Commissioner of State Revenue v Lend Lease Development Pty Ltd; Commissionr of state Revenue v Lend Lease IMT 2 (HP) Pty Ltd ; Commissioner of State Revenue v Lend Lease Real Estate Investments Limited [2014] HCATrans 243 (5 November 2014)

Last Updated: 5 November 2014

[2014] HCATrans 243

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
Melbourne No M74 - M79 of 2014

B e t w e e n -

COMMISSIONER OF STATE REVENUE

Appellant

and

LEND LEASE DEVELOPMENT PTY LTD

Respondent

Office of the Registry
Melbourne No M80 of 2014

B e t w e e n -

COMMISSIONER OF STATE REVENUE

Appellant

and

LEND LEASE IMT 2 (HP) PTY LTD

Respondent

Office of the Registry
Melbourne No M81 of 2014

B e t w e e n -

COMMISSIONER OF STATE REVENUE

Appellant

and

LEND LEASE REAL ESTATE INVESTMENTS LIMITED

Respondent

FRENCH CJ
HAYNE J
KIEFEL J
BELL J
KEANE J

TRANSCRIPT OF PROCEEDINGS

AT CANBERRA ON WEDNESDAY, 5 NOVEMBER 2014, AT 10.17 AM

(Continued from 4/11/14)

Copyright in the High Court of Australia

____________________

FRENCH CJ: Yes, Mr Solomon.

MR SOLOMON: If your Honours please. Good morning, your Honours. I will be much briefer than the in terrorem 30-minute estimate I gave yesterday evening. That was just designed to put my learned friends off for the evening, your Honours. I have five short points to make to conclude our submissions. Three of them concern the remaining points we seek to make in relation to our learned friends’ outline.

First of all, if your Honours would turn in our learned friends’ submissions to paragraph 22, our learned friends contend that the starting point in determining the consideration is the amount stated in the agreement between the parties as the consideration. They cite principally for that submission Bullfinch. Bullfinch is very short. I do not want to take your Honours to it in terms, but your Honours may wish to have a look at it.

Even if – and we do not accept this is so – that proposition is in a general way accurate or accurately derived from Bullfinch, in this matter it in any event begs the question as to the agreement being referred to, and we would submit to your Honours that it is not really a useful starting point to seek to identify an agreement to see the consideration. In truth, it is chaining oneself to an instruments-based approach to do that, and it is unlikely usefully to cause your Honours to answer accurately the questions set out by the majority in Dick Smith needing an answer.

Secondly, of the three points, the respondent, like the Court of Appeal below, places significant and, we say, inapposite focus on the land at the time of the transfer. If I could just give your Honours some references - at six points the respondents speak as to whether or not the land is developed - paragraphs 6(a), 20, 33, 46, 49(d) and 50.

At least at paragraph 18 the respondents focus on the condition of the land. As I have already demonstrated yesterday, there is a real focus on the issue of value in the contentions. Those matters will each for your Honours be unhelpful diversions. They will unhelpfully divert attention from the correct inquiry, so do not do that. Further, moreover, they cause there to be a loss of focus on the dutiable property being transferred which is the fee simple estate.

Finally, while I have before your Honours the respondent’s submissions, the proposition for which our learned friends contend can usefully be seen, I think, at two places read together in the outline. If your Honours would first of all go to paragraph 9(b) on page 5, there is a submission about the gasworks site remediation contribution.

The case our learned friends press is that the Authority was obliged to carry out remediation and that in return Lend Lease was obliged to pay to VicUrban an amount capped at $27 million, and as a matter of characterisation we cavil with that as usefully being an accurate summation of the application of the statutory test.

More squarely, that is, referring to all of the payments, if your Honours turn to page 8, paragraph 14(b), the case against us there set out is that Lend Lease, it is submitted by our learned friends, promised to make additional payments, that is, other than the stage land payment, the genesis of which I took your Honours to yesterday:

in return for promises by VicUrban to carry out or complete works in relation to other land . . . in order to obtain respondents to carry out the Developer’s Project . . . and to derive profits from that project pursuant to the Development Agreement.

We want to say two or three things about that case. First, we submit to your Honours that it is merely conclusionary in the way in which it is put forward. It is not an analysis of clause 4.1 or clause 4.7 or Schedule C or, we respectfully submit, a reasoned response to our submissions on those clauses.

Further, respectfully, it repeats the Bambro fallacy. It seeks to identify separate and distinct matters. Once that fallacy is put to one side, we rhetorically ask what the process of reasoning is which permits the respondents to contend that these amounts are to be characterised or evaluated in a narrow sense - remediation payments for remediation, external infrastructure for infrastructure and the like. They are the matters we wanted to raise in relation to our learned friends’ outline.

Can I return to the question Justice Keane asked me yesterday which some of us assumed would find its answer in a default clause? It does, so let me remind your Honours of the question and then provide a satisfactory answer to it. The question was whether the performance of the obligation to make the payments, that is the payments I took your Honours to yesterday, was something required before further stages were transferred and the answer in substance is yes. So, let me briefly show your Honours why that is so in the agreement. If your Honours go to appeal book 1, can I first show your Honours three definitions and then show your Honours one clause. The first definition is at appeal book 1, page 109, the definition of “financial default”. It is:

a failure to pay any money to the Authority under this Agreement or a Land Sale Contract when due and payable –

Would your Honours next notice at 114 “Material Default”? Material default includes:

(a) the occurrence of a Financial Default -

Thirdly, before going to the substantive clause, if your Honours go to 106, “Default Event” and your Honours will see that default event includes at subparagraph (k) “a Material Default”. If your Honours then would go to page 187 – perhaps 186 to start – at 186 your Honours will see clause 20, “DEFAULT EVENT”. If your Honours at 187 notice clause 20.4, in substance there is an opportunity under the agreement for defaults to be cured and if that does not occur, your Honours will see at 20.4(b)(iv) that in respect of a Material Default the Authority may terminate the agreement.

For completeness, would your Honours also notice clause 20.6? It provides what is to occur were the agreement so to be terminated. Could your Honours notice in particular 20.6(g). Once stages are forfeited, which intuitively means what your Honours would expect higher up in the clause, in (g)(ii) after the Authority receives loss and damage, the distribution continues - (g)(ii), amounts received by the Authority from dealings by the Authority with the forfeited stages will be distributed:

(ii) by way of reimbursement to the Developer the aggregate of all sums actually outlayed by the Developer on purchasing the Forfeited Stages will be paid to the Developer –

Then your Honours will notice –

including any amounts paid on account of the Project External Infrastructure Contribution and the Project Gasworks Site Remediation Contribution in respect to the Forfeited Stages –

Lastly, your Honours, if I can say two or three things about the orders we seek – two things. First, unless your Honours are persuaded that the consideration for the transfer of each stage is the stage land payment, the price specified in each land sale contract, it will follow that each appeal will otherwise be allowed.

Secondly, in two of the appeals – C10 (Montage) M78 and C9 (Myer) M81, both of 2014 - the Commissioner does not press ground of appeal 6(c). The Commissioner does not seek to maintain the assessment as to the Grand Plaza retention amount. We have identified that in our submissions. In those two matters at least, accordingly, the proceedings respectively will need to be remitted to the Court of Appeal. Subject to any matters your Honours have, those are the submissions for the appellant. If your Honours please.

FRENCH CJ: Yes, thank you, Mr Solomon. Mr Young.

MR YOUNG: If the Court pleases., our submissions will proceed at two broad levels. If I can identify them firstly to assist the Court with the direction of the submissions, we will address the statutory question. It is our submission that the relevant provisions of the Act have been misconstrued and misapplied by the Commissioner in the submissions they have put forward. Amongst other errors, the Commissioner substitutes other words and a different inquiry for the language of the Act.

Further, the Commissioner disregards relevant provisions of the Act in arriving at the so-called test advanced which is drawn not from the language of the Act but from the factual application of the Act to the particular facts of the Dick Smith Case. In contradistinction we say that the Court of Appeal has correctly construed and applied the Act.

The second broad level that our submissions will need to address concerns the transactional documents. By that I mean the contracts of sale, the transfers, all versions of the development agreement, including the stage deeds which were amendments, in effect, to the development agreement. Our submission here – as it was at both stages below – is that the statutory task requires a consideration of all of the provisions of the transaction documents. We have never suggested the contrary. That requires attention being paid to the full context of the development agreement, its nature, function and purpose and the statutory context in which it arises.

On a number of occasions my learned friend characterised our submissions as confining the analysis to the contract of sale. We have never urged that. We were the ones, in fact, who urged the Court of Appeal to undertake a careful review of all of the provisions of the development agreement and the Court of Appeal, as evident from the judgment, undertook that careful review of all the provisions.

There is, in fact, no challenge, no criticism of the Court of Appeal’s understanding of the detailed operation of the provisions of the development agreement. What my learned friend has done this morning, and yesterday, is to take the Court to a narrow slice of the provisions of the development agreement without explaining the full context and function within which those provisions are to be understood. That has led to an erroneous set of propositions being advanced.

HAYNE J: Because the documents are misconstrued or because the documents are misunderstood?

MR YOUNG: Both. We do submit that when all the of the transaction documents are properly evaluated there is no basis for concluding that the various contribution payments were provided in consideration for the transfer of the land, and that is the statutory question. Was it provided in consideration for the transfer of the land? Noticeably, our learned friend said he was studiously avoiding making any submission about the meaning of the expression “consideration for the transfer” in the context of these particular transaction documents. He went, not to the statutory language, but to the way in which the language was applied to the facts of a different case.

The other noticeable feature of the Commissioner’s approach to the transaction documents that I will develop is that he has eschewed any reference to the provisions concerned with a number of payments that were the subject of assessment and consideration by the Court of Appeal. He has focused entirely upon the payment regime in clause 4.7.

He has not directed any submissions to justify the assessment of the Grand Plaza contribution, the Grand Plaza additional contribution, the additional Authority payment which was a payment for undertaking works that exceeded the initial build-out limits on the number of apartments, et cetera. He has not directed any submissions to the non-monetary items that were assessed, which involved Lend Lease undertaking its own works on land external to the land being purchased.

There has been no attempt to justify any of those other payments which were the subject of assessment. The answer is, of course, when one analyses the agreement those assessments are unjustifiable because there is no tenable basis upon which they can be regarded as consideration for the transfer of the land. They were payments related to the undertaking of other works.

Now, I will develop all of these points if I may. One other observation in the broad before I come to matters of detail is this. The consequence of the Commissioner’s approach to the statute of substituting different language and a different inquiry is to arrive at the proposition in paragraph 31 of the Commissioner’s submissions and this question permeates all of the Commissioner’s submissions. What is put is that:

the question to be answered is: “What did VicUrban bargain to receive to render it willing to part with title to the various parcels of land?”

In various places, the answer given is the totality of the promises in the development agreement. Now, there is a difficulty with that. Many of the promises related to the performance of work by the Authority or by Lend Lease itself which is addressed in the agreement itself in terms which make it very plain that it is not consideration for the transfer of the land.

I have mentioned some of the additional payments that our learned friend has not sought to justify but there are many others that were not assessed so the proposition, the test that is advanced leads to the answer, the totality of the promises in the development agreement but they were not the subject of the assessment. The Commissioner has arbitrarily selected a few of them and now seeks to justify just a small subset of them.

The other problem with that approach that leads to the answer, the totality of all the promises in the development agreement, is that it affords no discrimen to identify which promises are to be regarded as consideration for the land and which are not. It leads to the conclusion that every piece of development work undertaken by Lend Lease was a promise given under the development agreement and there is no basis for discriminating between Lend Lease’s building of enormous towers, office buildings, apartment complexes and all of the non-monetary value of what it undertook being excluded from the assessment. There is no line of discrimination, if you substitute this language for the statutory language.

Now, I will develop, as I said, those submissions. May I start with something that has not been mentioned, before I come to the statutory question, that is the overall context, function and purpose of the development agreement? As the Court will have seen from the Court of Appeal’s thorough analysis of the development agreement, it contained multiple interrelated obligations of the developer and VicUrban. It provided for both parties to undertake future works. The nature of those works enlarged over time, with amendments to the development agreement and I will point that out.

There were multiple exchanges of value recorded in the development agreement and some explicitly were expressed in language that made it clear that they were not to be regarded as consideration for the transfer of the land. The development agreement recorded an agreement upon the joint development of the area - in the language of the development agreement “joint participation in the developer’s project”. It did that because it was an agreement entered into as required by VicUrban’s statutory charter in the Docklands Authority Act 1991. Can I go to that piece of legislation, please?

FRENCH CJ: As I understand it, VicUrban was established by a 2003 statute and then became successor in title to Docklands Authority?

MR YOUNG: It is a 1991 piece of legislation.

FRENCH CJ: No, no, the Victorian Urban Development Authority itself became the successor in title in 2003, I think.

MR YOUNG: Yes, yes, that is true. But the Docklands Authority Act is the Act I want to go to - - -

FRENCH CJ: Yes, I understand.

MR YOUNG: - - - because that provides for the objectives and functions of the Authority. Your Honours should have some extracts of that legislation, running from sections 9 to 11. Section 9 states the objective of the Authority being the “development of the docklands area”. The functions of the Authority are set out in section 10. Paragraphs (a), (b), and (c) are particularly relevant to promote private sector involvement and then to oversee that development. But the most important provision is section 11 because it explains what is happening in the development agreement. Section 11(1) provides that:

The Authority must, as far as practicable make sure that by the end of its involvement in the development of the docklands area, it has secured a prudent financial return on its overall commercial investment in the area.

The other works that the development agreement required the Authority to undertake on an ongoing basis were the investments, relevantly in the area, and what the development agreement provides for through these payments is for the Authority to secure a return on that investment in the external infrastructure – the art it puts in place, the gasworks remediation, et cetera.

HAYNE J: So what follows? Let it be assumed this was not a statutory authority but was AB Development Company. AB Development Company might have a statement, if it still had memorandum and articles, in its memorandum which would say that the objective of this company is to secure a prudent financial return on its overall commercial investment in the project.

MR YOUNG: Several things follow, your Honour. Firstly, this is not a mere objective. This is a statutory obligation to secure a return on its commercial investment in the area. What was the commercial investment by the Authority in the area? It was not the land. The land was vested in the Authority. It was its investment in infrastructure and other works as provided for in the development agreement. So it was required to secure a return on that investment.

It is relevant to the characterisation of the works and interrelated payment provisions of the development agreement to see that the purpose – the nature and purpose of the works and the payments that the Authority secured to come back to it were in pursuance of this statutory obligation to secure a prudent financial return on its investment. That is surely relevant to the characterisation of the payment provisions in the development agreement and it bears directly upon whether those payments were consideration for the land or whether they were payments providing a financial return to the Authority for its external works, et cetera.

KIEFEL J: The Authority was the vendor of the land?

MR YOUNG: The Authority was the vendor of the land.

KIEFEL J: As I understand your argument then, we are looking at effectively two quite distinct aspects of what the Authority negotiates. One is something that it does not obtain a return on, namely, the land, and the other is something where it may obtain a return on, and that is how you are going to come at the development agreement.

MR YOUNG: Well, that is relevant to characterisation. The ultimate question is the statutory one, were these payments consideration for the land, and a relevant consideration is to understand the nature and purpose of the payments and the works to which they related.

HAYNE J: But do you or do you not adopt the division which Justice Kiefel has put to you?

