Conexa Sydney Holdings Pty Ltd v Chief Commissioner of State Revenue

1. [1]

   On 30 September 2019, the plaintiff, Conexa Sydney Holdings Pty Ltd (Conexa), acquired 100 per cent of the shares in SGSP Rosehill Network Pty Ltd (Rosehill). On 21 March 2022, the Chief Commissioner of State Revenue (Commissioner), assessed the plaintiff to landholder duty under the Duties Act 1997 (NSW) in the amount of $3,326,497, plus interest, on the basis that the total unencumbered value of the land holdings and goods of Rosehill at the time of the acquisition was $60,749,000. Following the disallowance of its objection, the plaintiff has by an amended summons filed on 28 July 2023 brought these proceedings for review pursuant to s 97(1)(a) of the Taxation Administration Act 1996 (NSW).

2. [2]

   The critical issue raised in this appeal is whether, at the date of the assessment, a water carrying pipeline owned and constructed by Rosehill which is buried in the ground for its entire length was ‘land’ or ‘goods’ for the purposes of s 155 of the Duties Act.

Background

1. [3]

   Pursuant to an approval granted in 2009 under the Environmental Planning and Assessment Act 1979 (NSW) the Rosehill Water Recycling Scheme was established. The scheme’s aim was to deliver recycled water in south-west Sydney and involved the construction by Rosehill of 19 kilometres of pipeline to facilitate the supply of recycled water (Pipeline). The Pipeline was connected to a recycled water plant in Fairfield (the Fairfield Plant). The Fairfield Plant is located on Lots 7–16 in section 1 of Deposited Plan 2728, known as 2 East Parade, Fairfield, and has a land area of 13,734 square metres (the Fairfield Property).

2. [4]

   The Pipeline requires two reservoirs to operate, one contained in Rosehill on land leased from Shell Company of Australia Ltd (the Rosehill Reservoir Lease) and the other in Woodville located on land leased by Rosehill from Parramatta City Council (the Woodville Reservoir Lease).

3. [5]

   Pursuant to agreements executed in August 2008, AcquaNet Sydney Pty Ltd (AcquaNet) and Rosehill, both subsidiaries of Jemena Ltd, were the entities designated to construct and execute the project. Rosehill was the asset-holding entity, and is the registered proprietor of the Fairfield Property, and owns the Pipeline. An unrelated entity, Veolia Water Australia Pty Ltd (Veolia) developed the Fairfield Plant and operated it pursuant to a plant agreement.

4. [6]

   The parties agree on the following characteristics of the Pipeline:

   1. (1)

      The Pipeline is approximately 19 kilometres in length and is buried in the ground.

   2. (2)

      The Pipeline is designed to provide a permanent means of water carriage.

   3. (3)

      There are three reservoirs and two pumping stations along the Pipeline.

   4. (4)

      Rosehill constructed the Pipeline and in order to do so either laid it in an open trench, over which the displaced soil was replaced, or used directional boring through abandoned gas mains pipes.

   5. (5)

      Where road surfaces or footpaths were disturbed in the process of laying the Pipeline, they were restored and returned to use as roads and footpaths once the Pipeline was installed.

   6. (6)

      The Pipeline originates on the Fairfield Property and is connected to the Fairfield Plant. The Pipeline runs to the boundary between Yennora and Old Guildford, it then divides into two branches which comprise the remainder of the Pipeline.

   7. (7)

      The shorter of these branches travels west-north-west to the suburb of Smithfield and connects to the Marubeni power station. The longer branch travels through Old Guildford, Granville, Rosehill and Camellia where it eventually connects to Boral and CSR plants.

5. [7]

   The vast majority of the Pipeline travels under Crown land, estimated at 95.37 per cent, and the remainder of the Pipeline travels underneath privately owned land. The only land owned by Rosehill that the Pipeline traverses is the Fairfield Property.

6. [8]

   Pursuant to a share sale agreement (SSA) that settled on 30 September 2019, Conexa (known at the time as WUA Sydney Holdings Pty Ltd) purchased the entirety of the issued share capital of AcquaNet and Rosehill. The vendors were Jemena Limited and SGSP (Australia) Assets Pty Ltd. WUA MidCo Pty Ltd acted as guarantor.

7. [9]

   Clause 4 provided that the purchase price was $74,700,000 with provision for adjustments. The conditions for completion required that AcquaNet enter into a termination deed with Veolia in respect of the plant operation agreement (Termination Deed). Pursuant to the Termination Deed, AcquaNet paid Veolia approximately $57 million, and upon payment the plant agreement would be terminated, and all of Veolia’s rights, title and interest in the Fairfield Plant assets would transfer to AcquaNet. The Commissioner submits that the price paid to Veolia is relevant to an assessment of the valuation of the assets, though it is unnecessary to determine any duty liabilities arising out of the Termination Deed.

8. [10]

   On 20 December 2019, the plaintiff’s representatives provided a submission to the Commissioner regarding the assessment of duty on the transaction the subject of the SSA. An estimated duty liability of $1,275,160 was paid to the Commissioner, said to consist of $233,957 (described as being in respect of the surrender by Veolia to AcquaNet of the Fairfield Sub-Lease) and landholder duty of $1,041,203. The submission also noted that the plaintiff had commissioned KPMG to undertake an independent valuation of the land holdings and other assets of Rosehill, and that the plaintiff was not in a position to provide a finalised statement.

9. [11]

   On 22 June 2020, the valuation report prepared by KPMG (KPMG Report) was provided to the Commissioner along with a landholder acquisition statement. The KPMG Report identified that the purchase consideration for both AcquaNet and Rosehill was $70.4 million, with approximately $60.8 million attributed to the market value of the share capital in Rosehill. The KPMG Report stated that the fair value of the Fairfield Property was $4,110,000, and the fair value of Rosehill’s plant and equipment was $56,639,000 consisting of $46,390,000 for ‘piping’, and $10,249,000 attributed to the remainder.

