Uniqema Pty Ltd v Commissioner of State Revenue [2002] VSC 157

Supreme Court of Victoria|2002-05-10|Before: PAGONE J.

The main issues in this proceeding are whether the amount to be assessed for stamp duty upon a conveyance is to include certain goodwill and various items of plant and equipment. The appellant agreed to purchase a business on 8 July 1997 for $US22,839,761 which comprised some plant and equipment, goodwill, land and buildings, and other assets. The land and building located in Port Melbourne was made the subject of a specific contract of sale for $US7,368,000 and comprised 13 certificates of title. Stamp duty upon these transfers was assessed and paid at $491,288. The Commissioner contends, however, that further stamp duty is payable because the value of the property for stamp duty purposes should include (a) $9,823,066.74 for the value of the goodwill of the business, (b) $12,080,658.02 as the value of some plant and equipment on the property, and (c) $10,524,500.00 as the value for other plant and equipment on that part of the land which was leased to a third party.

Section 17(1) of the Stamps Act 1958 imposes stamp duty upon the instruments specified in the Third Schedule. A conveyance of real property is one of the instruments identified under Heading VI which is made dutiable under the Act. Section 63(3)(a) of the Act extends the ambit of the words "real property or property" appearing in Heading VI to include a specific category of chattels. Section 63(3)(b) of the Act, and the terms of the Heading in the Third Schedule, extend the ambit of the words "value of real property or property" when appearing in Heading VI to include the value of that specific category of chattels. The principal issues in this proceeding are whether the goodwill and the two classes of plant and equipment come within these provisions.

The Stamps Act 1958, unlike the capital gains provisions in the Income Tax Assessment Act 1936, does not specifically identify goodwill or its value as an item of property for assessment to duty under Heading VI. Goodwill can be an elusive concept and as difficult to hunt as a snark [1]. Goodwill may be specific to property when, for example, a business is conducted at premises which is able to attract custom drawn from the location of the business, or which depends upon the location for some other reason specific to the location. A business may, however, have goodwill which is independent of the location. This, in my view, is such a case.

The business carried on from the premises purchased by the appellant is the manufacture and sale of oleo chemicals. It is clear that that business could be conducted from any other location physically suitable. In July 1997 the business sold oleo chemicals to wholesale markets within Australia and overseas. Within Australia the chemicals were sold in Victoria, New South Wales, Queensland, the Northern Territory, Western Australia and South Australia. Outside Australia the chemicals were sold in Japan, Korea, Taiwan, Vietnam, China, Malaysia, Thailand, India, Pakistan, the Philippines, Singapore, various African countries and various Middle Eastern countries. The total value of sales by the Australian office in the 1997 calendar year was approximately $60 million. Of these sales, approximately 60% were exports and approximately 40% were Australian sales. Of that 40% , 50% were sold to New South Wales customers and 40% were sold to Victorian customers. Sales in Australia were managed by the regional head office in Malaysia with the management in Victoria being responsible for the manufacture of the chemicals and the costs involved in that management. The business had three sales representatives who operated from the Port Melbourne office but essentially reported to the regional head office in Malaysia. Accordingly, the goodwill paid by the applicant upon the acquisition of the business is, in my view, not part of the real property acquired by conveyance nor was it part of its value.

The principal submission made by the Commissioner in the proceeding before me, however, was not that the goodwill was local in the sense of it being specific to the land, but that the goodwill fell within the meaning of the word "chattels" as used in section 63(3). This was not the basis for the assessment of the goodwill as explained in the Commissioner's reasons, but became the basis of its defence in this proceeding after leave was sought and granted to the Commissioner to rely upon the recent decision in Australian Rice Holdings Pty Ltd v. Commissioner of State Revenue[2]. In that case, Harper J. held that the water licence in dispute before him fell within the meaning of the word "chattels" used in section 63(3). In that case his Honour said:

