Vicinity Funds RE Ltd v Commissioner of State Revenue [2024] VSC 658

Trust Company Ltd v Chief Commissioner of State RevenueVicinity Funds RE Ltd v Commissioner of State Revenue [2024] VSC 658 | Case summary | Zoe

[94]

(a) Only if an arrangement has the effect of reducing the value of the 'land or goods' is it to be disregarded. It is not enough that the arrangement affects the dutiable property. Reducing is a comparative, not an absolute concept. Its ordinary meaning is to lower, diminish, lessen.[55] Only an arrangement that applies to existing property that lessens the value of that property can be said to 'reduce' the value of that property

(b) Determining whether an arrangement 'has the effect of reducing the value of the land' under s 22 requires a comparison between the effects of the presence or absence of the claimed interest or arrangement on the dutiable property actually transferred. There must be an 'alternative postulate' by reference to which the value may be seen to have been reduced.[56] That alternative postulate (that there was or would have been a value from which the value of the land or dutiable property is 'reduced') must necessarily be founded on a dutiable transaction involving the same dutiable property. Thus, in s 22(2) the reference to 'land' must a reference to the same land that is the subject of the 'dutiable property' that is the subject of the transfer or dutiable transaction in s 22(1). The text of s 22(2) is unequivocal in stating that the relevant interest, arrangement or agreement 'has the effect of reducing the value of the land or goods', thereby aligning the identity of the property the subject of the dutiable transaction with the identity the subject of the reduction in value. That is consistent with the core structure of the Duties Act.

(c) In this case, the dutiable property (for s 22(1)) and the land (for s 22(2)) that was transferred to the Appellants (namely the reversionary estates expectant upon the leases granted to other parties) was identical before and after the dutiable transaction. The Appellants acquired only the reversion expectant upon those Leases, which, carrying no right to possession, had only a nominal value from the moment it was created. That value was not 'reduced', as it was the only value the reversionary estates ever had.

(d) As a basal proposition the Duties Act ought not seek to impose tax on a transaction that has not occurred. The Appellants never acquired or proposed to acquire any other interest or estate in the subject land than the worthless reversions which had no value that could be reduced. The Appellants did not acquire what before the 'arrangement' complained of by the Commissioner (the granting of the Leases and Call Options) had been owned by the then vendor. Were the legislation to impose duty on a transaction that has not occurred it would need to be unequivocally clear. To the contrary, s 22(2) is unequivocally clear in aligning the identity of the property the subject of the dutiable transaction with the identity of the property the subject of the reduction in value.

[112]

(a) The Commissioner analyses s 22(2) and the identification of 'land' in that provision as if it operated independently of, and not ancillary to, s 20. But s 22(2) is only concerned with land insofar as it is dutiable property the subject of a dutiable transaction. The Commissioner's argument does not start with the identification of dutiable property the subject of a dutiable transaction (the orthodox application of the Act) but in the middle, as it were, with a reference to 'land' in s 22(2) which is concerned with the valuation of dutiable property. No rationale supports that approach and none was given.

(b) Furthermore, the Act is not concerned with physical land; dutiable property is concerned with interests in land. The purpose and effect of s 22(2) is to be understood in the context of Part 2 of the Duties Act. Relevantly, s 20 stipulates that the dutiable value of dutiable property that is the subject of a dutiable transaction is the greater of the consideration for the transaction and the unencumbered value of the dutiable property. Subsection 22(1) defines 'the unencumbered value of dutiable property'. Subsection 22(2) in turn, supplies the instruction to be applied in determining the unencumbered value of land or goods. It aligns with and mimics the language of s 22(1). Section 22(1) creates a statutory fiction. It require the Commissioner in determining the unencumbered value of land or goods to disregard certain interests. Section 22(2) has a specific purpose, namely to assist in the identification of an amount for s 22(1), but it goes no further than that. It does not deem the dutiable property to change more generally, it simply deems that specific state of affairs for the purpose of determining the amount for which the relevant land or goods might reasonably have sold, as required by s 22. Deeming provisions are to be construed strictly and only for the purpose for which they are resorted to.[67]

(c) As to the Commissioner's reliance on the purpose of the provision, it is well understood that legislation rarely pursues one purpose to the greatest extent possible. Legislation is rather, 'typically the result of a carefully considered attempt at balancing multiple and sometimes competing objectives.'[68] The language of subsections 22(2)‑(4) exhibits a balancing of interests.

[124]

(a) Section 24(1) of the Duties Act requires that in certain circumstances a different approach is to be taken in determining the value of a freehold estate subject to a lease than is usual.

(b) The apparent conundrum presented by s 24(1) is that if the dutiable property is the Reversionary Estate, its dutiable value reflects (and may be depressed by) the terms of the Long Lease. Entry into the Long Lease prior to the Centro Contract of Sale, on one view, did not have the effect of reducing the dutiable value of the Reversionary Estate, because the Long Lease is an inherent component of the Reversionary Estate. In addressing the apparent conundrum it is important to recognise that s 24(1) envisages a comparison.

(c) The grant of the Long Lease was 'in respect of' the dutiable property. It is correct that the dutiable property was the Reversionary Estate. But this does not mean that the Long lease was not granted 'in respect of the Reversionary Estate. The necessary connection is established because the grant of the limited interest, whether it be a mortgage, easement, lease or other interest, defines and delimits the freehold estate subject to that interest.

(d) The comparison envisaged by s 24(1) is between the dutiable value of the dutiable property and its dutiable value on the assumption that the interest had never been granted. In the case of dutiable property consisting of the freehold estate expectant on a concurrent long lease, the comparison is between the value of the freehold reversionary estate (that is, the estate subject to the lease) and the freehold estate on the assumption that the concurrent long lease had never been granted. The text supports this approach. The most obvious means of determining whether the grant of an interest has the effect of reducing the dutiable value of something is to ask what would be the value of that thing without the interest.

(e) The common element in each dutiable transaction (one actual and the other hypothetical or counterfactual is the fee simple estate). However, the fee simple estate is subject in each case to different leasehold interests.

[145]

(a) The landlord granted the lease of the land to the tenant in return for the payment of the premium for the sum of $450 million (Emporium Lease) and $155 million (Myer Lease). The annual rent was $1 if demanded in writing by the lessor;

(b) The Leases were concurrent with existing leases and sub‑leases, in respect of which the parties intended that the tenant will enjoy the benefit of all covenants under those leases including as to all payments, and will have the burden of all of the landlord's covenants under those leases, as if the tenant were the landlord (clauses 2.3, 2.4);

(c) The tenant was to assume all maintenance and repair obligations (clause 7);

(d) The tenant must pay all outgoings (clause 4);

(e) The tenant is entitled to use or permit the use of the premises for any use permitted by law (clause 6); uses and occupies the premises at its own risk and may use and occupy the premises as if it were a freehold owner of the land (clause 12.1);

(f) The landlord must consent to any development or other application required or lodge by the tenant in respect of its development and use (including as to subdivision) (clause 8.3);

(g) The landlord must not without the consent of the tenant (which consent may be given or withheld in the tenant's absolute discretion) lodge any development or other application in respect of the premises, its development and use; must not subdivide the whole or any part of the premises or alter any rights or benefits that attach or accrue to the premises, or except as expressly provided, exercise any rights or do anything in its capacity as freehold owner of the land which may materially adversely affect the tenant's rights in respect of the premises or any part of them (clause 8.4);

(h) The landlord must not grant a lease which is superior to or concurrent with this Lease (clause 10.2);

(i) The landlord is not entitled to assign its rights and obligations under the Lease without prior written consent of the tenant, which may be withheld in the tenant's absolute discretion. If the landlord wishes to sell the land its must obtain the tenant's prior written consent to the sale; procure the purchaser of the land to execute with the tenant an instrument (in a form approved by the tenant) which provides that the proposed purchaser must comply with the obligations of the landlord under this Lease (clause 10.3);

(j) Without prejudice to the landlord's right to claim damages in respect of a breach of this Lease by the tenant, the landlord waives any right it may have to terminate the Lease, whether by notice, re‑entry or otherwise, and whether under this Lease, at common law or otherwise, for all breaches by the tenant under this Lease (clause 14.2).

(k) The tenant will undertake substantial work to the improvements forming part of the premises involving the building, installation and repair of the structure of, the plant and equipment in, and the appliances of the remises at its own cost (clause 16.1); the tenant must not remove the structure or fixtures, plant or equipment or the appliances, fittings or fixtures relating to gas, electricity, water, drainage or other services (clause 16.2);

(l) The landlord waives any right to damages for breaches of clauses 16.1 and 16.2;

(m) The tenant as required to carry out substantial works at its own cost in accordance with a 'Development Agreement' and prohibited the tenant from removing the structures or fixtures included in the premises at or at any time after the end of the Lease and provided that the tenants' obligations under cause 16 'touch and concern the land' (clause 16.2);

(n) The tenant is not entitled to a refund of the premium in whole or in part in the event of a default under the lease by either the landlord or the tenant (clause 14.4).