MR YOUNG: Well, we adopt a division, but it is not necessary to segregate every provision in the development agreement into one category or another because we are applying section 20 of the Stamps Act. What is necessary to determine is whether the payments that had been assessed were consideration for the transfer of the land in its then condition.

KIEFEL J: As I understand what you are saying about section 11, it is that the Authority has little responsibility or - interest, is, I suppose, the better word - interest in the return on the land as such.

MR YOUNG: No, I am not saying that. Can I take your Honour to section 24, because, to an extent, there is a distinction drawn in this Act between two different functions. Your Honour will see under section 24(1)(b) there is the power to dispose of the interest in land on terms, including consideration that the Authority considers appropriate, and that no doubt means recovering a proper price reflecting the value of the undeveloped land. So I am not suggesting that there is anything preventing the Authority seeking an appropriate return on the land.

KIEFEL J: But you are saying that they are two distinct matters to which it gives different kinds of consideration?

MR YOUNG: Well, it has a different function and purpose. Insofar as it makes investments on adjoining land it is required to recover a return on those investments, quite aside from whatever return it recovers on the land.

HAYNE J: You referred to the unimproved land?

MR YOUNG: Yes, I did, your Honour.

HAYNE J: Why should it not derive as much profit as it can in the marketplace on whatever terms are available?

MR YOUNG: Well, it recovers the negotiated price or, when the Commissioner looks at it, if he thinks the negotiated price is less than the unencumbered value he will assess the higher figure. But the fact that there is a negotiated price does not obviate the fact that the Authority has a statutory function to recover a return on its other investments, quite aside from what it recovers on the land. What the Commissioner does is load every promised payment in the development agreement onto the land as the consideration for land, with effectively no return, on his approach, for the investments.

FRENCH CJ: But we must, must we not - I mean, this is, in a sense, another way of putting the first question, I think, that Justice Hayne put to you. There is a myriad of ways in which the Authority can exercise its powers and pursue its objectives, some of which may give rise to transactions dutiable on one basis, some of which may give rise to transactions dutiable on another basis.

MR YOUNG: Of course, your Honour.

FRENCH CJ: So must not our focus ultimately be on the development agreement? Is the Authority, for all intents and purposes, no different from a natural person in that sense?

MR YOUNG: Your Honour, we accept that the entirety of the development agreement is relevant to the characterisation exercise, but ultimately what you must focus on is the consideration for the transfer of the land, which is something less than the development agreement.

FRENCH CJ: Well, it is a characterisation of the payments which are made and the obligations entered into pursuant to the development agreement.

MR YOUNG: Yes, of course, but one needs to understand the function and purpose of the development agreement and the context in which the various payments are being agreed because if you characterise the payments in the development agreement without regard to that, you are not undertaking a proper or sensible process of characterisation. I am not trying to be prescriptive in saying that you cannot look at the development agreement. Our case is you need to understand the entirety of the development agreement, including the context in which it was entered into and the statutory functions that underpin it.

HAYNE J: Which include 24(2) which is the route of its power.

MR YOUNG: Of course.

HAYNE J: What are we fussed about power? We see power in 24(2). What more do we get out of it, Mr Young?

MR YOUNG: Well, I repeat my earlier answer to your Honour that section 11 goes beyond a conferral of power and imposes an obligation. The Authority must secure a return on its investment and that investment includes its investment in the external infrastructure, the gasworks remediation works, its investment in art, its investment in the Collins Street Park, its investment in other items of infrastructure that the agreement deals with.

KEANE J: Is there something in the development agreement that says the development agreement is to be construed in conformity with section 11 of the Docklands Authority Act?

MR YOUNG: No, not expressly, your Honour, but I am just saying that this is a relevant consideration in the overall characterisation of the exchanges of value.

KEANE J: But how does it link in to the interpretation of the development agreement with a view to performing this characterisation exercise that you are speaking of?

MR YOUNG: Well, I will need to take your Honour through particular provisions to demonstrate that, but when you look at say provisions concerned with the Collins Street Park, the Authority is to undertake various works and it achieves a return in respect of those works and that is the exchange of value directly recorded in the development agreement.

KIEFEL J: Are you going so far as to say with respect to section 11 that to be able to say that it has fulfilled its statutory obligation, the Authority must be able to be seen to have dealt with these matters external to the land separately and distinctly? It has to be a kind of accounting?

MR YOUNG: No, but a relevant consideration in characterising what the development agreement provides for is the recognition that the Authority is bound by statute to obtain a prudent return on those investments.

KIEFEL J: But - I think it has been put to you before – does any of that really matter because we are not here to determine whether they have fulfilled their statutory duty, but rather what they did?

MR YOUNG: Of course we are not addressing that question, your Honour. We are addressing the proper characterisation of the payment regimes in the development agreement and we say you cannot go through and adopt a set of things that you cannot have regard to for the purposes of characterisation. That is what our learned friends in effect do and I will demonstrate that as I go on. But can I take Justice Keane’s point and illustrate it with one example?

HAYNE J: Just before you come to the example, I need to understand the argument. The argument seems to be that the Authority must obtain a return on its investment, for example, in infrastructure like the Collins Street Park. Is that right?

MR YOUNG: Yes.

HAYNE J: It obtains that investment by the developer paying money. Is that right?

MR YOUNG: No.

HAYNE J: How else – well, where else does it get the return on investment from?

MR YOUNG: Your Honour put to me it obtains that investment.

HAYNE J: It obtains that return.

MR YOUNG: Did your Honour mean obtains that return?

HAYNE J: Yes.

MR YOUNG: It makes the investment by expending money on works. It obtains a return by securing a payment from the developer as set out in the development agreement.

HAYNE J: You would have the inquiry stop there - - -

MR YOUNG: No, of course not.

HAYNE J: - - - without regard to the fact that the developer pays the money under an agreement which includes giving the developer the right to develop and sell other parts of the land.

MR YOUNG: No, I am not excluding that. I do not mean to keep repeating the point, but we say that this is relevant to characterisation, and can I illustrate it by reference to the Grand Plaza contribution payment? If the Court goes to volume 1, please, of the appeal book, and I need to – I am sorry, the Court will need to go to volume 3 of the appeal book, clause 13.2, which is at page 944.

Just before I go to the detail of the clause, could I refer to the background to Grand Plaza? The background is this. It was originally under the 2001 development agreement an obligation on Lend Lease to build Grand Plaza, so it had the obligation. Under the 2006 development agreement, Lend Lease was required as a matter of accounting to maintain a Grand Plaza retention account out of which it funded its Grand Plaza works. Now, that retention account and the accounting measure was assessed. It was not even a payment, but that has now been abandoned. That is the background.

The 2008 development agreement altered the arrangement. The Authority assumed what had previously been Lend Lease’s obligation to build Grand Plaza. In consideration of the Authority assuming what had formerly been Lend Lease’s obligation to build Grand Plaza, Lend Lease agreed to make certain payments. That is reflected in clause 13.2(a):

The Authority must now procure the construction –

and that had formerly been Lend Lease’s obligation. Clause 13.2(b), the explicit agreement of the parties is that:

In consideration of the Authority agreeing to procure the construction of Grand Plaza Works –

the developer must pay the Grand Plaza contribution and the Grand Plaza additional payment. Those payments have been assessed on the basis that they were consideration for the land. But a proper analysis of the agreement demonstrates that these payments were being made, not as consideration for the land but as consideration for the Authority agreeing to undertake works that had formerly been the responsibility of Lend Lease under clause 13.2 of the 2001 agreement at page 165 of the appeal book.

KEANE J: Mr Solomon tells us that the Commissioner is not seeking to maintain any assessment in relation to that. Is that not right?

MR YOUNG: He is maintaining assessments of the Grand Plaza contribution and the Grand Plaza additional contribution. What he has abandoned, your Honour - if your Honour goes to the 2006 development agreement in volume 2, same clause, 13.2 at page 547 – there was introduced into the 2000s. So if your Honour sees at page 547 of the first volume “13.2 Grand Plaza” as I briefly summarised, it was the developer’s obligation:

The Developer must:

(i) construct the Grand Plaza Works –

Does your Honour see that? Under clause 13.2(d), the developer had to spend at least $5 million by 30 June. Under 13.2(a)(ii), it was required overall to spend:

not less than $20 million. . . in respect of -

(A) the Grand Plaza Works –

So, the developer’s original obligation was to spend at least $20 million in undertaking works on external lands for the benefit of the overall precinct. The 2006 development agreement introduced an accounting provision. In clause 13.2A at page 549, the Court sees in paragraph (a):

the Developer must maintain books of account . . .

(b) The Developer must accrue the Grand Plaza Retention Levy in respect of Actual Gross Proceeds of Sale –

So it must save out of its own gross proceeds of sale and put it in a special account – some money and under (c), must use that money to fund its own works. So this was the mere accounting exercise that has been abandoned. But the two contribution payments, at pages 944 and 945 of the appeal book, in the 2008 version of clause 13.2 are still maintained. Not a word has been heard about them. But I invite the Court to look at the language of 13.2(b):

In consideration of the Authority agreeing to procure the construction of the Grand Plaza Works . . . the Developer must pay the Authority –

these two contributions. It could not be clearer but that these payments are being paid for the Authority agreeing to assume the obligation to carry out the Grand Plaza works. These are not payments in consideration for the transfer of the land. The mere fact that - - -

KEANE J: You say that because they are expressed to be a consideration for procuring the construction they are not for something else, namely, the transfer of the land?

MR YOUNG: Well, one can look at the history of the development of this, as I did, your Honour. In the first place, this was Grand Plaza’s obligation to build something somewhere else. If you take that into account, you take into account the context that if the authority is to invest money in doing works itself it needs to obtain a return.

Then you see that the authority assumes what had formerly been Lend Lease’s obligation to build the Grand Plaza and as the quid pro quo for assuming that obligation they require certain payments, then we would say the proper characterisation is that the quid pro quo, the exchange identifiable, objectively, on the face of all the relevant materials, is that this was an exchange of value, the value being assuming the obligation to undertake the works and receiving payment.

Then when you turn to the statutory question and ask the statutory question, were these payments in exchange for the transfer of the land, consideration for the transfer of the land, in our submission, the Court of Appeal’s answer is correct. No, they were not - - -

HAYNE J: That is to frame the question in terms of contract, not conveyancing, is it not?

MR YOUNG: No, it is to frame it in terms of conveyancing, your Honour. What moved this payment was the authority’s agreement to procure the construction of the Grand Plaza works that had formerly been the obligation of Lend Lease.

KIEFEL J: You are using this, as I understand it, as an example of how the authority has negotiated for some works in a way which stands quite independently of what passed under the land contract.

MR YOUNG: Well, to an extent, yes, your Honour, but it is an illustration of the fact that when you pay careful regard to the overall context, the full context of the development agreement, and see all of the provisions and the way in which there are multiple exchanges of value, that bears directly upon the statutory question - - -

KIEFEL J: I was actually leading into this - - -

MR YOUNG: - - - what was the consideration for the transfer of the land.

KIEFEL J: If I may interrupt. You are not suggesting, are you, that the arrangements with respect to these payments are of the same character as those which were assessed, or otherwise you would be suggesting, I suppose, that to be consistent the Commissioner should have assessed these payments as part of the consideration?

MR YOUNG: The Commissioner did assess these two payments and he seeks - - -

KIEFEL J: But you say they are included in the assessment.

MR YOUNG: Yes, and the Court of Appeal analysed whether they were properly included in the assessment, carefully considered these provisions and said that as a matter of characterisation they were not consideration of the land.

FRENCH CJ: What does Lend Lease get out of the agreement, apart from the land? That is not a rhetorical question.

MR YOUNG: Yes, Lend Lease gets the works that the authority promised to undertake.

HAYNE J: How?

MR YOUNG: Because those works flow towards the realisable value of Lend Lease’s own development on the land so that if - just take the gas remediation works that the authority promised to undertake, those works required an area of land to be remediated that partly overlapped some of the stages, but it was also external to the stages. So that whole area environmentally degraded by the previous gasworks, the authority promised to clean up, make investments to clean up, enter into a contract to clean up, achieve an environmental clearance and so forth.

They were promises it made under this development agreement. What Lend Lease got through the provision of those works, those promises from the authority, was the benefit of remediation of soil, partly overlapping land it purchased, but adjacent, immediately adjacent to the land it purchased, and that land had to be cleaned up if its ultimate development was to be as valuable as it might be.

BELL J: That led Justice Pagone, looking at the Grand Plaza payments, for example, at 2791 and 2792, paragraph 34 to set out the history and the changed arrangements respecting the construction of the Grand Plaza, but to conclude that the contributions were similar to other amounts required to be paid on or before actual stage release date under clause 4.7, and that the provision of the Grand Plaza enhanced the amenity of the area and the precinct generally, and it followed on this analysis that it was relevantly for the transfer of the land.

MR YOUNG: Yes, but what his Honour the trial judge went on to do was to treat the subject matter of the transfer as being land already enhanced by future works, and that was the pinpoint of the criticism made by Justice Tate in the Court of Appeal, that he had treated the subject matter of the transfer as developed land rather than as undeveloped land in relation to which future works were to be undertaken in the surrounding areas.

BELL J: I understand that aspect of your argument, but on this issue the Grand Plaza payment is not relevantly to be distinguished, is it, from the gasworks remediation?

MR YOUNG: Yes, it is, for a number of reasons. These payments were, on proper analysis, quite clearly in exchange for the assumption of construction obligations that had previously fallen on Lend Lease.

KIEFEL J: Could I ask you - - -

BELL J: So, in this – I am sorry. In this respect can I just clarify, the variation of the development agreement is material on this analysis insofar as the obligation ultimately?

MR YOUNG: Well, it must be, your Honour, because these contribution payments only arose under the 2008 development agreement, they were not previously there.

BELL J: The reason that I raise it, Mr Young, is that I had rather understood both Justice Pagone and the Court of Appeal to approach the matter on the basis that one could treat the development agreement as at May 2001, and though it had been subsequently varied, in terms of the determination of issues material those variations were not of moment.

MR YOUNG: No, that does not apply across the board.

BELL J: I see.

MR YOUNG: Those remarks are largely apposite to the additional complexity that infected the first subparagraphs of 4.7 as one went further, but it does not apply at all to contribution payments that arose for the first time under the 2006 or 2008 development agreement. One has to look at the later versions of the development agreement because those payment obligations did not previously exist and look at the circumstances that threw up those payment obligations.

BELL J: So that the changed nature of the payment obligation respecting the Grand Plaza affects the characterisation of the development agreement?

MR YOUNG: Yes. Let me give your Honour another example. The 2008 Construction Licence Agreement required Lend Lease to undertake works on external lands adjoining two of its stages. That was only entered into in 2008. The value of those works is the subject of an assessment that goes under the heading “non-monetary consideration”. Those works were only agreed to be undertaken under a different agreement in 2008 - - -

BELL J: Could you just give me the name of that agreement again?

MR YOUNG: I will state it precisely, your Honour. It is the Construction Licence Agreement of 5 February 2008 at appeal book 2743, and the relevant works are defined in annexure 2 at 2767. What the Commissioner has done – there is no payment in that case. Building those works is no different than building an office tower or building the Myer headquarters down in Docklands. The Commissioner has chosen to assess the value of those works; he has not chosen to assess the value of the Myer building. It is simply a promise to undertake works by Lend Lease in the wider Docklands area.

