CCM Holdings Trust Pty Ltd v Chief Commissioner of State Revenue; CCT Motorway Company Nominees Pty Ltd v Chief Commissioner of State Revenue  NSWSC 1072
This was an appeal to the Supreme Court against assessments by the Chief Commissioner of State Revenue of duty plus interest and penalty tax under the landholder and share transfer provisions of the Duties Act 1997, in respect of transactions relating to the CrossCity Motorway Property Trust.
The Court found that duty of $10 was chargeable under s 54(3) of the Duties Act in respect of the transfer of shares in CrossCity Motorway Pty Limited, and that the transfer of units in the CrossCity Motorway Property Trust was exempt under s 163ZB(1)(i) of the Duties Act.
The Court therefore rescinded the Chief Commissioner’s assessments.
This matter consisted of two sets of proceedings. The first and main set of proceedings (Case No. 2012/119963) was between CCM Holdings Trust Pty Limited (“CCMH”), as plaintiff, and the Chief Commissioner of State Revenue (“Chief Commissioner”), as defendant (“the Trust Proceedings”). CCMH as plaintiff brought an application pursuant to section 97(1)(a) of the Taxation Administration Act 1996 (“the TAA”) for the review of the Chief Commissioner’s assessment of duty under the Duties Act 1997 (“the Duties Act”) of $36,285,490, plus penalty tax of $5,442,823.50 (following partial remission on objection) and interest of $19,346,220.38, on a transfer to it of units in the CrossCity Motorway Property Trust (“the Property Trust”) (“the PT Transfer”).
The second set of proceedings (Case No.2012/119972) was between CCT Motorway Company Nominees Pty Limited, as plaintiff, and the Chief Commissioner, as defendant (“the Company Proceedings”). The plaintiff brought an application pursuant to section 97(1)(a) of the TAA for the review of the Chief Commissioner’s assessment of duty under the Duties Act of $20,431.20, plus interest of $10,893.24, on a transfer to it of shares in CrossCity Motorway Pty Limited (“CCM”) (“the CCM Transfer”).
The two assessments in relation to the Trust Proceedings and the Company Proceedings arose out of transactions under which the CrossCity Tunnel (“the Tunnel”) was sold on 27 September 2007 to a new consortium formed by ABN AMRO Australia Limited, ABN AMRO Infrastructure Capital Management Limited and Leighton Contractors Infrastructure Investments Pty Limited (together “the Purchaser Consortium”).
The sale of the Tunnel was a result of the entities that constructed and operated the Tunnel and collected the tolls failing to accrue the expected tolling revenue from the use of the Tunnel. In December 2006, receivers and managers were appointed to those entities and in April 2007 the Tunnel was marketed for sale.
In June 2007, it was agreed the ownership of the principal private sector parties would be transferred to the Purchaser Consortium under contracts that were executed on 19 June 2007 and completed on 27 September 2007 (“the Acquisition Date”). A deposit of $30 million was paid in June 2007.
It was common ground between the parties that the sale transactions were structured in a complicated manner for the sole purpose of the avoidance of stamp duty. In that regard, the Purchaser Consortium paid $691,715,880 for all the units in the Property Trust and $3,405,120 for all the shares in CCM. The total consideration paid by the Purchaser Consortium to acquire ownership of the Tunnel was $695,121,000.
Issues for the Court’s consideration
The three main issues in the Trust Proceedings were:
- whether the Property Trust was land rich at the Acquisition Date; and
- if it was, whether the PT Transfer was exempt under s 163ZB(1)(i) of the Duties Act; and
- if it was land rich and the PT Transfer was not exempt, what was the unencumbered value of the land holdings of the Property Trust at the Acquisition Date?
The only issue in the Company Proceedings was whether the plaintiff was liable to pay only $10 concessional duty under s 54(3) of the Duties Act in relation to the CCM Transfer.