[166]

(j) As to taxing statutes, as the High Court said in Alcan v Commissioner of Territory Revenue, they '... do not form a class of their own to which different rules of construction apply; they are to be construed by application of ... settled principles... [T]he fact that a statute is a taxing Act ... is part of the context and is therefore relevant to construing the Act in accordance with those settled principles.'[103]

(k) There is a presumption that where Parliament repeats words which have been judicially construed, it is taken to have intended the words to bear the meaning already 'judicially attributed' to them. The presumption may be strengthened (or undermined) by the legislative history of the Act in question.[104] There may be circumstances in which it is 'artificial, and unpersuasive, to attribute to parliament a consciousness of judicial interpretation which might have been placed upon an expression, perhaps years before, and in some different context.'[105] In Flaherty v Girgis, the High Court said that the principle should not be relied upon to perpetuate an erroneous construction.[106] In Electrolux Home Products v Australian Workers' Union, McHugh J referred to criticism of the principle and noted that it might not apply to provisions reenacted in 'replacement' legislation.[107] His Honour considered though, that in that case, in the context of industrial relations which is 'a specialised and politically sensitive field', it was no fiction to attribute to Parliament, knowledge of court decisions. In Vidler v Federal Commissioner of Taxation[108] the Full Court of the Federal Court applied the presumption, citing the High Court's affirmation of the principle in Re Alcan[109] and Electrolux. By reference to the legislative history including the extrinsic materials accompanying amendments to the Act in question, the Court concluded that the legislature was 'unhappy' only with some elements of a previous decision, to which the amendments were directed.

[255]

(a) [6] The Commissioner is of the view that the 299 year term was chosen to ensure a term as long as possible without attracting s 153 of the Property Law Act 1958 (Vic) which provides for the enlargement of a lease originally created for not less than 300 years into an estate in fee simple. A lease for such a term constitutes (and at the time the leases were granted, constituted) dutiable property but a lease for a shorter term was not.

(b) [7] The Leases were granted for premiums of $450m and $155m which in each case was in effect, equivalent to the purchase price that would have been payable in the event the land had been sold rather than leased. The Commissioner is of the view that the commercial purpose and the practical effect of entering the Leases was for the lessees to acquire rights and interests equivalent to those that would have been acquired if the estate in fee simple had been acquired by the lessees, but without being liable to pay the duty payable on a transfer of the estate in fee simple in the lands.

(c) [11] The Leases at clauses 2.3 and 16.2 (conferring on the lessees the right to remove fixtures not owned by the landlord, but not those owned by the landlord) may be viewed as seeking that the value of the substantial and extensive building improvements and renovations which the Commissioner considers were planned by the lessees, would fall within s 22A of the Duties Act. If that were so, the value of those improvements and works would not be expected to be included in the value of the land for duty purposes in the event that the estate in fee simple in the land was transferred as dutiable property.

(d) [12] The substantial quantum of the premiums can be contrasted with the $1 per annum rent payable under each Lease. The rent payable during the $299 year term had the consequence of reducing the dutiable value of the land subject to the 299 year‑lease essentially to $1 being the amount payable under the Call Options.

(e) [22] The Call Options were void and not exercisable at 21 years after their grant. But in any event, their purpose and effect was to enable what in fact occurred, being that the land with an improved value in a very substantial amount (in this instance $1.5 billion) were able to be transferred for $2.

[290]

209 The Appellants said that a collateral purpose must be more than a merely incidental or inessential purpose. In making that point in Federal Commissioner of Taxation v Gulland [206] in the context of s 260 of the ITAA, Gibbs CJ cited Lord Diplock in Europa Oil (N.Z.) Ltd v Inland Revenue Commission[207] to the effect that that provision does not strike down transactions which incidentally result in some saving of tax; that 'there may be different ways of carrying out a transaction. They will not be struck down if the method chosen for carrying them out involves the payment of less tax than would be payable if another method was followed. In such cases the avoidance of tax will be incidental to and not the main purpose of the transaction which will be to achieve some other business or commercial object.'[208] It was said that a collateral purpose then, must be an end in itself, albeit not the main object of the transaction. It must be understood that an arrangement that is effective to reduce duty will necessarily be inferred to have exhibited at least some purpose of securing that result. If the test was broad enough to capture the merely incidental purposes of managing tax exposure, no matter how trivial, then s 22(4)(c), which asks whether there was any commercial efficacy to the granting the of interest other than to reduce duty), would be otiose. The presence of s 22(4)(c) indicates the need to weigh tax and non‑tax consequences in coming to a conclusion about purpose. Further, s 22(3) requires that the Commissioner reach a view about the purpose of the scheme. It does not operate solely with respect to the effect of the scheme, much less its effect pursuant to the Duties Act. It is not enough to consider merely that an arrangement or scheme led to a lower tax outcome. In the Part IVA context it is recognised that the 'bare fact' that the taxpayer pays less tax if one form of transaction rather than another is made, does not establish purpose.[209] As Gibbs CJ said in the context of s 260 of the ITAA**,** 'if the Act offers to the taxpayer a choice of alternative tax consequences, either of which he is free to choose ... the choice of the advantageous alternative or the adoption of the beneficial course does not mean that s 260 is attracted.'[210] The ascertainment of the purpose of a scheme requires an assessment of all relevant facts and matters[211] in a process of balancing, evaluating and judging relevant factors. The Appellants submitted that no such process is evidenced from paragraphs [62]‑[65] of the Determinations. Those paragraphs reveal that the sole basis of the Delegate's conclusion as to collateral purpose was the narrow duty outcome of the specific transactions without regard to any of the commercial i.e. 'non‑duty' purposes and outcomes. This is error of the Avon Downs kind that vitiates the Commissioner's state of non‑satisfaction.[212]

[294]

213 The considerations relied upon in the Determinations at [62] were, separately and cumulatively, key aspects of the arrangement or scheme that it may be inferred were adopted to as to be able to achieve the collateral purpose of reducing the duty otherwise payable. Here, the primary purpose of the acquisition by lease was to do exactly what happened; to acquire effective ownership of the land and build the refurbishments on the land, as occurred and as is recognised in the Determinations. The facts going to the existence of the primary purpose are not to the point. The matters in the Hayne Opinion went not to the reason for the duty reduction aspects of the primary scheme but to the commercial viability of the primary purpose. One cannot permissibly elevate the primary purpose as a means of eliminating the collateral purpose, which is what the Appellants seek to do. The question is whether the Commissioner erred in forming his state of mind as to the collateral purpose of the scheme. As the Commissioner put it, the real problem for the Appellants is how fundamental the duty reduction was to the scheme. This case is not one of degree, in the margins where a collateral purpose might be de minimis. The sine qua non of this transaction was to obtain interests in the Lands by Leases on their very particular terms, which mean that the acquisition of the Leases was a duty free transaction, with the Call Options which were obtained to guard against any contingency, so that the fee simple may be taken. The fact that there was good reason for the exercise of the Call Options at the time, does not undermine the existence of the collateral purpose. The relevant inquiry is not as to the reason for the transfers, but as to the purpose for the original scheme or arrangement which was to ensure that the transfer, if and when it occurred, would be for a dollar, which was the consequence of the duty savings. That the Commissioner reached a different conclusion as to collateral purpose than the Appellants contend ought to have been reached, is not a basis for finding an error of law that vitiates the Commissioner's formation of a state of satisfaction. Further, the Commissioner did explain how he reached the conclusion as to collateral purpose, and that reasoning was rational and reasonable. The Delegate gave clear reasons for a distinct and significant material collateral purpose.

[341]

(a) Propositions (a) and (b) can be considered together. The Determinations did not address economic value in terms but a significant part of the Delegate's reasoning was that the commercial purpose and practical effect of the entry into the leases was to acquire the rights and interest equivalent to those that would have been acquired if the estate in fee simple had been acquired, but without being liable to pay the duty payable on a transfer of the estate in fee simple in the lands.[245] Recognising the commercial purpose and practical effect of the acquisition of rights equivalent to ownership carries with it the recognition that that what the lessees acquired in the leases represented the economic value in the land.

