Meridian Energy Australia Pty Ltd v Chief Commissioner of State Revenue

Commissioner of Taxation v Metal Manufactures (2001) 108 FCR 150; [2001] FCA 365 Eastern Nitrogen Ltd v Federal Commissioner of Taxation (2001) 108 FCR 27; [2001] FCA 366 Elitestone Ltd v Morris [1997] 1 WLR 687 Empire Securities Pty Ltd v Miocevich [2008] WASCA 52 Epic Energy (Pilbara Pipeline) Pty Ltd v Commissioner of State Revenue (2011) 43 WAR 186; [2011] WASCA 228 Federal Commissioner of Taxation v Metal Manufactures Ltd (2001) 108 FCR 150; [2001] FCA 365 Federal Commissioner of Taxation v Miley (2017) 106 ATR 779; [2017] FCA 1396 Finance Facilities Pty Ltd v Federal Commissioner of Taxation (1971) 127 CLR 106 Lees & Leech Pty Ltd v Commissioner of Taxation (Cth) (1997) 73 FCR 136; [1997] FCA 404 Makita (Aust) Pty Ltd v Sprowles (2001) 52 NSWLR 705; [2001] NSWCA 305 May v Ceedive (2006) 13 BPR 24,147; [2006] NSWCA 369 McDonald's Australia Ltd v Chief Commissioner of State Revenue (2005) 58 ATR 260; [2005] NSWSC 6 Metal Manufacturers v Commissioner of Taxation (1999) 43 ATR 375; [1999] FCA 1712 Minister for Natural Resources v New South Wales Aboriginal Land Council (1987) 9 NSWLR 154 MMAL Rentals Pty Ltd v Bruning (2004) 63 NSWLR 167; [2004] NSWCA 451 Newcastle-under-Lyme Corporation v Wolstanton Ltd [1947] Ch 92 North Shore Gas Company Limited v Commissioner of Stamp Duties (NSW) (1940) 63 CLR 52; [1940] HCA 7 Power Rental Op Co Australia, LLC v Forge Group Power Pty Ltd (in liq) (2017) 93 NSWLR 765; [2017] NSWCA 8 R v Toohey; Ex parte Meneling Station Pty Ltd (1982) 158 CLR 327; [1982] HCA 69 Smith's Snackfood Co Ltd v Chief Commissioner of State Revenue (NSW) (2013) 97 ATR 904; [2013] NSWCA 470 Spencer v The Commonwealth (1906) 5 CLR 418; [1907] HCA 82 SPIC Pacific Hydro Pty Ltd v Chief Commissioner of State Revenue (2021) 113 ATR 24; [2021] NSWSC 395 The Noordam (No 2) [1920] AC 904 Valuer-General Victoria v AWF Prop Co 2 Pty Ltd [2021] VSCA 274 Vopak Terminal Darwin Pty Limited v Natural Fuels Darwin Pty Limited (Subject to Deed of Company Arrangement) (2009) 258 ALR 89; [2009] FCA 742 Vopak Terminals Australia Pty Ltd v Commissioner of State Revenue (2004) 12 VR 351; [2004] VSCA 10 Winston Smith v Chief Commissioner of State Revenue [2019] NSWCA 75 Texts Cited: R Abbs "The Law of Fixtures: Informed Principle or Independent Predilection?" (2004) 11 Australian Property Law Journal 31 W Woodfall, Landlord and Tenant (looseleaf ed, 1998, Sweet & Maxwell) Category: Principal judgment Parties: Meridian Energy Australia Pty Ltd (Plaintiff) Chief Commissioner of State Revenue (Defendant) Representation: Counsel: M Richmond SC with NYH Li (Plaintiff) S Balafoutis SC with S Kanagaratnam and O Berkmann (Defendant)

Solicitors: PwC (Plaintiff) Crown Solicitor's Office (Defendant) File Number(s): 2020/223736 Publication restriction: Nil

Judgment

1. HER HONOUR: By summons filed on 31 July 2020, the plaintiff, Meridian Energy Australia Pty Ltd (Meridian), seeks a review pursuant to s 97(1)(a) of the Taxation Administration Act 1996 (NSW) (Taxation Administration Act) of the Duties Notice of Assessment made on 25 August 2021 (the Assessment) by the defendant, the Chief Commissioner of State Revenue (Chief Commissioner), under Ch 4 of the Duties Act 1997 (NSW) (Duties Act), in respect of Meridian's acquisition of 100% of the shares in GSP Energy Pty Ltd (GSP) from Trustpower Limited (Trustpower) on 29 March 2018 for over $160 million (the Acquisition). The amount of duty in question is $7,979,740, calculated on land holdings and goods valued by the Chief Commissioner in the amount of $145.35 million.
2. Under the Duties Act, landholder duty is paid on the acquisition of entities with land holdings valued at more than $2 million. Once the threshold value of the land holdings is exceeded, duty is calculated on the total value of the landholder's land and goods. The present dispute goes to the question whether the threshold value of land holdings was exceeded and, if it was, to the total value of the landholder's land and goods.
3. At the time of the Acquisition, GSP was the operator of three hydro-electric power stations in New South Wales, located at Lake Burrinjuck, Keepit and Hume, respectively (collectively referred to in these reasons as the Power Stations) and the lessee of the land on which the Power Stations are situated pursuant to leases entered into in 2014 (the Leases). GSP's access to the water required for the operation of the Power Stations (and its licence to access the Power Stations themselves) was pursuant to Water Agreements entered into with the State Water Corporation (SWC). Meridian emphasises that its right to use the Power Stations (and infrastructure therein) derives not from the Leases but from its ownership of the Power Station assets (pursuant to statutory Vesting Orders to which I will refer in due course).
4. There is no dispute that the Acquisition (of 100% of the issued shares in GSP) was a "relevant acquisition". The dispute is as to whether GSP was a "landholder" within the meaning of Ch 4. Meridian contends that the Assessment should be set aside because GSP was not a landholder within the meaning of Ch 4 of the Duties Act at the time of the Acquisition (as GSP's interests in land did not exceed $2 million). In the alternative, Meridian submits that the Assessment should be set aside and an assessment of a lesser amount should be made.

Power Stations

1. As noted above, at the time of the Acquisition, GSP was the operator of three hydro-electric power stations (the Keepit Power Station on the Namoi River, the Burrinjuck Power Station on the Murrumbidgee River, and the Hume Power Station on the Murray River) (see the affidavit affirmed on 3 December 2020 by Angus David Holcombe, Head of Asset Development for Meridian, at [4]-[5]) . The Power Stations had been built between 1928 and 2002 (see Plaintiff's Amended Appeal Statement at [14]; Defendant's Further Amended Appeal Statement at [16]); and each has at all relevant times been located on land owned by statutory corporations. At the time of the Acquisition, the land was owned by the Water Administration Ministerial Corporation (WAMC), a statutory body established under s 371 of the Water Management Act 2000 (NSW). The predecessor statutory corporations to WAMC include the Electrical Assets Ministerial Holding Corporation (EAMHC) and the Water Resources Commission.
2. Burrinjuck Power Station (Station No 2) was commissioned in 1938 (units 3 & 4). (Burrinjuck Station No 1 - units 1 & 2 - was commissioned in 1928 but decommissioned in 1974.) Hume Power Station was commissioned in 1957. Keepit Power Station was commissioned in 1960 (and upgraded in 1983). A new unit was installed at the Burrinjuck Power Station and the existing units in Burrunjuck Station No 2 were upgraded in 2002.

Position prior to 2000

1. Prior to the incorporation of Eraring Energy (see below), the Electricity Commission of New South Wales (trading as Pacific Power) had generating assets that included the Power Stations (see Plaintiff's Amended Appeal Statement at [15]; Defendant's Further Amended Appeal Statement at 16).
2. With respect to the Burrinjuck Power Station, it appears that this was the subject of a lease granted by WAMC to Pacific Power in 1998 (1998 Lease) (marked as Ex J in the hearing). There is no evidence of any lease in respect of the other two Power Stations (Hume and Keepit) at this time.
3. Clauses 6(g) and 12 of the 1998 Lease provide that the operator of the Burrinjuck Power Station is entitled to remove its fixtures at the determination of the 1998 Lease but that, if it fails to do so, those fixtures become the property of the lessor (thus broadly reflecting the position at law with respect to tenant's fixtures - see SPIC Pacific Hydro at [76]-[79]). The Chief Commissioner points out that there is no evidence about how much of the plant and equipment attached to the Burrinjuck land could be characterised as Pacific Power's fixtures.
4. As there is no evidence about any lease of the land for the Hume and Keepit Power Stations prior to 2000, the Chief Commissioner submits that it should be inferred that the general law applies, such that Pacific Power's interest with respect to any fixtures was comprised by the rights conferred on tenants who install fixtures on a landlord's property. Again, the Chief Commissioner points out that there is no evidence about how much of the plant and equipment attached to the Hume and Keepit land could be characterised in that way.
5. The Chief Commissioner emphasises that, in accordance with general law principles applicable to tenant's fixtures, until the tenant removes them 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 (reference here being made to Lees & Leech Pty Ltd v Commissioner of Taxation (Cth) (1997) 73 FCR 136; [1997] FCA 404 at 149 per Hill J; Empire Securities Pty Ltd v Miocevich [2008] WASCA 52 at [27]-[28] per EM Heenan AJA (with whom Pullin and Miller JJA agreed)). This is relevant to the Chief Commissioner's argument as to the effect of the 2000 (and subsequent) Vesting Order(s) (see below).

