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[2022] NSWSC 1074
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Meridian Energy Australia Pty Ltd v Chief Commissioner of State Revenue [2022] NSWSC 1074 (12 August 2022)
Last Updated: 12 August 2022
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Supreme Court
New South Wales
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Case Name:
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Meridian Energy Australia Pty Ltd v Chief Commissioner of State
Revenue
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Medium Neutral Citation:
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Hearing Date(s):
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14 – 16 February 2022
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Date of Orders:
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12 August 2022
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Decision Date:
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12 August 2022
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Jurisdiction:
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Equity
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Before:
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Ward CJ in Eq
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Decision:
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1. Set aside the defendant’s Further Amended
Assessment, dated 25 August 2021, in whole.
2. The
parties are to file and serve submissions on the question of costs within 14
days of the publication of these reasons (including
whether, and if so why, an
oral hearing on costs is sought or that issue can be dealt with on the
papers).
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Catchwords:
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TAXES AND DUTIES — Landholder duty — Landholdings —
Threshold value — Whether Power Stations located on land
were landholdings
within the meaning of the  Duties Act 1997  (NSW) — Whether Power Stations
were fixtures or innominate sui generis property TAXES AND DUTIES
— Dutiable transactions — Dutiable value — Property —
Whether methodology in SPIC Pacific
Hydro Pty Ltd v Chief Commissioner of State
Revenue (2021) 113 ATR 24; [2021] NSWSC 395 applicable TAXES AND
DUTIES — Dutiable transactions — Dutiable property — Goods
— Whether Power Stations could be characterised
as
“goods” |
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Legislation Cited:
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Duties Act 1997 (NSW), ss 23(1) , 26 , 145 , 146 , 147 , 155, 163 , Pt 4 , Ch
4 Duties Amendment (Abolition of State Taxes) Act 2006 (NSW), s
26A(1) Electricity Generator Assets (Authorised Transactions) Act 2012 (NSW),
ss 7, 9, 13, Sch 4 Energy Services Corporations (Eraring Energy) Regulation
2000 (NSW) Energy Services Corporations Act 1995 (NSW), s 6A, cl 3, Sch
5 Personal Property Securities Act 2009 (Cth), s 267Petroleum Pipelines
Act 1969 (WA) Real Property Act 1900 (NSW), s 42Sale of Goods Act 1923
(NSW), ss 26, 27, 28Stamp Act 1921 (WA) Stamp Duties Act 1920
(NSW) Stamp Duties Act 1920-1933 (NSW), s 43A(2) State Revenue and Other
Legislation Amendment (Budget Measures) Act 2013 (NSW) State Revenue
Legislation Further Amendment Act 2009 (NSW) Taxation Administration Act 1996
(NSW), ss 97(1)(a), 101(1)(a) Valuation of Land Act 1916 (NSW), s
6AWater Management Act 2000 (NSW), s 371
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Cases Cited:
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Texts Cited:
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Category:
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Principal judgment
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Parties:
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Meridian Energy Australia Pty Ltd (Plaintiff)
Chief Commissioner of
State Revenue (Defendant)
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Representation:
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Counsel:
M Richmond SC with NYH Li (Plaintiff)
S Balafoutis SC with S
Kanagaratnam and O Berkmann (Defendant)
Solicitors:
PwC
(Plaintiff)
Crown Solicitor’s Office (Defendant)
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File Number(s):
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2020/223736
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Publication Restriction:
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Nil
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JUDGMENT
- HER
HONOUR: By summons filed on 31 July 2020, the plaintiff, Meridian Energy
Australia Pty Ltd (Meridian), seeks a review pursuant to s 97(1)(a) of the
Taxation Administration Act 1996 (NSW) (Taxation Administration
Act) of the Duties Notice of Assessment made on 25 August 2021 (the
Assessment) by the defendant, the Chief Commissioner of State Revenue
(Chief
Commissioner), under Ch 4 of the Duties Act 1997 (NSW) ( Duties
Act ), in respect of Meridian’s acquisition of 100% of the shares in
GSP Energy Pty Ltd (GSP) from Trustpower Limited (Trustpower)
on 29 March 2018
for over $160 million (the Acquisition). The amount of duty in question is
$7,979,740, calculated on land holdings
and goods valued by the Chief
Commissioner in the amount of $145.35 million.
- Under
the Duties Act , landholder duty is paid on the acquisition of entities
with land holdings valued at more than $2 million. Once the threshold value
of
the land holdings is exceeded, duty is calculated on the total value of the
landholder’s land and goods. The present dispute
goes to the question
whether the threshold value of land holdings was exceeded and, if it was, to the
total value of the landholder’s
land and goods.
- At
the time of the Acquisition, GSP was the operator of three hydro-electric power
stations in New South Wales, located at Lake Burrinjuck,
Keepit and Hume,
respectively (collectively referred to in these reasons as the Power Stations)
and the lessee of the land on which
the Power Stations are situated pursuant to
leases entered into in 2014 (the Leases). GSP’s access to the water
required for
the operation of the Power Stations (and its licence to access the
Power Stations themselves) was pursuant to Water Agreements entered
into with
the State Water Corporation (SWC). Meridian emphasises that its right to use the
Power Stations (and infrastructure therein)
derives not from the Leases but from
its ownership of the Power Station assets (pursuant to statutory Vesting Orders
to which I will
refer in due course).
- There
is no dispute that the Acquisition (of 100% of the issued shares in GSP) was a
“relevant acquisition”. The dispute
is as to whether GSP was a
“landholder” within the meaning of Ch 4. Meridian contends that the
Assessment should be set
aside because GSP was not a landholder within the
meaning of Ch 4 of the Duties Act at the time of the Acquisition (as
GSP’s interests in land did not exceed $2 million). In the alternative,
Meridian submits
that the Assessment should be set aside and an assessment of a
lesser amount should be made.
- One
of the principal differences between the parties is as to the nature of
GSP’s interest in the Power Stations or how the
Power Stations are to be
characterised. Meridian contends that GSP’s interest in the Power Stations
is an innominate sui generis property interest which cannot be classified
as land or goods, which was created by virtue of a statutory Vesting Order;
whereas
the Chief Commissioner says that the Power Stations are fixtures (being
part of the leased land).
- The
Chief Commissioner denies that the effect of the statutory Vesting Order was to
sever the Power Stations from the land on which
they are situated or to grant a
sui generis property interest to GSP; and contends that the Leases ought
to be valued on the basis that they include the inherent right to exploit
the
fixtures. Alternatively, the Chief Commissioner says that, if the
landlord’s interest in the Power Stations was conveyed
to GSP and the
Power Stations are not an interest in land, then the Power Stations are
“goods” and the Leases are worth
more than $2 million. Regardless of
whether the Power Stations are land or goods, the Chief Commissioner says that
GSP had landholdings
worth more than $2 million and that the total value of its
landholdings and goods remains at $145.35 million (such that the Assessment
is
correct).
- The
Chief Commissioner contends that the value of the Leases at the relevant time
(valued in two components – by reference to
the right to exploit and use
the fixed plant and equipment in the Power Stations and to the value of the
lease of the bare land)
was $144.85 million and the value of GSP’s goods
was $500,000. Hence, the Chief Commissioner has assessed duty on the sum of
those items, namely, $145.35 million. Meridian says that no duty is payable
because the Leases have less than nil value (or alternatively
are valued at
negative $2 million).
- The
expert valuers who gave evidence in the proceeding disagree as to the value to
be attributed to the Leases and the Water Agreements,
respectively (the
significance of this being that it is accepted that the Water Agreements are
non-land assets and do not fall within
the definition of
“goods”).
- The
nature of a review of the kind here sought was explained by Payne JA in SPIC
Pacific Hydro Pty Ltd v Chief Commissioner of State Revenue (2021)
113 ATR 24; [2021] NSWSC 395 (SPIC Pacific Hydro) (at [54]ff).
Relevantly, it is not limited to considering whether there was error by the
Chief Commissioner; rather, the correct
application of the legislation to the
facts at hand must be determined.
Background
Power Stations
- As
noted above, at the time of the Acquisition, GSP was the operator of three
hydro-electric power stations (the Keepit Power Station
on the Namoi River, the
Burrinjuck Power Station on the Murrumbidgee River, and the Hume Power Station
on the Murray River) (see
the affidavit affirmed on 3 December 2020 by Angus
David Holcombe, Head of Asset Development for Meridian, at [4]-[5]) . The Power
Stations had been built between 1928 and 2002 (see Plaintiff’s Amended
Appeal Statement at [14]; Defendant’s Further
Amended Appeal Statement at
[16]); and each has at all relevant times been located on land owned by
statutory corporations. At the
time of the Acquisition, the land was owned by
the Water Administration Ministerial Corporation (WAMC), a statutory body
established
under s 371 of the Water Management Act 2000 (NSW). The
predecessor statutory corporations to WAMC include the Electrical Assets
Ministerial Holding Corporation (EAMHC) and the
Water Resources Commission.
- Burrinjuck
Power Station (Station No 2) was commissioned in 1938 (units 3 & 4).
(Burrinjuck Station No 1 – units 1 &
2 – was commissioned in
1928 but decommissioned in 1974.) Hume Power Station was commissioned in 1957.
Keepit Power Station
was commissioned in 1960 (and upgraded in 1983). A new unit
was installed at the Burrinjuck Power Station and the existing units
in
Burrunjuck Station No 2 were upgraded in 2002.
Position prior to
2000
- Prior
to the incorporation of Eraring Energy (see below), the Electricity Commission
of New South Wales (trading as Pacific Power)
had generating assets that
included the Power Stations (see Plaintiff’s Amended Appeal Statement at
[15]; Defendant’s
Further Amended Appeal Statement at [16](e)).
- With
respect to the Burrinjuck Power Station, it appears that this was the subject of
a lease granted by WAMC to Pacific Power in
1998 (1998 Lease) (marked as Ex J in
the hearing). There is no evidence of any lease in respect of the other two
Power Stations (Hume
and Keepit) at this time.
- Clauses
6(g) and 12 of the 1998 Lease provide that the operator of the Burrinjuck Power
Station is entitled to remove its fixtures
at the determination of the 1998
Lease but that, if it fails to do so, those fixtures become the property of the
lessor (thus broadly
reflecting the position at law with respect to
tenant’s fixtures – see SPIC Pacific Hydro at [76]-[79]). The
Chief Commissioner points out that there is no evidence about how much of the
plant and equipment attached to the
Burrinjuck land could be characterised as
Pacific Power’s fixtures.
- As
there is no evidence about any lease of the land for the Hume and Keepit Power
Stations prior to 2000, the Chief Commissioner submits
that it should be
inferred that the general law applies, such that Pacific Power’s interest
with respect to any fixtures was
comprised by the rights conferred on tenants
who install fixtures on a landlord’s property. Again, the Chief
Commissioner points
out that there is no evidence about how much of the plant
and equipment attached to the Hume and Keepit land could be characterised
in
that way.
- The
Chief Commissioner emphasises that, in accordance with general law principles
applicable to tenant’s fixtures, until the
tenant removes them
tenant’s fixtures remain part of the land and are thus owned by the
landlord; and that, while the tenant
has a right under law to remove the
fixtures during or at the end of the tenancy, if the tenant fails to do so the
tenant loses that
right and the fixtures become the absolute property of the
landlord (reference here being made to Lees & Leech Pty Ltd v
Commissioner of Taxation (Cth) (1997) 73 FCR 136; [1997] FCA 404 at 149 per
Hill J; Empire Securities Pty Ltd v Miocevich [2008] WASCA 52 at
[27]- [28] per EM Heenan AJA (with whom Pullin and Miller JJA agreed)). This is
relevant to the Chief Commissioner’s argument as to the
effect of the 2000
(and subsequent) Vesting Order(s) (see below).
Eraring
Energy
- On
1 July 2000, Eraring Energy was incorporated as a statutory corporation (see s
6A of the Energy Services Corporations Act 1995 (NSW) (Energy Services
Corporations Act) and cl 3 of the Energy Services Corporations (Eraring
Energy) Regulation 2000 (NSW)).
2000 Vesting Order
- On
1 July 2002, the Treasurer ordered (pursuant to cl 3 of Sch 5 of the Energy
Services Corporation Act) that the “nominated staff, assets, rights
and liabilities of Pacific Power” be transferred to Eraring Energy on 2
August
2000 (2000 Vesting Order).
- Meridian
says that, pursuant to the 2000 Vesting Order, Eraring Energy acquired the
generating assets of Pacific Power, including
the Power Stations. The Chief
Commissioner says, on the other hand, that Meridian has not adduced any evidence
of what staff, assets,
rights and liabilities were transferred by this order,
noting that the relevant provision of the Energy Services Corporation Act
empowered the Treasurer to direct that “any specified staff, assets,
rights or liabilities of Pacific Power be transferred
to such energy services
corporation”, it does not appear to be in dispute that, after the 2000
Vesting Order, Eraring Energy
assumed the operation of the Power Stations (see
below); and the Chief Commissioner accepts that the generating assets of Pacific
Power included the Power Stations (see the Defendant’s Further Amended
Appeal Statement at [16](e)).
- The
Chief Commissioner emphasises that Pacific Power was not the owner of the leased
land on which the Power Stations operated when
the 2000 Vesting Order was made
(noting the reference to the lease between WAMC and Pacific Power for the
Burrinjuck Dam that was
in existence in 1998, being Ex J) (see the 2014
Burrinjuck Lease, cl 1.1(e)).
- The
Chief Commissioner argues that the effect of the 2000 Vesting Order was to
transfer Pacific Power’s assets (including its
interest as lessee or
tenant of the leased land) to Eraring Energy but contends that the effect of the
2000 Vesting Order was not
(and could not be) to transfer the fixtures owned by
the owner of the land (WAMC) to Eraring Energy (since tenants’ fixtures
remain part of the freehold land until and unless the fixtures are physically
removed – see SPIC Pacific Hydro at [139]). The Chief Commissioner
notes that there is no reference in the 2000 Vesting Order to WAMC, nor any
suggestion that the
assets of WAMC (including its fixtures) were to be
transferred to Eraring Energy. Further, the Chief Commissioner points out that
the legislation which authorised the making of the order (the Energy Services
Corporation Act) only permitted a transfer of assets from Pacific Power (not
from WAMC). In other words, the Chief Commissioner maintains that the
2000
Vesting Order did not sever the fixtures from the leased land. (I address
Meridian’s response to this contention in due
course.)
Commencement of operations by Eraring Energy
- On
2 August 2000, Eraring Energy commenced operation as an electricity generator
energy services corporation (see Exhibit MSW-1 to
the affidavit of Michael
Shannon Wixted, Senior Solicitor at the Crown Solicitor’s office with
carriage of the matter on behalf
of the Chief Commissioner, affirmed 28 April
2021 at 90-91, marked as Ex 1 in the hearing).
Agreement for
Lease between WAMC and Eraring Energy
- Schedule
1 of the 2013 Vesting Order provides that, on 1 March 2002, Eraring Energy and
WAMC entered into an Agreement for Lease in
respect of Burrinjuck Dam (see Ex 1
at 2615-2621). This appears, however, to be a reference to the 1998 Lease, in
light of the definition
of “Existing Lease” in the 2014 Burrinjuck
Lease (see also T 174.33-48). It does not, therefore, appear that the 2002
Lease
did in fact exist, but rather was an erroneous reference to the 1998
Lease.
Incorporation of GSP
- On
20 June 2002, GSP was incorporated (then known as Sellicks Hill Wind Farm Pty
Ltd) (see Ex 1 at 97). (Later, in June 2014, the
company name was changed to
GSP Energy Pty Ltd – i.e., GSP, as here defined (Ex 1 at
97).)
Incorporation of Green State Power
- On
4 June 2013, Green State Power Pty Ltd (Green State Power) was incorporated as a
state-owned corporation (Plaintiff’s Amended
Appeal Statement at [17];
Defendant’s Further Amended Appeal Statement at [16](g)) pursuant to s 9
of the Electricity Generator Assets (Authorised Transactions) Act 2012
(NSW) (EGA Act) (see further the Green State Power Constitution, Ex 1
at 106 and 115, cl 1.10 which provides for the establishment of Green State
Power). Green State Power is not related to GSP.
2013 Vesting
Order
- On
30 July 2013, the Treasurer made the Electricity Generator Assets (Authorised
Transactions) (Eraring Energy Excluded Assets) Order
2013 (the 2013 Vesting
Order or Eraring Vesting Order) (see Ex 1 at 167).
- Section
7 of the EGA Act confers power on the Treasurer to exercise all such
functions as are necessary or convenient for the purposes of an authorised
transaction.
Section 13 empowers the Treasurer to make Vesting Orders under Sch
4 of the EGA Act for the purposes of an authorised transaction.
- Relevantly,
cl 2 of Schedule 4 of the EGA Act provides that:
The Treasurer may, by order (a vesting order), vest assets, rights
and liabilities of a public sector agency that is an electricity generator or
transaction entity in a person
specified in the order as the transferee.