Plaintiff’s submissions in the Trust Proceedings
The plaintiff advanced two reasons for why the Property Trust was not land rich at the Acquisition Date:
- The Property Trust had a separate non-land asset, namely, the right to levy, collect and keep tolls (“the Tolling Right”) which, it claimed, had a value at least equal to the value of the only land asset held by the Property Trust, being the lease under which the RTA leased the ownership and the operation of the Tunnel to the trustee of the Property Trust (“the Land Lease”) (“the Tolling Right Issue”).
- The loan between the trustee of the Property Trust and CCM (being the “Intercompany Loan”) was an asset of the Property Trust for land rich duty purposes and had a market value at least equal to its face value of $298,000,000 (“the Loan Issue”).
In relation to the second main issue of whether the PT Transfer was exempt, the plaintiff contended that duty of $10 was chargeable in respect of the PT Transfer because it was a transfer “as a consequence of” the retirement of a trustee or the appointment of a new trustee and the transfer was not part of a scheme for conferring an interest on the new trustee to the detriment of a beneficial interest or potential beneficial interest of any person (s 163ZB(1)(i) and s 54(3)).
Defendant’s submissions in the Trust Proceedings
The Chief Commissioner contended that the Tolling Right was not a separate item of property and, in any event, it was an interest in land. Even if the Tolling Right was a separate item of non-land property, the Chief Commissioner claimed that there was no proper basis for attributing any value to it and certainly not a value equal to the value of the Land Lease, as the plaintiff claimed.
The Chief Commissioner also contended that the Intercompany Loan was not to be counted as part of the property of the Property Trust for land rich duty purposes because it was excluded under the Duties Act as a loan repayable on demand within 12 months of the loan being made (s 163B(2)(c)) and/or because it was a loan made to an associated person of the Property Trust (s 163B(2)(d))
In relation to the issue whether the PT Transfer was exempt (“the Exemption Issue”), the Chief Commissioner contended that the PT Transfer was not as a consequence of the retirement by a trustee and, in any event, it was part of a scheme for the conferring of an interest to the detriment of a beneficial interest or potential beneficial interest of a person.
Question 1: Is the Tolling Right a separate item of property?
In determining this question, Bergin CJ in Eq made a preliminary finding that the Tolling Right is essential for the collection of tolls.
Her Honour then proceeded to consider the relevant case law which had considered what is meant by the term “property”. Her Honour found that applying the criteria referred to by Lord Wilberforce in National Provincial Bank Limited & Ainsworth  AC 1175, the Tolling Right was clearly definable. It was a right to levy, collect and keep the tolls for use of the Tunnel (see paragraph 141 of her Honour’s judgment). It was identifiable by third parties by reference to the relevant clauses of the Project Deed, the Land Lease and the Sublease (being a document under which the Property Trust subleased the Tunnel to CCM. It had a degree of permanence and stability in that it was drafted for the term of the Lease and the Sublease. Her Honour then remarked that the real question was whether the Tolling Right satisfied the requirement of being “capable in its nature of assumption by third parties”.
At paragraph 157 of her judgment, her Honour held that although it has been recognised that some individual rights can be separately assigned (for instance, perhaps the royalty payments in the sub-licence between Sara Lee and Underworks in Pacific Brands Sport & Leisure Pty Limited v Underworks Pty Limited  FCAFC 40), the Tolling Right is part of and integral to the operation of the tollway. The tollway could not “operate” without it.
Her Honour held in that regard that the Tolling Right and the lease of the Tunnel (the operation of the tollway) are inseparable parts of a composite whole. She held that the fragmentation of the rights under the Project Deed, the Land Lease and the Sublease for which the plaintiff contended was not consistent with the structure of the Deed and Agreements for the operation of the tollway. In light of this, her Honour held at paragraph 158 of her judgment that the Tolling Right is not an item of property separate from the Land Lease.
Question 2: Is the Tolling Right an interest in land?
Although not required to do so, her Honour addressed this question and found after a consideration of the relevant case law and the relevant legislative provisions in the Interpretation Act 1987 (NSW) and the Duties Act that, if the Tolling Right were separate property, it would not be an interest in land within s 163C of the Duties Act.
Question 3: Is the Property Trust’s title to the Tolling Right qualified by the Sublease?
