SPIC Pacific Hydro Pty Ltd v Chief Commissioner of State Revenue

1. [1]

   PAYNE JA: On 21 July 2017, the Chief Commissioner of State Revenue (the Commissioner) issued a Duties Notice of Assessment (Assessment) to SPIC Pacific Hydro Pty Ltd (SPIC) in respect of an acquisition by SPIC. The Assessment was the subject of an objection under Div 1 of Part 10 of the Taxation Administration Act 1996 (NSW). The objection was disallowed.

2. [2]

   By summons filed on 15 June 2018, SPIC applied to the Court pursuant to s 97(1)(a) of the Taxation Administration Act for a review of the whole of the Assessment.

3. [3]

   By the Assessment, the Commissioner assessed SPIC as being liable for landholder duty under Ch 4 of the Duties Act 1997 (NSW) in the amount of $12,394,573.37 plus interest (some of which was subsequently remitted). SPIC has paid the whole of the amount of the duty assessed and that part of the interest which was not remitted.

4. [4]

   The Assessment arises from the acquisition by SPIC on 12 May 2016 of “Sale Securities” as defined in an agreement between SPIC as purchaser and Inversiones Capital Global, S.A and BlueNRGY Group Ltd as vendors being:

   1. (1)

      100% of the units in the Taralga Holding Land Trust (Holdco Land Trust);

   2. (2)

      100% of the shares in Taralga Holding Nominees 1 Pty Ltd (THN1), the trustee of the Holdco Land Trust;

   3. (3)

      100% of the units in the Taralga Holding Operating Trust (Holdco Operating Trust); and

   4. (4)

      100% of the shares in Taralga Holding Nominees 2 Pty Ltd (THN2), the trustee of the Holdco Operating Trust.

5. [5]

   The Commissioner says that, at the time of the acquisition, the Holdco Land Trust was a “landholder” for the purposes of s 146(1) of the Duties Act with the consequence that the acquisition of the units in the Holdco Land Trust by SPIC triggered a liability for duty. SPIC contests the conclusion that the Holdco Land Trust was a landholder. In the alternative, if the Holdco Land Trust was a landholder, SPIC contends that the valuation of its land holdings of $223.6 million relied upon by the Commissioner in the calculation of duty was incorrect. In the further alternative, the plaintiff seeks an exercise of the power in s 163G of the Duties Act to disregard the value of goods in determining the duty payable.

Relevant facts

1. [6]

   The parties agreed on facts for the purposes of the proceedings in accordance with s 191 of the Evidence Act 1995 (NSW) in the form of a statement of non-contentious facts and a statement of further agreed facts dated 16 July 2020. In what follows I set out the most important of the relevant facts agreed between the parties.

2. [7]

   On 8 March 2016, SPIC entered into a sale agreement to buy from Inversiones Capital Global, S.A and BlueNRGY Group Ltd the “Sale Securities”. I have set out the “Sale Securities” acquired at [4] above. On 12 May 2016, completion of the agreement to buy the “Sale Securities” occurred (the Acquisition).

3. [8]

   As at 12 May 2016, THN1 as trustee of the Holdco Land Trust indirectly held certain freehold land and leasehold interests in land in New South Wales through the following entities:

   1. (1)

      Taralga Wind Farm Nominees No 1 Pty Ltd (TWFN1) as trustee for Taralga Wind Farm Land Trust (Land Trust) – THN1 as trustee of the Holdco Land Trust owned all the shares in Taralga Land Co Pty Ltd (Land Co), which in turn owned all the shares in TWFN1 and all the units in the Land Trust; and

   2. (2)

      Taralga Wind Farm Pty Ltd (TWF) – TWFN1 as trustee of the Land Trust owned all the shares in TWF.

4. [9]

   The freehold land comprised two freehold properties held by TWFN1 as trustee for the Land Trust. Those properties are:

   1. (1)

      “Cushendall Vineyard”, 629 Bannaby Road, Taralga NSW 2580; and

   2. (2)

      “Rosvale”, 577 Hillcrest Road, Myrtleville, NSW 2580.

5. [10]

   The combined registered value of the freehold properties as at 12 May 2016 was $454,900. The combined estimated market value of the freehold land as at 12 May 2016, not including any Taralga Wind Farm construction costs or other Taralga Wind Farm property related to this freehold land, was $750,000.

6. [11]

   The leasehold interests comprised properties leased by TWF, a linked entity of the Holdco Land Trust. The head leases between TWF and landowners fall into two categories:

   1. (1)

      leases from private landowners, all on substantially similar terms; and

   2. (2)

      a lease from the State of New South Wales.

7. [12]

   Each of the leases was for a term of 30 years and the lease from the State of New South Wales has an option to extend for another 30 years. The lease term of all of the private head leases ends on or about 21 February 2042. The lease term of the Crown head lease ends on 18 May 2038.

8. [13]

   The land the subject of each head lease was subleased by TWF to TWFN1 as trustee for the Land Trust and in turn subleased by it to Taralga Wind Farm Nominees No 2 Pty Ltd (TWFN2) as trustee for Taralga Wind Farm Operating Trust (Operating Trust). TWFN2 was a wholly owned subsidiary of Taralga Operating Co Pty Ltd, all of the shares in which were wholly owned by THN2 as trustee of the Holdco Operating Trust.

9. [14]

   All leases, subleases and sub-subleases were entered into prior to the Acquisition.

10. [15]

    The land described above is predominantly cleared farmland. The landowners use the land for sheep or cattle grazing. The leased land was also used, before and after the Acquisition, to operate the Taralga Wind Farm (the Wind Farm) by the group of entities the subject of the Acquisition.

11. [16]

    Development consent was given for the Wind Farm on 17 January 2006. The development consent was varied by order of the Land and Environment Court made on 12 February 2007. The development consent has been varied on a number of subsequent occasions. The consolidated form in which it stood prior to the Acquisition is hereafter referred to as “the Development Consent”.

12. [17]

    The Wind Farm was constructed on the land by or on behalf of TWFN1 as trustee for the Holdco Land Trust (the sub-lessee), after commencement of the respective head leases, but before the Acquisition.

13. [18]

    The first Wind Turbine Generators’ (WTGs) components arrived at site on 15 September 2014 and the first blades were attached on 7 October 2014. The first turbine was commissioned on 14 December 2014.

14. [19]

    Practical completion of the Wind Farm occurred in July 2015, following which a “Lease Agreement (Plant and Equipment)” dated 16 July 2015 was entered into for a lease of wind farm plant and equipment by TWFN1 as trustee of the Land Trust to TWFN2 as trustee of the Operating Trust (the sub-sublessee of the leasehold interests).

15. [20]

    The following description of the Wind Farm was agreed by the parties as accurate as at 12 May 2016.

16. [21]

    There are 51 WTGs at the Wind Farm. Each WTG captures energy from the wind and uses it to generate electricity. Each WTG comprises a concrete foundation, the tower sections, the nacelle and the hub and blades.

17. [22]

    The concrete foundations consist of about 300 to 400 cubic metres of concrete and 35 to 50 tonnes of steel reinforcement, poured into an octagonal shape that is about 15 metres wide and about three metres deep. A photograph of the base of the tower section of WTG38 shows:

18. [23]

    The tower section connects to the concrete foundation by two rows of bolts that are cast into the concrete. A photograph that depicts the external row of bolts that is cast into the concrete base shows:

19. [24]

    A photograph that depicts the cap removed from one of the external bolts at the base of the tower shows:

20. [25]

    The other row of bolts is located inside the tower section. A photograph of the internal row of bolts inside the tower section of WTG38 shows:

21. [26]

    The tower sections of each WTG are custom designed and built for each project. They are based on a type tested design. The towers are typically 80 metres in height. Each tower comprises three sections, joined together by bolts between metal flanges.

22. [27]

    The upper sections of the tower can be accessed by a lift and ladder located inside the base of each tower. A “Turbine Switchgear” is also located in the base of each tower. The nacelle houses the transformer, the generator and the gearbox. These are interchangeable and off-the-shelf components. A photograph of the nacelle shows:

23. [28]

    Each blade is made of fibreglass. Blades require regular maintenance because they get pitting on their leading edge. The blades occasionally require replacement. The gearboxes and generators within the nacelle are occasionally switched out and refurbished. It is not usual for any of the other component parts (the hub, the nacelle or the tower) to require replacement.

24. [29]

    The hub and blades must be elevated in order to capture the wind. That is the purpose of the tower. An independent assessment of wind climate and energy production dated 27 August 2015 carried out for Inversiones Capital Global, S.A using data over an 18.7 year period found the average wind speed (at turbine hub-height) at the Wind Farm was 7.4m/s (equivalent to 14.38 knots or 26.64km/h).

25. [30]

    The tower must be firmly fastened to the foundations. That is because the hub and blade components weigh about 42 tonnes and without that fastening the whole tower would fall forwards.

26. [31]

    Each WTG has a design life of 20 years. That design life is specified in the turbine design contracts. That is primarily because of the design life of the blades, which is 20 years. Other components of the WTG, such as the foundations and the tower sections, would likely last more than 20 years.

27. [32]

    The WTGs are connected to electrical cables which, apart from one section of overhead cabling, are underground and which connect back to a switchroom located in a switchyard. The underground cables are laid in thermal sand in trenches that are about 0.4 metres wide. There is 28 kilometres of underground cabling at the site. Removing the cables from the ground would result in damage to the cables so they would only have scrap value.

28. [33]

    None of the component parts of a WTG or the underground electrical cables are used by the landowners.

29. [34]

    The switchyard consists of components which have individual concrete footings. The switchyard is shown thus:

30. [35]

    Underneath the concrete there is an earthing grid. Within the switchyard is the switchroom building. The switchroom building is shown thus:

31. [36]

    A substation is also located within the switchyard. The main transformer is part of the substation. Next to the transformer is a dead tank circuit breaker. Other items within the switchyard include:

    1. (1)

       high voltage bus bars and support;

    2. (2)

       disconnectors;

    3. (3)

       voltage transformers;

    4. (4)

       surge arrestors;

    5. (5)

       a conductor gantry;

    6. (6)

       an earthing resistor; and

    7. (7)

       an auxiliary transformer.

32. [37]

    The electricity generated at the Wind Farm connects to the national electricity grid via an overhead transmission line from the Wind Farm’s substation to the Marulan substation. The 132kV transmission line from the Wind Farm’s substation to Marulan, including land-related assets, was gifted to Essential Energy on 17 December 2014 and did not form part of the Acquisition. On 14 August 2012, TWFN2 as trustee for the Operating Trust entered into a power purchase agreement with TRUenergy for a term of 10 years to 26 June 2025.

33. [38]

    There is a control building at the Wind Farm, also called the Operations and Maintenance Facility (Control Building), with facilities for operations and maintenance staff. The foundation for the Control Building was poured on site and is a concrete slab. An emergency generator is located next to the Control Building. The various items of equipment inside the switchroom in the switchyard and the Control Building include:

    1. (1)

       a programmable logic controller panel;

    2. (2)

       a server panel;

    3. (3)

       a multiplexer panel;

    4. (4)

       a distribution board;

    5. (5)

       a communications & net energy metering panel;

    6. (6)

       uninterruptible power supply and batteries;

    7. (7)

       a feeder protection panel;

    8. (8)

       a 33kV switchboard protection panel;

    9. (9)

       a 132-33kV transformer protection panel;

    10. (10)

        a 132kV line protection panel; and

    11. (11)

        a 33kV circuit breaker switchboard.