"36. It might also be noted at this point that the applicable legislation imposes a tax. The courts now approach such legislation as being directed to the substance as well as to the form of transactions. To the extent that cases, formerly of high authority, such as Partington v. Attorney-General[3] and Inland Revenue Commissioners v. Duke of Westminster[4] stand in the way of this approach, they are no longer to be followed: Hepples v. Federal Commissioner of Taxation[5]. It nevertheless remains true that the intention to impose a tax or duty must be shown by clear and unambiguous language and cannot be inferred from ambiguous words: Brunton v. Commissioner of Stamp Duties[6]. It is also generally true that, where a taxing Act provides for an exception to the imposition of a charge, and where the construction of the exempting words is 'seriously in doubt, the interpretation should favour those whose claims are based upon the exceptions': Burt v. The Commissioner of Taxation[7]. 37. There is in my opinion every reason to suppose that Parliament intended to combine, with the value of the real property, the value of all other property included (to use the words of the Explanatory Memorandum) 'as an integral part of [the] sale.' The word 'chattels' was adopted not because Parliament wished to restrict the property caught by the amendment to moveable articles such as household furniture but because 'chattels' is the word which naturally comes to mind when one is considering the nature of the personal property that is most commonly included in and with the sale and purchase of land. But there is no sensible reason why Parliament would want to include for the purpose of assessment some categories of personal property, while excluding others, where in all cases the property in question was 'sold as an integral part of [the] sale'. Certainly, the mere adoption in s.63 of a word of such uncertain meaning as 'chattels' gives no clear indication of the location of any line which might be drawn between some categories of personal property which, being 'an integral part of [the] sale', should be assessed and other categories of personal property, although being equally integral, should not. 38. On the contrary, s. 63 (3) speaks of 'chattels ... that by reason of the sale of ... real property ... are sold ... to the transferee'. The licences transferred by Mr. Elliott to the appellant were without a shadow of a doubt sold by reason of the sale of 'Madowla Park'. The word 'chattels' is capable of encompassing those licences. The fact that another word or expression might be more apt is in the circumstances no answer. This, I think, is particularly so given the then Treasurer's use of the expression 'personal property' in the relevant passage in his budget speech. 39. Licences which confer rights to irrigate specified parcels of land, or to draw water for domestic and stock purposes being conducted on that land, have a direct an immediate impact on its value. When sold with the land they are necessarily as integral a part of the sale as anything could be which is not the land itself. I repeat: to exclude such property from the scope of s. 63 (3) merely because the word chosen to there describe it, while accurate in itself, is not as apt as another descriptive word or phase, would I think fly in the face of the will of Parliament. 40. The appellant submits that there is a relevant distinction between chattels which on the one hand are tangible and moveable and those which are on the other intangible and cannot be moved - at least not by the means in transporting physical objects. This distinction is, the appellant submits, given substance by the reference in s.63(3) to 'chattels not being stock in trade held or used in connection with a business carried on or in connection with the real property'. The words 'held or used in connection with a business carried on or in connection with the real property', it is submitted, qualify not the expression 'stock in trade' but the word 'chattels'. But 'chattels not being stock in trade held or used in connection with a business carried on or in connection with the real property' are (the submission continues) necessarily physical objects. It must follow that intangible property such as water rights, if they constitute property at all (which, of course, the appellant submits they do not) are excluded from the operation of s.63(3) and, necessarily therefore, of s.63(4). 41. There are, it seems to me, two problems with this submission. First, if the water rights enjoyed by the appellant constitute chattels, then it could sensibly be said that they are chattels used in connection with the business of growing rice. Secondly, the expression 'not being stock in trade held or used in connection with a business carried on or in connection with the real property' is not divided by punctuation from the word 'chattels'; and it was inserted into the sub-section, as a single expression, by the Stamps Act 1984. Accordingly, it is surely more appropriate to link 'stock in trade' rather than 'chattels' to that which is 'held or used in connection with a business carried on or in connection with the real property'. 42. The form presently taken by sub-section (3) indicates to my mind an intention by Parliament to exclude from duty those objects known as stock in trade which, if they in reality form part of one transaction of which the sale of real property is another constituent part, do so not so much because they are sold as a package with the land but because they are sold as part of a business which is sold as a package with the land. 43. In this respect, they are analogous to the stock and implements sold in connection with a conveyance of land used for primary production. They are not connected with the land as are free-standing cupboards or wardrobes or soft furnishings or furniture. Their first connection is with a business - which (ex hypothesi) happens to be carried on or in connection with the land. Their exclusion from the assessment of stamp duty is explicable and logical on that basis. 44. Not so the rights attached to water licences. They are so intimately connected with the land that they directly affect the use to which it can be put and the profits which may be realised from that use. There is no logical reason why land to which rights of irrigation and the like are linked, and the value of which is increased thereby, should be taxed on a basis which differs favourably from that which applies to land with no better access to water than the rain which falls directly onto the land from the heavens. In other words, there is no reason why the farmer in a region of high and dependable rainfall should pay more duty than a farmer in a drought-prone region but who has access to a comparable supply of water (access to which is regulated by the Crown in the general public interest) from which his property may be successfully irrigated. 45. In my opinion, the Parliament intended to include in the calculation of stamp duty payable on instruments of transfer of land used for primary production not only household chattels such as detached wardrobes or unfixed floor coverings but also such intangible assets as water rights. Each, if part of the sale of the land, are an integral part of that sale - the water rights above all. None fall into the same category as stock or implements. The latter, like stock in trade, are sold as part of the business with which the land is associated. The former (that is, household chattels and water rights) are sold either for domestic use or as a constituent element in the land itself. It is true that water rights may well be vital to the use of real property for primary production; but they are vital in the way the land itself is vital. In this respect, their role in the scheme of things can I think be sensibly differentiated from that of stock or implements; and the reasons which prompted Parliament to exempt the latter from duty do not apply to the former. Indeed, water rights are such an integral part of a transaction involving properties used for primary production that Parliament may have thought it entirely appropriate that their value be included in any assessment of stamp duty. The use of the words 'stock, implements or other chattels' in s.63(4) is compatible with this assessment of Parliament's intention."