(b) In proposition (c) (that the time of entry into the Leases it was necessary for the lessees to enter into the Leases in order to obtain the economic value in the lands, as no other option was open to them) the reference to 'no other option' was a reference to having only a limited budget that could accommodate substantial premiums but not the purchase price of the lands plus duty (as set out in the Hayne Opinion). The contention accepts that the lessees sought to acquire interests in the land equivalent to ownership but by taking leases, which did not attract duty. It appears to characterise the reason for the transaction as commercial, namely the 'necessity' of acquiring the economic value in the land in the only way possible for the acquirer (as it happened, by not paying duty) and to cast the tax consequence of the arrangement as incidental. The predicate of necessity in this analysis was the Appellants' desire to acquire the interests in the land (to fulfill their commercial objectives) and an inability to pay for the land if they had to pay duty. As the Commissioner put it in submissions, the Appellants' case embraced (as it must) the fact that the arrangement was structured as it was, so they could afford it, when they could not afford it if duty was payable. That was 'the boomerang they have thrown'. Having 'no other option' in this context did not mean that the lessees and their related parties were forced to do something by dint of external circumstances beyond their control. The Commissioner considered the commercial purpose and effect of the entry into the Leases on the terms agreed (within the overall structure of the arrangement, including the fact that duty was not payable on the Leases) to be central to his conclusion. The Commissioner's characterisation of the acquisition of the value in the land via the structure adopted was that the duty reduction purpose was in fact 'significant and material'. The Delegate said that assuming the facts stated in the Hayne Opinion were proved, it would not make any difference to the conclusion. It has not been shown that the Commissioner committed legal error by failing to reach a different conclusion by taking into account an inability of the Appellants (or members in the their group) to pay for the land they wished to acquire, if there were required to pay duty on the transaction. It was not demonstrated how that fact would necessitate a different conclusion.

(c) The Delegate expressly took into account proposition (d), that the Call Options protected against the threat of the continuation of the Leases including any risk of potential failure of NBLPL or the Myer Group.

(d) Proposition (e) contended that the exercise of the Call Options did not affect the economic rights of the lessees or their corporate groups including the Appellants, in relation to the land. By that contention the Appellants appeared to argue that they already had the economic value in the land by acquiring the Leases and that the exercise of the Call Options was not the purpose of the scheme (or at best it was an incidental purpose). The Delegate's consideration of the significance of the Call Options (discussed earlier in these Reasons) occurred in the context of the Delegate having concluded that the purpose and effect of the entry into the Leases was for the lessees to acquire rights and interests in the land equivalent to ownership. It not been shown that the Commissioner legally erred by a failure to characterise the Call Options as not having affected the economic rights of the lessees or their corporate groups.

(e) Propositions (f) and (g) go to the reasons why the Appellants exercised the Call Options. The question before the Commissioner concerned the purpose of the scheme, which was concerned with the grant or entry into the interests. The fact that there was good reason for the exercise of the Call Options at the time, did not, of necessity, undermine the existence of the collateral purpose such that it was not legally open to the Commissioner make the finding (reach the state of 'non‑satisfaction') that he did. The relevant inquiry is not as to the reason for the transfers, but as to the purpose for the original scheme or arrangement.

[345]

253 At paragraphs [57]‑[61] it is said that both the Leases and the Call Options reduced the value of the land and both were to be disregarded pursuant to s 22(2), subject to s 22(3). Although it is correct that the conclusion in respect of s 22(3) in the first sentence of paragraph [62] was stated in relation to the Leases only_,[248]_ every part of the reasoning that is said to support that conclusion is made explicitly taking into account both the Leases and Call Options, which the Delegate found were inter‑related components of the arrangement or scheme.[249] The Delegate then went on to say (at paragraph [69]) that returning to s 22(2), the Commissioner has determined that the Leases are to be disregarded in determining the amount for which the land might reasonably have been sold, and that 'additionally and independently of that conclusion', the Commissioner has determined that the Call Options are to be disregarded in determining the amount for which the land might reasonably have been sold. The premise on which the reasoning in respect of s 22(3) commences is that both the Leases and the Call Options are to be disregarded in determining the value of the land for the purposes of s 22(2), subject to s 22(3). The conclusion at paragraph [69] for the purposes of s 22(2) is that, having reasoned through s 22(3), both the Leases and the Call Options are to be disregarded. That conclusion, read in context, assumes that the proviso in s 22(3) has been addressed in the preceding paragraphs in relation to both the Leases and the Call Options. The reasoning in fact addresses both the Leases and Call Options, which as I have said, the Commissioner finds are part of the same scheme and are closely tied to one another. In my view the correct way to read the first sentence of paragraph [62] is that it is in error in referring only to the Leases. The reasoning in all relevant parts of the Determinations is in fact addressed to both the Leases and the Call Options. The error is not a jurisdictional error; it is a slip. The reasoning has in fact been given and the state of non‑satisfaction has in fact been made in relation to both the Leases and the Call Options.

[350]

(a) Section 11(2) allows an assessment to tax liability (made under s 8) to be based on imperfect information. The statutory process contemplates at the determination stage 'different or additional material to that which was before the Commissioner at the time of making the assessment'.[255] One consequence of the objection procedure is to (at a minimum) afford the taxpayer an opportunity to improve the information upon which the imposition of duty is ascertained .

(b) The critical point is that s 96 of the TAA gives a taxpayer the right to object to an assessment, and s 101 only permits the Commissioner to determine an objection after it has been considered. The Commissioner must 'consider' the objection and either allow the objection in whole or in part or disallow the objection. Accordingly, while the taxpayer bears the onus of proving the objector's case (s 98), that onus does not remove from the taxpayer the opportunity to be heard on credible, relevant and significant matters.[256]

(c) Sections 96 and 101 together confer on the taxpayer a real, meaningful and substantive opportunity to present arguments in issues arising in relation to the assessment with which the taxpayer is dissatisfied and to persuade the Commissioner to allow the objection. That consequence is evidenced by the Commissioner's power to suspend the determination following request to a person to provide further information,[257] and the Commissioner's power to require the taxpayer to give further and better particulars of the objection within 30 days after receiving a request to refer a matter or treat an objection as an appeal.[258]

(d) The Commissioner's contention that a determination is merely a pathway for the taxpayer to go to court on an appeal, should not be accepted. A determination under s 101 does affect rights and interests of a kind recognised in Kioa v West. Section 9(3) provides that a reassessment may be made to adjust tax to give effect to a decision on an objection. That is a direct reference to the power exercised under s 101(1) and allows for the right or interest of the taxpayer to be directedly affected, and has practical and immediate effect.

[354]

(a) The Appellants lodged notices of objection against the Commissioners' assessments in June 2018. The Commissioner having failed determine the objections, in September 2020 the Appellants served notices on the Commissioner under s 106(1)(b) of the TAA requesting the Commissioner to treat the objections as appeals and caused them to be set down for hearing in this Court. On 15 December 2020 the Appellants sent the Hayne Opinion to the Commissioner and requested an opportunity to discuss it. The Hayne Opinion included a summary of facts (to which reference is made earlier in these Reasons). An officer of the State Revenue Office (SRO) advised that it would provide an appropriate response in due course. Correspondence was exchanged between the SRO and the Appellants' solicitors during December 2020. On 23 December the Appellants' solicitors wrote to confirm their request that the Objections be set down for hearing. The SRO said, on the same day, that it would proceed to do so in the new year. On 11 January 2021 the Commissioner filed the Objections with the Court, to be set down as appeals.

(b) At that point in time, the Appellants were proceeding on the basis that the appeals would be conducted de novo[260] and proceeding on the basis that they would have a further opportunity to provide evidence in support of their Objections.

(c) Those matters ought to have been clear to the Commissioner by reason of the provision of the Hayne Opinion and the request to discuss its contents with representatives of the SRO; the fact that the Appellants sought interlocutory orders that provided for the filing of further evidence; and further communications between officers of the SRO and the Appellants' solicitors with respect to fixing a date to discuss the content of the Hayne Opinion, in which it was proposed that a discussion occur on 3 March 2021. That the Commissioner understood the Appellants' intention to provide further information was confirmed in his submissions of 2 March 2021 in support of a separate question on the nature of the Appeals, in which the Commissioner stated that the Appellants had assumed that appeal is a hearing de novo as they intended to call evidence in addition to the evidence filed in Court to date.

(d) On 2 March 2021 the Commissioner filed a summons for the determination of a separate question and shortly before that, on the same day, the Commissioner (by his Delegate) gave written notice of his determination of the Objections.

(e) What is notable is the haste by which the Commissioner proceeded to make his Determinations once on notice that the taxpayers wished to advance further evidence in support of their Objections. It was open to the Commissioner to suspend the determination of the Objections under s 102(1)(a) in order to allow the provision of information relevant to the Determinations, and it remain unexplained why the Commissioner did not do so.