34. [39]

    The Control Building is shown thus:

35. [40]

    There are 23 kilometres of access roads across the site which provide vehicular access to the WTGs. The access roads were constructed as part of the development of the site as a wind farm. It was common ground that the access roads were fixtures and would not be removed in any circumstances.

36. [41]

    Next to each WTG is a hardstand. During construction, the hardstand was used by a crane to assist assembly and during decommissioning the hardstand will also be used by a crane. The foundations of the hardstands are all less than one metre.

37. [42]

    A photograph that depicts part of the access roads and the hardstands shows:

38. [43]

    This photograph was taken during construction of the Wind Farm at a point in time when the WTGs had not yet been erected.

39. [44]

    A photograph of the hardstand next to WTG38 shows:

40. [45]

    There are eight meteorological or monitoring masts (met masts) and a television re-transmitter on the site. The masts (with upper measurement heights of 80m) are used to collect wind data. Photographs of the met masts and the guy wire attachment points show:

41. [46]

    None of the met masts or the transmitter are used by the landowners.

42. [47]

    A Decommissioning and Rehabilitation Plan dated 14 July 2014 was submitted to the Director-General of the Department of Planning and Infrastructure, as required by condition 116 of the Development Consent. The plan must be updated every five years until decommissioning and rehabilitation is completed. The decommissioning and dismantling process for the WTGs differs depending on whether the WTGs are intended to be re-used, recycled or disposed of. A Decommissioning Work Instruction dated 13 June 2013 prepared by Vestas – Australian Wind Technology Pty Ltd (a WTG manufacturer and installer) describes the process for dismantling and decommissioning a WTG if the intention is to preserve components in a reusable condition. In the event the WTG is to be disposed of or recycled, the dismantling will not warrant careful dismantling using costly crane operations, but can be felled by a “controlled collapse/pull-over” process and cut into manageable pieces for transport to scrap recycling facilities.

43. [48]

    The Fixed Asset Register as at 31 December 2015 is at Annexure A to this judgment. There were no asset purchases or disposals between that date and 12 May 2016, save that the cost of spare parts situated at the Wind Farm as at 12 May 2016 was $494,163.

44. [49]

    The total of the unencumbered value of the plant and equipment assets situated at the Taralga Wind Farm as at 12 May 2016 was $227,182,500. The total sum comprised the following:

Evidence

1. [50]

   The only lay evidence relied upon was that of Mr Julian Robert King. Affidavits sworn on 13 November 2018 and 2 September 2020 were read. No challenge was made to Mr King’s credit. I find the following matters based on his evidence:

   1. (1)

      Mr King is a qualified mechanical fitter and had worked for Pacific Hydro Pty Ltd (a wholly owned subsidiary of SPIC) at the Wind Farm since December 2016. When Mr King started at the Wind Farm, it was fully operational. From about December 2013 to December 2016, Mr King had worked for Goldwind Australia at the Gullen Range Wind Farm in New South Wales as the Site Manager.

   2. (2)

      Prior to construction of the wind farm, an 18-year study at the Taralga location was conducted. That study concluded that the location was suitable for a wind farm. The strong winds characteristic of the area makes the land suitable for a wind farm.

   3. (3)

      A simplified description of the use of the land to generate electricity is that the strong winds make the blades of the WTGs rotate. The rotation spins a series of gears which are connected to a generator located in the nacelle. The generator turns the wind or kinetic energy into electricity. Another component in the nacelle, the transformer, transforms the voltage of the energy generated to a higher voltage. The electricity from the turbines travels through underground cables connected to the WTGs to a transmission substation. There is another transformer in the Wind Farm’s substation which increases the voltage of the electricity again to match the voltage (132 kV) of the transmission line that goes to the Marulan substation. Electricity dispatched from the substation onto the transmission line owned by Energy Australia is effectively sold and delivered to Energy Australia for use in the National Electricity Market.

   4. (4)

      The more wind that is captured by the blades of the turbines, the more electricity which can be generated. The amount of electricity that is generated depends upon wind speed, the design of the generator and the power curve of the generator. Typically, blade length relates to the strength of the wind speed that it can harness. Longer blades are usually required in a lower wind speed environment.

   5. (5)

      The blades used at Taralga have a pitch system to best catch the wind. The blades can turn towards the wind. The nacelle rotates to face the wind direction, for a full 360 degrees. The turbines have an internal control system that is automated. The turbine operates autonomously and feeds information into the Supervisory Control and Data Acquisition (SCADA) control system. The SCADA control system also provides the ability for human operators to control a turbine.

   6. (6)

      Each of the 51 turbines are located in positions on the land designed to best capture the wind. The hub and blades of the WTGs must be elevated on the towers in order to capture the wind. The length of the blade is a factor in determining the tower and hub height. The WTGs at the Wind Farm have a hub height of 80 metres. The WTGs are optimally sized and placed on the land to optimise the amount of wind that can be harvested so as to maximise the amount of electricity that can be generated and sold.

2. [51]

   The parties also relied upon expert evidence concerning the valuation of the plant and equipment assets situated at the Wind Farm as at the date of the Acquisition. Mr Cameron Dunsford retained on behalf of SPIC prepared reports dated 4 August 2016 and 8 August 2019. Mr Ross Henderson retained on behalf of the Commissioner prepared a report dated 17 May 2019. Mr Dunsford and Mr Henderson prepared a joint report dated 28 February 2020. The parties subsequently agreed to “split the difference” between the valuations of the experts. This is reflected in the statement of further agreed facts dated 16 July 2020. The agreed value of the plant and equipment was $227,182,500. Accordingly, Mr Dunsford and Mr Henderson were not required for cross-examination. The relevance of the agreed valuation of plant and equipment assets situated at the Wind Farm to the exercise I am required to undertake is a subject to which I will return.

3. [52]

   The parties principally relied upon expert evidence concerning the value of any relevant interest in land in reports prepared by Mr Danny Thomas retained on behalf of SPIC dated 23 November 2018, 6 August 2019 and 7 February 2020 and Mr Andrew Ross retained on behalf of the Commissioner dated 17 May 2019, 22 May 2019 and 8 November 2019. Mr Thomas and Mr Ross prepared a joint report dated 18 May 2020 and a supplementary joint report dated 3 August 2020.

4. [53]

   Because this valuation evidence was at the heart of the issues I am required to consider, I will return to examine the evidence of valuation at length in considering those issues.

Relevant law

1. [54]

   A review pursuant to s 97(1)(a) of the Taxation Administration Act is not limited to the grounds of the objection against the Assessment: s 100(2). The Court has power, among other things, to confirm or revoke the Assessment, make an assessment or other decision in place of the Assessment, and make any further order as to costs or otherwise as it thinks fit: s 101(1). Sections 100 and 101 provide:

2. [55]

   The review for which the Taxation Administration Act provides is quite different to judicial review under s 69 of the Supreme Court Act 1970 (NSW), and this Court is not limited to considering whether the Commissioner erred on the materials that were before him: Tasty Chicks Pty Ltd v Chief Commissioner of State Revenue of the State of New South Wales (2011) 245 CLR 446; [2011] HCA 41 at [22]. Nor, in the case of a power which may be exercised by the Commissioner, is the Court limited to considering whether the Commissioner’s exercise or non-exercise of a power is affected by an error of the kind identified in Avon Downs Pty Ltd v The Federal Commissioner of Taxation (1949) 78 CLR 353; [1949] HCA 26 at 360: Tasty Chicks at [19], [22]. Rather, the Court must itself consider the correct application of the provisions of the Duties Act to the materials before the Court, including (so far as it is relevant) how any power conferred by those provisions should be exercised: Chief Commissioner of State Revenue v Centro (CPL) Ltd (2011) 81 NSWLR 462; [2011] NSWCA 325 at [168] per Sackville AJA (with whom Giles and Macfarlan JJA agreed); Winston-Smith v Chief Commissioner of State Revenue [2019] NSWCA 75 at [2] per Meagher JA (with whom Sackville AJA and I agreed).

3. [56]

   The Commissioner emphasised that the plaintiff bears the onus of proving all matters necessary for the statutory questions to be answered in its favour: Taxation Administration Act, s 100(3).

4. [57]

   The relevant provisions of the Duties Act are the provisions as they stood at the time of the Acquisition, on 12 May 2016.

5. [58]

   The first provisions of note are those establishing the time that a liability for duty arises, ss 148 and 149: [1]

6. [59]

   It is not controversial that, if the Holdco Land Trust was a “landholder”, SPIC acquired an “interest” that was a “significant interest” within the meaning of s 150. As at May 2016, sections 150 and 151 provided: [2]

7. [60]

   It is necessary to focus on the definition of “landholder”: [3]

8. [61]

   It is not in contest that, if the Holdco Land Trust was a “landholder”, it was a “private landholder” rather than a “public landholder”: ss 146(2), (3). In order to identify whether the threshold value of $2,000,000 or more has been crossed it is necessary first to address what are defined to be the “land holdings” of a landholder: [4]

9. [62]

   The Dictionary defines “interest” as including “an estate or proprietary right”: [5]

10. [63]

    In addition, s 158 made provision for “constructive ownership” of land holdings. Relevantly, s 158(1) provided that a unit trust scheme is taken to hold an interest in land or other property held by a “linked entity” of the unit trust scheme. Section 158(2) defined “linked entities”: [6]

11. [64]

    It was common ground at the trial that the entities shown in the diagram set out below depicted under the Holdco Land Trust are wholly owned linked entities. It follows that the Holdco Land Trust is taken to hold the interests in land or other property held by those linked entities:

12. [65]

    The next step in determining the threshold value of the land holdings of the Holdco Land Trust is s 146A. Section 146A(1) defined the “threshold value” to be “the total value of all land holdings in New South Wales of the unit trust scheme or company”. For this purpose, ss 146A(2) and (8) made specific provision for a land holding that consists of an estate in fee simple in land other than a strata lot: the value of the land holding is the value of the land as entered in the Register of Land Values kept by the Valuer-General under the Valuation of Land Act 1916 (NSW) as at 1 July in the previous year. Section 146A provided: [7]

13. [66]

    Putting aside estates in fee simple, and other specific circumstances dealt with by s 146A, s 146A(7) provided that the value of a land holding is the unencumbered value of the land holding, determined in the same way as for dutiable property under Ch 2 of the Duties Act. Thus, attention is directed in particular to s 23(1), which provides that the unencumbered value is “the value of the property determined without regard to any encumbrance to which the property is subject”: [8]

14. [67]

    As to the amount of duty, if the Acquisition was a “relevant acquisition”, duty was chargeable at the “general rate” on “the unencumbered value of all land holdings and goods” of the Holdco Land Trust calculated at the date of Acquisition: s 155(1). In determining the unencumbered value of land holdings and goods, s 162(1) again directs attention to the provisions of Ch 2, including s 23(1) (set out immediately above). Certain goods are excluded from the definition of “goods” by s 163K(1): [9]

15. [68]

    Although expressed in terms of a power available to be exercised by the Commissioner, s 163G confers a power available to be exercised by the Court in these proceedings: [10]

16. [69]

    Finally, I note that s 147A, [11] introduced with effect from 24 June 2020, is inapplicable in this case. In relation to transactions occurring after 24 June 2020 the issues determined in this case are unlikely to arise again, at least in the same form.

