Panthers Investment Corporation Pty Ltd v Chief Commissioner of State Revenue

Judgment 1Penrith Rugby League Club Ltd (Panthers) and some of its subsidiaries were the registered proprietors of land. Some of the land was transferred to Panthers Investment Corporation Pty Ltd (PIC), the first plaintiff, and some of the land was transferred to Panthers Property Management Pty Ltd (PPM), the second plaintiff, as trustee of the Panthers Property Unit Trust (Unit Trust). 2All the shares in PIC were owned by Panthers. The shares in PPM and the units in the Unit Trust were owned as to 501 by Mulgoa Road (No 1) Pty Ltd (Mulgoa Road) as trustee of the Mulgoa Land Trust (No 1) (Mulgoa Trust) and as to 499 by ING Management Ltd (IML) as responsible entity for the ING Real Estate Entertainment Fund (IEF). 3The lands were the premises of clubs acquired over the years by Panthers and used as sporting club facilities. 4The issue in this review is whether, in addition to PIC and PPM, Panthers is the owner of the land for the purposes of the Land Tax Management Act 1956 (Management Act). 5Section 9(1) of the Management Act provides that land tax is payable by the owner of land on the taxable value of all the land owned by that owner which is not exempt from taxation under the Management Act. The Chief Commissioner of State Revenue, the defendant, assessed PIC and PPM to land tax on the lands transferred to them by Panthers and its subsidiaries. 6PIC and PPM claimed they were not liable to land tax because the land was exempt from taxation under the Management Act and s 9(1) had no operation. 7PIC and PPM claimed that s 10(1)(g)(iii) of the Management Act applied. It was in the following terms: "Except where otherwise expressly provided in this Act the following lands shall, subject to sections 10B, 10D, 10E, 10G and 10P, be exempted from taxation under this Act: ... (g) land owned by or in trust for any person or society and used or occupied by that person or society solely as a site for: ... (iii) a building (not being a building which any part is used for the purpose of a commercial activity open to members of the public) owned and solely occupied by a society, club or association not carried on for pecuniary profit." 8Sections 10B, 10D, 10E, 10G and 10P of the Management Act are irrelevant for present purposes. 9While an argument that the lands were held on trust for Panthers was not raised in written submissions, Mr Coles QC, who with Mr Andrew Smith appeared for PIC and PPM, said that he would rely on that aspect of s 10(1)(g)(iii) of the Management Act. Then, his oral submissions centred on a trust argument to ground Panthers as owner of the lands. 10The other exemption relied upon was s 10(1)(h) of the Management Act which was in the following terms: "Land owned by, or in trust for, any club or body of persons, and used primarily and principally for the purposes of any game or sport and not used for the pecuniary profit of the members of that club or body." 11Relevantly for present purposes, the term "owner" is defined in s 3(1) of the Management Act as follows: "Owner includes: (a) in relation to land, every person who jointly or severally, whether at law or in equity: (i) is entitled to the land for any estate of freehold in possession, or (ii) is entitled to receive, or is in receipt of, or if the land were let to a tenant would be entitled to receive, the rents and profits thereof, whether as beneficial owner, trustee, mortgagee in possession, or otherwise." 12At any one time there can be more than one owner for the purposes of the Management Act. In Chief Commissioner of Land Tax v Macary Manufacturing Pty Ltd [1999] NSWCA 471; (1999) 48 NSWLR 299 at 311 [68] Mason P said: "Nothing in the definition of 'owner' in s 3(1) suggests that there can only be one taxable owner of land at any point of time." 13This observation was cited with approval in CPT Custodian Pty Ltd v Commissioner of State Revenue (Vic) [2005] HCA 53; (2005) 224 CLR 98 at 107 [5]. 14Mr Coles conducted his case in general terms. Mr Kirk SC, who with Ms Bishop appeared for the Chief Commissioner, analysed the relevant documents in detail. 15The transfer of the lands to PIC and PPM was part of a refinancing of Panthers and its affiliates and the development of the available lettable floor space in the lands. ING REDA Holdings Pty Ltd (INGREDA) was chosen to perform the development work. 16INGREDA and its associates and Panthers and its associates executed Heads of Agreement that identified the stages of the development. It provided that in stage one, PIC would grant a lease to Panthers of each of the lands acquired by it. At stage three, Mulgoa Trust would enter into a lease with Panthers over the land acquired by it. 17The Heads of Agreement provided that IEF and PIC would enter into a loan agreement under which IEF would lend PIC an amount equal to 49.9 per cent of the market value paid by PIC for all of its properties, the interest under which would be equivalent to the rent to be paid by Panthers to PIC under the lease. 