The Commissioner contended that the water licences in that case were so intimately connected with the land that they directly affected the use to which it could be put and the profits which might be realised from that use, and accordingly that they were held to come within the expression "chattels" which by reason of the sale were sold or transferred to the transferee. The Commissioner next contended that the goodwill sold to the appellant in this case likewise comes within the meaning of "chattels" as considered by his Honour in the Australian Rice Holdings case. The appellant argues against these propositions but, in any event, urges upon me that the decision was in error and should not be followed.

I have given anxious consideration to the decision in Australian Rice Holdings and have been persuaded that I should not follow it. In my view the relevant provisions of the Act, at least those provisions with which I am concerned, do not, and in my view do not purport to, assimilate for duty as chattels any rights "so intimately connected with the land that they directly" affect its use or profits. What is brought to tax is the conveyance of the land and there is to be included in the duty upon that conveyance, those things which in law may fairly be described as chattels. The selection of the word "chattels" for inclusion for duty was not a legislative device by which the legislature sought to assimilate for duty with real estate anything more than what may fairly be described as chattels. The word "chattels" may be capable of having many meanings, including some that are quite wide, however I am unable to accept the view that the word "chattels" was used by the legislature as a surrogate for such broader concepts as "rights" or "assets" or even intangible assets so intimately connected with the land that they directly affect the use to which it can be put and the profits which may be realised from that use. In my view the word "chattels" is used in the section in the much more commonly used sense of corporeal property of the kind typically found on, and conveyed with, real estate, such as tangible and moveable goods. The exclusion from the class of chattels those items that might be stock in trade is, in my view, supportive of that conclusion. It also avoids the conclusion that the word "chattels" is to be given different meanings in sections 63(3) and 63(4), as was concluded in Australian Rice Holdings in line with the argument urged by the Commissioner in that case. In my view the ordinary and natural meaning of the same word in the same group of provisions (namely the word "chattels") is tangible and moveable items of property. The law has not traditionally classified goodwill as a chattel.[8]