- Schedule
1 of the EGA Act defines “assets” to mean:
any legal or equitable estate or interest (whether present or future, whether
vested or contingent and whether personal or assignable)
in real or personal
property of any description (including money), and includes securities, choses
in action and documents.
- The
Chief Commissioner says that the effect of this legislation is thus to permit
the Treasurer to make a transfer of assets from
one named entity to
another.
- Clause
3 of Sch 4 of the EGA Act sets out the effect of a vesting order,
providing, relevantly, that:
(1) When any assets, rights or liabilities are vested by a
vesting order, the following provisions have effect (subject to the
vesting
order):
(a) the assets vest in the transferee by virtue of this clause
and without the need for any conveyance, transfer, assignment or
assurance,
...
(d) the transferee has all the entitlements and obligations of
the transferor in relation to the assets, rights and liabilities
that the
transferor would have had but for the order, whether or not those entitlements
and obligations were actual or potential
at the time the order took effect,
...
- Clause
7 of Sch 4 of the EGA Act provides for the vesting of interests in land:
(1) A vesting order may vest an interest in respect of land
vested in the transferor without vesting the whole of the interests
of the
transferor in that land.
(2) If the interest vested is not a separate interest, the
order operates to create the interest vested in such terms as are specified
in
the order.
(3) This clause does not limit any other provision of this
Schedule.
- The
2013 Vesting Order vested in Green State Power all of “the assets, rights
and liabilities of Eraring Energy” described
in Sch 1 (cl 3). Schedule 1
contained two parts.
- Paragraph
1 of Sch 1 vested in Green State Power “all of the assets, rights and
liabilities of Eraring Energy in, attaching
to or running with the property
identified below” (and contained Part A – headed Freehold Property
and Part B –
headed Leasehold Property). Clause 4 defines
“property” as “the real property identified in paragraph 1 of
Schedule
1”. Part B of par 1 of Sch 1 included the
“Agreement for Lease (Burrinjuck Power Station)”, erroneously
referring
to a Lease commencing 1 March 2002, apparently being a reference to
the 1998 Lease (see above) (see Ex 1 at 163-165).
- Paragraph
2 of Sch 1 vested in Green State Power all “assets, rights and liabilities
of Eraring Energy in all fixtures, chattels,
plant, equipment, infrastructure,
facilities and other tangible property located at or on the Property and to the
extent owned, benefitting,
burdening or used by Eraring Energy in connection
with the Excluded Assets Business”. The reference to Excluded Assets
Business
included the business carried on in respect of the Renewable Assets
which was in turn defined to include the three Power Stations
(Ex 1 at 161).
Paragraph 2 of Sch 1 was headed “Property, Plant and Equipment”. At
subpar (a), reference is made to the
“assets, rights and liabilities of
Eraring Energy in all fixtures, chattels, plant, equipment, infrastructure,
facilities and
other tangible property located at or on the Property”
(including Burrinjuck Dam) and subpar (c) makes reference to “[t]he
other
property listed in Annexure 2”, which listed a large number of specified
property, plant and equipment (PPE). Sub-paragraph
(c) vested the
“things” in Sch 2 in Green State Power.
- To
anticipate at this stage the parties’ submissions, which I will address in
due course, Meridian emphasises that par 1 of
Sch 1 of the 2013 Vesting Order
vested freehold or leasehold and other forms of real property; whereas par 2 of
Sch 1 vested other
forms of PPE ; and Meridian says that the 2013 Vesting Order,
coupled with cl 3 of Sch 4 of the EGA Act, operated to sever the Power
Stations from the land and vest ownership of them (an innominate sui
generis interest – not being an interest in land) in Eraring Energy.
The Chief Commissioner, on the other hand, says that the effect
of the 2013
Vesting Order (like the 2000 Vesting Order) was to transfer the assets of the
previous energy operator (i.e., Eraring
Energy), including its interest as
lessee or tenant of the Leased Land, to the future energy operator (i.e., Green
State Power).
- The
Chief Commissioner says that the effect of the 2013 Vesting Order was not (and
could not be) to sever the fixtures from WAMC’s
land and transfer the
fixtures from WAMC to Green State Power. The Chief Commissioner points out there
is no reference in the 2013
Vesting Order to WAMC (or its predecessors), nor any
suggestion that the assets of WAMC (including its fixtures) were to be
transferred
to Green State Power. The Chief Commissioner says that the reference
in par 2 of Sch 1 of the Vesting Order to the plant and equipment
that was to be
transferred to Green State Power (see cl 4.3) must be read, in the context of cl
2 of Sch 4 of the EGA Act and cl 3 of the 2013 Vesting Order, as
Eraring Energy’s interest in the plant and equipment. The Chief
Commissioner maintains
that Eraring Energy’s interest was as the lessee
under the 1998 Lease and successor of the tenant which had installed the
fixtures.
- Meridian
contends, to the contrary, that the only interests in land transferred by the
2013 Vesting Order were those set out in par
1 of Sch 1 and that they did not
include the leasehold interests in respect of the land on which the Power
Stations were situated.
Privatisation of Green State
Power’s assets
- On
14 May 2014, in anticipation of the privatisation of Green State Power’s
assets, application was made (by a Form 11R lodged
with the Registrar General)
to change the registered proprietor of the freehold on which the Hume Power
Station was located (the
Hume freehold) from the Water Resources Commission to
WAMC (see Ex 1 at 172). The form referred to the operation of legislation which
provided that WAMC was the same legal entity as the Water Resources
Commission.
- On
23 June 2014, as noted above, there was a name change in relation to Sellicks
Hill Wind Farm Pty Ltd to GSP.
- On
the same day (23 June 2014), the New South Wales Government, Green State Power
and GSP entered into a Sale and Purchase Agreement
(Green State Power Assets)
(here referred to as the Privatisation Agreement).
- By
cl 2.1 of the Privatisation Agreement, Green State Power agreed to sell, and GSP
agreed to purchase, the “Green State Power
Assets”. Clause 2.5(b)
provided that (subject to the satisfaction of all obligations in cl 2.4 and
satisfaction of all Completion
Requirements) the Privatisation Agreement would
complete by the Treasurer making the Vesting Order set out in Sch 9 of the
Privatisation
Agreement. Recital D noted that the “transfers will be
effected by the Treasurer making the Vesting Order under the Act”.
- The
“Green State Power Assets” were defined in cl 1.1 as meaning the
Vendor’s (i.e., Green State Power’s)
interest in, among other
things, the: Generation Assets (at (a)); Green State Power Contracts (at (b));
Property Interests (at (c))
and at (g) the Privatisation Agreement provided as
follows:
(g) other assets, rights and liabilities comprising the Green
State Power Business to be vested in the Purchaser under the Vesting
Order
including:
(i) plant and equipment;
(ii) consumables and spares;
(iii) vehicles; and
(iv) books and records ...
- The
Generation Assets were defined by cl 1.1 to include, inter alia: the
Burrinjuck Hydro Power Station (the 27.2 megawatt power station at Burrinjuck
Dam comprising generation units 3, 4 and 5); the
Keepit Hydro Power Station (the
7.2 megawatt hydro power station located at Keepit Dam); and the Hume Hydro
Power Station (the 58
megawatt hydro power station located at Hume Dam).
- The
Green State Power Contracts were those contracts that were to be vested in GSP
by the Vesting Order as specified in Annexure 6
of the 2013 Vesting Order.
- The
Property Interests were defined by cl 1.1 to include the Freehold Property,
Leases, Easements and Licences and all interests and
privileges arising in
connection with them. The Freehold Property and Leases were listed in Sch 12 of
the Privatisation Agreement.
- The
Chief Commissioner emphasises that the definition of Green State Power Assets
refers to the “Vendor’s interest”
in the defined assets and
says that Green State Power agreed to transfer its existing interest in the
Power Stations, without defining
what that interest was. In response to the
reliance by the Chief Commissioner on the Privatisation Agreement, Meridian
submits that
it is relevant to note that cl 6 of Sch 1 of the Privatisation
Agreement sets out the Vendor Warranties which include a warranty
that Green
State Power “is the sole legal and beneficial owner of its interest in the
Green State Power Assets”, (and
such assets include the Power Stations).
Meridian thus submits that the warranty records the effect of the 2013 Vesting
Order which
was to vest in Green State Power “sole legal and
beneficial” ownership of the Power Stations, being an interest not
derivative
of the grant of a leasehold interest (see Meridian’s
submissions in reply, dated 14 February 2022, at [7]).
- On
30 June 2014, EAMHC compulsorily acquired the freehold land on which the Keepit
and Burrinjuck Dams were situated (the Keepit Freehold
and the Burrinjuck
Freehold) and vested that land in WAMC (Ex 1 at 174-194 and 209-238). Pausing
here, I note that it seems odd that
the land would be compulsorily acquired and
then vested in WAMC, who, under the terms of the 1998 Lease, was the registered
proprietor
of (at least) the Burrinjuck property but this was not explored in
the respective submissions.
- On
2 July 2014, the Electricity Generator Assets (Authorised Transactions)
(Electricity Assets Ministerial Holding Corporation –
Keepit and
Burrinjuck Property Interests) Order 2014 (First Property Interests Vesting
Order) was made, to vest the assets of the
EAMHC (including the freehold and
“any improvements” on which the Keepit and Burrinjuck Power Stations
were situated)
from EAMHC to WAMC. On the same day, a Form 11R was lodged with
the Registrar General to register WAMC as the registered proprietor
of the
Keepit Freehold and Burrinjuck Freehold (Exhibit MSW-1 at 174-194); (Ex 1
at 209-238).
- Thus,
by early July 2014, WAMC was the registered proprietor of all of the freehold on
which the Power Stations were situated.
Grant of leases
- On
11 July 2014, WAMC granted the Keepit Lease, the Burrinjuck Lease and the Hume
Lease to Green State Power (collectively, the Leases).
Each Lease commenced on
18 July 2014 and was for a term of 30 years with 3 x 10 year options to renew.
- Clause
13.5 of each Lease, to which I refer as it is raised in the context of the
parties’ submissions, provides that:
For the avoidance of doubt, despite any provision of law to the contrary, it is
the intention of the parties that all fixtures, fittings,
assets and other items
installed on or in the Land by the Lessee or otherwise used in connection with
its business are to be classified
as Assets in accordance with the provisions of
the [“Deed of Agreement” or “Water Agreement”] and will
remain
the property of the Lessee at all times, regardless of their nature,
their degree of affixation to the Land or any other relevant
matter.
2014 Vesting Order
- On
17 July 2014, the Treasurer made the Electricity Generator Assets (Authorised
Transactions) (Green State Power Assets) Order 2014
(2014 Vesting Order) to vest
the Power Stations, the Leases and other assets of Green State Power in GSP. The
making of the 2014
Vesting Order effected the completion of the 2014 Agreement
under which the Green State Power assets were transferred to GSP.
- The
2014 Vesting Order vested in GSP all of “the assets, rights and
liabilities of Green State Power” listed or described
in Sch 1 (cl 3).
Clause 2 of the Vesting Order provided that the Vesting Order has effect from
11.59pm on the Completion Date (which
is defined in the Vesting Order as 17 July
2014).
- Paragraph
1 of Sch 1 of the 2014 Vesting Order vested in GSP all assets, rights and
liabilities of Green State Power in, attaching
to or running with, any real
property owned or occupied by Green State Power in connection with the Green
State Power Business. Part
B of par 1 of Sch 1 vested inter alia the
Keepit Lease, Burrinjuck Lease and Hume Lease in GSP.
- Paragraph
2 of Sch 1 of the 2014 Vesting Order vested in GSP:
The assets, rights and liabilities of Green State Power in all fixtures,
inventory, chattels, plant, equipment, infrastructure, facilities
and other
tangible property including those located at or on the property, or located at
or on the property the subject of (or affected
by) a real property interest
identified in Section 1 [includes the Leased Land], to the extent owned or used
by Green State Power
in connection with the Green State Power Business
“including the property identified below:
(a) All of the fixed assets listed in Annexure 1 – Green
State Power Generation Assets;
(b) All of the moveable assets listed in Annexure 2 –
Green State Power Moveable Assets;
(c) All of the spare parts listed in Annexure 3 – Green
State Power Inventory and Spares;
(d) All of the motor vehicles listed in Annexure 4 –
Green State Power Vehicle Assets; and
(e) All of the information technology assets listed in Annexure
5 – Green State Power IT Assets”.
- Annexure
1 of the 2014 Vesting Order listed the physical assets that constitute the Power
Stations.
- Paragraph
3 of Sch 1 of the 2014 Vesting Order vested in GSP all “assets, rights and
liabilities of Green State Power in all
contracts, purchase orders,
undertakings, representations, deeds, agreements or legally enforceable
arrangements to the extent entered
into by, or benefitting or burdening Green
State Power in connection with the Green State Power Business”. Annexure 6
of the
2014 Vesting Order listed the contracts to be vested in GSP, including
the Water Agreements.
- The
Chief Commissioner says that the effect of the 2014 Vesting Order (like that of
the 2000 and 2013 Vesting Orders) was to transfer
the assets of the previous
energy operator (i.e., Green State Power), including its interest as lessee of
the leased land, to the
future energy operator (i.e., GSP); and that the effect
of the 2014 Vesting Order was not (and could not be) to transfer the fixtures
from WAMC to GSP. Again, the Chief Commissioner notes that there is no reference
in the 2014 Vesting Order to WAMC (or its predecessors),
nor any suggestion that
the assets of WAMC (including its fixtures) were to be transferred to
GSP.
Meridian’s acquisition of GSP
- On
21 December 2017, Meridian and Trustpower entered into a Share Sale Agreement
pursuant to which Meridian acquired 100% of the shares
in GSP from Trustpower
(Plaintiff’s Amended Appeal Statement at [11]; Defendant’s Further
Amended Appeal Statement at
[16](a)). The Acquisition completed on 29 March 2018
(Plaintiff’s Amended Appeal Statement at [11]; Defendant’s Further
Amended Appeal Statement at [16](a)).
GSP’s interests in
freehold land
- As
at 29 March 2018, GSP was the registered proprietor of freehold land at Pejar in
New South Wales (Pejar Land). The Pejar Land has
a registered land value of
$16,300.
The Assessment
- On
28 June 2018, Meridian lodged, on a without prejudice basis, a Form ODA 043A
(being an acquisition statement made upon the acquisition
of an interest in a
private landholder) in respect of the Acquisition.
- On
20 December 2018, the Chief Commissioner assessed Meridian to duty in the amount
of $9,225,490, on the basis that the unencumbered
value of GSP’s land
holdings and goods was $168 million. On 18 February 2019, Meridian lodged an
objection against this assessment.
- On
4 June 2020, the Chief Commissioner allowed Meridian’s objection in part
and determined that Meridian was liable for duty
of $8,170,337, on the basis
that the unencumbered value of GSP’s land holdings and goods was
$148,815,340.
- On
31 July 2020, Meridian filed its summons in the present proceeding, seeking
review of that amended assessment pursuant to s 97(1)(a) of the Taxation
Administration Act. On 25 February 2021, Meridian filed its Amended Appeal
Statement (Plaintiff’s Amended Appeal Statement).
- On
25 August 2021, the Chief Commissioner issued a further amended assessment (the
Assessment which is now the subject of review),
on the basis that the dutiable
value of GSP’s land holdings and goods was $145,350,000 (reduced from
$146,670,000) and assessing
the duty payable as $7,979,740 (reduced from
$8,052,340) (see further the letter dated 23 August 2021 from NSW Revenue
setting out
the basis for the relevant amendments to the assessment).
- On
26 August 2021, the Chief Commissioner filed a Further Amended Appeal Statement
(Defendant’s Further Amended Appeal Statement).
Duties
Act
- The
Assessment was issued pursuant to the significant landholder acquisition
provisions of the Duties Act as at 29 March 2018 (it has since been
amended). Relevantly, those provisions are as follows.
- Section
146 provides that a landholder includes a private company that has land holdings
in New South Wales with a threshold value of $2 million
or more.
- As
to the threshold value of a private company’s land holdings, s 146A
provided at the relevant time that:
(1) For the purposes of this Chapter, the threshold
value of the land holdings of a unit trust scheme, private company or
listed company is the total value of all land holdings in New South
Wales of the
unit trust scheme or company.
(2) For a land holding that consists of an estate in fee
simple in land (other than a strata lot), the value of the land holding
is the
registered land value of the land as at 1 July in the previous year.
...
(7) For any land holding for which a value cannot be obtained
under the above provisions, the value of the land holding is the
unencumbered
value of the land holding, determined in the same way as it is for dutiable
property under Chapter 2.
(8) For the purposes of this section, the registered
land value of land (including a parcel) is the land value of the land as
entered in the Register of Land Values kept by the Valuer-General under
section
14CC of the Valuation of Land Act 1916.
...
- Here,
there is no question that GSP did not hold an estate in fee simple and hence
subs (2) does not apply; the relevant provision
for determination of the
threshold value of GSP’s land holdings is thus subs (7).