10. [12]

    On 21 March 2022, the Commissioner issued a Duties Notice of Assessment (the Assessment), which assessed the plaintiff as liable for landholder duty in the sum of $3,326,492. This was on the basis that the unencumbered value of the land holdings and goods of Rosehill, based on the KPMG Report, was $60,749,000 comprising $4,110,000 for the Fairfield Property, $46,390,000 for the Pipeline and $10,249,000 for Rosehill’s other plant and equipment.

11. [13]

    On 23 March 2023, the Defendant disallowed the plaintiff’s objection. On 11 May 2023, these proceedings were commenced by summons.

The relevant statutory regimes

1. [14]

   Chapter 4 of the Duties Act imposes landholder duty on the acquisition of an interest in a private landholder. Specifically, s 155(1) charges duty on the ‘unencumbered value of all land holdings and goods of the landholder in New South Wales’.

2. [15]

   Sections 148 and 149 provide relevantly:

3. [16]

   A person who makes a relevant acquisition is liable to pay duty chargeable under Pt 2 of Ch 4: s 154(1).

4. [17]

   A landholder includes, relevantly, a private company that has land holdings in New South Wales with a threshold value of $2,000,000 or more: s 146(1). A landholder is a private landholder if it is a private company: s 146(2).

5. [18]

   There is no dispute that, at the time of the acquisition through the SSA, Rosehill was a private landholder (having landholdings with a threshold value of $2 million) and the plaintiff acquired a significant interest in Rosehill within the meaning of s 150, being 100 per cent.

6. [19]

   The principal dispute in the proceeding turns on the construction of s 147, which provides:

7. [20]

   The Dictionary to the Duties Act relevantly contains the following definitions, each of which are inclusive rather than exclusive:

8. [21]

   The Interpretation Act 1987 (NSW) (Interpretation Act) relevantly defines the terms ‘estate’ and ‘land’, as appearing in other NSW Acts (subject to any contrary intention in the Act concerned), as follows:

9. [22]

   This definition is not exhaustive as to what may comprise ‘land’ but serves as a ‘point of departure’: Risk v Northern Territory (2000) 105 FCR 109 at [30] per French and Kiefel JJ, referring to a cognate provision in the Acts Interpretation Act 1901 (Cth).

10. [23]

    The term ‘proprietary right’ is not defined in the Duties Act or the Interpretation Act. In Ch 4 of the Duties Act, ‘property’ includes money (s 163I(2)), and ‘property’ is defined in the Interpretation Act as ‘any legal or equitable estate or interest (whether present or future and whether vested or contingent) in real or personal property of any description, including money, and includes things in action’.

11. [24]

    Clause 4 of the Dictionary to the Duties Act, introduced into the Act by the State Revenue Legislation Further Amendment Act (No 2) 2009 No 91 (NSW), provides:

12. [25]

    The acquisition occurred before s 147A(1) (which provides that ‘land’ includes anything fixed to the land, whether or not the thing constitutes a fixture at law, or is owned separately from the land or is notionally severed from the land by any other Act or law) was enacted. It was accepted that it is not relevant in construing the term ‘interest in land’ in s 147(1) in its form at the time of the acquisition.

13. [26]

    The term ‘goods’ as used in s 155(1) is not defined but is subject to the limitations set out in s 163K:

14. [27]

    The Pipeline and Rosehill Water Recycling Scheme as a whole are governed by the Water Industry Competition Act 2006 (NSW) (WIC Act).

15. [28]

    The WIC Act was enacted to provide for private sector persons to supply residential and industrial water to customers and for the regulation of that activity. Amongst other things, the WIC Act provided for the issuing of licences to ‘network operators’ on conditions and confers on network operators powers, and imposes on them duties, relating to water industry infrastructure.

16. [29]

    As the holder as of the acquisition date of a network operator’s licence issued pursuant to the WIC Act, Rosehill held statutory powers to perform work relating to water industry infrastructure. Under Part 6 of the WIC Act, entitled ‘Work relating to water industry infrastructure’, a licensed network operator was empowered ‘[f]or the purposes of this Act’ to carry out work (in particular, any such work in or under a public road or public reserve) connected with the erection, installation, extension, alteration, maintenance or removal of any water industry infrastructure (s 58). Save ‘to cope with emergencies’, a licensed network operator must carry out no such work (other than routine connections, repairs or maintenance work) unless the network operator has given the local council or roads authority notice of the proposal to carry out the work, and has given that council or authority a reasonable opportunity (of at least 40 days) to make submissions to the network operator in relation to the proposal, and has given consideration to any such submissions (s 58(3)–(4)). It was required to make good damage caused to a public road or public reserve as a result of its operations (s 59).

17. [30]

    Other express powers conferred on a licensed network operator under Part 6, Division 1 were: to require a land owner (subject to notice) to remove a tree believed to be destroying, damaging or interfering with the network operator’s water industry infrastructure (subject to the network operator reimbursing the owner for the reasonable expenses); to recover its own costs of removing the tree should the owner fail after notice to remove it (s 60(1)-(2), (5)-(6)); and similar powers were conferred on a network operator with regard to other obstructions of water mains and sewer mains (s. 61) and to alter the position of conduits owned by a person (s 62).

18. [31]

    Division 2 of Part 6 of the WIC Act was headed ‘Powers of entry of authorised licensed network operators’. The central provision of Division 2 was section 65B:

19. [32]

    Section 65A provided:

20. [33]

    These powers were subject to various restrictions including that notice of entry, specifying the intended date of entry (at least two days hence), must be given before an authorised licensed network operator exercises a power of entry under Division 2 (s 65C); while use of force may be used to gain entry to land (save residential land) under a Division 2 power, that may only be done if authorised by the authorised network operator in writing (s 65); and entry to residential premises may only be had, under Division 2, with the consent of the occupier (or owner) or under the authority of a warrant of entry (s 65G).

21. [34]

    Ownership of water industry infrastructure is dealt with by s 64, which provided at the acquisition date:

22. [35]

    The WIC Act defines ‘water industry infrastructure’ to mean ‘water infrastructure’ and ‘sewerage infrastructure’. The former is defined as:

23. [36]

    ‘Sewerage infrastructure’ is defined as:

24. [37]

    There was no dispute between the parties that WIC Act s 64 applies to the Pipeline.