The conclusion I have reached does not depend upon a consideration of the extrinsic materials. However, if recourse to such materials be necessary or desirable, it seems to me from the Second Reading Speech, and from the Explanatory Memorandum which accompanied the Amending Bill that added the relevant provisions in section 63(3) in question, that the focus of legislative attention was physical property of the kind typically sold with real estate. The risk to the revenue identified in the extrinsic materials was the widespread device of a sale of real estate with an inflated value for chattels (which were non-dutiable). The assimilation of such chattels with the land for duty was the means by which an avoidance device was removed. But it was "chattels" as commonly understood that were brought within the dutiable net rather than any broader category of rights connected with the real estate, however used or however related. Even then, not all chattels were brought within the dutiable net because (a) stock in trade was excluded and (b) there had to be a sufficient connection between the sale or transfer of the chattels and the sale or transfer, or the conveyance of the real property[9]. In regards to the latter matter, it is instructive to note that the connection in the contemplation of the legislature was a connection between the transactions of sale, transfer or conveyance of chattels and real property, and not that between the chattels and the land. Further, the passages from the Explanatory Memorandum set out by His Honour at paragraph 11 of his reasons use the word "chattels" in consecutive sentences in reference to the provisions now found in sections 63(3) and 63(4), and the use of the word in that passage of the Explanatory Memorandum indicates that the word was thought to bear the same meaning in those two provisions (contrary to the view pressed upon and adopted by His Honour). Such assistance, therefore that the extrinsic materials may give to the meaning of the word "chattels" compels me to the view that the mischief sought to be avoided by the amendment requires that "chattels" in section 63(3) be given the meaning of physical or moveable property and that the meaning of the word in section 63(3) was thought to be the same as in section 63(4).

The goodwill acquired by the appellant in the case before me was connected with, and was inseparable from, the business being sold. It was not part of the land being conveyed. Even accepting the decision in Australian Rice Holdings, it could not in my view be said in this case (unlike the fact found by his Honour in that case) that the sale of the goodwill was "an integral part of the sale" of the land. The business (including the goodwill) here could be conducted, bought and sold, without the sale of the land; similarly, the land could be owned, bought and sold separately from the business (including the goodwill).

It is unnecessary for me to consider also an alternative argument put for the appellant to the effect that only 16% of the business' goodwill could be dutiable. However, I accept the argument put for the appellant, namely that if it were necessary to determine what part of the goodwill could be ascribed to the land, it was no more than 16%. I should add, however, that the mere fact that 16% of the sales were in Victoria does not mean that any part of that 16% is meaningfully referable to the value of the specific site in Port Melbourne which was the subject of the conveyance. The Victorian sales could be effected by the appellant from any place in or outside of Victoria. Nothing can be seen from the sales themselves to link them in any secure factual way with local goodwill connected with the land conveyed. However, I accept that it could not be more than 16%.

B. Plant and equipment on the leased part of the property

The Commissioner has also imposed duty upon plant and equipment owned by a lessee who occupies a part of the land acquired. That plant and equipment was not purchased or paid for by the appellant. The Commissioner's basis for this charge is that the plant and equipment are fixtures and that for that reason they form part of what was conveyed with the land irrespective of the rights between the parties. Another way of explaining the Commissioner's position might be to say that the duty falls upon the rights transferred in rem irrespective of the rights which the parties may have as between each other, and that the rights in rem upon a conveyance of land necessarily includes the rights of all property truly described as fixtures. The Commissioner correctly conceded that they were not subject to duty if they were not fixtures.

The relevant items of property are located upon that part of the land in Port Melbourne that is leased to Co-Generation Australia Ltd. ("the tenant") pursuant to a lease dated 23 December 1992. The term of the lease is 16 years at an annual rental of $1. The tenant has placed plant on the leased land and, pursuant to clause 4.5 of the lease, has undertaken to remove all plant and equipment that it has placed on the leased land. Pursuant to clause 12.1 the lessor acknowledges that the lessee owns all improvements and fixtures constructed, installed or brought on to the premises and the adjoining land. Clause 12.2 of the lease provides that the tenant may at any time during the period of the lease or for a period of one month after its termination remove and carry away all or any part of the improvements or fixtures referred to in clause 12.1. Clause 14 of the lease provides that the lease shall be extended for the same period as a related agreement, the Energy Services Agreement, if that agreement is extended. The Commissioner has levied stamp duty on the plant and equipment installed by the tenant. The amount levied has been calculated upon a valuation obtained by the Commissioner on the footing that the plant and equipment constitute fixtures.

In my view the plant and equipment on the leased land ("the Co-Generation items") are not fixtures for the reasons which I shall set out when dealing with the other items of plant and equipment below. However, in deference to the careful arguments put in this proceeding I should deal with some of the other considerations which were pressed upon me.