(f) The Commissioner, via the SRO, had been in receipt of the Hayne Opinion since 15 December 2020. In February 2021 the SRO had indicated its intention to meet with the Appellants' solicitors to discuss the effect of the Hayne Opinion but on 2 March 2021, before that could occur, 'including any discussion around the facts recited by Mr Hayne upon which he arrived at his conclusions', the Delegate issued the Determinations. The Commissioner suddenly guillotined the Appellants' opportunity to provide further information, including in respect of material that was significant, relevant and credible to the Commissioner's exercise of power, without knowing what might have been said at that meeting. It can't be said that there would have been no realistic possibility that there would be something said at that meeting that would inform the Commissioner of this very thing about which he was not satisfied. In the circumstances of the case, given the duration of time that the matter had been under consideration, the powers available to the Commissioner to request further information, and the fact that there was a meeting scheduled between representatives of the Commissioner and representatives of the Appellants to discuss the Hayne Opinion to occur the day after provision of the Determinations**,** to proceed to make the Determinations knowing there was more evidence the Appellants wanted to provide was procedurally unfair and unreasonable.

(g) The Commissioner did inform himself of certain matters relevant to his decision, on the basis of information alone, as revealed in the Determinations. That approach was open to him. The Commissioner took an inconsistent and more demanding approach to the treatment of information presented to him when arriving at his state of non‑satisfaction in respect of the contention that the lessees would not have entered into the arrangements had they been require to pay duty. That differential standard was unfair when considered in the context of the process that was occurring at that point in time.

[360]

265 Second, the Appellants had abundant opportunity at different stages up to the determination to put on whatever material they wished in support of the grounds they wished to raise, of which they did not avail themselves. No evidence going to the 'no transaction case' (meaning, in this context, the asserted fact that the Appellants' predecessors would not have transacted at all had they had to pay duty) was provided at the numerous points in their dealings with the Commissioner. Those dealings included the Commissioner's private ruling; the Appellants' request for an urgent assessment (provided with an argument that sought to have the Commissioner change the view formed on the private ruling); the filing of the notice of objection (which, under the TAA was required to state the full grounds of the objection); the provision of the Hayne Opinion (wherein the relevant factual matters were assumed or asserted, and which was not accompanied by any reference to proof of the facts or support for the matters asserted); the SRO informing the Appellants on 10 December 2020 that the Commissioner was in the process of preparing the Determinations which the Commissioner said were required to be made before the hearing; the Commissioner's proposal that the parties defer setting down the appeals (which was met with the Appellants continuing to press for the matter to be set down urgently); the Commissioner's informing the Appellants that it would be necessary for the Determinations to be filed before the parties took substantive steps in the proceeding; the Commissioner asking whether the Appellants considered that any other document should be included in the documents to be filed for r 7.06(d); the Commissioner informing the Appellants on 2 March 2021 that the Determinations would be made shortly, inquiring whether redactions to the notices of Determination would be required. As to the parties' dealings in the context of the appeal proceedings (before and after the appeals were set down), the Appellants did not, at any time, seek further time and opportunity to provide material the Commissioner.

[375]

One view which has been expressed is that an adequate right of appeal excludes the right to procedural fairness in respect of an initial determination: Twist v Randwick City Council (at 110‑112), per Barwick CJ. While that view might provide a logical foundation for the proposition that an adequate right of appeal can provide an answer to a complaint that procedural fairness was denied in relation to an initial determination, it is open to obvious rejection and has generally been rejected: Twist (at 116), per Mason J; (at 118‑119), per Jacobs J. A statutory provision granting an adequate right of appeal could not be described as containing "plain words of necessary intendment" that the initial decision‑maker is permitted to act unfairly.

Another opinion sometimes advanced is that an adequate appeal "cures" a failure by an original decision‑maker to provide procedural fairness: see, eg, Twist v Randwick City Council (at 116), per Mason J; cf Ridge v Baldwin [1963] UKHL 2; [1964] AC 40 at 79, per Lord Reid. The meaning of this proposition is unclear, and the statement is not readily referable to any identifiable legal principle. Perhaps what is meant is that "a full and fair hearing in the appeal" makes any denial of natural justice by the original decision‑maker "irrelevant", but again the underlying principle is unclear...

The theory which has received most assent is that an adequate right of appeal ordinarily provides the appropriate remedy for a denial of procedural fairness at the stage of an initial determination see, eg, Marine Hull Liability Insurance Co Ltd v Hurford (1985) 10 FCR 234; applied (1986) 10 FCR 476; Queensland Newsagent Federation Ltd v Trade Practices Commission (1993) 46 FCR 38 at 51‑52. This theory, which has not been fully elaborated, avoids the difficulties involved in other suggested explanations of why an adequate right of appeal can provide an answer to a denial of procedural fairness in respect of an initial determination, and is compatible with legal principle.[291]

[381]

(a) The Commissioner has a general power to make an assessment of a tax liability of a taxpayer.[296] An amount of tax assessed in a notice of assessment is payable on or before the day specified by the Commissioner in the notice of assessment.[297] The Commissioner may re‑assess the taxpayer's liability to tax, including to give effect to a decision on an objection, review or appeal.[298]

(b) Part 10 of the TAA provides for objections, reviews and appeals in respect of assessment.

(c) A taxpayer is afforded the right to lodge a written objection with the Commissioner if the taxpayer is dissatisfied with an assessment.[299]

(d) The taxpayer's grounds for the objection must be stated fully and in detail, and must be in writing.[300]

(e) On an objection, the objector has the onus of proving the objector's case.[301]

(f) The Commissioner must consider an objection and either allow the objection in whole or in part or disallow the objection (and may do so at any time before the hearing of the review or appeal proceedings commences).[302]

(g) The Commissioner may suspend the determination of an objection by written notice to the objector if, under a taxation law, the Commissioner has required or requested a person to provide the Commissioner with information relevant to the objection.[303]

(h) The Commissioner must give notice of the determination of the objection and, in the notice, must give the reasons for disallowing an objection or for allowing an objection in part only.[304]

(i) If a taxpayer is dissatisfied with the Commissioner's determination of the taxpayer's objection (or if 90 days have passed since the taxpayer's objection was received by the Commissioner and it has not been determined), the taxpayer may request that the Commissioner refer the matter to the Tribunal or treat the objection as an appeal and cause it to be set down for hearing in this Court.

(j) Within 30 days after receiving a request to refer a matter or treat an objection as an appeal, the Commissioner may require the taxpayer to give further and better particulars of the objection. The Commissioner is not bound to refer the matter or cause the objection to be set down for hearing until after the Commissioner has received 'full details' of the objection.[305]

(k) Subject to the right in the Commissioner to require the taxpayer to give further and better particulars, the Commissioner must, within 60 days after the request, refer the matter for review or cause the objection to be set down for hearing accordingly.[306]

(l) On the review or appeal, the taxpayer's case is limited to the grounds of the objection and the Commissioner's case is limited to the grounds on which the objection was disallowed unless the Tribunal or Court otherwise orders.[307]

(m) On a review or appeal, the taxpayer has the onus of proving the taxpayer's case.[308]

(n) On referral, the Tribunal must review a matter referred to it and may confirm, reduce, increase or vary the assessment or decision.[309] On the hearing of an appeal the Court may make any order it thinks fit and may by order confirm, reduce, increase or vary the assessment.[310]

(o) If a taxpayer's objection to an assessment is allowed in whole or part, or a taxpayer's review or appeal in respect of an assessment is upheld, the Commissioner must refund any amount paid under the assessment that is in excess of a requirement for payment under the relevant taxation law.[311]

(p) Where a taxpayer elects to have the matter referred to the Tribunal, the review proceeds de novo.[312]

[382]

282 Returning to the threshold question, the Commissioner submitted that the function of a determination within the statutory scheme is merely to provide a pathway to the taxpayer to initiate an appeal and review, where an objection is disallowed. The determination states the Commissioner's case on appeal and has no legal consequence 'other than within the context of the TAA'. I do not accept that submission. Part 10 of the TAA contemplates that an assessment of the liability of the taxpayer to tax may be reconsidered and varied as a consequence of the Commissioner complying with his statutory obligation to consider an objection. The objection and determination process requires the Commissioner to consider, on the material before him at the time of determining the objection, whether the assessment made under Part 8, should be varied. The obligation on the Commissioner to consider an objection and to decide either to disallow it or allow it in part or in whole, entails by necessary implication the requirement to consider whether the assessment as first made was correct, and in so doing to consider the grounds for the taxpayer's case that the amount to which the taxpayer has been assessed is in excess of the taxpayer's liability under the relevant taxation law. Unless an appeal from a determination is initiated, the matter rests there. So while it is correct that a determination of a taxpayer's objection provides a pathway to initiate a review or appeal, it is not correct that it is mere pathway with no legal consequences. The fact that Part 10 affords the taxpayer a right of objection, that it only permits the Commissioner to determine an objection after it has been considered, and the legal effect of a determination of an objection, are in my view inconsistent with a statutory intention to exclude the obligation on the Commissioner to afford procedural fairness when determining an objection. I am not persuaded that a legislative intention to do so is clearly manifest.

