340,000 for the land itself, $6,968,825 for the listed Whitemark plant and equipment and $7,749,744 for the listed Wickland plant and equipment.

51. By letter dated 18 April 2000 the respondent objected to the assessment. By notice of decision dated 30 August 2000 the Commissioner disallowed the objection. The decision was referred to the Tribunal for review in accordance with s. 33B of the Act.

54. In preparation for the Tribunal hearing, the respondent's solicitors, presumably mindful of s. 33C(1)(b) of the Act which states that "the burden of proving that the assessment is excessive shall lie upon the objector", sought an open market valuation of the land as at 8 May 1998. The result was Mr Munn's report which I have referred to at [5] above and on which I will comment further below.

58. The proceeding came before the Tribunal on 10 May 2001. None of the witnesses who gave affidavit evidence was cross-examined. The Member received further submissions by email that afternoon and gave his decision the following day.

61. In his reasons, having referred to authorities as to the affixing of chattels to land, the Member concluded in relation to the plant and equipment at the terminal that the fuel tanks, fire prevention tanks, loading bay and pumps were fixtures. Having regard to the nature and structure of the items, their physical connection with the land, their installation cost, the comparative expense and difficulty of removing them, and the fact that they formed an integral part of the terminal, the Member inferred that they were put there to remain there permanently or at least for an indefinite or substantial period.[4] This finding was not disputed before me. The Member gave liberty to the parties to seek further review of the assessment in relation to any other items of plant and equipment on the Commissioner's lists that were in dispute.

64. He went on to consider the effect of third party interests in the fixtures. He concluded, having mentioned the recent cases of Federal Commissioner of Taxation v Metal Manufactures Ltd,[5] Eastern Nitrogen v Federal Commissioner of Taxation[6] and Pioneer Concrete (Vic) Pty Ltd v Commissioner of State Revenue,[7] that the law had changed since the Commissioner's original decision, and reduced the amount on which stamp duty was assessable to $340,000. In his reasons the Member referred to a concession by counsel for the Commissioner that Pioneer Concrete had to affect the Commissioner's decision. I have read the transcript of the proceeding before the Tribunal. I do not consider that the Commissioner's submissions on this application should be circumscribed by the stated concession. In fact counsel had earlier made the contrary submission and, in what seems a somewhat rushed and unclear presentation and perhaps under some pressure, later stated the concession referred to. It would be unjust to hold the Commissioner to the concession.

68. A useful starting point is Pioneer Concrete. In that case, the land subject to a contract of sale was a partly worked-out sand quarry which could potentially be used as a tip. By special conditions in the contract of sale, the vendor retained to itself rights to extract sand from defined parts of the land for 12 years and rights to tip and treat waste on defined parts of the land for 15 years. The consideration expressed in the instrument of transfer was $1,731,053. By separate agreement, the vendor granted the tipping rights to a company related to the purchaser company, for a consideration of $1,503,794.

71. Tadgell JA, with whom the other members of the court agreed, said at [17]:

" It follows, in my opinion, that the relevant supposititious amount contemplated in [what is my paragraph (b) at [4] above] is the price that might have reasonably have been obtained for the real property had it been sold (a) free from encumbrances (b) in the open market (c) on the day of the date of the actual sale but (d) otherwise on the terms on which the vendor did actually sell it, save for the price."

" To determine the hypothetical selling price in the open market of the real property the subject of the transfer on the date of actual sale in the abstract, that is, without reference to the restrictions which the actual vendor was able to impose, is, I have come to think, mechanistic and artificial."

77. Relying on the passages I have just quoted, counsel for the respondent submitted that the objective in this case was to value what was sold to the purchaser by inquiring what a hypothetical purchaser would have paid for it, and see whether that amount exceeded the consideration in the transfer of land. This was, I think, a continuation of the submission made in the Tribunal that, based on Pioneer Concrete, "the value of interests conveyed must be determined by taking into account the existence of [equitable and legal interests of third parties in fixtures]".[8] The Member accepted the submission. However, I do not find support for that proposition in the judgments of the Court of Appeal. Certainly there is no express statement to that effect. The decision related to rights expressly excluded from conveyance by the contract of sale. Their Honours do not even mention the word fixture. Nor do they purport to make a sweeping change to the law, overturning authority of long standing regarding fixtures and the underlying bases for the imposition of stamp duty. The argument that they have done so by this judgment is untenable in my view. While there may be some similarity between the facts in Pioneer Concrete and the facts in this case, it is no more than skin deep.