Issues in dispute

1. [70]

   There are five issues in dispute which I must determine. A number are contingent on the determination made about earlier issues. The issues are:

   1. (1)

      Issue 1 – What, if any, of the plant and equipment installed on the leased land is a fixture?

   2. (2)

      Issue 2 – To the extent that any plant and equipment installed on the leased land is a fixture, to what, if any, interest in land did this give rise on the part of the Holdco Land Trust (through its linked entities)?

   3. (3)

      Issue 3 – Having regard to the answers to issues 1 and 2, was the Holdco Land Trust a “landholder” for the purposes of the relevant provisions of the Duties Act?

   4. (4)

      Issue 4 – How are any interests in land on account of the fixtures to be valued?

   5. (5)

      Issue 5 – Is the power under s 163G of the Duties Act available and, if so, should it be exercised?

2. [71]

   The parties’ position about each of the issues in dispute may be summarised as follows:

   1. (1)

      Issue 1 – SPIC submitted that the plant and equipment situated at the Wind Farm are chattels and not fixtures. The Commissioner submitted that the plant and equipment situated at the Wind Farm are fixtures. SPIC submitted that (assuming the plant and equipment situated at the Wind Farm are fixtures) they are tenant’s fixtures. The Commissioner agreed but emphasised that as tenant’s fixtures SPIC enjoys a right to remove the fixtures during the term of the leases and the obligation to do so at the end of the leases;

   2. (2)

      Issue 2 – SPIC submitted that the right to remove tenant’s fixtures does not give rise to any interest in land beyond the existing leasehold interest. The Commissioner submitted that SPIC’s right to remove fixtures is a recognised proprietary interest in the land protected at common law and in equity. It was submitted that the right to remove comprised an interest in land in addition to the leasehold interests;

   3. (3)

      Issue 3 – SPIC submitted that the value of the Holdco Land Trust’s land holding is less than $2,000,000. The Commissioner submitted that the value of the Holdco Land Trust’s land holding is not less than $2,000,000 making Holdco Land Trust a “landholder” for the purposes of Ch 4 of the Duties Act;

   4. (4)

      Issue 4 – SPIC submitted that (assuming the plant and equipment situated at the Wind Farm were fixtures) the value of the Holdco Land Trust’s interest in the land was $106,500,000. The Commissioner submitted that valuation should be conducted on the basis of the unencumbered value of the fixtures based on the agreed asset values in the further agreed facts of $227,182,500;

   5. (5)

      Issue 5 – SPIC submitted that the power under s 163G of the Duties Act was available and should be exercised. The Commissioner submitted that as the assets in question were fixtures, s 163G did not apply.

Issue 1 – What, if any, of the plant and equipment installed on the leased land is a fixture?

1. [72]

   In TEC Desert Pty Ltd v Commissioner of State Revenue (Western Australia) (2010) 241 CLR 576; [2010] HCA 49 (TEC Desert (HCA)), a unanimous High Court explained the application of fundamental principles about the character of chattels affixed to land, particularly by tenants. The Court said:

2. [73]

   The Court quoted with approval (at [24]) the statement by Conti J in National Australia Bank Ltd v Blacker (2000) 104 FCR 288; [2000] FCA 1458 at [10]:

3. [74]

   In Agripower Barraba Pty Ltd v Blomfield [2015] NSWCA 30; (2015) 317 ALR 202 Sackville AJA, with whom Bathurst CJ and Beazley P agreed, explained:

4. [75]

   As Sackville AJA concluded in Agripower (at [77]), whether or not the adaptation of the law of fixtures adequately meets modern conditions, the doctrine remains firmly embedded in Australian law. The question of whether plant and equipment used as part of large-scale manufacturing or production activities on leased land has become a fixture, and if owned by the tenant, a tenant’s fixture, has been the subject of consideration in numerous cases.

5. [76]

   As Brendan Edgeworth points out in Butt’s Land Law (7th ed, 2017, Thomson Reuters) at [7.2150]-[7.2270], there are two separate questions that must be addressed. The first is whether the item in question is a fixture or a chattel. The second is whether, if a fixture, it is a landlord’s or a tenant’s fixture.

6. [77]

   The High Court in TEC Desert (HCA) explained at [25] that the law respecting “tenant’s fixtures” concerns the rights of persons who have limited interests (such as leases for a term) to sever and remove from the land what admittedly are fixtures. Unless and until that right of severance and removal is exercised, the fixtures form part of the realty.

7. [78]

   The Court in TEC Desert (HCA) quoted C Harpum, S Bridge and M Dixon, Megarry & Wade The Law of Real Property (7th ed, 2008, Sweet & Maxwell) at p 1072 [23-010] to this effect:

8. [79]

   An influential decision about the law of tenant’s fixtures is that of Emmett J in Metal Manufactures Ltd v Commissioner of Taxation [1999] FCA 1712, [12] where his Honour said:

9. [80]

   Having explained the test to be applied in identifying fixtures, Emmett J next carefully explained the role of the doctrine of tenant’s fixtures:

10. [81]

    The most recent decision of the NSW Court of Appeal dealing with this issue is Power Rental Op Co Australia, LLC v Forge Group Power Pty Ltd (in liq) (recs and mgrs apptd) (2017) 93 NSWLR 765; [2017] NSWCA 8 where Ward JA, with whom Bathurst CJ and Beazley P agreed, emphasised that whether an item has become a fixture depends upon the objective intention with which the item was put in place, having regard to the degree of annexation and the object of that annexation. The case involved a consideration of whether four mobile gas turbine generators leased from one company to another for the purposes of a power station had, once installed, become fixtures within the meaning of s 10 of the Personal Property Securities Act 2009 (Cth). The turbines were designed to be demobilised and moved to another site easily and in a short time. They were mounted on trailers which kept their wheels throughout. The turbines were only intended to be in position on the site, which was a temporary power station site, for a rental term of two years (subject to limited optional extensions). The turbines were installed for an objectively temporary purpose and it was expected that a larger longer-term power station would later be constructed.

11. [82]

    Ward JA held (at [103]-[105]) that a fixture within the meaning of the Personal Property Securities Act was intended to import common law notions of affixation and observed, at [100], that those principles are well-settled. Her Honour concluded that each case depends on its own circumstances. At [62], her Honour referred to the factors summarised by Conti J in Blacker at [13]-[14], albeit noting that in Agripower at [81] Sackville AJA described those passages as identifying a useful, but not exhaustive or definitive, list of matters to be taken into account.

12. [83]

    In applying the relevant principles and addressing the degree of annexation, her Honour explained that there were two aspects of physical affixation most relevant: the electrical/fuel connections and the connection by means of the Seismic & Wind Kits. The latter kind of connection was clearly one that was for the better enjoyment or use of the turbines themselves to stabilise them in the event of a cyclone: at [144]. Relevant to the question before me were the electrical/fuel connections. Her Honour described the connections through which electricity generated by the turbines was delivered to the power station grid as being “for the purpose of the use of the land as a power station”. In ultimately concluding that the turbines in that case were chattels, her Honour regarded as highly relevant the fact that the connection was one effected through an attachment to pipelines/conductors, which connection was designed to be reversible or detachable, much as a plug in an electric socket would be. [13]

13. [84]

    As to the purpose of the annexation, her Honour emphasised that the lease in that case was intended to be operative for a relatively short and finite period. Her Honour rejected the proposition that the temporary nature of the affixation was of itself determinative but held at [146]-[148] that the permanence or otherwise of the affixation was a relevant matter to take into account. At [149], her Honour quoted the much cited dictum of Sir Frederick Jordan in Australian Provincial Assurance Co Ltd v Coroneo (1938) 38 SR (NSW) 700 at 712 that:

14. [85]

    In a passage with relevance to the question before me, Ward JA found at [151]:

15. [86]

    Equally, I interpolate, it is inconsistent with her Honour’s reasons to conclude that the existence of a contractual right (or obligation) to remove the turbines necessarily meant that the items were not fixtures.

16. [87]

    Her Honour cited the following propositions drawn from High Court authority. In Reid v Smith (1905) 3 CLR 656; [1905] HCA 54 at 680-681, O’Connor J cited with approval the following statement:

17. [88]

    In Anthony v Commonwealth (1973) 47 ALJR 83 at 89E, Walsh J, in relation to a telephone line, including poles and other equipment, said:

18. [89]

    An authority of some importance in determining the present question is Vopak Terminal Darwin Pty Ltd v Natural Fuels Darwin Pty Ltd (Subject to Deed of Company Arrangement) [2009] FCA 742; (2009) 258 ALR 89 (Vopak (FCA)). Vopak sublet land to Natural Fuels Darwin (NFD), which constructed and operated a biodiesel manufacturing plant on the land. Vopak owned land adjoining, but not forming part of, the land that it sublet to NFD. Large storage tanks and associated pipelines and equipment were constructed on Vopak’s land, from which bulk liquid materials were delivered to NFD’s proposed biodiesel plant (the Vopak Terminal). The Vopak Terminal was the main petroleum product storage tank terminal in the Northern Territory and was constructed by Vopak. All of the structures on the sublet land were constructed by NFD. The sublease relevantly provided that on or before the “termination date”, NFD must, at its cost, remove its “property (including but not limited to all facilities associated with the installation of the biodiesel plant)” from the land.

19. [90]

    When administrators appointed by NFD pursuant to s 436A of the Corporations Act 2001 (Cth) attempted to sell the biodiesel facility, glycerine plant, offices and all related and associated infrastructure and other assets located on the premises, a dispute arose as to whether critical elements of the biodiesel plant were fixtures and whether NFD had a right under the sublease to enter upon the premises to remove them.

20. [91]

    Lindgren J held that the manner, degree and object of affixation of the principal items constructed by NFD were attached to the land such that they were fixtures and thus part of the land: at [60], [63]. The manner of affixation was by steel and concrete. The degree of the affixation was such that removing them was a lengthy and expensive process. The items were interconnected. The object of the attachment was the use of the land, as a whole, as a biodiesel manufacturing plant on a long-term basis, at least for the term of the lease. If all three 10-year options of the sublease were exercised, the total period would be 51 years. The interconnectedness of the items was relevant to the manner, degree and object of the attachment: at [61].

21. [92]

    His Honour concluded that the items were “tenant’s fixtures” of NFD. They were constructed by or for NFD and installed by NFD for the purpose of its trade: at [67]-[68]. His Honour accepted that a tenant’s fixture becomes part of the land, but is subject to the tenant’s right of severance (at [71]-[72]), and concluded that NFD’s fixtures became part of the land; NFD’s right to remove them was regulated by the sublease; NFD ceased to be entitled to remove them after a specified date; and since then NFD had not been entitled to interfere with a sale of them by Vopak: at [71]-[73].

