Second Appellant v Respondent

1 By these proceedings the appellant Taxpayers appeal against the respondent Commissioner's assessments of their liability to pay duty under the Duties Act 2000 (Vic), on the transfer of lands to them.

2 The question for decision is whether the nature of an appeal under sub-s 106(1)(b) of the Taxation Administration Act 1997 (Vic) (the TAA) involving ss 22(2)-(4) and 22A of the Duties Act (which concern the determination by the Commissioner of the value of dutiable property) should be determined as a separate question under r 47.04 of the Supreme Court (General Civil Procedure) Rules 2015.

3 The TAA does not specify the nature of the appeal to this Court from the Commissioner's determination of a taxpayer's objection. The nature of an appeal under s 106 involving a decision of the Commissioner made under the relevant sections of the Duties Act has not been previously determined. The Commissioner contends that the appeal is by way of judicial review; the Taxpayers contend that it is by way of a hearing de novo.

4 On an application made by summons filed in each proceeding, the Commissioner seeks the hearing and determination of the following question, before the hearing of the substantive appeal:

Is the appeal in this matter under s 106(1)(b) of the Taxation Administration Act 1997 involving sections 22(2)-(4) and 22A of the Duties Act 2000 an appeal by way of:

(a) a hearing de novo; or

(b) judicial review; or

(c) some other form of appeal?

5 The Taxpayers contend that the question can and should be determined in the course of the appeal.

6 The substantive appeal concerns the duty payable on the transfer of two parcels[1] of land in Melbourne to the Taxpayers in 2018. The lands comprise the site of what is now the Emporium shopping centre on Lonsdale Street, and the land on Bourke Street and Little Bourke Street on which sits the Myer shopping centre. Interests within the corporate group of the Taxpayers acquired each parcel of land in 2007 on 299 year leases from NB Lonsdale Pty Limited, a subsidiary of Myer Holdings Limited. The rent payable for each lease was $1 annually, if demanded in writing by the lessor. The leases were accompanied by call options in favour of the Taxpayers (albeit, in the case of the third appellant, through intervening assignments), each exercisable for $1, during the life of the lease. The lessees acquired the leases and call options on payment of premiums of $450,000,000 in the case of the Lonsdale Street land and $155,000,000 in the case of the Myer land.

7 On the Taxpayers' case, they became concerned, following the High Court's decision in 2013 of Willmott Growers Group,[2] that, if the lessor companies went into liquidation, the liquidator might disclaim the leases. The Taxpayers, on that basis, exercised their call options and acquired the lands in March 2018, for a consideration of $1 each.

8 The Commissioner assessed each transfer as dutiable under the Duties Act based on a valuation of the Lonsdale Street land in the sum of $1,020,000,000, on which duty payable was $56,149,500, and of the Myer land in the sum of $480,000,000, of which $26,400,000 was payable. The taxpayers contend that the dutiable value of each of the lands was $1.

9 For present purposes the grounds of appeal may be broadly expressed as concerning whether it was a proper exercise of the Commissioner's duty, under s 22 of the Duties Act, to disregard the leases in assessing the unencumbered value of the land were it offered on the open market, where the statute provides that in determining that value there must be disregarded any interest, agreement or arrangement (other than an encumbrance) granted or made in respect of the land that has the effect of reducing the value of the land (sub-s 22(2)), but that such an interest is not to be disregarded if the Commissioner is satisfied it was not part of an arrangement or scheme to avoid duty otherwise payable on that transfer of land (sub-s 22(3)). In assessing the dutiable value of the lands, the Commissioner disregarded the leases. The Taxpayers contend, in short, that the leases were not interests, agreements or arrangements in respect of the lands, and that the Commissioner erred in the performing the task required of him under sub-s 22(3).