[389]

(a) On 27 August 2015, the option holders (members of the Vicinity Group) requested a private ruling in relation to the duties payable under the Duties Act on the then proposed transfers of the lands. They were contemplating exercising the Call Options in light of the High Court's decision in Willmott, which they said created a risk that if the lessor was placed into liquidation it might disclaim the leases and sell the freehold estate, unencumbered by the tenants' interests. They sought 'confirmation' that the Commissioner would be satisfied under s 22(3) of the Duties Act, such that the Commissioner would not disregard the Leases for the purpose of assessing duty. The request set out 'background facts' and detailed submissions in support of the option holders' view that the Commissioner should be satisfied. The submissions referred to the interpretation of s 24(2) of the NSW Duties Act in Centro, and addressed the factors in s 22(4) and why, by reference to them, the Leases were not granted or made as part of an arrangement or scheme with the relevant collateral purpose. It was said the option holders were only considering exercising the Call Options to address the potential impact of Willmott's case and that 'absent this, or some other event that impacts on the interest of [the relevant entities in the Vicinity Group], the Transactions would not be entered into. Put another way, the hypothetical or counter‑factual situation is that the options would not be exercised and the land would not be transferred. This counter‑factual gives a zero duty outcome.' There was no mention of the different version of the 'no transaction' contention that later appeared in the Hayne Opinion.

(b) On 21 April 2016, the Commissioner provided private ruling, stating that the Commissioner was not satisfied for the purpose of s 22(3). Among other things the ruling stated that, in the context of considering the 'duty otherwise payable', the Commissioner considered that there would be no commercial efficacy to the Leases other than to reduce the duty that would have been payable if the freehold in the lands was acquired, or put another way, but for the Leases the freeholds of the lands would have had to have been acquired to achieve the commercial objectives of the arrangement.

(c) On 26 April 2018, the Commissioner issued notices of assessment for the transfer of the Emporium and Myer Lands under s 8(1) of the TAA. The Commissioner assessed the total duty payable as being approximately $82 million.

(d) On 13 April 2018 the Appellants requested that the Commissioner issue an urgent assessment for the transfer of the Lands. The request was accompanied by written submissions stating the Appellants' position that the dutiable value of the Lands was $2, and the reasons in support of that position.

(e) The Appellants were assessed to duty by notices issued on 26 April 2018.

(f) On 6 June 2018, being dissatisfied with the Commissioner's assessments, the Appellants lodged notices of objection pursuant to s 96(1) of the TAA.

(g) On 30 September 2020, the Appellants served notices on the Commissioner pursuant to s 106(1)(b) of the TAA requesting that the Commissioner treat the objections as appeals and cause each objection to be set down for hearing before the Supreme Court.

(h) On 10 December 2020, the SRO wrote to the Appellants' solicitors (KWM) saying that it appeared to the Commissioner that there would be merit in holding off setting down the Objections, pending the Commissioner's consideration of whether the relevant entities had participated in a tax avoidance scheme under s 69B of the Duties Act. The letter also stated that,

[391]

(i) The SRO's letter asked for a response by 18 December 2020. On 11 December 2020 KWM confirmed receipt of that letter and said they were available to speak that day. It appears that a discussion was held but there was no evidence about what was discussed.

(j) On 15 December 2020, KWM provided the Commissioner with the Hayne Opinion.[327] The covering letter referred to the opinion that the leases were not granted or made as part of an arrangement or scheme with a relevant collateral purpose and said, 'we thought it would be useful to send this through in light of our ongoing discussions' and asked that once the SRO officers had had an opportunity to consider the opinion, 'could we please discuss it (and next steps) with you?'

(k) On 16 December 2020, an officer of the SRO acknowledged the Appellants' correspondence, confirmed receipt of the Hayne Opinion, and advised that it would 'provide an appropriate response in due course'.[328] The officer sought response to the matters raised in the SRO's letter of 10 December. It referred to KWM's request for a meeting on 21 December 2020, and said that it would be preferable to meet once the SRO had had the opportunity to consider the Appellants' response to the Commissioner's 10 December letter. Between 18 December 2020 and 21 December 2020, the SRO and KWM solicitors exchanged correspondence in respect of availability to attend a conference.[329] On 21 December KWM wrote to the SRO saying that they were still awaiting instructions as to the matters raised in the SRO's letter of 10 December. A call was proposed for later that week. It appears that a discussion occurred but there was no evidence about what was said.

(l) On 23 December 2020, KWM wrote to the SRO to confirm their request that the Objections be set down for hearing.[330] The SRO confirmed on the same that that it would proceed to do so upon the relevant officer's return from leave in the new year.[331]

(m) On 11 January 2021, the Commissioner set down each of the Objections for hearing in this Court.

(n) On the same day (11 January 2021) the Commissioner wrote to KWM saying, amongst other things, that the Commissioner had not yet finalised the determinations and that

[393]

The Commissioner also referred to the requirement of r 7.06 of the Chapter 2 Rules,[332] that the Commissioner must file with the Court any document in the Commissioner's possession or control which are 'necessary for the hearing and determination of the appeal', provided a draft index of the r 7.06 documents, and asked whether the Appellants considered any other documents should be included.

(o) On 13 January 2021, the Appellants' solicitors responded with two comments in relation to the draft index of documents. The Commissioner amended the index accordingly and subsequently filed the r 7.06 documents in each proceeding.[333]

(p) The Appellants' submitted (and it was not contested) that at this point in time, they considered that the appeal would be a hearing de novo, at which they could adduce further evidence.

(q) On 22 January 2021, in each appeal, the Appellants filed an affidavit of Michael Perez, sworn on 22 January 2021 for the purposes of r 7.07 of the Chapter 2 Rules. Rule 7.07 provides that within 14 days after receiving notice that the appeal has been set down the objector shall file and serve on the Commissioner an affidavit setting out the acts, facts, matters and circumstances relating to the assessment, order, decision or determination that was made and the grounds upon which the objector relies, and shall apply for directions. The affidavit attached a bundle of documents and described the background to the transactions commencing with the bidding process for the properties. It was said that the vendor offered the properties for sale through a public bidding process and it accepted a bid by Colonial First State Global Asset Management Pty Ltd on behalf the Vicinity entities, for an amount of $605 million payable as a premium for long‑term leases of 299 years of the properties with nominal rent payable during the term of the leases. Circumstances leading to the exercise of the Call Options were described. The grounds of objection were set out. There was no reference to the 'no transaction' contention that later appeared in the Hayne Opinion.

(r) On 25 January 2021, the Appellants filed a summons for directions seeking orders for the anticipated appeal, including for the filing of 'any witness affidavits' which the Appellants intend to adduce at trial.

(s) On 8 February 2021, the SRO sent an email to KWM asking for more time to consider the Hayne Opinion, and indicated that it would touch base again in the first week of March to discuss setting up a meeting time. On the same day, KWM responded proposing a meeting on 3 March 2021.[334]

(t) On 11 and 12 February 2021, the Court advised the parties that the proceedings were listed for directions on 4 March 2021, directing the parties to submit any proposed agreed or competing orders.[335]

(u) On 22 February 2021, KWM sent an email to the SRO attaching proposed consent orders for the SRO's consideration. On the same day, the SRO replied that it is seeking instructions with respect to the proposed orders. KWM followed up seeking the SRO's position on the proposed orders on 26 February 2021.

(v) On 1 March 2021, the SRO wrote to the Court advising that the Commissioner expected to be in a position to advise the Court the following day as to the Commissioner's proposed orders.

(w) On 2 March 2021 at 8.49am, the SRO wrote to KWM stating that the review officer would be making his determinations of its clients' respective objections, shortly. Noting the relationship between the Appellants and the common factual matters in each of the Myer and Emporium assessments, the SRO asked whether the Appellants would have any concern about The Trust Company Ltd having access to an unredacted copy of the Emporium determination, and if there was a concern, it would be open to the review officer redacting financial information appearing in the determination. A response was required by noon that day. KWM replied at 10.27am that day, asking that The Trust Company Ltd not be given access to the Emporium determination without redaction of the financial details that would otherwise be disclosed in the determination.

(x) On 2 March 2021, the Commissioner issued the Determinations disallowing the Objections. Notices of the Determinations were served by email to KWM at 12.43pm that day.

