Land tax
36 Section 7 of the Land Tax Management Act 1956 (NSW) imposes land tax on the land value of all land in New South Wales which is owned by the relevant taxpayer, other than land which is exempted. According to s 8, land tax is charged on land as owned at midnight on 31 December immediately preceding the year for which the tax is levied (generally, see Lynch v Olympic Bowling Centres Pty Ltd [1969] 1 NSWR 351).
37 Section 47(1) of the Act states that land tax is until payment a first charge upon the land taxed in priority over all other encumbrances whatever. Subsections 47(1A) and following set up a procedure whereby the Chief Commissioner issues a certificate upon application showing whether there is any land tax charged on specified land. According to s 47(1C), a certificate issued by the Chief Commissioner under the section is conclusive evidence of the matter certified, subject to certain exceptions. Additionally, s 47(2) authorises the Chief Commissioner to release land which is subject to land tax on payment of an amount which the Chief Commissioner estimates to be not less than the proportion of tax referrable to the land. The effect of these provisions is to authorise a procedure for release of specified land from the charge before the owner's land tax is paid or even assessed, upon the payment of an amount estimated by the Chief Commissioner, and for the issue of a s 47 certificate to confirm that the release has occurred.
38 Under the contract of sale in the present case the vendor was liable for any land tax up to and including the date of settlement (clause 14.1), and no provision was made in the contract for adjustment of land tax liability between the vendor and purchaser. The vendor was obliged to clear any land tax certificate served by the purchaser before completion if the certificate disclosed a land tax charge on the property (clause 16.2.2).
39 The plaintiffs and the first defendant exchanged requisitions on title and answers in the normal way. The requisitions by the first defendant's solicitors, Brock Partners, required that land tax in respect of the property should be paid prior to settlement, and asked whether the property was liable to land tax. The plaintiffs' solicitors, Helliars City, replied saying that the property was not subject to land tax. It appears that that was true at the date of the reply, namely 9 December 1996, but when settlement had not occurred by midnight on 31 December 1996 the property became subject to a land tax charge in the plaintiffs' hands for the first time. On 6 January 1997 Brock Partners served on Helliars City a s 47 certificate showing that the land was subject to a charge for land tax for the 1997 year, in an amount which could not at that time be stated. Brock Partners said that the purchasers would require land tax to be cleared prior to completion.
40 Then Helliars City made arrangements with the Office of State Revenue for settlement to take place at that office and for the first defendant's s 47 certificate to be endorsed with a land tax clearance upon payment of an agreed amount to the Office of State Revenue by bank cheque. Those arrangements were first notified by Helliars City to Brock Partners on 7 January 1997, the date nominated in the first notice to complete as the completion date. They were reiterated in later correspondence when subsequent attempts at settlement were made. Some variations to the estimate of the amount to be paid for release of the land from the land tax charge were, in my view, immaterial on the facts.
41 I infer from this evidence that Helliars City on behalf of the plaintiffs did everything that could be done in the circumstances to address the land tax problem which had arisen on 31 December 1996. The evidence indicates that it was not practicable for them or their clients to obtain an assessment to land tax and pay the tax at any time during January 1997. In fact the land tax was assessed later in the year, being paid only in May 1997. The question is whether arrangements of the kind made by Helliars City in January 1997 imply that their clients, the plaintiffs, were ready, willing and able to proceed to completion of the transaction on the day specified in the first notice to complete, namely 7 January 1997 and if that is not the case, whether that condition was satisfied in respect of the second notice to complete, which required completion by 28 January 1997.
42 The third of Professor Butt's requirements for a valid notice to complete, referred to above, is that the giver of the notice must be able, ready and willing to proceed to completion. The requirement was stated in that way by Danckwerts J in Re Barr's Contract [1956] Ch 551, 556. In McNally v Waitzer [1981] 1 NSWLR 294, both Reynolds JA (at 296) and Hutley JA (at 303) acknowledged the link between this requirement and traditional equity pleading in a suit for specific performance. The allegation of readiness should in their opinion be given the same meaning with respect to notices to complete as it bears in the law of specific performance. After all, a notice to complete is in a sense the obverse of a decree of specific performance, since the notice makes time of the essence and takes away the recipient's right to specific performance. Not surprisingly, therefore, the Court of Appeal of New South Wales unanimously held in McNally v Waitzer that it is unnecessary for the party giving the notice to do things prior to giving the notice which are suitable to be done upon rather than prior to completion.