Eraring Energy

1. On 1 July 2000, Eraring Energy was incorporated as a statutory corporation (see s 6A of the Energy Services Corporations Act 1995 (NSW) (Energy Services Corporations Act) and cl 3 of the Energy Services Corporations (Eraring Energy) Regulation 2000 (NSW)).

2000 Vesting Order

1. On 1 July 2002, the Treasurer ordered (pursuant to cl 3 of Sch 5 of the Energy Services Corporation Act) that the "nominated staff, assets, rights and liabilities of Pacific Power" be transferred to Eraring Energy on 2 August 2000 (2000 Vesting Order).
2. Meridian says that, pursuant to the 2000 Vesting Order, Eraring Energy acquired the generating assets of Pacific Power, including the Power Stations. The Chief Commissioner says, on the other hand, that Meridian has not adduced any evidence of what staff, assets, rights and liabilities were transferred by this order, noting that the relevant provision of the Energy Services Corporation Act empowered the Treasurer to direct that "any specified staff, assets, rights or liabilities of Pacific Power be transferred to such energy services corporation", it does not appear to be in dispute that, after the 2000 Vesting Order, Eraring Energy assumed the operation of the Power Stations (see below); and the Chief Commissioner accepts that the generating assets of Pacific Power included the Power Stations (see the Defendant's Further Amended Appeal Statement at 16).
3. The Chief Commissioner emphasises that Pacific Power was not the owner of the leased land on which the Power Stations operated when the 2000 Vesting Order was made (noting the reference to the lease between WAMC and Pacific Power for the Burrinjuck Dam that was in existence in 1998, being Ex J) (see the 2014 Burrinjuck Lease, cl 1.1(e)).
4. The Chief Commissioner argues that the effect of the 2000 Vesting Order was to transfer Pacific Power's assets (including its interest as lessee or tenant of the leased land) to Eraring Energy but contends that the effect of the 2000 Vesting Order was not (and could not be) to transfer the fixtures owned by the owner of the land (WAMC) to Eraring Energy (since tenants' fixtures remain part of the freehold land until and unless the fixtures are physically removed - see SPIC Pacific Hydro at [139]). The Chief Commissioner notes that there is no reference in the 2000 Vesting Order to WAMC, nor any suggestion that the assets of WAMC (including its fixtures) were to be transferred to Eraring Energy. Further, the Chief Commissioner points out that the legislation which authorised the making of the order (the Energy Services Corporation Act) only permitted a transfer of assets from Pacific Power (not from WAMC). In other words, the Chief Commissioner maintains that the 2000 Vesting Order did not sever the fixtures from the leased land. (I address Meridian's response to this contention in due course.)

Commencement of operations by Eraring Energy

1. On 2 August 2000, Eraring Energy commenced operation as an electricity generator energy services corporation (see Exhibit MSW-1 to the affidavit of Michael Shannon Wixted, Senior Solicitor at the Crown Solicitor's office with carriage of the matter on behalf of the Chief Commissioner, affirmed 28 April 2021 at 90-91, marked as Ex 1 in the hearing).

Agreement for Lease between WAMC and Eraring Energy

1. Schedule 1 of the 2013 Vesting Order provides that, on 1 March 2002, Eraring Energy and WAMC entered into an Agreement for Lease in respect of Burrinjuck Dam (see Ex 1 at 2615-2621). This appears, however, to be a reference to the 1998 Lease, in light of the definition of "Existing Lease" in the 2014 Burrinjuck Lease (see also T 174.33-48). It does not, therefore, appear that the 2002 Lease did in fact exist, but rather was an erroneous reference to the 1998 Lease.

Incorporation of GSP

1. On 20 June 2002, GSP was incorporated (then known as Sellicks Hill Wind Farm Pty Ltd) (see Ex 1 at 97). (Later, in June 2014, the company name was changed to GSP Energy Pty Ltd - i.e., GSP, as here defined (Ex 1 at 97).)

Incorporation of Green State Power

1. On 4 June 2013, Green State Power Pty Ltd (Green State Power) was incorporated as a state-owned corporation (Plaintiff's Amended Appeal Statement at [17]; Defendant's Further Amended Appeal Statement at 16) pursuant to s 9 of the Electricity Generator Assets (Authorised Transactions) Act 2012 (NSW) (EGA Act) (see further the Green State Power Constitution, Ex 1 at 106 and 115, cl 1.10 which provides for the establishment of Green State Power). Green State Power is not related to GSP.

2013 Vesting Order

1. On 30 July 2013, the Treasurer made the Electricity Generator Assets (Authorised Transactions) (Eraring Energy Excluded Assets) Order 2013 (the 2013 Vesting Order or Eraring Vesting Order) (see Ex 1 at 167).
2. Section 7 of the EGA Act confers power on the Treasurer to exercise all such functions as are necessary or convenient for the purposes of an authorised transaction. Section 13 empowers the Treasurer to make Vesting Orders under Sch 4 of the EGA Act for the purposes of an authorised transaction.
3. Relevantly, cl 2 of Schedule 4 of the EGA Act provides that: 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.
4. Schedule 1 of the EGA Act defines "assets" 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 (including money), and includes securities, choses in action and documents.
5. The Chief Commissioner says that the effect of this legislation is thus to permit the Treasurer to make a transfer of assets from one named entity to another.
6. Clause 3 of Sch 4 of the EGA Act sets out the effect of a vesting order, providing, relevantly, that: (1) When any assets, rights or liabilities are vested by a vesting order, the following provisions have effect (subject to the vesting order): (a) the assets vest in the transferee by virtue of this clause and without the need for any conveyance, transfer, assignment or assurance, … (d) the transferee has all the entitlements and obligations of the transferor in relation to the assets, rights and liabilities that the transferor would have had but for the order, whether or not those entitlements and obligations were actual or potential at the time the order took effect, …
7. Clause 7 of Sch 4 of the EGA Act provides for the vesting of interests in land: (1) A vesting order may vest an interest in respect of land vested in the transferor without vesting the whole of the interests of the transferor in that land. (2) If the interest vested is not a separate interest, the order operates to create the interest vested in such terms as are specified in the order. (3) This clause does not limit any other provision of this Schedule.

Privatisation of Green State Power's assets

1. On 14 May 2014, in anticipation of the privatisation of Green State Power's assets, application was made (by a Form 11R lodged with the Registrar General) to change the registered proprietor of the freehold on which the Hume Power Station was located (the Hume freehold) from the Water Resources Commission to WAMC (see Ex 1 at 172). The form referred to the operation of legislation which provided that WAMC was the same legal entity as the Water Resources Commission.
2. On 23 June 2014, as noted above, there was a name change in relation to Sellicks Hill Wind Farm Pty Ltd to GSP.
3. On the same day (23 June 2014), the New South Wales Government, Green State Power and GSP entered into a Sale and Purchase Agreement (Green State Power Assets) (here referred to as the Privatisation Agreement).
4. By cl 2.1 of the Privatisation Agreement, Green State Power agreed to sell, and GSP agreed to purchase, the "Green State Power Assets". Clause 2.5(b) provided that (subject to the satisfaction of all obligations in cl 2.4 and satisfaction of all Completion Requirements) the Privatisation Agreement would complete by the Treasurer making the Vesting Order set out in Sch 9 of the Privatisation Agreement. Recital D noted that the "transfers will be effected by the Treasurer making the Vesting Order under the Act".
5. The "Green State Power Assets" were defined in cl 1.1 as meaning the Vendor's (i.e., Green State Power's) interest in, among other things, the: Generation Assets (at (a)); Green State Power Contracts (at (b)); Property Interests (at (c)) and at (g) the Privatisation Agreement provided as follows: (g) other assets, rights and liabilities comprising the Green State Power Business to be vested in the Purchaser under the Vesting Order including: (i) plant and equipment; (ii) consumables and spares; (iii) vehicles; and (iv) books and records …
6. The Generation Assets were defined by cl 1.1 to include, inter alia: the Burrinjuck Hydro Power Station (the 27.2 megawatt power station at Burrinjuck Dam comprising generation units 3, 4 and 5); the Keepit Hydro Power Station (the 7.2 megawatt hydro power station located at Keepit Dam); and the Hume Hydro Power Station (the 58 megawatt hydro power station located at Hume Dam).
7. The Green State Power Contracts were those contracts that were to be vested in GSP by the Vesting Order as specified in Annexure 6 of the 2013 Vesting Order.