(y) On 2 March the Commissioner filed a summons seeking that the question whether an appeal under s 106(1)(b) of the TAA against a determination of a taxpayer's objection involving ss 20, 21, 22 and 22A of the Duties Act and ss 101, 103 and 106 of the TAA, is an appeal by way of a hearing de novo, judicial review or some other form of appeal. The Commissioner's submissions in support of the appeal stated that the orders sought by the Appellants assumed that the appeal was a hearing de novo as they foreshadowed calling evidence in addition to that filed to date [under r 7.06] which was the material upon which the Determinations were made. The SRO wrote to KWM when serving the summons and submissions, stating that the Commissioner would agree to an adjournment of the directions hearing for such time as the Appellants might need to consider the issues raised in the summons and proposed orders.

[395]

(a) The Appellants placed the issue of a 'counter‑factual' in relation to the entry into the transactions, in issue from the point at which they sought a private ruling, in August 2015. At that time they were advancing a different contention than the one they later advanced. Their case at the time was that the option holders were only considering exercising the call options to address the potential impacts of Willmott's case and that 'absent this, or some other event that impacts on the [relevant entity's interests] the Transactions would not be entered into. ... the counter‑factual situation is that the options would not be exercised and the land would not be transferred. This counter‑factual gives a zero‑duty outcome'. They advanced a different version of their 'zero‑duty counter‑factual' by the assumptions referred to in the Hayne Opinion.

(b) The Appellants made submissions to the Commissioner on several occasions: In the request for a private ruling, in the request for an assessment subsequent to the private ruling and in effect, by the provision of the Hayne Opinion. At no time did they take the opportunity to address the basis for the assumed facts to which the Hayne Opinion referred. In the Hayne Opinion itself, the sources of, or basis for the factual assumptions, were not identified.

(c) Section 97(1) of the TAA required the Appellants to state their grounds of objection 'fully and in detail', in writing. The Appellants' grounds were stated at a high level of generality. They made no mention of the 'no transaction' contention that they later sought to advance. On 23 January 2021 the Appellants filed their affidavit under r 7.07 which required them to set out the facts, matters and circumstances on which they relied. The subject of the bidding process was specifically addressed in that evidence. The price paid was mentioned but not the fact that the relevant entities could not have afforded to have entered the transactions and paid duty. The assumed facts as stated in the Hayne Opinion were relevantly that, 'had the lessees bid to buy the fee simple rather than take the long term lease, their bid would have been limited to the amount allowed as their budget and less than others were willing to pay to acquire the exclusive use of the property. (It is said that a third party was offering to pay $600 million; the lessees paid premiums totalling $605 million). That is, framing the bid as the lessees did was essential to making any transaction with the owner of the fee simple.' Those matters were not addressed in the evidence that the Appellants chose to file in accordance with Rules. The Appellants had not taken the opportunity to include any documents addressing those matters, in the bundle of documents filed by the Commissioner in accordance with r 7.06

(d) The Appellants actively contributed to the sequence of and pace at which the events unfolded in and after December 2020, during which time they had express notice that the Commissioner was intending to make the Determinations. The Commissioner proposed on 10 December 2020 that there would be merit in holding off setting down the Objections, saying at that time that the Commissioner was in the process of preparing the Determinations which were required to be made prior to the hearing and that the Commissioner expected to be in a position to make the Determinations 'shortly'. The Appellants pressed on with their request to have the Objections set down. They were told again, on 11 January 2021, that the Commissioner intended to determine the Objections prior to the hearing of the appeal proceeding and that the Commissioner considered it necessary to file the Determinations before the parties took substantive steps in the proceeding, including determining the nature of the appeal. At no time did the Appellants take up an invitation to defer the setting down or invite the Commissioner to deter the making of the Determinations.

(e) Given those communications, and the SRO's email on 2 March 2021 about redactions to Determinations (which, it was again said, would be made 'shortly') there is no basis on which to conclude that the Appellants were led to believe that the Commissioner would not determine their Objections until the earlier proposed meeting that was to occur on 3 March 2021, had occurred. Assuming that the Appellants privately held the view that the Determinations would not be made until after that meeting (for which there is no evidence) there is no evidence that they communicated that view or that expectation to the Commissioner. The fact that the parties had arranged to 'discuss the Hayne Opinion' does not establish either of those propositions, in the circumstances. The fact that they had arranged to meet to discuss the Hayne Opinion does not, in the circumstances, establish that the Commissioner was on notice that the Appellants wished to put before him, further matters they wished him to consider before making his Determinations.

(f) The Commissioner was aware, from about 25 January 2021 (when the Appellants provided proposed orders for the conduct of the appeal), that the Appellants were assuming that the appeals would proceed de novo. From the Appellants' proposed orders referring to the filing of evidence, it ought to have been apparent to the Commissioner that the Appellants were contemplating filing evidence in support of their case. The Appellants were on notice from 11 January 2021 that the Commissioner considered that the nature of the appeals had to be determined and that the Determinations would have to be filed before any substantive steps were taken in the proceeding.

[423]

[1] Premises means the Land and all improvements on the Land together with the Plant and Equipment as that term is defined in the Collateral Deed.[341]

[1] Improvements means all building, improvements, structures and fixtures on, in, under or protruding from the Land including plant and equipment on the Land an all appliances, fittings, fixtures relating to the Services,[342] including buildings, improvements, structures, fixtures and other items brought onto the land as part of the carrying out and completion of the Redevelopment Works (Refurbishment Works in Myer Lease);[343]

[1] Tenant's Fixtures means all fixtures, fittings, plant, equipment, partitions or other articles and chattels of all kinds (including fire fighting apparatus and prevention mechanisms, lights, floor coverings, air conditioning systems, hydraulic items, any items pertaining to Services but excluding stock in trade) which are not owned by the Landlord and at any time are in or form part of the Premises or service the Premises including any improvements or buildings constructed on the Land by the Tenant during the Term but excluding the property of the Tenant's sub‑tenants or licensees.

[1] Landlord's Fixtures means all fixtures, fittings, plant, equipment, chattels, Services, partitions and other articles installed on or servicing the Premises and from time to time provided by the Landlord at the Landlord's cost, including all plant, equipment, fittings, fixtures, chattels, firefighting apparatus and prevention mechanism, lights, floor coverings, windows coverings, air conditioning items, hydraulic items and any item pertaining to any Services which are owned by the Landlord.

[2.3(c)] The Tenant has the right at any time to remove and deal with any of the Tenant's Fixtures.

[8.2(a)] Despite any other provision of this Lease, the Landlord acknowledges and agrees that the Tenant shall have the right during the Terms to remove, for no additional consideration, from the Land such Landlord's Fixtures as it may choose in its absolute discretion.

[16.1] The tenant covenants that before the expiry of this lease the Tenant will undertake substantial work to the improvements forming part of the Premises involving the building, installation and repair of the structure of, the plant and equipment in, and the appliances of the Premises to the same or similar specifications to those prescribed in the Development Agreement, and to undertake [those] works at its cost. [16.3]: the Landlord and the Tenant agree that the obligation in clause 16.1 will be satisfied by the works carried out by or on behalf of the Tenant under the Development Agreement.

[16.2] Despite any provisions to this lease or the Collateral Deed, the Tenant must neither remove, nor allow any other person to remove: (a) the structure or fixtures that are included in the Premises; or (b) the plant and equipment that is included in the Premises; or (c) the appliances, fittings or fixtures relating to the gas, electricity, water, drainage or other services, at or at any time after the end of this lease.

[8.1] As between the Landlord and the Tenant, subject to clauses 7.1 and 6.4, the Tenant may at any time demolish, construct, refurbish, alter or improve in any way all or part of the Premises. [7.1] The Landlord has no obligation to repair, maintain or make capital expenditure on the Premises; [6.4]: The Tenant must ... comply with all relevant laws ... from time to time relating to the Premises or to the use or occupation of the Premises.

[488]

360 Returning to s 22A of the Duties Act, it is correct to say, as the Commissioner did, that s 22A determines how s 154A is to apply in the duties context, for the purposes of determining the value of land that constitutes dutiable property, under Part 2 of the Duties Act. The Commissioner submitted that s 154A does not operate as a 'free‑standing provision' in relation to the ownership of tenant's fixtures, for the purposes of the Duties Act. Insofar as the submission meant only that s 22A determines how s 154A is to apply in the duties context, it was correct. But the text of s 22A makes clear that the tenant's fixtures whose value is to be included in the value of the land for the purposes of Part 2 of the Duties Act (or not included, if s 22A(2) is satisfied) are those fixtures on the land that 'under s 154A of the PLA are the property of the tenant'. Section 22A interacts with s 154A of the PLA by stipulating that the value of fixtures owned by the tenant by reason of s 154A are to be included (or not included) in the dutiable value of the land for the purposes of Part 2, unless the Commissioner is satisfied that they were not sold or transferred to the transferee or purchaser or an associated person. Section 22A does not purport to affect the operation of s 154A in determining the ownership of fixtures installed on land by a tenant, and thus whether they form part of the realty. Section 22A is instead concerned with the value of tenant's fixtures, and with whether or not that value is to be included in the value of the land, for duty purposes. Without s 22A the value of any fixtures owned by the tenant under s 154A would not be included in the value of the land to which they were affixed because they do not form part of the realty.[374] For the purposes of ascertaining the unencumbered value of land s 22A varies the position otherwise determined by s 154A, unless the Commissioner is not satisfied that the fixtures were not sold or transferred to the purchaser of the land.