Her Honour found that if the Tolling Right were an item of property, separate from the Land Lease, the hypothetical purchaser would have to take into account the existence of CCM’s rights under the Sublease. In that regard, her Honour favoured the defendant’s argument on this issue.
At paragraph 200 of her judgment, Bergin CJ in Eq held that she was satisfied that each of the loans set out in the Loan Account Statement were loans from the Property Trust to CCM under Facility B of the Intercompany Loan Agreement.
At paragraph 201, her Honour found that the extension of the Termination Date of the Intercompany Loan Agreement was effective and in this regard she was not satisfied that these loans were repayable within 12 months.
However, on the “associated person” issue, her Honour in Eq found after a consideration of the High Court decision in Federal Commissioner ofTaxation v Patcorp Investments Limited (1976) 140 CLR 247, that the Intercompany Loan should be excluded from the valuation process on account of it not being an asset of the Property Trust for the reason that the trustee of the Property Trust and CCM were still “associated persons” as at 27 September 2007 being the Acquisition Date.
In that regard, the Chief Commissioner was successful on the Loan Issue.
At paragraph 224, her Honour remarked that as a result of her findings thus far that the Tolling Right is not a separate item of property and that the Intercompany Loan is not to be counted in the process of valuing the unencumbered property of the Property Trust, the plaintiff’s claim that the Property Trust was not land rich at the time of the Acquisition Date failed.
Her Honour then however proceeded to consider the valuation issues in satisfaction of the request made by the plaintiff.
At paragraph 250 onwards, her Honour addressed as a starting point to her consideration of the valuation issues the plaintiff’s submission that the opinion of the Chief Commissioner’s valuer (Mr Lonergan) was rendered inadmissible, or should be given no, or little weight because:
- he changed his position throughout his cross-examination; and
- he made concessions that justified such an outcome.
After consideration of certain extracts of the transcript setting out parts of Mr Lonergan’s evidence in cross-examination, her Honour stated at paragraph 267 that she was satisfied that Mr Lonergan’s evidence in cross-examination neither rendered his opinion inadmissible nor justified a conclusion that it should be given little or no weight.
At paragraph 276 of her judgment, her Honour observed that, in addition to her difference with the plaintiff’s valuer (Mr Potter) about the appropriate interest rate that should be applied to the Intercompany Loan, there were other aspects to Mr Potter’s valuation approach that caused her Honour not to prefer it to Mr Lonergan’s valuation approach. She observed at paragraph 276 that “there are real problems with the restructure assumptions that Mr Potter has adopted”.
At paragraph 287, her Honour stated that she is not satisfied that it was appropriate to attribute a value of $298 million to the Intercompany Loan as Mr Potter had done. She remarked that she is satisfied that it was appropriate to adopt Mr Lonergan’s value of $11 million which he ascribed to the Intercompany Loan.
At paragraph 295, her Honour remarked that having regard to her earlier findings and the conclusions she had reached on the valuation issues, the Property Trust was land rich at the Acquisition Date.
Valuation of Tolling Right
Although it was not necessary for her to do so given her Honour’s findings that the Tolling Right was not a separate item of property, her Honour found that the attribution by the plaintiff’s valuer, Mr Potter, of a value of at least equal to the value of the Land Lease was not unreasonable.
At paragraph 314, her Honour remarked that if it had been necessary to decide this issue, she is of the view that the arrangement to reduce the value of the Land Lease by reducing the payments under the Sublease would be disregarded by reason of s 163Y of the Duties Act. In that regard, she upheld the Chief Commissioner’s argument on that issue.
The Exemption Issue
The first issue for the court’s consideration was whether the PT Transfer and the CCM Transfer were effected “as a consequence of” the retirement of a trustee or the appointment of a new trustee.