Grant of leases

1. On 11 July 2014, WAMC granted the Keepit Lease, the Burrinjuck Lease and the Hume Lease to Green State Power (collectively, the Leases). Each Lease commenced on 18 July 2014 and was for a term of 30 years with 3 x 10 year options to renew.
2. Clause 13.5 of each Lease, to which I refer as it is raised in the context of the parties' submissions, provides that: For the avoidance of doubt, despite any provision of law to the contrary, it is the intention of the parties that all fixtures, fittings, assets and other items installed on or in the Land by the Lessee or otherwise used in connection with its business are to be classified as Assets in accordance with the provisions of the ["Deed of Agreement" or "Water Agreement"] and will remain the property of the Lessee at all times, regardless of their nature, their degree of affixation to the Land or any other relevant matter.

2014 Vesting Order

1. On 17 July 2014, the Treasurer made the Electricity Generator Assets (Authorised Transactions) (Green State Power Assets) Order 2014 (2014 Vesting Order) to vest the Power Stations, the Leases and other assets of Green State Power in GSP. The making of the 2014 Vesting Order effected the completion of the 2014 Agreement under which the Green State Power assets were transferred to GSP.
2. The 2014 Vesting Order vested in GSP all of "the assets, rights and liabilities of Green State Power" listed or described in Sch 1 (cl 3). Clause 2 of the Vesting Order provided that the Vesting Order has effect from 11.59pm on the Completion Date (which is defined in the Vesting Order as 17 July 2014).
3. Paragraph 1 of Sch 1 of the 2014 Vesting Order vested in GSP all assets, rights and liabilities of Green State Power in, attaching to or running with, any real property owned or occupied by Green State Power in connection with the Green State Power Business. Part B of par 1 of Sch 1 vested inter alia the Keepit Lease, Burrinjuck Lease and Hume Lease in GSP.
4. Paragraph 2 of Sch 1 of the 2014 Vesting Order vested in GSP: 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 [includes the Leased Land], 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; (c) All of the spare parts listed in Annexure 3 - Green State Power Inventory and Spares; (d) All of the motor vehicles listed in Annexure 4 - Green State Power Vehicle Assets; and (e) All of the information technology assets listed in Annexure 5 - Green State Power IT Assets".
5. Annexure 1 of the 2014 Vesting Order listed the physical assets that constitute the Power Stations.
6. Paragraph 3 of Sch 1 of the 2014 Vesting Order vested in GSP all "assets, rights and liabilities of Green State Power in all contracts, purchase orders, undertakings, representations, deeds, agreements or legally enforceable arrangements to the extent entered into by, or benefitting or burdening Green State Power in connection with the Green State Power Business". Annexure 6 of the 2014 Vesting Order listed the contracts to be vested in GSP, including the Water Agreements.

Meridian's acquisition of GSP

1. On 21 December 2017, Meridian and Trustpower entered into a Share Sale Agreement pursuant to which Meridian acquired 100% of the shares in GSP from Trustpower (Plaintiff's Amended Appeal Statement at [11]; Defendant's Further Amended Appeal Statement at 16). The Acquisition completed on 29 March 2018 (Plaintiff's Amended Appeal Statement at [11]; Defendant's Further Amended Appeal Statement at 16).

GSP's interests in freehold land

1. As at 29 March 2018, GSP was the registered proprietor of freehold land at Pejar in New South Wales (Pejar Land). The Pejar Land has a registered land value of $16,300.

The Assessment

1. On 28 June 2018, Meridian lodged, on a without prejudice basis, a Form ODA 043A (being an acquisition statement made upon the acquisition of an interest in a private landholder) in respect of the Acquisition.
2. On 20 December 2018, the Chief Commissioner assessed Meridian to duty in the amount of $9,225,490, on the basis that the unencumbered value of GSP's land holdings and goods was $168 million. On 18 February 2019, Meridian lodged an objection against this assessment.
3. On 4 June 2020, the Chief Commissioner allowed Meridian's objection in part and determined that Meridian was liable for duty of $8,170,337, on the basis that the unencumbered value of GSP's land holdings and goods was $148,815,340.
4. On 31 July 2020, Meridian filed its summons in the present proceeding, seeking review of that amended assessment pursuant to s 97(1)(a) of the Taxation Administration Act. On 25 February 2021, Meridian filed its Amended Appeal Statement (Plaintiff's Amended Appeal Statement).
5. On 25 August 2021, the Chief Commissioner issued a further amended assessment (the Assessment which is now the subject of review), on the basis that the dutiable value of GSP's land holdings and goods was $145,350,000 (reduced from $146,670,000) and assessing the duty payable as $7,979,740 (reduced from $8,052,340) (see further the letter dated 23 August 2021 from NSW Revenue setting out the basis for the relevant amendments to the assessment).
6. On 26 August 2021, the Chief Commissioner filed a Further Amended Appeal Statement (Defendant's Further Amended Appeal Statement).

Duties Act

1. The Assessment was issued pursuant to the significant landholder acquisition provisions of the Duties Act as at 29 March 2018 (it has since been amended). Relevantly, those provisions are as follows.
2. Section 146 provides that a landholder includes a private company that has land holdings in New South Wales with a threshold value of $2 million or more.
3. As to the threshold value of a private company's land holdings, s 146A provided at the relevant time that: (1) For the purposes of this Chapter, the threshold value of the land holdings of a unit trust scheme, private company or listed company is the total value of all land holdings in New South Wales of the unit trust scheme or company. (2) For a land holding that consists of an estate in fee simple in land (other than a strata lot), the value of the land holding is the registered land value of the land as at 1 July in the previous year. … (7) For any land holding for which a value cannot be obtained under the above provisions, the value of the land holding is the unencumbered value of the land holding, determined in the same way as it is for dutiable property under Chapter 2. (8) For the purposes of this section, the registered land value of land (including a parcel) is the land value of the land as entered in the Register of Land Values kept by the Valuer-General under section 14CC of the Valuation of Land Act 1916. …
4. Here, there is no question that GSP did not hold an estate in fee simple and hence subs (2) does not apply; the relevant provision for determination of the threshold value of GSP's land holdings is thus subs (7).
5. Section 147 defines a land holding to mean an interest in land other than the estate or interest of a mortgagee, chargee or other secured creditor. The Dictionary to the Duties Act defines interest to include an estate or proprietary right.
6. Section 23(1) of the Duties Act defines the "unencumbered value" of dutiable property as the value of the property determined without regard to any encumbrance to which the property is subject.
7. Section 163G of the Duties Act, which is here invoked by Meridian in the event that the Power Station assets are not landholdings but are held to be "goods", provides that: If the Chief Commissioner is satisfied that the unencumbered value of all goods in New South Wales of a landholder comprises not less than 90% of the total unencumbered value of all land holdings and goods in New South Wales of a landholder, the Chief Commissioner may disregard the value of the goods in determining the duty chargeable under this Chapter.

Evidence

1. Meridian filed lay affidavit evidence from: Simon Rooke, solicitor at PricewaterhouseCoopers and solicitor on record for the plaintiff, by affidavit sworn 31 July 2020; Angus David Holcombe, Head of Asset Development for Meridian Energy, by affidavit affirmed 3 December 2020 to which was exhibited Ex ADH-1 (marked as Ex A in the hearing); and Bradley Douglas Wilkins, Hydro Engineer for Meridian, by affidavits affirmed 18 June 2021 with Ex BDW-1 (marked as Ex B in the hearing) and 12 July 2021.
2. Meridian adduced expert evidence from: Mr Cameron Dunsford, a Managing Principal for RHAS, an operating division of Aon Risk Solutions and a property valuer, by affidavit affirmed 3 December 2020, together with a valuation report dated 28 November 2018 entitled "Meridian Energy Australia Pty Limited Valuation of [N]ominated infrastructure, Buildings, Plant and Equipment for Tax - V1.0" (Income Tax Report) and a letter dated 7 May 2019 entitled "Re: Meridian Energy Australia Pty Limited acquisition of GSP Energy Pty Ltd - Valuation of Infrastructure, Buildings, Plant and Equipment for Stamp Duty purposes" (Stamp Duty Report); Mr Antony Bryn Samuel, a chartered accountant, by reports dated 3 December 2020 (marked as Ex C in the hearing) and 5 July 2021 (marked as Ex D in the hearing), respectively; and Mr Michael Charles Dyson, a property valuer (three reports dated 3 December 2020, one in respect of each of the Burrinjuck, Keepit and Hume Power Stations respectively titled "Market Value of Leasehold Interest" (the Dyson Burrinjuck Report; Dyson Hume Report; and the Dyson Keepit Report).
3. The Chief Commissioner filed an affidavit affirmed 28 April 2021 of Michael Shannon Wixted, Senior Solicitor at the Crown Solicitor's office with carriage of the matter on behalf of the Chief Commissioner, together with Ex MSW-1 (marked Ex 1 in the hearing) and expert evidence from Mr Grant Kepler, a property valuer, by affidavit affirmed 24 November 2021 (Kepler Report).
4. Mr Samuel and Mr Kepler prepared a joint report dated 13 August 2021 (Joint Report) (marked Ex L in the hearing).
5. None of the lay witnesses was cross-examined; nor was Mr Dunsford. Mr Dyson was cross-examined on his report; and Mr Samuel and Mr Kepler gave concurrent evidence and were cross-examined on their reports. No issues of credit arise.