10 Rule 47.04 confers on the Court a discretion to order that questions within a proceeding be tried separately, whether before, at or after trial. The principles governing the exercise of the discretion in r 47.04 are well understood. In Murphy v Victoria, the Court of Appeal approved Croft J's formulation of the statement of principles in the following terms:[3]

1. A separate trial should be ordered under r 47.04 only with great caution and only in a clear case.

2. The attraction of trials of issues rather than of cases in their totality, 'are often more chimerical than real', so that separate trials should 'only be embarked upon when their utility, economy and fairness to the parties are beyond question'.

3. The advantages of trying separate questions for one party may unfairly disadvantage another party, including because the questions will be determined without the benefit of all the evidence relevant to the proceeding.

4. There should be no trial of a separate question on the basis of assumed facts unless the facts are agreed or can readily be determined judicially. Otherwise, the parties remain free to dispute the relevant facts at any later trial.

5. As a general rule, it is inappropriate to order that a preliminary issue be isolated for determination unless the determination of the issue in favour of the plaintiff or the defendant will put an end to the action, or where there is a clear line of demarcation between issues and the determination of one issue in isolation from the other issues in the case is likely to save inconvenience and expense.

6. Factors which tell against making order under r 47.04 include that the separate determination of the question:

a) may give rise to significant contested factual issues both at the time of the hearing of the preliminary question and at the time of trial;

b) may result in significant overlap between the evidence adduced on the hearing of the separate question and at trial; possibly involving the calling of the same witnesses at both stages of the hearing of the proceeding; and

c) may prolong rather than shorten the litigation.

11 In exercising the discretion to order the trial of a separate question the Court must further the overarching purpose of the Civil Procedure Act 2010 (Vic) and the Rules of Court which is to facilitate the just, efficient, timely and cost-effective resolution of the real issues in dispute.[4]

(a) The nature of the appeal to be conducted in this proceeding, whether by way of hearing de novo or appeal in the nature of judicial review, is a question which goes to the Court's "power and jurisdiction" in hearing the case, which must, as a matter of duty, be determined first, before embarking upon any exercise of that jurisdiction. Doing so would be consistent with the established practice of this Court.

(b) In any event, in this case it is appropriate to determine the nature of the appeal before hearing the appeal proper.

(c) The proposed preliminary question will not dispose of the dispute or any part of it, but is appropriate for determination because there is a clear line of demarcation between that question and the issues arising on the appeal, and it is likely to save inconvenience and expense by putting the proceedings, and the challenge the Commissioner has to meet, on a clear footing from the outset.[5]

(d) Determining the question first would narrow the issues in dispute and facilitate the efficient determination of the real issues. Conversely, not doing so would disrupt the orderly and efficient preparation of evidence for trial, the scope of which will be different depending on whether the matter is properly to be heard de novo or in the nature of judicial review, and the conduct of the trial. The Commissioner would object to the admission of evidence outside the scope of an appeal by way of judicial review, at which point the Court will have to determine the question of its jurisdiction in any event. That course will likely be productive of significant waste of time and resources.

(a) The Court is not under a "duty" to determine the nature of its own jurisdiction as a preliminary matter.

(b) The exercise of the discretion conferred by r 47.04 departs from the usual course by which all issues of fact and law are determined at the one time by the Court following a trial, and the discretion is to be exercised cautiously.[6] There is no "established practice" of the Court in these cases and no presumed starting point; each case is governed by its own circumstances.

(c) There is no real utility in the trial of a separate question because it would not have the effect of ending the litigation or narrowing the substantive issues in dispute, or of avoiding the time and expense of a full trial.

(d) The conduct of the appeal would be practically unaffected whatever the ultimate basis of the appeal because the anticipated evidence admitted on either basis will substantially overlap.

(e) They would be prejudiced by the delay and expense caused by both the order to separate out a contested question from the main trial, and by the possibility that, generally speaking, because of the significant quantum of duty at stake, determinations in this case are unlikely to rest at first instance. The dispute has already been characterised by delay, which occurred before the issue of these proceedings. The Taxpayers lodged their objections to the assessments on 6 June 2018 but the Commissioner did not determine their objections until some two and a half years later, after this appeal had been set down for directions.