25. [38]

    Until 2011 section 64 had simply provided:

26. [39]

    However, s 64 was amended by the Water Industry Competition Amendment Act 2011 (NSW), to provide as it did as of the acquisition date. During the second reading speech of the Bill in the Legislative Council, the responsible minister explained the ‘revised section 64 removes the incorrect assumption in the current provision that the licensed network operator is also the owner of the infrastructure’: New South Wales Legislative Council, Parliamentary Debates (Hansard), 9 November 2011 at 6 (the Hon Greg Pearce, Minister for Finance and Services, and Minister for the Illawarra).

27. [40]

    The plaintiff submitted that the evident purpose of s 64, in its form at the date of the acquisition, was to protect the investment outlay by a person in the private sector who had installed water infrastructure on another’s land. Where the person who installed the infrastructure was other than a licensed network operator, s 64 protected the installer’s interest from becoming lost to the landowner. There was an evident intention that the common law rules in relation to fixtures by which chattels become part of the land were not to apply. Further, the protection was to apply also to a licensed network operator to prevent the forfeiture of their interest in the infrastructure by means of their losing the operating licence. In either case, sub-section 2 provided a further protection by which, while the relevant water infrastructure assets were liable to execution, they were so only to enforce a judgment against the owner of the infrastructure or the licensee.

Issues

1. [41]

   The issues in dispute between the parties are:

   1. (1)

      Is the Pipeline properly characterised as an interest in land for the purposes of s 155 of the Duties Act?

   2. (2)

      Is the Pipeline properly characterised as an interest in goods for the purposes of s 155 of the Duties Act?

   3. (3)

      What was the unencumbered value of the Pipeline at the time of the acquisition?

2. [42]

   I have concluded that Rosehill’s interest in the Pipeline is not an interest in land for the purposes of s 155(1) of the Duties Act but is an interest in goods for the purpose of that section, and the plaintiff has failed to discharge its onus of proof that the unencumbered value of the Pipeline at the time of the acquisition was less than the amount on which the Assessment was based, being $46,390,000

The parties’ submissions

1. [43]

   The plaintiff’s overarching contention is that Rosehill’s interest in the Pipeline is an innominate interest that cannot be characterised as either an interest in land or goods.

2. [44]

   The plaintiff submits that the intention of s 64 of the WIC Act, discerned from the second reading speech to the Water Industry Competition Amendment Act 2011 (NSW) and by comparison to the previous version of s 64, is to protect infrastructure owners from potential claims by landowners of land on which it is installed. There was no intention to prescribe infrastructure such as the Pipeline as land. Rather, the WIC Act seeks to regulate a legal relationship between water infrastructure and a person, and to prevent the separate ownership of land from affecting those rights.

3. [45]

   The effect of the WIC Act is that water infrastructure, such as the Pipeline, is held separately from the holding of the land within which that infrastructure lies. In that circumstance the mere fact that the Pipeline lies within land does not mean that the Pipeline can be called a part of the land. The correct position is that the Pipeline could only be called ‘land’ where it was both embedded in and affixed to land and the title to that land was held by the same owner. The WIC Act denies that second criterion and means that neither the doctrine of fixtures nor the principle expressed in the maxim cujus est solum, ejus est usque ad coelum et ad inferos (‘the person who owns land owns it from the heavens above to the centre of the earth below’) could apply. Parliament could have provided through a deeming provision that water infrastructure was land despite the distinct ownership of land and the infrastructure. No such provision was included.

4. [46]

   The purpose of s 64 of the WIC Act is to protect an investor’s investment interest in infrastructure from potential claims by owners of land. The relationship between water industry infrastructure and land must have been considered by the drafters of the legislation, and s 64 is a choice to attempt to avoid the uncertainties that may arise if ordinary principles of land law were to apply to water infrastructure.

5. [47]

   That position is consistent with the approach of the High Court in Asciano Services Pty Ltd v Chief Commissioner of State Revenue (NSW) (2008) 235 CLR 602; [2008] HCA 46. There it was found that the statutory regime governing rail infrastructure facilities did not disclose an intention that the vesting of the rail infrastructure facilities in the Rail Access Corporation (RAC) conferred on it an interest in land that was subject to duty, though an access agreement was found to be caught by the statutory definition of ‘lease’ which applied to an agreement by which a right to use land is conferred or acquired.

6. [48]

   The doctrine of fixtures does not aid the Commissioner, as where chattels affixed to land are owned by someone other than the owner of the land to which they are attached, the basis of it being a fixture is absent: Metal Manufacturers Ltd v Commissioner of Taxation [1999] FCA 1712. Any reliance on North Shore Gas Co Ltd v Commissioner of Stamp Duties [1940] HCA 7; (1940) 63 CLR 52 (First North Shore Gas) is misplaced, as only a minority of the justices in that case positively found that the laying of gas pipelines conferred an interest in land, and the question called upon to be answered was significantly different. There, all the court was required to do was determine whether the pipes were ‘goods, wares or merchandise’ once they were laid in the ground, and not to positively identify them as having the character of an interest in land.

7. [49]

   The determination in Commissioner of Main Roads v North Shore Gas Co Ltd (1967) 120 CLR 118 (Second North Shore Gas) lends further support to the plaintiff’s proposition. There, Barwick CJ, McTiernan, Kitto and Taylor JJ at 126-7 doubted the correctness of the conclusion reached by some members of the Court in First North Shore Gas that the gas pipelines, or the space which they occupied, constituted an interest in land.

8. [50]

   Further, the Pipeline should not be classified as ‘goods’ for the purpose of s 155(1) of the Duties Act. Subject to the express exclusions in s 163K, the term goods should be given its ordinary meaning. The ordinary meaning of goods is moveable property: AGL Victoria Pty Ltd v Lockwood (2003) 10 VR 596; [2003] VSC 453 at [69]. That assessment is confirmed when looking at the exceptions contained in s 163K, which all have the character of being moveable, and meet ordinary definitions of the word ‘goods’.