Issues

1. The issues for determination have been identified by Meridian as follows: first, whether, at the time of the Acquisition, the Power Stations were land holdings within the meaning of s 146 of the Duties Act; second, what is the correct valuation of the Leases and Water Agreements; third, whether the Power Stations are "goods"; fourth, the exercise of the s 163G "discretion"; and, fifth, flowing from the determination of the first four issues, the dutiable value of the Acquisition.

Issue 1 - Whether the Power Stations were land holdings

1. In summary, Meridian maintains that the Power Stations were not land holdings at the time of Acquisition. It is said that, to the extent that the Power Stations had once been part of the freehold on which they are situated (and Meridian's submissions seem to accept that the Power Stations were indeed embedded in so as to become part and parcel of the freehold land), the 2013 Vesting Order had the effect of creating and vesting in Green State Power a sui generis property interest in the Power Stations to be held in gross; and that, thereupon, the Power Stations lost their character as land (and as interests in land).
2. Meridian thus says that the effect of the subsequent 2014 Vesting Order was to convey Green State Power's (sui generis property) interest in the Power Stations to GSP; and that these Power Station interests were never held by GSP as interests in land. As the 2014 Vesting Order was effective from 11.59pm on 17 July 2014 (prior to the commencement of the respective Leases on 18 July 2014), Meridian says that WAMC, as lessor under the respective Leases, never acquired an interest in the Power Stations (which had already by then been conveyed in gross to GSP).
3. The Chief Commissioner, on the other hand, as adverted to above, contends that the effect of the statutory Vesting Orders was not to enact a statutory severance of the Power Stations from the land upon which they were situated; rather, that the Vesting Orders had the effect of transferring the existing assets of the tenant of the leased land to the future tenant of the leased land (i.e., that Pacific Power's existing interest in the leased land was transferred to Green State Power and then transferred again to GSP). The Chief Commissioner says that there is no support in the language of the Vesting Orders for Meridian's proposition that the respective Vesting Orders severed the fixtures from the leased land; and that it was outside the statutory power to make such a Vesting Order, the power being limited to the transfer of the existing interests of the previous tenant of the leased land.
4. I address in more detail below the respective submissions on this issue.

Meridian's submissions as to the first issue

1. As to the approach to the characterisation of property interests created by statute, Meridian refers to R v Toohey; Ex parte Meneling Station Pty Ltd (1982) 158 CLR 327; [1982] HCA 69 at 344 per Mason J, as his Honour then was, for the proposition that property interests owing their existence to statute should be characterised in the light of the relevant statutory provisions without attaching undue significance to similarities to a common law analogue.
2. 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 Corporation 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".
3. Meridian also refers to the approach to the characterisation of statutory rights articulated by Basten JA (as his Honour then was) in Chief Commissioner of State Revenue v Pacific National (ACT) Limited (2007) 70 NSWLR 544; [2007] NSWCA 325 (CCSR v Pacific National) (at [68]) and approved by the High Court on appeal in Asciano Services Pty Limited v Chief Commissioner of State Revenue (NSW) (2008) 235 CLR 602; [2008] HCA 46 (Asciano HCA), namely that: … The correct approach is to identify the nature of any power or interest conferred on a statutory authority pursuant to its constituting regime, or any other Act relevant to it, and to identify such consequences as may flow from that scheme without assuming that the legal consequences will be those which would flow from an analogous general law categorisation of the power or interest.

Chief Commissioner's submissions as to the first issue

1. The Chief Commissioner says that Meridian's first contention (that the various statutory vesting orders created in GSP a sui generis property interest in the Power Stations, with the result that the Power Stations were no longer fixtures forming part of the leased land; and not separately an interest in land) is incorrect for the following two reasons.
2. First, the Chief Commissioner says that Meridian mischaracterises the effect of the statutory Vesting Orders. The Chief Commissioner contends that the Vesting Orders simply transferred the previous tenant's interest in the Power Stations to GSP; and that they did not have the effect of severing the Power Stations (as fixtures) from the leased land, extinguishing the rights of the owner of the leased land with respect to the Power Stations or creating any new sui generis property interest. The Chief Commissioner contends that the Power Stations remain as fixtures, forming part of the leased land.
3. Second, the Chief Commissioner argues that if (which is denied) the effect of the statutory Vesting Orders was to sever the Power Stations from the leased land, then the nature of the rights created in GSP in the Power Stations depends upon the manner in which those rights were transferred to GSP. It is said that if a statute severed the Power Stations from the leased land, the nature of GSP's rights would depend upon the terms of the statute but that Meridian has identified no statute that severed the Power Stations from the leased land. The Chief Commissioner says that, if the Power Stations were conveyed from the owner of the leased land to GSP or its predecessors, then GSP would have an equitable interest in the fixtures; and points to the lack of any evidence that the Power Stations were so conveyed.
4. As to the effect of the statutory Vesting Orders, the Chief Commissioner analyses the position from the starting point of the distinction between the owner of the leased land and the operator of the Power Stations, noting that, at all material times, they have been different entities. As set out in the chronology above, the owner of the leased land presently is WAMC (see the Leases). The Chief Commissioner points out that at earlier times, the owner of the leased land has been the predecessor statutory corporations to WAMC, including EAMHC and the Water Resources Commission.

Meridian's submissions in reply as to the first issue

1. In reply submissions as to the effect or operation of the Vesting Orders, Meridian cavils with the submission by the Chief Commissioner that the effect of the 2013 Vesting Order was to transfer the assets of Eraring Energy "including its interest as lessee of the Leased Land" to Green State Power.
2. Meridian says that the only interests in land transferred by the 2013 Vesting Order were those set out in par 1 of Sch 1 of the 2013 Vesting Order. Meridian contends that par 1 of Sch 1 of the 2013 Vesting Order is exhaustive in that it provides that "[t]he 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" (emphasis as per Meridian's submissions).
3. The 2013 Vesting Order refers to the "Agreement for Lease (Burrinjuck Power Station)" in part B of par 1 of Sch 1 of the 2013 Vesting Order; but goes on specifically to particularise the vesting of the Power Stations as interests other than land by Annexure 2 of the Vesting Order, which lists "Property, Plant and Equipment".
4. Meridian says that it does not appear to be contested by the Chief Commissioner that the 2013 Vesting Order was competent to vest an interest in all Power Stations (including the Hume and Keepit Power Stations) in Green State Power (referring to [28] and [29] of the Chief Commissioner's submissions). Meridian argues that, by omission from par 1 of Sch 1 of the 2013 Vesting Order, Eraring Energy's interest in the Hume and Keepit Power Stations did not fall to be vested in Green State Power as an interest in land. It is submitted that the only form in which they could be received by Green State Power was as Property, Plant and Equipment pursuant to par 2 of Sch 1 of the 2013 Vesting Order and Annexure 2 to that Vesting Order, which enumerates the Power Stations as "Property, Plant and Equipment". Meridian notes that cl 7(2) of Sch 4 of the EGA Act has the effect that par 2 of Sch 1 of the 2013 Vesting Order creates in Green State Power an interest in the Hume and Keepit Power Stations (and so much of the Burrinjuck Power Station) in the form of "Property, Plant and Equipment" other than "Real Property". Meridian says that this is confirmed by subpar (c) of par 2 of Sch 1 which vests in Green State Power the identified items in Annexure 2 (being the Power Station assets) as "things", and not merely Eraring Energy's interest in those things.

