Big Ben Holdings Pty Limited v Chief Commissioner of State Revenue

1. [1]

   The issue in dispute is whether the corporate reconstruction exemption in s 273B of the Duties Act 1997 (NSW) (the Duties Act) is available in respect of the transfer of certain interests in land from SRI Corporation Pty Ltd (SRI) to its wholly-owned subsidiary, the plaintiff. This issue is best approached by way of the basic facts, which are not in contest.

The facts

1. [2]

   The plaintiff, sometimes referred to as BBH, is the head company of a tax consolidated group known as The Bloomfield Group (TBG). One of the companies in the group, Bloomfield Collieries Pty Ltd (BCPL) operates the Bloomfield Colliery, an open cut coal mine about 30km from the Port of Newcastle. As at 2023, BCPL had regulatory approval to operate the mine until 2030. It had also applied for consent to extend the life of the mine until 2035.

2. [3]

   The coal produced at the mine is transported to Port Waratah in Newcastle via a rail loop that connects to the Great Northern Railway. The rail loop passes over three contiguous lots of land located on Four Mile Creek Road. In 2023, that land was owned by SRI, Philcant Nominees Pty Limited (Philcant) and Dudley Project Pty Ltd (Dudley) as tenants in common in equal shares. Philcant and Dudley are independently owned entities that are not part of TBG. SRI is a member of TBG, and the plaintiff is a wholly-owned subsidiary of SRI. In these reasons, when I refer to TBG I mean the entities which together are treated as members of the tax consolidated group.

3. [4]

   SRI, Philcant and Dudley owned the land subject to the terms of a Co-ownership Agreement which gave rise to the Dudley Farm Partnership (the Partnership). That agreement required the parties to contribute capital and to take profits in equal shares. No party was entitled to transfer its interest in the land without the approval of the other parties and the other parties had a right of first refusal in respect of the interest of any party wishing to sell. Sale to a third party could only occur on terms that the third party become a party to the Co-ownership Agreement.

4. [5]

   TBG was entitled to access the land under leases between SRI, Philcant and Dudley as lessors and BCPL as lessee. All up, BCPL paid about $1,000,000 each year in rent. The leases were due to expire on 31 December 2023. On 7 September 2023, BCPL exercised options to renew the leases for a 5-year period expiring on 31 December 2028. There were no further options to renew.

5. [6]

   The fact that the leases were renewed to 31 December 2028 without any further option for renewal created a commercial issue for BCPL (and TBG generally) because it had approval to operate the mine through to at least 2030 and, pending approval, to 2035. This meant that the Partnership, which was majority controlled by third parties, had the power to extract an outsized economic bargain for access to the land, at least for the balance of the period of the operation of the mine. As the defendant submitted, ‘understandably, TBG sought to resolve this chronic problem before it became acute’.

6. [7]

   The plaintiff had expressed interest in acquiring the land from at least as early as 2018. In separate letters to Philcant and Dudley dated 19 September 2018, the CFO and Company Secretary of the plaintiff, Ms St George, wrote:

7. [8]

   The proposed purchase price was $2,089,000 as a GST-free supply of a going concern, but quite how the parties could have treated such a transaction as a GST-free supply of a going concern was not explained. In any event, the offer was not accepted.

8. [9]

   There were further negotiations in 2023, commencing with a draft offer dated 5 April 2023 to ‘Dudley Farm Partnership members’ by which TBG proposed an untangling of the co-ownership and partnership arrangement. This led to the preparation of a draft memorandum of understanding between, inter alia, Dudley, Philcant and SRI. The draft, as of 27 November 2023, recorded:

9. [10]

   According to this draft proposal, SRI would leave the partnership and there would be an exchange of interests in land, such that SRI would acquire those parts of the land required for rail access and the other partners would acquire the remaining parts of the land for the purpose of development.

10. [11]

    The draft memorandum of understanding was not finalised. Instead, on 15 December 2023, Philcant and Dudley offered to sell their respective one-third interests in the land for the price of $24 million, being $12 million for each one-third interest. The letter was sent by Ms Thomson on behalf of Philcant and Dudley to Mr Richards, Chairman of TBG. Mr Richards communicated a counter-offer of $10 million for each one-third interest, which Ms Thomson accepted by a letter dated 26 December 2023.