9. [51]

   Further, s 155 uses land and goods in a mutually exclusive way, but that does not mean that those words encapsulate exhaustively all things that may be described as property.

10. [52]

    In the circumstances the Pipeline could not be classified as goods for the purposes of s 155 as:

    1. (1)

       The Pipeline as a whole is not moveable in its present condition, nor did the parties to the SSA purport to treat the Pipeline as a moveable good cf the position with tenant’s fixtures considered in TEC Desert Pty Ltd v Commissioner of State Revenue (WA) (2010) 241 CLR 576; [2010] HCA 49.

    2. (2)

       While the WIC Act distinguished between ownership of water industry infrastructure and land, that does not mean that it determined the proper characterisation of the infrastructure itself.

    3. (3)

       First North Shore Gas is authority for the proposition that a pipeline cannot be classified as ‘goods’ once installed in land.

11. [53]

    The decision in Chief Commissioner of State Revenue v Shell Energy Operations No 2 Pty Ltd (2023) 116 ATR 337; [2023] NSWCA 113 (Shell Energy (No 1)) that power plants situated on land were goods for the purpose of s 155 is distinguishable from the present case. There, the Court of Appeal had to deal with a legal regime unlike the WIC Act. There was no specific authorising act for the power plants, and instead the context in which the dispute arose was the execution of two vesting orders by the relevant Ministers with the object of transferring title in the component parts of the power plants to a special purpose vehicle in order to sell those assets to private entities. The Court of Appeal found that the ‘legal severance’ of the plants from the land through the vesting orders was sufficient to return them to their prior state as goods, even though they had not been removed from the land.

12. [54]

    The absence of a specific statutory right is important and serves to differentiate Rosehill’s interest in the Pipeline from the interests in the power plant considered in Shell Energy (No 1).

13. [55]

    On the whole, the better characterisation of the Pipeline is that it is neither land nor goods. Even if the Pipeline were to be characterised as a good for the purposes of s 155, then the value of the Pipeline should be nil as the proper valuation would be that of Rosehill’s entitlement to remove and sell the pipes that make up the Pipeline.

14. [56]

    The primary contention for the Commissioner was that the Pipeline was a part of ‘land’ for the purposes of s 155 of the Duties Act. A pipeline underneath land falls within the ordinary legal conception of land: B Edgeworth, Butt’s Land Law (Lawbook Co, 7th ed, 2017) at [2.10]; Chief Commissioner of State Revenue v Pacific National (ACT) Limited (2007) 70 NSWLR 544; [2007] NSWCA 325 at [73].

15. [57]

    The dictionary to the Duties Act defines land to include a ‘stratum’. In its predecessor, the Stamp Duties Act 1920 (NSW), a further definition of stratum was included as:

16. [58]

    It is possible for a landowner to own one part of land whilst a third party owns a separate stratum of the land, including the items fixed to it: Bursill Enterprises Pty Ltd v Berger Bros Trading Co Pty Ltd (1970) 124 CLR 73 at 91; Butt’s Land Law at [2.450]. The Pipeline is properly characterised as land as it occupies a three-dimensional space below the surface of land and is fixed in place. The divergence in ownership of the fee simple in the land in which the Pipeline sits and the ownership of the Pipeline itself is no impediment to this conclusion, as the stratum occupied by the Pipeline may be considered on a standalone basis.

17. [59]

    Further, the term ‘land holdings’ as deployed in s 155 of the Duties Act is not subject to limitations from general law. The term is defined in s 147(1) to mean ‘an interest in land other than the estate or interest of a mortgagee, chargee or other secured creditor’. As the Court of Appeal in Chief Commissioner of State Revenue v Shell Energy Operations No 2 Pty Ltd (No 2) [2023] NSWCA 169 (Shell Energy (No 2)) stated at [7]:

18. [60]

    In the context within which the phrase, ‘interest in land’ appears in the Duties Act, a contrary intention appears, as:

    1. (1)

       The words ‘interest’ and ‘land’ are defined inclusively and not exhaustively in the Dictionary.

    2. (2)

       The drafting history shows that the phrase ‘interest in land’ was distinguishable from the phrase ‘interest in real property’ as both appeared in the Duties Act previously (see cf the former version of s 108 and the former version of s 184).

    3. (3)

       The phrase ‘interest in land’ must also be construed by reference to cl 4 in the Dictionary, which includes certain statutory rights as conferring an interest in land, indicating that statutory regimes can confer ‘interests in land’, even when those rights are not general law interests in land. The critical question in this respect, contrary to the approach of the plaintiff, is not to construe the WIC Act as a starting point, but instead to begin by analysing the types of statutory regimes that the Duties Act considers to confer an ‘interest in land’.

    4. (4)

       Cl 4(1A) of the Dictionary indicates that items fixed to land may be ‘interests in land’ irrespective of whether they meet the general law definition of fixtures. Notably, this clause was introduced in response to the High Court’s decision in TEC Desert, as indicated by the second reading speech. The text of cl 4(1A), which is expressed ‘to avoid doubt’, indicates an ongoing legislative intent to include within the scope of ‘interests in land’ the ownership of items affixed to land that are not fixtures.

    5. (5)

       The inclusion of s 163H, providing the Commissioner with the discretion to relieve a taxpayer from duty where Ch 4 brings an acquisition within its operation that the chapter was not intended to affect, indicates that a broader rather than narrower construction is to be preferred.

19. [61]

    Characterising the Pipeline as an interest in land is not inconsistent with the High Court’s decision in Asciano and is supported by the observations of Hodgson JA in the Court of Appeal decision from which the appeal came: Chief Commissioner of State Revenue v Pacific National (ACT) Limited (2007) 70 NSWLR 544; [2007] NSWCA 325 at [27]. Hodgson JA said at [27] (emphasis added):

20. [62]

    That conclusion, which was agreed with by Ipp JA at [49] and recorded in the High Court’s decision in Asciano at [20] without any express or implied criticism, is supportive of the proposition that the Pipeline can constitute an interest in land. Beyond this observation of Hodgson JA in the decision under appeal, Asciano is of limited assistance in resolving the present dispute, particularly as the taxpayer had conceded before the High Court that their freight operations involved a use of land.