Having regard to the relevant decisions referred to by the plaintiffs (including the decisions in Perpetual Trustee Company Limited v Commissioner of State Revenue  VSC 177 and Reseck v Federal Commissioner of Taxation (1975) 133 CLR45), her Honour found at paragraph 344 that she was satisfied that the expression “as a consequence of” in the context of s 54(3) of the Duties Act does not require exclusivity of purpose. In her Honour’s view, it was sufficient that the PT Transfer and CCM Transfer were effected as a consequence of the retirement and appointment of the trustee, even if they were also a consequence of other factors. Accordingly, her Honour was satisfied that the units in the Property Trust and the shares in CCM were transferred “as a consequence” of the change in trustee.
The next question that arose for her Honour’s consideration in relation to the Exemption Issue was whether or not there was a scheme of the particular kind referred to in s 54(3)(c) of the Duties Act. In that regard, the only issue for her Honour’s determination was whether the scheme was for the conferral of an interest in relation to the trust property “to the detriment of the beneficial interest or potential beneficial interest of any person”.
The Chief Commissioner’s contention on this issue both at the time of the assessments and during these proceedings, was that the term “detriment” in s 54(3)(c) is to be understood as “a loss of a beneficial interest in trust property”. It is not to be determined by making an assessment of the commercial outcomes for each of the participants in a scheme. The Chief Commissioner’s contention was that the trust property the subject of the scheme was no longer available to those who had, or may have had, a beneficial interest in it because it was replaced by something different, being an amount of money. In contrast, the plaintiff contended, both during the assessment process and in these proceedings, that in determining whether the scheme for conferring the relevant interest had the requisite “detriment”, it was permissible to take into account the fact that market value was paid on the transfer of the dutiable property.
At paragraph 382, Bergin CJ in Eq stated that she rejected the Chief Commissioner’s submission that it is correct to assume harm, loss and/or damage occurred because the trust property was transferred away. She remarked that in assessing whether there is harm, loss or damage, it is necessary to weigh up whether the purpose of the scheme was to confer an interest to the detriment of the beneficial interest or potential beneficial interests in the trust property of any person. To her Honour’s mind, that seemed to require an assessment of the totality of the scheme rather than only part of it. Her Honour further remarked that to exclude consideration of the money that was received when the trust property was transferred away was to exclude consideration of an integral part of the scheme.
Her Honour remarked at paragraph 388 that detriment may take many forms. It may be diminution in value of the particular interest. It could be the introduction of obstacles to the beneficiaries’ enjoyment or access to their interests in a timely manner. It could be the appointment of a trustee who is perceived to lack support for particular beneficiaries. She remarked that the only issue raised by the Chief Commissioner in respect of detriment was that the persons with a beneficial interest or potential beneficial interest in the trust property lost the trust property because it was sold. She held that it is not appropriate to describe that transaction as a “loss”. The receipt of market value for the trust property at a time of uncertainty of commercial viability could in fact be seen as an enhancement rather than a detriment to those interests. Consistently with what she had said in proceeding paragraphs, she held that if one is to assess a “loss”, it is necessary to see whether there has been, as the plaintiffs put to the Chief Commissioner, a quid pro quo or a receipt of a benefit to counter or neutralise any loss.
Having found this way on the detriment issue, her Honour found that she was satisfied that the relevant transfers were not part of a scheme for the conferring of interest in relation to the trust property on a new trustee “to the detriment” of the beneficial interest or potential beneficial interest of any person.
It therefore followed that her Honour was satisfied that duty of $10 was chargeable under s 54(3) of the Duties Act in respect of the CCM Transfer. More significantly from a revenue perspective, she was also satisfied that the PT Transfer was exempt under s 163ZB(1)(i) of the Duties Act.
On the basis of these findings, her Honour concluded that:
- In the Trust Proceedings, the Chief Commissioner’s assessment of duty of $36,285,490 plus penalty tax of $5,442,823.50 (following partial remission on an objection) and interest of $19,346,220.38 on the PT Transfer was revoked; and
- In the Company Proceedings, the Chief Commissioner’s assessment of duty of $20,431.20 plus interest of $10,893.24 on the CCM Transfer was revoked.
Link to decision
CCM Holdings Trust Pty Ltd v Chief Commissioner of State Revenue; CCT Motorway Company Nominees Pty Ltd v Chief Commissioner of State Revenue  NSWSC 1072