It is important to bear in mind that duty is imposed upon the subject matter of a conveyance. The Act imposes duty upon, amongst other things, the conveyance of property dealt with by Heading VI in Schedule 3. At the heart of the duty being imposed under those provisions is that property is conveyed: it would be peculiar if duty was imposed upon property which was not conveyed. Indeed it is upon the instrument which effects a conveyance of real property that the duty is charged, and it is therefore the instrument which provides the content and detail for the imposition of duty. The duty is not imposed upon an hypothetical or abstract transaction, but upon the real transaction which the parties have entered into in the real world.

These considerations are given support by the structure of the provisions upon which duty is assessed. The structure of the provisions thus allows an election by the Commissioner to be made between imposing duty upon the consideration agreed to by the parties or upon the open market value of the property. An election in such terms is a sound fiscal device, in part because it permits the revenue authorities to disregard an artificially low consideration being agreed between the parties. It is also a sound fiscal measure that there is no statutory pre-condition before the election can be made, that the Commissioner needs to find (or needs to be of the opinion) that the dealing is not at arm's length. The absence of such a pre-condition enables the revenue authorities to avoid complex and distracting debates about whether the agreed consideration was or was not at arm's length. The provisions are also sound in their objective of bringing to duty the value of what is conveyed which is, after all, the object of the Act. What the provisions do not permit, however, is for the Commissioner to engraft upon the transaction an additional amount not actually paid for the value of property not actually conveyed. Nor can I see any responsible legislative policy, or sound fiscal or economic reason, to impose duty upon a non-conveyance for a value not paid to the vendor for something not paid or acquired by a purchaser.

The Act, to my mind, seeks to ensure that there be a close identity between that which is conveyed and that upon which the duty is assessed. The identity may not always be exact for particular reasons of policy, but that it should be as close as possible is both clear from the Act and from good sense. The conveyance, for example, of an office block may have little dutiable value if the Commissioner were not able to take account of the effect upon its value of secure leases returning a strong rental stream. By the same token the Commissioner is permitted to impose duty upon a market valuation of a sale free from encumbrances. An illustration may be of assistance. A shop may be owned by one person, leased to another and mortgaged to a third. The owner who elects to sell the freehold will do so with the benefit or detriment upon its value of the lease and all other things which affect its value favourably or adversely. The effect of the lease upon value will, thus, be reflected in the consideration or in the open market value of the fee simple estate. To remove the effect of the lease upon value for duty purposes would result in unjust assessments in a large number of daily conveyances: in many cases it is the lease which adds to the dutiable value just as in some cases it is the lease which may reduce the dutiable value. The mortgage, on the other hand, will usually be irrelevant to the consideration paid for the freehold or to its market value.

In this case the Commissioner has, in my view, incorrectly assessed the appellant by adding the value of the Co-Generation items to the consideration paid. Indeed, the assessed amount exceeds the total amount paid by the appellant upon the acquisition. The transaction was between arm's length parties and for a consideration which was not challenged by the Commissioner as being anything other than bona fide. But the Commissioner says that the parties simply failed to appreciate that their genuine and bona fide attempt, inter parties, not to effect a transfer of the Co-Generation items was ineffective in law. The Commissioner, thus, does not dispute in any way the legal effect of the transactions inter parties, but says nonetheless that the Act requires duty to be imposed upon the value of the Co-Generation items because the Act requires that they be treated as sold notwithstanding the terms of the agreement between the parties.