43 In McNally v Waitzer a land tax assessment was issued two weeks before the vendor served a notice to complete on the purchaser, and the vendor paid the land tax two days before the date which the notice fixed for completion. The Court held that it was no objection to the validity of the notice that at the time when it was issued, the property was subject to a charge for the assessed but unpaid land tax, since it was open to the vendor to remove the charge by paying the tax at or prior to completion. Hutley JA said (at 303-4):
'What the vendor has to do when he is selling land subject to land tax is, at most, to have removed the charge for land tax created by the Act. I am able to see that, in principle, land tax is in any different position from an ordinary mortgage; assuming the purchaser is not going to take over the responsibility of the mortgage, it has to be discharged at latest on completion and in many cases it will be discharged out of the purchase price. The same principle, in my opinion, applies to land tax. The vendor has to get rid of the charge for land tax, but only at the latest on completion and there is no objection to him giving a valid and effective notice to complete if at the time he gives it the property is still subject to land tax. …The correct rule, in my opinion, is simply that a vendor who is in default in respect of things which up until then should have been done cannot give a notice to complete, but he can give notice to complete prior to performing all those other things which he has to perform in order to complete the contract. The vendor does not have to satisfy the purchaser prior to completion that the land is not subject to a charge for land tax. He has, at the most on completion, to provide satisfactory evidence to the purchaser that either the land is not subject to land tax, or, if it is, that liability has been discharged in the course of completion itself.'
44 In reaching this conclusion, the Court of Appeal disagreed with a dictum of Street CJ in Eq in Halkidis v Bugeia [1974] 1 NSWLR 423, 427, in which his Honour said that a 'vendor, in order to be able to rescind in reliance upon non-compliance with a notice specifying a period for completion, must be able to establish in court that he was himself not only ready and willing, but also able, to complete in accordance with the requirements under the contract throughout that period, that is to say at the time he gives the notice through until the time at which it expires'. [Emphasis supplied.]
45 Those observations were applied by McLelland J in Maxsujur Pty Ltd v Asimus [1980] 2 NSWLR 96. In that case the vendor served a notice to complete on 22 May 1979 calling for completion by 12 June 1979. The land was subject to a charge for land tax for the year 1979, but the assessment of tax did not issue to the vendor until 8 June, and the vendor paid the land tax on 13 June, the day after the date fixed by the notice for completion. McLelland J held that the notice was ineffective because the vendor was not able to remove the charge for land tax at the time when the notice was given. He said (at 99):
'It seems to me to be inconsistent with the equitable principles which have given rise to the procedure of giving a notice making time of the essence that a party who is himself not then able to proceed to completion can effectively require the other party to complete within a stipulated time or lose the benefit of the contract, bearing in mind the concurrent and interdependent character of the respective obligations of the parties to complete.'
46 The Court of Appeal in McNally v Waitzer disapproved of Street CJ in Eq's dictum in Halkidis and overruled the decision in Maxsujur. Then in Jillinda Pty Ltd v McCourt (cited above) McLelland J made some observations about McNally v Waitzer, by way of obiter dicta. He suggested that 'in some appropriate future case it may be desirable for some of the dicta in the judgments in that case to be re-examined' (at 57,062). He proceeded to give the following reasons for his suggestion:
'Completion of a contract for sale involves the performance of concurrent obligations of vendor and purchaser. Therefore one party cannot be said to have defaulted in the performance of his obligation to complete at the contractual time for completion (whether stipulated or not) unless the other party was ready to proceed to performance of his concurrent obligations at that time (unless such readiness has been waived…). Accordingly where the only default alleged against the recipient of the notice to complete is his failure to complete at the contractual time for completion, the readiness of the giver of the notice at that time to complete may be a critical matter. Furthermore, although readiness to proceed to completion does not connote readiness instantly to hand over everything required on completion…, the analogy between discharging a mortgage and removing a charge for land tax referred to by Reynolds JA and by Hutley JA in McNally v Waitzer may break down in this context in a case where land tax had not yet been assessed, since unless and until the assessment issues, the charge is incapable of being removed, failing protection to the purchaser by action under s 47 of the Land Tax Management Act, whereas there is no equivalent bar to the discharge of the mortgage.'