21. [63]

    Similarly, the plaintiff’s reliance on Second North Shore Gas is misplaced, because the nature of the right at issue in that case was not the characterisation of the Pipeline, but instead whether the company could be reimbursed for the value ‘not for the pipes themselves, but for the loss of the right to use those pipes to supply customers. This point is critical to understanding the case’: Shell Energy (No 1) at [107].

22. [64]

    Therefore, the Pipeline should be characterised as an interest in land by virtue of being embedded in land. Separately, the physical affixation of the Pipeline to land, despite not meeting the general law criteria for being a fixture (due to the divergence in ownership), remains capable of meeting the statutory criteria for ‘land’ in s 155(1). The possibility of this was adverted to by Kirk JA in Shell Energy (No 1) at [86], where his Honour stated:

23. [65]

    This point was reiterated by the Court in Shell Energy (No 2) at [7]:

24. [66]

    Even if the Court were not to accept that the interest in the Pipeline was an interest in land, it should alternatively be found that the interest is an interest in goods. That finding should be made for the following reasons:

    1. (1)

       The piping comprising the Pipeline can be regarded as falling within the concept of goods. In Shell (No 1) Kirk JA noted that the concept of goods was largely synonymous with chattels (at [90]) and did not find that a necessary feature of ‘goods’ was that they were moveable.

    2. (2)

       The statutory history of the Duties Act supports the proposition that fixtures removable from property are capable of being considered as goods. Ch 6 of the Duties Act when the act commenced provided for hire of goods duty on all chattels personal and fixtures severable from realty. There is no express carve-out of fixtures severable from realty from the definition of goods, and there is no indication in the text that Parliament intended a narrow meaning of the word.

    3. (3)

       There is no purposive reason for narrowing the definition of the word good to only moveable property. Section 155 operates for enterprise-level transactions and would not capture ordinary mercantile transactions such as stock-in-trade acquisitions or goods under manufacture.

    4. (4)

       Both TEC Desert and Shell Energy (No 1) confirm that goods that cease to be fixtures as a consequence of a legal regime may be regarded as chattels or goods for the purpose duties legislation. The Court of Appeal, in considering this exact issue in Shell Energy (No 1) found that because ‘physical removal of a fixture returns it to being characterised as a chattel (i.e. good) [it] supports the notion that legal severance of a fixture has the same effect’ at [92]. To the extent that the plaintiff suggests that the Court of Appeal is in error on this point, this Court remains bound to apply Shell Energy (No 1). The effect of the WIC Act is to sever ownership of the Pipeline from the land through which it travels and applying Shell Energy (No 1) this means that the Pipeline ought to be characterised as goods.

    5. (5)

       The holding in First North Shore Gas does not constrain goods to only those not affixed to land, as the use of the word ‘goods’ arose in the context of an exemption from duty applicable to ‘goods, wares or merchandise’ and the word took colour from the words which follow: see Shell Energy (No 1) at [124].

    6. (6)

       The conclusion that the Pipeline constitutes ‘goods’ for the purposes of the Duties Act does not affect the construction of the WIC Act in any forced or artificial manner.

    7. (7)

       Finally, the Commissioner does not contend that all assets must fall on a spectrum of land or goods, and its submissions do not have that effect, contrary to the plaintiff’s submissions.

25. [67]

    The valuation of the Pipeline should be based on its ability to be deployed in the plaintiff’s business, and not by reference to the value of the piping if it is removed and sold independently. The latter approach, advocated for by the plaintiff, is at odds with the requirements of the statute, and the context within which the Pipeline was acquired. There is also no indication in the text of the Duties Act that there should be a divergence in the valuation of ‘land holdings’ and ‘goods’ in s 155. Both require a valuation as a going concern.

Consideration

1. [68]

   The term ‘land holding’ is defined in s 147 to mean an ‘interest’ in land (subject to various exclusions not presently relevant). ‘Interest’ is capable of many meanings, and the precise meaning depends on the context in which it is used: Leedale v Lewis [1982] 1 WLR 1319 at 1324. When the term is used (as here) in the context of the phrase ‘interest in land’, it is regarded as referring to a proprietary right in the land and not a mere personal right: Stow v Mineral Holdings (Aust) Pty Ltd (1977) 180 CLR 295 at 311; R v Toohey; Ex parte Meneling Station Pty Ltd (1982) 158 CLR 327 at 342; Mullane v Mullane (1983) 158 CLR 436 at 445; Commissioner of State Revenue (WA) v Westnet Rail Holdings No 1 Pty Ltd [2013] WASCA 110; (2013) 45 WAR 140 at [85] and [151]–[153].

2. [69]

   This is not affected by the fact that the term ‘interest’ is defined to include an ‘estate’ which has an extended definition in the Interpretation Act which includes a ‘right’ at law or in equity, as that is a reference to a proprietary right: see e.g. Stow v Mineral Holdings at 311. That also does not mean that the term is restricted only to those interests that are recognised at general law. The precise form and type of interests in land envisaged by Duties Act s 147 and encompassed by the phrase land holdings in s 155(1) is a matter of statutory construction. That is especially so when the relevant interest is a creature of statute, as is the case here.

3. [70]

   The starting point is to consider the effect of s 64 of the WIC Act. The section provides that water industry infrastructure is ‘owned by the person that constructs or installs it or any person that subsequently acquires title to it, whether or not the land in, on, under or over which it is situated is owned by that person’. Three aspects of the provision may be noted. First, by the use of the present tense ‘is’, it operates to vest ownership of the thing or things comprising the water industry infrastructure in the person identified. Second, it does so irrespective of whether that person owns the land in, on, under or over which the thing or things are situated. Those words are designed to negate the position which would arise under the common law, which is that where chattels are affixed to the land so as to become fixtures they form part of the land and are owned by the owner of the land. Third, it treats the thing or things which comprise water industry infrastructure as items of property separate from the land in, on, under, or over which they are situated.