14 For the following reasons I consider that while I am not bound to determine the issue of the ambit of the Court's jurisdiction as a preliminary question, it is appropriate to do so.

15 The Commissioner submitted that on the authority of Hazeldell Ltd v the Commonwealth,[7] the trial of a separate question was not just desirable but mandatory. In Hazeldell, a long running and frequently appealed matter, Isaacs ACJ considered the proper approach to an appeal from the finding of the trial judge, under then-extant NSW law treating findings of a trial judge on cases concerning compensation as the verdict of a jury.[8] His Honour concluded that courts on appeal were required to treat the trial judge's decision as a jury verdict, reviewable for unreasonableness only, and so were limited in remedy to ordering a new trial; they could not find legal error and give final orders accordingly. Asked to make orders finally resolving the dispute, his Honour said that he could not do so, and remarked in that context that,[9]

[t]he very first duty of any Court, in approaching the cause before it, is to consider its jurisdiction. And so we have to consider at the threshold what is our jurisdiction? Is it simply to decide whether the finding of [the primary judge] is to stand or fall ... or ... is it within our power and our duty to end the litigation at once ...?

16 While that observation concisely expresses the proper approach to the discharge of the judicial function - to first consider the jurisdiction that the court is being called upon to exercise - Hazeldell does not stand for the proposition that where the ambit (or even the existence) of the court's jurisdiction is in issue, that question must be decided by way of a preliminary, separate question. More generally, the Taxpayers correctly submitted that the Court may defer the question until the conclusion of the case, as long as it is ultimately decided prior to its disposition. As the point was put by Katz J in Khatri v Price:[10]

The duty has been generally understood instead as permitting the court concerned to exercise a discretion ... to postpone determining the question of its jurisdiction until after it has heard the whole case, provided, however, that having done so, it then "first" determines that question.

17 Whether or not that is an appropriate course will depend on the issues before the Court in the case before it. Relevantly for the purposes of this application, the need to "first" consider jurisdiction does not mandate the trial of a preliminary, separate question.[11] The dicta cited by the Commissioner[12] do not establish the contrary proposition.

18 It is open, then, to determine the question now or in the course of the appeal, or at any other time, as provided under r 47.04. I accept the Taxpayers' submission that there is no default position of the kind for which the Commissioner contends.

19 The Commissioner's proposed separate question is one which is suitable to be heard separately in that (as both parties accepted) it is a pure question of law. I accept that it is not one which will dispose of all or even any of the substantive issues; however, it is a question that is clearly demarcated from all other issues. There is no intermingling of any disputed facts necessary to determine the existence or scope of jurisdiction with those relevant to its exercise. The question is therefore apt to be separated out.

20 Fundamentally, I accept that Commissioner's submission that taking that course will put the proceedings on a sure footing from the outset and that doing so will facilitate the just and efficient determination of the real issues in dispute.

21 Determining the question of the nature of the appeal at the end of the proceeding would have the undesirable consequence that the parties' evidence will need to address the alternate forms of appeal, and disputes about the admissibility of evidence will have to be decided on that basis.

22 The Taxpayers have indicated that they intend to call four witnesses. The Commissioner says it is likely that he will need to respond to the Taxpayers' positive case with evidence of his own, the substance and scope of which presently remains unknown but will necessarily respond in form to that of the Taxpayers.