Determination of the first issue

1. Tracking through the operation of the Vesting Orders from 2000, 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).
2. That is because Pacific Power was not the owner of the land on which the Power Stations were situated and (whether by the terms of a lease conferring upon it a right of removal or on the application of the common law principles relating to tenants' fixtures) if the Power Stations were installed by it (or a predecessor) on the land as a tenant's fixture ownership would be in the owner of the land unless and until the exercise of the right to remove the fixture; and hence, at the time of the 2000 Vesting Order, the right or interest of Pacific Power in the Power Stations would be simply the right of removal (subject to the provisions of any relevant lease) not as owner of the assets.
3. If so, then the 2000 Vesting Order, which provided for the "nominated staff, assets, rights and liabilities" to be transferred to Eraring Energy could at that stage only have included the right to remove the fixtures and would not have vested ownership in them on Eraring Energy. I accept that there is nothing in the 2000 Vesting Order that indicates an intention to interfere with the rights of the owner of the freehold in the land (including in any fixtures on the land).
4. Accordingly, one would expect that the 2013 Vesting Order, insofar as it conferred Eraring Energy's interest in the Power Stations on Green State Power, could only have conferred Eraring Energy's interest in the fixtures as acquired under the 2000 Vesting Order (there being no suggestion that in the interim Eraring Energy had taken any action to convert its right to remove the fixtures to ownership of the fixtures). And it would follow that the 2014 Vesting Order was so limited.
5. However, when one focuses on the terms of the 2013 Vesting Order, and in particular the identification in the schedules thereto of the interests there being vested in Green State Power, I am driven to the conclusion that what was effected was indeed a statutory severance of the Power Stations (as fixtures) from the land on which they were situated.

Issue 2 - The value of the Leases and Water Agreements

1. Before addressing the parties' submissions on this issue it is convenient to summarise the expert evidence.

Mr Dunsford

1. There is no disagreement between the parties as to the valuation by Mr Dunsford of the plant and equipment at $131 million.
2. For completeness, I note that there was an objection by the Chief Commissioner to the tender, in the context of Mr Samuel's report, of a report that Mr Dunsford had provided to Meridian (on which it relied to produce its accounts), that report (together with the accounts) being the basis for an instruction to Mr Samuel as to the amount of remediation costs in respect of the Power Stations at the end of the Leases (see T 26-27). Meridian accepted that the opinions given by Mr Dunsford in that report could not be relied upon as an expert opinion to the effect that $30 million was the remediation cost (not having been prepared in compliance with the expert witness code); and accepted that a s 136 limitation on the use of that document would be appropriate if necessary. Ultimately, no such ruling was made on the basis that Meridian accepted that it was simply being relied on as a business record of what was before the company and not as proof of the amount for remediation costs. Meridian also accepted that the assumption on which Mr Samuel gave his opinion based on an allowance for remediation costs was therefore affected by that ruling (see T 27) but maintained that it did not ultimately affect Mr Samuel's conclusions in any material way (and on Meridian's case would be irrelevant in any event).

Mr Dyson

1. As noted above, Meridian relied upon three reports dated 3 December 2020 prepared by Mr Dyson, a property valuer, as to the market value of the leasehold interests (see Ex E (Dyson Burrinjuck Report), Ex F (Dyson Hume Report) and Ex G (Dyson Keepit Report)).
2. Objection was taken by the Chief Commissioner to the tender of Mr Dyson's reports on the basis that Mr Dyson did not explain the basis of the reasoning leading to the conclusions expressed in his reports (see Makita (Aust) Pty Ltd v Sprowles (2001) 52 NSWLR 705; [2001] NSWCA 305 at [60] per Heydon JA, as his Honour then was) (see T 46ff). In essence one of the complaints by the Chief Commissioner was that there was no evidence or basis for the opinion expressed by Mr Dyson that many leases for land owned by the New South Wales Government have a rental assessed as a percentage of the assessed land value in the range of 5% to 10% depending on when the lease was prepared (see at [49] of the report in relation to the Burrinjuck Lease for example, being Ex E). Meridian's contention was that the basis for Mr Dyson's opinion was his recollection of what he had seen and done in relation to government leases over some 30 years of practice, noting that Mr Dyson had annexed to his report two examples of leases where the rent was shown to be calculated by reference to percentage of land value within the range that Mr Dyson had adopted in his calculations (see T 50.4-17). I provisionally admitted the reports subject to weight (see T 52.7-43). I deal in due course with the ultimate status of this report (see at [266] below).
3. Mr Dyson valued each of the Leases by applying the Amortisation of Profit Rental Method (a "profit rental approach") which compares the market rent for the lease and the actual rent paid ("passing rent") under the lease. Under such a "profit rental approach", the market value of a leasehold interest is equal to the present value of any profit rental (being the excess of the market rental over the passing lease rental) that is attributable to the lease. Mr Dyson's opinion was that the profit rental approach was the appropriate methodology to value the Leases (the difficulty here, I interpose to note, is that this approach requires comparable properties and, as became apparent in cross-examination, none was here available - no doubt due to the unique location and features of the land).

Mr Samuel

1. Meridian also relied on two reports prepared by Mr Samuel, a chartered accountant, those reports dated 3 December 2020 and 5 July 2021 (as noted above). Mr Samuel leads the forensic accounting and valuation team at Sapere Research Group Limited.
2. Mr Samuel primarily adopted a "residual" valuation method, which both he and the expert called by the Chief Commissioner (Mr Kepler) agree is the appropriate approach to valuing assets in a company that are otherwise difficult to value (as is the case here, given the difficulty of valuing the Leases - as evidenced by the above discussion in relation to Mr Dyson's report). The residual approach involves (see the Joint Report at [29] and [35]) starting with the market value of all the entity's assets; deducting the value of the assets owned by the entity where that value is known; and allocating the "residual value" to the asset that is not otherwise known. Relevantly, Mr Samuel's opinion is that the approach is effective only where there is only one asset whose value is unknown, and not where two such assets have an unknown value (see at T 83.11-33).
3. The Chief Commissioner notes that Mr Samuel was instructed to assume that, by reason of the Vesting Orders, the Power Stations are not fixtures forming part of the leased land (see Mr Samuel's second report dated 5 July 2021 at [11]). On that basis, Mr Samuel said the Pacific Hydro Methodology was not applicable (with one exception - see below) and valued the Leases as if they did not include the right to use the Power Stations (and separately allocated a value of $131 million to the Power Stations) (see Mr Samuel's second report at [47] and [48]).
4. The one exception Mr Samuel identified relates to the "skids" in the switchyard on the Hume Dam site which are bolted into concrete footings that are embedded in the soil and which contain a series of electrical equipment mounted on them; those skids having been installed after the Vesting Orders were made. Mr Samuel accepted that the Pacific Hydro Methodology ought to apply to those skids (with the result, the Chief Commissioner says, that the value of the right under the Leases to use the Power Stations is $2.93 million being the value of the skids alone); and the separate value that Mr Samuel allocated to the Power Stations is reduced by $2.93 million (from $131 million to about $128 million) (see Mr Samuel's second report at [92]ff).

Mr Kepler

1. The Chief Commissioner relies upon a report of Mr Kepler, who valued the Leases on the basis of the methodology described by Payne JA in SPIC Pacific Hydro at [170] (albeit which Mr Kepler modified in its application at [86]-[90] of Mr Kepler's Report dated 24 November 2021) (the Pacific Hydro Methodology). Mr Kepler attributed a value to the Leases that includes the net present value of the hypothetical lease of the PPE of the Power Stations for the equivalent term of the Leases (see Mr Kepler's Report at [129]-[130]).
2. Mr Kepler's opinion is that leases over Bare Land are most appropriately valued under alternative valuation methodologies (other than by allocating residual) and particularly the conventional lease valuation methodology (see Mr Samuel's commentary in his second report at 52). Mr Kepler describes what he means by conventional valuation methodology in [81] and [82] of his report (and see Mr Samuel's second report at 51(i)).
3. In addition to attributing the value of the PPE to the Leases, Mr Kepler attributed 50% of the "unallocated residual" between the Water Agreements and the Leases (see Mr Kepler's Report at [192]). This valued the Water Agreements at $13.85 million (half the value attributed to them by Mr Samuel) and attributed an additional $13.85 million to the value of the Leases (as 50% of the unallocated residual of $27.7 million) on account of the "Bare Land" element of the lease (see Mr Kepler's Report at [192]; see also the Joint Report at [17] and [19]).
4. Mr Kepler then added the PPE element and the Bare Land Element of the lease to reach a total value for the Leases at between $144.85 million (if GSP has no remediation liability at the end of the Leases) and $129.85 million (if GSP does have a $30 million remediation liability) (see the Joint Report at [19]).