22. [93]

    A 2004 Victorian case, Commissioner of State Revenue v Uniqema Pty Ltd [2004] VSCA 82; (2004) 56 ATR 19, became somewhat of a focus of SPIC’s submissions at the hearing. Upon analysis, no different principle or approach to determining whether plant and equipment used in leased premises was a fixture was suggested by Uniqema and I do not think the decision provides any particular assistance in determining the case before me. The facts were that Uniqema Pty Ltd purchased a chemical manufacturing business together with the land upon which a factory complex was erected. Another company, Co-Gen, leased part of the land on which, under an associated energy services agreement, it operated a generation facility for the supply of steam and electricity needed to operate Uniqema’s chemical manufacturing business.

23. [94]

    The energy services agreement provided that excess electricity produced by the lessee might be sold to other electricity suppliers. The lease provided that the tenant owned all improvements and fixtures constructed, installed or brought onto the leased land by it absolutely, and gave the tenant the right to remove the improvements for a period of one month after termination of the lease. The lease also enabled the tenant at or before the expiration of a period of one month after termination to remove from the land down to the level of the upper surface of the concrete foundations all fixtures, fittings, plant and equipment or other articles upon the premises in the nature of trade or tenant’s fixtures and fittings brought onto the land by the tenant. Although the boilers and electricity generation plant constructed and brought onto the site by the tenant were very substantial and complex, they were bolted to the concrete slab in a way which made them comparatively easy to detach and take away.

24. [95]

    The Commissioner assessed duty by adding to the value of the land the whole of the value of the goodwill, together with the value of the plant and equipment sold as part of the business, and by including the Commissioner’s assessed value of the tenant’s steam and electricity generation facility not sold with the business.

25. [96]

    At first instance, Pagone J noted at [20] that the assessment would be correct if the plant and equipment were fixtures. Pagone J held that the Co-Gen items were not as large as the other items of plant and equipment and were constructed to be removable. The tenant was obliged to remove the items upon termination of the tenancy, and they were expressly excluded from the sale by Uniqema. The evidence persuaded Pagone J that those items were not fixtures. On appeal, the Commissioner contended that the plant and equipment formed part of the real property at the time of the sale and had to be taken into account in valuing the whole of the land sold. Because the plant and equipment were fixtures, the value of the land was greater than the consideration paid for it and the Commissioner argued that he was entitled to bring the land to duty at the higher figure: at [16]. Ormiston JA (with whom Phillips JA and Callaway JA agreed) held:

26. [97]

    SPIC submitted that there was a striking degree of similarity between the facts in the present case and Uniqema. I do not agree. It was only “in the very special circumstances” of that case that the Victorian Court of Appeal held that “the Co-Gen plant and equipment were not fixtures, nor were they part of the real property sold to the respondent”. Whilst one feature of the arrangement referred to by Ormiston JA is shared with the leases here in question – the tenant’s right to remove the electricity generating assets during the currency of the lease and the obligation to do so at the conclusion of the lease – the circumstances in Uniqema are quite different to the present.

27. [98]

    In Uniqema, the object of annexation was clearly “unusual”. The critical feature of the case so far as the object of annexation was concerned was that the “land was leased for a purpose largely unrelated to the tenant’s own business and its needs”. That is not the case here. The findings in that case, which in one respect bear a superficial similarity to the present, upon analysis show that Uniqema is a very different case. I respectfully agree with Ormiston JA that the circumstances of the case were “very special”.

28. [99]

    In a decision brought to the Court’s attention after the oral argument, AWF Prop Co 2 Pty Ltd (as trustee) (ACN 603 996 407) v Ararat Rural City Council [2020] VSC 853, the issue was whether a rate notice issued by the Ararat Rural City Council for a fire services levy in respect of the part of a wind farm located in the Ararat municipality was excessive to the extent that it was based on a capital improved value of $470,400,000. The “various allotments” of land comprising the wind farm had a value of $14,560,000. Richards J concluded that Uniqema provided support for the finding that the wind farm assets in that case were chattels and not fixtures.

29. [100]

    I have concluded that AWF Prop Co 2 is distinguishable because it addresses a different statutory regime. The “capital improved value” the subject of the rate notice was defined to mean:

30. [101]

    That is a fundamentally different question to the value of the interest in the Holdco Land Trust that was acquired by SPIC. That is, AWF Prop Co 2 concerned the hypothetical sale of the freehold “unencumbered by any lease”. The critical differences between the valuers in the case before her Honour turned upon the use by the valuers supporting the rate notice valuation of comparable sales data about sales of leasehold interests in land upon which wind farms were operating rather than the sales of fee simple interests in the land on which the wind farms were located. Her Honour concluded at [9(c)]:

31. [102]

    As I have already noted, none of the wind farm sales that the valuers used for their direct comparison involved the sale of a fee simple interest in the land on which the wind farms were located. In each case, the sales involved the sale of leasehold interests in land.

32. [103]

    To the extent that SPIC seeks to rely upon the reasons given by her Honour at [213] and the conclusion that the wind farm assets in that case were chattels, and not fixtures, I respectfully disagree and do not regard her Honour’s conclusions as persuasive in the case before me.

33. [104]

    First, the distinction drawn between “above ground” assets and those assets on or below the surface introduces a circularity in the application of the relevant tests for the degree of annexation of the items and the object of their annexation. I am bound to consider the degree of annexation of the plant and equipment in this case and the object of that annexation.

34. [105]

    Secondly, while a number of the matters considered by her Honour at [213] in AWF Prop Co 2 are matters properly to be taken into account in addressing the question of whether items making up a wind farm are chattels, not fixtures, they are not determinative of that question in the case before me. The terms of the Development Consent and the leases are relevant factors in addressing the question of the object of the annexation, but respectfully I do not agree that they should be given determinative weight as was apparently the case in AWF Prop Co 2. The fact that a lessee owns the plant and equipment which it attaches to the leased land is also relevant, but not determinative. If rights and obligations of these kinds were determinative there would be no need for the tenant’s fixtures doctrine. As O’Connor J explained in Reid v Smith “[t]he intention of the party making the improvement ultimately to remove it from the premises, will not, by any means, be a controlling fact.” Contrary to the conclusion at [213(e)], in my view the fact that the design working life of the wind turbines was between 20 and 25 years, and 25 years for all other AWF assets, supports a conclusion that the plant and equipment became fixtures. In answer to the question posed by Sir Frederick Jordan in Coroneo, the plant and equipment comprising the wind farm assets in AWF Prop Co 2 were affixed to the land with the intention that they remain in position for at least a “substantial” period of time rather than for “some temporary purpose”.

35. [106]

    At its highest, AWF Prop Co 2 is one of the decisions I take into account, together with the following cases which came to a different conclusion to AWF Prop Co 2 about the subject of fixtures:

    1. (1)

       National Dairies WA Ltd v Commissioner of State Revenue (2001) 24 WAR 70; [2001] WASCA 112, where the Western Australian Court of Appeal held that plant and equipment had been placed on land for the purposes of integration into a milk processing factory. The items of equipment were capable of being removed and relocated, either within the site or to a different site. The Court of Appeal nevertheless upheld the trial judge’s conclusion that “the equipment was annexed to the land for the better enjoyment of the land for use as a milk processing plant”; and

    2. (2)

       Commissioner of State Revenue v Snowy Hydro Ltd (2012) 43 VR 109; [2012] VSCA 145, where the Victorian Court of Appeal upheld a conclusion that plant and equipment used for a power plant were fixtures despite the fact that units and components of the plant were removable, mobile and transportable and that it was necessary to bolt them to the land only to ensure their efficient and safe use. The Court accepted that there may be some economic incentive to move them. Those qualities did not prevent the plant and equipment from having the character of fixtures. The critical finding in that case was that the objective intention of installing the units at the site was not for a temporary purpose but, rather, for the long-term use of that site as a gas turbine electricity generation plant.

36. [107]

    Whilst every case turns on its own facts, both National Dairies WA Ltd and Snowy Hydro Ltd are supportive of the proposition that plant and equipment affixed to land as part of the long-term use of the site as a commercial or industrial plant (in one case for milk processing and in the other for electricity generation) are fixtures.

37. [108]

    In this case, I am required to consider whether the plant and equipment comprise chattels or fixtures by reference to the degree of their annexation to the land and the purpose or object of that annexation. In addressing the latter question an important issue is whether the purpose or object of the annexation was to better enjoy the items annexed or to better enjoy the land.

38. [109]

    I have concluded that the WTGs and met masts, together with the infrastructure affixed to the land necessary to send generated electricity to the National Electricity Market, were fixtures at the time of the transaction whereby SPIC purchased the interests in the securities. I find that they were tenant’s fixtures. I accept, as SPIC submitted, that development costs, construction-related costs, furniture and fittings, spare parts and those parts of the electronic control system not affixed to land were not fixtures. I also accept that the roads and tracks on the land were fixtures and, if it were necessary to categorise them, should be regarded as landlord’s fixtures.

39. [110]

    A non-exhaustive list of matters to be taken into account in assessing the degree of annexation are:

    1. (1)

       whether removal would cause damage to the land or buildings to which the item is attached: Hellawell v Eastwood (1851) 155 ER 554 at 561; Adams v Medhurst & Sons Pty Ltd (1929) 24 Tas LR 48 at 49; Spyer v Phillipson [1931] 2 Ch 183 at 209-210;

    2. (2)

       the mode and structure of annexation: Leigh v Taylor [1902] AC 157 at 162; Reid v Smith at 667; Boyd v Shorrock (1867) LR 5 Eq 72 at 78-79;

    3. (3)

       whether removal would destroy or damage the attached item of property: Litz v National Australia Bank Ltd (1986) Qld Conv R 54-229 at 57,549; and

    4. (4)

       whether the cost of removal would exceed the value of the attached property: Metal Manufactures at [165].

40. [111]

    In relation to the degree of annexation, I find that the turbines are very strongly affixed to the land:

    1. (1)

       The concrete foundations consist of about 300 to 400 cubic metres of concrete and 35 to 50 tonnes of steel reinforcement, poured into an octagonal shape that is about 15 metres wide and about three metres deep.

    2. (2)

       The tower section connects to the concrete foundation by two rows of bolts that are cast into the concrete.

    3. (3)

       The tower sections of each WTG are custom designed and built for each project. They are based on a type tested design. The towers are 80 metres high. Each tower comprises three sections, joined together by bolts between metal flanges. The upper sections of the tower can be accessed by a lift and ladder located inside the base of each tower.

    4. (4)

       Next to each WTG is a hardstand. During construction, the hardstand was used by a crane to assist assembly and during decommissioning the hardstand will also be used by a crane.

41. [112]

    SPIC accepted that the WTGs were “strongly affixed to the land” but submitted that I should conclude that was so because otherwise they would fall over. Whilst that may be correct, it is an insufficient explanation for the degree of annexation of the WTGs to the land:

    1. (1)

       The hub and blades must be elevated in order to capture the wind. That is the purpose of the tower. An independent assessment of wind climate and energy production dated 27 August 2015 carried out for Inversiones Capital Global, S.A using data over an 18.7 year period found the average wind speed (at turbine hub-height) at the Wind Farm was 7.4m/s (equivalent to 14.38 knots or 26.64km/h).