In my view the conclusion sought by the Commissioner is not supported by the Act or by general principles. The Commissioner must assess by reference to the greater of the consideration or the open market value of what is sold. A complete answer to the Commissioner may be that he has elected to assess the conveyance upon the open market value and cannot opt to engraft an additional amount to the consideration. If, however, the assessment is to be upon the open market value of the conveyed property, then it must be upon the value of the entire subject matter of the conveyance. The Commissioner has not attempted to assess upon that basis. At best it may be said that he has taken the short cut of assuming that the market value of the total property conveyed equalled the sum total of the agreed consideration with the value of the Co-Generation items. Such a short cut, however, strips from the value of the Co-Generation items those features relevant to its true open market value, including lack of ownership by the appellant upon transfer, continued ownership of the Co-Generation items by Co-Generation, and the effect of the lease and the consequences of its registration under the Transfer of Land Act 1958. In this context it is not without significance that section 28 of the Landlord and Tenant Act 1988 provides that items erected by a tenant remain the property of the tenant. The mode of assessment adopted by the Commissioner simply ignores the effect of these provisions upon the open market value of that which the instrument, together with the operation of law, conveyed. If the Commission had not taken the short cut, but had sought to assess the whole property upon the basis of an open market value, then he could not have ignored the effect of the lease, and ancillary rights, upon the value of the property conveyed. That must be so in part because the lease affects the use of the land and the use of the land affects its value. In part it must be so because the lease secures to the landlord the tenant's obligations (in this case essential to the landlord's business) and, to that extent, positively and appreciably enhances the dutiable value of the land acquired: the extent of that enhancement may be affected by the tenant's entitlements and, one assumes, was appropriately reflected in this case in the consideration actually paid. Accordingly, the assessment is excessive to the extent that the Commissioner has increased the dutiable amount by the value of the Co-Generation items.

I should also now go on to deal with a separate issue concerning the valuation which the Commissioner relied upon in making the assessment but which was not tendered in evidence in the proceeding before me. Order 7.06 Part 2 of the Supreme Court Rules requires the Commissioner to file in the court a copy of, amongst other things, "any other documents in his possession or control which are necessary for the hearing and determination of the proceeding". In this case the Commissioner filed a copy of a valuation dated 13 March 2001 obtained from Herron Todd White. The Commissioner did not, however, seek to prove that valuation in evidence and counsel for the Commissioner correctly conceded that a document filed pursuant to the Rule does not automatically become admitted, or admissible, probative evidence unless properly proved in accordance with the rules of evidence. This proceeding does not provide a convenient occasion to consider whether the valuation is accurately to be described as a document "necessary" for the hearing and determination of the proceeding within the meaning of Rule 7.06, however, its filing in the court does not admit it to evidence and, therefore, was not itself part of the evidence.

The appellant did call evidence about the market value of the Co-Generation items. A Mr. Mason gave evidence that the market value of those assets as at 8 July 1997 was $4,000,000. The evidence he gave was impressive. He explained the different bases of valuations available and demonstrated a sound understanding of the plant and equipment in question. His valuation was based upon a number of techniques including an estimate of current costs to reproduce or replace the relevant items, but said that he preferred a valuation based upon comparable sales of like equipment. He gave evidence that there was a resale market for the Co-Generation items (not just as scrap) and that it would take about a week to remove and relocate them. Mr. Mason was asked in cross-examination about the Herron Todd White valuation which the Commissioner had relied upon but which, as I have explained, was not in evidence before me. Mr. Mason's evidence about that valuation was fair and impressive. He explained the difference between his valuation of $4,000,000 and their valuation of $10.5m. Their valuation was based primarily upon a cost approach in the absence of finding comparable data (a factor which Mr Mason said had been alluded to in the Herron Todd White valuation itself) whilst Mr. Mason's valuation had had the advantage of extensive searches for comparable sales in a number of countries. I accept Mr. Mason's valuation of the Co-Generation items if it were necessary to subject them to duty.

C. Plant and Equipment on the Land Not Subject to the Lease

The Commissioner has also imposed duty upon the plant and equipment on the land which was not subject to a lease. The assessment is correct if the plant and equipment are fixtures. The burden of proving that the assessment is excessive lies upon the appellant[10], and therefore it is for the appellant to establish that the plant and equipment are not fixtures. In any event, there is to be excised from the assessment an amount of $178,400.00 which the Commissioner accepted during the hearing as being the value of some items that were more in the nature of workshop tools and equipment that ought not to be assessed.