11. [12]

    There followed some consideration by senior management of TBG as to how the transaction might be completed. In the course of late December 2023 and January 2024, management of TBG determined that the appropriate entity to acquire Philcant’s and Dudley’s interests in the land was the plaintiff. Management also determined that it was convenient and appropriate for the plaintiff also to acquire SRI’s interest in the land. The manner in which these decisions were made was as follows.

12. [13]

    Senior management of TBG gave consideration as to how such a transaction might be completed. On 28 December 2023, Mr Richards wrote to Ms St George regarding the sale, saying ‘I am thinking that [the plaintiff] would be the purchaser…in the first instance. Stage 2 will be moving the [SRI] across to [the plaintiff].’

13. [14]

    On 2 January 2024, Ms St George wrote:

14. [15]

    The reference to Tony was to Tony Wassaf, a solicitor advising TBG on the proposed arrangement. Mr Wassaf replied:

15. [16]

    Pausing here, it is apparent that so far as both Ms St George and Mr Richards were concerned, the entity that would finally own the fee simple in the land would be the plaintiff.

16. [17]

    On 3 January 2024, Ms St George wrote:

17. [18]

    The same day, she wrote:

18. [19]

    However, on 4 January 2024, Ms St George received advice that the first proposed transaction would not receive partition duty relief, and resolved for there to be a single transaction whereby the plaintiff purchased the whole of the interests of all three co-owners in a single transaction. Mr Wassaf said of this proposal:

19. [20]

    However, as Ms St George correctly pointed out, if the parties wished to ensure that the transaction could be treated as a GST-free supply of a going concern, it was necessary for all of the interests to be transferred in a single transaction. There followed some back and forth between them as to whose approach was preferable. In the end, Ms St George wrote:

20. [21]

    An accountant who was advising the plaintiff on the proposed transaction added:

21. [22]

    The defendant next emphasised the terms of the resolution passed by the plaintiff on 17 January 2024 prior to the execution of the land sale contract, which was relevantly in these terms (emphasis in original):

22. [23]

    On 25 January 2024, SRI, Philcant and Dudley entered into a contract to sell their respective interests in all three lots to the plaintiff subject to the existing leases for the sum of $30 million ‘in equal share to each vendor’. The land sale contract stated that it was the sale of land subject to existing tenancies. Special conditions provided for the assignment to the plaintiff of the vendors’ rights and obligations under the leases. The contract also stated that the sale was a GST-free supply of a going concern within the meaning of the A New Tax System (Goods and Services Tax) Act 1999 (Cth) (‘the GST Act’).

23. [24]

    The contract was completed on 31 October 2024 and a transfer was lodged following the payment of duty in the aggregate amount of $1,633,065.

The particular issues in dispute

1. [25]

   The dispute that emerges from these facts is whether duty was exigible in respect of the acquisition by the plaintiff of SRI’s one-third interest in the land. As at 25 January 2024, s 273B(1) of the Duties Act applied not to charge duty where the Chief Commissioner was satisfied that:

   1. (1)

      ‘the transaction is a corporate reconstruction transaction’ (as that phrase is defined in s 273C), as to which see s 273B(1)(a); and

   2. (2)

      the transaction ‘is undertaken for the purpose of…changing the holding of assets within a corporate group’, as to which see s 273B(1)(b).

2. [26]

   There is no doubt that the plaintiff and SRI were members of the same corporate group within the meaning of s 273E of the Duties Act.

3. [27]

   However, the Chief Commissioner formed the view that entry into the sale contract on 25 January 2024 involved a single dutiable transaction, being the sale by the vendors of the whole of the fee simple in the three lots. He took the view that what was said by Brennan J in Nullagine Investments Pty Ltd v The Western Australian Club Incorporated (1993) 177 CLR 635; [1993] HCA 45 (‘Nullagine Investments’) at 644 shows that a sale by all co-owners of land of their respective proportional interests in that land is a sale by them of a single interest, being the freehold estate. That being so, and given that the parties to the January 2024 sale included Philcant and Dudley who are not members of the corporate group, the Chief Commissioner formed the view that the transaction was not a corporate reconstruction transaction and so the requirement in s 273B(1)(a) was not satisfied.