    2. (2)

       The land is used to generate electricity by building WTGs to the height at which they are best able to capture the strong winds to make the blades of the WTGs rotate. The rotation spins a series of gears which is connected to a generator located in the nacelle. Another component in the nacelle, the transformer, transforms the voltage of the energy generated to a higher voltage. The electricity from the turbines travels through underground cables connected to the WTGs to a transmission substation. There is another transformer in the Wind Farm’s substation which increases the voltage of the electricity again to match the voltage (132 kV) of the transmission line that goes to the Marulan substation.

42. [113]

    I also find that the switchroom building, components of the switchyard, emergency generator, Control Building and met masts are all very strongly affixed to the land:

    1. (1)

       The switchyard consists of components which have individual concrete footings. Underneath the concrete there is an earthing grid. Within the switchyard is the switchroom building. A substation is also located within the switchyard. The main transformer is part of the substation.

    2. (2)

       There are eight met masts and a television re-transmitter on the site. The masts (with upper measurement heights of 80m) are used to collect wind data.

    3. (3)

       The foundation for the Control Building was poured on site and is a concrete slab.

    4. (4)

       There is widespread fastening of the items to the concrete by bolts, bracing and fasteners. Apart from one section of overhead wiring, the 28 kilometres of cabling necessary to operate the Wind Farm is located underground, laid in thermal sand in trenches.

43. [114]

    Removal of the concrete foundations and cabling by digging and excavation will cause damage to the land. Many of the changes to the land will be permanent, in that the concrete foundation area of five metre diameter for each of the 51 WTGs will be left on the land below a depth of one metre. The access roads will be left in place. The removal of the 51 turbines is a very considerable task. It will take eight or 13 weeks, depending on whether the turbines are dismantled for the purposes of recycling/scrap or sale/re-use. Whilst there is a capacity to remove the turbines without destroying them, whether or not this method of dismantling occurs will depend on whether the items are intended to be re-used or recycled. There is no evidence before me that any items will be removed until decommissioning of the Wind Farm or the end of their working life. The expert called by SPIC, Mr Thomas, gave evidence that “[i]f the tenant removes the installations early or the benefit of the infrastructure expires earlier, then the tenant’s interest becomes less in value, not more.” This points to the unlikelihood of early removal. The plant and equipment are part of an integrated electricity generation facility the subject of a long term supply agreement which also points to the unlikelihood of early removal. There is 28 kilometres of underground cabling at the site. Removing the cables from the ground would result in damage to the cables so they would only have scrap value. I am not satisfied that any basis has been shown to conclude that any of the tenant’s fixtures will be removed until the end of their working life or the decommissioning of the Wind Farm, whichever comes first.

44. [115]

    As to the purpose of annexation, the following non-exhaustive list of factors is relevant:

    1. (1)

       whether the attachment was for the better enjoyment of the property generally or for the better enjoyment of the land and/or buildings to which it was attached: see Hobson v Gorringe [1897] 1 Ch 182 at 190; Leigh v Taylor at 158; Reid v Smith at 680-681; Litz at 57,550;

    2. (2)

       the nature of the property the subject of affixation: Metal Manufactures at [165];

    3. (3)

       whether the item was to be in position for a substantial period or temporarily: Coroneo at 712-713; and

    4. (4)

       the function to be served by the annexation of the item: see, for example, Attorney-General (Cth) v R T Co Pty Ltd (No. 2) (1957) 97 CLR 146; [1957] HCA 29 at 156-157 where printing presses were secured to a concrete foundation by nuts and bolts in order to keep the printing presses steady when in operation.

45. [116]

    I find that every item was fixed in place on the land for the better enjoyment by the tenant of the land as an integrated wind farm operated on the land. The Wind Farm was purpose-built after an extensive (18-year) wind study of the area establishing its suitability as a wind farm. The location of the WTGs was selected based on this wind assessment. A characteristic of the land was that 80 metres above the land the wind blew at a speed conducive to the operation of a wind farm.

46. [117]

    SPIC’s submissions on use of the land tended to focus on use of the land limited to the two-dimensional plane of the earth’s surface. The third dimension of land comprising the airspace above the land is also important here. As Professor Butt explains, [14] land is above all a spatial category. In Fleming’s The Law of Torts (10th ed, 2009, Thomson Reuters), the learned author says (at p 51):

47. [118]

    In the way described in Fleming, rules regulating land prescribe what may or may not be done above it, including the right of a tenant to make use of the airspace above the land. In this case, that use is made by annexing the plant and equipment to the land better to enjoy the wind passing immediately above the surface of the land.

48. [119]

    Each WTG has a design life of 20 years, primarily because of the design life of the blades, which is 20 years. That design life is specified in the turbine design contracts. Other components of the WTG, such as the foundations and the tower sections, would likely last more than 20 years. The items were fixed with the intention that they remain in position for, at least, a “substantial period” as described in Coroneo at 712. This is a factor tending in favour of characterisation as a fixture. I am satisfied on all of the evidence that the plant and equipment affixed to the land for the purposes of the wind farm was so affixed with the intention of being removed only when that plant and equipment had exhausted its useful life (or the wind farm was decommissioned).

49. [120]

    Whilst the terms of the relevant leases provide SPIC with its strongest argument that each item of the plant and equipment remained a chattel, I am not satisfied that the rights of removal during the lease terms and obligations of removal at the end of the leases give rise to any different conclusion. As I have explained by reference to AWF Prop Co 2, whilst the terms of the leases which were emphasised by SPIC are relevant, I do not regard them as determinative of the objective question of the purpose of the annexation. Under the private leases, TWF is obliged to remove the WTGs and any other works to a depth of one metre below the surface of the soil, save that it is not obliged to remove access roads. That is, the leases contemplate that plant and equipment will be affixed to the leased land and most but not all of the items affixed to the land removed at the conclusion of the lease. Similar conditions apply to the Crown lease. These obligations in the lease are consistent with my conclusion that the objective intention of the affixation was that the items would only be removed when the relevant plant and equipment had exhausted its useful life. There is also the right to remove plant and equipment throughout the term of the leases. The rights and obligations in the leases no doubt demonstrate that the parties to the leases have turned their minds to the question of rights of severance, ultimately to ensure that ownership of the plant and equipment to be installed on the property throughout the term of the lease will revert to the tenant upon severance and to the obligations of the tenant to remediate the land at the end of the lease. Those rights and obligations are relevant to, but not determinative of, the purpose of the affixation of the plant and equipment to the land. If those rights and obligations were determinative, there would be no need for the doctrine of tenant’s fixtures. As I have said, I am bound to conclude that the intention of the party making the improvement ultimately to remove it from the land, will not, by any means, be a controlling fact.

50. [121]

    As to the Development Consent, on termination, all components of the Wind Farm must be removed, save that concrete foundations need not be removed; vegetation and fences need not be removed except on request; and access roads, tracks or paths need not be removed except on request. The fact that the Development Consent contains such requirements upon decommissioning of the wind farm throws little light on the question of the purpose of annexation of the plant and equipment to the land. Development consent for commercial and industrial undertakings will typically involve a remediation requirement. I am not satisfied that, no matter how firmly relevant plant and equipment is affixed to the land and regardless of the objective purpose of the affixation, a requirement for remediation at the conclusion of commercial and industrial undertakings means that plant and equipment affixed to land is therefore not a fixture.

51. [122]

    I find that the 51 WTGs and their concrete foundations need to be considered as a whole. They are fixed where they are by refence to the place best suited to capture the wind so as to generate electricity. They are connected by underground electrical cabling. The distinction sought to be made by SPIC between the concrete foundations at depths less than one metre and more than one metre was artificial. The purpose of the annexation of the concrete foundations is the same whatever the depth. The WTGs, the Control Building, the components located in the switchyard and the 28 kilometres of cabling are essential and interconnected parts of the use of the land as a wind farm. I find that the components were all interconnected for the essential purpose of producing and selling electricity. Other items, such as the hardstands required for the construction and decommissioning of the Wind Farm, the emergency generator and the eight met masts that monitor weather conditions, all support and sustain the use of the land as a wind farm. I find that none of the items had a function or use independent of the wind farm operation conducted on the land.

52. [123]

    I find that the function served by the annexation of the items was the use of the land as a wind farm. The wind turbine generators need to be upright and 80 metres high in order to capture the wind. Hence, the concrete foundations are significant and the turbines are secured to those foundations so that they may stand and function upright safely and efficiently to capture the wind. The function of the annexation of each of the eight met masts (through guy wires and the connection of the masts to the ground by concrete) is to have the masts upright at the same height as the turbines so that wind and weather conditions can be monitored.

53. [124]

    In relation to the WTGs, I have concluded that:

    1. (1)

       They are installed on the land so that they may be used to generate electricity. They are installed so that the lessees may make better use of the land.

    2. (2)

       The objective intention with which the Wind Farm equipment was put in place on the leasehold land was to use and enjoy the land as a wind farm. The items were fixed with the intention that they remain in position for, at least, a “substantial period” as described in Coroneo. This use involved affixing the equipment to the land to harness the strong winds characteristic of the land in generating electricity and selling that electricity to a participant in the National Electricity Market.

    3. (3)

       As I have said, SPIC emphasised that the WTGs must be removed at the end of the leases by TWF and TWF may terminate the leases at any time. I find that the WTGs are there for the term of their effective life and their removal from the land before the end of that effective life is not on the evidence before me a realistic commercial possibility.

54. [125]

    It is in one sense true, as SPIC submitted, that all of the other plant and equipment installed on the land was ancillary to the use of the WTGs. I have found that the site is an integrated whole, chosen for its suitability and designed to harness the wind to produce electricity. The central feature of the Wind Farm is the 51 WTGs affixed to the land. I have concluded that all of the plant and equipment affixed to the land at the Wind Farm are fixtures.

55. [126]

    The object and degree of annexation is such as to make them fixtures. However, none of the items are so permanent, immovable or incapable of being removed without causing irremediable damage to the land so as to constitute landlord’s fixtures.

56. [127]

    It was common ground that “tenant’s fixtures” at common law are those installed for trade, domestic or ornamental purposes and which, accordingly, could in general be removed unless they are so firmly affixed that removal would destroy their essential character or value or would substantially damage the realty. The plant and equipment installed on the leased land are all tenant’s fixtures.

Issue 2 – To the extent that any plant and equipment installed on the leased land is a fixture, to what, if any, interest in land did this give rise on the part of the Holdco Land Trust (through its linked entities)?

1. [128]

   SPIC submitted that if the correct conclusion was that the plant and equipment comprised tenant’s fixtures, it would be necessary to consider what, if any, interest in land the Holdco Land Trust (through its linked entities) had with respect to the items in question.

2. [129]

   Although the parties addressed the issues before me as raising this question, I am not sure that it is correct. The immediate question before me is whether the interests in land acquired by the Holdco Land Trust through its linked entities had a value of over $2,000,000 such that it was a “landholder” as defined by the Duties Act. On SPIC’s case the interests in land acquired were the legal interests granted by the various leases. As I will explain, I accept SPIC’s submission as correct.