- Section
147 defines a land holding to mean an interest in land other than the estate or
interest of a mortgagee, chargee or other
secured creditor. The Dictionary to
the Duties Act defines interest to include an estate or proprietary
right.
- Section
23(1) of the Duties Act defines the “unencumbered value” of
dutiable property as the value of the property determined without regard to any
encumbrance
to which the property is subject.
- Section
163G of the Duties Act , which is here invoked by Meridian in the event
that the Power Station assets are not landholdings but are held to be
“goods”, provides that:
If the Chief Commissioner is satisfied that the unencumbered value of all goods
in New South Wales of a landholder comprises not
less than 90% of the total
unencumbered value of all land holdings and goods in New South Wales of a
landholder, the Chief Commissioner
may disregard the value of the goods in
determining the duty chargeable under this Chapter.
Evidence
- Meridian
filed lay affidavit evidence from: Simon Rooke, solicitor at
PricewaterhouseCoopers and solicitor on record for the plaintiff,
by affidavit
sworn 31 July 2020; Angus David Holcombe, Head of Asset Development for Meridian
Energy, by affidavit affirmed 3 December
2020 to which was exhibited Ex ADH-1
(marked as Ex A in the hearing); and Bradley Douglas Wilkins, Hydro Engineer for
Meridian, by
affidavits affirmed 18 June 2021 with Ex BDW-1 (marked as Ex B in
the hearing) and 12 July 2021.
- Meridian
adduced expert evidence from: Mr Cameron Dunsford, a Managing Principal for
RHAS, an operating division of Aon Risk Solutions
and a property valuer, by
affidavit affirmed 3 December 2020, together with a valuation report dated 28
November 2018 entitled “Meridian
Energy Australia Pty Limited Valuation of
[N]ominated infrastructure, Buildings, Plant and Equipment for Tax –
V1.0”
(Income Tax Report) and a letter dated 7 May 2019 entitled
“Re: Meridian Energy Australia Pty Limited acquisition of GSP Energy
Pty
Ltd – Valuation of Infrastructure, Buildings, Plant and Equipment for
Stamp Duty purposes” (Stamp Duty Report); Mr
Antony Bryn Samuel, a
chartered accountant, by reports dated 3 December 2020 (marked as Ex C in the
hearing) and 5 July 2021 (marked
as Ex D in the hearing), respectively; and Mr
Michael Charles Dyson, a property valuer (three reports dated 3 December 2020,
one
in respect of each of the Burrinjuck, Keepit and Hume Power Stations
respectively titled “Market Value of Leasehold Interest”
(the Dyson
Burrinjuck Report; Dyson Hume Report; and the Dyson Keepit Report).
- The
Chief Commissioner filed an affidavit affirmed 28 April 2021 of Michael Shannon
Wixted, Senior Solicitor at the Crown Solicitor’s
office with carriage of
the matter on behalf of the Chief Commissioner, together with Ex MSW-1
(marked Ex 1 in the hearing) and expert
evidence from Mr Grant Kepler, a
property valuer, by affidavit affirmed 24 November 2021 (Kepler Report).
- Mr
Samuel and Mr Kepler prepared a joint report dated 13 August 2021 (Joint Report)
(marked Ex L in the hearing).
- None
of the lay witnesses was cross-examined; nor was Mr Dunsford. Mr Dyson was
cross-examined on his report; and Mr Samuel and Mr
Kepler gave concurrent
evidence and were cross-examined on their reports. No issues of credit arise.
Issues
- The
issues for determination have been identified by Meridian as follows: first,
whether, at the time of the Acquisition, the Power
Stations were land holdings
within the meaning of s 146 of the Duties Act ; second, what is the
correct valuation of the Leases and Water Agreements; third, whether the Power
Stations are “goods”;
fourth, the exercise of the s 163G
“discretion”; and, fifth, flowing from the determination of the
first four issues, the dutiable value of the Acquisition.
Issue 1
– Whether the Power Stations were land holdings
- In
summary, Meridian maintains that the Power Stations were not land holdings at
the time of Acquisition. It is said that, to the
extent that the Power Stations
had once been part of the freehold on which they are situated (and
Meridian’s submissions seem
to accept that the Power Stations were indeed
embedded in so as to become part and parcel of the freehold land), the 2013
Vesting
Order had the effect of creating and vesting in Green State Power a
sui generis property interest in the Power Stations to be held in gross;
and that, thereupon, the Power Stations lost their character as land
(and as
interests in land).
- Meridian
thus says that the effect of the subsequent 2014 Vesting Order was to convey
Green State Power’s (sui generis property) interest in the Power
Stations to GSP; and that these Power Station interests were never held by GSP
as interests in land.
As the 2014 Vesting Order was effective from 11.59pm on 17
July 2014 (prior to the commencement of the respective Leases on 18 July
2014),
Meridian says that WAMC, as lessor under the respective Leases, never acquired
an interest in the Power Stations (which had
already by then been conveyed in
gross to GSP).
- The
Chief Commissioner, on the other hand, as adverted to above, contends that the
effect of the statutory Vesting Orders was not
to enact a statutory severance of
the Power Stations from the land upon which they were situated; rather, that the
Vesting Orders
had the effect of transferring the existing assets of the
tenant of the leased land to the future tenant of the leased land (i.e., that
Pacific Power’s existing interest
in the leased land was transferred to
Green State Power and then transferred again to GSP). The Chief Commissioner
says that there
is no support in the language of the Vesting Orders for
Meridian’s proposition that the respective Vesting Orders severed the
fixtures from the leased land; and that it was outside the statutory power to
make such a Vesting Order, the power being limited
to the transfer of the
existing interests of the previous tenant of the leased land.
- I
address in more detail below the respective submissions on this
issue.
Meridian’s submissions as to the first issue
- As
to the approach to the characterisation of property interests created by
statute, Meridian refers to R v Toohey; Ex parte Meneling Station Pty Ltd
(1982) 158 CLR 327; [1982] HCA 69 at 344 per Mason J, as his Honour then was,
for the proposition that property interests owing their existence to statute
should be
characterised in the light of the relevant statutory provisions
without attaching undue significance to similarities to a common
law
analogue.
- In
this regard, emphasis is placed by Meridian on the decision in Commissioner
of Main Roads v North Shore Gas Co Ltd (1967) 120 CLR 118; [1967] HCA 41
(North Shore Gas (No 2)) where the plurality (Barwick CJ, McTiernan,
Kitto and Taylor JJ) at 127 pointed to the fallacy of assimilating the exercise
of a
statutory right (there, the power to lay and maintain pipes) to categories
of interest in land known to the common law. Their Honours
there cited the
judgment of Evershed J (as his Honour then was) in Newcastle-under-Lyme
Corporation v Wolstanton Ltd [1947] Ch 92 (Newcastle-under-Lyme) at
103, where reference is made to the general rule that no greater rights or
interests should be treated as conferred (on the donee
of the relevant power)
than are necessary for the fulfilment of the object of the statute. Meridian
notes that Windeyer J, in his
concurring judgment in North Shore Gas (No
2) said (at 133) that where Parliament confers innominate statutory rights
“there is no need for lawyers to insist on finding
an old name for them,
when they are in fact sui generis”.
- Meridian
also refers to the approach to the characterisation of statutory rights
articulated by Basten JA (as his Honour then was)
in Chief Commissioner of
State Revenue v Pacific National (ACT) Limited (2007) 70 NSWLR 544; [2007]
NSWCA 325 (CCSR v Pacific National) (at [68]) and approved by the High
Court on appeal in Asciano Services Pty Limited v Chief Commissioner of State
Revenue (NSW) (2008) 235 CLR 602; [2008] HCA 46 (Asciano HCA), namely
that:
... The correct approach is to identify the nature of any power or interest
conferred on a statutory authority pursuant to its constituting
regime, or any
other Act relevant to it, and to identify such consequences as may flow from
that scheme without assuming that the
legal consequences will be those which
would flow from an analogous general law categorisation of the power or
interest.
- It
is noted that in Asciano HCA (at [26]), the plurality (Gummow, Kirby,
Hayne, Crennan and Kiefel JJ) accepted the appellant’s submission to the
effect that
there was nothing to be gained from a consideration of the
grantor’s rights to use land upon or in which the facilities were
constructed or embedded by reference to principles relevant to land under the
general law.
- Meridian
notes that these principles were subsequently applied in Epic Energy (Pilbara
Pipeline) Pty Ltd v Commissioner of State Revenue (2011) 43 WAR 186; [2011]
WASCA 228, where McLure P (Buss JA, as his Honour then was, and Murphy JA
agreeing), considering whether or not certain pipelines constituted
land for the
purposes of the Stamp Act 1921 (WA), held (at [75]) that whether and what
type of interest the appellants had in the pipelines was answerable solely by
reference
to the provisions of the legislation (the Petroleum Pipelines Act
1969 (WA)) and that, in that context, the general law could not intrude to
change the character of the pipelines from personal property
to real
property.
- In
the present case, as to the nature of the Power Stations prior to the making of
the Vesting Orders, Meridian argues that the Power
Stations are so connected
with their respective dams which are in turn embedded into the land that they
became part and parcel of
the land upon their construction (referring to the
depictions in Mr Wilkins’ first affidavit at [10] and [19]). Meridian
argues
that, in that sense, the Power Stations were not fixtures which might
have been independently conveyed in equity (referring to Eastern Nitrogen Ltd
v Federal Commissioner of Taxation (2001) 108 FCR 27; [2001] FCA 366
(Eastern Nitrogen v FCT) at [45] per Carr J and Federal Commissioner
of Taxation v Metal Manufactures Ltd (2001) 108 FCR 150; [2001] FCA 365 at
[56]- [57] per Sundberg J) but fall instead within the third of the categories of
things within the three-fold classification preferred by Lord
Lloyd of Berwick
in Elitestone Ltd v Morris [1997] UKHL 15; [1997] 1 WLR 687 (Elitestone) (at
690-691), namely, an object that is “part and parcel of the land
itself”. (His Lordship had there referred to the
classification suggested
in W Woodfall, Landlord and Tenant (looseleaf ed, 1998, Sweet &
Maxwell) vol 1, [13.131] of objects being: chattel; fixture; or an object that
is “part and
parcel of the land itself”.) Meridian also refers in
this regard to the decision of Lindgren J in Vopak Terminal Darwin Pty
Limited v Natural Fuels Darwin Pty Limited (Subject to Deed of Company
Arrangement) (2009) 258 ALR 89; [2009] FCA 742 (Vopak Terminal
Darwin) at [51], where his Honour (in obiter) considered that objects
falling with the category of things “part and parcel of the land”
would include (among other
things) materials brought onto land that could only
be removed by being destroyed.
- Meridian
contends that (although part and parcel of the land on which they were situated)
the Power Stations could be (and were) conveyed
by a Vesting Order made under
the EGA Act (for which cl 7 of Sch 4 makes express provision).
- As
to the effect of the 2013 Vesting Order on Green State Power, Meridian says
that, by force of cl 3 of Sch 4 and cl 7 of Sch 4 of
the EGA Act, an
interest in the Power Stations was conveyed to Green State Power without the
need for any conveyance, transfer, assignment or
assurance.
- Meridian
argues that the 2013 Vesting Order did not grant to Green State Power an
interest in the relevant freehold or a leasehold
interest in the land on which
the Power Stations were located. It is noted that at the time that the 2013
Vesting Order was made,
the Hume freehold was held by the Water Resources
Commission (not Eraring Energy) and that the Burrinjuck and Keepit Power
Stations
were held by their former owners (prior to their compulsory acquisition
by the State of New South Wales on 30 June 2014).
- Meridian
thus contends that, immediately prior to the making of the 2013 Vesting Order,
the Power Stations were part and parcel of
the land on which they were situated;
and says that, whatever impediment there might have existed at general law to a
conveyance
of the Power Stations separately from the land, this does not apply
to cl 7(1) of Sch 4 of the EGA Act, which expressly enabled the vesting
of something which is part of land without vesting the whole of the interests of
the transferor
in that land. It is submitted that where, as in the present case,
the interests sought to be conveyed by the Vesting Order are not
separate
interests in land, the EGA Act enables the creation of sui generis
property interests in such terms as are specified in the order (reference here
being made to cl 7(2) of Sch 4 of the EGA Act).
- Meridian
says that the Power Stations were conveyed by force of par 2 of Sch 1 of the
2013 Vesting Order (headed “Property,
Plant and Equipment”) as they
met the description of all “plant, equipment, infrastructure, facilities
and other tangible
property ... to the extent owned, benefitting, burdening or
used by Eraring Energy in connection with the business carried on by
Eraring
Energy in respect of the “Hume, Burrinjuck and Keepit hydro power
stations” (reference here being made to the
definition of Excluded Assets
Business and Renewable Assets in Ex 1 at 160-161). Excluded Assets Business
being defined as “the
business carried on in respect of the Renewable
Assets and other Excluded Assets” and Renewable Assets being defined as
“the
assets, rights and liabilities of Eraring Energy in connection with
the ownership and operation of the ... Hume, Burrinjuck, Brown
Mountain,
Warragamba, and Keepit hydro power stations”. Whether or not the Power
Stations were plant, equipment, infrastructure
or facilities, Meridian says that
they at least met the description of “tangible property”; and
Meridian contends that
the Power Stations were thereby conveyed in gross to
Green State Power as an innominate sui generis property interest that is
not an interest in land.
- Thus,
it is argued that Green State Power commenced holding the Power Stations in
gross and not in connection with any interest in
land.
- Meridian
says that the result was that Green State Power did not acquire any interest in
the freehold land on which the Power Stations
were situated (whether as lessee
or otherwise) under the 2013 Vesting Order and Green State Power’s
interest in the Power Stations
was not dependent on the grant of any lease (or
other interest in land) by the registered proprietor of the freehold land on
which
the Power Stations were situated. Thus, it is contended that the Power
Stations thereby lost their character as land from the effective
time of the
2013 Vesting Order.
- As
to the effect of the 2014 Vesting Order on GSP, Meridian says that, upon the
making of that order, the Power Stations held by Green
State Power became vested
in GSP and GSP continued holding the Power Stations as innominate sui
generis property interests (not being an interest in land). It is submitted
that nothing in the making of the 2014 Vesting Order or the acquisition
of the
Power Stations or Leases by GSP caused the Power Stations to change their
character or to take on the character of an interest
in land.
- It
is noted that the Power Stations were vested in GSP by force of paragraph 2 of
Sch 1 of the 2014 Vesting Order and that the physical
assets constituting the
Power Stations were expressly incorporated in Annexure 1 of the 2014 Vesting
Order. Meridian says that the
Power Stations were vested in GSP by virtue of cl
3(1)(a) of Sch 4 of the EGA Act without the need for any conveyance,
transfer, assignment or assurance. It is noted that, by cl 3(1)(d) of Sch
4, GSP has all the
entitlements and obligations of Green State Power in relation
to Power Stations that Green State Power would have had but for the
2014 Vesting
Order, whether or not those entitlements and obligations were actual or
potential at the time the order took effect.
- Meridian
points out that GSP acquired its interest in the Power Stations as at 11.59pm on
17 July 2014; and GSP did not acquire its
leasehold interest in the respective
Leases until 18 July 2014. Meridian says that, between the effective time of the
2014 Vesting
Order and the commencement time of the Leases, GSP held the Power
Stations in gross (similar to the manner in which Green State Power
held the
Power Stations); and that there is no mechanism in the EGA Act that
changes the nature of GSP’s interest in the Power Stations after the
commencement of the Leases.
- Meridian
argues that the character of the Power Stations is confirmed by the fact that
the 2014 Vesting Order does not describe the
Power Stations as interests in land
or as any part of any interest in land (noting that the Power Stations are not
mentioned in par
1 of Sch 1 of the 2014 Vesting Order but are instead
particularised in Annexure 1 of the 2014 Vesting Order, being a list of
“Green
State Power Generation Assets”).
- Meridian
says that the rights acquired by GSP pursuant to the 2014 Vesting Order remained
sui generis property interests vested by force of the EGA Act
which deliberately permitted the Power Stations to be held in gross separate
from the interests in the land upon which they were
situated. It is said that no
greater rights or interests should be treated as conferred on GSP than is
necessary for the fulfilment
of the object of the statute (using the language of
Evershed J (as his Lordship then was) in Newcastle-under Lyme, referred
to above, at 103); and that it would be erroneous to reason by analogy that GSP
obtained an equitable or other interest
in a fixture in situ unsevered
from the land on which the Power Stations stand.
- Meridian
thus contends that the Power Stations were granted to Green State Power, and
then GSP, by force of Vesting Orders made pursuant
to the EGA Act as
property interests of a sui generis nature because they were held in
gross independent of any interest in land. Meridian says that the Power Stations
do not form an
interest in land within the meaning of da199793 /s147.html" class="autolink_findacts">s 147 of the Duties
Act and therefore the only interests in land held by GSP at the time of the
Acquisition were the Pejar Land and the Leases. As noted
above, the Pejar Land
has a registered land value of $16,300. Meridian contends (see the second issue
below) that the leases are
of no value. If those contentions are correct, then
the significant landholder acquisition provisions would not be applicable
because
the threshold value would not have been reached. (The Chief
Commissioner, as will be seen, maintains that even if what GSP held in
relation
to the Power Stations was a sui generis interest, the value of the leases
exceeds the threshold landholding value.)