23 As a general proposition, on hearing an appeal de novo, the Court has the power to hear whatever evidence it determines is necessary in order to properly determine the issue afresh and is not limited to that evidence before the original decision maker; in an appeal in the nature of judicial review evidence must necessarily be directed to showing the original decision maker relevantly erred.[13] Accordingly, evidence may be led, on either form of appeal, which impugns the Commissioner's decision. However, on a review of that decision, evidence will be limited to establishing error, including, where relevant, by way of showing that there were mandatory considerations not taken into account or procedural fairness was denied.[14] If error is established the Court will then ordinarily remit the matter to the Commissioner for redetermination according to law.[15]

24 The Taxpayers said in effect that this was a non-issue because on either basis the evidence upon which they would rely would be "very similar". While a hearing de novo contemplates fresh evidence, on an appeal in the nature of judicial review the Taxpayers would contend that Commissioner failed to take into account relevant information, and in so doing acted arbitrarily and failed to accord them procedural fairness. They intend to call and would, they say, be permitted to call evidence to demonstrate the error, that is, evidence of what it was that the Commissioner failed to consider.

25 While that might ultimately prove correct, on the limited material before me on this application I cannot properly draw the conclusion that evidence admissible on an appeal by way of hearing de novo would likely substantially overlap with the evidence admissible on an appeal by way of judicial review. That fact carries weight because I consider that there is a real prospect of disputes about the admissibility of evidence should the appeal proceed on an undetermined basis.

26 As the High Court explained in Dasreef, it is highly desirable that disputes as to the admissibility of evidence be determined as soon as practicable and in any event before the parties close their cases:

[a]s a general rule, trial judges confronted with an objection to admissibility of evidence should rule upon that objection as soon as possible. Often the ruling can and should be given immediately after the objection has been made and argued. If, for some pressing reason, that cannot be done, the ruling should ordinarily be given before the party who tenders the disputed evidence closes its case. That party will then know whether it must try to mend its hand, and opposite parties will know the evidence they must answer... It is only for very good reason that a trial judge should defer ruling on the admissibility of evidence until judgment.[16]

27 In order to determine objections to admissibility, I must necessarily first determine the nature of the appeal, which is the precise question the Commissioner seeks to be determined as a preliminary matter.

28 The Taxpayers submitted I could address this issue by following the course taken in Mould[17] and admit evidence on an objection, and determine all matters together after a single trial. While that may be an appropriate course in some cases, it is undesirable where, as the High Court put it in Dasreef, it would leave a party unsure by closing arguments of the case they have to meet. Evidence might be allowed subject to objection but that course risks creating an unwieldy, uncertain and partly hypothetical process which would not be resolved until a decision on the nature of the appeal is given, and in which at least some of the evidence (called by the Commissioner) may become otiose. Responsive evidence from the Commissioner (in particular, witness evidence) will be unnecessary on an appeal in the nature of judicial review.

29 This raises the fundamental difficulty with the Taxpayers' proposed course; it would necessitate hearing and determination of this proceeding on a parallel or alternative basis. This is an unattractive course. It would introduce both uncertainty and unnecessary complexity in decision-making.

30 I do not accept, as urged by the Taxpayers, that I should I hear all the evidence and determine the matter all at once, in order that a hypothetical future appellate court will have the benefit of my findings of fact and so be enabled to dispose of the matter themselves. Such a course would be open, but whatever advantages it might hold do not outweigh the benefits of laying a clean and certain foundation for the case before me.

31 I am also persuaded that the benefits of determining a separate question are not outweighed by the fact that doing so will involve the expenditure of some time and costs. That fact must be balanced against the alternative, which, as shown above, also entails added court time and a real risk of the proliferation of disputes about evidence, and added complexity by multiplication of issues which may be rendered otiose, not only at trial but on appeal.

32 The question of delay in the conduct of the proceeding before me, must also be considered in its proper context. The Taxpayers lodged their objections to the Commissioner's determination in June 2018. That objection was not determined within the statutory time period of 90 days. Thereafter, from September 2018, the Taxpayers were entitled to have the matter set down as an appeal to this Court pursuant to s 106(1)(b) of the TAA. They did not do so until 30 September 2020. They were of course entitled to take that course, but the fact that they did so attenuates the potency of their submission that they have been prejudiced by being kept out of their money.