KIEFEL J: With respect to the Grand Plaza works that you referred to, which development agreement is this? Is it 2008?

MR YOUNG: 2008 introduces those payments for the first time at page 944.

KIEFEL J: In answer to Justice Bell’s question, you said that the assessments, of course, did not have regard just to the 2001 agreement. Was the assessment with respect to these Grand Plaza payments, not the retention payment, undertaken with respect to the documentation of the 2008 development agreement, at which time all of these other negotiations had already taken place in the past so it reflects the result of those negotiations?

MR YOUNG: Yes, but the contribution payments – there is a payments table, your Honour Justice Kiefel, in the judgment of the Court of Appeal at 2901; that is volume 7 for those who have the documents. If the Court goes to the second page of the table at 2902, the assessments relate to the later stages. Halfway down the column, the Court will see the “Grand Plaza Retention Amount” – that is the accounting entry, now abandoned – the “Grand Plaza Additional Payment” - - -

KIEFEL J: It is the Grand Plaza contribution you were - - -

MR YOUNG: Yes, the next one, “Grand Plaza Contribution”. The additional payment and the contribution are both imposed by the 2008 development agreement.

KIEFEL J: Pursuant to the 2008 development agreement, that was works to be done in connection with any transfer of the standard land contract, the land under the contract?

MR YOUNG: If it was provided for – if your Honour uses the words “in connection with” - - -

KIEFEL J: Recital D is the same, is it not, in all of the - - -

MR YOUNG: Yes, it is works done under a development agreement that provided for both land to be transferred and for the works to be done, so it has that connection.

KIEFEL J: Clauses 7.1 and 7.4 are in similar terms to the original development agreement?

MR YOUNG: Clause 7 or does your Honour mean 4.7?

KIEFEL J: I am sorry, 4.7. I have been reading another matter.

MR YOUNG: Much more complicated, but same basic structure.

KIEFEL J: Right. Yes, thank you.

MR YOUNG: I cannot answer a simple “yes” to that.

KIEFEL J: All right.

MR YOUNG: The item I gave your Honour Justice Bell, non-monetary consideration, it is the last item in the table, and the last item on the previous page, so there are other amounts in issue.

BELL J: That depends on the particular stage. So, for example, for Dock 5 the payments are all payments on or before actual stage release date that do not attract the criticisms you have just been developing in relation to the Grand Plaza and - - -

MR YOUNG: Yes, that is because title for that land is transferred long before any obligation arises in respect of Grand Plaza contribution and so forth.

BELL J: Yes. But all I am taking up with you, Mr Young, is the necessity to do as the courts below did and that is look at each stage to refer to the land parcel, is it?

MR YOUNG: Well, insofar as we are dealing with a number of payments that fall into this separate category, which are the additional Authority payment, the Grand Plaza payments, the non-monetary consideration, you do need to look at the later agreements, yes.

BELL J: Yes.

MR YOUNG: Can I move on, if I may? The other broader proposition I wanted to address also goes to the overall nature and character of the development agreement. The Commissioner’s submissions - and I do not need to go to them, but in-chief at paragraph 12 and in reply at paragraph 6 - proceed from the premise that what the Authority – all which the Authority gave and all that the defendant – all that Lend Lease received was the land. Now, that is a fallacy because what the Authority gave and what Lend Lease received included the promise to undertake a whole series of works progressively on other areas, and the scale and extent of those works enlarged as you go from one development agreement to the next.

So, there are quite clearly value exchanges beyond the land. So that the premise of the Commissioner’s submissions is that we are only concerned here with land being exchanged for other things. There are no other exchanges and that is fundamentally incorrect as a starting point for the characterisation of the relevant payments.

FRENCH CJ: So what Lend Lease gets out of the agreement, coming back to the question I put earlier, is the land plus the benefit of the enhanced amenity deriving from these additional works?

MR YOUNG: Yes, the promise to undertake all of these works which inure to the ultimate realisable value of the development. This was a joint development. The development agreement is very clear about that. Can I go to the first development agreement in volume 1? Mr Solomon went to these provisions but did not emphasise the same matters that we will. Under clause 2 at page 124 to 125, objective (c) verifies what I said a moment ago. The agreement and the objective is that the:

Authority and the Developer will participate in the Developer’s Project for the purpose of implementing the Developer’s Project –

So this is a joint participation in development and Justice Tate’s analysis of the detailed provisions bears that out, as I will explain. When one goes through the development agreement – and I will not take the time to do it – but as you turn the pages from one clause to the other, the developer has a whole set of obligations: planning, environment, design, public art – and I will come to that - construction.

But then relating to infrastructure the developer has to develop its own infrastructure on the land it is purchasing. It has to make provision for human services, which are community organisations, to occupy some of the land. In due course they had to make provision for affordable housing, which was a burden on the development. They had to build certain external works. For instance, if the Court goes to clause 11.9 of the first agreement, the Court sees some of these obligations of the developer. Clause 11.8 at page 156, that is human services; at 157, Bourke Street extension:

The Developer must construct the Bourke Street Extension at its own expense –

That is external to the land it is purchasing. Clause 11.10, the Authority must build the Collins Street Bridge and, just like the Bourke Street extension, the Collins Street Bridge is in the immediately adjacent area and is going to affect the realisable value of any development. As we go on, 11.12 at page 163 “the Authority must procure at its cost” Docklands Park, but jointly assisting that, under 11.12(d):

The Developer must:

(i) carry out the Docklands Park Enhancement Works –

So there are intersecting promises to invest in infrastructure in the surrounding area. Some of them attract particular payments; others do not. The return on others that do not attract particular payments comes by a sharing of the ultimate proceeds of sale that the agreement itself describes as a profit share.

So when one goes through the agreements one sees these aspects of joint investment, joint development of the wider area and the payments in question are all associated with those matters. In due course, additional obligations are added. Can I go to the 2008 development agreement? I want to start with clause 11 again at page 924 and following. Can I ask the Court first to go to page 930 – clause 11.8A?

This is one of the additional obligations the Authority undertook. It was an obligation to deliver not less than 55 affordable housing apartments. That obligation enlarged over time and it is the subject of what is called the MKWH transaction. There, the Authority had to allow in a public housing partner so it actually was only acquiring a 63 per cent interest as a tenant in common and the other 37 per cent was a public housing organisation.

I have mentioned the Bourke Street extension, Collins Street Bridge on the next page, but if we go to page 936 – this is the “Collins Street Park Stage Works”, clause 11.11A, additional infrastructure and what is noticeable about that is that the clause 4.7 payments are now to be redirected to the benefit of those further works that the Authority is to undertake under 11.11A(c). So the moneys that our learned friend says are for the land are redirected to building the Collins Street Park.

Additionally, we have new paragraphs dealing with further infrastructure. At 939 we have further public infrastructure works in 11.13. These relate to the “Harbour Esplanade” as 11.13(a)(ii) says. Under paragraph (c) at page 940, if the developer agrees to do that external public infrastructure work, it is going to be paid out of the additional Authority amount. So that amount allegedly paid as consideration for the land is actually utilised to fund other public infrastructure works that the developer may undertake.

KIEFEL J: Forgive me for interrupting, Mr Young, and it is probably my problem alone, but I am having difficulty following where this is taking us in relation to an understanding of the development agreement. I have to say, I have looked at the outline and the full written submissions and that does not assist me either. It does not tell me where I am going, what I am – could you jump ahead a couple of - - -

MR YOUNG: Yes, I will jump ahead, your Honour.

KIEFEL J: Just to give me an idea of the direction that we are heading in.

MR YOUNG: The reason I am going to these matters is this. The next step I am going to take is to go to the statutory question and make submissions about that, but after that I then need to address clause 4.7 and the matters that are relied upon to support the Commissioner’s arguments as advanced in-chief. To properly understand the function of clause 4.7 one needs to understand the whole context of the development agreement and the suite of works, infrastructure works and associated payment obligations, because 4.7 is only a thin slice of what the development agreement is providing for. That is the reason I am going to these matters, your Honour. Now, the other reason is that the Commissioner’s approach to the construction - - -

KIEFEL J: But could I just ask you: if it is a thin slice what do we derive from that, that the matters which have been assessed, they all fall under 4.7, are not representative or - - -

MR YOUNG: The question when one looks at the 4.7 payments is whether they are to be characterised as payments in consideration for the transfer of the land or whether, when you look at the wider context in which those provisions operate, they are not to be so characterised and relevant to the characterisation question is the question whether they are expressed as a contribution to the cost of other investments made by the Authority of a similar kind to these other investments, other works, that I have now referred the Court to.

KIEFEL J: So you say there are mischaracterised as a consideration?

MR YOUNG: Yes, we say they are mischaracterised.

KIEFEL J: That is really what it comes down to.

MR YOUNG: Yes, and I will come directly to those provisions, but before I descend into that minutiae I wanted to give the overall context of the whole development agreement. Can I turn to the statutory question and explain why, in our submission, the Commissioner’s approach misstates the statutory inquiry and why it is wrong as a matter of construction? In our submission, a number of provisions in the Act make it very clear that the critical first step in applying section 20 is to identify the dutiable property which is the subject of the dutiable transaction. That follows from the provisions that the Court has in some respects been referred to but there are other provisions that our learned friend discounted that are relevant.

BELL J: Is it not common ground that it is the estate in fee simple?

MR YOUNG: Yes, but our learned friend goes on to allege that it is an error to have regard to the state and condition of the land at the time title is transferred. Now, in our submission, that is a fundamental error to adopt that approach. The Act requires that attention be confined to the state and condition of the land at the time of transfer. That is not to say that other payments do not have to be assessed and characterised but the Commissioner’s starting point is to say it is wrong, it is an error to examine what is the subject of the transfer in its then state and condition.

Now, there is a long line of authorities that make it very clear that that is the critical first step in applying section 20 and it is the error that the trial judge fell into because he applied section 20 by reference to an assumption that the land was in its developed state. That was what many of Justice Tate’s criticisms were directed to.

HAYNE J: Why is the state of the land at the time of transfer of significance to determining the consideration for the dutiable transaction?

MR YOUNG: Because the dutiable transaction is the transfer of the estate in fee simple in the land - - -

HAYNE J: In Blackacre identified by certificate of title or metes and bounds.

MR YOUNG: Yes, yes, and - - -

HAYNE J: What is the condition of Blackacre, relevant if one is not engaged in a 20 subsection (1)(b) inquiry?

MR YOUNG: Well, whether one is engaged in (a) or (b), the question is the same - - -

HAYNE J: Why?

MR YOUNG: - - - that is, the subject matter of the transfer is the estate in fee simple. The subject matter of the conveyance is the land that is being transferred in its then state and condition. When one looks at the contract of sale and the development agreement together, the purchaser covenants to accept the land in its then state and condition. Focus on the state of the land at that point of time is required by section 11, which imposes duty when the dutiable transaction occurs which is at the time of transfer and as the Authority makes clear, where the dutiable transaction is a transfer of land, that requires one to have regard to that which is being conveyed and all that is being conveyed is the land in its then state and condition.

Now, it is that combination of provisions that has that effect. In our submission, it follows necessarily from the statute. It also follows from the authorities that have considered section 20 and they are unanimous in this view that you address the subject matter of the land at the time of the transfer in its then state and condition and that is so, both in Australia and in England.

Can I refer very briefly to a couple of authorities in that regard? One is Pioneer, which I hasten to say was a value case, but that does not alter this requirement that arises from the opening words of section 20; that is, the dutiable transaction is the transfer of the fee simple estate in the land. When we are talking about a conveyance, you look at what is conveyed in its then state. In Pioneer, the relevant paragraph is at paragraph 38.

HAYNE J: This was under the old instruments based version, was it, or was this the transaction based version of the duty legislation?

MR YOUNG: This is the third schedule of the Stamps Act 1958 - - -

HAYNE J: The instruments?

MR YOUNG: Yes, but in this respect it does not make a difference, in our submission, and Dick Smith is consistent with the proposition I have just put. Paragraph 38:

An accurate identification of the estate or interest in real property that is conveyed or transferred . . . is required –

The quotation goes on to refer to the fact that you do not refer to the net effect of the overall transaction. The issue in that case was whether you had regard to contractual rights that were collateral to the actual transfer. The Court rejected the proposition that you have regard to contractual rights for the purposes of paragraph (b) of section 20.

The other passage I would refer to is at paragraph 44 at page 667. It is the last two sentences of the paragraph. In this case, all of the transaction documents are transaction documents under which the purchaser accepts the land in its then state and condition. If the Court goes to volume 4 for one of the contracts, this is the one that reflects the form of most of the contracts. It is at page 1385, the passage I want to go to; this is the Mosaic land sale contract, the second contract.

Clauses 4.1 and 4.4 are the relevant provisions at page 1385 to 1386. Clause 4.4 cross-references clause 7.9 of the development agreement; that is a provision to the effect that the purchaser “accepts the condition of the Land”. One can see that – I will just give the reference – at 7.9 of the development agreement, which is at page 147 of the 2001 development agreement. It is the same in each of the development agreements. Paragraph (c):

The Developer accepts the condition of the Land at the date of the execution of this Agreement –

and the contract applies that to the date of the contract of sale. Of course, the provisions of the contract of sale merge in the conveyance. The title was accepted.

HAYNE J: There were anti-merger provisions in there, but perhaps not; do not stay on it.

MR YOUNG: No, no. So applied to this case, the condition of the land is accepted at the date of contract. So, for those reasons, statutory – and I will come to some other authorities. It will be simpler if I come to the other case once. It is prudential. We would say that it is correct when you are applying section 20 to a transfer of land to focus on the condition of the land at the time of the transfer.

KEANE J: But if you are not concerned with subparagraph (b) which is about the value at that time, if you are concerned with the consideration for the transfer, what does it matter what the condition of the land is? What matters is what the consideration is.

MR YOUNG: Your Honour, one has to address that question, I agree with your Honour, but our learned friend’s submission is that you must put out of your mind it is irrelevant to have regard to the condition of the land at the time of the transfer and that it was an error of the Court of Appeal to identify that as a relevant consideration. That cannot be right having regard to the structure of the Act and the provisions of these agreements. I am not suggesting it answers the whole question, your Honour. And just - - -

FRENCH CJ: If one – I am sorry.

MR YOUNG: I am sorry, your Honour.

FRENCH CJ: Please finish your answer.

MR YOUNG: I was going to just add one thing to my answer to Justice Keane. The fact that these assessments are under paragraph (a) of section 20(1) does not mean that subsection (1)(b) is entirely irrelevant to the construction exercise. Both limbs have a bearing on construction for the reasons given by the two dissenting judges in Dick Smith which appears at paragraph 20 of Dick Smith and can I paraphrase what they said? It was this:

The section does not assume that there will be a difference between (a) and (b). It accepts that there may be a difference, and makes provision for that.

The second limb is effectively by way of safeguarding the revenue. The second limb is consistent with addressing the dutiable transaction which is the transfer of the land in its then state and condition and there is no reason to take a different view of paragraph (a) at that initial step. Your Honour, the Chief Justice, you had a question.

FRENCH CJ: Yes. I just wanted to make sure I am working within the same conceptual framework and that I am not oversimplifying it, but it seems to me that in addressing the statutory question in this case we are looking at a transfer of land from vendor to purchaser.