47 In McNally v Waitzer the land tax assessment had been issued before the notice to complete was served, and therefore at the time of service of the notice, the vendors were in a position to remove the land tax charge simply by payment of the assessed amount. The analogy with the discharge of a mortgage was in those circumstances a close one. In Maxsujur the land was subject to a land tax charge when the notice to complete was served but the tax was not assessed until after the service of the notice, though before the date fixed by the notice for completion. By overruling Maxsujur, the Court of Appeal in McNally v Waitzer took the view that in such a case the vendor is ready willing and able to proceed to completion although the amount of land tax charged on the land was unknown at the time when the notice was served. Because in both cases an assessment of the actual amount of land tax payable in respect of the land had been made prior to the date fixed for completion, payment of that amount upon completion would remove the land from the charge absolutely.
48 If one looks solely at the second notice to complete in the present case, the land was subject to a land tax charge at the time of service of the notice and at the date fixed for completion, but land tax was not assessed at any relevant time. Those facts are distinguishable from the facts of McNally v Waitzer and the Maxsujur case, but they are the very facts envisaged by McLelland J in his dicta in Jillinda. If one looks solely at the first notice to complete, the position is that there was no land tax charge when the notice was served, but since the notice fixed a date for completion after 31 December 1996 in circumstances where the tax exemption for a principal residence occupied by the owner would not be available, a land tax charge was bound to arise prior to the date fixed for completion, and the amount of land tax would, again, not be assessed at any relevant time. In effect, the situation produced by the first notice to complete also falls within McLelland J's observations in Jillinda.
49 It therefore falls to me to reconcile, as best I can, the decision of the Court of Appeal which overruled a decision of McLelland J, with later remarks by McLelland J which suggest that the Court of Appeal's reasoning may break down in the very circumstances which are before me. The decision which I am to make could have important ramifications for conveyancing practice, in cases where a vendor of land subject to land tax wishes to give a notice to complete which straddles midnight on 31 December in a year, or which requires completion too early in the year for a land tax assessment to be issued prior to that time.
50 It appears to me that the correct resolution of the matter depends on a precise analysis of the vendor's obligation, reinforced by s 57 of the Conveyancing Act 1919 (NSW), to give good title on completion. In Dainford Ltd v Yulora Pty Ltd (1984) NSW ConvR para 55-184 Rath J held that where land was subject to a land tax charge but the amount of tax had not been assessed, the purchaser was not required to accept on completion the vendor's undertaking to pay the land tax when it was assessed. On appeal ([1984] 1 NSWLR 546, 550) the vendor accepted that since the liability was secured on the land, it was obliged to have the land tax charge removed as at settlement by payment of the assessed tax and not having done so, it was not in a position to settle. It appears to me that what was assumed by the parties in the Court of Appeal is importantly different from what was held by Rath J, and goes too far. Short of removal of a land tax charge by assessment and payment, protection from the charge in respect of specific land may be obtained by release of the land and the issue of a certificate under s 47. The certificate is conclusive evidence of the matter certified against the Chief Commissioner and in favour of any person, whether or not the person relying on the certificate is the person to whom the certificate was issued: s 47(1C). There are only two exceptions to this protective provision. The certificate is not conclusive evidence in favour of a person who:
(a) had notice, when the certificate was issued, of land tax charged on the land that the certificate failed to disclose, or
(b) was an owner of the land (other than a genuine purchaser for value who had not obtained possession of the land) when the certificate was issued.
51 Given the protection which the procedure of release of specific land followed by the issue of a s 47 certificate offers, I do not believe it is accurate to say that a vendor of land must in all cases remove the land tax charge prior to completion by paying land tax assessed in respect of the owner's total land holdings. In my opinion the vendor's obligation to give good title on completion is discharged if on completion, the purchaser and persons acquiring interests under the purchaser have the protection conferred by s 47(1C) by virtue of the issue at or prior to completion of a certificate that no land tax is charged on the land, procured by release of the land on payment of an amount estimated by the Office of State Revenue. The fact that at an earlier time, the purchaser may have obtained a s 47 certificate which stated that the property was subject to land tax in an unassessed amount does not mean that after receiving that certificate the purchaser has notice of land tax that a subsequent clear certificate fails to disclose. But any doubt on that score could be removed by endorsing the clear certification on the purchaser's previous certificate.