4. [71]

   There is nothing in s 64 of the WIC Act to suggest that the thing or things to which it applies are intended to be land or an interest in land. For the reasons which follow, in my opinion, on the proper construction of s 64 it has the effect of causing the thing or things comprising of the water industry infrastructure to retain their character as chattels despite their affixation to the land in, on, under or over which they are situated.

5. [72]

   First, there is a general principle that a statutory provision which vests in a person ownership of items that would otherwise be fixtures does not merely by virtue of conferring that right of ownership in the item confer an interest in the land itself: Newcastle-Under-Lyme Corporation v Wolstanton Ltd [1947] Ch 92 at 103; Second North Shore Gas at 127 and 133–4; Asciano Services Pty Ltd v Chief Commissioner of State Revenue (2008) 235 CLR 602 at [27]–[31]; Epic Energy (Pilbara Pipeline) Pty Ltd v Commissioner of State Revenue [2011] WASCA 228 at [75] and [163]. It would be necessary to find in the statute some indication of an intention to take that further step of conferring an interest in the land, for example by a reference in the statute to incidents normally associated with the creation of interests in land. There is no indication of that kind in the WIC Act; indeed the contrary is indicated, given the third feature of s 64 referred to at [70] above.

6. [73]

   This principle is illustrated by Asciano where the issue was whether a rail access agreement granted to the taxpayer by RAC was a ‘lease’ within the meaning of s 164A(b) of the Duties Act which turned on whether it conferred a right to use land. Under the rail access agreement, the taxpayer was granted access to railway lines and associated infrastructure facilities owned by RAC which formed part of the New South Wales rail network. Those railway lines and associated infrastructure facilities were located on (in the sense that they either rested upon or were embedded in) land owned by the State Rail Authority (SRA).

7. [74]

   RAC’s rail infrastructure facilities were owned by it pursuant to cl 2(1) of Schedule A to the Transport Administration Act 1988 (NSW), which provided as follows:

8. [75]

   The Court (Gummow, Kirby, Hayne, Crennan and Kiefel JJ in a joint judgment) referred at [27]–[28] to the decision in Second North Shore Gas and approved the principle applied there which had been stated by Evershed J in Newcastle-Under-Lyme Corporation v Wolstanton Ltd [1947] Ch 92 at 103–4 that no greater rights or interests should be taken as conferred upon the undertakers of a statutory right or duty than are necessary for the fulfilment of the object of the statute. Their Honours then added (again by way of approval of what Evershed J had said in Wolstanton):

9. [76]

   Their Honours then applied that principle to conclude that RAC’s ownership of the rail infrastructure assets did not give it an interest in the land owned by SRA on which the facilities were situated, although that did not assist the taxpayer because it was found nevertheless to have obtained a right to use SRA’s land. This is shown by the following observations of the Court (emphasis added):

10. [77]

    The observations of Hodgson JA in the Court of Appeal decision below, set out at [61] above are not applicable to the present case. A chattel brought onto land may remain a chattel, become a fixture or be so affixed to the land as to become part and parcel of the land: Elitestone v Morris [1997] 1 WLR 687 at 690–1; Vopak Terminal Darwin Pty Ltd v Natural Fuels Darwin Pty Ltd [2009] FCA 742; (2009) 258 ALR 89 at [51]. The items to which Hodgson JA referred appear to fall within the third category; the Pipeline does not.

11. [78]

    Second, there are a number of decisions which have concerned statutory severance provisions of a similar kind to s 64 where the relevant items have been treated as retaining their character as chattels.

12. [79]

    In Vopak Terminals Australia Pty Ltd v Commissioner of State Revenue (2004) 12 VR 351 (Vopak) the Victorian Court of Appeal considered the operation of s 28(2) of the Landlord and Tenant Act 1958 (Vic) (LT Act). Section 28(2) provided as follows (emphasis added):

13. [80]

    The issue in Vopak was whether a transfer of land in Victoria by Whitemark Pty Ltd (Whitemark) to the taxpayer should be assessed for duty under the Stamps Act 1958 (Vic) by reference to the purchase price of $340,000 as the taxpayer contended, or on the basis that the market value of the land was a higher amount ($15,058,569) because the land included two categories of fixtures which enhanced the value of the land: (a) the storage tanks and associated structures previously installed on the land by a lessee (Wickland Oil Terminals Pty Ltd) and (b) the storage tanks and other structures previously installed on the land by Whitemark (as owner of the land) which it had transferred to another company (Whitemark Rollover Pty Ltd) immediately before the sale of land to the taxpayer. The former category of tenant’s fixtures is referred to in the judgment as ‘Wickland’s fixtures’ and the latter category as ‘Whitemark’s fixtures’: see at [6].

14. [81]

    The Court of Appeal held that the Commissioner’s assessment of duty on the transfer of the land by adding back the value of each category of fixtures was erroneous but for different reasons. This conclusion was summarised by Ormiston JA (Warren CJ and Buchanan JA agreeing) as follows (emphasis added):

15. [82]

    Ormiston JA reached the conclusion that the Wickland’s fixtures (i.e. the tenant’s fixtures) had retained their character as chattels on the basis that this was the effect of s 28(2) of the LT Act. His Honour considered that this was the result of the ‘plain meaning’ of the words of the provision, which was confirmed by his analysis of the legislative history (including the state of the common law at the time of its original enactment and the fact that the provision was designed to protect tenant’s rights). Earlier, his Honour said (emphasis added):

16. [83]

    It is clear that the effect of s 28(2) was to deprive the storage tanks and other tenant’s fixtures comprising the Wickland’s fixtures at issue in Vopak of the character of ‘fixtures’ at common law, because they retained their character as chattels despite their affixation to the land: see in particular, [42] quoted above. This is confirmed by subsequent cases which have considered the effect of the Vopak decision.

17. [84]

    It is true that the question at issue was whether the Wickland’s fixtures formed part of the freehold land to be taken into account in the determination of the unencumbered value of that land on the assessment of a transfer of that land by the registered proprietor. Hence the character of the tenant’s fixtures in the hands of the tenant was not directly in issue. However, it is clear that Ormiston JA’s analysis was concerned with establishing the character of the tenant’s fixture in the hands of the tenant. His Honour’s observation at [20] that the reference to chattels in s 63(3) of the Stamps Act ‘is presently irrelevant for in para (a) it was made clear that such chattels did not include fixtures’ does not detract from this conclusion. This appears to be simply a recognition that fixtures and chattels are mutually exclusive concepts, and in any event, the items at issue were not fixtures or chattels of the owner of the freehold.