80. The seemingly simple valuation exercise suggested by counsel for the respondent as the proper approach to the case could only be conducted on the basis of the true construction of the facts, including the parties' agreements. In that regard, the mere assertion of a party could not be determinative. In particular, the parties cannot exclude effects which ensue by operation of common law or statute. This is clear from the reference by Batt JA to "restrictions which the actual vendor was able to impose" and is, I think, implicit in the quoted words of Tadgell JA. See also Bollen J in Emanuel (Rundle Mall) Pty Ltd v Commissioner of Stamps (SA).[9]

83. I therefore turn to analysis of the facts of this case and the applicable law.

86. Counsel for the applicant took me to various authorities relating to dealings in land to which chattels have been affixed.[10] It is not necessary to go into the detail of those authorities for the purposes of this case. In summary, their effect is as follows.

(a) A fixture forms a part of the land to which it is affixed. It has no separate existence during its attachment to the land and is the property of the owner of the land for that duration, even if it was owned by a third party before attachment.

(b) A fixture may be the subject matter of rights other than those of the owner of the land. Thus a third party may have an equitable interest in the land[11] which gives a right to enter the land to sever and remove the fixture, arising, for example, from the third party's ownership of the chattel that became part of the land by attachment, or from an express grant by the owner of the land in relation to the fixture. Or a mortgagee of the freehold may have a right to sell the mortgaged land or a part thereof, which may include the fixture. Notwithstanding any such rights, the fixture remains part of the land until actually severed; it is upon severance that rights in the fixture, now a chattel, as an item of property in itself may revive or arise.

(c) The effect of any such right on a subsequent transaction in the land depends on the nature of that transaction. A subsequent equitable right will ordinarily be subject to a prior equitable interest in time, although that priority may be lost. A limited legal right, such as that of a mortgagee, may lead to extinguishment of the equitable interest when the mortgagee's right is exercised. In relation to a conveyance of land, all fixtures are included in the conveyance unless expressly excluded,[12] and in any event a legal interest will be subject to a prior equitable interest if there was notice. In relation to Torrens system land, a registered proprietor takes clear title,[13] which prevails over unregistered interests (including an unregistered equitable interest in fixtures).

92. In this case, before the contract of sale and the resulting transfer, Wickland (in relation to the Wickland plant and equipment) and Whitemark Rollover (in relation to the Whitemark plant and equipment) may have had equitable rights in respect of the fixtures. I note that there was no reference to fixtures in the contract of sale to indicate that they did not pass with the land. The fixtures were not removed before transfer; nor was it intended that they be removed. But in any event, registration of the transfer of land had the effect of transferring all the fixtures with the land; the property conveyed by the transfer, which is what is assessed to duty, included all chattels affixed to the land at the time of transfer such as to become fixtures by operation of law.

95. That is sufficient to deal with the basic point in dispute. I would add by way of comment that if the respondent's argument were correct, the valuation exercise envisaged in counsel's submission would not necessarily be a simple one. It would require that the valuer assess in the case of each item of plant and equipment on the land its degree of annexation, the intention in attachment and the nature of the right of the third party; so much can no doubt be dealt with by prescribing assumptions for the valuer. However, the valuer would also need to determine the likelihood that the third party would exercise its right, and place a value on that likelihood. The Tribunal made findings of fact of these matters, but Mr Munn did not have the advantage of those findings and did not act the basis of the facts thus found. Whether or not the respondent's approach be correct, it is apparent that it may involve uncertainty and possibly uninformed conjecture.

99. It was agreed before the Tribunal that the unimproved value of the land--that is, the value without any of the plant and equipment--was no higher than $340,000. It follows from what I have concluded at [25] above that that cannot be the value of the property conveyed in this case. But is it $15,058,569, the figure produced by the Commissioner?