18The Heads of Agreement provided that the loan might, in the discretion of PIC, be repaid at the end of two years. The loan was to be secured by mortgage in favour of IEF over 49.9 per cent of Panthers' shares in PIC together with a fixed and floating charge over PIC. 19The Heads of Agreement also provided that PIC would make an interest-free loan to Panthers of the proceeds of the IEF loan and that Panthers was to use the proceeds to repay the outstanding loan to Westpac. 20In accordance with the Heads of Agreement three further agreements were made. Panthers, Mulgoa Road and IML executed a joint venture agreement (JVA). 21Secondly, Panthers, INGREDA, PIC, PPM and Mulgoa Road executed a development participation agreement (DPA). 22Thirdly, IML and PIC executed a loan agreement (Loan Agreement). 23Neither PIC nor PPM were parties to the JVA but "Trustee Company" was defined to mean PPM as trustee of the Unit Trust. 24Mr Coles relies upon the following provisions in the JVA: "12.1 Development of land For the period that PIC is the owner of the PIC Properties and the Trustee Company (as trustee of the Unit Trust) is the owner of the Unit Trust Properties, Panthers will retain full economic benefits for the purposes of development of all land that forms part of the PIC Properties and the Unit Trust Properties. 12.2 PIC income (a) While any amount remains outstanding under the Loan Agreement, PIC must allocate in priority to other expenses a sufficient amount of its income to repay any amounts owing under the Loan Agreement. (b) Following the payment of any amount in accordance with clause 12.2(a), and any other expenses of PIC, any remaining profits will be distributed as a franked dividend to each PIC Shareholder in accordance with their respective percentage holding of PIC Shares." 25The term "Lease" was defined in the JVA to mean any lease granted by PIC or any lease or sub-lease granted by the Unit Trust to any Panthers Entity over the current Club Land of each of the PIC Properties or Unit Trust Properties. 26The JVA provided that the relationship between the parties was that of joint venturers and not partners. But it provided that each party would owe a fiduciary duty to the other party in relation to the management of the Panthers Partnership, and it then set out the content of the fiduciary duty in similar terms to what one would expect of partners, such as, to act honestly, with integrity, fairly and in good faith. 27The "Panthers Partnership" was defined as the strategic partnership to manage and develop the real estate portfolio of the Panthers Entertainment Group that it and ING Real Estate Group agreed to establish after the appointment of INGREDA as the preferred tenderer. 28Express provision was made that PPM was entitled to be indemnified out of the funds of the Unit Trust. And it was provided that in the event of any inconsistency between the terms of the JVA and the constitutions of PIC and PPM, or the trust deed establishing the Unit Trust, the terms of the JVA would prevail. 29The DPA contained a recital that Panthers' property portfolio comprised 14 clubs located in metropolitan Sydney and regional NSW with approximately 80,000 m2 of gross floor area and approximately 195 hectares of land. 30A further recital said the DPA set out the terms and conditions on which INGREDA would provide project management and development services in relation to the properties to be developed and the terms and conditions on which INGREDA and Panthers might jointly develop the properties. 31The DPA provided that Panthers appointed INGREDA to perform the services with respect to the properties on and subject to the terms and conditions set out in the document. 32INGREDA was required to put forward a development proposal and strategy with respect to each property to an advisory committee. The advisory committee was comprised of an equal number of representatives appointed by INGREDA and Panthers. 33The following provisions expanded upon the full economic benefit to which reference was made in the JVA: "3.3 Acknowledgment The Parties acknowledge and agree that: (a) the Landowners will continue to hold the legal title to the Properties and Panthers will retain the full economic benefit including occupation, possession, rents and profits together with all obligations and liabilities of all Club Land and Non-Club Land that forms part of any Property except for any rents which are payable to the Landowners pursuant to any agreement between the Landowners and Panthers for any Club Land, until Project Commencement with respect to the relevant Project to which that Property relates; and (b) with effect on and from Project Commencement, the Property relating to that Project will be made available to the Parties for that Project in accordance with clause 3.4. 