[496]

366 The history of a statutory provision is part of its context and may therefore be relevant to its interpretation. However, the enactment of s 22(2A) at the same time as the enactment of s 22A, said to have been introduced in response to the decision in Vopak, is an insufficient basis on which to found the conclusion that the Commissioner advances. Regard should be had to the reasons in Vopak. The issue in that case was whether two different categories of fixtures had become part of the realty and should therefore be taken into account in determining the unencumbered value of real property, for the purposes of assessing duty under s 63 of the Stamps Act 1958 (Vic). One category ('Wickland's fixtures') were tenant's fixtures within s 28(2) of the LTA and accordingly, did not become part of the realty owned by the transferor or the estate or interest sold to the transferee. Pursuant to one of several transactions that occurred concurrently, a non‑tenant third party had acquired an equitable right to claim and remove 'Whitemark's fixtures' and to enforce that right against the vendor of the estate in the land at the time of its sale. The Court of Appeal held that such an interest (being an equitable interest and neither a contractual or personal right) ought be taken into account in assessing the market value of the property, applying Pioneer Concrete.[375] Whitemark's fixtures formed part of the realty to be valued (they were fixtures but not tenant's fixtures) but the interest held by Whitemark in those fixtures in equity, had to be recognised for the purposes of valuing the land.[376] There was no duty avoidance issue in Vopak. Vopak stands (among other things) for the proposition that a non‑tenant's equitable interest in fixtures (the right to claim them and enforce that right against the vendor) is to be recognised in valuing the land, at least when applying s 63 of the Stamps Act 1958 (Vic). As I have said, if an equitable interest of any kind were to fall within the description in s 22(2), s 22(2) would apply to require that it be disregarded, but subject to s 22(3). The reasoning in Vopak and the effect of the decision does not lend support to the Commissioner's contention. It should be further observed that in AWF Prop the Court of Appeal rejected an argument by the Valuer‑General that if s 154A applied and the tenant had a right to sever and remove its fixtures, it had a legal and equitable interest in the land which was required to be valued as part of the capital improved value of the land. The court said that where s 154A applied, the tenant's fixtures were not to be included in the land for the purposes of valuing it and there was no basis upon which to posit an equitable interest in the land arising from the ownership of the assets.[377]

[537]

(a) In Vopak it was held that in enacting s 28(2) of the LTA Parliament intended to expand the tenant's rights of removal and ownership of improvements and fixtures beyond those rights in respect of fixtures known as tenant's fixtures at general law.[391] Parliament intended that notwithstanding the manner of annexure to the realty, the chattels described in the section should remain the property of the tenant in all senses and not form part of the realty unless the tenant failed to exercise the right of removal thereby permitted.[392] Parliament did wish to alter the consequences of the initial affixation of chattels by tenants in the circumstances described in s 28(2), with the effect of vesting ownership of fixtures installed by tenants in the tenants, displacing the common law principles of tenant's fixtures.[393] Section 28(2) of the LTA was enacted against uncertainty in relation to the general law as it concerned tenant's fixtures. To the extent that Parliament thought there was uncertainty, it 'seemed anxious to protect the rights of tenants.'[394]

(b) In Uniqema the Court affirmed that notwithstanding the common law rules as to fixtures, the Parliament of this State had by s 28(2) reformulated the principles relating to property in tenant's fixtures by explicitly providing that, whenever fixtures are erected or put in by the tenant, 'property' shall ordinarily remain in the tenant, until he or she gives up possession. In other words, tenant's fixtures 'of the widest description, whether trade, ornamental or whatever' do not become property of the landlord and are incapable of being dealt with by the landlord as part of the land, until the tenant has departed.[395]

(c) In both cases the Cout of Appeal was clear that there was no need to read down the plain language of the section, despite its apparent conflict with general principle and notwithstanding that it might be seen as a 'significant inroad into accepted principles relating to fixtures and the law of property.'[396] Despite the fact that it may be described as an 'unusual' provision, its literal meaning was to be accepted.[397]

(d) In AWF Prop it was held that s 154A of the PLA 'displaces the common law of fixtures insofar as it concerns tenant's fixtures,' such that those fixtures do not become part of the landlord's realty at common law but remain the property of the tenant at least for the period identified.[398] Vopak and Uniqema are binding authority in relation to the effect of s 154A of the PLA.[399] Where a tenant installs assets on land (including those that are fixtures at general law) at its own cost and expense, they are, by operation of s 154A, the property of the tenant and do not form part of the land.

[586]

There is no clear principle running through the law concerning tenant's fixtures. The principal difficulties relevant to the present case are these. First, in many reported cases it is not clear whether a tenant's right to remove or mortgage certain large items attached to the land derived from the classification of those items as chattels, or derived from the nature of the tenant's right in in relation to trade, ornamental or domestic fixtures. A number of authorities, particularly in the late 1800s and early 1900s, may be read as expressing a view that tenant's fixtures are to be viewed as chattels owned by the tenant until, on termination of the lease, if the tenant had failed to exercise the right to remove those chattels, they would be treated as part of the realty: see Vopak (at [24]‑[29) per Ormiston JA.

A related difficulty is that it is difficult to distinguish between those tests which assist in ascertaining whether an item is a fixture, and those which assist in ascertaining whether an item understood to be a fixture is either a tenant's fixture (which may be removed), or landlord's fixture (which may not). The degree and object of annexation are the two issues to be considered in determining whether an item is a fixture. In order to determine the object of annexation, the court will have regard to a number of factors: see Metal Manufacturers Ltd v Federal Commissioner of Taxation [1999] FCA 1712; (1999) 43 ATR 375 at [165] (and Federal Commissioner of Taxation v Metal Manufactures Ltd). However, the degree of annexation (at least to the extent of considering whether an item can be severed without causing undue damage) and the object of annexation are also factors which determine whether particular fixtures are tenant's fixtures or landlord's fixtures (Vesco Nominees Pty Ltd v Stefan Hair Fashions Pty Ltd [2001] Q ConvR 54‑555 at [25] ff). These overlapping concepts make it difficult to ascertain, when reading many of the authorities, whether the conclusions expressed about a tenant's right to a particular item have been arrived at because it is considered as a chattel or as a fixture and, if it is a fixture, whether it is considered as a tenant's fixture or a landlord's fixture.

[588]

(a) Prima facie, whatever is fixed to the land becomes part of the land and thus becomes the property of the landowner.

(b) A long‑standing and important exception to that general rule, ameliorating its harshness, is that a tenant will have the right to remove those fixtures regarded as 'tenant's fixtures'. Legal title to fixtures is in the landlord unless and until the tenant chooses to exercise his power and sever the tenant's fixtures during the tenancy or within a reasonable time thereafter. As JA put it recently in Shell Energy, ownership of a thing affixed to land may thus move from the tenant to the landlord and back to the tenant, if and when the right to remove is exercised.

(c) 'Tenant's fixtures' are those things affixed to the land by the tenant in respect of which the tenant has those rights, and are defined as to distinguish them from fixtures whose ownership remains with the landlord once they are annexed to the land ('landlord's fixtures'). Whether or not a fixture is a tenant's fixture is a question of fact. The considerations that inform that question of fact may be numerous. It is not hard to identify those that have been accepted in the authorities, but they are not readily reducible to a clear statement of principle. The considerations include the purpose for which the tenant brought the fixtures onto the land (traditionally, 'for the purpose of trade', later extending to domestic or ornamental purposes), the 'general character and object' of the structures placed on the land, the mode and extent of annexation. The latter consideration might be seen as a search for intention (determined objectively), meaning an indication of whether the fixture was intended to benefit the freehold by becoming permanently part of the premises, or was for the tenant's purposes and benefit. Fixtures of varying degrees of annexation (even those with a 'high degree' of annexation) have been held to tenant's fixtures. The proposition that a tenant cannot remove items where removal would substantially damage the realty or destroy their essential character, is adopted in a number of cases. Its most prominent source is the judgment of Lord Denning in New Zealand Government Corporation. It does not appear as a criterion for finding fixtures to be tenant's fixtures, universally. It would not be correct to describe it as a stand‑alone test, or a factor that can be considered in isolation. It is probably correct to say that it, too, is concerned fundamentally with whether the fixture is intended to benefit the freehold by becoming permanently part of the premises, or was for the tenant's purposes and benefit. The answer to that question will be informed at least by the purpose and nature of the demise of the premise to the tenant.