MR YOUNG: Yes.

FRENCH CJ: We are looking at payment of money – designated stage land payments which are specifically related to the land and you say that is essentially what is the dutiable amount, plus from the purchaser promises to either do works or pay for works to be done. The question really is in relation to those promises to pay for works or to undertake works, whether they in a sense – larger than the contractual sense – constitute consideration, or part of the consideration, for the transfer of the land.

MR YOUNG: Yes, I agree, your Honour.

FRENCH CJ: So we are really focusing on the characterisation of the relationship between those promises and the transfer.

MR YOUNG: Yes. I will defer what I was thinking of saying; it is more efficient to say it in a later context. Now, the submission we made that our learned friend criticised is that an appropriate starting point is the amount agreed by the parties as the consideration for the transfer of the land. We do - - -

HAYNE J: That is the statutory question.

MR YOUNG: Of course it is.

HAYNE J: Why do we begin with an assumption about the answer to the statutory question?

MR YOUNG: Well, let me put it in a different way. It is relevant to have regard to what the parties said in their agreements, all agreements, as to the amount they agreed to be the consideration for the transfer of the land. It is necessarily relevant to have regard to that. Again, in Dick Smith, and I know it is the dissenting judgments, their Honours said that that was the appropriate starting point which was entitled to due weight, and it is plainly a relevant consideration. The provisions we refer to do not only appear in the contract for the sale of the land where the price for the land is stated and then that price gets reflected in the instrument of transfer, it is stated in the development agreement itself, quite separately from the payments that the Commissioner argues for. So if we turn to the first development agreement, clause 4.1(a) at page 126 - - -

FRENCH CJ: You say that express statement is a fact that it puts the other promises, if I can use that general term, outside the boundaries of consideration for?

MR YOUNG: Not by itself, your Honour, but it is a relevant factor.

FRENCH CJ: No, no, I just said that; a factor.

MR YOUNG: Yes, I am sorry, your Honour. It is a factor, yes. The language of 4.1(a) includes these words:

purchase by the Developer of each Stage for the Stage Land Payment –

Now, that stage land payment, as the Court of Appeal said, takes account of the development potential of the land in the way in which it is calculated, so the development potential of the land is already in there in the stage land payment. Justice Tate explained why that was so at these paragraphs, and I will not go to them for time reasons, if I may; paragraph 75 at 221 at respectively 2884 and 2956.

But it is clear from Schedule C, as her Honour explains, that the development potential of the land is already taken into account and, indeed, as sales occur the development potential of the land is revised by revising the projected gross revenue on sale for future stages, and that results in an increment in the stage land payment. That is the effect of the adjustment mechanism in clause 1.3 of Schedule C at pages 218 and 219.

HAYNE J: Once one is not acting under (b) and one is not concerned to identify a Spencer’s Case market value of the land in its then and there condition, what is the legal significance of identifying the relationship to market considerations of any of the elements of the consideration, because by hypothesis we have severed the painter from what the willing but not anxious vendor would take to account in forming the price? What does it matter?

MR YOUNG: Well, the case put against Lend Lease has been that you need to take into account these other payments because the stage land payment itself takes no account of the development potential of the land. That is incorrect for the reasons explained by Justice Tate at those paragraphs, and it is incorrect on any reading of Schedule C. What Justice Pagone did was effectively to say the stage land payment has not taken full account of the development potential of the land. Well, it did, patently on the face of the development agreement.

BELL J: Did not Justice Pagone say one looks at the generic land contract in the context of the development agreement, one sees clause 4.7 and one understands that the consideration that moved the transfer was more than the stage land payment?

MR YOUNG: No, but part of his Honour’s reasoning that Justice Tate was addressing went further than that, your Honour. We do not doubt that you need to look at all of the provisions of the development agreement and the other payments and apply the statutory test.

BELL J: Why are we focusing on the stage land payment and whether it included a component for potential development or not, in answering the question of what was the consideration for the purpose of subparagraph (a)?

MR YOUNG: Well, for this reason. The way in which the parties have cast their agreement for the transfer of the land is a very relevant consideration. If they have cast their agreement in a way that specifies not just an agreed price for the transfer of the land but an agreed price that according to their agreement is calculated in a way that takes account of the development potential of the land that is likewise a relevant consideration in characterising what other payments were for.

KIEFEL J: As I read her Honour’s reasons at paragraphs 75 and 221, her Honour is saying that the stage land payments took account of the development potential to an extent, “to an agreed extent” - paragraph 221:

insofar as the development potential and consequent increased value of the land was relevant to the parties, this was already taken into account by them, to an agreed extent, in arriving at the sum of the Stage - - -

MR YOUNG: Yes.

KIEFEL J: Her Honour, as I understand it, is suggesting that the whole of the potential is taken into account and annihilated at each point of the stage land payment.

MR YOUNG: Perhaps it is ambiguous, your Honour, but we would differ in our reading of that passage. “To an agreed extent” reflects that the parties have agreed on the projected realisable value of the land, and so they have taken into account development potential by their agreement upon projected realisable value. That may not be what somebody else would say the projected realisable value is, but it is not saying they have made a half measure in taking some account of projected realisable value, but not a full account.

FRENCH CJ: Underlying the relationship of the incorporation for development potential to characterisation, which you asserted a moment ago, is there some proposition that the purchaser should not be taken to have agreed to pay more for the land than its value, including a component for development potential?

MR YOUNG: No, your Honour.

FRENCH CJ: I am just wondering how you get to the characterisation point from the incorporation of the development potential, characterisation of the other promises.

MR YOUNG: Yes, well, can I come to them, because I think it is best if I answer in the context of dealing with the particular provisions, if I may.

FRENCH CJ: Yes, I am just wanting to see how that point linked to characterisation was relevant to it.

MR YOUNG: Yes, I will address that, your Honour.

HAYNE J: Because the fundamental premise of the argument seems to be that you can divide the moneys according to some criterion.

MR YOUNG: No. We are not attempting to segregate every promise to category A or category B. We are applying the statutory question in the light of all of the relevant considerations and our learned friends seek to excise a series of relevant considerations. One of the things they seek to excise is the extent to which the agreed price takes account of development potential.

HAYNE J: Well, that is all about process. It is not yet telling me the criterion that is being applied and you will no doubt come to that in due time but at some point, what is the criterion?

MR YOUNG: Yes, I will. I will come almost directly to that but I wanted to go to one case before I do that explains why I have referred to what the parties said in both the development agreement and the contracts of sale as to what was the consideration for the transfer of the land. Davis Investments is the case. It is a decision of, amongst others, Justice Dixon. It was referred to and applied with approval in Dick Smith. It attaches real importance to the form of the transaction the parties have undertaken and the stipulated consideration they agreed.

Can I just briefly mention the facts? A parent company acquired shares held by a subsidiary. The first passage of the headnote identifies the key facts. The parent company acquired shares which its subsidiary owned in other companies for £57. They in fact had a value of £54,382 but of course the parent’s shareholding in the vendor of the shares depreciated in value by the full value of £54,382. So even though it paid only $7 because its subsidiary had sold its shares at an undervalue, the parent’s investment in the subsidiary and the assets of the subsidiary went down by that amount.

The argument was that the diminution in value suffered by the acquirer of the shares should be taken into account as part of the consideration for the shares and not just the £57. The Court held that the consideration for the transfer of the shares was the £57 and you did not bring to account the agreed – well, you did not bring to account the diminution in value in the shareholding in the vendor. The consequence of that was to attract higher duty, not lesser duty, ad valorem duty, as the last few lines on 396 makes clear.

The passage I want to go to is at 408 to 409 in the judgment of Sir Owen Dixon. It is the last paragraph at 408, and this is applying the same criterion, we say, as governed this provision of the Stamps Act since Archibald Howie. Within that paragraph Sir Owen Dixon says:

But within the meaning of the words in s. 66(3A) would the consideration moving the transfers . . . be anything but the price the parties chose to adopt? After all we are dealing with a transfer on sale.

He rejected the proposition you go to the wider circumstances. At page 409 at about 6 lines in his Honour explains his reasoning and then later in that same paragraph at about point 5 on the page:

But considered as a transfer on sale it is a transfer for a price. The price is fixed by the parties for the sale, that is the transfer. It is not supplied by the surrounding or accompanying circumstances, however essential the elements discoverable therein may be to the legal and economic efficacy of the transaction as a whole.

Justice Taylor expressed similar reasons, applying again the statute that had the words “consideration for the transfer” as posing a criterion of what consideration “moved the sale, or conveyance”. The passage is two sentences from the end of 420 to the top of page 421.

KEANE J: But is not what Sir Owen Dixon says against the notion that one concerns oneself with the rationale or the business purpose behind the transaction and when one talks about the consideration that moves the transfer one looks at what is required to effect it, that is to say what is required to be tendered in order to oblige the other party to convey?

MR YOUNG: Yes.

MR KEANE: So that if one looks at the obligations as Sir Owen Dixon says, if one looks at the formalities of that and puts out of one’s mind the commercial motivations then one simply looks at what is required to be tendered in order to move the transfer.

MR YOUNG: Well, we agree that that is the test and the criteria, but that is not what the Commissioner urges this Court to apply. That is why I went to that paragraph of their outline. Their proposition is that you substitute for the words “consideration for the sale” in the sense of what tender of value moved the sale the wider question, what did the vendor bargain to obtain so as to be willing to engage in the transaction? By expanding the statutory inquiry in that fashion - - -

KEANE J: No, no, not willing to engage in the transaction; willing, ready and able – obliged, if you like – to make the transfer.

MR YOUNG: Yes, but that requires one - - -

KEANE J: Looking at the dutiable transaction.

MR YOUNG: Yes.

KEANE J: It is common ground, we are all ad idem that the dutiable transaction is the transfer, not the project development.

MR YOUNG: No, of course. But when one uses that phrase of Sir Owen Dixon’s, “move the transfer”, his Honour emphasises that you are concerned with what was the quid pro quo for the transfer, what was exchanged in return for it. Now, the Commissioner expands the inquiry beyond those boundaries.

KEANE J: I must say I rather thought Mr Solomon’s argument was focused precisely on what is required to be tendered in order to be entitled to a transfer.

MR YOUNG: Well, with respect, no, and I will try and demonstrate that. But what Davis does emphasise in that passage, your Honour, is, we submit, that the parties’ own expression as to what was the consideration for the transfer of the land is entitled to weight or respect. We do not say it is the end of the inquiry. But that is quite clear that you give weight to the fact that this is a transfer on sale and the expressed consideration is the figure that the parties have stated here in several places.

FRENCH CJ: It is not a case concerning a multiplicity of promises, is it?

MR YOUNG: Of course.

FRENCH CJ: That is a case concerning a promise and a consequence.

MR YOUNG: Yes, and that is why you need to – it does not follow simply because you have an interdependence of promises. Dick Smith was a singular transaction. Davis was a singular transaction, a transfer of a single batch of shares. Our transaction is one in which there are multifarious exchanges of value for payments.

KIEFEL J: Well, that is if you go back behind and look at the individual arrangements, but what Dick Smith emphasises, does it not, at paragraphs 72 and 75, is that it might be useful to look at what was received by the vendors in the transaction because that might tell you what they were prepared to take in exchange for the transfer. That might be your starting point.

MR YOUNG: Yes, but that language was apposite for the particular transaction. That is not where the guiding principle is stated. The guiding principle is stated earlier in paragraphs 71 and 72. I will come to Dick Smith momentarily.

BELL J: Mr Young, I am having some difficulty in understanding the weight to be attached to the fact that the parties identified one of the payments referred to in clause 4.7 of the development agreement as a stage land payment in the context of that clause as a whole, when one is looking at what did you have to tender to get the transfer.

MR YOUNG: Well, primarily that is stipulated in clause 4.1(a), 4.7 – and I am coming to this; I am sorry if I am being slow about it. Clause 4.7 is concerned with the timing of a series of payments. The stipulation as to what was the consideration for the transfer of each stage is stated to be the stage land payment. Conditions precedent to the transfer are stated in 4.2 at page 127 and the conditions precedent to the transfer do not include any of the other 4.7 payments.

HAYNE J: That is just not right, is it? You are right as a matter of text about 4.2, but 4.7(a):

on or before each Actual Stage Release Date –

on or before date of transfer.

MR YOUNG: Yes, that is so, and one of the payments is - - -

HAYNE J: The point is a textual one.

MR YOUNG: No, with respect, your Honour. I will explain why not in a moment. I am sorry if I keep saying “I will explain in a moment”, but I did want to cover the matters that are relevant to the construction of the statute before I go through the detail of 4.7(a). Can I complete that first – I apologise if this is frustrating for the Court. I do think it is important. The other matter I wanted to refer to is section 261. The explanation given to your Honour Justice Hayne yesterday that it was not relevant is not accurate. Section 261 is a provision that has general application in the Stamps Act, contrary to the submission that was made yesterday. It applies in the context of a number of other provisions; one of them - - -

HAYNE J: It applies in respect of instruments to be separately and distinctly charged with duty.

MR YOUNG: Yes, but one needs to look at the definition of “instruments”, which is altered. The definition of “instruments” is in section 3. It includes a written document and a written statement. The reference to a written statement is a reference to section 14. Section 14 requires in every case a written statement to be brought into existence if there is not a written instrument already in existence; section 14(1).

In a case where you do not have an instrument of transfer, you have a dutiable transaction without an instrument of transfer. A written statement must be brought into existence to evidence the dutiable transaction, and in both cases section 261 applies. It applies to every transaction, and it requires any transaction in which there are:

two or more distinct matters –

either as stated in the instrument or as revealed by a written statement under section 14 –

to be separately and distinctly charged with duty –

The proposition that section 261 is not relevant is wrong. Section 261 has regularly been applied in assessing duty in composite transaction situations. An example is Chief Commissioner of State Revenue v Platinum Investment Ltd in New South Wales[2011] NSWCA 48; , 80 NSWLR 240. A provision in the form of 261 was referred to in Dick Smith, not by way of saying it was irrelevant, but simply by saying it was potentially relevant but no one has invoked it here. It was referred to in Bambro, quite appropriately, and that reference in Bambro to the then equivalent of section 261 is no reason for dismissing Bambro.

So, section 20, in our submission, is to be applied in the context of an Act that recognises that one of the relevant inquiries is whether two or more distinct matters are being given effect to by the transaction. It is not a question - - -

FRENCH CJ: Why should not those matters be read as two or more distinct dutiable transactions? A duty is imposed in respect of dutiable transactions.

MR YOUNG: Well, that work is done by section 25, your Honour.

FRENCH CJ: Yes.

MR YOUNG: But this is dealing with a wider matter which is whether there are two or more distinct matters in the sense that as in Bambro you may have a development agreement that attracts no duty - - -

FRENCH CJ: Yes.

MR YOUNG: - - - and you have a transfer of land which does attract duty.

FRENCH CJ: But ultimately the criterion of liability is a dutiable transaction.

MR YOUNG: Of course. But one of the relevant considerations in applying section 20 is whether – to translate it to this case – the alleged payments relate or the alleged payments are consideration for the transfer of the land or whether they relate to something which is a separate matter.

BELL J: We are concerned, are we not, with Chapter 2? Chapter 2, section 7.1 explains charges duty on a transfer of dutiable property.

MR YOUNG: Yes.