18. [85]

    In Commissioner of State Revenue v Uniqema Pty Ltd (2004) 9 VR 523 (Uniqema), Ormiston JA (with whom Phillips and Callaway JJA agreed) described (at 546) the effect of the Vopak decision as follows (emphasis added):

19. [86]

    Section 28(2) of the LT Act is now found in s 154A of the Property Law Act 1958 (Vic). In Valuer-General v AWF Prop Co 2 Pty Ltd (2021) 65 VR 327; [2021] VSCA 274 the Victorian Court of Appeal (McLeish and Emerton JJA, Belany AJA) said, after referring to the Vopak and Uniqema decisions at [143] and [154] (emphasis added):

20. [87]

    Another example is provided by Epic Energy (Pilbara Pipeline) Pty Ltd v Commissioner of State Revenue [2011] WASCA 228 (Epic) where the Court of Appeal of Western Australia considered the effect of statutory provisions conferring ownership of pipelines that would otherwise be a fixture served to prevent the item from becoming part of the realty.

21. [88]

    The central issue in Epic was whether gas pipelines and associated infrastructure owned by the taxpayer were ‘land’ for the purposes of s 76AP(2) of the Stamp Act 1921 (WA). Under that provision a corporation was a ‘landholder’ if it satisfied two criteria, the first relating to the unencumbered value of land situated in Western Australia to which it was beneficially entitled and the second relating to the value of all land to which it was beneficially entitled, wherever situated. The term ‘land’ was defined in s 76(1) as follows:

22. [89]

    One of the pipelines owned by the taxpayer (the Pilbara Energy Pipeline) was situated on land the subject of easements granted under the Petroleum Pipelines Act 1969 (WA). Another pipeline owned by the taxpayer (the Burrup Extension Pipeline) was situated on land the subject of an easement granted under that Act and on land the subject of an interest arising under the Dampier to Bunbury Pipeline Act 1997 (WA) in relation to a particular area of land through which the pipeline passed. Importantly, some of the pipelines were the subject of the rights under the first statute and others under the second statute.

23. [90]

    Each of those statutes contained statutory severance provisions:

24. [91]

    The Court of Appeal of Western Australia held that both pipelines were not within paragraph (a) of the definition of ‘land’ in s 76(1) as a consequence of s 57 of the Petroleum Pipelines Act and s 40(a) of the Dampier to Bunbury Pipeline Act, but were deemed to be ‘land’ by paragraph (b) of that definition because the taxpayer had an interest in the land to which the pipelines were affixed (and hence the pipeline was something affixed to land that is subject of ownership separate from ownership of the land).

25. [92]

    McLure P (with whom Buss JA and Murphy JA agreed on this aspect) explained why paragraph (a) of the definition of ‘land’ was not satisfied as follows (emphasis added):

26. [93]

    McLure P regarded s 57 as having the effect of preserving the character of the pipelines as personal property despite their affixation to the land in circumstances which would make them fixtures at general law relying at [73]–[74] on the decision of the High Court in Asciano. This was said by her Honour to be a result made explicit in s 40(a) of the Dampier to Bunbury Pipeline Act by the words ‘does not become part of the land’, but despite the absence of corresponding words in s 57, her Honour was satisfied that this was the effect of that provision also.

27. [94]

    Buss JA put the point similarly when he said:

28. [95]

    Although s 57 of the Petroleum Pipelines Act does not refer to the concept of a fixture, the items in question were clearly fixtures at general law (being pipes installed underground) and s 57 operated ‘whether or not the pipeline was affixed to any land’.

29. [96]

    It is clear that the legislature was addressing the same concerns as s 64 of the WIC Act, i.e. to protect the interests of a licensee as against competing claims of the landowner and chose to address this concern through the same mechanism, i.e. conferral of ownership on the licensee; and the Court held that it had the same effect, i.e. to prevent the pipelines from becoming part of the land.

30. [97]

    Third, the recent decision of the Court of Appeal in Shell Energy (No 1) is closely analogous to the present case as it concerned vesting orders made under statute which had the effect of legally severing the assets concerned from the land on which they were situated. While the severance here occurs by the statute itself, there is no reason in principle why the position should be different. There, the taxpayer had acquired interests in power plants that were affixed to land. At first instance, Ward CJ in Eq had held that the effect of vesting orders that severed the ownership of the power plants from the ownership of the land in order to effect a privatisation regime established an innominate sui generis interest that was not properly characterised as an interest in land: Meridian Energy Australia Pty Ltd v Chief Commissioner of State Revenue [2022] NSWSC 1074 at [141]–[142].

31. [98]

    On the Commissioner’s appeal, the Court of Appeal found that the effect of the vesting orders was to legally sever former chattels, which had become fixtures, from the land. This returned them to being characterised as chattels for the purposes of the Duties Act: see Shell Energy (No 1) at [92], [97], [110] and 113]. Kirk JA (Adamson JA and Griffiths AJA agreeing) said:

32. [99]

    As noted by both parties in their submissions, the Court of Appeal did not address the issue of whether the powerplants were land because it had not been raised below: see [86]. However, for the reasons given above, in my view, the true character of the Pipeline is that it remained a chattel despite its installation in land, a conclusion supported by the reasoning of Kirk JA set out in the above passage: see also [92], [97].

33. [100]

    Both parties accepted that the key authority on this point is the decision of the Court of Appeal in Shell Energy (No 1). Kirk JA concluded that the items constituting the power stations were ‘goods’ for the purposes of s 155(1). Kirk JA said:

34. [101]

    I consider myself bound by this reasoning to find that the Pipeline is ‘goods’. I note the following additional points.

35. [102]

    The Explanatory Note to the State Revenue Legislation Further Amendment Bill 2009 (NSW) (which introduced the landholder provisions, including s 155(1)) says nothing about the reason for the inclusion of ‘goods’ in the landholder tax base.