3A Full economic benefit (a) The Parties acknowledge and agree that the "full economic benefit" referred to in clause 3.3(a) includes: (i) in respect of Projects for which ING REDA has exercised its right to participate under clause 2.4, the Agreed Land Value for that part of the Property made available for the Project determined in accordance with clause 4.3; and (ii) in respect of Reserved Projects and any Projects for which ING REDA has not exercised its right to participate under clause 2.4, the value of that part of the Property made available for the Project. (b) Panthers acknowledges that it will receive the full economic benefit of any part of a Property made available for a Project referred to in clause 3A(a)(i) by being given credit for the Agreed Land Value against Panthers' funding commitment under clause 11.4. (c) Each Landowner must promptly execute all documents and do all things that Panthers from time to time reasonably requires of it to ensure that Panthers obtains the full economic benefit in a manner consistent with this clause 3A." 34The DPA provided that nothing was to result in the creation of a partnership, or create any trust, or create any relationship between the parties other than the engagement by Panthers of INGREDA as a consultant and contractor to provide the services, and where INGREDA participated in a project, that of several owners as tenants in common. 35Mulgoa Road and PPM represented and warranted in the DPA that the rights of the beneficiaries in relation to, and their interest in, the trust property was subject to the rights of each other party in relation to, and its interest in, the trust property. 36Leases were executed in accordance with the Heads of Agreement. The lease between PIC and Panthers was for the PIC land the subject of the assessments. The lease between Mulgoa Road and Panthers was over the PPM land as well as another parcel of land not the subject of these proceedings. 37As I understand Mr Coles' argument, he submits that there is no necessary formality in the formation of a trust. It may be oral. Mr Coles submits it may be inferred from conduct. It is dependent upon the intention of the parties by which I assume he means a settlor or a settlor and a trustee. 38Mr Coles cites Harmer v Federal Commissioner of Taxation [1989] FCA 432; (1989) 91 ALR 550. In that case three solicitors acting for parties in a dispute over a fund, consented to a court order that the fund be paid into a building society investment account in their joint names "to be held on trust by them" pending the determination of interpleader proceedings. The Commissioner of Taxation assessed the applicants as trustees in respect of the interest earned on the fund. 39The applicants objected contending that they were not trustees but merely signatories to the account and were not able to control it. And if they were trustees, then the beneficiaries were presently entitled to the income of the trust estate and assessable. 40French J held that the investment of the fund created a trust as the following requirements were satisfied: (a) the applicants were capable of acting as trustees; (b) the investment of the funds in the account created choses in action to which trust obligations could be annexed; (c) cestui que trust or all beneficiaries existed in the form of one or more of the defendants in the interpleader proceedings; (d) the applicants were under a personal obligation to deal with the funds for the benefit of the beneficiaries; (e) the applicants exercised a degree of control over the choses in action arising out of their contract with the building society which was consistent with the existence of an equitable obligation and the ability to discharge it. At 557-558 his Honour said this: "The trust concept is not readily comprehended by pithy description. In the first English edition of J Story, Commentaries on Equity Jurisprudence at para 964, it was said and repeated with approval in Wilson v Lord Bury that: 'A trust, in the most enlarged sense in which that term is used in English jurisprudence, may be defined to be an equitable right, title, or interest in property, real or personal, distinct from the legal ownership thereof.' The same text referred to the statement of Lord Hardwicke in Sturt v Mellish that 'a trust is, where there is such a confidence between parties that no action at law will lie but is merely a case for consideration of the court'. Lindley LJ described it as an equitable obligation to deal with property in a particular way and as 'really nothing except a confidence reposed by one person in another, and enforceable in a court of equity' - Re Williams. And as Lord Lindley, delivering the judgment of the Privy Council in Hardoon v Belilios, said: 'All that is necessary to establish the relation of trustee and cestui que trust is to prove that the legal title was in the plaintiff and the equitable title in the defendant. This might be proved in many ways. The mode of proof is quite immaterial. Being proved, no matter how, the relation of trustee and cestui que trust was thereby established.'" (references omitted) 41It was submitted on behalf of PIC and PPM that clauses 12.1 and 12.2 of the JVA together with clause 3.3 and clause 3A of the DPA, created a trust of the PIC properties in favour of Panthers, with the consequence that Panthers was entitled to the PIC properties for an estate of freehold in possession in equity, with the further consequence that Panthers was an "owner" of the PIC properties within par (a)(i) of the definition of that term. 42Mr Kirk submitted, correctly in my view, that in order to address this argument it is necessary to examine closely what bundle of rights Panthers holds and whether those rights amount to an equitable entitlement to an estate of freehold in possession. 