3. [130]

   The question then is the value of those leasehold interests. SPIC for this purpose relied upon the valuation prepared by the valuer called by the Commissioner, Mr Ross, who described the leasehold interests as having a nil value. As I will explain, I reject Mr Ross’ method of valuation and his conclusion about the value of the leasehold interest as essentially irrelevant to the task before me. Mr Thomas, the valuer called by SPIC, in one of his six scenarios, scenario two (explained below at [175]-[176]), produced a valuation of the leasehold interests of over $100 million on the assumptions that SPIC has a proprietary interest in the land arising from and governed by the terms of the applicable lease(s) and that the leasehold interests include the right to sever and remove the fixtures during the term of the lease and an obligation to do so upon its expiry.

4. [131]

   On the basis of Mr Thomas’ valuation methodology and evidence, which, with one very important exception (which materially increases the valuation) I accept, the Holdco Land Trust is a “landholder” and SPIC is obliged to pay duty. The outcome of the valuation question determines the amount of duty payable.

5. [132]

   Given that the parties chose, however, to address the question of the nature of the Holdco Land Trust’s interest in land at length, I will address the issues raised.

6. [133]

   SPIC accepted that the reasoning of the Western Australian Court of Appeal in Commissioner of State Revenue v TEC Desert Pty Ltd (2009) 40 WAR 344; [2009] WASCA 128 (TEC Desert (WASCA)) at [128] per Wheeler JA (with whom Newnes JA agreed) and [226] per McLure JA is to the effect that the right of a tenant to remove fixtures gives to the tenant an equitable interest in the land. In that case, Wheeler JA said at [128]:

7. [134]

   SPIC submitted that, even if this were correct, the nature of the equitable interest is limited, being, at most, an equitable interest in the fixture, co-extensive with the tenant’s right to come onto the land and remove the fixture: Melluish v BMI (No 3) Ltd [1996] AC 454 at 475 per Lord Browne-Wilkinson; Lees & Leech Pty Ltd v Commissioner of Taxation (1997) 73 FCR 136; [1997] FCA 404 at 149 per Hill J.

8. [135]

   SPIC pointed to the fact that TEC Desert (WASCA) was overturned by the High Court, albeit on other grounds, meaning that the Western Australian Court of Appeal’s reasoning is necessarily dicta. [15]

9. [136]

   This aspect of TEC Desert (WASCA) has been persuasively criticised on the basis that it is neither supported by authority nor correct in principle, there being no need as between tenant and landlord to recognise any equitable interest in the land separate from the tenant’s rights under the lease. [16] Thus, it was submitted that the contrary view expressed by the Western Australian Court of Appeal in TEC Desert (WASCA) should not be followed.

10. [137]

    SPIC submitted that even if the plant and equipment beyond the roads and tracks were fixtures, the fact that TWF had a right to remove those fixtures did not give the Holdco Land Trust any interest in land beyond TWF’s interest under the leases.

11. [138]

    The Commissioner submitted that a tenant’s right to access and remove fixtures is a right that is recognised and protected under the common law and equity, and has been recognised as giving the tenant an interest in land. [17] The Commissioner relied on both the common law and equitable entitlement as establishing the Holdco Land Trust as a “landholder”.

12. [139]

    The Commissioner submitted that the tenant’s right at common law to sever and remove fixtures that it has brought to the land confers on the tenant a legal right that is enforceable against the land to which the item is attached, referring to TEC Desert (HCA). In that case, at [25], French CJ, Gummow, Heydon, Crennan and Kiefel JJ said:

13. [140]

    This was said to include a right to access the land that is the subject of the lease and a right to use reasonable force to extricate the affixed chattels. The Commissioner pointed to the characterisation of this right being described variously as a “power coupled with an interest”, [18] a right akin to a profit à prendre, [19] something more than a bare personal right, and a transferable property right. [20] In Georgeski v Owners Corporation SP 49833 (2004) 62 NSWLR 534; [2004] NSWSC 1096, Barrett J said at [72]:

14. [141]

    The crux of the Commissioner’s submission was that, whilst the fixtures have become part of the realty, the tenant’s right to remove the fixtures constitutes a distinct interest in that realty. Once the right to removal is exercised, the interest in land becomes an interest in personal property. [21]

15. [142]

    The Commissioner submitted that whilst the issue has not been resolved by the High Court, the weight of authority favours the view that it is possible to pass (and that the plaintiff was passed, by virtue of the Acquisition) an equitable interest in fixtures in situ; i.e., fixtures unsevered from the land on which they stand. [22]

16. [143]

    The Commissioner pointed to the following statement by Hepburn and Jaynes in their article (at p 130):

17. [144]

    The right of a tenant to remove tenant’s fixtures was characterised by the Commissioner as a transferrable proprietary right which gives rise to an equitable interest in the land to which they are attached. It was said that this interest in land must be taken into account in determining whether the Holdco Land Trust is a “landholder” for the purposes of Part 4 of the Duties Act.

18. [145]

    The Commissioner concluded that the right is an interest in land, whatever its precise nature, that is capable of being sold, assigned or otherwise dealt with by the tenant. [23]

19. [146]

    Finally, the Commissioner submitted that if the tenant’s fixtures do not give rise to a separate interest in land, it was not in dispute that the Holdco Land Trust and its linked entities had legal interests in the land by virtue of its registered leases.

20. [147]

    The principal way the Commissioner puts this part of the case is that landholder duty is payable on the basis that a tenant who has installed fixtures on leased premises has two relevant “land holdings”, being:

    1. (1)

       a legal interest, comprising the leasehold interest in the land; and

    2. (2)

       a separate equitable interest in the land, which is said to arise from the tenant’s right to sever and remove fixtures installed by it on the premises, exercisable during or at the end of the lease.

21. [148]

    I have concluded that a tenant’s interest in unsevered leasehold improvements is a purely legal interest in land which arises from and is governed by the terms of the particular lease and rights under the common law.

22. [149]

    Legal title to a tenant’s fixture is in the landlord until the tenant chooses to exercise the power to sever it. Where a tenant brings chattels onto leased land, and the chattels become fixtures under accepted general law tests, they become part of the realty, and hence, the property of the landlord: TEC Desert (HCA) at [25]. The landlord’s legal ownership of a tenant’s fixture is qualified by the tenant’s common law right of severance and removal in the case of fixtures installed by the tenant for, in this case, trade purposes, as well as any contractual right to remove the fixtures allowed for under the terms of the lease: Vopak (FCA) at [67].

23. [150]

    I accept 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. The possibility of an assignment of fixtures under the common law by a landowner was considered in obiter by Carr J in Eastern Nitrogen at [45]-[50]. In TEC Desert (HCA), the High Court did not consider the efficacy of such a transaction at law, although it noted the “unsettled state of authority” on the question: TEC Desert (HCA) at [52] and fn 71. It is unnecessary for me to attempt to resolve that issue in this case as regardless of the outcome no separate interest in land is engaged.

24. [151]

    There are cases which have recognised rights of third parties in some limited circumstances to access or remove unsevered fixtures. These arose from the need to protect or enforce rights under contractual arrangements in circumstances where the third party had no rights of access to the fixtures at law. The high point of the Commissioner’s case on this issue, TEC Desert (WASCA), concerned a purported sale and licensing by WMC Resources Ltd to TEC Desert Pty Ltd of power-generation assets situated on WMC’s mining tenements and on freehold land. The ultimate question was whether the sale was chargeable with duty under the Stamp Act 1921 (WA) as a conveyance of fixtures and, thus, of an estate or interest in land. The Court held that, in equity if not in law, it was possible for the owner of fixtures to sell them to a third party separately from the land. TEC’s argument on appeal was that, if it is possible to sell fixtures separately from the land to another person, such a sale is not a sale of an estate or interest in land. TEC relied on a line of 19th-century English cases, including Hallen v Runder and Lee v Gaskell (1876) 1 QBD 700, as well as McDonald’s Australia Ltd v Chief Commissioner of State Revenue [2005] NSWSC 6; (2005) 58 ATR 260. These cases held that where a tenant disposes of unsevered tenants’ fixtures to a landlord, there is no sale of an interest in land (or goods), but rather a waiver of the tenant’s right of severance and removal. Wheeler JA stated that although the position was “by no means clear”, Hallen v Runder and Lee v Gaskell were “against the weight” of other authorities and were “unreliable”: at [127]. Her Honour concluded that “WMC’s interest in Fixtures, which it had annexed to its mineral leases, may be described as an equitable interest in land, and was capable of being sold to TEC”: at [128]. For Wheeler JA, the case with the greatest factual relevance was Eon Metals NL v Commissioner of State Taxation (WA) (1991) 22 ATR 601. McLure JA concluded that a tenant’s right to claim and remove tenant’s fixtures gives rise to an equitable interest in the land to which they are attached: at [226]. McLure JA also stated that the characterisation of the licensee’s interest in Georgeski “is consistent with the analysis of Ormiston J in Vopak (FCA) and Emmett J in Metal Manufactures”: at [226].

25. [152]

    With unfeigned respect, I disagree with the analysis of Wheeler JA (with whom Newnes JA agreed) and McLure JA in TEC Desert (WASCA). The authorities relied upon do not seem to me to support the conclusion about the nature of a tenant’s interest in removing tenant’s fixtures giving rise to an equitable interest in the land. As TEC Desert (WASCA) was overturned in the High Court, albeit not on the fixtures point, I am not bound to follow the decision of the Western Australian Court of Appeal.

26. [153]

    It is unclear why, during the term of the lease, it would be necessary for equity to intervene to protect the tenant’s right to sever and remove tenant’s fixtures. The tenant has exclusive possession of the land (including the items annexed to it). The tenant’s interest is a leasehold estate or interest in the land, including the fixtures. The tenant is the owner of this leasehold estate or interest, legally and beneficially. It is not correct to say that the tenant holds separate legal and equitable interests in the land or any part of it. The submission seems to me to be inconsistent with the decision of the High Court in DKLR Holding Co (No 2) Pty Ltd v Commissioner of Stamp Duties (New South Wales) (1982) 149 CLR 431; [1982] HCA 14 at 442-443; 463 and 474.

27. [154]

    Professor Butt has commented about the notion of a separate equitable interest in land comprised by a right to remove fixtures:

28. [155]

    I agree. A tenant’s interest in unsevered leasehold improvements is a legal interest in land which arises from and is governed by the terms of the particular lease and rights under the common law.

Issue 3 – Having regard to the answers to issues 1 and 2, was the Holdco Land Trust a landholder?

1. [156]

   The market value of the relevant freehold land at the time of the Acquisition was only $750,000. SPIC submitted that, if the other items of Wind Farm plant and equipment did not constitute fixtures, the only evidence as to the value of the leases was that of Mr Ross, who valued them at “nil”. Were this the case, the land holdings of the Holdco Land Trust would have a threshold value of less than $2,000,000 and it would not be a “landholder” within the meaning of s 146(1) of the Duties Act.

2. [157]

   As I have explained, Mr Thomas, the expert called by SPIC, valued the leasehold interests on the correct assumption that the plant and equipment installed at the Wind Farm constitute fixtures, which may be removed at any time by the leaseholder and must be removed at the conclusion of the leases. He valued the Holdco Land Trust’s interests in land, limited to the leasehold interests, on this basis as over $100 million; well over the $2,000,000 threshold. As I will explain, I accept Mr Thomas’ methodology and, with one important exception, his application of that methodology. Despite my rejection of the Commissioner’s principal submission that the tenant’s fixtures gave rise to an equitable interest in land, Mr Thomas’ evidence provides a firm basis to conclude that the Holdco Land Trust was a “landholder” within the meaning of s 146(1) of the Duties Act.