BELL J: Section 9 tells us a dutiable transaction may be effected wholly in writing – partly in writing and partly orally, and so on. I am just having some difficulty understanding how the determination of the question that we are agreed is raised under section 20(1)(a) is meaningfully assisted by recourse to 261.

FRENCH CJ: Given, if I might add, that 261 has the appearance of a machinery provision.

MR YOUNG: Can I take both questions into account in my answer?

FRENCH CJ: Yes.

MR YOUNG: Justice Bell and Chief Justice, what we say is this. Where you have to apply section 20 to a composite transaction with multiple value exchanges, you are firstly dealing with a different case compared to Dick Smith or Archibald Howie or Davis, for that matter. It is the kind of transaction considered in Bambro and the English case, Prudential that I will come to.

Where you have multiple exchanges of value and you have to apply the statutory test what exchange of value was given in return for the transfer of the land so as to move the transfer one needs then to assess carefully the proper characterisation of the various payments or promises that are in question. A guide in doing that is found in 261 because it does direct the attention of the Act to the possibility that the transaction relates to a number of separate and distinct matters.

BELL J: We are looking at consideration for the dutiable transaction.

MR YOUNG: Being the transfer.

BELL J: In each case, the transfer of the estate in fee simple.

MR YOUNG: Yes. But I will come back to the cases. I will go directly to your Honour’s questions about clause 4.7. Clause 4.7 - if I can go to the first development agreement - gathers together in paragraph (a) a number of payments.

FRENCH CJ: Remind me of the page number, please?

MR YOUNG: I am sorry, your Honour. Page 130.

FRENCH CJ: Thank you.

MR YOUNG: The argument our learned friend advanced was that the conjoining of those number of different payments in a single provision as payments that needed to be made on or before each actual stage release date, being the date of transfer of the land, demonstrated that all of those payments were to be regarded as consideration for the transfer of the land. Now, I am stopping for the moment at (a)(i) and those paragraphs. I will deal in a moment with the later paragraphs.

Now, our learned friend therefore treated those payments as a class, and the argument was that they were all of the same class for characterisation purposes. That ignores a number of matters. Our learned friend addressed no submissions to paragraph (D), “the Stage Integrated Public Art Contribution”. It is worthwhile to go for a moment to what that contribution was because it demonstrates that these payments are not of a single class.

Clause 10 at page 151 deals with that. Under clause 10.1 the developer must allocate a percentage of its own development costs to art, and there are three areas for the art to be erected. Paragraphs (a) and (b) are areas controlled by the developer, so it spends the money itself on art in areas it controls. So this is simply a development obligation.

Now, paragraph (c) is what attracted the assessment and what is referred to in clause 4.7(a)(1). This is not a payment obligation as such when you read it all. The developer must pay that contribution “in accordance with clause 4”, and the Authority must spend that amount on art in the Docklands area, and they both sit on a committee under 10.2 that determines what gets spent and where.

BELL J: Before we get to the committee, if you have to make the contribution, whether it is for public art in the way of paintings or sculpture or what have you, if the making of the payment is a condition of the transfer of the land, why does it not form part of the consideration?

MR YOUNG: Because when you look at the provisions and you see that the actual provision requires the developer to fund an expenditure on art by the Authority - - -

HAYNE J: So what?

MR YOUNG: I beg your pardon. So what?

HAYNE J: So what? If the Authority is to spend it on cakes and ale, so what?

MR YOUNG: This payment is earmarked for that purpose. It is effectively a Quistclose kind of trust situation, but leave the legal analysis aside, it is to be seen in the context of these other payment obligations. This one goes through the Authority because of the area where it is to be expended. The only difference between paragraphs (a), (b) and (c) is that, instead of paying the money directly on art in areas that the developer controls, this payment is being directed via the Authority because it is money to be expended on art in areas outside the land controlled by the developer.

HAYNE J: Which again provokes me to ask my question, what is the criterion that you are applying? We observed the terms of the contract. Your description of them may be taken to be wholly accurate. But my plaintive cry of “so what” is what is the criterion that you are applying?

MR YOUNG: The criterion is this, your Honour. In light of the particular provisions that I have gone to that explain what the obligation is in relation to art, that is to pay the money so that it may be spent by the Authority on art in adjoining areas, the nature and the purpose of the payment is thereby revealed to be a payment in consideration of the installation of art by the Authority and that nature and purpose of the payment is surely relevant to the characterisation question we have to address under section 20.

FRENCH CJ: Well, to say “relevant to” is not to of course enunciate a criterion.

MR YOUNG: Well, by “relevant to” the question is always the Archibald Howie, Davis, Dick Smith question: was this consideration for the transfer of the land in the sense that it was value exchanged so as to move the transfer of the land? Now, in our submission, the proper characterisation of the art payment when one sees the detail of the provision is that it is to be characterised as a payment for the installation of art in the adjoining area. This payment is simply channelled via the Authority for the reasons I have explained, rather than being directly expended by the developer as per paragraphs (a) and (b).

KEANE J: But that is just saying what will be done with the consideration when it is received. I mean, if I say, “If you transfer Blackacre to me, I will pay you a million dollars if you agree to erect a statue of me on Blackacre”, well - - -

HAYNE J: I would take the deal.

KEANE J: There is no question about the consideration for the transfer, is it? It is the million dollars.

MR YOUNG: Yes.

KEANE J: It does not matter if the cost of the statue that you have agreed to erect is half a million dollars.

MR YOUNG: With due respect, your Honour, your Honour’s question begs the question by presupposing in the first instance that the million dollars was paid for the land. The question here is whether it was paid for the land, and the fact that the payment is something that, to quote, “the Authority must spend on art in the adjoining area” is irrelevant to that anterior question – what was the payment for? Was it for the land in the sense of moving the transfer of the land? If you look at the wider set of obligations, we would say that this is to be seen in the context of a whole ongoing set of development obligations. This is just another of those joint development obligations.

HAYNE J: Well, be it so. You have two arms-length parties who made arrangements for what were statutory and commercially seen as desirable ends. What is the legal criterion that you invoke when you say the art contribution is not consideration for moving the transfer when you do not get a transfer unless you pay that money?

MR YOUNG: Yes.

HAYNE J: Now, that is condemned as, quote, “crude, but for reasoning”, but shorn of its pejorative, I do not yet understand what criterion is substituted.

MR YOUNG: I am not substituting any criterion for that enunciated by the High Court in earlier cases, going back to Davis Investments. The question is, the parties having adopted a sale transaction – as Sir Owen Dixon said in Davis Investments – having stipulated that a specified amount of money was the consideration for the transfer of the land, having agreed in another provision that an amount is to be – is to fund the installation of art by the Authority in the adjoining areas, the question is simply whether that payment to fund the installation of art pursuant to clause 10(c), moved the transfer of the land.

FRENCH CJ: Well the stipulation “You do not get the money unless you make that payment or do those works”, you say, does not describe a sufficient condition to meet the statutory criterion.

MR YOUNG: Yes, yes.

FRENCH CJ: So there has to be something else.

MR YOUNG: Yes, quite clearly. Otherwise, mere independence of promises would suffice, because you could always say, but for the fact that the development agreement - - -

FRENCH CJ: It is not mere interdependence. It is more than that, is it not? It is making this a condition of your getting the land.

MR YOUNG: It is made a condition that you make these payments - - -

FRENCH CJ: Yes.

MR YOUNG: - - - prior to the transfer of the land.

FRENCH CJ: You do not get the land unless you make the payments.

MR YOUNG: Yes.

HAYNE J: Something more is needed. What is the something more?

MR YOUNG: Well, you look at all the relevant features of the transactions between the parties, not just the development agreement but the transfer itself, and you address the question was this a payment that moved the transfer? That involves more. That is a much closer nexus than saying it is connected with the transfer, as Berry’s Case demonstrates. It is a much closer connection than saying that “but for” this promise the land would not have been transferred. That is the “but for” criterion.

So, mere interconnection in a composite agreement is not sufficient, in our submission. A mere “but for” status is not sufficient. You must, having regard to all of the relevant matters, be able to characterise it as something given in exchange for the land, something which - value which passed which moved the transfer of the land.

KIEFEL J: Is not the approach that you are suggesting to put the Court in the position of potentially rewriting the transaction for the parties as to what should have been received, what should have moved the transaction?

MR YOUNG: No, your Honour, I am simply saying look at the – the other side say these payments are all of a similar character. Our response is, well, look at them carefully, there are important differences between the payments, their nature and purpose.

KIEFEL J: But why is not the inquiry as to the actuality of what was received by the vendors - and I add to that for which they were willing to transfer not in the subjective sense but as was – I think the words “willing to transfer” were used in Dick Smith, but not in the subjective sense but rather that which the receipt of which then obliged them to transfer. These words have been put to you before, why are we not looking at the actuality of what passed?

MR YOUNG: Well, if you look at the actuality, the totality of the promises, as the other side call it, there are multifarious promises in the development agreement, many of which, on close examination, in our submission, could not be said on any rational view to have moved the transfer of the land. The mere fact that there is a whole range of promises - - -

KIEFEL J: But importantly – forgive me for interrupting – are any of them matters that are the subject of assessment fall in that category?

MR YOUNG: Yes, they are the other matters I will need to come to. Now, we accept that 4.7(a)(i) singles out a number of payments and says they have to be made before the transfer of the title to the land, and I am dealing with those matters by saying that section 4.7 when you look at it in its entirety, and I will go on in a moment, is a recovery provision about the timing of payments. It does not finally answer the question whether those other payments moved the transfer of the land when you take into account all relevant matters.

FRENCH CJ: It seems to me that what you are doing, in a sense, is treating the notion of consideration for the dutiable transaction as a relational criterion in the same category as, although narrower than, such formulae as in connection with and in relation to and you say it is not satisfied by the finding that there is a necessary condition or a necessary conditional relationship between payment and transfer and there is some sort of multifactorial analysis of an evaluative character over and above that which you cannot state in any principle more precise than the statutory language.

MR YOUNG: We do not accept that entirely, your Honour, for this reason. The cases have used various verbal formulations to try and articulate the statutory requirement. Sir Owen Dixon’s was, what moved the transfer.

FRENCH CJ: It is the same question - - -

MR YOUNG: Yes.

FRENCH CJ: The same kind of question.

MR YOUNG: Yes. Dick Smith referred to the phraseology used in the House of Lords. In the - I forget the full name of the case - The Shop Case, the passage is in Dick Smith at page 518. The language cited approvingly in footnote (37), from Shop and Store Developments v IRC comes from Lord Hodson:

(a quid pro quo for that which passed by the transfer or conveyance).

So that is referred to with approval. Now, what passed, of course, by transfer of conveyance of land is the land in its then condition. The question is what was the quid pro quo for that which passed. In Dick Smith itself, the emphasis on what was in return so you have - - -

FRENCH CJ: You substitute “pro” for “for” and you still have the same problem, have you not?

MR YOUNG: Well, you do but you have a closer and more direct relationship than suggested by the words “in connection with” or “in respect of” which is our learned friend’s language.

FRENCH CJ: I am not suggesting they are equated. I am just saying it is conceptually the same sort of problem.

MR YOUNG: It is, it is and the issue here is it to apply it to a composite set of promises.

KIEFEL J: The quotation at footnote (37) to which you referred says that:

‘consideration for the transfer or conveyance’ seems to me to refer clearly and naturally to that which passed to the transferor company –

That is to say receipt -

‘for’ the transferred properties.”

At paragraph 75, Justices Gummow, Kirby and Hayne say - and this is perhaps where the “but for” language has been employed but perhaps it should not be -

It was only in return for that total sum (paid by the various steps and in the various forms required by the Agreement) that the Vendors were willing to transfer to the Purchaser the bundle of rights –

and when their Honours say “willing to”, that means contractually they would have been willing to in the terms of the agreement.

MR YOUNG: No, no.

KIEFEL J: In a way there is cause and effect but that is to say - it is actually quite a simple question, is it not?

MR YOUNG: The question posed by the statute is a straightforward one, I accept that. Its application to a composite agreement of this complexity has some issues about it if I can simply call it that way - - -

KIEFEL J: That might indicate a problem in the argument. Their Honours in Dick Smith, I would have thought, with respect, could not have made it any more clear, what is required.

MR YOUNG: Your Honour, can I answer your Honour by making our submission about Dick Smith? The passage your Honour has drawn my attention to appears under the heading that precedes paragraph 73 “Consideration “for” the transfer in this case”, so the language used is directing itself to the particular agreement in that case.

HAYNE J: Judgments normally deal with the case with which they are concerned, Mr Young. We can take that as read.

MR YOUNG: Of course, your Honour. But the statement of the discrimen appears at the end of paragraph 71 and in paragraph 72. In paragraph 72:

The criterion in the Act of consideration “for” the transaction, being the Agreement –

and I will say something about that in a moment -

looks to what was received by the Vendors so as to move the transfers to the Purchaser as stipulated in the Agreement.

So the test - - -

KIEFEL J: But “move to the transfers” simply means by which they are obliged to effect the transfer.

MR YOUNG: Yes, but that does not gather up every promise in a composite agreement - - -

HAYNE J: And it was not said in Dick Smith to do so. Look at - - -

MR YOUNG: No, no, of course not.

HAYNE J: Just a moment. Look at paragraph 75 in the first sentence:

the performance by the Purchaser of the several promises –

It was performance.

MR YOUNG: Yes, I agree, your Honour.

HAYNE J: Yes.

MR YOUNG: But let me explain why we say that that is exactly right and it has some significance here. Can I add these matters to what we say about Dick Smith? The dutiable transaction in Dick Smith was not the transfer of the shares. It was the agreement for the sale of the transfer of the shares. The majority makes that clear at paragraphs 63 and 64. So, unlike the provisions that we are concerned with, the dutiable transaction was the entirety of the agreement providing for the sale or transfer of the shares, not confined to the transfer of the dutiable property itself.

Now, that was the matter picked up by the analysis by the majority in those paragraphs your Honour Justice Hayne has referred me to. The majority also went through the detailed provisions of the agreement given that the agreement was the dutiable transaction at page 514 of the judgment, 513 and 514. There are two relevant paragraphs that are quoted - 4.4 and 7.7 from the agreement, and in paragraph 57, the majority said:

Clause 7.7 placed upon the Purchaser an obligation on completion and immediately after payment of the Purchase Price to “fund” the Company to enable it to discharge the duties –

Then paragraph 59:

On completion, the Purchaser paid out a total of $144,139,649 . . . in performance of –

those contractual obligations. So, what flowed to the vendor was $114 million by two pathways, but both pathways were provided for in the agreement as the consideration for the transfer of the shares, and that is why the analysis proceeds, by the majority, in terms of addressing all of the relevant elements of the chargeable transaction, being the agreement.

So, in paragraph 75 you looked at every element of the agreement including the funding obligation and that is why the majority said the consideration which moved the transfer was the performance of the several promises recorded in the agreement. Every promise in the agreement was relevant, and every promise in the agreement was in return for the transfer of the shares because it was a singular transaction – only the shares were transferred and the chargeable transaction was the agreement as a whole.

KIEFEL J: Does your argument come down to saying that we should not look at the promises and payments under clause 4.7 of the agreement; we should focus only upon the standard land contract?

MR YOUNG: No, of course not, your Honour. I have endeavoured to make - - -

KIEFEL J: I did not mean to assume that you are taking an analogy from Dick Smith too far.