Chief
Commissioner’s submissions as to the first issue
- The
Chief Commissioner says that Meridian’s first contention (that the various
statutory vesting orders created in GSP a sui generis property interest
in the Power Stations, with the result that the Power Stations were no longer
fixtures forming part of the leased
land; and not separately an interest in
land) is incorrect for the following two reasons.
- First,
the Chief Commissioner says that Meridian mischaracterises the effect of the
statutory Vesting Orders. The Chief Commissioner
contends that the Vesting
Orders simply transferred the previous tenant’s interest in the Power
Stations to GSP; and that they
did not have the effect of severing the Power
Stations (as fixtures) from the leased land, extinguishing the rights of the
owner
of the leased land with respect to the Power Stations or creating any new
sui generis property interest. The Chief Commissioner contends that the
Power Stations remain as fixtures, forming part of the leased land.
- Second,
the Chief Commissioner argues that if (which is denied) the effect of the
statutory Vesting Orders was to sever the Power
Stations from the leased land,
then the nature of the rights created in GSP in the Power Stations depends upon
the manner in which
those rights were transferred to GSP. It is said that if a
statute severed the Power Stations from the leased land, the nature of
GSP’s rights would depend upon the terms of the statute but that Meridian
has identified no statute that severed the Power
Stations from the leased land.
The Chief Commissioner says that, if the Power Stations were conveyed from the
owner of the leased
land to GSP or its predecessors, then GSP would have an
equitable interest in the fixtures; and points to the lack of any evidence
that
the Power Stations were so conveyed.
- As
to the effect of the statutory Vesting Orders, the Chief Commissioner analyses
the position from the starting point of the distinction
between the owner of the
leased land and the operator of the Power Stations, noting that, at all material
times, they have been different
entities. As set out in the chronology above,
the owner of the leased land presently is WAMC (see the Leases). The Chief
Commissioner
points out that at earlier times, the owner of the leased land has
been the predecessor statutory corporations to WAMC, including
EAMHC and the
Water Resources Commission.
- As
noted above, the Chief Commissioner contends that the effect of the relevant
Vesting Orders was not to enact a statutory severance
of the Power Stations from
the land upon which they were situated; rather, the Chief Commissioner says that
the Vesting Orders had
the effect of transferring the existing assets of the
tenant of the leased land to the future tenant of the leased land (i.e., that
Pacific Power’s existing interest in the leased land was transferred to
Green State Power and then transferred again to GSP).
- As
to Meridian’s contention (that, assuming the effect of the Vesting Orders
was to sever the Power Stations from the leased
land, the Vesting Orders created
new rights in GSP in the Power Stations which are a sui generis property
interest and not to be characterised as an interest in land), the Chief
Commissioner maintains that the assumption underlying
this contention is
incorrect. The Chief Commissioner contends that the Vesting Orders did not sever
the Power Stations from the leased
land nor did they transfer WAMC’s
ownership of the Power Stations (as fixtures) to GSP. However, the Chief
Commissioner argues
that, even if such a transfer did occur, the result is that
GSP’s interest in the Power Stations is an interest in land.
- The
Chief Commissioner points to the need for careful attention to be given to the
terms of the statute when determining whether new
rights created by statute may
be characterised as land; pointing by way of example to the North Shore Gas
(No 2) decision to which Meridian has referred. It is noted that the High
Court there considered that the statutory scheme that granted the gas
company the right to use the land by placing and maintaining
its pipes under the
street and permitted the local council to direct the gas company to alter the
location of those pipes (see at
133 of that judgment) did not grant an interest
in land because the exercise of the power to lay pipes under another
person’s
land was not considered to confer an interest in that other
person’s land (see at 127-128).
- The
Chief Commissioner argues that the cases cited by Meridian in this respect are
not of assistance since they are all concerned
with the nature of rights granted
by statute; whereas the Chief Commissioner says that the Vesting Orders do not
grant any new rights
– they merely effect a transfer of the existing
rights owned by the previous tenant of the leased land to the new tenant (and
hence it is said that no debate about the terms of a statutory scheme to grant
new rights arises where there is no such scheme).
- In
response to the submission by Meridian (at [60]-[62]) that the Power Stations
are so connected with the land that they have become
part and parcel of the land
(and therefore are not fixtures which might have been independently conveyed in
equity), the Chief Commissioner
says the following.
- First,
that Meridian’s argument is irrelevant as there is no evidence to suggest
that the owner of the leased land did convey
the Power Stations to GSP or its
predecessors.
- Second,
while the Chief Commissioner does not cavil with the proposition that the Power
Stations are so connected with the land that
they have become “part and
parcel” of the land, the Chief Commissioner argues that this is simply
another way of saying
that the Power Stations are “fixtures” (and
that there is no real distinction between these two terms). It is said that
the
reference to items that are “fixtures” and items that are
“part and parcel” of the land was an attempt
to re-cast a broad
category of fixtures into two sub-categories (that attempt being more readily
explicable if one does not ordinarily
think of a building as a fixture)
(reference here being made by the Chief Commissioner to Auckland City Council
v Ports of Auckland [2000] NZCA 190, [2000] 3 NZLR 614 at [72] per McGrath
J; and R Abbs “The Law of Fixtures: Informed Principle or Independent
Predilection?” (2004) 11 Australian Property Law Journal 31 at
36-38). In any event, the Chief Commissioner says that this three-fold
categorisation has not been adopted in Australia. While
this may be so, and the
High Court has not expressly adopted this approach, it has nonetheless been
hinted at by the New South Wales
Court of Appeal, where Hodgson JA referred to
railway infrastructure as being so “integrated into land as not to be
distinguishable
from land” (see CCSR v Pacific National at [27] and
Vopak Terminal Darwin at [51] per Lindgren J).
- Third,
the Chief Commissioner points to authorities where it has been held that if an
owner of land purports to transfer fixtures
to a third party then that third
party’s interest in the fixtures is at least an equitable (and perhaps
legal) interest in
the land (citing Metal Manufacturers v Commissioner of
Taxation (1999) 43 ATR 375; [1999] FCA 1712 at [189] and [196] per Emmett J
as his Honour then was; Commissioner of Taxation v Metal Manufactures
(2001) 108 FCR 150; [2001] FCA 365 at [56] and [57] per Sundberg J, with
whom Lee and Carr JJ agreed; Eastern Nitrogen v FCT at [45], [46], [50]
per Carr J, with whom Lee and Sundberg JJ agreed; Vopak Terminals Australia
Pty Ltd v Commissioner of State Revenue (2004) 12 VR 351; [2004] VSCA 10
(Vopak Terminals Australia) at [80] per Ormiston JA, with whom Warren CJ
and Buchanan JA agreed; Commissioner of State Revenue v TEC Desert Pty Ltd
(2009) 40 WAR 344; [2009] WASCA 128 (TEC Desert) at [86] and [117]
per Wheeler JA, [226] Per McLure JA, as her Honour then was; and SPIC Pacific
Hydro at [150]).
- The
Chief Commissioner submits that Meridian’s contention (that Vesting Orders
created in GSP a sui generis property interest in the Power Stations)
mischaracterises the effect of the Vesting Orders and that those orders
transferred the
previous tenant’s interest in the Power Stations to GSP
(they did not have the effect of severing the Power Stations (as fixtures)
from
the leased land). The Chief Commissioner says that the Power Stations remain as
fixtures, forming part of the leased land.
- Further,
the Chief Commissioner argues that, even if the Vesting Orders did create a
sui generis property interest in GSP in the Power Stations, that interest
was created on the date of the 2000 Vesting Order in July 2000. The
Chief
Commissioner says that this means that all assets installed after that date
remain as fixtures, forming part of the leased
land. The Chief Commissioner
points out that Mr Dunsford identifies in his report (see the affidavit of
Cameron Dunsford affirmed
3 December 2020, and Mr Dunsford’s valuation
report dated 28 November 2018 at Annexure CD-2 to that affidavit) that a
substantial
proportion of the assets comprising the Power Stations were
installed after that date (see also the affidavit of Angus Holcombe affirmed
3 December 2020). The Chief Commissioner says that it follows that, even on
Meridian’s case, a substantial proportion of the
Power Stations remain as
fixtures, forming part of the leased land.
- If
it is held that the Power Stations are fixtures, then the Chief Commissioner
argues that Meridian’s third and fourth contentions
(i.e., as to whether
the Power Stations are goods and the exercise of the power under s 163G of the
Duties Act ) do not arise. In those circumstances, the Chief Commissioner
understands that Meridian also accepts that the (so-called) “Pacific
Hydro
Methodology” applies (see below) and the only remaining issues are
remediation costs and the value of the right to lease
the unimproved leased land
(both of which are addressed in submissions on the second issue below). Pausing
here, Meridian in its
reply submissions says that the report of Mr Samuel
in this regard relies on an instructed assumption. Meridian made clear in the
course of the hearing that it does not accept that the “Pacific Hydro
Methodology” applies in this case (see at T
23-26).
Meridian’s submissions in reply as to the first
issue
- In
reply submissions as to the effect or operation of the Vesting Orders, Meridian
cavils with the submission by the Chief Commissioner
that the effect of the 2013
Vesting Order was to transfer the assets of Eraring Energy “including its
interest as lessee of
the Leased Land” to Green State Power.
- Meridian
says that the only interests in land transferred by the 2013 Vesting Order were
those set out in par 1 of Sch 1 of the 2013
Vesting Order. Meridian contends
that par 1 of Sch 1 of the 2013 Vesting Order is exhaustive in that it provides
that “[t]he
assets, rights and liabilities of Eraring Energy in, attaching
to or running with any of the property identified below, or
arising as a result of ownership, occupation or possession of the
property” (emphasis as per Meridian’s submissions).
- The
2013 Vesting Order refers to the “Agreement for Lease (Burrinjuck Power
Station)” in part B of par 1 of Sch 1 of the
2013 Vesting Order; but goes
on specifically to particularise the vesting of the Power Stations as interests
other than land by Annexure
2 of the Vesting Order, which lists “Property,
Plant and Equipment”.
- Meridian
says that it does not appear to be contested by the Chief Commissioner that the
2013 Vesting Order was competent to vest
an interest in all Power Stations
(including the Hume and Keepit Power Stations) in Green State Power (referring
to [28] and [29]
of the Chief Commissioner’s submissions). Meridian argues
that, by omission from par 1 of Sch 1 of the 2013 Vesting Order,
Eraring
Energy’s interest in the Hume and Keepit Power Stations did not fall to be
vested in Green State Power as an interest
in land. It is submitted that the
only form in which they could be received by Green State Power was as Property,
Plant and Equipment
pursuant to par 2 of Sch 1 of the 2013 Vesting Order and
Annexure 2 to that Vesting Order, which enumerates the Power Stations as
“Property, Plant and Equipment”. Meridian notes that cl 7(2) of Sch
4 of the EGA Act has the effect that par 2 of Sch 1 of the 2013 Vesting
Order creates in Green State Power an interest in the Hume and Keepit Power
Stations (and so much of the Burrinjuck Power Station) in the form of
“Property, Plant and Equipment” other than “Real
Property”. Meridian says that this is confirmed by subpar (c) of par 2 of
Sch 1 which vests in Green State Power the identified
items in Annexure 2 (being
the Power Station assets) as “things”, and not merely
Eraring Energy’s interest in those things.
- Insofar
as the Chief Commissioner relies (at [31] of his submissions) on the terms of
the Privatisation Agreement between the State
of New South Wales, Green State
Power and GSP, Meridian notes that cl 6 of Sch 1 of the Privatisation Agreement
sets out the Vendor
Warranties, including a warranty that Green State Power
“is the sole legal and beneficial owner of its interest in the Green
State
Power Assets”. It is noted that (as the Chief Commissioner accepts) the
Green State Power Assets include the Power Stations.
Meridian says that the
warranty coincidentally records the effect of the 2013 Vesting Order, which was
to vest in Green State Power
“sole legal and beneficial” ownership
of the Power Stations, being an interest not derivative of, nor dependent on,
the
grant of a leasehold interest by a third party.
- Meridian
says that (contrary to the Chief Commissioner’s submissions at [29] and
[36]), it was not necessary for the 2013 Vesting
Order or the 2014 Vesting Order
expressly to refer to WAMC (even if WAMC were the holder of the freehold land)
because it is sufficient
for the two Vesting Orders to pick up the Power Station
assets of Eraring Energy (and Green State Power) (specifically identified
as
particular things in each case) and to vest them in the transferee as
“Property, Plant and Equipment”.
- Meridian
says that (contrary to the Chief Commissioner’s submissions at [38]) the
evidence is inconsistent with the contention
that Pacific Power, Eraring Energy,
Green State Power and GSP were only successors in title of leasehold interests
in the Power Stations.
It is said that the evidence goes only as high as an
inference that Pacific Power held a lease of the Burrinjuck land. Further,
Meridian
says that the existence of a former lease between WAMC and Pacific
Power of the Burrinjuck Freehold does not prevent cl 7(2) of Sch
4 of the EGA
Act from enabling the Minister to create sui generis statutory rights
in respect of property that was formerly part of the land owned by another
government entity by vesting order.
- As
to the submission by the Chief Commissioner (at [40]) that (even if the Vesting
Orders severed the Power Stations from the leased
land or transferred, to GSP,
WAMC’s ownership of the Power Stations (as fixtures)), “GSP’s
interest in the Power
Stations is an interest in land”, Meridian says that
such a contention would invite disharmony between the EGA Act and the
Real Property Act 1900 (NSW) (Real Property Act).
- Meridian
says that that conflict arises by reference to the following matters. First,
that cl 7 of Sch 4 of the EGA Act enables the Treasurer to vest an
interest “in respect of land” which does not have to be the whole of
the interests of
the transferor in that land and the statutory language is not
limited to subdivisions or lesser estates carved from larger estates.
Second,
that cl 7(2) of Sch 4 facilitates the creation of those partial interests
“in respect of land”. Third, that the
EGA Act otherwise does
not restrict the registered proprietor of the land, from which a partial
interest has been vested in the transferee,
from conveying the underlying
freehold to a third party. Fourth, that s 42 of the Real Property Act
would confer on the third party transferee the freehold title “absolutely
free from all other estates and interests”
that are not recorded on the
Register other than those in s 42(1)(a)-(d). Fifth, that if the partial interest
vested by cl 7(2) of Sch 4 of the EGA Act remained an estate or interest
in respect of land, s 42 of the Real Property Act would defeat the plain
intention of cl 7 of Sch 4 and of purpose of the EGA Act as a whole.
- Meridian
contends that two statutes which share a field of operation should be construed
in a way which best achieves an harmonious
result (reference here being made to
Commissioner of Police (NSW) v Eaton (2013) 252 CLR 1; [2013] HCA 2 at
[78] per Crennan, Kiefel (as her Honour then was) and Bell JJ, and at [98] per
Gageler J (albeit that his Honour dissented on the outcome)).
Meridian says
that, to the extent that the Real Property Act and the EGA Act
concern the regulation of title to property they should be construed
harmoniously; and that sui generis property interests which have been
vested by force of the EGA Act should not be defeated by the
indefeasibility provisions of the Real Property Act. Meridian argues that
an harmonious construction would give full force to cl 7(2) of Sch 4 of the
EGA Act by recognising that the interests in respect of land vested
separately to the land and as things (“Property, Plant and
Equipment”),
rather than land, lose their character as an “estate or
interest” in the land within the meaning of s 42 of the Real Property
Act.
- As
to the Chief Commissioner’s submission (at [49]) that, even if the Vesting
Orders did create sui generis property interests, they could only do so
upon the making of the 2000 Vesting Order, Meridian says that, to the extent
that the Vesting
Orders are found to have been capable of giving rise to sui
generis property interests, then the 2013 Vesting Order and 2014 Vesting
Order were capable of achieving that result irrespective of the
effect of the
2000 Vesting Order. Accordingly, it is submitted that Power Station assets
installed by Eraring Energy and Green State
Power were vested in GSP as sui
generis property rights and not as land.
- In
further written submissions addressing the Chief Commissioner’s invocation
in opening submissions of the nemo dat principle, Meridian says that the
consideration of this principle must be qualified by the statutory scheme
enacted by the EGA Act. Meridian says that the nemo dat principle
is not an inflexible rule but, rather, the common law’s attempt to balance
competing principles, referring to what
was said by Lord Denning in
Bishopsgate Motor Finance Corporation Ltd v Transport Brakes Ltd [1949] 1
KB 322 (at 337). Meridian also points out that the nemo dat
principle admits of exceptions by statute (referring by way of example to s 42
of the Real Property Act, ss 26 to 28 of the Sale of Goods Act
1923 (NSW) and s 267 of the Personal Property Securities Act 2009
(Cth)); and Meridian argues that this is also the case with the EGA Act.