Whether something is a fixture is, fundamentally, a matter to be determined by the particular facts of each item in question. In Australian Provincial Assurance Co. Ltd. v. Coroneo[11] Jordan said:

"A fixture is a thing once a chattel which has become in law land through being fixed to land. The question whether a chattel has become a fixture depends upon whether it has been fixed to land, and if so for what purpose. If a chattel is actually fixed to land to any extent, by any means other than its own weight, then prima facie it is a fixture; and the burden of proof is upon anyone who asserts that it is not: if it is not otherwise fixed but is kept in position by its own weight the, prima facie it is not a fixture; and the burden of proof is on anyone who asserts that it is ... The test of whether a chattel which has been to some extent fixed to land is a fixture is whether it has been fixed with the intention that it shall remain in position permanently or for an indefinite or substantial period ..., or whether it has been fixed with the intention that it shall remain in position only for some temporary purpose ... In the former case it is a fixture, whether it has been fixed for the better enjoyment for the land or building, or fixed merely to steady the thing itself for the better use or enjoyment of the thing fixed. ... If it is proved to have been fixed merely for a temporary purpose it is not a fixture. ... The intention of the person fixing it must be gathered from the purpose for which and the time during which user in the fixed period is contemplated. ... If a thing has been securely fixed and in particular has been so fixed that it cannot be detached without substantial injury to the thing itself or to that which it is attached, this supplies strong but not necessarily conclusive evidence that a permanent fixing was intended. ... On the other hand, the fact that the thing is very slight helps to support an inference that it was not intended to be permanent. But each case depends on its own facts."[12]

These principles show, and emphasise, the importance of a careful consideration of each of the items in question before a judgment can be formed about whether they are or are not fixtures. Both the object of annexation and the degree of annexation are relevant to a determination about whether the items in question are or are not fixtures.[13]

Modern technology has added an additional complication to deciding whether an item is a fixture[14]. In Svedala Australia Limited v. Pegasus Gold Australia Ltd[15] Angel J. said:

"[64] Dixon J said in North Shore Gas Co Ltd v. Commissioner of Stamp Duties (NSW) [1940] HCA 7; (1940) 63 CLR 52 at 67:

'Ordinarily when the chattel elements by which a permanent system or apparatus is formed are assembled and embedded in the soil or established as part of a building they lose their independent nature and for the purpose of the law take on the character of land.'

In the present case the items in question, in situ, formed integral parts of the mineral processing plant as a whole. That plant consisted of concrete flooring and associated concrete super-structures set in the ground to which were attached by bolts, crushers and screens and substantial steel super-structures. To these super-structures in turn were attached by bolts, other crushers and screens and sundry conveyor belts, feeder bins and other items all designed to operate in conjunction with one another as a whole for the indeterminate life of the mine. Whilst the relevant items could be individually detached and removed without destruction or damage to the items themselves or associated items or super-structure, such removal, absent replacement, rendered the plant as a whole significantly diminished or inoperative. In my opinion the mineral processing plant as a whole constituted buildings and the individual items of plant, in situ, constituted parts of the buildings which were integral to the overall purpose and use and enjoyment of the buildings. The individual items of plant could not operate alone or other than in conjunction with other plant items. Incorporated as they were into the overall mineral processing plant and their placement and function being integral and vital to the overall operation, in my view, notwithstanding that they were detachable and replaceable, in situ, they lacked individual identity as personalty. In the present case, I think, with respect, that the respective positions of the plaintiff and defendant are to be emphasised, and I have steadily borne them in mind in reaching my conclusion. As between the defendant lessee and the Crown, for instance, I should regard the mine plant items as lacking the character of land."[16]

In National Dairies WA Ltd. v. CSR (WA) at first instance[17] Murray J. said:

"28. So this is not a case where the degree of annexation of specific items of equipment will by itself be of much assistance in answering the question whether or not they are fixtures. The Court is much more concerned with the objective intention behind annexation in the form of the incorporation of the item into the processing plant, bearing in mind that I am looking to the character of particular pieces of plant and equipment which, whilst they continue to be incorporated into the processing plant, all play a part in an integrated system of milk processing, no matter how economically effective may be the capacity to remove them and replace them so as to change the nature of the processing plant. While they play their role they must do so as parts of a system which is an integrated whole."[18]

The parties agreed that the evidence in this proceeding indicates relevant differences between the Co-Generation items and the balance of the plant and equipment that may bear upon their character as fixtures. Turning first to the latter, it is my view that they are fixtures. They are, on any view, large. The splitting towers alone were described as being some 34.5 metres high and equivalent in size to a 15 storey city building. Each of the items was described by features that amply demonstrated permanence and affixation. They were large, they had an integral function within a complex process, they were costly to acquire with high depreciation making commercial sale unlikely, and they were placed where they were to perform an ongoing and indefinite function. In my view these are fixtures.