MR YOUNG: No. I have endeavoured to make that clear from the outset today, that we have always urged the Court to apply section 20, having regard to the entirety of the provisions of the contract of sale and the development agreement. We have never suggested otherwise. It does come down to a question of characterisation.

I did want to say a couple of other things about the payments in 4.7(a), if I may go back and finish that. I am back to the development agreement, volume 1, pages 130 to 131. The other two payments – and I accept their timing is as we have discussed, but when one pauses to look at the nature of the two other payments – that is the minimum external infrastructure contribution on account of the project external infrastructure contribution, and similar language about the gasworks payment – they are payments up to a specified dollar figure. They are capped at an agreed figure.

When one goes to the definitions, they are payments as a contribution to the costs of those works. The provisions make it clear that these are cost contributions. When one goes to the gasworks obligations, which are in clause 7.8 - page 143 - to understand the nature of these payments, the Authority covenants to obtain, effectively, an environmental clearance for the gasworks area. The remediation contract was a contract that the Authority had entered into, with a third party to carry out the remediation.

Under paragraph (c) at page 144, the Authority covenants to obtain clearances in respect of the environmental audit. So there were promises in effect to perform works that were ongoing under the development agreement. The payments were described, and they are described in each of the relevant definitions as a cost contribution to the cost of those works. The cost of those works is agreed to be a dollar figure, in the sense that it cannot exceed a dollar figure.

Can I then turn briefly to the external infrastructure which is addressed in clause 11? The Authority made promises in the development agreement about the external infrastructure. There was a warranty in paragraph 11.1(a) at page 153 and a covenant to cure defects in 11.1(b), and there was an obligation on the developer to give access to the Authority so as to enable the Authority to carry out the balance of the external infrastructure works – that is clause 11.7 at 156 – and possibly the defect cure works; for instance, 11.7(b)(iii).

So the nature of that payment is described as a contribution to a cost in an agreed dollar figure, or up to an agreed dollar figure, and the nature of the payment connects with ongoing obligations. That means that the payments collected in 4.7(a) address a number of different ongoing obligations. True it is that they are required to be paid in the base amount on or before the release of the title, but the nature of the payments is relevant to their characterisation in this overall composite agreement. Properly characterised, our submission is that they are not consideration that moved the transfer of the land.

Now, you bring to bear in that characterisation the fact that these are cost contributions on surrounding land and there are ongoing obligations in respect of those further works. You bring to bear the fact that this is a joint participant development in which ultimately there is to be a sharing of profit. I am going to go onto the remainder of clause 4.7(a)(ii) and following because those payments are of a different character.

Clause 4.7(a)(ii) does not provide for payments as so described, it provides for a distribution to participants in the joint development. The language of 4.7(a)(ii) at page 131 is that the developer must distribute the actual gross proceeds of the sale it receives in agreed proportions. Certain amounts go to the Authority and the balance goes to the developer.

Now, that is not the language apposite for consideration that moves the transfer. This is addressing the distribution of profits because they are joint participants in the overall development. As to the percentage figures – the percentage figures can be seen from Schedule C to be the product of the agreed caps. If you look at the agreed caps and calculate it out, they represent 2.74 per cent, et cetera.

Clause 4.7 then goes on in a fashion that confirms that this is a profit-sharing arrangement relating to the ongoing joint participation in the development because there are further stages. Under (b) there is a final distribution. So these are adding to the concept of a distribution. The final distribution out of the actual gross proceeds of sale takes place two years after stage practical completion in paragraph (c).

It also takes into account the value of non-residential land that has not then been sold. So there is a sharing of the market value of unsold land as part of the joint development exercise. That is paragraph (d). The method of valuation is explained in 4.8. So this is a sharing in the value of unsold land according to its developed status as at the date a couple of years into the future after the transfer of title.

FRENCH CJ: That might be a convenient moment, Mr Young.

MR YOUNG: I am sorry, your Honour, I had not realised.

FRENCH CJ: The Court will adjourn until 2.15 pm.

AT 12.45 PM LUNCHEON ADJOURNMENT

UPON RESUMING AT 2.15 PM:

FRENCH CJ: Yes, Mr Young.

MR YOUNG: May I take the Court back to the second leg of clause 4.7 at page 131? By the second leg, I mean 4.7(a)(ii) and following. As I pointed out immediately prior to the luncheon adjournment, these provisions require a distribution of the actual proceeds of sales in agreed proportions; a certain proportion to go to the authority and a certain proportion to go to the developer. In contrast to 4.7(a)(i), there are no words tying this distribution to the actual stage release; ex hypothesi, these payments are only made after the development has proceeded, after title has been taken and after the development has realised actual gross proceeds of sale. The initial reconciliation date is defined as 28 days after the first receipt of proceeds from the construction works, building offices and apartments on the land.

These payments are not required prior to the transfer of title at all. They stand, therefore, in a very different category to 4.7(a)(i) payments. My submission this morning was that 4.7(a)(i) was not entirely resolved by the opening words – they should be regarded as matters of timing and other matters being the nature and purpose of the individual payments affect the characterisation exercise, the section 20 question. There is no such difficulty confronting our argument in relation to the 4.7(a)(ii) payments. They are not required to be made before the transfer of title.

They are, moreover, as Justice Tate rightly pointed out, profit sharing payments from the joint participation in the development, hence the language that describes them as a distribution of the actual gross proceeds of sale as between the two joint participants in the developer’s project.

FRENCH CJ: Does timing really matter? You can have, obviously, instalment contracts for the sale of land as with anything else. It is rather the connection to this particular subject matter of the aspect of the development process that you would emphasise, is it not?

MR YOUNG: Yes, but the contrast I am endeavouring to refer to, your Honour, is that when I submitted in relation to 4.7(a) that you need to look at the nature and purpose of each of the payments to answer the statutory question, a number of your Honours emphasised the opening words of 4.7(a). That is to say, that these were payments that must be made before taking title. That is not an element that affects the characterisation of the distribution in paragraph (ii) and following. Therefore, the distribution must be characterised on its merits, as it were, taking account of the full context in which what this agreement describes as the joint participants in the developer’s project are agreeing to distribute actual gross proceeds of sale at future dates, having regard to the way in which both parties have contributed to the realisation of those proceeds through their further works.

There is an initial distribution in (ii). What might be called the final distribution follows two years after stage practical completion – that is paragraph (c). That is defined as completion of all the works. Paragraph (d) supports the view that this is a sharing of the proceeds by the joint development participants because completed non-residential developments that have not been sold, there is a sharing of the value at that date two years down the track, and the distribution is required to be made finally by paragraph (e).

The two caps that have earlier been mentioned affecting that portion of the distribution that relates to external infrastructure and gasworks, the caps are applied by (f) and (g). But these provisions go on in ways that demonstrate, in our submission, that they are truly profit sharing between joint developers. Clause 4.9 deals with a dealing with substantially unimproved land, as the heading indicates. Can I direct the Court to paragraph (c) at page 133:

If the Developer Deals with the Subject Land –

such as by onselling it to a third party –

the Developer must pay to the Authority . . . 50% of the –

on-sale price it gets, less certain of its costs, being the original purchase price of the land - that is the stage land payment – and other development expenses.

So this is, in effect, a sharing of net proceeds, 50/50, upon an on-sale of substantially unimproved land. This has got nothing to do with the acquisition of title in the first place and it is not linked as a payment that must be made in connection with the acquisition of title or prior to the acquisition of title or in any such fashion. Under paragraph (d) the on-purchaser - this is at page 134 - is required to enter into a covenant “to be bound by the unperformed obligations”, so the on-purchaser assumes all of the obligations to make developmental payments of the kind that this developer agreed to pay.

HAYNE J: Does any of the assessments in issue relate to substantially unimproved land?

MR YOUNG: Not that I am aware of, your Honour, but nonetheless, in our submission, these provisions are relevant to characterise the nature and payment, purpose of the payments covered by 4.7(a)(ii) through to 4.9, and they are relevant to the question whether any of those payments are to be regarded as having moved the conveyance given that they are not linked in any fashion to the conveyance other than by being found in a composite agreement that provides for many exchanges of value. But can I complete by mentioning paragraph (f):

If the Developer wishes to Deal with the Subject Land . . .

instead of splitting the net proceeds 50/50 –

the Developer may elect to –

have the land valued, and pay to the authority a share of the value of the land. All of these payments are then characterised by the parties themselves as profit share payments. In paragraph (l), the developer is discharged upon a dealing and we underscore the words:

in consideration of the profit share payment in clause 4.9(c) to the Authority . . .

and there is a release -

with effect from the later of the date the Authority receives the profit share payment –

Even without that explicit agreement by the parties that this was a profit sharing agreement in respect of ongoing development obligations, a proper analysis of the whole agreement would reach the same conclusion as a matter of characterisation on the merits of the agreement. The basic structure of those payments is not altered by the 2006 and 2008 development agreements except that greater complexity is added to the profit sharing formula in the equivalent of (ii) of 4.7(a).

HAYNE J: Does not clause 4.9 and its special provision against the possibility of a sale, or a dealing, with substantially unimproved land and the making of special provision for what is to be paid in connection with that tend to point to the relevance of all of the payments otherwise provided for by clause 4 with respect to the transfer of land otherwise dealt with in that clause?

MR YOUNG: No, your Honour, because 4.7(a)(ii) is not, with respect, to the transfer of the land. It is not tied to the transfer of the land; this is a distribution of the proceeds - - -

HAYNE J: We have had that argument. You have stated it several times, I think, Mr Young.

MR YOUNG: Yes, your Honour. May I finish my answer to your Honour? The fact that the parties go on to then deal with not the sale of the land by the developer, but a sale to somebody else, does not diminish any of the submissions we have put about the scheme of all these provisions.

Of the 4.7 payments tabulated by her Honour Justice Tate at 2901 to 2902 in the Court of Appeal’s judgment, the assessments do not distinguish between what assessments arise under 4.7(a)(i), that is, linked to the release of the title, and 4.7(a)(ii), being subsequent distribution of proceeds. Therefore, if the Court were with us to the effect that 4.7(a)(ii) is not to be considered to be a set of payments that move the transfer of the land because they are not linked – they are a sharing of development proceeds by joint participants – it would be necessary to remit those assessments to the Commissioner.

Our learned friend mentioned remitting the point they conceded, the retention account, I think he said to the Court of Appeal, but the Court of Appeal is not armed to dissect the assessments. To the extent there needs to be any remitter, our submission is that it should go back to the Commissioner for reassessment in accordance with the Court’s ruling. The same would follow from the matters I am about to go to.

I mentioned this this morning; other than just flagging it, I will not go back into it. Clause 11.11(a) of the 2008 development agreement required an application of 65 per cent of the 4.7 payments with respect to works on Collins Street Park. I submitted earlier that the fact that those payments were to be applied in that fashion was indicative of the fact that these payments were moved by joint development obligations. That is also relevant in the sense that it may bear upon what I have said about the distribution of gross proceeds.

As we understand the Commissioner’s submission, he does not dispute that there is a profit sharing element to the development agreement. His written outline acknowledges that that is the fact but complains about what is called an “undue focus” on it. That is in paragraph 13. It has never been disputed that there are profit sharing aspects to what is provided for in the development agreement, nor could it be.

Now, there is one other matter about 4.7(a)(ii) and the way in which it is completely decoupled from the transfer of title. Ex hypothesi (a)(ii) is dealing with a situation where development works have clearly commenced because we have triggered proceeds of sale of developed buildings. The payments under 4.7(a)(ii) and following are not conditions precedent to the obligation to transfer title in any way, and nor do the default provisions apply to them.

My learned friend this morning referred the Court to the default provisions of the development agreement. In clause 20 where there is a default, and they are not limited to financial default, but where there is any kind of default falling within the definition of material default there is a power to terminate, but that is not exercisable in the circumstance covered by 4.7(a)(ii) because of clause 20.6 at page 188.

Under clause (b)(ii) of clause 20.6 the agreement cannot be terminated in respect of “any Stage which the Developer has taken title” and the “Commencement of Development” has occurred. Termination is only available where the “Commencement of Development has not occurred”, where title been taken. So not only is there no condition precedent, there is no default event relating to 4.7(a)(ii) payments. There is no respect in which they could be said to be payments required to move the transfer of the land, nor do the parties so regard them in the way in which they express themselves.

Now, can I come back and, having mentioned those provisions, can I answer Justice Keane’s question from yesterday directed to my learned friend which he answered this morning? Your Honour asked whether a failure to pay, let us assume the second stage, the initial payments under 4.7(a)(i) would be a default in respect of the previous stage, as it were. The answer is, yes, that would be default, provided there had been no commencement of any development. On the transferred stage there would be a power to terminate but that is not to say it would necessarily be exercised.

There is a distinction, in our submission, that Dick Smith emphasises between a situation where the agreement itself insists that payment of certain amounts are explicit conditions precedent to the transfer in question and a situation where a payment in respect of other stages do not constitute a condition precedent, that is this case, as clause 4.2 says. There is this default provision, but it is a power, it does not fall into the same category as demanding a conclusion that payment of, in respect of later stages, is something that moves the first transfer that has already occurred.

I hope I have made myself clear, your Honour. But certainly if development is commenced and the milestone expectations is that development will commence on transfer of title – that is the milestones in Schedule A of the development agreement – the cross default provisions do not have any relevance to the question your Honour posed.

These payments under 4.7(a)(ii) and following are what the assessments call the final land payments. That is not the language of these provisions, but it is how they are described in the table in the Court of Appeal’s judgment. There is one contract where the Commissioner changed the label a little in the assessments and called it an additional land payment, but they are the same thing. It is clause 4.7(a)(ii) distribution of proceeds.

In our respectful submission, the Court of Appeal was correct in saying that these could not be regarded as any kind of top-up of the stage land payment. They were distributions of profits as part of the joint development exercise and they were not to be characterised as consideration for the transfer of the land because the land was to be transferred without any insistence that these payments be made. That appears - - -

BELL J: Just going to the table can I just inquire - - -

MR YOUNG: Yes, of course, your Honour.

BELL J: So that one sees the C3/C4 transaction attracts an additional land payment - - -

MR YOUNG: Yes. On that same page - - -

BELL J: - - - and that was the subject of assessment.

MR YOUNG: Yes.

BELL J: Where else do we find - - -

MR YOUNG: On the same page, your Honour, the next line under Dock 5, “Final Land Payment”.

BELL J: Final land payment is equally this - - -

MR YOUNG: Yes, the label changed in the Commissioner’s assessment.

BELL J: There were two Dock 5 assessments and that explains the second assessment, does it?

MR YOUNG: I think so, yes, your Honour.

BELL J: Yes. Now, there do not appear to be any additional land payments or final land payments for the C9, the V4 or the V5.

MR YOUNG: No, that is so; yes. Could I just add this caution, your Honour? We do not really know whether the labels “Final Land Payment” and “Additional Land Payment” only relate to moneys received on stage completion two years after the event, or whether they also include moneys received 28 days after the first receipt of actual proceeds, despite the labels.

Now, there are some other payments that I described this morning that fall outside 4.7(a)(i) and any provision of the agreement that identifies them as payments to be made prior to the transfer of title. I think I have sufficiently described the Grand Plaza contribution and the Grand Plaza additional contribution.