4. [28]

   The first issue in dispute concerns the correctness of this reasoning. This being a review pursuant to s 97 of the Taxation Administration Act 1996 (NSW), the plaintiff contends that the relevant dutiable transaction was the sale by SRI of its one-third interest in the land to the plaintiff and that I should be satisfied that this dutiable transaction was a corporate reconstruction transaction.

5. [29]

   The Chief Commissioner also formed the view that the transaction was not undertaken for the purposes of ‘changing the holding of assets within a corporate group’. He took the view that no part of the 25 January 2024 land sale agreement was undertaken for the purpose of moving SRI’s interest to the plaintiff. Rather, he concluded that the purpose for which SRI entered into the transaction to sell its one-third interest in the lots to the plaintiff was for the plaintiff to acquire the other two-thirds interests in the lots from Philcant and Dudley, and to obtain the commercial benefits associated with that acquisition.

6. [30]

   The second issue concerns the correctness of this reasoning. It only arises if I am otherwise satisfied that the relevant dutiable transaction was the transfer of SRI’s one-third interest in the land to its wholly-owned subsidiary, being the plaintiff, and if that transaction was a corporate reconstruction transaction. If it was, then the second issue is whether I am satisfied that that transaction (namely, the transfer of SRI’s interests in the land to the plaintiff) was entered into for the purpose of changing the holding of assets with a corporate group.

The statutory framework

1. [31]

   Section 8 of the Duties Act relevantly provides as follows:

2. [32]

   The expression ‘dutiable property’’ is defined in s 11:

3. [33]

   The expression ‘land’ in the Duties Act includes a ‘stratum’ (see the Dictionary) and also includes any estate or interest in land: see Trust Company Limited v Chief Commissioner of State Revenue [2007] NSWCA 255; (2007) 70 ATR 505 at [49] (Giles JA).

4. [34]

   In CTI Joint Venture Company Pty Ltd v Chief Commissioner of State Revenue [2013] NSWSC 20; (2013) 87 ATR 709 at [23] and [25]-[27], Gzell J made the following observations about the meaning of ‘transfer’ and ‘sale’ in s 8:

5. [35]

   In Favotto Family Restaurants Pty Ltd v Chief Commissioner of State Revenue [2020] NSWSC 120; (2020) 111 ATR 283, Ward CJ in Eq applied these principles in concluding that there was no transfer (on the particular facts of that case) because, as the plaintiff in that case submitted (see [159]), ‘… a transfer requires that there be the same rights as held by one party being passed to and vested in another party so that the second party holds the same right or interest as the first party did’. Her Honour accepted that submission at [171].

6. [36]

   I also note for completeness, although there was no dispute about this matter, that the expression ‘transaction’ in the Duties Act is, as explained by Ward CJ in Eq in Benidorm Pty Ltd v Chief Commissioner of State Revenue [2020] NSWSC 471; (2020) 111 ATR 493 at [317]:

7. [37]

   Section 273B is found within Part 1 of Chapter 11. That chapter is entitled ‘Corporate reconstructions and consolidations’. Section 273B relevantly provides as follows:

8. [38]

   The expression ‘corporate reconstruction transaction’ is defined for the purposes of Part 1 by s 273C as follows:

9. [39]

   Part 1 of Chapter 11 was inserted into the Duties Act by the State Revenue Legislation Amendment Act 2012 (NSW). The changes brought in by that legislation involved the repeal of the ‘top-hatting’ exemption (formerly s 163C) and its replacement with the provisions of the new Part 1. The treasurer, the Honourable Mike Baird MP, described the amendments in the following way in the second reading speech (New South Wales Legislative Assembly, Parliamentary Debates (Hansard), 28 March 2012 at 10101):

What was the dutiable transaction?

1. [40]

   The defendant submits that the only transaction that occurred on 25 January 2024 was the sale of the fee simple in all three parcels of land. He submits that SRI, Dudley and Philcant acting in concert sold the fee simple in each lot to the plaintiff as purchaser. Thus, there was a single dutiable transaction in relation to a single item of dutiable property, being (in each case) the fee simple.

