Pioneer Concrete (Vic) Pty Ltd v Commissioner of State Revenue [2001] VSCA 55

Pioneer Concrete (Vic) Pty Ltd v Commissioner of State Revenue [2001] VSCA 55 - VSCA 2001 case summary — Zoe

[10]

On 27 July 1998 the appellant requested pursuant to s.33B(1)(b) of the Act that the respondent treat the objection as an appeal to the Supreme Court. The matter was heard by the judge in two stages, orders having been made by consent pursuant to Rule 47.04 of Chapter I of the Rules of Court for the trial of preliminary issues. In the first stage two questions were posed for the judge. The first was whether "the consideration for the sale" in terms of paragraph (A) of s.63(3)(b)(i) (which for convenience I shall henceforth call simply "paragraph (A)") was the price of $1,731,053 payable pursuant to the contract of sale or whether, as the respondent submitted, it was that price together with the amounts paid or to be paid to Amatek under the Grant Agreement. The judge decided that question in favour of the appellant, holding that "the consideration for the sale" was "the consideration expressed in the instrument of transfer, being the amount contracted to be paid for the land in the contract of sale". The second question does not appear to have been exactly articulated but evidently it was, in effect, whether "the consideration for the sale" was or was not greater than the amount referred to in paragraph (B) of s.63(3)(b)(i) - I shall henceforth call it simply "paragraph (B)". It appears to have been common ground that, in accordance with the decision in Commissioner of State Revenue v. Bradney Pty. Ltd.[3] in which O'Bryan, J. held[4] that "encumbrances" in the Stamps Act "... should bear its historical meaning, something in the nature of a mortgage or charge", the land was unencumbered. The expression "free from encumbrances" in paragraph (B) was therefore regarded by the judge as of no relevant significance. In response to the second question the order made on 30 March 1999, in relation to the first stage, recited that "The amount for which the real property might reasonably have been sold if it had been sold in the open market on the date of the sale is its market value on that day on the basis of its highest and best use". In the reasons for the decision the learned judge enlarged on that to the extent of saying that "the real property", as described in the instrument of transfer, was all the vendor's interest in fee simple in the land in three specified certificates of title and that no part of the vendor's interest in the land had been excluded. The reasons concluded by saying that, on the available evidence, "that amount, being $7,140,000, is greater than the amount which I have found to be the consideration for the sale, but the question as to the amount of the market value is not before me and I make no finding thereon."

[17]

Leaving aside the reference in s.63(3)(b)(i) to chattels, the provision requires that a comparison be made between two monetary amounts, namely, by virtue of paragraph (A), the actual consideration for the sale of the real property and, by virtue of paragraph (B), the amount for which the real property "might reasonably have been sold if [it] had been sold, free from encumbrances, in the open market on the date of the sale." Sub-s.(3)(b)(i) no doubt assumes that, if there has in fact been a sale of the kind contemplated by paragraph (B) ¯ that is, a sale of the real property at arms' length free from encumbrances in the open market ¯ the market price will be the consideration actually payable, duty being chargeable by reference to it; and that, if it is not the consideration actually payable, the market price will be the value for duty. Where, however, there has not been, or may not have been, such a sale sub-s.(3)(b)(i) will require that a notional or hypothetical sale of the appropriate kind be assumed so that the necessary comparison may be made. In either case the evident purpose of the sub-section is to subject the instrument to the same duty as if the consideration for the transfer on sale were the value of the real property free from encumbrances. In the present case the land was sold by private treaty but, although the purchaser and grantee were related companies, there is no suggestion either that the unusual contractual arrangements entered into were made with a view to avoiding or minimising stamp duty or that the consideration upon the sale was agreed on otherwise than on a bona fide commercial basis. The essential difference between the Revenue and the taxpayer was and is whether or not paragraph (B) requires that the value of the tipping rights be included in the value of the land for the purpose of assessment of duty. If the statute does not require it then the respondent is otherwise satisfied that the value for duty for which the appellant contends is correct.

[22]

The judge concluded that the reasoning in this last-quoted passage required that the first question be answered No, and that it was therefore not necessary to answer the other two. To reason in that way was, as I respectfully think, to fall into error. There was no question of seeking to "affect the nature of the real property", that is to say, the nature of the estate in real property that was the subject of the conveyance. The question that mattered was the value of that estate in real property to a reasonable hypothetical purchaser in the open market on the day. The position was that although, on the day, the vendor was agreeable to sell its estate in fee, it would do so only if there were to be reserved to it by contract over a specified protracted period the right to exploit or to allow the exploitation of the tipping capacity of the land. That was an ineluctable fact with which, on the day, the reasonable hypothetical purchaser was faced. It was a fact that must have affected the price that such a purchaser would be prepared to pay: it was no less a fact that would affect the price than, for example, the geographical location of the land, its area, its zoning, the quality and quantity of the sand available to be extracted from it, the existence of any relevant easements over it or the nature and condition of any improvements upon it. No facts of this kind could affect the nature of the vendor's estate in the land, and yet each of them would or could influence the price that it would fetch in the open market. The reservation of the tipping rights to the vendor was therefore a relevant fact that fell to be considered in the valuation exercise required by s.63(3)(b)(i) unless paragraph (B) required it to be to be ignored. Counsel for the appellant had relied below, and relied in this Court, on the decision in Commissioner of State Revenue v. Bradney, to which I have already referred, for the conclusion that paragraph (B), upon its proper interpretation, did not so require.