The Co-Generation items are in a different position. They are not as large as the other plant and equipment although their size is not insubstantial. This equipment was constructed to be removable and the evidence of Mr Mason was that there was a ready market for such equipment and that it would take about a week to move. If it be relevant to consider the legal rights surrounding moveability of the Co-Generation plant, then these also point in favour of the view that the items were not intended to be permanently affixed to the land: the lease was registered, the leasee was agreed to continue to own the items, section 28 of the Landlord and Tenant Act 1958 gave legal force to that ownership, the tenant was obliged to remove them upon termination of the tenancy and they were expressly excluded from the sale by the appellant. In the end, the evidence presented to me, especially that of Mr Mason, persuaded me in favour of the conclusion that these items were not fixtures, although it was not a conclusion reached without some doubt.

The last matter to consider is the question of penalty and interest applicable to the extent that the assessment is to be confirmed. The Commissioner has issued a ruling outlining the policy to be applied upon the imposition of penalties. The publication of a policy is of great assistance to the tax paying community and to their advisers in providing guidelines. The policy, of course, is not a substitute for an actual consideration of the particular circumstances of any given case to see whether the policy should or should not be applied. In this case the policy was not applied without consideration of the specific circumstances. The penalties imposed are not unreasonable and should be applied to the extent that the assessment is to be confirmed.

In relation to the assessment of the Co-Generation items, however, the Commissioner's assessment of penalty was on the basis that the appellant's position was not reasonably arguable. He did not seek to maintain that view in the proceeding and accepted that the penalty on that part of the assessment should be reduced to 5% only. In the event, however, I have decided in favour of the appellant on that issue, as well as the goodwill issue, so that the only amount upon which penalties and interest are to be assessed is the plant and equipment on the non leased land.

The parties were invited to make both oral and written submissions on the costs to be awarded in the event of the relatively few possible outcomes of the proceeding. The appellant has succeeded in two of the three issues in the proceeding. The one issue on which the appellant did not succeed did not occupy a third of the proceeding although some evidence and time plainly related to it, and it would be wrong for the Commissioner to bear the appellant's costs of the unsuccessful part of the appellant's case. It is my estimate that that part of the case occupied about 20% of the whole and, accordingly, I propose to order that the respondent pay only 80% of the appellant's costs subject to any additional matter that the parties might wish to submit on the question of costs.

1. The appeal is allowed in part by the excision from the assessment of the sum of $20,347,566.74

2. The Commissioner reassess the appellant in accordance with these reasons;

3. The respondent pay 80% of the appellant's costs of the proceeding.

I certify that this and the 17 preceding pages are a true copy of the reasons for judgment of Pagone J of the Supreme Court of Victoria delivered on 10 May 2002.

[1] Lewis Carroll, The Hunting of a Snark

[4] [1936] AC 1 at 20, 24-25, 28 and 31

[5] [1992] HCA 3; (1992) 173 CLR 492 at 510 per Deane, J.

[7] [1912] HCA 74; (1912) 15 CLR 469 at 482 per Barton, J.

[8] Halsbury's Laws of England, 3rd Ed, Vol 29, paragraph 713, p.358

[12] I_bid_ at 712-3; see also Kays Leasing Corporation Pty. Ltd. v. CSR Provident Fund [1962] VicRp 62; [1962] VR 429; Belgrave Nominees Pty. Ltd. v. Barlan-Scott Airconditioning (Aust.) Pty. Ltd. [1984] VicRp 75; [1984] VR 947; Eon Metal N/L v. Commissioner of State Taxation [1991] 91 ATC 4841

[13] Commissioner of Taxation v. Metal Manufacturers Ltd. [2001] FCA 365; (2001) 108 FCR 150 at 162-3

[14] See National Dairies WA Ltd v. CSR (WA) [2001] 2001 ATC 4282 at 4288

[17] [1999] WASCA 152 (27 August 1999)

At a glance

Court

Decision date

Before

Source

Judgment (58 paragraphs)

Parties

Cases Cited (4)