2. [41]

   Authority for this submission was said to be found in what Brennan J said in Nullagine Investments at 643-645. His Honour said (footnotes omitted):

3. [42]

   I am unable to read that passage, or anything else said in Nullagine Investments, in a way that supports the proposition for which it is relied upon. Justice Brennan’s point was not that co-owners can be said to own and be capable of disposing of the fee simple in the whole land. Rather, it is that each co-owner owns on their own behalf an estate in fee simple in a share in a parcel of land. Taken together with the other co-owners, these separate estates exhaust the rights of ownership in the whole, but they are not an estate in fee simple in the whole. As his Honour said at 643, ‘each tenant in common has a separate and individual title to the property, limited according to the estate or term granted to or acquired by the tenant’. It follows, as his Honour said, that ‘each can sell only its own separate share’. In these respects, his Honour was in agreement with the majority (Deane, Dawson and Gaudron JJ), who expressed essentially the same view at 656.

4. [43]

   The sentence on which the defendant’s case ultimately turns is the sentence emphasised in the extract above. However, in light of what is said before and after that sentence, it must be understood as saying that when multiple co-owners concur in selling their separate interests to a single purchaser, then that single purchaser – having thereby acquired the three separate estates in fee simple that exhaust ownership of the whole land – takes a single estate in fee simple in the whole of the land. It is not authority for the proposition that co-owners acting in concert either own or are capable of disposing of the fee simple in the whole of the land.

5. [44]

   I am therefore unable to accept that the land sale contract entered into by the parties on 25 January 2024 involved a single dutiable transaction concerning a single item of dutiable property within the meaning of the Duties Act. There was no exchange of identical or substantially identical interests corresponding to the fee simple in each parcel of land. There was, rather, a transfer of three separate estates in each parcel, the result of which was that the plaintiff came to hold the fee simple in the whole of each parcel. Relevantly for present purposes, the agreement involved the transfer of SRI’s one-third interest in each parcel to its wholly-owned subsidiary, the plaintiff.

Was there a corporate reconstruction transaction?

1. [45]

   Once it is appreciated that the land sale contract involved an agreement by three vendors to sell their respective one-third interests in each parcel of land, there is no difficulty in identifying three separate dutiable transactions within the meaning of the Duties Act, each of which is required to be brought to duty on its own terms. In the case of SRI’s agreement to transfer its one-third interest in each parcel of land, the transaction was between itself and its wholly-owned subsidiary. It was for that reason a corporate reconstruction transaction within the meaning of s 273C of the Duties Act.

2. [46]

   The defendant resists this conclusion by arguing that such an operation of the Duties Act ‘could in certain circumstances lead to the absurd outcome that an agreement for the sale or transfer of the same property could be charged more or less duty depending on whether the transfer is from a single vendor or multiple vendors’. The immediate and insuperable difficulty with this submission is that it supposes that, in such cases, it is the ‘same property’ that is being transferred. For the reasons already explained, I do not accept that that supposition is correct. There is a difference between the sale of the fee simple in land and a sale by co-owners of their respective fractional interests in the land. Apart from anything else, the latter may or may not be to a single purchaser.

Was the transaction undertaken for the purpose of…changing the holding of assets within a corporate group?

1. [47]

   The defendant makes two related submissions in relation to the purpose of the plaintiff’s acquisition of SRI’s interest in the parcels of land. Its first submission is that the transaction was one in a ‘series’ of transactions and that the relevant inquiry is as to the purpose of the ‘transaction or the series of transactions of which the transaction is a part’. He submits that the other transactions in the series were the transfers of the other one-third interests in each parcel of land by Dudley and Philcant. When all transactions in the series are viewed in the round, he submits that it is apparent that the purpose for which the series of transactions was entered into was not to move assets between members of the corporate group.

2. [48]

   The defendant’s related submission is that the purpose of the transaction should in any event be identified by reference to the agreement as a whole, which shows that the plaintiff’s purpose was to unwind the partnership, to ensure that TBG took control of the land, and to ensure that the partnership was not in a position to extract an outsized economic bargain from its ownership of the land.