In our submission, the Court of Appeal’s assessment was correct. They were not consideration for the transfer of the land. They did not move the transfer of the land in any relevant sense. Her Honour’s conclusions adopted by the other members of the court are at these pages: 2952, that is paragraph 212, and 2971, paragraphs 252 to 253. Her Honour had earlier described the nature of the payments. If I could give this reference as well: 2885 to 7, at paragraph 78 to 86.

The next category of further payment is something described in the table as “Additional Authority Payment”. May I identify in the table where it is? It is at 2901 to 2902. At the first page of the table, there is an additional authority payment in the C3/C4 column. There is an additional authority payment in the second part of the table in the “C9 (MYER)” column and I identify what the payments related to by reference to volume 3. There is a schedule, Schedule OO at page 1221, and as the development proceeded the authority permitted the developer to exceed the original build out limitations in its actual works.

So just looking at the residential line, there is an original limit for the number of apartments. That was first increased and then it was not further increased. Commercial was further increased. The corresponding table in 2006 is probably a bit clearer and I could have gone to that more happily. That is at page 842.

Schedule OO, and the Court will see that the build out limits were increased by 10 per cent for residential, 33 per cent for car parking, 59 per cent for commercial and so forth. Larger buildings with a bigger footprint were authorised as part of the development works, but these are payments related to an enlargement of the development works that were permitted in the joint project.

The additional authority payment was, as the name indicates, payment for the authority to engage in works more extensive than the original limits on those works. Justice Tate so describes it accurately at page 2890, paragraphs 94 to 97. In our submission, these are not payments that were required to move the transfer of the title; these were payments which, of their nature, related to the authority to engage in developmental works, post taking of title. Justice Tate’s conclusion is at page 2972 - - -

FRENCH CJ: When you say they are not required to move the transfer of the title, does that mean anything more than that they were not necessary conditions?

MR YOUNG: No, it means more; certainly that they were not necessary conditions, but when you take the next step, your Honour, and characterise the payments on their merits having regard to their nature and purpose - - -

FRENCH CJ: I am just looking at the word “required” you used in your submission.

MR YOUNG: Yes, I was endeavouring in a simple formulation to pick up the two elements that does not have the temporal stipulation that these are to be paid on or before the transfer of title date, and separately their character, when you look at the provisions of the agreement and their nature, leads to the conclusion that they are not within section 20. They are not to be regarded properly as moving the transfer of title; they are directed to the scope of the development works.

I should point out there is a qualification to that, in that they are included in the scheme of clause 4.7 in the 2006 development agreement and the 2008 development agreement. I will not repeat the submissions I have already made about that scheme, unless the Court thinks it would assist them.

HAYNE J: Is her Honour Justice Tate right at paragraph 255 to say that:

The Commissioner was correct to submit that the obligation to make the payment had its source in the 2006 Development Agreement . . . before the transfers of title in respect of the Stages for which the payments were assessed - - -

MR YOUNG: Partly. The additional authority payments were incorporated into the formula in 4.7(a)(i), so to that extent the answer to your Honour is yes. But they were also incorporated in what followed as to the distribution of the gross proceeds in 4.7(a)(ii) and, to that extent, there is no nexus for the transfer of title.

Moreover, there was another application provision that the authority payments were to be applied in relation to infrastructure works, that is, applied directly to the benefit of the developer or the authority as the case may be, in a provision I mentioned this morning. Without going back to it, it is clause 11.13, any additional authority payments were to be utilised to fund public infrastructure works, in particular the harbour esplanade.

Now, the final category of payments in contest is something that goes under the label “Non-monetary consideration”. It is the last item in the table and effects - at page 2901 to 2902 - it effects C10 and C9, and they are fairly large sums. The non-monetary consideration concerns no more than the performance by the developer of construction works on land outside but adjoining those two stages, C9 and C10. The nature of the construction works was that the developer put in on adjoining land infrastructure such as trunk communications, sewerage, electrical works. As I mentioned to her Honour Justice Bell this morning, the works were carried out under a construction licence agreement, 5 February 2008 at page 2743. The performance of those works was simply a step in Lend Lease’s development.

The performance of the works was not tied to the transfer of any title in any way. There is no basis for distinguishing between those works and the building of an office building or an apartment tower by Lend Lease as part of its other development works. In our submission, Justice Tate was correct in finding that the undertaking of these works was no part of the consideration for the transfer of the land within the meaning of section 20. Her Honour’s conclusion is at paragraph 256 at page 2973. There is one issue though I need to deal with which concerns a GST clause.

HAYNE J: Just before you come to that, what is the distinction between these payments and the common case of a developer of broadacres having to provide streets, sewerage connection, telecommunication connection to the lots that the developer is about to sell?

MR YOUNG: Well, one distinction here is that these works are on the adjoining land, but I do not think that matters. But these are post acquisition of title.

HAYNE J: I understand that point but - - -

MR YOUNG: It is not tied to the acquisition of title. These are simply development works. It is no different than the billion dollars that Lend Lease spent erecting an office tower on the land. They are just development works. The explanation for the assessment may lie in the GST clause that Justice Tate addresses at paragraphs 102 and 108 at pages 2892 and 2893. There was a GST clause in the two relevant land sale contracts. Her Honour sets out one of the clauses that suffices at page 2892, special condition 10.3. The provision provides:

The parties acknowledge and agree for GST purposes –

that these works on Area 1 have a GST exclusive market value of a particular amount, and the consideration for the land includes that sum for the purposes of GST. Now, it is important to understand the concept of consideration of the GST Act. It is set out in section 11-15. The relevant words are “any act in connection with the supply of anything”. So the operative nexus that is required is no more than it be an act in connection with the supply of anything.

So the concept of consideration for GST purposes that the parties were addressing is far removed from the section 20(1) concept of consideration as explained in Archibald Howie. Any obligation in a composite agreement, whether or not it moves the transfer, has a sufficient connection for GST purposes.

Therefore, the GST provision is directed to a different matter altogether. It is no admission for the purposes of the Stamps Act and, in any event, other considerations affect GST, including the desire of both parties to qualify for input tax credits. The GST clause does not provide any nexus and none otherwise exists. These works cannot be regarded as, in our submission, works whose value was exchanged in some fashion for title so as to move the transfer of title. The consequence of these submissions is that there are many elements of the assessments that we would say, on any view of things, need to be excised. They have not been defended by any submissions that have been made.

There are several additional submissions I wish to make. To some extent, they go back to matters that I could have mentioned in the earlier flow of argument, but I was hastened towards clause 4.7. I did want to say something about the Commissioner’s attempt to distinguish or diminish the Bambro Case. It may assist my submissions if the Court picks up Bambro for a minute. I am not going to go to it in a great amount of detail; I am going to address the points made by Mr Solomon.

This case, of course, is concerned with a composite transaction, unlike Dick Smith. Mr Solomon dismissed Bambro on a number of grounds. The first, as we understood him, concerned the charging provision, section 41, and it appears as if Mr Solomon’s point was that the charging provision was different from the one we are concerned with. That is so in form, not in substance, but the charging provision in Bambro was identical to the charging provision in Dick Smith. If you are going to apply what was said in Dick Smith about the application of that provision to the agreement in question there, it does not lessen the relevance and importance of Bambro.

The relevant charging provisions are identified at 528, point 2, and it is identical to Dick Smith in substance. That point has no merit. Secondly, Mr Solomon drew attention to the fact that Justice Sugerman referred to the equivalent of section 261. That reference is at 527, point 7. For the reasons I have already given, section 261 is in play here as it was potentially in play in Dick Smith. While we are at 527, Justice Sugerman looked at the contract to identify the question:

What was the consideration? . . . What is the property agreed to be sold or conveyed?

That is the correct approach. The third ground of distinction, as we understood it, was that the court in Bambro erred by insistence on the clear identification of the subject matter of the conveyance or sale. The criticisms seem to be directed at 528, point 8, the second of the two of the conclusions. In our submission, that is both required by the authorities and by the statute, that you have regard to the subject of the conveyance and its then state and condition, where there is a composite or interconnected agreement to transfer the title and then an obligation, in this case, the vendor to build something on the transferred land.

KIEFEL J: Bambro was not referred to in Dick Smith, was it, Mr Young?

MR YOUNG: I do not think it was, your Honour, but Dick Smith, of course, concerned a very different agreement where there was only one transaction. There was the transfer of the shares and that was all that was transferred by a singular agreement that required a funding of the dividend as well as the payment of an amount so that by two pathways, $114 million was received for the transfer of a single item of property. There was no issue in Dick Smith about identifying which aspect of the composite agreement moved to transfer.

KIEFEL J: It was a different legislative regime in any event.

MR YOUNG: No, it was the same as in Bambro. The charging provisions are identical so there was no substantive difference and that is why the majority in Dick Smith emphasised, just as the provision of section 41 said, what was chargeable with duty was:

“every agreement for the sale or conveyance of property -

treated -

“as if it were a conveyance –

That is exactly the provision in Dick Smith. Now, my learned friend criticised Justice Tate’s treatment of Bambro. In our submission, her Honour was correct. Questions she posed at paragraph 204 of the judgment, page 2949, were completely correct and apposite. It is about line 43 at page 2949:

What was obtained for that promise? Was it for an exchange –

That is the concept of moving -

Were there separate ‘matters’ –

Well, that is a necessary thing to consider in the context of a composite transaction dealing with two separate things, an agreement to build and an agreement to transfer title.

Mr Solomon also criticised her Honour’s reference to an exchange at 235 - 2964 is the page. An exchange of value for title is exactly what the moving test requires, so there is no error of substance in her Honour’s analysis. I think the criticism may have been directed at the adjective “pro tanto”. Perhaps there could have been a better term, but it was directed at a situation where there were multiple promises and multiple exchanges of value and the issue was to work out which ones were truly in exchange for the title, for the transfer.

We have referred to Justice Kitto’s judgment in Berry. His Honour distinguished the words “in connection with” from the word “for” at page 659 by saying this:

while it is true that a payment cannot be described as a consideration “for” anything but that which is given in exchange for it –

His Honour went on to say that “in connection with” required a different relationship. That is no more than what her Honour was drawing attention to in those passages.

Now, I do want to address the English case that I mentioned because it is on all fours with Bambro and it remains the law in England. The Court should have distributed this morning a copy of Prudential Assurance v Inland Revenue Commissioners [1993] 1 WLR 211. It was a situation where there was an agreement to sell freehold land and there was a development agreement sitting alongside it. They were interrelated. The factual connection is described by Sir Donald Nicholls, Vice Chancellor, at 214 opposite C, so but for one you would not have had the other. The legislation was equivalent to the legislation we are concerned with.

HAYNE J: No, it was not. It was an instrument-based Act. It was not a transaction-based provision, was it?

MR YOUNG: I should have been more precise in what I said, your Honour. Your Honour is correct, but the charging provision had relevantly identical language. Opposite 214H:

“the amount or value of the consideration for the sale.”

So the same substantive question was posed in applying those words.
In his Lordship’s reasoning he made these points that put the case on all fours with Bambro and the Court of Appeal’s analysis. First, he stressed that the charging provision required that the focus be on the land in its then state. That appears at these passages: 215 G read with 216 B; 218 B to C, land “in its then condition”, just above C; and 218 F. Secondly, alongside Sir Owen Dixon in Davis his Lordship thought the form of the transaction chosen by the parties was important, that is a sale, and that is at 216 D to E, 217 C and 217 F to G. Thirdly, in that passage at 217 his Honour stressed the fact that:

Completion of the sale of the land is not dependent upon . . . completion of the building works.

Then at paragraph 4 – sorry, at page 218 B to D, this is not completely applicable, it refers to default provisions. Our position would be the same as his Lordship describes whenever development has commenced, and so payments that arise after that date would be exactly in this category. Prudential continues to be applied in the United Kingdom. We have given the Court the relevant page of the manual of the Inland Revenue Commissioners stating that it continues to be the way in which composite transactions are to be approached.

I do not need to go through that document. We have not found any later case applying it, but what we have referred to is the practice note of the person who stands in the shoes of the Commissioner. So the approach in Prudential is very much the same approach as in Bambro. The Bambro approach is not to be dismissed, in our respectful submission. It is the appropriate way of approaching the provisions of the Act, and if not approached in that fashion one is led to the improbable consequence that every promise in a related agreement simply has to be gathered together, and they are all to be treated as if they were consideration moving a sale.

FRENCH CJ: Can you just tell me, how do you encapsulate what you call “the Bambro approach” and “the Prudential approach” as a proposition?

MR YOUNG: Yes, I will try, your Honour. In Bambro and in Prudential, the court was concerned to apply - - -

FRENCH CJ: I am just after a propositional statement, if it is possible.

MR YOUNG: I am sorry, your Honour. In applying provisions to a composite agreement the characterisation as to whether payments are for the transfer of land within the meaning of the provision is to be approached by (a) having regard to the state of the land or the subject matter at the time of the transfer. It is to be approached by respecting or taking into account the chosen transaction, that is to say, a transfer on sale in the way that Sir Owen Dixon did in Davis, and consideration is to be given as to what are the conditions precedent that are laid down prior to the transfer of the property. Those elements are what are brought together in Bambro; they are brought together in Prudential. They are factors that my learned friend has criticised Justice Tate for having regard to.

FRENCH CJ: .....constellation of factors upon which one then makes the evaluative judgment whether the consideration is for the dutiable transaction.

MR YOUNG: Yes, that is so. We do not attempt to shift away from the discrimen that you need to identify what truly moved by way of exchange, the transfer of title - - -

KIEFEL J: Was not Prudential more concerned to identify the transaction?

MR YOUNG: Prudential was concerned with identifying the consideration for the transfer of the land. The transfer of the land was effected by – that is not really the right word. There were two relevant agreements that were connected with the transfer of the land. There was the transfer of the land agreement – the sale of land agreement – and there was the agreement to develop the land. They were both connected with the land, but on proper analysis, it was only the transfer agreement that identified the consideration that moved the transfer.

KIEFEL J: It was a transaction at the time of conveyance. That is what the court was looking to.

MR YOUNG: They were effectively treated as a composite transaction because they were so interlinked. As facts indicated there would have been no sale of the land without the associated development agreement.

KEANE J: But his Lordship was concerned with the characterisation of the transaction. You can see that at 217, opposite C:

However, I am unable to characterise –

He refers to the commercial object of the transaction as being the taxpayer –

would acquire a development being carried out for it by the developers with funds provided by the taxpayer company. However, I am unable to characterise the transaction by which that end result was sought to be achieved as a sale of the land with finished buildings thereon. That, manifestly, was not the legal shape of this transaction.

He is talking about characterising the transaction, not the consideration that moves one party to another. The decision rests on the basis – which seems to be the same basis as Bambro – that the transaction was a sale of land; the dutiable transaction was the transfer of the land without the house on it.

MR YOUNG: Yes, but the analysis here – if I can just go back a step, and I am sorry if it is a long answer – that Justice Tate was addressing was the trial judge’s analysis that the obligations in the development agreement were so related to each other that this was to be regarded as a transaction for, effectively, the transfer of developed land, and the trial judge said that a number of times.

Our charging provision is concerned with a dutiable transaction being the transfer of the land and the question is what consideration moves the transfer of the land and are payments that relate to the building exercise to be regarded as transfers for the payment of the land, and that was the same issue in Prudential as in Bambro where the argument was that the payments for the building in the interlinked agreement were to be regarded as part of the consideration for the land because those payments were promised at the same time as by a connected agreement as the land was to be transferred.