52 Once one accepts that the vendor's obligation is discharged by giving the purchaser and others the protection of s 47, it seems that the only remaining question is whether the law requires that the vendor must put in place arrangements with the Office of State Revenue for the issue of a clear certificate on completion (no doubt in most cases, upon payment to the Office of State Revenue of an estimated amount) before the notice to complete is served, or whether it is sufficient that those arrangements are made and notified to the purchaser in time for completion on the day which the notice fixes for completion.
53 If I were to approach that question solely as one of principle, without governing authority, I would say that the notice is ineffective unless it is true, on the facts as they exist at the time when the notice is given, that the vendor is able to make arrangements with the Office of State Revenue for the issue of a clear certificate, and is ready and willing to do so. To take an extreme case, if the facts showed that at the time of the service of the notice, the amount required to discharge mortgages and pay the amount likely to be estimated by the Office of State Revenue would exceed the purchase price, and that the vendor could not afford to provide the balance, the notice would be ineffective. In my opinion the notice would also be ineffective if, no prior arrangement for release of the land having been made, the evidence showed that the Office of State Revenue would only exercise the power to release land upon payment of an estimated amount in exceptional circumstances. Perhaps the notice would be effective if the evidence showed that the Office of State Revenue had adopted the practice of releasing land on payment of an estimated amount routinely or in normal circumstances.
54 If one approaches the issue in this way, it seems to me that the apparent point of difference between the Court of Appeal and McLelland J dissolves. Hutley JA's remarks in the Court of Appeal proceed on the factual assumption that there will be no obstacle to the vendor freeing the land from the land tax charge on or prior to completion. This is clearly so if land tax has been assessed before the notice is served, and it is also the case if land tax is assessed after service of the notice but before the date fixed for completion. It is also true, in the absence of a relevant assessment, if it is clear that at the time of service of the notice the Office of State Revenue will release the land upon payment of an estimated amount out of settlement moneys. In any of those situations, there is no lack of readiness on the part of the giver of the notice which would excuse the recipient from failing to complete on the date originally fixed by the contract for completion. Consequently the recipient's failure to complete at the contractual time for completion is a default justifying the issue of the notice. The concern expressed by McLelland J does not arise in such a case. But where there is a real doubt, at the time of service of the notice, as to whether the vendor is in a position to obtain a land tax clearance by the date for completion nominated in the notice, the vendor is not able, ready and willing to proceed to completion and conversely, the purchaser cannot be said to have defaulted by not completing at the contractual time for completion. The situation is then analogous to the facts of Halkidis v Bugeia, where the contract provided for vacant possession and at the time when the vendors served a notice to complete, the premises were tenanted and a notice to quit had not been given.
55 If it were necessary for me to apply these principles to the first notice to complete in the present case, I would have a real doubt as to whether the notice was effective. While there was no land tax charge at the date of service of the notice, it fixed a time for completion after 31 December in circumstances where there would be a land tax charge at the nominated completion time. Although the evidence shows that the plaintiffs were able to make arrangements with the Office of State Revenue on 6 or 7 January 1997 for release of the land on payment of an estimated amount, the evidence before me leaves me in doubt as to whether the plaintiffs were able, as well as ready and willing, to do so on 20 December 1996 when the notice was issued. However, it is not necessary for me to resolve this question, since I am clear that the second notice to complete complies with the requirements of the law. By the time that the second notice was issued on 13 January 1997, the plaintiffs had established arrangements with the Office of State Revenue for release of the land on payment of an estimated amount. In view of those arrangements, the plaintiffs' position with respect to land tax was as a practical matter analogous to the position of a vendor who has a mortgage to discharge, and the principles stated in McNally v Waitzer are in my opinion applicable. The fact that a mortgagor has a legal right to discharge the mortgage whereas vendors in the position of the plaintiffs would have to rely on a favourable exercise of a statutory discretion to obtain a release from land tax does not seem to me to destroy the analogy, because in my opinion the Court should have regard to the practical circumstances. My conclusion implies that a vendor who first makes proper arrangements with the Office of State Revenue may proceed to issue a notice to complete which requires completion well before a land tax assessment is available.