36. [103]

    In the Second Reading Speech introducing the State Revenue Legislation Further Amendment Bill 2009 (NSW) (which included the landholder provisions including s 155(1) by John Acqualina (on behalf of the Minister for Finance), it was said that the amendments were introduced: ‘[in order] to provide consistency with the tax treatment of direct transactions, landholder duty will apply to the acquisition of land and goods’.

37. [104]

    Prior to the enactment of the Duties Act, the expression used in the former Stamp Duties Act 1920 (NSW) was ‘goods, wares and merchandise’. In relation to this expression, Dixon J stated, in First North Shore Gas Company (at 67) that ‘The words are understood to include all tangible moveables; that is, they covered all chattels personal not being choses in action…’. In the same case, Starke J said (at 63) that the expression ‘goods, wares and merchandise’ ‘comprehends all movable property’, citing Blackburn on Contract of Sale, adding that ‘it is well enough settled that it does not include fixtures …’. However, as pointed out by Kirk JA in the above passage at [123], the term used in the present statute is simply ‘goods’ and should not be limited by the construction placed on a different expression in a different statute.

38. [105]

    In Smith’s Snackfood Co Ltd v Chief Commissioner of State Revenue [2013] NSWCA 470, which concerned the use of the word ‘goods’ in s 32(2)(d) of the Payroll Tax Act 2007 (NSW) Gleeson JA said at [131] that the meaning of that word depends entirely on the context in which it is used. There is nothing suggested by the context or purpose of Ch 4 of the Duties Act to indicate that the word ‘goods’ in s 155(1) has a meaning different to its ordinary meaning. As explained by Kirk JA in Shell Energy No 1 at [90], that ordinary meaning includes chattels.

39. [106]

    Where a chattel is affixed to land so that it cannot be removed without damaging it, the chattel ceases to be goods and will only regain the status of a chattel if and when it is severed from the land: Mills v Stokman (1967) 116 CLR 61 at 71; Ashgrove Pty Ltd v Commissioner of Taxation (1994) 53 FCR 452; (1994) 94 ATC 4,549 at 4,558–4,562; Theo Holdings Pty Ltd v Hockey (2000) 99 FCR 232 at [9]–[18]. However, as found by the Court of Appeal in Shell Energy (No 1), this severance can include a legal severance and the legal severance here was effected by s 64 of the WIC Act.

40. [107]

    As noted at [11] above, the KPMG Report stated that the fair value of the Pipeline was $46,390,000. The report stated that it had been valued on an ‘in situ/as is where is basis’ and that the ‘highest and best use’ of the property, plant, and equipment, which included the Pipeline was ‘its current use as part of a going concern water treatment business based upon the projected financial performance of the business’. Mr Sean Collins of KPMG Financial Advisory Services (Australia) Pty Ltd signed the KPMG report and also provided expert evidence in these proceedings. He accepted in cross-examination that, at the time the KPMG report was prepared, he regarded the going concern valuation premise for the Pipeline to be appropriate and consistent with relevant accounting standards whereby valuations of a collection of assets that are purchased in combination are typically conducted on a going concern basis. The plaintiff accepts that if the Pipeline is to be valued as going concern, in order to establish its unencumbered value for the purposes of s 155(1) of the Duties Act, then its value is the $46.39 million attributed by the KPMG Report.

41. [108]

    Mr Collins’ expert report in these proceedings (Collins Report) addressed to the following question:

42. [109]

    In response to that question, Mr Collins opined that the value of the entitlement to remove and sell the Pipeline is nil. This was on the basis that he identified that the estimated costs of removing the Pipeline exceeded estimated proceeds from the sale of the removed piping. The cross-examination of Mr Collins established that his opinion about the value of the entitlement to remove the Pipeline was based on assumptions that he did not himself have the expertise to make and which have not otherwise been proven by admissible evidence.

43. [110]

    Mr Collins confirmed in cross-examination that (a) he did not have expertise in construction methods, engineering, quantity surveying or otherwise estimating design or project management costs for construction projects; (b) the assumptions he relied on as to the design method for extracting the Pipeline from the land and the costing of the extraction process were provided by unidentified persons within KPMG, whose inputs, analysis and benchmarking are not exposed on the face of Mr Collins’ report; (c) he did not have expertise in the sale of recycled PVC and was not qualified to give an opinion on the possible markets for the purchase of PVC, despite his report having contained an unreasoned assertion as to the lack of viable secondary market for piping. Mr Collins also accepted in cross examination that this last statement was not supported by any information referenced in his report and that there is a market for the sale of recycled PVC such as the piping in this case.

44. [111]

    In light of these matters, I accept the Commissioner’s submissions that the Collins Report is inadmissible because key facts on which the reasoning in the report have not been proved, and the report is not based wholly or substantially on Mr Collins’ specialised knowledge: Makita (Australia) Pty Ltd v Sprowles (2001) 52 NSWLR 705; [2001] NSWCA 305 at [64] and [85]; Cooke v Commissioner of Taxation [2002] FCA 1315 at [38]–[40].

45. [112]

    Whether the Pipeline and its constituent parts are properly characterised for the purposes of Chapter 4 of the Duties Act as an interest in land of Rosehill and/or as Rosehill’s goods, its unencumbered value under ss 155 and 162 of the Duties Act should be ascertained based on its ability to be deployed in the business of Rosehill as a going concern: see SPIC Pacific Hydro Pty Ltd v Chief Commissioner of State Revenue [2021] NSWSC 395 at [166]–[168].

46. [113]

    It follows that the plaintiff has failed to discharge its onus of proof that the unencumbered value of the Pipeline was less than the amount stated in the KPMG Report. Accordingly, the Assessment should be confirmed.

Conclusion

1. [114]

   For these reasons, I will make the following orders:

   1. (1)

      The Assessment is affirmed.

   2. (2)

      The Amended Summons is dismissed.

   3. (3)

      The plaintiff is to pay the costs of the defendant on the ordinary basis, as agreed or assessed.