Issue 4 – How are any interests in land on account of fixtures to be valued?

1. [158]

   In assessing the question of the value of Holdco Land Trust’s land holding, the starting point must be the statutory scheme of Ch 4 of the Duties Act. The Duties Act “provides the legal context in which the valuation exercise is to be undertaken and that context determines the relevant principles of valuation to be applied”: Commissioner of State Revenue (WA) v Placer Dome Inc (2018) 265 CLR 585; [2018] HCA 59 per Kiefel CJ, Bell, Nettle and Gordon JJ at [13], citing Federal Commissioner of Taxation v Resource Capital Fund III LP (2014) 225 FCR 290; [2014] FCAFC 37 at [47]. As the majority in Placer Dome made clear at [16], it is the statutory context and the purpose for which the values are to be determined which must be discerned.

2. [159]

   In Placer Dome, the Stamp Act 1921 (WA) at issue in that case defined “land” at the relevant date (being 4 February 2006: at [32]) as follows (s 76(1)):

3. [160]

   The Duties Act at the time at issue here did not include a similar definition of land. The Dictionary to the Duties Act provides only: “land includes a stratum.” The Duties Act has since been amended to insert s 147A, which more closely reflects the definition of land in the Stamp Act (WA). As I have explained, s 147A of the Duties Act was not in force at the relevant time for this case. [25]

4. [161]

   In the context of an entity which is operating as a going concern, the High Court in Placer Dome emphasised that the statutory valuation exercise there engaged required identification of the land as part of a going concern. As the High Court said at [102]:

5. [162]

   The judgment of Gageler J highlighted that where a valuation methodology applied by a taxpayer leaves a large gap between the valuation placed on the entity’s land assets and the purchase price paid for the entity, this gap necessarily raises a question about the reliability of the valuation. At [149], Gageler J said:

6. [163]

   In Resource Capital Fund III LP, the Full Court of the Federal Court (Middleton, Robertson and Davies JJ) addressed the question of valuation in the context of taxable Australian real property (TARP). The critical question in that case was whether the assets of an entity should be valued on the basis of their assumed simultaneous sale to the same hypothetical purchaser (which achieved a much higher value for all of the assets, including the taxable real property), or as stand-alone separate sales (which achieved a much lower value for all of the assets, including the taxable real property): at [52].

7. [164]

   If the stand-alone separate sales approach was adopted, the sum of the market values of the assets of an entity in which the Resource Capital Fund had sold shares that were TARP would not exceed the sum of the market values of the entity’s assets that were not TARP assets: Income Tax Assessment Act 1997 (Cth), s 855-30(2).

8. [165]

   On the critical question of whether the stand-alone separate sales approach was the appropriate method of valuation, the Court said, at [50]-[52], that:

9. [166]

   I have concluded that the statutory valuation exercise here engaged required identification of the value of the relevant interests in land as part of a going concern. In valuing the “land holdings” of the landholder identified by s 147, an interest in land is to be valued in the context of a hypothetical sale of a going concern where the hypothetical purchaser will also have access to and receive the benefit of other assets of the landholder which affect land value.

10. [167]

    In the statutory context of the Duties Act and by reference to the statutory purpose for which the value of the land holding is to be determined, the relevant task is to ascertain the value of the Holdco Land Trust’s land holdings upon the event of the sale to the same hypothetical purchaser of the other assets of the landholder (and its linked entities) which affect land value as part of a going concern. That outcome ensures consistency with the going concern principle identified by the High Court in Placer Dome and the helpful analysis, albeit in a different context, in Resource Capital Fund III LP.

11. [168]

    For relevant purposes under Ch 4 of the Duties Act, the value of the Holdco Land Trust’s land holding in respect of the leases is the unencumbered value of its land holding, determined in the same way as for dutiable property under Ch 2 of the Duties Act: s 146A(7). Duty is payable on a “relevant acquisition”: s 148, Duties Act. A “relevant acquisition” is defined in s 149 of the Duties Act. This is an important starting point for addressing the statutory context. The relevant task is to ascertain the value of the Holdco Land Trust’s land holdings upon the event of their sale. That is an indication that the going concern principle is relevant in determining value. Section 23(1) of the Duties Act provides that “the unencumbered value of dutiable property is the value of the property determined without regard to any encumbrance to which the property is subject”. This definition is generally accepted as representing “market value”, meaning the principles in Spencer v The Commonwealth (1907) 5 CLR 418; [1907] HCA 82 are to be applied.

12. [169]

    In valuing the Holdco Land Trust’s land holding, the hypothetical willing but not anxious vendor for the purposes of the Spencer test is the tenant. I have found that the Holdco Land Trust’s land holding interest in land is comprised by its rights under the leases including the right to remove, during or at the end of the leases, the plant and equipment affixed to the land. As I have found, plant and equipment was affixed to the relevant land as part of the long-term use of the site as a commercial or industrial plant operated at the relevant time as an integrated whole.

13. [170]

    SPIC submitted that Mr Thomas’ approach to valuation should be preferred. With one critical qualification, I agree. Mr Thomas explained his approach in his report dated 23 November 2018 as involving the following steps:

    1. (1)

       having regard to the unencumbered value of the plant and equipment as at the date of the Acquisition, Mr Thomas estimated what it would cost to rent that plant and equipment each year. By comparing this to the much lower actual rental paid under the leases each year, he determined the per annum value of the right to use the plant and equipment during the term of the leases;

    2. (2)

       Mr Thomas then calculated this value to the tenant over the unexpired term of the leases at the time of the Acquisition, discounted to “present” value as at the date of the Acquisition; and

    3. (3)

       he then deducted from this the expected costs to the tenant to remediate the site, again discounted to present value as at the date of the Acquisition.

14. [171]

    Using the methodology he described, Mr Thomas finally valued the relevant interests in land at $106,501,078. [26]

15. [172]

    As I have said, the Commissioner’s primary position was that the value of the interest in the land arising from the right to access and remove the fixtures is the unencumbered value of the fixtures as at the date of the Acquisition: i.e., the agreed asset value. This is because the Commissioner sought to value a different interest in land of the kind recognised by the Western Australian Court of Appeal in TEC Desert (WASCA), being an equitable interest in the land to come onto the land and remove the fixtures during the currency of the lease. The Commissioner’s case was that a hypothetical purchaser of the right to remove the fixtures would expect to pay, and the vendor would expect to receive, the market value of the affixed plant and equipment, as goods, at the time of sale. As I have explained, I am unable to accept the submission that the right to remove fixtures, granted by a lease, gives rise to a separate equitable interest in land to remove those same fixtures. As I have explained, I am unable to accept the approach of Wheeler JA (with whom Newnes JA agreed) and McLure JA in TEC Desert (WASCA) which the Commissioner adopted.

16. [173]

    The Commissioner is correct that the date of valuation, 12 May 2016, was within 12 months of the practical completion of the Wind Farm, and that all of the equipment I have found to be fixtures would have a substantial value even after the costs of removal of those items were accounted for. To so conclude is not to recognise any separate equitable interest in land.

17. [174]

    A critical part of my reasoning in accepting the Commissioner’s submission that the plant and equipment in question were fixtures is that the items were affixed to the land to better enjoy that land as an integrated electricity generating facility. Why equity would intervene to protect the tenant’s right to remove the items when that right was adequately secured by a lease was never satisfactorily explained.

18. [175]

    It is necessary to explain in some detail the approach of Mr Thomas, who was asked to value SPIC’s interests in the land in each of the following scenarios:

    1. (1)

       Scenario one: SPIC has a proprietary interest in the land arising from and governed by the terms of the applicable lease. The leasehold interest includes the right to sever and remove the fixtures during the term of the lease.

    2. (2)

       Scenario two: SPIC has a proprietary interest in the land arising from and governed by the terms of the applicable lease. The leasehold interest includes the right to sever and remove the fixtures during the term of the lease and an obligation to do so upon its expiry.

    3. (3)

       Scenario three: SPIC has a proprietary interest in the land arising from and governed by the terms of the applicable lease. In addition, SPIC has a proprietary interest in the fixtures, comprising the right to sever and remove the fixtures during the term of the lease.

    4. (4)

       Scenario four: SPIC has a proprietary interest in the land arising from and governed by the terms of the applicable lease. In addition, SPIC has a proprietary interest in the fixtures, comprising the right to sever and remove the fixtures during the term of the lease and an obligation to do so upon its expiry.

    5. (5)

       Scenario five: SPIC has a proprietary interest in the land arising from and governed by the terms of the applicable lease. In addition, SPIC has a proprietary interest in the land of which the fixtures form part, arising from and comprising the right to sever and remove the fixtures during the term of the lease.

    6. (6)

       Scenario six: SPIC has a proprietary interest in the land arising from and governed by the terms of the applicable lease. In addition, SPIC has a proprietary interest in the land of which the fixtures form part, arising from and comprising the right to sever and remove the fixtures during the term of the lease and an obligation to do so upon its expiry.

19. [176]

    Scenario two identified the interest in land consistently with the findings I have made. SPIC had a proprietary interest in the land arising from and governed by the terms of the applicable lease. The leasehold interest included the right to sever and remove the fixtures during the term of the lease and an obligation to do so upon its expiry. Given Mr Thomas’ conclusions (which were identical in all scenarios), little turns on which scenario is selected.

20. [177]

    The valuation methodology adopted by Mr Thomas was as follows:

21. [178]

    Mr Thomas valued SPIC’s interest in the land as follows:

22. [179]

    An important matter to note at this stage is that Mr Thomas’ methodology, in determining the component parts of his “profit rental”, relied upon “the market rental for assets such as wind farms and solar farms [which] is typically within the range of 8.5% to 11% of market value”; that is, in ascertaining the correct “profit rental”, Mr Thomas treated the correct approach to valuation of the Holdco Land Trust’s land interests as being part of a going concern – a wind farm or a solar farm. As I will explain, however, in adopting the discount rate to be applied in his valuation model, Mr Thomas adopted a different assumption about whether the valuation he was conducting was the sale of interests in land in the context of a going concern.

23. [180]

    Mr Thomas ultimately calculated the same amount, $106,501,078, for each scenario. As Mr Thomas explained:

24. [181]

    Mr Ross in his reports, and on the hypothesis that the valuation of plant and equipment methodology he adopted was rejected, accepted that the profit rent methodology adopted by Mr Thomas was an appropriate methodology to use to value the interests in land. In the application of that methodology, however, Mr Ross criticised Mr Thomas’ selection of the 20% discount rate in reaching his valuation. On the assumption that the Court regarded Mr Thomas’ methodology as the appropriate one to use, Mr Ross explained that while there were a number of minor differences between Mr Thomas and Mr Ross, the only significant or dispositive difference was in relation to the discount rate adopted.