102. I have set out at [13] above how this figure was obtained. It is to be borne in mind that, under the Act, if the consideration stated in the transfer is not adopted then the only other basis on which duty may be levied is the hypothetical market value described in paragraph (b) at [4] above; it is market value that the Commissioner is trying to simulate in making an assessment. The totting up conducted by the Commissioner, mixing as it does figures obtained from different sources and calculated on different bases, is in my view unlikely--other than coincidentally--to produce a figure representing the market value of the land and fixtures as a whole. There may be other basic flaws: notwithstanding the apparent inclusion of some items as both Whitemark and Wickland plant and equipment,[14]

it is not clear that any step has been taken to avoid double counting; and some listed items (such as radios and office equipment) look unlikely candidates to be fixtures in any event, although this may depend on the specific circumstances which were not before me.

107. Certainly the Commissioner's calculation is no substitute for a proper valuation. In fact, at the stage of considering a taxpayer's objection to an assessment, where the objection concerns the value of any land the Commissioner is required by s. 33A(4) of the Act to refer the matter to the valuer-general. This was not done. Regardless of the Act, it would have been prudent to do so, as was done by the South Australian commissioner in Emanuel (Rundle Mall) Pty Ltd v Commissioner of Stamps (SA),[15] especially where the potential duty was in the order of hundreds of thousands of dollars. While the onus may be on the taxpayer under s. 33C(1)(b) to prove that an assessment is excessive, I do not think that provision can be taken to justify an arbitrary valuation in the first instance.

110. Having said that, is there any other satisfactory evidence of value? There was, of course, the report of Mr Munn which I have already mentioned. His letter of engagement instructed as follows:

" The assets on the land as at 8 May 1998 are as per the attached schedule. An issue in the proceedings is whether all or some of these assets are fixtures. We do not require you to express an opinion on this aspect of the case. For the purpose of the valuation we ask that you assume that all of the assets set out in the schedule are fixtures and form part of the land. We also ask that you assume that the assets listed as the Wickland assessed items, with the exception of assets also included in the earlier parts of the schedule (i.e. Tanks 101, 102, 103 and 104) are assets which Wickland had a right to remove and which belonged to Wickland either at common law or in equity."

The report came up with a figure of $6,250,000 on the basis of existing-use market value and, in respect of fixtures, the depreciated replacement cost. Mr Munn was not cross-examined, so there was no oral elaboration on his report.

115. The state of this evidence was unsatisfactory in two respects. First, despite referring to comparable market evidence, the report does not set out that evidence. Secondly, there is a conflict between the assumptions made in the report and the instructions on which Mr Munn acted in arriving at his valuation. The report states that the value of the Wickland plant and equipment had been specifically disregarded "as instructed" and lists them among the exclusions. Implicit in this is a view that the Wickland plant and equipment did not constitute fixtures, or that Wickland's right to remove the items meant that they had no value whatsoever (or, to put it another way, that their presence and value was to be disregarded in valuing the land). As to the former, it is a matter on which Mr Munn was instructed he need not express a view; if he was expressing such a view, it is inconsistent with the facts as to attachment found by the Tribunal to be the case and which were in fact the case since the plant and equipment was first attached. As to the latter, there is a difference between treating the Wickland plant and equipment as assets which can be removed on the one hand and on the other hand disregarding them entirely. As stated, the Member found that the plant and equipment was difficult and expensive to remove and had been affixed with the intention that the items remain permanently or at least for a substantial period; in the words of counsel for the Commissioner, severance and removal of the fixtures was a hypothetical and remote possibility that could not have affected the market value of the land. Mr Munn's report did not consider the position as found by the Tribunal.

118. In the absence of clarification as to why Mr Munn completely excluded the Wickland plant and equipment, and in the absence of his opinion as to the value of the terminal if those items were not excluded, the $6,250,000 figure could have limited significance and was of no utility in the final disposition of the case. There was no satisfactory evidentiary basis for establishing the market value of the land and improvements as a whole.

