Chief Commissioner of State Revenue v Shell Energy Operations No 2 Pty Ltd (No 2)

THE COURT: In this matter the appellant, the Chief Commissioner of State Revenue (the Commissioner), raised three grounds of appeal. In a decision handed down on 26 May 2023 this Court upheld Ground 2, but dismissed Grounds 1 and 3: Chief Commissioner of State Revenue v Shell Energy Operations No 2 Pty Ltd [2023] NSWCA 113 (Judgment). The parties had asked the Court to defer making final orders to resolve the appeal until they had had the opportunity to review the Judgment. Having now had that opportunity they have agreed consent orders, subject to the following. The Commissioner filed a motion within 14 days of the Judgment, pursuant to UCPR r 36.16, seeking that the Court re-open the appeal on the basis that it had not addressed an argument said to have been raised by the Commissioner. This decision addresses that motion, which the parties have indicated they are content to be determined on the papers having exchanged written submissions on the issue.

Familiarity with the Judgment will be assumed here. Nevertheless, it is useful to note the context of the dispute, as explained at [1] of the Judgment:

Section 155 of the Duties Act 1997 (NSW) relevantly provides that duty is chargeable at the general rate on a relevant acquisition on the amount of the “unencumbered value of all land holdings and goods of the landholder”. The substance of the relevant controversy, as the Court understood it, was explained in the Judgment at [17]:

Grounds 1 and 2 of the Commissioner’s notice of appeal were as follows (Ground 3 is not material for current purposes):

Thus Ground 1 asserted that the primary judge erred in concluding that the power stations were an innominate sui generis property interest because they should have been found to be fixtures, thus falling within GSP’s leasehold interests. Ground 2, put in the alternative, was that her Honour erred in finding that the power stations were not goods.

The argument now said by the Commissioner to have been raised by him but not addressed by the Court is one that was identified in the Judgment at [86], at the beginning of the reasoning addressing Ground 2. The Commissioner underlined what he labelled the “Argument” which he contended had, in fact, been made by him:

The term “land holdings” employed in s 155 is defined in s 147(1) of the Duties Act to mean “an interest in land other than the estate or interest of a mortgagee, chargee or other secured creditor” (subject to currently immaterial exceptions). That definition invokes general law notions by use of the phrase “an interest in land”. But the term remains to be construed purposively and in the context of the Act. The point made at [86] was that, as a statutory notion, it was not necessarily limited by general law concepts. Thus even though goods sitting on land that were not fixtures would not be regarded as interests in land at general law, there was a possible argument that things which have some characteristics of fixtures, or which were fixtures until legally severed, would have been intended by the Parliament to be captured by the notion of “land holdings” in light of the purpose of the provisions in issue. That result is what has since been achieved in express terms by the introduction of s 147A of the Duties Act, which provides that things fixed to the land are encompassed by that notion even if separately owned or legally severed. The argument would have required development of issues of statutory construction so as to explain how, and to what extent, the statutory language should be construed to capture that type of notion prior to the enactment of s 147A. As noted at [86], no such argument was put by the Commissioner.

It was not raised by the notice of appeal. As set out above, Ground 1 asserts that the primary judge erred in characterising the items constituting the power stations as innominate sui generis property interest rather than fixtures, an issue which turned on the validity and effect of the two vesting orders. That ground thus did not raise an argument based upon the premise that the power stations were not fixtures, or that was put regardless of whether they were fixtures. Ground 2 did proceed upon that premise but only in order to argue that the power stations should have been characterised as goods. In considering that argument this Court did address issues of statutory text, context and purpose as construed against the backdrop of the general law, in order to consider what the Parliament intended to encompass by the word “goods”.

The Commissioner now says that the Argument was raised “within the context of Ground 1(a)”, but implicitly acknowledges that the Argument was not raised by the notice of appeal, saying that it had nonetheless been argued and the respondent had raised no objection to this occurring. The Commissioner sought to rely by analogy upon Banque Commerciale SA v Akhil Holdings Ltd (1990) 169 CLR 279; [1990] HCA 11, where the following was said in discussing pleadings (at 287, emphasis added):

The Commissioner faces an immediate difficulty in arguing that this was a clear case of the respondent having acquiesced in a broadening of the notice of appeal in circumstances where the Court itself identified the argument but considered it had not been raised. In any event, quite what argument the Commissioner says was put but not determined is elusive. The point raised in the Judgment at [86] was founded on the premise, as determined by this Court in resolving Ground 1, that the power stations were not fixtures. Thus the Commissioner’s motion, and his primary submissions on the motion, seemed to assert that this Court had erred in not deciding an argument that the items constituting the power stations were land holdings even if they were not fixtures. In that context the respondent, understandably, said the following in its submissions on the motion (with underlining in the original):

Yet in the Commissioner’s reply submissions on the motion it was denied that that was the Argument that had been raised but not determined, saying (with references omitted):

Thus, the Commissioner seems to say, sometimes the Argument was linked to the power stations being fixtures and sometimes not. That is an unfirm foundation for arguing that the point was clearly raised despite not being encompassed in the notice of appeal. In any event, these disparate references illustrate that it is still not clear quite what the Argument claimed to have been put by the Commissioner is.