Meridian submits that the EGA Act can vest things not otherwise
recognised as property interests by the common law, including allowing the
transfer of a lessee’s
“assets” fixed on another
person’s land.
- As
to the proper construction of the EGA Act, Meridian notes that cl 2 of
Sch of the EGA Act provides that the Treasurer may vest “assets
rights and liabilities” and that the definition of “assets”
(see as extracted earlier) includes unassignable legal or equitable interests
and future property. Meridian emphasises that cl 3(1)(d)
of Sch 4 of the EGA
Act (which vests assets, rights and liabilities of the transferor
“whether or not those entitlements and obligations were actual
or
potential at the time the order took effect”) expressly refers to
“potential” entitlements and obligations.
- Meridian
argues that the legislation permits the separate vesting of a lessee’s
interest in fixtures on leased land without
their physical severance (as an
exception to the nemo dat principle), noting that the 2013 Vesting Order
vested the Agreement For Lease (Burrinjuck Power Station) as an interest in land
by
par 1 of Sch 1 (which exhaustively lists the “Real Property”
interests vested in Green State Power) (read with Ex K,
being a redacted copy of
the entire Vesting Order); and that the assets of Eraring Energy that meet the
description in par 2 of the
2013 Vesting Order are specifically vested as
“Property, Plant and Equipment” (which includes assets constituting
the
Burrinjuck Power Station, the Hume Power Station and the Keepit Power
Station).
- Meridian
thus maintains its contention that the 2013 Vesting Order vests the assets
constituting the Hume Power Station and the Keepit
Power Station separately from
any interest in the underlying land. Meridian says that the presumption of
regularity applies to presume
that Eraring Energy owned the Hume Power Station
and the Keepit Power Station immediately prior to the making of the Vesting
Order
(Minister for Natural Resources v New South Wales Aboriginal Land
Council (1987) 9 NSWLR 154 at 164 per McHugh JA, as his Honour then
was).
- It
is noted that the 2014 Vesting Order separately vested in GSP the leases as
interests in real property and the Property, Plant
and Equipment constituting
the Power Stations as things specifically listed in Annexure 1.
- Meridian
says that a comparison of the 2013 Vesting Order Annexure 2 and the 2014 GSP
Vesting Order Annexure 1 shows the deliberate
inheritance by GSP of Eraring
Energy’s “Property, Plant and Equipment” (i.e., the Power
Station Assets) as specific
assets not as land.
Determination of
the first issue
- Tracking
through the operation of the Vesting Orders from 2000, there is at first blush
much to support the argument of the Chief
Commissioner that all that was
conveyed by the respective Vesting Orders was an interest in the Power Stations
as fixtures (and hence
that GSP held an interest in land in the Power Stations
for the purposes of considering the landholder duty provisions).
- That
is because Pacific Power was not the owner of the land on which the Power
Stations were situated and (whether by the terms of
a lease conferring upon it a
right of removal or on the application of the common law principles relating to
tenants’ fixtures)
if the Power Stations were installed by it (or a
predecessor) on the land as a tenant’s fixture ownership would be in the
owner
of the land unless and until the exercise of the right to remove the
fixture; and hence, at the time of the 2000 Vesting Order, the
right or interest
of Pacific Power in the Power Stations would be simply the right of removal
(subject to the provisions of any relevant
lease) not as owner of the
assets.
- If
so, then the 2000 Vesting Order, which provided for the “nominated staff,
assets, rights and liabilities” to be transferred
to Eraring Energy could
at that stage only have included the right to remove the fixtures and would not
have vested ownership in
them on Eraring Energy. I accept that there is nothing
in the 2000 Vesting Order that indicates an intention to interfere with the
rights of the owner of the freehold in the land (including in any fixtures on
the land).
- Accordingly,
one would expect that the 2013 Vesting Order, insofar as it conferred Eraring
Energy’s interest in the Power Stations
on Green State Power, could only
have conferred Eraring Energy’s interest in the fixtures as acquired under
the 2000 Vesting
Order (there being no suggestion that in the interim Eraring
Energy had taken any action to convert its right to remove the fixtures
to
ownership of the fixtures). And it would follow that the 2014 Vesting Order was
so limited.
- However,
when one focuses on the terms of the 2013 Vesting Order, and in particular the
identification in the schedules thereto of
the interests there being vested in
Green State Power, I am driven to the conclusion that what was effected was
indeed a statutory
severance of the Power Stations (as fixtures) from the land
on which they were situated.
- I
do not place reliance on the postulated three-fold classification of property
interests (since, with no disrespect to Lindgren J
in Vopak Terminal
Darwin (or Lord Lloyd in Elitestone)) I have difficulty seeing any
real distinction between an item that is so affixed to or embedded in land as to
become a fixture
and an item so affixed to or embedded in land as to become
“part and parcel of the land”). However, the force of
Meridian’s
argument in my opinion derives from the way in which the 2013
Vesting Order is framed; and particularly the inclusion in the Schedule
of the
Hume and Keepit Dams not in the category of real property or leasehold property
but as “things” falling within
the second part of the Schedule under
the heading “Property, Plant and Equipment” and enumerated in
Annexure 2 to the
Vesting Order. Thus, I find that the Power Stations do not
meet the description of land (or of interests in land) insofar as they
fall
within the catch-all description of “tangible property” within
par 2 of Sch 1 of the 2013 Vesting Order. I therefore
consider that the
Power Stations were conveyed, in gross, to Green State Power under the 2013
Vesting Order as an innominate sui generis property interest. As such,
the effect of the 2013 Vesting Order was that Green State Power did not acquire
an interest in the freehold
land, nor was that interest dependent on the grant
of any lease by the registered proprietor of that land. Such a conclusion is
consistent
with the parties’ subsequent treatment of the Power Stations
(though I do not suggest this is in any way determinative) in
the warranties in
the Privatisation Agreement.
- Thus,
upon the making of the 2014 Vesting Order, the Power Stations held by Green
State Power as an innominate sui generis property interest became vested,
in gross, in GSP, and GSP continued to hold those Power Stations as innominate
sui generis property. Nothing in the making of the 2014 Vesting Order,
which was in materially identical terms to the 2013 Vesting Order, caused
the
Power Stations to change their character, or in effect “undid” the
statutory severance of the Power Stations from
the land.
- Therefore,
I have concluded (although I accept that this runs counter to the traditional
dichotomy between chattels and fixtures)
that the interest in the Power Stations
vested in GSP is not an interest in land. In those circumstances I do not need
to address
the submission that, to conclude otherwise, would invite disharmony
between the EGA Act and the Real Property Act (although I see
force in Meridian’s submissions on that issue).
Issue 2
– The value of the Leases and Water Agreements
- Before
addressing the parties’ submissions on this issue it is convenient to
summarise the expert evidence.
Mr Dunsford
- There
is no disagreement between the parties as to the valuation by Mr Dunsford
of the plant and equipment at $131 million.
- For
completeness, I note that there was an objection by the Chief Commissioner to
the tender, in the context of Mr Samuel’s
report, of a report that Mr
Dunsford had provided to Meridian (on which it relied to produce its accounts),
that report (together
with the accounts) being the basis for an instruction to
Mr Samuel as to the amount of remediation costs in respect of the Power
Stations
at the end of the Leases (see T 26-27). Meridian accepted that the opinions
given by Mr Dunsford in that report could not
be relied upon as an expert
opinion to the effect that $30 million was the remediation cost (not having been
prepared in compliance
with the expert witness code); and accepted that a s 136
limitation on the use of that document would be appropriate if necessary.
Ultimately, no such ruling was made on the basis that Meridian accepted that it
was simply being relied on as a business record of
what was before the company
and not as proof of the amount for remediation costs. Meridian also accepted
that the assumption on which
Mr Samuel gave his opinion based on an allowance
for remediation costs was therefore affected by that ruling (see T 27) but
maintained
that it did not ultimately affect Mr Samuel’s conclusions in
any material way (and on Meridian’s case would be irrelevant
in any
event).
Mr Dyson
- As
noted above, Meridian relied upon three reports dated 3 December 2020 prepared
by Mr Dyson, a property valuer, as to the market
value of the leasehold
interests (see Ex E (Dyson Burrinjuck Report), Ex F (Dyson Hume Report) and Ex G
(Dyson Keepit Report)).
- Objection
was taken by the Chief Commissioner to the tender of Mr Dyson’s reports on
the basis that Mr Dyson did not explain
the basis of the reasoning leading to
the conclusions expressed in his reports (see Makita (Aust) Pty Ltd v
Sprowles (2001) 52 NSWLR 705; [2001] NSWCA 305 at [60] per Heydon JA, as his
Honour then was) (see T 46ff). In essence one of the complaints by the Chief
Commissioner was that there was
no evidence or basis for the opinion expressed
by Mr Dyson that many leases for land owned by the New South Wales Government
have
a rental assessed as a percentage of the assessed land value in the range
of 5% to 10% depending on when the lease was prepared (see
at [49] of the report
in relation to the Burrinjuck Lease for example, being Ex E). Meridian’s
contention was that the basis
for Mr Dyson’s opinion was his recollection
of what he had seen and done in relation to government leases over some 30 years
of practice, noting that Mr Dyson had annexed to his report two examples of
leases where the rent was shown to be calculated by reference
to percentage of
land value within the range that Mr Dyson had adopted in his calculations
(see T 50.4-17). I provisionally admitted
the reports subject to weight (see T
52.7-43). I deal in due course with the ultimate status of this report (see at
[266] below).
- Mr
Dyson valued each of the Leases by applying the Amortisation of Profit Rental
Method (a “profit rental approach”) which
compares the market rent
for the lease and the actual rent paid (“passing rent”) under the
lease. Under such a “profit
rental approach”, the market value of a
leasehold interest is equal to the present value of any profit rental (being the
excess
of the market rental over the passing lease rental) that is attributable
to the lease. Mr Dyson’s opinion was that the profit
rental approach
was the appropriate methodology to value the Leases (the difficulty here, I
interpose to note, is that this approach
requires comparable properties and, as
became apparent in cross-examination, none was here available – no doubt
due to the
unique location and features of the land).
- In
each case, Mr Dyson’s opinion was that the passing rent paid by GSP is
greater than the market rent; that there is no profit
rental attributable to the
Lease; and the market value of each Lease is therefore $nil.
- For
the Burrinjuck and Keepit Leases, Mr Dyson first determined the market rent
based on a percentage (10%) of the statutorily assessed
land value (see Ex E
at [49] in relation to Burrinjuck); and then checked the value
derived by reference to market rents for residential cottages in the surrounding
regions, which he then halved in order to account for improvements (see Ex E at
[41] in relation to Burrinjuck). In relation to the
Burrinjuck Lease, for
example, Mr Dyson made reference to some nearby residential dwellings (that
in cross-examination he accepted
were not particularly comparable – not
least because the Lease prohibited residential dwellings on the site – see
the
Permitted Use clause). For the Keepit Lease, Mr Dyson determined the market
rent of the Keepit Lease by applying a 10% return to
the NSW Valuer
General’s assessment of the Keepit land ($1,500 p.a.) and checked that
result against the rental of nearby rural
properties from which he deducted 50%
to account for the value of the improvements on those properties. Using this
methodology, Mr
Dyson valued the market rent for the land ($1,500 p.a.) at far
less than the passing rent ($28,000 p.a.), arriving at a nil value
for the
Keepit Lease (see Ex G at [56] to [65]). Mr Dyson adopted the same approach with
respect to the Burrinjuck Lease (Ex E at
[56] to [65]).
- With
respect to the Hume Lease, Mr Dyson only used the second of the two
methodologies to determine the market rent of the Hume Lease
(on the basis that
there were no comparable properties) and concluded again that the actual rent
paid under the Hume Lease was greater
than the market rent so that the value of
the Lease was nil (see Ex F at [55] and [63] to [69]).
- In
cross-examination, Mr Dyson referred to his experience of Land and Environment
Court determinations and said that the profit rental
approach was the only
method he knew as to how to value a lease. Mr Dyson accepted that it would be
inappropriate to apply such an
approach to value a leasehold interest if the
business (on the leased land) was intrinsically linked to the land (see at T
50.28-31);
and that if there were not truly comparable properties the market
value could not be determined with a high degree of confidence
(see at T
56.33-45).
- Mr
Dyson accepted in cross-examination that the best use of the land in question
was as a power station (see at T 60.24-35); and accepted
the proposition that
the more profit that can be generated the more valuable the lease would be (see
T 59.38-44). Ultimately, Mr
Dyson acknowledged that the determination of market
rent in this case was very difficult and he did not appear to have much
confidence
in the market rent determination but thought it would be
“fairly correct” (a somewhat lukewarm endorsement of the valuation,
it seemed to me).
- The
Chief Commissioner argues that Mr Dyson’s application of the profit rental
approach is wrong for two reasons.
- First,
that Mr Dyson proceeds on the basis that each Lease confers upon the Lessee
only the use of the land and does not include the use of or access to any
buildings, fixtures, plant or equipment situated on the land
(and, as such the
Dyson Reports purport to value a lease of the “unimproved land” and
not a lease of the land inclusive
of improvements which exist on it). The Chief
Commissioner notes that Mr Dyson adopts this approach because he forms the
opinion
that the legal effect of cl 13.5 of the Leases (see as extracted above)
is that the Leases are “only for the use of the land
and does not include
any buildings, fixtures, plant or equipment” (see, for example, Ex E at
page 13).
- The
Chief Commissioner says that Mr Dyson’s opinion as to the legal effect of
cl 13.5 is both incorrect and outside Mr Dyson’s
field of expertise. (It
is noted by the Chief Commissioner that Meridian’s written submissions do
not rely on cl 13.5 as conferring
any ownership interest – though in oral
submissions I note that Meridian referred to cl 13.5 as an acknowledgement by
the parties
as to the ownership of the Power Station assets residing in GSP).
The Chief Commissioner says that cl 13.5 in the Leases is not a
basis for
finding that the Power Stations are not fixtures owned by WAMC (noting that most
of the assets comprising the Power Stations
were in place well before the date
of the Leases). The Chief Commissioner says that cl 13.5 is a statement of
intention; and that
the point of time at which intention is relevant is when the
item was put in place on the land (it being the objective intention
of the
person bringing the object on the land, i.e., the person who constructed the
Power Stations, which is relevant). It is noted
that no evidence of that
intention is led by Meridian. The Chief Commissioner says that the intention of
a subsequent owner or lessee
of the land is irrelevant (citing May v Ceedive
(2006) 13 BPR 24,147; [2006] NSWCA 369 (Ceedive) at [49], [65]
and [72] per Santow JA with whom Mason P and Beazley JA (as Her Excellency then
was) agreed; Alcan (NT) Alumina v Commissioner of Taxes (2007) 19 NTLR
153; [2007] NTSC 9 at [82] per Mildren J). The Chief Commissioner thus
submits that the intention expressed in the Leases by GSP is irrelevant to
determining
whether any asset installed on the land the subject of the Leases
before the date of the Leases is a fixture.
- As
to the limited assets that were installed after the date of the Leases, again
the Chief Commissioner says that cl 13.5 is of limited
assistance (again noting
that cl 13.5 is no more than a statement of the parties’ intention). The
Chief Commissioner says that,
while a term of a lease recording the
parties’ intention is a relevant factor, it is not determinative in
ascertaining whether
the asset is a fixture (citing SPIC Pacific Hydro at
[105] and [120]; Ceedive at [49]). In this regard the Chief Commissioner
says that Meridian is correct in its submission that the “Power Stations
are
so connected with their respective dams which is in turn embedded into the
land that they became part and parcel of the land”
(see Meridian’s
submissions at [62]).
- Further,
the Chief Commissioner contends that the statement in cl 13.5 (that the
parties’ intention is that the plant and equipment
is the
“property” of GSP) is ambiguous and unhelpful. It is said that the
statement may simply mean that the parties’
intention was that those
assets be tenant’s fixtures (the Chief Commissioner arguing that
tenants’ fixtures, which a
tenant has the right to remove, are in a sense
property owned by tenants) and because the fixtures are part of the property
until
they are removed) property owned by the landlord – see SPIC
Pacific Hydro [105]).
- The
Chief Commissioner further says that even if the effect of cl 13.5 was to
transfer the assets to GSP, the result would be that
GSP would have an equitable
(or perhaps legal) interest in the leased land (which is the relevant question
for the purposes of Pt 4 of the Duties Act ) and the result would be that
the Power Stations would be an interest in land.
- The
second reason that the Chief Commissioner says that Mr Dyson’s application
of the profit rental approach is wrong is that
the Chief Commissioner contends
that, in ascertaining the market rent of the leased land, Mr Dyson used
methodologies that could
not rationally inform him of the market rent of the
leased land (i.e., land used for a hydroelectric power station).