122. On the basis of my conclusions at [25] above, the Commissioner's appeal succeeds, at least to the extent that the value of the property for stamp duty purposes was not $340,000. In my view, the appropriate disposition is to set aside the decision of the Tribunal, in lieu make a declaration to the effect just mentioned, and otherwise remit the matter to the Tribunal for the purpose of establishing the market value of the property conveyed by the transfer in accordance with this judgment. In doing so the Tribunal may make further findings as to whether particular items of plant and equipment are fixtures. I will hear counsel on the question of costs.

[1] This company, the respondent and the company I refer to below as Whitemark Rollover have each undergone at least one name change since 1995. I will adopt one convenient name for each. I merely note that at one stage Wickland was called Van Ommeren Tank Terminals Australia (Hastings) Pty Ltd, and at one stage the respondent was called Van Ommeren Tank Terminals Australia (Holdings) Pty Ltd.

[2] The assets are defined to include (a) the pipeline; (b) the plant, equipment and buildings; and (c) "[a]ll other assets, properties and rights of every kind and character whether real or personal, tangible or intangible, wherever located and whenever acquired, owned by the Vendor and used in connection with the Assets and/or the Terminal". Notwithstanding the comprehensive nature of paragraph (c), it was apparently considered to encompass the realty comprised by affixed plant and equipment, but not the land itself. The success of the transaction structure depends on this being so, and the contrary was not argued before me. I proceed on that basis.

[3] I was told by counsel for the applicant that it was the respondent which bought these shares. Based on the documentary evidence, however, it is clear that the purchaser was in fact Wickland. The confusion no doubt arose from the similarity of some of the names of the two companies: see footnote [. In any event, nothing turns on this fact.

4] See paragraphs [7] and [10] of the reasons for decision.

[5] [2001] ATC 4152, (2001) 46 ATR 497, [2001] FCA 365.

[6] [2001] ATC 4164, (2000) 46 ATR 474, [2001] FCA 366.

[7] [2001] ATC 4237, [2001] VSCA 55.

[8] See paragraph [11] of the reasons for decision.

[9] (1986) 41 SASR 122 at 127 and 136; (1986) 86 ATC 4394 at 4,398 and 4,405.

[10] Commissioner of Stamps (WA) v L Whiteman Ltd [1940] HCA 30; (1940) 64 CLR 407; Kay's Leasing Corp Pty Ltd v CSR Provident Fund Nominees Pty Ltd [1962] VicRp 62; [1962] VR 429; Mills v Stokman [1967] HCA 15; (1967) 116 CLR 61; Farm Products Co-operative (Tararua) Ltd v Commissioner of Inland Revenue [1969] NZLR 874, (1969) 1 ATR 85; Emanuel (Rundle Mall) Pty Ltd v Commissioner of Stamps (SA) (1986) 39 SASR 582, (1986) 86 ATC 4004, (1986) 17 ATR 307; on appeal (1986) 41 SASR 122, (1986) 86 ATC 4394; Federal Commissioner of Taxation v Metal Manufactures Ltd [2001] ATC 4152, (2001) 46 ATR 497, [2001] FCA 365; Eastern Nitrogen v Federal Commissioner of Taxation (1999) 99 ATC 5163, 43 ATR 112, [1999] FCA 1536; on appeal [2001] ATC 4164, (2000) 46 ATR 474, [2001] FCA 366.

[11] On the appeal in Eastern Nitrogen v Federal Commissioner of Taxation at [45]-[50], Carr J, with whom the other members of the Full Court agreed, said that a sale of plant only, in circumstances where the vendor retained the land to which it was affixed, conferred on the purchaser ownership of the plant in equity. His Honour mentioned the possibility that property might also pass at common law, referring to Butt, "Selling land separately from fixtures" (2000) 74 ALJ 130, but went on to say it was not necessary to decide if this was so; his Honour's comment was clearly obiter.

[12] See Property Law Act 1958, s. 62.

[13] Transfer of Land Act 1958, s. 42.

[14] See the letter of instruction at [[] below. The inclusion of items as both Whitemark and Wickland plant and equipment presumably represents that fact that Wickland had improved and added value to Whitemark plant and equipment.

15] See (1986) 41 SASR 122 at 125; (1986) 86 ATC 4394 at 4,396-4,397.