So the Commissioner, in IRC v Prudential, sought to assess a payment for the building under the development agreement with the payment for the land because the agreements were such that one would not have been entered into without the other, and to apply the Commissioner’s language, which we say is inapposite for a composite agreement, the broad question there posed is what did the vendor bargain that he was willing to receive before he would transfer the land?

In Bambro and in Prudential the vendor bargained for a payment on transfer of the land and simultaneously the receipt of a promise for payments in respect of a building to be erected by the vendor, and the vendor was unwilling to engage in either transaction unless it received both payments.

KEANE J: But it is not about engaging in transactions, is it? It is not about what led you to make an agreement. It is about the basis on which performance occurs. What is it that calls for performance from the other side?

MR YOUNG: Well, what is it which moves the transfer? If that is what your Honour means, I agree with you - performance being the transfer, yes. What is it that was required to move the transfer in that sense. But that is not the Commissioner’s approach and it is not what he borrows by using language from a singular transaction in Dick Smith. Rather, they ask the motivational “but for” question and they gather, just as the revenue sought to gather in Prudential, every payment received by the vendor from the purchaser, but for which it would not have proceeded with a transfer, regardless of the fact that those payments are, on proper analysis, not preconditions, not things that move the transfer of land, rather they were directed to the promise to build.

That is the analysis that the Court of Appeal, in our submission, quite accurately and correctly went through. It is essential. The Commissioner invites this Court to adopt an approach that would have the consequence that in every composite agreement you simply gather up every promise because the vendor would not have entered into the contract without all those promises and you treat them all as if they moved the conveyance of the title, being the land in its then state and condition. That is the breadth of the Commissioner’s approach. That is why the Commissioner does not feel there is any necessity to analyse the nature and purpose of the individual payments or the broad shape and purpose of the development agreement, because it says, “It is unnecessary. We have a vacuum cleaner in the new test we have formulated. We suck up everything by way of promises received at the same time”.

That is the ultimate consequence of the Commissioner’s approach and, that being the approach, it provides no way to draw a line between payments that are truly consideration that move the transfer, and payments that were received at the same time and but for which it would not have made the transfer, but in reality are not for the transfer, they are for other things. That, in our submission, is the way we put it and that is the significance we see in the approach that has until now persistently been adopted here following Bambro. Bambro was followed in the ACT in a case called Araghi we have referred to in our submissions.

It is the approach adopted in the UK and the approach is not at all the outcome of adopting or the shift from an instruments based duty to a transaction regime, because when you look at the charging provisions, the charging provision we are concerned with is what was the value that moved in exchange for the transfer of title? That question in the provisions we are concerned with, the substance of the matter is no different than the substance of the inquiry in Bambro, the substance of the inquiry in Dick Smith. It is just that we have a very different shape of agreements. We have the Bambro composite agreement. We have the side by side development transfer of land agreement in Prudential.

HAYNE J: You referred in that answer to the need to identify the nature and purpose of individual payments. As best I understand your argument at the moment, Mr Young, there are I think only three criteria which I can identify as bearing upon that inquiry, and they are not intended as either necessarily cumulative or alternative. Some of them apply I think equally. First, there is manner of calculation; second, there is agreement about the application of the sum received; and third, there is I think the reason or motive of the vendor for seeking payment of that sum.

MR YOUNG: Well, the motive of the vendor is no part of our analysis. It may be subsumed in our opponent’s notion of what were they willing to transfer it for. It is certainly no - - -

HAYNE J: I was trying to capture in that the purpose to which you were referring in, for example, the gas site remediation. The Authority sought to recover sums that it would apply, or which it would outlay in respect of the gas site remediation.

MR YOUNG: I am not referring to motive. I was referring to the explicit provisions, objectively recorded in the agreement where the parties agreed that these payments were a contribution to the recovery of costs.

HAYNE J: So, form of agreement providing for recovery by vendor of costs outlaid or to be outlaid; is that the idea?

MR YOUNG: Well, the content of the parties’ agreement is an objective matter that is relevant to the question whether the particular payments moved the transfer of the title, just as the opening words of 4.7(a) are relevant. They are relevant because that is what the parties agreed was to be the trigger for the making of certain payments, likewise, what they agreed to be, in clause 4.1(a) - the consideration for the transfer of the stage land was the stage land payment. That is relevant as well. These were all objective matters. We do not descend into motivation.

As to the other two matters, your Honour, we did refer to the manner of calculation. So do our learned friends. Our learned friends refer to the percentages as indicating that these payments are connected with an assessed first projected value of the land and then finally realised value of the land. We point to the calculations to say that in determining the stage land payment in the first place, it built in development potential and then when you go to paragraph 4.7(a)(ii), there is no trigger, there is no connection that requires the payments to be made before the transfer of title.

On the contrary, the provisions objectively disclose the distribution, a sharing in agreed proportions of the profits on ultimate sale in the context of a provision where both parties are bound to undertake ongoing works contributing to the success of that sale. The scheme of the agreement is that it makes sense that they share the proceeds because they are both engaging in works to contribute to those proceeds.

So, our assessment is entirely objective and your Honour’s three matters do not capture all of the matters we have pointed to as being relevant to the characterisation exercise. They include the nature and the state of the land at the time of the transfer. They include the absence of any condition precedents that appear. They include, once development has commenced, the absence of any default provisions, which is concerned with performance, and they concern the broader contextual matters that disclose matters such as the nature and purpose of the development agreement, its statutory context in which it arises and like the construction of any agreement to see what payments were for, you take into account all relevant contextual elements.

We are endeavouring to undertake an objective exercise in characterisation, not by excluding a list of things that our learned friends exclude. Their outline says that they exclude the condition of the property at the time of the transfer, you cannot have regard to it, you cannot have regard to the time when work is to be performed under the agreement, you cannot have regard to the fact that works are to be undertaken by both parties on external land, what is the basis for saying, these matters are necessarily excluded from a characterisation exercise? There is none.

Now, I did, I think in what I have said, covered the attempt to suggest that Justice Tate fell into five errors, all of the matters she considered that they say have to be excluded from the characterisation exercise were rightly taken into account and, indeed, it would be an error to exclude them. Now, there is another point that I need to mention - - -

FRENCH CJ: Sorry, can I just clear one thing in relation to your list of relevant factors? Obviously, it is an important factor that a performance or a promise may be a necessary condition of transfer.

MR YOUNG: Yes.

FRENCH CJ: But is that requirement itself a necessary condition of characterisation or can you have characterisation of consideration as being for a dutiable transaction, notwithstanding that it is simply a linked promise without conditioning the transfer?

MR YOUNG: Well, if you, for instance, your Honour, if you had a - - -

FRENCH CJ: I am looking at the absence of default, for example.

MR YOUNG: Well, my answer would be in the context of an agreement different from this it may be that you would still characterise the payment as being consideration that moved the transfer, absent an explicit statement that that is a condition precedent to transfer. Take Dick Smith, in Dick Smith the Court relied upon the fact that there was an explicit condition precedent that the dividend be funded.

Now, because it was a singular agreement requiring the funding of the dividend and ultimately only one thing was received, the transfers of the shares, and the payment was received in two pathways, but the aggregate payment was 114 million, you could still in the absence of that explicit condition precedent say that the receipt of the two payments moved the transfer, but when you move to a composite agreement where there are multiple exchanges of value and there is no condition precedent then surely you do have to address the nature of those exchanges of value and their purpose to ascertain whether any of those value exchanges are to be properly characterised as payments that moved the transfer. But you cannot easily jump to that conclusion simply because they are gathered together in the same agreement, which is our learned friend’s approach.

The further point I was going to mention is addressed in paragraph 51 of our submissions. This point is reminiscent of Pioneer, although Pioneer was a value limb case; a paragraph (b) case. The obligations under the development agreement were covenants that ran with the land under an express provision of the development agreement, and the transferee of the land was required to enter a registrable agreement on title. Those future payment obligations were a burden on the title. They were not something paid for the title; they were in fact a burden on the title, and it would burden any successor in title. They were not encumbrances within the meaning of the Duties Act. They were restrictions of the kind spoken of by the High Court in Pioneer.

As we say in paragraph 51, the fact that the payment obligations were a burden on the title is inconsistent with those obligations being characterised as consideration for the transfer of the title. They cannot be both, and here they were manifestly the latter. Unless I can - - -

HAYNE J: Mr Young, what is the difference between that and the vendor’s mortgage?

MR YOUNG: Between that and the vendor’s mortgage?

HAYNE J: The paragraph 51 matters that you have mentioned; the purchaser, here Lend Lease, remains bound to the Authority to make payments into the future. Is that right?

MR YOUNG: Yes.

HAYNE J: That is registered on title?

MR YOUNG: They are treated as covenants, yes.

HAYNE J: Yes. What is the difference between that and a vendor leaving money in the property and taking a mortgage in support of it?

MR YOUNG: There are differences when you look at the authorities. This point was contested below; there is no appeal against the rejection of the encumbrance argument.

HAYNE J: I understand that, but you are making a point which is that somehow this is positively inconsistent with the Commissioner’s case. I am not following that at all.

MR YOUNG: We say that the fact that these payment obligations would bind a successor in title, and so would diminish any return on sale so long as those obligations were unfulfilled, that is a factor to be taken into account in determining whether these ongoing payment obligations are obligations that can be regarded as payments that moved the transfer of title in the first place. I was about to say that unless I can assist the Court further, those are our submissions, and I am grateful for the tolerant hearing I have received.

FRENCH CJ: Always, Mr Young. Thank you. Yes, Mr Solomon.

MR SOLOMON: If your Honours please, your Honours, I will be brief. Would your Honours turn please to Court book 2902 in volume 7. I want to do this task really to answer a question Justice Kiefel raised earlier this morning. I want to briefly comment on the types of payment by reference to whether or not each type is or is not provided for in clause 4.7. I will be brief. The stage land payment obviously is; the infrastructure contribution is; the remediation contribution is; the art contribution is; both the final land payment and the additional authority payment – and I am going to develop this in a moment just a little – also both are; the estimated payments are not the subject of submission but in any event they are estimates of clause 4.7 payments. So there are only three payments that are not relevantly envisaged or provided for in clause 4.7.

First of all, the non-monetary consideration – I will say something about that in a minute – and secondly and thirdly, the Grand Plaza additional payment, and the Grand Plaza contribution. As your Honours know, the Commissioner is not pressing the retention amount, but as my learned friend explained to your Honours this morning, the other two amounts remain in issue; the Grand Plaza additional payment and the Grand Plaza contribution.

So I want to say something more about three of those types of payments, and that is really all I seek to do in reply. Starting with the two Grand Plaza payments, my learned friend took you this morning to clause 13.2 of the 2008 development agreement. I do not want to be repetitive and do that as well. That is where the contributions are provided for. The only submission I seek to make in reply is to notice that the provision for the payment in fact occurred in advance of the transfers which here took place, and my learned friend did not suggest to the contrary.

I now want to say just a little about two other types of payment, first of all, the authority payment. Would your Honours please go to appeal book 503, volume 2. With a little encouragement from the Bench, I skipped over this yesterday afternoon, but I will need to stay just for a moment with it. This is in form, as I submitted yesterday – in form is not capturing it correctly. This is materially, we submit, structured equivalently to clause 4.7 in the 2001 development agreement. I want to show your Honours two features of it in relation to the additional authority payment. First of all, would your Honours notice in 4.7(a) that the payments are to occur:

On or before the Actual Stage Release Date –

that is a defined term. Your Honours saw it yesterday in the earlier agreement. It is at 471. I do not want to take your Honours to the definition but in substance it means before title. That was an inaccurate description – before title passes. So that before title passes all of those payments are to be made, and your Honours will see that one set of those payments is the 4.7(a)(ii) “Additional Build Out” payments. So that my learned friend identified for your Honours this afternoon the way in which on a particular parcel of land there could be further building, and in fact, the negotiated position was to treat that initial payment in the same way as the other initial payments, and then further, and equivalently, in 4.7(b) on page 504:

On or before the Initial Reconciliation Date –

that is, at about when sales commence, there needs to be a distribution so that 2.74 per cent of gross proceeds are paid, 1.35 per cent of external infrastructure is paid, 1.55 per cent of gasworks site remediation is paid and as your Honours will see, 2.8 per cent of the additional authority payment is paid. So that, if your Honours otherwise accept the submissions we present, it inevitably will follow that this payment type will fall into the same class or category as the other payment types which my client assessed and which we seek to defend.

That is what we wanted to say about the additional authority payment. While I have got this folder open, can I notice one thing just for completeness? If your Honours would go to clause 20.4 at page 572. I took your Honours this morning to the equivalent clause in the 2001 development agreement but for these purposes it is suitable as you have got the folders to go to this.

My learned friend observed this afternoon about the non-applicability of clause 20.6 for non-payments which under the agreement are to occur after title has passed but of course, as your Honours will note in 20.4, looking at (b)(iv), for a material default, which your Honours saw this morning was a financial default and includes non-payment of all of the sums specified, there is an entitlement on the part of the authority to terminate the agreement and, as my learned friend pointed out this afternoon, there is an inhibition further on exercising or enforcing the clause 20.6 rights. Finally, in respect of the payments, could I briefly take your Honours please to one feature of the non-monetary consideration payment at appeal book 5, page 2007.

I am sorry, if your Honours would go to 2000, appeal book 5, 2000. I mentioned briefly to your Honours yesterday that there were three stage deeds. There is a C9 stage deed which we have got in front of us. There is an MWKH stage deed and there is a V5 Convesso stage deed. Generally they are in similar forms. They certainly speak to similar subject matters, and I wanted to show your Honours this. Would your Honours first of all notice clause 4.3 at page 2007? This is the non-monetary consideration clause in relation to this stage. There were two stages on which this sum was assessed.

What I want your Honours to notice is clause 2.2 on page 2004. Your Honours will see that the parties provided in advance of title

transferring that for the C9 stage certain provisions are to apply, a regime is to apply, and what I want to notice for these purposes is the inclusion of sums for the initial build out sale, the additional build out sale, and then the works components to which I just took your Honours and then, turning over to 2005 in a form your Honours generally will recognise, references to the external infrastructure, the gasworks site remediation, the additional authority payment, and the like.

So that when your Honours evaluate the payments on which my learned friend has placed reliance today, and in particular the additional authority payment and the non-monetary consideration and the Grand Plaza contribution amounts – there are two of them - your Honours will notice generally the way in which the parties equivalently treated them in the arrangements into which they entered and to which in part I have just taken your Honours.

In conclusion, your Honours, we seek in each appeal for the appeal to be allowed, for the orders of the Court of Appeal to be set aside, for the appeal to that court to be dismissed, for the costs in that court to follow – that is, for our costs to be paid by the appellants respectively in that court – and for costs in this Court. Because we have conceded, or not pressed, two payments, the matter needs to go somewhere. We proposed it be remitted to the Court of Appeal. Our learned friend has said it would be preferable for it to be remitted to the Commissioner, and we do not seek to express a preference on that remitter position. Subject to anything your Honours have, those are the matters for the appellant.

FRENCH CJ: Thank you, Mr Solomon.

MR SOLOMON: If your Honours please.

FRENCH CJ: The Court will reserve its decision. The Court adjourns until 10.15 tomorrow morning.

AT 3.47 PM THE MATTER WAS ADJOURNED