- The
Chief Commissioner says that Mr Dyson’s assessment of market rent based on
leases of nearby properties should not be accepted
because the nearby properties
were in no way comparable. In that respect, it is noted that in
cross-examination Mr Dyson agreed that:
in a commercial site, the value to the
lessee derives from the lessee’s ability to generate profit from the site,
so the more
profit that can be generated from a site the more valuable is the
lease of that site (see at T 59.32-47); the best use of the land
the subject of
the Leases was for a power station (see at T 60.25 for Burrinjuck, T 67.22 for
Keepit and T 69.25 for Hume); rents
for rural sites with cottages on them
were in no way comparable to the sites the subject of the Leases (see at T 60.30
for Burrinjuck,
T 67.25-50 and T 68.1-5 for Keepit and T 70.7 for Hume); he was
unable to locate any comparable sites in order to determine market
rent for the
Leases such that the application of the direct comparison method could not be
used as primary evidence of market rent
(see at T 60.37-38); and he accepted
that he ought not to have, in the circumstances of this case, used such rental
values as a check
valuation (see at T 61.31 and T 68.43-50 and
T 69.1-2).
- The
Chief Commissioner says that Mr Dyson’s assessment of rent based on 10% of
the Valuer General’s value should also
be rejected because it does not
assist in determining the market rent for the land the subject of the
Leases. It is said that this
approach by Mr Dyson does not address the
question which arises in this case, namely, the market rent that an hypothetical
willing
but not anxious lessor (not necessarily the government) would accept for
the Leases and that which an hypothetical willing but not
anxious lessee would
pay. In that respect, it is noted that Mr Dyson accepted under cross-examination
that: not every government
lease calculates rent at 5% to 10% of the assessed
land value; rather, the amount of rent charged depends on the circumstances of
each case (see at T 63.3-15); he was aware of instances where a government
grants a lease to a private business where there is an
“upfront premium
paid” such that the rent payable under the lease becomes a
“peppercorn rent” (see at T 57.9-27
and T 61.39-50); a government
may have reasons to set rent at a rate that was below market value (see at T
62.4-23); the government
did not use the “assessed land value”
method to calculate the rent under the Leases (see at T 63.10-36); he did not
check
the correctness of the valuer general’s assessment of the land the
subject of the Leases (see at T 64.19-21); and he was unable
to reconcile the
statutory assessed land value with the rent under the Leases for Burrinjuck and
Keepit particularly in circumstances
where the business conducted on the land
the subject of those leases forecast profits of $12 million per annum for
Burrinjuck (see
at T 64.6-37) and $825,000 per annum for Keepit (see at T
68.10-41) in the 2018 financial year.
- The
Chief Commissioner notes that, ultimately, Mr Dyson accepted that he: had
“great difficulty” in determining the market
rent for the Burrinjuck
Lease such that he could not have much confidence that the market rent that he
assessed was accurate (see
at T 65.1-20); was unable able to determine the
market rent for the Keepit Lease (see at T 69.4-6); and did not have a high
degree
of confidence in his market valuation of the Hume Site (see at
T 70.117-23).
- The
Chief Commissioner says that in light of those concessions Mr Dyson’s
opinion as to market rent should not be accepted;
and hence his evidence as to
the value of the Leases using the “profit rental approach” should
also not be accepted.
- In
reply submissions, Meridian responds to the criticisms of Mr Dyson’s
evidence as follows.
- Meridian
says that the criticism by the Chief Commissioner (in [56], [57] and [62](a) of
the submissions) of Mr Dyson’s reference
to cl 13.5 of the Leases is
unjustified. Meridian says that Mr Dyson expresses his opinion as to the market
value, as does Mr Kepler
for the Chief Commissioner, of the “bare
land” element of the Leases; and that the fact that Mr Dyson has referred
to
cl 13.5 of the Leases in the context of carrying out the scope of his
instructions (see par 4 of the transaction summary forming
an appendix to
Mr Dyson’s letter of instruction, which is itself Appendix B to Mr
Dyson’s reports, see, for example,
Ex E) does not render his opinions any
less reliable. With respect to the Power Station assets installed prior to the
Vesting Order,
Meridian says that cl 13.5 merely records the effect of the 2014
Vesting Order; and, with respect to assets installed by GSP on and
from the date
of the 2014 Vesting Order, cl 13.5 records the intention of the lessor and
lessee.
- Insofar
as there is criticism (at [59](a) and [60] of the Chief Commissioner’s
submissions) of Mr Dyson’s methodology
for working out the market rent for
the Burrinjuck Lease and Keepit Lease, Meridian notes that this methodology is
explained in [55]
of Mr Dyson’s Burrinjuck Report (Ex E) and [55] of
Mr Dyson’s Keepit Report (Ex F) as a “Return on Assessed Land
Value with a check comparison to rentals in the surrounding regional
area”.
- It
is noted that the Return on Assessed Land Value methodology is explained in [49]
of Mr Dyson’s Burrinjuck Report and [49]
of Mr Dyson’s Keepit
Report, which is to apply a range between 5% to 10% of the Statutory Land Value
(being a reference to
the Register of Land Values maintained by the
Valuer-General pursuant to the Valuation of Land Act 1916 (NSW)
(Valuation of Land Act)). Meridian complains that the Chief Commissioner
has led no evidence and made no submission as to why ascertaining market rent
for
the “bare land” component of a lease of this kind by reference
to a percentage return on registered land values is not
a valid methodology. It
is noted that the registered value of land is a measure of the value of land in
its unimproved state (see
s 6A of the Valuation of Land Act).
- Insofar
as the Chief Commissioner (at [59](b), [60], and [62](b) of the submissions)
criticises Mr Dyson’s cross-check which
compares the Burrinjuck Lease and
Keepit Lease to other rental property in the area, Meridian says that this
method was orthodox;
that Mr Dyson obtained the gross rental for other property
in the area (see Mr Dyson’s Burrinjuck Report, being Ex E, at [45]
and Mr
Dyson’s Keepit Report, being Ex F, at [45]); that Mr Dyson made a
deduction from the gross rental on account of outgoings
(such as water and
sewerage rates) (see Mr Dyson’s Burrinjuck Report at [46]; see also Mr
Dyson’s Keepit Report at [46]);
and Mr Dyson made an allowance for the
value of the improvements to arrive at the market rental for the bare land
element (see Mr
Dyson’s Burrinjuck Report at [47] and
Mr Dyson’s Keepit Report at [47]).
- As
to [61] of the Chief Commissioner’s submissions, in which the Chief
Commissioner criticises Mr Dyson’s methodology
for obtaining the market
rent for the Hume Lease, which is to obtain the passing rent for other
properties in the area and make an
allowance for outgoings and improvements (see
Mr Dyson’s Hume Report at [53]-[55]), Meridian says that, in each
case, Mr Dyson’s
opinion that at least half the rent in the
comparison properties is attributable to their improvements is a matter upon
which he
is able to inform himself using his training, study and experience. It
is said that the Chief Commissioner has led no evidence as
to why taking the
prevailing rent for improved land and making allowances for outgoings and
improvements is not a valid methodology.
- Meridian
says that the Chief Commissioner’s submission at [62](b) (that
Mr Dyson’s conclusions should not be accepted
because Mr Dyson makes
reference to comparable properties that are in no sense comparable) should not
be accepted. It is said that,
although Mr Dyson uses as a starting point the
prevailing rent of residential cottages, as Mr Dyson was required to value the
bare
land component of the Leases, Mr Dyson made the appropriate adjustments to
account for the outgoings and discount for the improvements
so that he was able
to compare the rent of the bare land component of leases in the local
area.
Mr Samuel
- Meridian
also relied on two reports prepared by Mr Samuel, a chartered accountant, those
reports dated 3 December 2020 and 5 July
2021 (as noted above). Mr Samuel leads
the forensic accounting and valuation team at Sapere Research Group
Limited.
- Mr
Samuel primarily adopted a “residual” valuation method, which both
he and the expert called by the Chief Commissioner
(Mr Kepler) agree is the
appropriate approach to valuing assets in a company that are otherwise difficult
to value (as is the case
here, given the difficulty of valuing the Leases
– as evidenced by the above discussion in relation to Mr Dyson’s
report).
The residual approach involves (see the Joint Report at [29] and [35])
starting with the market value of all the entity’s assets;
deducting the
value of the assets owned by the entity where that value is known; and
allocating the “residual value”
to the asset that is not otherwise
known. Relevantly, Mr Samuel’s opinion is that the approach is effective
only where there
is only one asset whose value is unknown, and not where two
such assets have an unknown value (see at T 83.11-33).
- The
Chief Commissioner notes that Mr Samuel was instructed to assume that, by reason
of the Vesting Orders, the Power Stations are
not fixtures forming part of the
leased land (see Mr Samuel’s second report dated 5 July 2021 at [11]). On
that basis, Mr Samuel
said the Pacific Hydro Methodology was not applicable
(with one exception – see below) and valued the Leases as if they did
not
include the right to use the Power Stations (and separately allocated a value of
$131 million to the Power Stations) (see Mr
Samuel’s second report at [47]
and [48]).
- The
one exception Mr Samuel identified relates to the “skids” in the
switchyard on the Hume Dam site which are bolted
into concrete footings that are
embedded in the soil and which contain a series of electrical equipment mounted
on them; those skids
having been installed after the Vesting Orders were
made. Mr Samuel accepted that the Pacific Hydro Methodology ought to apply to
those skids (with the result,
the Chief Commissioner says, that the value of the
right under the Leases to use the Power Stations is $2.93 million being the
value
of the skids alone); and the separate value that Mr Samuel allocated to
the Power Stations is reduced by $2.93 million (from $131
million to about $128
million) (see Mr Samuel’s second report at [92]ff).
- In
the present case, Mr Kepler and Mr Samuel agree that the market value of all
GSP’s assets is $172.2 million (based on the
sale price of GSP to
Meridian) (see the Joint Report at [22](b)) and that GSP owned assets which had
the following values (see the
Joint Report at [22](a)): portable buildings plant
and equipment ($0.5 million); accounts receivable ($3 million); unsold renewable
energy certificates ($1.2 million); connection agreements ($8.5 million);
and the assembled workforce ($0.4 million). Both experts
agree that: Mr Dunsford
correctly valued the fixed buildings, plant and equipment (namely, the Power
Stations) at $131 million (see
the Joint Report at [24](a)(i)); no material
value should be attributed to goodwill (see the Joint Report at [22](d)); and
the residual
that results is about $27.7 million (allowing for a rounding error)
(see the Joint Report at [30](a)). The areas of disagreement
between the experts
are considered in due course. Relevant, for present purposes is that, in his
first report Mr Samuel calculated
the residual at between $27.7 million to $29.9
million (which is within the range of Mr Kepler’s view).
- Mr
Samuel attributed the whole of the residual to the Water Agreements, thus
valuing them at between $27.7 million and $29.9 million
(see the Joint Report at
[17] and [19]). Mr Samuel cross-checked this against the application of a multi
period excess earnings methodology
(MEEPM) which produced a value of $26.9
million (see Mr Samuel’s first report at [134], [136] and [141] and the
Joint Report
at [38](a)). On this method, the Leases were valued at $nil.
- Thus,
on the basis that the eponymously named Pacific Hydro Methodology approach
(deriving from SPIC Pacific Hydro see below) is not applicable,
Mr Samuel values the Leases at $nil, finding a $nil value for the PPE
element of the Leases and adopting
a $nil value for the Bare Land element of the
Leases (see the Joint Report at [17]).
Mr Kepler
- The
Chief Commissioner relies upon a report of Mr Kepler, who valued the Leases on
the basis of the methodology described by Payne
JA in SPIC Pacific Hydro
at [170] (albeit which Mr Kepler modified in its application at [86]-[90] of Mr
Kepler’s Report dated 24 November 2021) (the
Pacific Hydro Methodology).
Mr Kepler attributed a value to the Leases that includes the net present value
of the hypothetical lease
of the PPE of the Power Stations for the equivalent
term of the Leases (see Mr Kepler’s Report at [129]-[130]).
- Mr
Kepler’s opinion is that leases over Bare Land are most appropriately
valued under alternative valuation methodologies (other
than by allocating
residual) and particularly the conventional lease valuation methodology (see
Mr Samuel’s commentary in his
second report at [52](c)). Mr Kepler
describes what he means by conventional valuation methodology in [81] and [82]
of his report
(and see Mr Samuel’s second report at [51](d)(i)).
- In
addition to attributing the value of the PPE to the Leases, Mr Kepler attributed
50% of the “unallocated residual”
between the Water Agreements and
the Leases (see Mr Kepler’s Report at [192]). This valued the Water
Agreements at $13.85 million
(half the value attributed to them by Mr Samuel)
and attributed an additional $13.85 million to the value of the Leases (as 50%
of
the unallocated residual of $27.7 million) on account of the “Bare
Land” element of the lease (see Mr Kepler’s
Report at [192]; see
also the Joint Report at [17] and [19]).
- Mr
Kepler then added the PPE element and the Bare Land Element of the lease to
reach a total value for the Leases at between $144.85
million (if GSP has no
remediation liability at the end of the Leases) and $129.85 million (if GSP does
have a $30 million remediation
liability) (see the Joint Report at
[19]).
Joint Report of Messrs Samuel and Kepler
- Mr
Samuel and Mr Kepler prepared a joint report identifying their areas of
agreement and disagreement (Joint Report, marked as Ex
L in the hearing). I have
identified above the areas in which the two experts are in agreement.
- The
three principal areas of disagreement between Mr Kepler and Mr Samuel (see the
Joint Report at [31]) are as follows. First, Mr
Kepler valued the Leases, using
the Pacific Hydro Methodology, on the assumption that the Leases included the
right to use the fixtures
(being the Power Stations); whereas Mr Samuel assumed
that the Power Stations were not part of the leased land, so did not use the
Pacific Hydro Methodology. Second, Mr Kepler assigned no value to expected
removal and remediation costs; whereas Mr Samuel has proceeded
on the basis that
those costs will be incurred and will cost $30 million. Third, Mr Kepler valued
the right under the Leases to use
the unimproved leased land at $13.85 million;
whereas Mr Samuel gave the same right a nil value or a value of negative
$2.2 million
(this third area of disagreement relating to how the
“residual” is to be applied). I address each of those areas of
disagreement
below.
- In
submissions, I was provided with an aide memoire which helpfully calculates the
value of the Leases depending on the outcome of
those issues. The aide memoire
outlines the Chief Commissioner’s calculation of landholder duty as
follows: the Leases (being
the right to use fixed plant and equipment) are
valued at $131 million; the Bare Land Leases are valued at $13.85 million; the
total
landholdings are thus valued at $144.85 million; goods are valued at $0.5
million, bringing the total landholdings and goods to $145.35
million. Thus, the
Chief Commissioner calculates the duty on landholdings and goods (at 5.5% of
$145.35 million) as $7.979740 million.
- In
terms of the joint experts’ calculation of residual, the aide memoire sets
out that: assuming all plant and equipment is
part of the land, the Leases
(being the right to use fixed plant and equipment) is valued at $131 million and
the fixed plant and
equipment is valued at $nil; assuming all plant and
equipment is severed from land, except the skid, the Leases are valued at $3
million, and the fixed plant and equipment at $128 million; and assuming all
plant and equipment is severed from land, the Leases
are valued at $nil, and the
fixed plant and equipment at $131 million.
- Finally,
in terms of the allocation of the residual, Mr Kepler allocates the residual
evenly between the Leases and the Water Agreements,
whereas, assuming that all
plant and equipment is part of the land, Mr Samuel allocates the residual as
-$2.2 for the Bare Land Leases,
and $29.9 for the Water Agreements; and,
assuming all plant and equipment is severed from the land, $nil for the Bare
Land Leases,
and $27.7 for the Water Agreements.
Pacific Hydro
Methodology
- The
first area of disagreement between the experts is as to whether the Pacific
Hydro Methodology should be applied. As adverted to
above, this is a reference
to the approach to valuation adopted by Payne JA in SPIC Pacific
Hydro.
- I
note that in reply to the Chief Commissioner’s submissions at [50] (in
particular, the statement that Meridian also accepts
that the Pacific Hydro
Methodology applies), Meridian acknowledges that it has instructed
Mr Samuel to provide valuation opinions
in the alternative by reference to
the Pacific Hydro Methodology. However, Meridian says that the Pacific Hydro
Methodology is only
one valuation methodology endorsed in the specific context
of the valuation question in SPIC Pacific Hydro. Meridian says that
SPIC Pacific Hydro does not lay down a principle of law for the valuation
of leases (referring to Valuer-General Victoria v AWF Prop Co 2 Pty Ltd
[2021] VSCA 274 at [126] per McLeish JA, Emerton JA, as her Honour then was,
and Delany AJA).
- It
is relevant to note what the so-called Pacific Hydro Methodology comprises.
- At
[157], Payne JA accepted the approach of SPIC’s expert, who valued the
leasehold interest on the assumption that the plant
and equipment constituted
fixtures that may be removed at any time and must be removed at the end of the
lease.
- Payne
JA at [169] in SPIC Pacific Hydro said that:
In valuing the Holdco Land Trust’s land holding, the hypothetical willing
but not anxious vendor for the purposes of the Spencer test is the
tenant. I have found that the Holdco Land Trust’s land holding interest in
land is comprised by its rights under
the leases including the right to remove,
during or at the end of the leases, the plant and equipment affixed to the land.