43That concept was considered by the High Court in Glenn v Federal Commissioner of Land Tax [1915] HCA 57; (1915) 20 CLR 490. In that case trustees under a will held real and personal estate upon trust to accumulate a specified amount to be paid at the end of a specified period to certain persons. The residuary estate was then to be divided amongst certain other persons. It was held the other persons were not entitled to an estate of freehold in possession while the trust for accumulation was still in operation. 44 At 498 Griffith CJ said: "The essential element of an 'estate in possession' is, in my opinion, that the owner of it has a present right of beneficial enjoyment, whether accompanied by physical possession of the land or not." 45Isaacs J at 501 put it this way: "The real question here, as I view it, is this: Have the appellants, in the eye of a Court of equity, a present right under the provisions of the will to the present enjoyment of the land? If they have, they are equitable 'owners' within the meaning of the Act; if they have not, they are outside the definition. I emphasize the word 'right', for nothing short of a right will satisfy the requirement." 46This case involves a complex joint venture relating to the management and development of the PIC properties and the PPM properties. There are detailed provisions in the JVA and the DPA relating to the rights and duties of the parties and the rights to the fruits of the development of the PIC properties and the reference to full economic benefit must be understood in that context. 47The DPA may be summarised as an agreement to develop all properties previously owned or controlled by Panthers on a project-by-project basis. Development costs are to be borne equally by INGREDA and Panthers up to the time of project commencement. Thereafter the development costs are to be split, in general, equally between the two participants, save that Panthers is to be credited with the agreed land value, being the unimproved value of the land. In practical terms, this appears to mean that it is likely that Panthers will not have to contribute much further funding in relation to any particular project. 48It appears likely that the properties will be sold after being developed. The profits are then to be shared on a 50/50 basis up to the point of a 20 per cent return on project costs, which include payment of the agreed land value, and payment to INGREDA of its development service fees. Above 20 per cent, profits are shared by Panthers as to 60 per cent and INGREDA as to 40 per cent. 49It is until project commencement that Panthers is to retain the "full economic benefit including occupation, possession, rents and profits". But there is an exception for any rents payable to PIC, PPM or Mulgoa Road. 50In Lygon Nominees Pty Ltd v Commissioner of State Revenue [2007] VSCA 140; (2007) 23 VR 474 at 493 [68] it was held that a beneficial owner must have an interest vested in possession subject only to the rights of the trustee such that any beneficial owner must have "the right to deal with the property as one's own". 51And in Karingal 2 Holdings Pty Ltd v Commissioner of State Revenue [2002] VSC 431; (2002) 51 ATR 190 at 204-205 [58] Nettle J said: "I take the law on the subject to be stated by the High Court in Glen v Federal Commissioner of Taxation, namely, that in order to say of the holder of an equitable estate or interest in land that he or she is to be treated as an owner pursuant to s. 51, nothing less than the ability to obtain from a court of equity an order for actual possession of the land, or receipt of the rents and profits, will suffice." (references omitted) 52Clause 3.3(a) of the DPA does provide that Panthers will retain possession of the properties. But that is in the context of both the JVA and the DPA providing that Panthers would enter into leases of the properties and such leases were executed. Thus the rights to possession were intended to be regulated pursuant to leases. 53If cl 12.1 and cl 12.2 of the JVA and cl 3.3 and cl 3A of the DPA were intended to create a right of possession of the properties sufficient to constitute in equity an estate of freehold in possession, there was no point in executing the leases and particularly not leases requiring the payment of rent. 54I agree with the submission of Mr Kirk that the rights given to Panthers do not amount to "the right to deal with the property as one's own". Nor is Panthers in a position "to obtain from a Court of equity an order for actual possession" of the properties freed from the lease obligations. Panthers' rights are not an entitlement to the entirety of the economic benefits. They do not include the rents payable to PIC and PPM and Mulgoa Road. 55Mr Coles responds to this argument by pointing out that the rights to the full economic benefit were conferred before the leases were executed and by submitting that they could not abrogate or cut down those rights. 