25. [182]

    I find that Mr Thomas’ methodology and its application is correct, with one important exception. Mr Ross criticised the discount rate adopted by Mr Thomas’ model. In his third report of 8 November 2019 he stated:

26. [183]

    The experts were directed to confer and produce a joint report. In their first joint report Mr Thomas and Mr Ross explained:

27. [184]

    Mr Thomas explained the calculations thus:

28. [185]

    In addressing the different approaches to the selection of an appropriate discount rate, the joint expert report contained the following useful description:

29. [186]

    The critical issue of the discount rate adopted in the valuation model was explained in the following passages, first by Mr Thomas:

30. [187]

    Mr Ross’ explanation for adopting a lower discount rate of between 6.5% to 9.5% was as follows:

31. [188]

    Why the discount rate adopted is dispositive was explained by Mr Ross:

32. [189]

    I accept Mr Ross’ criticisms of the 20% discount rate selected by Mr Thomas. As I have explained, Mr Thomas said in the conclave the figure he arrived at ultimately was $106,501,078. In the conclave the following evidence was given:

33. [190]

    The extent to which Mr Thomas’ valuation rested on an assumption that the transaction was a theoretical transaction and not a market transaction in the context of a sale of all of the assets of the wind farm was readily exposed in cross-examination:

34. [191]

    As Mr Thomas explained in the joint report, he “expresses no opinion as to what his assessment means in the context of the actual transaction”.

35. [192]

    Mr Thomas explained that the selection of a 20% discount rate was not arrived at by analysis of comparable sales, but rather from just “my experience.” I asked Mr Thomas about that experience and he gave the following explanation:

36. [193]

    I find that Mr Thomas has produced a valuation involving a transaction that he readily agreed would not have occurred in the real world. That is reflected in the selection of a discount rate of 20%. A higher discount rate is selected where there is a higher risk. Mr Ross gave evidence, which I accept, that a 20% discount rate signifies very significant risks attaching to the transaction. I am not satisfied that any risk warranting the use of a 20% discount rate was identified in the evidence. The selection of a discount rate of 20% is also inconsistent with Mr Thomas’ selection of a market rental for assets such as wind farms and solar farms within the range of 8.5% to 11% of market value which he used to ascertain the correct “profit rental”. I find that Mr Thomas’ approach to identifying the “profit rental” of the Holdco Land Trust’s land interests as being part of a going concern was correct but that his selection of a 20% discount rate based on a sale, not being part of the disposal of a going concern, was not.

37. [194]

    A transaction involving transfer of the interests being valued in this case actually took place. SPIC, the entity which acquired all of the wind farm assets, including the interests in land, plainly understood that the assets being acquired were highly depreciable and could incur unknown costs of repair and maintenance and the potential reinvestment of funds (being the principal matters Mr Thomas identified as warranting a 20% discount rate). SPIC, in its financial modelling which was before me, understood the risks associated with these assets. As Mr Ross explained:

38. [195]

    I accept Mr Ross’ evidence that the implied discount rate used by SPIC in its arms-length acquisition of all of the assets of the Wind Farm was 6.5% to 9.5%. This real-world transaction, involving the same assets, provides an appropriate range of discount rates to use in valuing the relevant interests in land here. SPIC, at arms-length, transacted at that implied discount rate when acquiring these interests in land as part of a going concern. I have concluded that the statute contains no express or implied requirement to disregard this real-world transaction. To the contrary, the selection of a discount rate of between 6.5% and 9.5% is consistent with the principle derived from the High Court decision in Placer Dome and the Full Federal Court in Resource Capital Fund III LP; that the value of the Holdco Land Trust’s land holdings should be determined as part of the sale of a going concern.

39. [196]

    I reject SPIC’s criticism of Mr Ross that his approach to the discount rate to be used in Mr Thomas’ model is somehow inconsistent with the task required by the statute:

40. [197]

    I accept, however, as SPIC submitted, that Mr Ross had not conducted a separate valuation beyond analysis of the reasonableness of the inputs to Mr Thomas’ valuation model. Despite some suggestions in cross-examination to the contrary, Mr Ross was well qualified to do so. SPIC is correct, however, in submitting that Mr Ross has identified a range of applicable discount rates. SPIC is entitled to a value at the top of the range identified by Mr Ross in the absence of evidence to the contrary that, for example, a mid-point should be chosen:

41. [198]

    The real difference between Mr Thomas and Mr Ross about the selection of the discount rate is explicable by reference to context and whether they sought to examine the risk of the transaction reflected in the discount rate as part of an overall transaction involving a sale of the going concern or as part of a stand-alone transaction:

42. [199]

    As I have explained, Mr Ross’ approach to ascertaining an appropriate discount rate better conforms to the valuation task required by the statute which I have explained at [158]-[168] above.

43. [200]

    SPIC bears the onus of persuading me that the Commissioner’s assessment was excessive. As I have explained, I reject the Commissioner’s principal submission that the valuation question is to be determined by reference to an equitable interest in land arising by reason of the right to remove the fixtures on the land. I have also rejected the adoption of the value of the plant and equipment as an appropriate valuation methodology.

44. [201]

    I find that Mr Thomas’ valuation in scenario two addresses the correct legal interest in land. I am not satisfied, however, that Mr Thomas’ conclusion of a value of $106,501,078 has been proven. As I have explained, in the context of the Duties Act, the relevant valuation task is to be conducted on the basis that an interest in land is to be valued in the context of a hypothetical sale of the land holding as part of a going concern where the hypothetical purchaser will also have access to and receive the benefit of other assets of the landholder (and its linked entities) which affect land value. As the going concern value of the enterprise (of which the land forms an integral part) may inhere in the value of the land, there is no statutory or other warrant for stripping going concern value out. It is part of the value of the land.

45. [202]

    Mr Thomas did not conduct such an exercise but, rather, on instructions, engaged in a valuation exercise about a hypothetical transaction that he cogently explained to me would never have occurred in the real world.

46. [203]

    I find that the 20% discount rate selected by Mr Thomas was the product of his assuming that the hypothetical sale of the land holding interest was not one where the going concern was sold and the hypothetical purchaser would also have access to and receive the benefit of other assets of the landholder which affect land value. This, I have found, was an incorrect approach in the context of the Duties Act.

47. [204]

    By reason only of his adoption of a 20% discount rate, I am not satisfied that Mr Thomas’ valuation provides a basis to draw any reliable conclusion about value. Mr Thomas’ repeated, and persuasive, answers in cross-examination where he stated that he could think of no reason why a tenant enjoying the benefits he was asked to assume would sell its land holding interest rather highlights the artificial nature of the sale transaction he has been asked to assume for his valuation. Mr Thomas modelled a sale that does not include a willing but not anxious vendor and purchaser, but rather assumed (as he put it) a sale under financial distress of a land holding asset divorced from the context of the benefits of the other assets relevant to the interest in land which affect the value of those interests.

48. [205]

    I find that Mr Ross’ selection of a range of discount rates of 6.5% to 9.5% drawn from an analysis of the model SPIC used to purchase its interest in the Wind Farm reflects the real risks of the relevant transaction that the Duties Act required to be valued; that is, a sale of the Holdco Land Trust’s land holding in a context where by reason of a sale of the interests as part of the sale of a going concern the hypothetical purchaser will also have access to and receive the benefit of other assets of the landholder which affect land value.

49. [206]

    I accept, as SPIC submitted, that Mr Ross did not perform a separate valuation but rather attacked one input in Mr Thomas’ valuation model. I am persuaded that SPIC has proved the figure produced by Mr Thomas’ valuation, substituting the top of the range of discount rates identified by Mr Ross for the 20% discount rate adopted by Mr Thomas. All other things in Mr Thomas’ model being equal and using a 9.5% discount rate, the correct value of the Holdco Land Trust’s (and its linked entities’) interests in land is $201,621,227. [27]

50. [207]

    Accordingly, I am satisfied that SPIC has demonstrated that the amount of $223.6 million which was the value of the interests in land forming the basis of the Commissioner’s assessment was excessive and SPIC is entitled to an amended assessment on the basis that the relevant interests in land were correctly valued at $201,621,227.

Issue 5 – Is the power under s 163G of the Duties Act available and, if so, should it be exercised?

1. [208]

   The final issue is the possible application of s 163G of the Duties Act which provides:

2. [209]

   SPIC submitted that it was possible that a conclusion could be reached as to particular items of plant and equipment being fixtures and as to the value of the interests in land thereby arising which in combination would enliven the power under s 163G of the Duties Act. In that event, SPIC submitted that the power in s 163G should be exercised.

3. [210]

   I have concluded that on the facts I have found, s 163G has no relevant application. The basis of SPIC’s claim is that the Holdco Land Trust owns goods which can be disregarded under s 163G of the Act in determining the duty chargeable. I do not agree. As I have explained, the items that SPIC characterises as “goods” are fixtures. I accept that the proper characterisation of those items is as “tenant’s fixtures” but that does not mean that the items are “goods”. I reject the application of s 163G on the facts of this case.

4. [211]

   I am not satisfied that the unencumbered value of all goods in New South Wales of SPIC comprises not less than 90% of the total unencumbered value of all land holdings and goods in New South Wales of SPIC.

Costs

1. [212]

   Although SPIC failed in a good deal of its attack upon the Assessment, it nevertheless succeeded in demonstrating that the Assessment was excessive. I considered treating the issues as severable such that a set off in relation to costs would be appropriate but have tentatively concluded that such an approach is unnecessarily complex here. SPIC succeeded in a number of its principal arguments. It is entitled to succeed in having the Assessment revoked and is entitled to a fresh assessment for a lesser amount. I will, however, give the parties a brief opportunity to make written submissions about the form of orders I should make, including as to costs.

Conclusion and orders

1. [213]

   But for the submission made by SPIC, which I accept, that I should invite additional written submissions about the form of orders I should make, the orders I would have made are as follows:

   1. (1)

      Pursuant to s 101(1)(a) of the Taxation Administration Act 1996 (NSW), revoke the Duties Notice of Assessment No 1656952346 dated 21 July 2017;

   2. (2)

      Pursuant to s 101(1)(d) of the Taxation Administration Act 1996 (NSW), remit the matter to the defendant for determination in accordance with the Court’s reasons, namely that the assessment of duty to the plaintiff is based upon a valuation of $201,621,227 of the interests in land;

   3. (3)

      The defendant repay the plaintiff any amount already paid pursuant to the Notice of Assessment No 1656952346 dated 21 July 2017 in excess of the amount of the further assessment the subject of order (2), plus interest;

   4. (4)

      The defendant pay the plaintiff’s costs.

2. [214]

   In deference to SPIC’s submission that I seek further submissions before making orders I direct:

   1. (1)

      The plaintiff to file with my associate written submissions about the form of the orders to be made based on these reasons (not exceeding 3 pages) by 4pm on 26 April 2021;

   2. (2)

      The defendant to file written submissions about the form of the orders to be made based on these reasons (not exceeding 3 pages) by 4pm on 30 April 2021;

   3. (3)

      The plaintiff to file with my associate written submissions in reply about the form of the orders to be made based on these reasons (not exceeding 2 pages) by 4pm on 4 May 2021.

3. [215]

   My expectation is that upon receipt of those written submissions I will then be in a position to make orders. If either party desires an oral hearing about the form of orders to be made they should explain why this is a necessary course in their written submissions.