3. [49]

   The defendant’s case on these issues depended heavily on what he saw as a change in purpose apparently revealed by the matters set out at paragraphs [16]-[21] above. He accepts that if SRI and the plaintiff had entered into two transactions as contemplated in early January 2024, then there would be no difficulty about concluding that the purpose of the second transaction was to move assets within the corporate group. However, he stresses that because the form of the transaction was altered to achieve the identical result by way of a single agreement, it is not possible to say that the purpose of any part of that agreement was any different to the purpose for which the agreement as a whole was entered into. He submits that the internal management correspondence to which I have referred shows that the reason for the change was to cause a change in GST treatment, although he (correctly) does not submit that the change in GST treatment avoided any GST, because he accepts that the transactions would otherwise have led to the overall same amount of GST being paid.

4. [50]

   As to the defendant’s first point, the question of whether a transaction was part of a series of transactions is a factual question. Here, the whole point of moving from a ‘two transaction’ approach to a ‘single transaction’ approach was, as the defendant himself emphasises, to ensure that the interests in land were not conveyed in a ‘series’ but, rather, that there was a single agreement under which each interest was transferred simultaneously. I do not think it is appropriate to describe the three dutiable transactions which occurred under the land sale agreement as a series of transactions.

5. [51]

   As to the second point, the task is to identify the purpose for which the corporate reconstruction transaction was undertaken. Here, that means identifying the purpose for which SRI agreed to sell its interests in the land to the plaintiff under the land sale contract. There is no doubt that insofar as that contract secured for TBG the interests of Dudley and Philcant in the land, it was entered into for the purpose of achieving the ends identified by the defendant, namely to bring the partnership to an end and to ensure that they could not demand above-market returns from ownership. However, that was not the only end which the plaintiff had in view. The plaintiff did not only wish to acquire the interests in the land held by Dudley and Philcant. It wanted to own the fee simple. In my view, the purpose for which SRI and the plaintiff entered into the agreement to transfer SRI’s interests in the land was, unremarkably, in order to move SRI’s interests in the land to the plaintiff. On the facts of this particular case, it would be quite artificial to say that SRI sold its assets to the plaintiff for the purpose of the plaintiff acquiring assets from third parties.

6. [52]

   The defendant submitted that so far as the separate transfer of SRI’s interest to the plaintiff was concerned, there was no evidence of purpose. This is not so.

7. [53]

   It is apparent from the contemporaneous documents that there was never any doubt that, one way or another, senior management preferred the land to be held by the plaintiff, which is an operating company. Ms St George gave evidence to precisely this effect but was not cross-examined.

8. [54]

   It is equally apparent from the contemporaneous documents that the main reason why the transaction moved from a two-stage process to a single transaction was to secure the more convenient GST treatment associated with making an acquisition under Division 38 of the GST Act. That was an end that could be secured by the simple expedient of transferring SRI’s separate interests in the land to its wholly-owned subsidiary under the same agreement by which the other benefits were secured. Moving the ownership of those separate interests to the plaintiff was something that the members of the TBG group and its senior management wanted to achieve.

9. [55]

   Given the nature of the various things the plaintiff was attempting to achieve by the land sale contract, I have no difficulty in concluding that the acquisition by the plaintiff of SRI’s interest in the land was undertaken for the purpose of changing the holding of assets within a corporate group within the meaning of s 273B(1)(b).

ORDERS

1. [56]

   The orders of the Court will be as follows:

   1. (1)

      The Duties Notice of Assessment No 10877651-001 issued on 7 August 2024 in respect of the contract for sale and purchase of land dated 25 January 2024 between SRI Corporation Pty Ltd, Philcant Nominees Pty Limited and Dudley Project Pty Ltd, as vendors, and Big Ben Holdings Pty Ltd, as purchaser, is revoked.

   2. (2)

      The matter is remitted to the Chief Commissioner of State Revenue to issue an amended assessment to give effect to the decision of the Court pursuant to s 102(1) of the Taxation Administration Act 1996 (NSW).

   3. (3)

      The defendant is to pay the plaintiff’s costs as agreed or assessed.