...
- The
methodology adopted in SPIC Pacific Hydro (at [170]) was: first, to
determine the actual rental paid under the lease at a per annum rate for the
right to use the plant and
equipment during the term of the lease; second, to
calculate the value to the tenant over the unexpired term of the lease,
discounted
to the present value at the time of acquisition; and, third, to
deduct from this the expected costs to the tenant to remediate the
site (also
discounted to present value).
- Meridian
says that the valuation methodology described by Payne JA in SPIC Pacific
Hydro (at [170]) is not appropriate for the present case in circumstances
where: GSP’s interest in the Power Stations is vested in
it by force of
par 2 of Sch 1 of the 2014 Vesting Order and not by reason of the leases granted
by WAMC; and WAMC did not have, nor
ever had, an interest in the Power Stations
at the time that WAMC granted the leases to GSP. Meridian argues that the
Pacific Hydro
Methodology is a lease valuation methodology that is applicable to
assets that are the property of the landlord and leased pursuant
to a lease
(whereas in the present case the vested assets were not leased, but rather were
owned by GSP) (see Mr Samuel’s second
report dated 5 July 2021 at
[11](b)).
- Meridian
notes that SPIC Pacific Hydro concerned the valuation of leases of land
on which wind farms had been constructed by or on behalf of the lessee during
the period
of the lease (SPIC Pacific Hydro at [17]); the wind farms thus
constituting tenant’s fixtures (SPIC Pacific Hydro at [127]). It
was there argued that the tenant had an equitable interest in the fixtures.
Payne JA considered that a tenant’s
interest in unsevered leasehold
improvements is a legal interest in land which arises from and is governed by
the terms of the particular
lease and rights under the common law (SPIC
Pacific Hydro at [155]).
- Meridian
says that it follows that the position of the tenant in SPIC Pacific
Hydro is not comparable with that of GSP, since in SPIC Pacific Hydro
the lessee’s right to enjoy and possess the wind farms which it
constructed on the lessor’s land was attributable exclusively
to the
lease; whereas in the present case, the Power Stations were vested in gross in
GSP (whose interest in the Power Stations is
not dependent on the continuity of
the lease). Meridian emphasises that the right to access the land on which the
Power Stations
are situated derives from the licence under the Water Agreements
and easement over the owner’s land (see T 13.31-38); distinguishing
between a right of access and a right of use. Meridian says that its right to
use the Power Station assets was a result of the statutory
Vesting Orders.
(Meridian refers to cl 13.5 as amounting to a recognition by the lessor that the
Power Station assets are owned by
the lessee). Thus, Meridian contends that the
Leases merely give the lessee a right to use the land underneath the Power
Stations
and that (unlike tenants’ fixtures) ownership of the Power
Stations remains vested in the lessee (GSP). (Meridian suggests
that this
provides a plausible explanation for the fact that there is a fixed rent under
the Leases and that the “true”
charge raised is via the Water
Agreements, under which the charge is referable to gross revenue.)
- Meridian
argues that, critical to the validity of the Pacific Hydro Methodology set out
in [170] of SPIC Pacific Hydro, is the explanation given by his Honour at
[169] as to the application of the Spencer test (a reference to
Spencer v The Commonwealth (1906) 5 CLR 418; [1907] HCA 82). Meridian
says that, applied to the present case, in valuing GSP’s land holding, the
hypothetical willing but not anxious vendor
for the purposes of the
Spencer test is GSP. As discussed earlier, Meridian’s contention is
that, by virtue of the 2014 Vesting Order, GSP’s interest
in the Power
Stations is held in gross and WAMC as lessor does not have an interest in the
Power Stations. Meridian says that it
follows that, in the hypothetical
assignment of the Leases, the assignee does not, without a concurrent assignment
of the Power Stations,
acquire any interest in the Power Stations. It is said
that an assignee of GSP’s right, as against WAMC, to remove fixtures
from
the land is not comparable to the assignee of Holdco Land Trust in SPIC
Pacific Hydro; and thus that a valuation methodology that attributes use and
right to remove fixtures to the lease is not appropriate to the Leases
in the
present case.
- Meridian
says that the Pacific Hydro Methodology should not be applicable even if GSP
installed fixtures on the land after the commencement
of the Leases because cl
13.4 of each of the Leases confirms that GSP has the right at all times to
remove or replace an asset as
it considers necessary or desirable in the proper
conduct of its business and title to any parts so removed or replaced remains
with
the GSP and GSP may deal with those assets in any manner it sees fit. It is
said that the interest in any asset replaced or installed
remains with GSP; and
does not form part of WAMC’s interest in land so as to enure for the
benefit of assignees of any Lease.
- Meridian
says that it is therefore unreasonable to postulate that the hypothetical
willing but not anxious vendor would be willing
to pay the value of the Power
Stations twice: once for the conveyance of the Power Station assets and again
for the assignment of
the Lease.
- The
Chief Commissioner notes that the first area of difference between
Mr Kepler and Mr Samuel (whether GSP’s right to use the
Power
Stations is included in the value of the Leases or accounted for separately)
arises from their instructions and is not a dispute
about the value of the Power
Stations themselves (both experts accepting that Mr Dunsford correctly valued
the Power Stations at
$131 million).
- The
Chief Commissioner says that Mr Kepler proceeded on the orthodox basis that
fixtures are part of the leased land (using the Pacific
Hydro Methodology to
value the right under the Leases to use the Power Stations at $131 million) and
maintains that the Pacific Hydro
Methodology is a lease valuation methodology
that is applicable to assets such as fixtures that are the property of the
landlord
and leased pursuant to a lease.
- As
noted, the difference between Mr Kepler and Mr Samuel arises out of their
assumptions. The Chief Commissioner contends that the
Power Stations remain
vested in WAMC as the owner of the leased land. The Chief Commissioner says that
if that contention is accepted
then the Pacific Hydro Methodology is applicable;
but if that contention is not accepted then the question remains how to
characterise
the Power Stations. The Chief Commissioner says that this depends
on how the Power Stations were vested in GSP. The Chief Commissioner
says that
if the Power Stations were conveyed from the landlord to GSP or its
predecessors, then the Power Stations remain an interest
in land and part of
GSP’s landholdings for the purpose of Ch 4 of the Duties
Act .
Removal/remediation costs
- Meridian
submits that any item that contributes to the value of GSP’s interest in
land must also take into account projected
remediation costs (referring to the
Kepler Report at [87](d)), noting that Mr Dunsford has estimated the
“end of life demolition costs” at $29,950,850 and that GSP’s
internal
accounts estimate its possible remediation obligations at $30 million.
It is noted that the present value of expected remediation
costs can be
calculated by multiplying the present value of remediation costs by the
probability that the remediation costs will
be incurred (see the Joint Report at
[25]).
- As
to the second area of difference between Mr Kepler and Mr Samuel (the
probability adjusted removal and remediation costs payable
on the expiry of the
Leases), the Chief Commissioner points out that this issue arises because the
third element of the Pacific Hydro
Methodology is the discounting of the value
of the relevant lease for those expected removal and remediation costs (see
SPIC Pacific Hydro at [170]).
- The
Chief Commissioner contends that there is insufficient evidence to find that any
removal and remediation costs are payable on
the expiry of the Leases; and that
Meridian has not discharged its onus in this regard.
- It
is noted that Mr Kepler’s position is that the remediation and removal
costs are unlikely to be material (see at [124]-[125]
of Mr Kepler’s
report dated 24 November 2021 and at [66] of the joint report dated 13
August 2021). Mr Samuel has proceeded
on the basis that the remediation and
removal costs are estimated to be about $30 million (see at [78]-[83] of Mr
Samuel’s
report dated 5 July 2021 and at [62]-[65] of the joint report).
- The
Chief Commissioner points out that GSP’s obligations to remediate and
remove the Power Stations from the leased land are
governed by the Water
Agreements, under which there are three possible scenarios on termination of
those Agreements: first, that
SWC may elect to purchase the Power Stations from
GSP (i.e., now Meridian) for $1; second, that if SWC does not purchase the Power
Stations, GSP may elect to leave the Power Stations on the leased land; or,
third, that GSP may elect to remove the Power Stations
from the land.
- As
to the first scenario, it is noted that the only costs payable by Meridian are
the costs of remediating any contamination (see
cll 14.5, 14.6, and 14.10 of the
Keepit Water Agreement; cll 14.5, 14.6, and 14.10 of the Burrinjuck Water
Agreement; cl 7.7 and
7.12 of the Hume Water Agreement). The Chief Commissioner
says that the expected cost of the first scenario cannot here be assessed
as
there is no evidence of the costs of remediating contamination, if any (see T
115.46-49, T 116.1). Further, it is noted that there
is no evidence of the
probability of Water NSW (SWC’s successor) electing to purchase the Power
Stations for $1.
- As
to the second scenario, it is noted that if Water NSW does not purchase the
Power Stations on termination of the Water Agreements
then GSP (now Meridian)
may elect to keep the Power Stations in place but in that event, Meridian is
obliged to pay the ongoing site
costs of maintaining its plant and equipment
(see cll 14.7 and 14.9 of the Keepit Water Agreement; cll 14.7 and 14.9 of the
Burrinjuck
Water Agreement; and cll 7.9 and 7.11 of the Hume Water Agreement).
The Chief Commissioner says that the expected cost of the second
scenario also
cannot be assessed, noting that there is no evidence of the ongoing costs of
maintaining the plant and equipment on
site or the probability of GSP electing
to leave the Power Stations in place; and that Mr Samuel agreed he could
not evaluate the
cost or likelihood of this scenario (T 116.28-35).
- As
to the third scenario (namely, that Water NSW elected not to purchase the Power
Stations on termination and Meridian then elected
to remove the Power Stations)
it is noted that in that event Meridian will be obliged to pay the removal costs
and any costs to remediate
any contamination (see cll 14.8 and 14.10 of the
Keepit Water Agreement; cll 14.8 and 14.10 of the Burrinjuck Water Agreement;
and
cll 7.10 and 7.12 of the Hume Water Agreement). Again, the Chief
Commissioner says that the expected cost of the third scenario cannot
be
assessed, noting that there is no evidence of the probability of Meridian
electing to remove the Power Stations (and that Mr Samuel
agreed this was so
– see at T 117.22-46).
- The
Chief Commissioner says that there is also no admissible and persuasive evidence
about the cost of removing the Power Stations,
pointing to the following
matters. First, that Mr Samuel relies on a report dated 16 November 2018
produced by RHAS for insurance
purposes which estimates costs of demolition and
removal from site of the Power Stations at $30 million (the RHAS Insurance
Report)
but that there is no stated basis for that opinion and it was only
admitted for the limited purpose of proof of the basis upon which
GSP prepared
the notation in GSP’s 2018 financial reports referred to below. Second,
that the GSP Completion accounts did not
recognise any remediation liability
(see the joint report at [66](c) and see Annexure 7 to Mr Samuel’s report
dated 3 December
2020). Third, that the financial model developed by Meridian
that was used when purchasing GSP did not make any allowance for remediation
costs (see the joint report at [66](b) and Ex ABS-1 to the affidavit of Mr
Samuel affirmed on 3 February 2022). Fourth, that a file
note prepared by
Meridian on 10 June 2018 (headed “Asset Retirement Obligation for GSP
Energy”) records that “no
asset retirement obligations were
recognised by Trustpower in GSP’s FY17 financial statements”, that
Meridian “is
committed to extending the agreement to a total term of 60
years at the very minimum as it is in our financial interests to do so”;
and that “[d]ue to numerous factors at play, it is difficult to know at
the present moment whether GSP will be required to
remove the assets or pay the
ongoing site costs if the agreement is terminated”. The note recorded that
the obligation is a
contingent liability (as defined by International Accounting
Standard (IAS) 37) and said that an estimate of the costs of removal
will be
obtained and disclosed in the notes to the financial statements in accordance
with IAS 37. Fifth, that there is a notation
in GSP’s 2018 financial
year’s financial report that:
Lease agreements between GSP Energy Pty Ltd and Water NSW permit the Company to
situate generation assets at each of the 3 dams owned
by Water NSW. Although not
probable, the Company may be required to remove the generation assets from the
dams at the discretion
of Water NSW at the end of the initial term of the
agreement (17 July 2044) under the terms of the lease. Management’s
assessment
of the present value of this asset retirement obligation is $30m.
- The
Chief Commissioner says that this notation misstates GSP’s obligations (in
that GSP cannot be required to remove the Power
Stations under the Water
Agreements) but says that in any event it is notable that GSP did not consider
it probable that it would
be required to remove the assets.
- Sixth,
that Meridian did not, in its financial reporting for FY2018 or FY2019,
recognise a liability or contingent liability to account
for the possibility
that it would be required to remove the assets (see the joint report at
[66](d)).
- The
Chief Commissioner says that there is therefore no persuasive evidence of the
cost of demolition and removal and no evidence at
all of the probability that
GSP may elect to remove the Power Stations, other than that GSP thought it was
unlikely. The Chief Commissioner
emphasises that Meridian has the burden of
proving the cost and probability of it being required to remove the Power
Stations and/or
to remediate for contamination at the end of the Leases; and
that, absent evidence of the probability of each of these three scenarios
and
the cost of each of them, there is no evidentiary basis on which to discount the
value of the Leases for any of these costs.
- The
Chief Commissioner thus says that no reduction in the value of GSP’s
landholdings should be made (and argues that Mr Samuel
appeared to agree with
this assessment), referring to Mr Samuel’s acceptance in cross-examination
(at T 117.34ff): that in
order properly to evaluate the expected recovery costs
he would need to know the probability and cost of each of the three scenarios;
that he did not have that information; and that he could not make that
assessment. It is noted that Mr Samuel said that in his report
he “just
put a range between zero and 100% of incurring remediation costs”.
- The
Chief Commissioner submits that in the event that (contrary to the above
submissions) it is found that there is sufficient evidence
of the present cost
of remediation and removal of the Power Stations, then that cost should be
allocated equally between the Water
Agreements and Leases because the
remediation and removal obligations exist within both agreements (referring to
cl 13.1ff of the
Hume, Burrinjuck and Keepit Leases).
Application
of residual as between Leases and Water Agreements
- Mr
Kepler valued the right under the Leases to use the unimproved leased land at
$13.85 million; whereas Mr Samuel gave the same right
a nil value (or negative
$2.2 million value).
- Mr
Samuel disagrees with Mr Kepler’s methodology for valuing the Bare Land
component of the Leases (see the Joint Report at
[39](c)). Based on
Mr Samuel’s opinion, Meridian says that conventional valuation
principles require that 100% of the residual
value of GSP should be accounted
for in the Water Agreements rather than being split 50% between the Water
Agreements and the Bare
Land component of the Leases (see the Joint Report at
[38]).
- Meridian
argues that Mr Kepler’s methodology relies on an arbitrary allocation of
50% of the residual to the Bare Land (see
the Joint Report at [39](a), [42](c)
and [42](d)). It is said that, for Mr Kepler to find that the Leases at the time
of Acquisition
on 29 March 2018 were worth $13.85 million, that would assume
that the market rent for the Leases has increased 300% from when the
Leases
first commenced on 18 July 2014 (see the Joint Report at [41](c)). Meridian
maintains that the improbability of that assumption
casts doubt upon
Mr Kepler’s methodology.
- As
to the third difference between the two experts (the market value of the
unimproved leased land), the Chief Commissioner says that
Mr Samuel’s
primary position (that the unimproved leased land has a nil value) (see
Mr Samuel’s report dated 5 July 2021
at [13], and the Joint Report at
[36](b) and see Mr Samuel’s alternative position when utilising the
Pacific Hydro Methodology
at [36](c) and [44] of the Joint Report) necessarily
followed from his instructions (noting that Mr Samuel was instructed that the
value of the Leases was nil (see Mr Samuel’s report dated 3 December 2020
at [120]). It is noted that in Mr Samuel’s
first report, using the
residual approach, Mr Samuel applied the residual of $27.7 million to the
only asset that had not been valued,
namely the Water Agreements (see at [134]
and [135]). (The Chief Commissioner points out that, given Mr Samuel’s
assumption
that the Leases had a nil value, Mr Samuel could not apply the
residual to the value of the Leases. Pausing here, Mr Samuel in his
oral
evidence made clear the basis on which the residual was allocated to the Water
Agreements so I do not accept that this was a
conclusion mandated in some
fashion by his instructions.)
- As
to Mr Samuel’s alternative position (that the unimproved value of the
right to lease the unimproved leased land is negative
$2.2 million) it is noted
that this derived from his instruction to apply the Pacific Hydro Methodology
(see Mr Samuel’s report
dated 5 July 2021 at [12]); and that Mr
Samuel adopted the market rent that was assessed by Mr Dyson as the value of the
right to
lease the unimproved leased land (see Mr Samuel’s report of 5
July 2021 at [12](b) and [76]). Since the market rent was less
than the rent
contracted to be paid under the Leases, Mr Samuel assessed the value of the
right to lease the unimproved leased land
as negative $2.2 million (see at [86]
of Mr Samuel’s report dated 5 July 2021). The Chief Commissioner says
that as Mr Samuel’s
assessment was based upon an assumption that Mr
Dyson had correctly valued the right to lease the unimproved leased land and Mr
Dyson’s
valuation ought not be accepted, it follows that Mr Samuel’s
valuation of negative $2.2 million also ought to be rejected.