Joint Report of Messrs Samuel and Kepler

1. Mr Samuel and Mr Kepler prepared a joint report identifying their areas of agreement and disagreement (Joint Report, marked as Ex L in the hearing). I have identified above the areas in which the two experts are in agreement.
2. The three principal areas of disagreement between Mr Kepler and Mr Samuel (see the Joint Report at [31]) are as follows. First, Mr Kepler valued the Leases, using the Pacific Hydro Methodology, on the assumption that the Leases included the right to use the fixtures (being the Power Stations); whereas Mr Samuel assumed that the Power Stations were not part of the leased land, so did not use the Pacific Hydro Methodology. Second, Mr Kepler assigned no value to expected removal and remediation costs; whereas Mr Samuel has proceeded on the basis that those costs will be incurred and will cost $30 million. Third, Mr Kepler valued the right under the Leases to use the unimproved leased land at $13.85 million; whereas Mr Samuel gave the same right a nil value or a value of negative $2.2 million (this third area of disagreement relating to how the "residual" is to be applied). I address each of those areas of disagreement below.
3. In submissions, I was provided with an aide memoire which helpfully calculates the value of the Leases depending on the outcome of those issues. The aide memoire outlines the Chief Commissioner's calculation of landholder duty as follows: the Leases (being the right to use fixed plant and equipment) are valued at $131 million; the Bare Land Leases are valued at $13.85 million; the total landholdings are thus valued at $144.85 million; goods are valued at $0.5 million, bringing the total landholdings and goods to $145.35 million. Thus, the Chief Commissioner calculates the duty on landholdings and goods (at 5.5% of $145.35 million) as $7.979740 million.
4. In terms of the joint experts' calculation of residual, the aide memoire sets out that: assuming all plant and equipment is part of the land, the Leases (being the right to use fixed plant and equipment) is valued at $131 million and the fixed plant and equipment is valued at $nil; assuming all plant and equipment is severed from land, except the skid, the Leases are valued at $3 million, and the fixed plant and equipment at $128 million; and assuming all plant and equipment is severed from land, the Leases are valued at $nil, and the fixed plant and equipment at $131 million.

Pacific Hydro Methodology

1. The first area of disagreement between the experts is as to whether the Pacific Hydro Methodology should be applied. As adverted to above, this is a reference to the approach to valuation adopted by Payne JA in SPIC Pacific Hydro.
2. I note that in reply to the Chief Commissioner's submissions at [50] (in particular, the statement that Meridian also accepts that the Pacific Hydro Methodology applies), Meridian acknowledges that it has instructed Mr Samuel to provide valuation opinions in the alternative by reference to the Pacific Hydro Methodology. However, Meridian says that the Pacific Hydro Methodology is only one valuation methodology endorsed in the specific context of the valuation question in SPIC Pacific Hydro. Meridian says that SPIC Pacific Hydro does not lay down a principle of law for the valuation of leases (referring to Valuer-General Victoria v AWF Prop Co 2 Pty Ltd [2021] VSCA 274 at [126] per McLeish JA, Emerton JA, as her Honour then was, and Delany AJA).
3. It is relevant to note what the so-called Pacific Hydro Methodology comprises.
4. At [157], Payne JA accepted the approach of SPIC's expert, who valued the leasehold interest on the assumption that the plant and equipment constituted fixtures that may be removed at any time and must be removed at the end of the lease.
5. Payne JA at [169] in SPIC Pacific Hydro said that: In valuing the Holdco Land Trust's land holding, the hypothetical willing but not anxious vendor for the purposes of the Spencer test is the tenant. I have found that the Holdco Land Trust's land holding interest in land is comprised by its rights under the leases including the right to remove, during or at the end of the leases, the plant and equipment affixed to the land. …
6. The methodology adopted in SPIC Pacific Hydro (at [170]) was: first, to determine the actual rental paid under the lease at a per annum rate for the right to use the plant and equipment during the term of the lease; second, to calculate the value to the tenant over the unexpired term of the lease, discounted to the present value at the time of acquisition; and, third, to deduct from this the expected costs to the tenant to remediate the site (also discounted to present value).
7. Meridian says that the valuation methodology described by Payne JA in SPIC Pacific Hydro (at [170]) is not appropriate for the present case in circumstances where: GSP's interest in the Power Stations is vested in it by force of par 2 of Sch 1 of the 2014 Vesting Order and not by reason of the leases granted by WAMC; and WAMC did not have, nor ever had, an interest in the Power Stations at the time that WAMC granted the leases to GSP. Meridian argues that the Pacific Hydro Methodology is a lease valuation methodology that is applicable to assets that are the property of the landlord and leased pursuant to a lease (whereas in the present case the vested assets were not leased, but rather were owned by GSP) (see Mr Samuel's second report dated 5 July 2021 at ).

Removal/remediation costs

1. Meridian submits that any item that contributes to the value of GSP's interest in land must also take into account projected remediation costs (referring to the Kepler Report at 87), noting that Mr Dunsford has estimated the "end of life demolition costs" at $29,950,850 and that GSP's internal accounts estimate its possible remediation obligations at $30 million. It is noted that the present value of expected remediation costs can be calculated by multiplying the present value of remediation costs by the probability that the remediation costs will be incurred (see the Joint Report at [25]).
2. As to the second area of difference between Mr Kepler and Mr Samuel (the probability adjusted removal and remediation costs payable on the expiry of the Leases), the Chief Commissioner points out that this issue arises because the third element of the Pacific Hydro Methodology is the discounting of the value of the relevant lease for those expected removal and remediation costs (see SPIC Pacific Hydro at [170]).
3. The Chief Commissioner contends that there is insufficient evidence to find that any removal and remediation costs are payable on the expiry of the Leases; and that Meridian has not discharged its onus in this regard.
4. It is noted that Mr Kepler's position is that the remediation and removal costs are unlikely to be material (see at [124]-[125] of Mr Kepler's report dated 24 November 2021 and at [66] of the joint report dated 13 August 2021). Mr Samuel has proceeded on the basis that the remediation and removal costs are estimated to be about $30 million (see at [78]-[83] of Mr Samuel's report dated 5 July 2021 and at [62]-[65] of the joint report).
5. The Chief Commissioner points out that GSP's obligations to remediate and remove the Power Stations from the leased land are governed by the Water Agreements, under which there are three possible scenarios on termination of those Agreements: first, that SWC may elect to purchase the Power Stations from GSP (i.e., now Meridian) for $1; second, that if SWC does not purchase the Power Stations, GSP may elect to leave the Power Stations on the leased land; or, third, that GSP may elect to remove the Power Stations from the land.
6. As to the first scenario, it is noted that the only costs payable by Meridian are the costs of remediating any contamination (see cll 14.5, 14.6, and 14.10 of the Keepit Water Agreement; cll 14.5, 14.6, and 14.10 of the Burrinjuck Water Agreement; cl 7.7 and 7.12 of the Hume Water Agreement). The Chief Commissioner says that the expected cost of the first scenario cannot here be assessed as there is no evidence of the costs of remediating contamination, if any (see T 115.46-49, T 116.1). Further, it is noted that there is no evidence of the probability of Water NSW (SWC's successor) electing to purchase the Power Stations for $1.

Application of residual as between Leases and Water Agreements

1. Mr Kepler valued the right under the Leases to use the unimproved leased land at $13.85 million; whereas Mr Samuel gave the same right a nil value (or negative $2.2 million value).
2. Mr Samuel disagrees with Mr Kepler's methodology for valuing the Bare Land component of the Leases (see the Joint Report at 39). Based on Mr Samuel's opinion, Meridian says that conventional valuation principles require that 100% of the residual value of GSP should be accounted for in the Water Agreements rather than being split 50% between the Water Agreements and the Bare Land component of the Leases (see the Joint Report at [38]).
3. Meridian argues that Mr Kepler's methodology relies on an arbitrary allocation of 50% of the residual to the Bare Land (see the Joint Report at 39, 42 and 42). It is said that, for Mr Kepler to find that the Leases at the time of Acquisition on 29 March 2018 were worth $13.85 million, that would assume that the market rent for the Leases has increased 300% from when the Leases first commenced on 18 July 2014 (see the Joint Report at 41). Meridian maintains that the improbability of that assumption casts doubt upon Mr Kepler's methodology.
4. As to the third difference between the two experts (the market value of the unimproved leased land), the Chief Commissioner says that Mr Samuel's primary position (that the unimproved leased land has a nil value) (see Mr Samuel's report dated 5 July 2021 at [13], and the Joint Report at 36 and see Mr Samuel's alternative position when utilising the Pacific Hydro Methodology at 36 and [44] of the Joint Report) necessarily followed from his instructions (noting that Mr Samuel was instructed that the value of the Leases was nil (see Mr Samuel's report dated 3 December 2020 at [120]). It is noted that in Mr Samuel's first report, using the residual approach, Mr Samuel applied the residual of $27.7 million to the only asset that had not been valued, namely the Water Agreements (see at [134] and [135]). (The Chief Commissioner points out that, given Mr Samuel's assumption that the Leases had a nil value, Mr Samuel could not apply the residual to the value of the Leases. Pausing here, Mr Samuel in his oral evidence made clear the basis on which the residual was allocated to the Water Agreements so I do not accept that this was a conclusion mandated in some fashion by his instructions.)