(d) The Victorian, New South Wales and Western Australian Courts of Appeal have recognised that there is complexity and uncertainty in relation to the precise nature of, and conceptual basis for a tenant's right to reclaim fixtures. In Vopak, that uncertainty was recognised as at the point of enactment of the predecessor to s 154A (s 28(2) of the LTA).

[592]

430 Furthermore, there are several difficulties with attempting to read the statute narrowly so as to minimise the encroachment upon landlord's rights, even assuming that the principle of legality operates in that way. One difficulty is the inter‑relationship between tenant's and landlord's rights in respect of fixtures, and the manner in which the common law approaches the basis for tenant's rights. The Commissioner's submission concerned at its core, the class of fixtures to which tenant's rights attach under s 154A. By the test (or caveat or criterion) that the Commissioner articulated, it was sought to limit the application of s 154A to those things that can be removed without substantially damaging the land and the fixture itself. It cannot be said definitively that at common law a landlord had property in any fixtures annexed to the land by a tenant, subject to the rights of the tenant to remove such fixtures during the lease, but in every case, only where those fixtures could be removed by the tenant without substantial damage to the land and the fixture. The nature of the landlord's 'property right in tenant's fixtures', affected as it is by the tenant's rights, is an uncertain foundation on which to discern a legislative intention to encroach minimally on that right. Even if that conclusion was not correct, more fundamentally, as Edelman, Steward and Gleeson JJ said in Hurt v R, the principle of legality is ultimately one of interpretation, concerned with the intention Parliament is taken to have had. In this case, for the reasons discussed, I consider that the intention of Parliament in enacting s 154A was clear. It was relevantly to replace the existing codification of s 28(2) of the LTA with a modern re‑statement that, like its predecessor, definitely stated the criteria for the ownership by a tenant of fixtures brought onto the land by the tenant, and for the existence and exercise of the rights and obligations of a tenant therein. It follows that I reject the Commissioner's contention that s 154A must be read down by application of the principle of legality.

[593]

431 It remains necessary to mention the Commissioner's reference to the 'three categories' of objects annexed to land. The Commissioner referred to the decision in Vopak Terminal Dawrin[463] in which Lindgren J said that, based on English and New Zealand authority, that a chattel which is brought onto land may remain a chattel, become a fixture, or in a third category become 'part and parcel of the land itself'.[464] His Honour gave the example of bitumen, line paint and other material that may be brought onto land and used in the construction of a road of car park, and similarly observed that it would be odd to classify a house that can be removed only by being destroyed, as a chattel affixed to land. Lindgren J acknowledged that the third category had not been 'authoritatively recognised' in Australia, and did not need to further consider the issue. In Elitestone v Morris[465] the issue was whether a bungalow on the land was a chattel or had become part of the land. Lord Lloyd of Berwick said that in framing the issue he had avoided the word 'fixture', including because the term does not always bear the same meaning in law as it does in everyday life. One would not ordinarily think of a building itself as a fixture. Further, the category of tenant's fixtures was apt to be confused with chattels that had never become fixtures at all. His Lordship preferred the three‑fold classification for objects brought onto land, to which Lindgren J referred in Vopak Terminal Dawrin.[466] Lord Clyde agreed that use of the word 'fixture' gave rise to ambiguity and said that the question was whether the bungalow was 'a chattel or realty', to be answered by a consideration of all of the facts and circumstances.[467] The reasoning in Elitestone was applied in Wessex Reserve Forces and Cadets Association v White.[468] There, the test for whether an object had become 'part of the land' was explained in similar terms to the test for whether an object has become a fixture in Australian law, although it appeared to incorporate the notion of categories of property which are prima facie considered real property.[469] The tripartite classification in Elitestone was adopted by the New Zealand Court of Appeal in Auckland City Council v Ports of Auckland.[470] It was not submitted that in this case the tripartite classification should be adopted. There is occasional support for the view that some things brought onto land become part and parcel of the land.[471]

Parties

Applicant/Plaintiff:

Vicinity Funds RE Ltd

Respondent/Defendant:

Commissioner of State Revenue [2024] VSC 658

Legislation Cited (20)

Amendments Act 2009(Vic)

Administration Act 1997

Law Act 1958

Tenant Act 1958

Land Act 1958

Acquisition and Compensation Act 1986

Legislation Act 1984

Duties Act 1920

(Further Amendment) Act 1981

Taxation (Amendment) Act 1997

Environment Act 1987

Taxation Amendment Act 1997

Land Act 1971

Tax Act 1971

Tax Assessment Act 1910

Land Act 1960

Lord and Tenant Act 1958

Assets Recovery Act 1990

Tax Assessment Act 1936

Civil Proceedings) Rules 2018

Cases Cited (108)

(2011) 81 NSWLR 462

(2002) 209 CLR 651

(1985) 159 CLR 550

(2006) 228 CLR 152

(1976) 136 CLR 106

(1999) 48 NSWLR 161

(2014) 88 NSWLR 594

(1998) 194 CLR 355

(2021) 65 VR 327

(2004) 12 VR 351

(2004) 9 VR 523

(2013) 251 CLR 592

(1985) 10 FCR 234

(1986) 10 FCR 476

(1993) 46 FCR 38

(2009) 40 WAR 344

(1949) 78 CLR 353

(2023) 70 VR 441

(1904) 2 CLR 29

(1908) 6 CLR 469

(1932) 48 CLR 532

(1985) 158 CLR 661

(2007) 99 SASR 251

(2008) 101 SASR 110

(2011) 34 VR 445

(2004) 217 CLR 216

(2006) 228 CLR 529

(2009) 239 CLR 27

(1986) 10 FCR 88

(2013) 42 VR 456

(2020) 104 NSWLR 232

(2003) 133 FCR 190

(2004) 221 CLR 309

(2015) 254 CLR 489

(2010) 183 FCR 440

(1998) 192 CLR 226

(1997) 187 CLR 384

(2012) 250 CLR 503

(2018) 265 CLR 137

(1985) 157 CLR 309

(2017) 263 CLR 551

(1994) 181 CLR 96

(1987) 162 CLR 572

(1977) 139 CLR 585

(2007) 17 VR 100

(1955) 91 CLR 610

(1975) 12 SASR 446

(1922) 31 CLR 156

(2014) 254 CLR 142

(1907) 5 CLR 418

(2011) 33 VR 204

(2008) 246 ALR 361

(2017) 263 CLR 487

(2021) 285 FCR 648

(2010) 240 CLR 611

(1996) 186 CLR 404

(2018) 261 FCR 406

(1985) 160 CLR 55

(2013) 249 CLR 332

(1992) 175 CLR 353

(1986) 162 CLR 24

(1955) 92 CLR 496

(1955) 92 CLR 505

(1971) 127 CLR 106

(1994) 182 CLR 51

(1918) 25 CLR 381

(1983) 76 FLR 296

(2023) 112 NSWLR 215

(2021) 273 CLR 177

(1985) 159 CLR 55

(2015) 256 CLR 326

(2008) 237 CLR 146

(2018) 260 FCR 89

(2000) 103 FCR 539

(2011) 198 FCR 559

(2012) 246 CLR 636

(1981) 147 CLR 471

(2023) 113 NSWLR 282

(2003) 214 CLR 1

(1994) 49 FCR 576

(2000) 204 CLR 82

(2010) 241 CLR 576

(2009) 258 ALR 89

(2016) 256 CLR 459

(1994) 179 CLR 427

(1969) 121 CLR 177

(1981) 147 CLR 677

(2010) 240 CLR 409

(1983) 152 CLR 328

(1985) 156 CLR 397

(1985) 156 CLR 385

(1987) 162 CLR 514

(2000) 199 CLR 321

(2013) 251 CLR 196

(2015) 256 CLR 569

(2024) 98 ALJR 485

(2007) 232 CLR 138

(2011) 243 CLR 506

(2011) 245 CLR 1

(2021) 106 NSWLR 383

(2014) 46 VR 583

(1996) 62 FCR 347

(1942) 66 CLR 624

(1940) 63 CLR 52

(1941) 67 CLR 544

(1997) 73 FCR 136

(2009) 259 ALR 89

(1967) 120 CLR 118

At a glance

Court

Decision date

Before

Source

Judgment (931 paragraphs)

Parties

Legislation Cited (20)

Cases Cited (108)