[23]

Bradney's Case concerned the assessment to stamp duty of an instrument of transfer on sale of a freehold interest in real property that was at the time of sale subject to a 50-year lease of which about 44 years remained unexpired and pursuant to which no rent was payable. The question was whether, in assessing the amount for which, in terms of paragraph (B), the real property might reasonably have been sold had it been sold, "free from encumbrances, in the open market on the date of the sale", account should be taken of the lease. The Revenue contended that the lease was properly to be regarded as an "encumbrance" from which the real property was to be treated as "free" at the time of sale and a valuation for duty made accordingly. The taxpayer's contention was to the contrary, namely that the lease was not an "encumbrance" within the meaning of paragraph (B), with the consequence (although this was, I think, not specifically spelled out) that an amount fell to be assigned for the purpose of paragraph (B) as the market price as if a sale of the real property was made on the date of the sale not "free from" the lease but subject to it. O'Bryan, J. upheld the argument for the taxpayer, interpreting the word "encumbrances" as I have indicated in paragraph [7]. No appeal was taken from the decision but, by way of response to it, (as counsel for the respondent told us he was instructed) s.63 of the Stamps Act was amended by Act 86 of 1997, by the addition of sub-ss.(3A), 3(B) and (3C), as set out in footnote 2 above. Counsel for the respondent before us submitted that the decision in Bradney decided no more than that "encumbrances" in paragraph (B) does not include a lease: it does not stand for a proposition that any right of occupation less than that of a lessee is to be taken into account as a factor in a valuation exercise made in accordance with paragraph (B). In this Court counsel for the appellant sought to apply Bradney's Case to its advantage in two ways. First it was submitted that the reservation under the contract of sale of the tipping rights conferred a right of exclusive possession which was, or was in the nature of, a reservation of an interest in land; or that it might be equated to a lease, in which case Bradney's Case was directly in point, and that in either case the tipping rights were not to be disregarded by virtue of paragraph (B). I do not accept either branch of the argument. The instrument of transfer, conveying all the vendor's interest in fee, is altogether inconsistent with the first branch, and, as to the second, there is no evidentiary basis for a conclusion that the creation of a leasehold interest, or anything like it, was ever the intention of the parties: cf KJRR v. Commissioner of State Revenue[7]. Secondly it was submitted that, whether or not the reservation of the tipping rights constituted or was akin to the creation of either a proprietary interest or a lease, Bradney's Case stood for the proposition that they were not an encumbrance within the meaning of paragraph (B). This, indeed, was common ground. It was said on behalf of the appellant, as I understand, to follow that, since paragraph (B) required an encumbrance to be disregarded in establishing a value, it necessarily required the tipping rights (not being an encumbrance) to be taken into account, thus reducing the value of the land the subject of the conveyance. The submission was, in other words, that paragraph (B) amounts to a prescription that the tipping rights can be disregarded only if they constitute an encumbrance; and that to disregard them would be contrary to the decision in Bradney. I think this approach is not warranted by the relevant words of paragraph (B), which are nullifying rather than prescriptive. The paragraph requires that a market price be reckoned without regard to encumbrances but it does not say what should be regarded in the reckoning; and O'Bryan, J. did not decide that for the purpose of paragraph (B) any and every fetter or restriction, not being an "encumbrance", placed by the owner of the fee on the use of the real property is to be taken into account. An alternative submission that, because the tipping rights are not "encumbrances" within the meaning of paragraph (B), the paragraph does not require them to be disregarded in the valuation exercise, has more substance.