Meridian's submissions in reply as to the second issue

1. As to the allocation of the residual (as between the Leases and the Water Agreements), and the Chief Commissioner's submissions (at [63]-[98]) relating to the areas of disagreement between Mr Samuel and Mr Kepler, in its submissions in reply Meridian addressed the following issues as to the attribution of the residual as between the Leases and the Water Agreements.
2. Meridian points to the agreement between the experts that, if the Leases were not mispriced when they were originally struck on 11 July 2014 and if there were no substantial changes in market conditions that affect the market value of the Leases at the valuation date, then the value of the Leases would be nil (T 97.21-50, T 98.1 and T 99.41-49).
3. First, as to the issue whether the rent struck between WAMC and Green State Power on 11 June 2014 (the Lease commencing 18 June 2014) was reflective of market rents, Meridian argues that the starting point is to assess or to consider whether there is any reason why, as at 11 July 2014, each Lease did not have a market value rent (referring to the evidence of Mr Samuel at T 119.27-32).
4. It is noted that, for willing but not anxious parties acting at arms' length, the best comparable transaction for working out market rents is the actual transaction entered into between the parties (see the Joint Report 41; T 78.37-38 (Mr Samuel); T 89.28-38 (Mr Samuel)). Meridian points out that this is recognised by Spigelman CJ in MMAL Rentals Pty Ltd v Bruning (2004) 63 NSWLR 167; [2004] NSWCA 451 at [55] and Wigney J in Federal Commissioner of Taxation v Miley (2017) 106 ATR 779; [2017] FCA 1396 at [81].
5. It is noted that Mr Kepler: agrees that the Leases were entered into between arms' length, well-resourced parties who were under no compulsion to act (T 129.1-11); says that because the transaction was "a privatisation there is incentive for a larger headline number" by the government (T 131.3-4); but admits that he could not "point to anything" to substantiate that speculation (T 131.4-5).
6. Meridian notes that the vendor under the Privatisation Agreement is Green State Power and that WAMC (the lessor) is not a party to the Privatisation Agreement. Meridian points out that there is no evidence that WAMC was paid a premium for the granting of the Leases by Green State Power or that WAMC disregarded its obligation prudently to manage government land by depressing the rent for land leased by it. Meridian says further that whether WAMC was directed to depress the rent payable for the Leases is purely within the knowledge of the government.

Summary of the second issue

1. In summary, Meridian says that the Leases have nil value because the rent paid under the Leases is comparable to market rent. Meridian accepts that each Water Agreement is an intangible asset of GSP and has material value but says (and the Chief Commissioner does not cavil with this) that the Water Agreements are not interests in land and should be excised from the calculation of the dutiable value if the Acquisition were a relevant acquisition for the purposes of Ch 4 of the Duties Act.
2. Meridian says that the Pacific Hydro Methodology is inappropriate (for the reasons set out above) and that, to the extent that there is a difference between the market value of GSP's shares at the time of Acquisition and GSP's assets and liabilities other than the Water Agreements and the Leases (the "residual"), the whole of the residual should be allocated to the Water Agreements and not the Leases.
3. If (contrary to its primary submission) the Pacific Hydro Methodology is applicable, Meridian says that it is logical that any cost of remediating the environment arising by reason of occupying the Leases and operating the Power Stations be allocated wholly to the Leases and for none of the remediation cost to be allocated to the Water Agreements (see the Joint Report at [70]).
4. The Chief Commissioner, on the other hand, contends that the Leases ought to be valued at $144.85 million, using the Pacific Hydro Methodology; that Meridian has failed to discharge its burden of proving that the Chief Commissioner's assessment was incorrect; that the criticisms by Mr Samuel should be rejected; and that Mr Kepler's opinion of the value of the Leases should be accepted. Based on Mr Kepler's valuation, the Chief Commissioner says that that the total value of GSP's landholdings was $144.85 million (comprising $13.85 million for the Lease of the unimproved land and $131 million for the right to use the Power Stations); and that GSP also owned goods (being portable plant and equipment) worth $500,000 (see the Joint Report at [19]).

Determination of the second issue

1. In relation to the issues raised as to the value to be ascribed to the Leases and the Water Agreements, I have concluded as follows.
2. First, as to Mr Dyson's report, I accept that Mr Dyson was not qualified to express an opinion on the legal effect of cl 13.5 (and that cl 13.5, however it be read, is no more than an acknowledgement by the parties as to the ownership of the Power Station Assets and does not have the legal effect contended for by Mr Dyson). More problematic, in my view, is that Mr Dyson accepted that the profit rental approach requires the ability to identify relevant comparables (not possible here) and was not appropriate where there was a business on the land that was inextricably linked to the lease (as is here the case). Therefore, with no disrespect to Mr Dyson, I cannot place weight on his opinion that the Leases were at nil value.
3. That brings me to the areas of disagreement as between Mr Samuel and Mr Kepler.
4. As to the first of those issues, I consider that this is not a case where it is appropriate to apply the Pacific Hydro Methodology because of the conclusions I have drawn as to the nature of the interest held by Meridian in the Power Stations; and I consider, by reference to his Honour's reasons, that Payne JA was not purporting to lay down some inflexible rule as to valuation of such assets in SPIC Pacific Hydro.
5. As to the position of the skids, however, the position is different in that they were installed after the 2014 Vesting Order and they have the features of something that would ordinarily be seen as a tenant's fixture (see my remarks (with which Bathurst CJ, and Beazley P (as Her Excellency then was) agreed) in Power Rental Op Co Australia, LLC v Forge Group Power Pty Ltd (in liq) (2017) 93 NSWLR 765; [2017] NSWCA 8 at [102] and [151]). In those circumstances I consider that the Pacific Hydro Methodology would here be appropriate to apply.
6. As to the second of those issues, I consider that, while application of the Pacific Hydro Methodology would require account to be taken of removal and/or remediation costs likely to be incurred on termination of the relevant Leases, the difficulty here is that there is insufficient evidence on which to form a conclusion that those costs are likely to be incurred or as to the likely quantum of those costs in any of the three scenarios. The provision made in Meridian's accounts is of little assistance in those circumstances.

Issue 3 - Whether the Power Stations were goods

1. On the conclusions that I have reached above, the third issue does not strictly arise but I deal with it for completeness.

Meridian's submissions as to the third issue

1. Meridian says that, even if GSP were a landholder, the Power Stations were not goods within the meaning of s 155 of the Duties Act because they are sui generis interests in property vested in GSP by statute and, alternatively, form part of a continuous system of electricity reticulation connected to a mass electricity distribution network. Therefore, it is said that the value of the Power Stations should be excluded in working out the dutiable value of the acquisition.
2. Meridian notes that the expression "goods" is left undefined in the Duties Act save that s 163K(1) expressly excludes a number of categories of things from falling within the category of "goods". Section 163K is not expressed to be prescriptive but appears to be intended to exclude a number of things that would otherwise be goods (such as goods that are stock-in-trade) from being caught by the expression. Section 163K relevantly states that: (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. It is noted that the meaning of the word "goods" has been said to be of very general and quite indefinite import which depends upon the context in which it is found (reference being made to The Noordam (No 2) [1920] AC 904 at 908-909 per Lord Sumner).
4. Meridian points out that the expression "goods, wares, and merchandise", as it appeared in the proviso in the Second Schedule to the Stamp Duties Act 1920-1933 (NSW), was considered in North Shore Gas Company Limited v Commissioner of Stamp Duties (NSW) (1940) 63 CLR 52; [1940] HCA 7 (North Shore Gas (No 1)), which concerned the mains and service pipes of the North Shore Gas Company which had been laid in the ground. Dixon J, as his Honour then was, there considered that the expression "goods, wares, and merchandise" should be taken to include all tangible movables (at 67). His Honour described the pipes as "part of a continuous system of gas reticulation which runs under the earth and is attached to plant and buildings fixed to the soil" (at 67) and that they are "interconnected and radiate from a plant consisting of fixtures" (at 70). For those reasons, his Honour found that the mains and service pipes were analogous to fixtures and not chattels personal (at 70) despite the company's statute having the effect of preventing the consequences which would ordinarily ensue from affixing things to the land (at 68).