33 I am accordingly satisfied that the just, efficient and cost-effective resolution of the real issues in dispute will be best effected by an order that the nature of the appeal be determined separately prior to trial, and will order that the Commissioner's proposed question be determined in accordance with directions to be made.

[1] Each appeal concerns lands, held on several separate titles, which are each together "dutiable property" for the purposes of section 10 of the Duties Act 2000. In these reasons, the word "parcel" simply refers to the aggregated lands the subject of each proceeding rather than bearing any technical meaning.

[2] Willmott Growers Group Inc v Willmott Forests Ltd (Receivers and Managers appointed) (in liq) [2013] HCA 51; (2013) 251 CLR 592.

[3] (2014) 45 VR 119, [2014] VSCA 238 (Nettle AP, Santamaria and Beach JJA) [28], citations omitted.

[4] Civil Procedure Act 2010 (Vic), sections 7-9.

[5] Murphy v Victoria [2014] VSCA 238; (2014) 45 VR 119, [28(5)] (Nettle AP, Santamaria and Beach JJA).

[6] Vale v Daumeke [2015] VSC 342, [31] (Derham AsJ).

[7] [1924] HCA 36; (1924) 34 CLR 442.

[8] Supreme Court Procedure Act 1900 (NSW) section 5.

[9] [1924] HCA 36; (1924) 34 CLR 442, 446 (Isaacs ACJ).

[10] [1999] FCA 1289; (1999) 95 FCR 287, [14].

[11] See, eg, Khatri v Price [1999] FCA 1289; (1999) 95 FCR 287, [14] (Katz J); cited with approval in, eg, BCBC Singapore Pte Ltd v PT Bayan Resources TBK (No 2) [2012] WASC 321, [27] (Pritchard J), Civil Air Operations Officers Association of Australia v Airservices Australia [2020] FCA 1665, [31] (Murphy J), and NABL v Minister for Immigration and Multicultural Affairs [2002] FCA 102, [2] (Allsop J).

[12] Hazeldell Ltd v the Commonwealth [1924] HCA 36; (1924) 34 CLR 442, 446 (Isaacs ACJ); Bray v F Hoffman-La Roche [2003] FCAFC 153; (2003) 130 FCR 317, [239] (Finkelstein J); Plaintiff S164/2018 v Minister for Home Affairs (2018) 92 ALJR 1039, [8] (Edelman J); Marwah v Magistrates' Court of Victoria [2013] VSC 278, [23]-[24] (Kyrou J); Zhang v Zemin [2010] NSWCA 255; (2010) 79 NSWLR 513, [33] (Spigelman CJ); Hearne v Street [2008] HCA 36; (2008) 235 CLR 125, [17] (Kirby J).

[13] Conte Mechanical and Electrical Services Pty Ltd v Commissioner of State Revenue (2011) 85 ATR 120, [2011] VSC 104, [5] (Pagone J).

[14] See for example, Feez Ruthning v Commissioner of Pay-roll Tax (2001) 48 ATR 137, [2001] QSC 303, [23] (de Jersey CJ); Mould v Commissioner of State Revenue [2014] VSC 268, [44] (Ginnane J); Conte Mechanical and Electrical Services Pty Ltd v Commissioner of State Revenue (2011) 85 ATR 120, [2011] VSC 104, [10] (Pagone J).

[15] Conte Mechanical and Electrical Services Pty Ltd v Commissioner of State Revenue (2011) 85 ATR 120, [2011] VSC 104 [4] (Pagone J).

[16] Dasreef Pty Ltd v Hawchar [2011] HCA 21; (2011) 243 CLR 588, HCA 21, 599 [18]-[19] (French CJ, Gummow, Hayne, Crennan, Kiefel and Bell JJ).

[17] Mould v Commissioner of State Revenue [2014] VSC 268 (Ginnane J).