56I reject that argument. The grant of full economic benefit, whatever that might mean, was granted in the expectation and subsequent reality that leases would be executed. 57It was submitted that Panthers had the full economic benefit of the PIC properties when it owned them and it retained that full economic benefit under the provisions in the JVA and the DPA. For the reasons set out herein I reject that submission. 58There is plenty of countervailing evidence in the documents to suggest that the intention of the parties was other than the creation of a trust. The JVA states that the relationship between the parties is that of joint venturers provided that each party will owe a fiduciary duty to the other in relation to the management of the Panthers Partnership. And, as I have said, the DPA goes further and specifies a non-intention to create a trust. It provides: "5 Relationship of Participants 5.1 Relationship Neither this document nor any agreement referred to in this document nor the activities of the Parties or any of them shall, nor is it intended that any of the foregoing: (a) result in the creation of a partnership or other relationship whereby any Party may be held responsible or liable for any indebtedness or other financial liability or any act or omission of any other Party, either jointly or otherwise; permit the sharing of profits; authorise any person referred to above to pledge the credit of any other Party; impair the individual status of any Party; or create any trust; or (b) create or result in the creation of any relationship between the Parties other than: (i) the engagement by Panthers of ING REDA as a consultant and contractor to provide the Services in accordance with this Part B of this document; and (ii) where ING REDA participates in a Project in accordance with Part C of this document, that of several owners as tenants in common, of the Project Assets." 59Furthermore, there is no reference in the JVA or the DPA to the PIC properties being held on trust for Panthers. Given the sophistication of the arrangement and the documents implementing it, one would expect such a reference if there was an intention to create a trust. Particularly is this so when the documents establishing the Unit Trust and the Mulgoa Trust were already in existence and involved in the arrangements. 60The PPM properties stand in a different position to which the arguments raised on behalf of PIC and PPM do not apply. PPM holds the PPM properties on trust for its unit holders, neither of which is Panthers. 61I reject the argument that the grant of full economic benefit in the JVA and the DPA created a trust over the PIC properties in favour of Panthers. Panthers was not entitled to the PIC properties for any estate of freehold in possession and par (a)(i) of the definition of the term "owner" in the Management Act does not apply to the PIC properties. 62Mr Coles had an argument in the alternative under par (a)(ii) of the definition of "owner" in the Management Act. 63Mr Coles submitted that if the PIC lands were let to a tenant, Panthers would be entitled to receive the rents and profits. It would simply remain subject to the ongoing requirement to pay rent to PIC under any lease from it. 64Mr Coles submitted that there is no reason why tenant A who has an obligation to pay the head lessor rent, may not lease to tenant B who would have an obligation rent to tenant A. 65This submission, if correct, would mean that every tenant with a right to sub-let is an owner for the purpose of the Management Act. 66In my view par (a)(ii) of the definition of "owner" in the Management Act addresses the lessor and not the lessee. It speaks of a person entitled to receive rent rather than a person liable to pay rent. 67The reference to beneficial owner, trustee, and mortgagee in possession does not include a sub-letting lessee and there is no reason why the words "or otherwise" should extend the definition to a sub-letting lessee. 68The object of the definition is to extend the meaning of an owner from an absolute owner to those in a like position. That does not include a rent-paying lessee. 69I reject the secondary argument that Panthers is an "owner" of the PIC properties as falling within par (a)(ii) of the definition of that term in the Management Act. 70It is unnecessary for me to deal with other issues raised in the written submissions on behalf of the Chief Commissioner. I simply note that the position of Panthers with respect to the PPM land is fraught. The units in the Unit Trust of any possible benefit to Panthers are held as to 501 by the Mulgoa Trust of which Panthers is but one of 19 discretionary beneficiaries. 71It follows that since I have found that the properties are neither owned by nor in trust for Panthers, neither the exemption in s 10(1)(g)(iii) of the Management Act, nor the exemption in s 10(1)(h) of the Management Act applies to the properties.