Chief Commissioner's submissions as to the third issue

1. As to Meridian's third contention (i.e., that, even if GSP were found to be a land holder within the meaning of the Duties Act (that is, GSP has an interest in land worth at least $2 million), the Power Stations were not goods within the meaning of s 155(1) of the Duties Act and are not to be taken into account in applying s 155(1) of the Duties Act (see Meridian's Amended Appeal Statement at [29] and [30]), the Chief Commissioner notes that the particulars for this contention were set out in a letter dated 3 February 2021, as follows: 1. Paragraph 29 pleads in the alternative that: (a) if contrary to the primary contentions advanced at paragraphs 23 to 26, GSP is a landholder for the purpose of s 155(1) of the Duties Act 1997 (NSW) (the Act) because its interests in the Leases and Freehold Land have a value equal to or greater than $2 million, (b) the Power Station Assets nonetheless do not meet the description of goods for the purpose of section 155(1) of the Act because either: (i) the relevant Vesting Order vests the Power Station Assets in GSP as sui generis property rights pursuant to the terms of the Vesting Order and their enabling legislation and for that reason are not goods within the definition in s 163K(1) of the Act; or (ii) alternatively, the Power Station Assets which are affixed to land or structures on land are not tangible movable property and therefore not goods within the definition in s 163K(1) of the Act (North Shore Gas Company Ltd v Commissioner of Stamp Duties (NSW) (1940) 63 CLR 52). 2. To the extent that the Power Station Assets do not satisfy the definition of goods, their unencumbered value is not to be taken into account in applying section 155(1) of the Act.
2. The Chief Commissioner notes that Meridian's third contention arises only in circumstances where: the Court has found that the effect of the Vesting Order was to sever the Power Stations from the leased land; the Power Stations were not otherwise held by GSP as an interest in land; and GSP's landholdings had a value of at least $2 million. In those circumstances, the question raised by Meridian's third contention is whether the Power Stations are goods for the purposes of s 155 of the Duties Act.
3. The Chief Commissioner says that the contention that the Power Stations are not goods but some other sui generis property right or, alternatively, not tangible movable property (referring to Meridian's submissions at [99]-[106]) should be rejected for the following reasons.

Determination of the third issue

1. 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. However, 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.
2. In the circumstances were it to have arisen I would have concluded that the Power Stations or Power Station assets in the ownership of Meridian are not goods.

Meridian's submissions as to the fourth issue

1. Meridian says that, in the event that the Acquisition is found to be a relevant acquisition (about which there is no dispute - it is) and it is found that the Power Stations were goods and the value of GSP's goods at the time of the Acquisition is not less than 90% of the total unencumbered value of all land holdings and goods, then the power in s 163G of the Duties Act should be exercised and the value of goods should be disregarded in determining the duty chargeable to Meridian. Given my conclusion above, this issue does not arise but, again, for completeness I deal briefly with it.
2. It is noted that, in the case of a power which may be exercised by the Chief Commissioner, the Court must itself consider the correct application of the Duties Act to the materials before the Court, including how any power conferred by those provisions should be exercised (reference being made to Chief Commissioner of State Revenue v Centro (CPL) Ltd (2011) 81 NSWLR 462; [2011] NSWCA 325 at [168] per Sackville AJA (with whom Giles and Macfarlan JJA agreed); Winston Smith v Chief Commissioner of State Revenue [2019] NSWCA 75 at [2] per Meagher JA (with whom Payne JA and Sackville AJA agreed)).
3. Meridian says that, on its proper construction, s 163G of the Duties Act should be construed as prescribing a mandatory rule whereby, if the unencumbered value of all goods in New South Wales of a landholder comprises not less than 90% of the total unencumbered value of all land holdings and goods in New South Wales of the landholder, the Chief Commissioner must disregard the value of the goods in determining the duty chargeable under Ch 4.
4. It is noted that when a statute uses the expression "may" there is a question whether the particular context of words and circumstance make it not only an empowering word but indicate circumstances in which the power is to be exercised, so that in those events the "may" becomes a "must" (Finance Facilities Pty Ltd v Federal Commissioner of Taxation (1971) 127 CLR 106 at 134-135 per Windeyer J).
5. Meridian says that the textual indicator that s 163G of the Duties Act is mandatory is that s 163G prescribes a singular criterion for when the power is enlivened, which is when the unencumbered value of all goods comprises not less than 90% of the total unencumbered value of all land holdings and goods; and that it does not require the Chief Commissioner to make any evaluative judgment. Meridian says that the mandatory nature of s 163G is also confirmed by its legislative history.

Chief Commissioner's submissions as to the fourth issue

1. As to Meridian's contention that, in the event that the Power Stations are found to be goods, the discretion conferred by s 163G of the Duties Act should be exercised so that the value of the Power Stations is disregarded in determining the amount of duty payable (see Meridian's submissions at [107]-[128]), the Chief Commissioner says that, for Meridian to make this contention good, it must establish that: the Power Stations are (contrary to its earlier submission) goods; the value of the Power Stations, at the time of the Acquisition, was not less than 90% of the total unencumbered value of GSP's land holdings and goods; and s 163G of the Duties Act ought to apply such that the value of the Power Stations should be disregarded in determining the duty chargeable.
2. The Chief Commissioner's primary position is that the Power Stations are not goods; rather that they are fixtures forming part of the leased land (again citing Meridian's submission that the Power Stations "are so connected with their respective dams which is in turn embedded into the land that they became part and parcel of the land" - see Meridian's submissions at [62]). On that basis it is said that s 163G has no application to the facts of this case.
3. If, contrary to the Chief Commissioner's primary submission, it is held that the Power Stations are goods, then the Chief Commissioner notes that Meridian must establish that the value of the Power Stations at the time of the Acquisition was not less than 90% of the total unencumbered value of GSP's land holdings and goods. It is said that the determination of that question will depend on the expert evidence and the impact, if any, on the obligation to remediate. It is noted that there are various possible scenarios in which the value of GSP's goods will be less than 90% of GSP's total land holdings and goods even if Meridian establishes that the Power Stations are goods.
4. The Chief Commissioner posits, by way of example, the scenario that it be found that: the total unencumbered value of GSP's land holdings and goods was $145.35 million; Mr Kepler correctly valued the Lease of the unimproved leased land at $13.85 million; the skid is an interest in land, because it was installed by GSP after the 2014 Vesting Order, and is valued at $2.9 million; the portable plant and equipment is valued at $0.5 million; and the Power Stations are goods (contrary to the Chief Commissioner's primary submission) and valued at $128.1 million (being $131 million less $2.9 million for the skid).

Determination of the fourth issue

1. Given the position of the Chief Commissioner that (in the event that s 163G of the Duties Act is enlivened, the discretion should be exercised) it is not necessary to entertain the debate as to whether "may" means "must"; and it is not appropriate that I here enter into debate on that issue (it should be determined after proper consideration in a case in which it is determinative). As it is, on the conclusions reached above, s 163G is not enlivened, so the question whether the discretion is or should be exercised does not arise.

Issue 5 - Dutiable value of the Acquisition

1. Meridian says that the dutiable value of the Acquisition is nil because the methodology in SPIC Pacific Hydro is inapplicable to valuing GSP's Leases, the value of GSP's leasehold interest is nil and the Acquisition is not a relevant acquisition.
2. If the Acquisition is a relevant acquisition because the methodology in SPIC Pacific Hydro is applicable and s 163G of the Duties Act applies, then Meridian says that the dutiable value of the acquisition should be $2.9 million as set out in Mr Samuel's calculations at [18] of the Joint Report.
3. If the Acquisition is a relevant acquisition because the methodology in SPIC Pacific Hydro is applicable and s 163G does not apply, then Meridian says that the dutiable value of the acquisition is $99.3 million as the net of $131 million (being the PPE leases) plus $0.5 million (being the portable plant and equipment), plus negative $2.2 million (being the bare land Leases) plus negative $30 million (being the remediation costs) set out in the second column of Mr Samuel's calculations at [19] of the Joint Report.
4. Meridian says that the Further Amended Assessment is also excessive because the Chief Commissioner has undervalued the Water Agreements by at least $13.85 million when their actual value is $27.7 million (if the Pacific Hydro Methodology does not apply) or at least $29.9 million and up to $59.9 million (if the Pacific Hydro Methodology applies) as valued by Mr Samuel (see the Joint Report at [17] and [19]).
5. Meridian thus contends that the Further Amended Assessment should be set aside in whole or, in the alternative, set aside in part and an assessment issue for a lesser amount of duty on the basis that the dutiable value of the acquisition exclude the value of GSP's interest in goods or, in the further alternative, on the basis that no amount of the residual is allocated to the value of GSP's Leases. Meridian wishes to be heard on costs in any event.
6. The Chief Commissioner submits that the summons filed on 31 July 2020 be dismissed; and that the Court should, pursuant to s 101(1)(a) of the Taxation Administration Act confirm the assessment issued to Meridian.

Determination of the fifth issue

1. Having regard to the conclusions reached above, and the calculations set out in the aide memoire (set out above), the Further Amended Assessment should be set aside in whole. I find that the dutiable value of the Acquisition is nil on the basis that the Power Stations were not landholdings in the relevant sense, nor is the Pacific Hydro Methodology applicable in valuing GSP's Leases (although it does apply to the skids), and that therefore the Acquisition was not a relevant acquisition within the meaning of the Duties Act.

Costs

1. Both parties sought to be heard on costs, so I will make directions for that to occur.

Orders

1. On the basis of the foregoing, I make the following orders: 1. Set aside the defendant's Further Amended Assessment, dated 25 August 2021, in whole. 2. The parties are to file and serve submissions on the question of costs within 14 days of the publication of these reasons (including whether, and if so why, an oral hearing on costs is sought or that issue can be dealt with on the papers).

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: 12 August 2022