Background
Since its incorporation in 1963, the primary business of the Plaintiff, (“LPC”), has involved dairy farming, conducted from its extensive landholdings in both Leppington and Bringelly NSW. During the early 2000s, the NSW Government approached the landowners in Leppington and Bringlley, for the rezoning of some land for the purposes of residential development. At the time of this rezoning, Landcom approached LPC with the proposal of assisting with the development of LPC’s land in and around Oran Park. In anticipation of these dealings, LPC and Landcom entered into arrangements with a related company, Greenfields Development Company Pty Ltd (“GDC”).
GDC was incorporated in May 2007 for the purposes of the development to be undertaken with Landcom which resulted in a suite of agreements between LPC, GDC and Landcom. A set of these documents were produced in 2008 and referred to as the 2008 transaction documents for the development of the land (the “Project” and the “Project Land”). They included a Call Option Deed pursuant to which LPC granted to GDC an option to acquire the Project Land in stages by issuing notices exercising the option in respect of specific parcels of the Project Land. The effect of those documents was that duty would be paid twice on the Project Land before it was sold to the ultimate purchaser, that is, when GDC purchased the Project Land from LPC and when the ultimate purchaser purchased their parcel of the Project Land from GDC.
Further agreements were entered into in October 2010, referred to as the 2010 transaction documents, which importantly included the Development Rights Agreement dated 11 October 2010 (“DRA”). The DRA retained the Call Options but created an alternative pathway to develop the Project Land. Pursuant to the DRA, GDC was entitled to issue “Development Notices” requiring LPC to deliver up possession of parcels of the Project Land to GDC to develop without LPC transferring ownership of those parcels to GDC.
In November 2016, LPC lodged the DRA with the Chief Commissioner for assessment in accordance with the DA after a question was raised during the hearing of land tax proceedings in the Supreme Court of NSW about whether the DRA did effect or evidence a dutiable transaction.
The Chief Commissioner, by a Duties Notice of Assessment issued on 20 February 2017, assessed the Plaintiff to duty in the amount of $15,596,805, penalty tax in the amount of $779,840.28 and interest in the amount of $10,605,344.88 in respect of the DRA. This was made on the basis that this agreement between the Plaintiff and GDC was a declaration of trust over dutiable property within ss. 8(1)(b)(ii) and 8(3) of the DA.
The dutiable property was the Project Land as defined under the DRA and the dutiable value was the amount of $283,842,096. Following an objection, on 9 November 2021 the Chief Commissioner issued a revised Duties Assessment which result in a reduction of the duty to $7,585,490, a corresponding reduction of the interest to $6,518,812.40 and a waiver of the penalty.
Statutory Framework
S. 8 of the Duties Act imposes a duty on a declaration of a trust over dutiable property.
S. 58 of the Duties Act provides for fixed duty of $500 in respect of certain instruments establishing a trust relating to unidentified property and non-dutiable property.
Submissions
LPC submitted that it owned the Project Land for its own benefit subject to the extensive contractual rights conferred on GDC by the 2010 transaction documents and the corresponding obligations imposed on them by LPC. LPC also submitted that the Project Land was not ‘identified property’ vested in the Plaintiff for the purposes of s. 8(3) of the Duties Act.
The Chief Commissioner submitted that the DRA is a dutiable transaction within s. 8(1)(b)(ii) on the basis that GDC’s right under cl. 6.1 of the DRA to ‘carry out the Project for GDC’s sole benefit’ supported a construction of the DRA, as manifesting an intention that LPC would hold the Project Land on trust for GDC. The Chief Commissioner further submitted that the disclaimer of a trust relationship in the DRA is not determinative of whether the DRA is properly a declaration of trust within s. 8(3) of the Duties Act.
The Chief Commissioner submitted that the Project Land is identified and therefore s. 58(2) of the Duties Act is not engaged.
Decision
In respect of the disclaimer, the Court held that it was relevant to the principal question as to whether there was trust relationship but it was not determinative.
The Court held that the DRA, when read in the context of the 2010 transaction documents did not evidence a manifest intention to create an express trust in respect of the Project Land for the benefit of GDC within the meaning of s. 8(3) of the Duties Act. In particular, the rights of LPC were inconsistent with fiduciary obligations that LPC would have owed to GDC if it were the trustee of the Project Land for GDC. LPC was required to hold the Project Land subject to GDC’s extensive rights under the DRA and other transaction documents but was entitled to act in its own interests in enforcing its own rights, from which LPC stood to derive substantial benefits.
The Court found that LPC retained two substantial benefits with respect to the Project Land namely:
- LPC’s entitlement to continue its existing farming business on the Project Land was not a limited benefit; and
- LPC’s entitlement to payment of the “LPC Lot Amount” out of the Gross Proceeds of sale was not analogous to a trustee’s entitlement to be paid fees for its services as trustee. Rather, they were rights to enjoy the fruits of ownership of the alleged trust property, whilst allowing GDC to acquire or obtain possession of the property in stages for the purpose of the Project, at prices determined in accordance with an agreed methodology, and enjoy the fruits of that Project at GDC’s cost. They are rights to act in LPC’s own interests in relation to the Project Land and the Project in circumstances where such interests come into conflict with GDC’s interests as a result of GDC’s default in performing its obligations to LPC.
The Court also noted the following features of the 2010 transactions documents:
- GDC’s entitlement after 11 October 2011 to exercise Call Options was difficult to reconcile with the argument that the DRA effected a declaration of trust. If such a declaration of trust had been effected in favour of GDC, there would be no need for it to exercise call options and pay for the purchase of the Project Land.
- LPC was entitled to act in its own interest in enforcing its own rights against GDC and that was fundamentally inconsistent with the fiduciary obligation that LPC would have owed to GDC if it were the trustee of the Project Land for GDC. For example, the DRA does not constrain LPC from exercising its termination rights in pursuit of its own legitimate interests.
The Court declined to determine whether the land was properly identified for the purpose of s. 58(2) in light of the determination of the principal question in favour of LPC.
Orders
LPC was entitled to orders revoking the assessment issued by the Chief Commissioner on 20 February 2017 (as revised on 9 November 2021).
Decision
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