[24]

Some support for the approach that O'Bryan, J. took in construing "encumbrances" in paragraph (B), and further assistance in divining the meaning of that word in the context, is afforded by Chief Commissioner of Stamp Duties for New South Wales v. Buckle & Ors.[8] That case concerned the assessability to ad valorem stamp duty of a supplemental deed varying a deed of settlement under a discretionary trust so as to vest the trust property in named beneficiaries from a certain date in default of the exercise of a power of appointment. The supplemental deed was assessed to duty, under s.66(1) of the New South Wales Stamp Duties Act 1920, as a "conveyance" on the footing that it was a resettlement of the whole of the trust fund, "in respect of the unencumbered value of the property thereby conveyed". An appeal by the taxpayers to a Master was allowed and the assessment was set aside. Appeals by the Revenue to the Court of Appeal and the High Court failed. Two points were canvassed: (1) the nature of the property conveyed, and (2) its "unencumbered value". As to the first Sheller, J.A. concluded in the Court of Appeal that the supplemental deed did not constitute a resettlement of the full beneficial interest in the trust property, that the estate that was resettled constituted certain interests in remainder, that that was the property conveyed, and that it was the "unencumbered value" of that property that was chargeable with ad valorem duty. Powell, J.A. disagreed and Kirby, P. expressed no concluded opinion. Relevantly to the second point - the determination of the unencumbered value - it appeared that on the day the supplemental deed was made the assets of the trust fund of some $4M were marginally exceeded by its liabilities. The Revenue contended (in a submission somewhat akin to that made for the Revenue in this case) that the liabilities were encumbrances which, for the purpose of assessment of duty, fell to be disregarded; and that the value of the property conveyed was the value of the whole of the assets of the trust fund, being the property to which the beneficiaries were entitled in equity. In answer, the taxpayers contended that the value of the property conveyed had to be assessed having regard to the trustee's right of indemnity, which was not an encumbrance on the beneficiaries' interest. Sheller, J.A., with whom Kirby, P, agreed, accepted the submission for the taxpayers, expressing himself thus[9]:

[28]

As well as tending to support the interpretation that in Bradney's Case O'Bryan, J. gave to "encumbrances" in paragraph (B), the decision in Buckle's Case suggests that the respondent seeks to give to paragraph (B) an operation going beyond its intended purpose. The concept of a value of property "free from encumbrances", which is relatively new in the context of the Stamps Act of this State, is evidently cognate with the concept of "unencumbered value" found in the New South Wales legislation that was in question in Buckle's Case. The latter concept has long been applied in the calculation of stamp duty ad valorem both in this jurisdiction and elsewhere, but there is a longer history of its application in this State in the case of duty imposed on instruments transferring marketable securities[13] than in the case of duty on conveyance of real property and land transfer.[14] Section 26(1) of the Stamps Act 1946 (Act 5204), which used to require duty on an instrument transferring a marketable security to be calculated on the value of the security according to "the average price thereof on the day of the date of the instrument", was amended by s.3 of the Stamps Act 1957 (Act 6104) by the substitution of "unencumbered value" for the quoted words I have just italicised. By a "more or less consequential"[15] amendment, s.17 of the 1957 Act amended s.66(1) of the 1947 Act to provide that a conveyance on sale the consideration for which consisted of "any marketable security" should be charged with ad valorem duty in respect of the unencumbered value of the security. Save for this there was, so far as I can discover, no mention in Victorian stamp duty legislation of "unencumbered value" in relation to the exaction of duty on a conveyance or land transfer before the Stamps (Further Amendment) Act 1981 (Act 9662), until whose enactment duty on a conveyance of real property or land transfer on sale was generally calculable by reference to the consideration stated in the instrument. Section 7 of the 1981 Act substituted a new subdivision (6) of Division 3 of Part II and a new Heading VI, which included a provision that was practically the same (so far as concerned conveyance of real property and land transfer) as the present s.63(3)(b)(i). That last owes its existence in its present form to s.8 of the Stamps (Further Amendment) Act 1983. Nowhere, so far as I know, has "unencumbered value" ever been defined in any stamp duty legislation of this State. The minister moving the second reading of the Stamps Bill 1957 said of the expression, in the context of the ascertainment of ad valorem duty by reference to the "unencumbered value" of marketable securities, that "It does not seem necessary to define this term and it is not defined in the Act as it stands."[16] The purpose of the introduction of the expression as a valuation concept for the purpose of calculation of ad valorem duty seems also to be clear enough: to meet attempts to avoid or reduce ad valorem duty by the statement in instruments transferring property on sale of less than a full monetary consideration for the sale. The purpose of s.63(3)(b) of the Stamps Act 1958 as it now stands is, as I should discern it, no different. Accordingly, I should understand the expressions "the amount" and "free from encumbrances" in paragraph (B), so far as they refer to real property, as referring to the unencumbered market value to purchasers generally[17] of the real property on the day of the date of the sale to which the conveyance gives effect. A consideration on sale of an amount not less than the unencumbered value of property may be described in the context as a full monetary consideration for it;[18] and the comparison required by paragraphs (A) and (B) of s.63(3)(b)(i) is ultimately one between the consideration stated in the conveyance and a full monetary consideration in that sense.

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