The reply submissions on the motion went on to say that:

There is no doubt that the ultimate question was whether or not the interests acquired and held by GSP fell within the notions of “land holdings” (because they were an “interest in land”), or alternatively could be characterised as “goods”, as referred to in s 155 of the Duties Act. There are various ways of arguing that the interests in question did fall within those notions. The fulcrum of the argument put in support of Ground 1 was that the power stations were fixtures and thus interests in land, and that the primary judge erred in finding that they were not because they had been severed by, in particular, the 2013 vesting order. It was not disputed by the respondent at trial or on appeal that if the items constituting the power stations were characterised as fixtures, in the general law sense, then, given the leasehold interests held by GSP, those items would fall within the notion of “land holdings”. If the Commissioner meant to argue that chattels which were not fixtures sitting on the land constituted “interests in land” and thus “land holdings” then he needed to explain how and why. And given that the point was not raised by the notice of appeal, this needed to be done in clear terms such that it was evident that a distinct and additional point was being raised.

Notably, in his written submissions in chief in the appeal the Commissioner referred to how the primary judge had considered the issue at J [141] – where “the primary judge relied upon the way in which the 2013 Vesting Order was framed” – and said that her Honour’s analysis contained two errors of law. The first was that “it was an error to find the 2013 Vesting Order divested the landowner of its right to its fixtures such that they were transferred to Green State Power” (at [37]). The second was said to be that “even if the Power Stations were transferred to Green State Power, it was an error to find that the fixtures were no longer an interest in land, but instead became an ‘innominate sui generis property interest’” (at [39]). That sentence does suggest that there was some distinction said to arise between the items constituting the power stations being owned by the transferee and no longer being an interest in land. Even so, those items were still referred to as “fixtures”.

The concluding paragraph of that section of the submissions commenced with this sentence: “The result is that there is nothing to support the proposition that, if the Power Stations were transferred to Green State Power, they would lose their character as fixtures and therefore an interest in land” (at [46]). Again, thus, the argument was framed in terms of characterisation of the items as fixtures. The paragraphs in between do not develop an argument of the kind referred to above at [6]-[7]. For example, at [41] it was said that “it does not follow that the plant and equipment that are fixtures lose that character simply because they are identified under a heading titled ‘Property, Plant and equipment’”. That argument appeared to be directed to construction of the 2013 vesting order.

At [46] it was said that “courts have held that, if an owner of land purports to transfer fixtures to a third party, that third party’s interest in the fixtures is at least an equitable (and perhaps legal) interest in the land”, then citing a number of cases in support. The cases do not assist. Without seeking to express any view on the issue, it is understandable that it has been held that a sale or creation of a security interest in unsevered fixtures may create an equitable interest in the land. The premise of that view is that the items are unsevered, remain as fixtures, are thus part of the land, and thus an interest in them is a potential interest in land. For example, to take one of the passages cited by the Commissioner, Ormiston JA said that a “right to take away part of that which constitutes realty must be an interest in it, not an interest in some hypothetical chattels as they might thereafter become on enforcement of the right”: Vopak Terminals Australia Pty Ltd v Commissioner of State Revenue (2004) 12 VR 351; [2004] VSCA 10 at [80]. Or to take another cited passage, Payne JA said that he accepted that “there are unresolved questions about whether an owner of land can transfer a legal interest in unsevered fixtures separately from the land, or whether an owner of land can sell land and buildings while retaining legal title to unsevered fixtures within the building”: SPIC Pacific Hydro Pty Ltd v Chief Commissioner of State Revenue (2021) 113 ATR 24; [2021] NSWSC 395 at [150].

The cases cited thus raise the issue alluded to in the Judgment at [95], referring to what the High Court had said in TEC Desert Pty Ltd v Commissioner of State Revenue (2010) 241 CLR 576; [2010] HCA 49 at [52]. The High Court there said that in that case it was “unnecessary to consider the efficacy at law and in equity of a sale by the owner of the freehold of land, but with retention of title to unsevered fixtures, or a sale of the unsevered fixtures with retention of the rest of the land”. Given this Court’s conclusion on Ground 1 that the vesting orders did sever the items in question from the land, the cases cited by the Commissioner are not on point. Further, the severance in this case was effected by statutory instrument, thus cutting across any arguments about, for example, the extent to which an agreement for sale or for creation of a security interest would or could operate at general law to sever a fixture from the land.

Later in the Commissioner’s written submissions in chief in the appeal, when addressing Ground 2, he said the following:

These submissions indicate, in clear terms, that Ground 2 arose only on the premise that the items constituting the power stations were not characterised as fixtures, where that notion was understood to mean items that had been goods but lost that legal character because they became fixed to land. The Commissioner’s submission in the second last sentence of the portion just quoted – “If the fixtures have been ‘statutorily severed’ from the land, it follows that they ought again be classified as goods” – is significant. That is the submission this Court upheld when dealing with Ground 2. It is inconsistent with arguing that the items constituting the power stations had been severed but nevertheless remained an interest in land.

In the Commissioner’s oral submissions in chief, the following eight sentences are now relied upon as having raised the Argument (emphasis by the Commissioner):

The argument is substantially directed to construction of the vesting order. It does not make the type of statutory construction argument about the meaning of “interests in land” and “land holdings” that would be required. And it still speaks in terms of “fixtures”. There was no shortage of time in the appeal hearing, incidentally, in which to develop the claimed Argument – it was listed for two days, and took a day and half. Hints do not suffice to establish that a distinct issue was being raised beyond what had been articulated in the notice of appeal. In any event, the Argument that the Commissioner claims was made is still not clear.

The Commissioner also referred to some responsive submissions made by the respondent, but they do not relevantly advance matters.

In sum, the Court considers that it was correct to say at [86] of the Judgment that the type of argument identified there had not been made by the Commissioner. The Commissioner’s application to re-open this Court’s decision should be dismissed. There is no reason why costs of the motion should not follow the event.

That application being dismissed, the consent final orders proposed by the parties to resolve the appeal should be made in substance, subject to correction of a date and some alterations of form. The final orders of the Court should be as follows.