I agree.
- The
real issue here is as to allocation of the residual, namely whether all of the
$27.7 million residual should be allocated to the
Water Agreements or whether
that amount should be allocated equally as between the Water Agreements and the
Leases of the bare land.
The Chief Commissioner emphasises in this context that
Meridian has the onus of establishing that the Assessment is wrong.
- It
is noted by the Chief Commissioner that both Mr Kepler and Mr Samuel agreed:
first, that a residual approach involved identifying
the market value of all but
one asset, but in this case there were two assets that could not be otherwise
valued and that required
a judgement (T 83.1-43, T 84.3-15, T 112.13-25)
and that the residual needed to be allocated to assets (T 95.41-48); second,
that
the appropriate methodology to value any contract, including the Leases and
Water Agreements, was as set out in their Joint Report
(see at [28]) (namely
that “a contract can have ‘value’ if the terms documented in
the subject contract are more
favourable (resulting in an asset) or less
favourable (resulting in a liability) than the terms that would be agreed if the
contract
were negotiated ‘to market’ at the relevant valuation
date” (and see T 93.15-30)); and, third, that assuming Mr
Dyson had
not accurately valued the right to lease the unimproved leased land, it was
possible that the Leases have value (T 87.25-39)
but that they were not
able to determine market rent of the Leases or the current market rate of the
Water Agreements, so could not
directly determine the value of those contracts
(see at T 94.4-12, T 110.50, T111.1-25, and T 112.45-50).
- The
Chief Commissioner says that Mr Samuel’s opinion that the Leases had no
value in March 2018 was provisional in the sense
that it rested on two
assumptions (i.e., that the rent was not mispriced in 2014 and that the
circumstances relevant to the leased
land had not changed in that period –
see at T 110.40-44), which Mr Samuel said in cross-examination were matters for
the Court
to determine (see at T 111.15-26). The Chief Commissioner maintains
that if it cannot be determined whether those assumptions are
correct, then
Meridian fails in this part of the case.
- It
is noted that Mr Samuel assumed that the Leases were priced at market rent in
2014 when the Leases were executed (see at T 77.35-41),
saying that he had no
reason to believe that the parties to the Lease were not at arms’ length
(see at T 89.40-44). The Chief
Commissioner contends that this assumption
should not be accepted. The Chief Commissioner emphasises that, while it may be
accepted
that the parties were at arms’ length and the overall
consideration was at market, there were at least three elements to the
privatisation: the payment of $125 million by GSP to the NSW Government for the
acquisition of the assets comprising the Power Stations’
business,
including the Leases (see at [184] of Mr Kepler’s report dated 24 November
2021); the grant or assignment of the
Water Agreements by a NSW Government
instrumentality to GSP at an agreed royalty rate; and the grant of the Leases by
a NSW Government
instrumentality to GSP at agreed rents.
- The
Chief Commissioner points out that both Mr Kepler and Mr Dyson were of the
opinion that governments enter into privatisations
where they accept a large
upfront payment and a nominal future income stream. It is noted that
Mr Dyson said that he had examined
over 50 government leases and was aware
of a number of occasions where the government grants a lease to a private
business where
there is an “upfront premium paid” such that the rent
payable under the lease is reduced going forward or even becomes
a
“peppercorn rent” (T 57.9-27, T 61.50 and T 62.1-7); and that Mr
Kepler said that, from his experience advising governments
on the sale of
assets, governments were not interested in trailing commissions (rather, they
are interested in headline values).
Mr Kepler observed that the press release
for the sale in 2014 mentioned the upfront purchase price with no mention of the
ongoing
rent and that the upfront price was proposed to be spent on
infrastructure (T 130.5-13). The Chief Commissioner notes that Mr Samuel
said he
had no expertise in the subject and could not express an opinion on this (T
88.22) and that Mr Samuel agreed that he did
not know “whether a premium
was paid in exchange for a lower rent running into the future”
(T 90.7-9). As such, the Chief
Commissioner says that it cannot be assumed
that the agreed rent under the Leases was at market rates in 2014.
- As
to the second assumption (that there had been no change from 2014 to 2018 that
had affected the rent that applied in 2014) (see
T 77.35-41), it is noted that
Mr Samuel was aware that the value of the Power Stations business had increased
from $125 million to
$184 million over that period (see at [184] of
Mr Kepler’s report dated 24 November 2021) but he said that none of
that increase
in value of the overall assets of the business ought be attributed
to the Leases; instead, Mr Samuel’s view was that the entirety
of the
increase in value ought to be attributed to the Water Agreements and on that
basis the bulk of the residual (see at T 112.21-25)
ought to be allocated to the
Water Agreements.
- The
Chief Commissioner notes that one reason that Mr Samuel gave for this conclusion
was that payment under the Water Agreements was
linked to the financial
performance of GSP (about 5% of gross revenue for Keepit and Burrinjuck) whereas
the rent agreed under the
Leases was at a flat rate only indexed by the Consumer
Price Index (CPI) (see at T 89.3-17 and T 99.15-21). The Chief Commissioner
argues that this does not support the conclusion that the Water Agreements (and
not the Leases) have value; rather, that it means
that if the revenue of the
business increases, a proportion of that increased revenue will be allocated
under the Water Agreements
to SWC. The Chief Commissioner says that the Water
Agreements will have value if their agreed terms (5% of gross revenue for Keepit
and Burrinjuck) are less favourable than the terms that could be negotiated at
the valuation date (see at T 99.41-49). It is said
that the fact that the agreed
terms are expressed as a proportion of gross revenue does not inform that
analysis. Reference is also
made in this context to the Joint Report at fn 62,
where Mr Kepler notes that “the charges for the Leases are levied as a
fixed
amount plus CPI increases, whereas the charges under the Water Agreements
were based on a percentage of revenues” and that
Mr Kepler’s
view was therefore that the counter party to the Water Agreements captured some
of the value increment that otherwise
would occur as a result of higher
revenues, and as such, provides less scope for the Water Agreements to become
mispriced.
- Insofar
as Mr Samuel gave as a further reason for his conclusion that the Water
Agreements were a “driver” of income in
the sense that Power
Stations could not function without them (see at T 92.20-34, T 102.7-12, T
103.3-7), the Chief Commissioner
maintains that this is not relevant. It is
noted that the Power Stations could also not function without the plant and
equipment
or the leased land upon which the Power Stations are situated; and
that the Water Agreements could be terminated by SWC 90 days after
the Leases
terminated (see, for example, cl 13.4(d) of the Burrinjuck Water Agreement). The
Chief Commissioner points to Mr Samuel’s
acceptance of the proposition
that the efficiency (and therefore the profitability) of the Power Stations was
enhanced by the features
of the leased land, being their proximity to the dam
wall (T 108.3, T 110.1-4); and the Chief Commissioner argues that in that sense
the leased land also was a “driver” of value. It is noted that Mr
Samuel cavilled with that proposition but ultimately
accepted it was a
“contributor to value” (see at T 108.15-18). Pausing here, Mr
Samuel’s evidence at T 110.25-35
that there was no logic to the
argument that, given that there is value in the combination of the assets
– and that both the
Water Agreements and Leases are difficult to value and
are scarce – it was reasonable to allocate the residual equally between
them, emphasising that one was a fundamental driver of revenue and the other was
not.
- However,
the Chief Commissioner argues that whether or not the leased land is a
“driver” of value is irrelevant to the
experts’ agreed
analysis of determining value (namely that a contract can have value if the
terms are more or less favourable
than would be agreed if the contract were
negotiated to market at the relevant valuation date).
- It
is noted that Mr Samuel gave some other reasons in support of his analysis, as
follows. First, that Mr Samuel said that if $13.85
million were attributed to
the Leases of the unimproved leased land, that implied an increased rent of over
200% of the agreed price
(see at T 139.16-21). The Chief Commissioner points to
Mr Kepler’s observations in response to that proposition, namely that:
Mr
Samuel’s analysis assumed that the agreed price was a market rent (see at
T 138.41-43); the increase in implied rent was
approximately $600,000 per annum
in a business generating earnings of $30 million per year (see at
T 139.16-21); the business was
worth about three times more than when the
Leases were executed (see at T 140.1-3) and that, if the entirety of the
residual were
allocated to the Water Agreements, as Mr Samuel suggests, that
implies a royalty rate of 17% which is over 320% higher than the agreed
royalty
rate.
- Second,
that Mr Samuel also said that his methodology has been cross-checked against the
MPEEM methodology (see Mr Samuel’s
report dated 3 December 2020 at
[57]-[62] and [136]). The Chief Commissioner says that the cross-check against
the MPEEM is of no
utility because it assumes that the Leases have no value,
which is the question at issue, referring to the entries in rows 37, 38
of
Appendix E of Mr Samuel’s report dated 3 December 2020, that show nil
values; and also to [85](c) of the Joint Report) (and
that Mr Samuel agreed
that the cross-check was based on this assumption) (see at T 82.6-9).
- The
Chief Commissioner says that for these reasons Mr Samuel’s view that the
Leases had no value in March 2018 should be rejected;
and that
Mr Samuel’s opinion rests on assumptions which are unsupported. The
Chief Commissioner points to Mr Samuel’s
acknowledgement at T 110.50ff
that he had not himself conducted an investigation into the market rent for the
land; and to Mr Samuel’s
acceptance that, ultimately, the market rent of
the land informs the value of the lease (and that he was not in a position to
say
what the market value of the lease was but could give an indicative value of
the lease, which he had done, based on assumptions that
were for the Court to
determine).
- The
Chief Commissioner notes that, on the other hand, Mr Kepler expressed the view
that it is likely that the Leases did have value
in March 2018 because the
lessee was able to generate greater profit from the leased land in March 2018
than the lessee could generate
in 2014. It is noted that both Mr Kepler and Mr
Dyson expressed the view that, in a commercial site, the value to the lessee
derives
from the lessee’s ability to generate profit from the site, so
that the more profit that can be generated from a site the more
valuable is the
lease of that site (see at T 59.33-47 and T 138.16-21); and that Mr Samuel
agreed that were true if the business
and land are inextricably entwined (see at
T 107.6-11). It is also noted that Mr Samuel accepted that the efficiency and
therefore
the profitability of the Power Stations was enhanced by the features
of the leased land, being their proximity to the dam wall (see
at
T 108.4-7, 110.1-4).
- The
Chief Commissioner says that there is no dispute that the Power Stations
generated greater profit in 2018 compared to 2014; the
evidence being that in
that period, the long-term price of electricity had increased substantially (see
Mr Kepler’s report
of 24 November 2021 at [185]). It is noted that this
increase in electricity prices coincided with an increase in the overall value
of the business of operating the Power Stations from $125 million to $184
million (see Mr Kepler’s report at [184]).
- The
Chief Commissioner says that Mr Kepler’s view is supported by Mr Dyson and
ought to be accepted. The Chief Commissioner
says that the correlation between
the agreed rent of the leased land and the profits generated by the Power
Stations for each site
is unmistakeable, noting that: the Hume Power Station had
a forecast of earnings before interest, taxes, depreciation and amortisation
of
$21.4 million (see Annexure ADH-1 to the affidavit of Mr Holcombe affirmed
3 December 2020) and the agreed rent was $210,754 (see
the expert valuation
report of Mr Dyson of the Hume Power Station dated 29 March 2019, marked Ex F in
the hearing); the Burrinjuck
Power Station had a forecast of earnings before
interest, taxes, depreciation and amortisation of $12.5 million (see Annexure
ADH-1
to the affidavit of Mr Holcombe affirmed 3 December 2020) and
the agreed rent was $84,407 (see the expert valuation report of Mr
Dyson of the
Burrinjuck Power Station dated 29 March 2019, marked Ex E in the hearing); and
the Keepit Power Station had a forecast
of earnings before interest, taxes,
depreciation and amortisation of $825,000 in 2018 (see Annexure ADH-1 to the
affidavit of Mr
Holcombe affirmed 3 December 2020) and the agreed rent
was about $29,611 see the expert valuation report of Mr Dyson of the Keepit
Power Station dated 29 March 2019, marked Ex G in the hearing).
- The
Chief Commissioner argues that, given that the value of the Power Station
business increased so substantially in the four years
until 2018 and the value
of the Power Station business is inextricably entwined with the leased land, it
is reasonable to allocate
a substantial proportion of the unallocated residual
to the leased land; and that Mr Samuel’s allocation of no residual value
to the unimproved leased land ought to be rejected. It is noted that, during his
cross-examination, Mr Samuel said that “by
far the bulk of the
value” ought to go to the Water Agreements and noted that his opinion
“would have to come with a
caveat because you just don’t have enough
information to say what the lease agreement is actually worth” (T
112.16-25).
- The
exchange to which the Chief Commissioner refers was as follows: in response to
the hypothetical I had posed as to appropriate
valuation practice where, for
whatever reason, a valuer is in the position where it is not possible to
attribute a market value to
either of two assets (the Lease and the Water
Agreement) (see from T 111.30ff) and whether in those circumstances, having
regard
to what was considered to be the fundamental driver of the overall
business, it would be an evaluative judgment as to how to apportion
the
residual. Mr Samuel said (at T 112.16-31):
It would be totally – at that point, totally judgemental. So, the way you
should properly do it is determine the market rent
for the lease first and then
do the residual for the water agreement. That would be the ideal way, in your
hypothetical in which
you can’t value either, and you are forced into
making a judgement, by definition it’s a judgement and it’s a
judegment
based on the fundamentals of the assets, and you’re right, I
would say the water agreement is Go/No-Go asset, it’s the
key asset,
whereas a lease is not more than a contributory like the PPE is, and therefore I
would, in my judgement be putting certainly
by far the bulk of the value onto
the water agreements.
...
But it would have to come with a caveat because you just don’t have enough
information to say what the lease agreement is actually
worth.
- Mr
Kepler, asked for his comment on the logic behind an equal apportionment of
residual, said (at T 112.45-50, T 113.1-20):
... I think, to agree with Mr Samuel, ideally the leases would be valued by
reference to market rents. That’s just not available.
Similarly, I would
prefer that we were able to refer to market rates for the water agreements, to
value the water agreements as a
comparison of the market rates versus those that
are implicit in the water agreements. Again, that’s not available to us.
There
needs to be some other basis. So, to agree with Mr Samuel, it is going to
be a judgement. There needs to be some allocation of this
27.7 million
dollars.
I had considered what I thought were the factors that would assist me in making
a judgement on that; things such as the interdependency
of the assets, the
leases and the water agreements both refer to one another; the necessity of the
assets, you do need all three
to operate this hydroelectricity business
efficiently; thirdly, that there was no ready alternative or next best uses for
these assets,
the water agreements without the other assets is relatively
useless, the plant equipment - you might get scrap from the turbines
but apart
from that, the plant and equipment is actually mostly the concrete substructure
and superstructure that’s got limited
to no use alternatively. Similarly,
the land is probably not much use to any other operator other than a
hydroelectricity operator.
Faced with that, my view was that we’ve got a reliable market reference
point for the buildings, plant and equipment. It’s
the other two,
it’s the water agreements and the leases that we don't have a reliable
reference point for. Considering those
factors that I took into account; I
thought an even distribution of that residual was appropriate.
- Pressed
as to how he would have proceeded had he formed the view that the Water
Agreement was the “No-Go asset” and that
should be reflected in an
apportionment of the residual (a proposition that Mr Kepler did not accept
because he could not see how
one of the assets was fundamentally more important
than the others, given the importance of the sites), Mr Kepler said (at T
113.45ff):
I think, delving into the hypothetical, there would need to be some sort of
weighting, considering the relevant factors, in the absence
of actually having
to do that for the purposes of today, I’m not sure where we might get to
on that. There would need to be
some sort of weighting, but ultimately, I
think there would need to be, in the back of my mind at least, that in my view,
there are
these three key assets that contribute symbiotically this
operation. I couldn’t see a situation where all of the value would
be attributed to one asset or the other.
- The
Chief Commissioner says that, in circumstances where good reasons can be
identified as to why the leased land and Water Agreements
have substantial
value, if there cannot be determined with any confidence how the value should be
distributed between the two assets
(because they are unique assets with no
comparable sales), it is reasonable to allocate the residual between the two
classes of assets
that work in combination to give value to GSP’s business
(referring to Mr Kepler’s report dated 24 November 2021 at [166]-[192];
and the Joint Report at [45]-[57]).
Meridian’s submissions
in reply as to the second issue
- As
to the allocation of the residual (as between the Leases and the Water
Agreements), and the Chief Commissioner’s submissions
(at [63]-[98])
relating to the areas of disagreement between Mr Samuel and Mr Kepler, in its
submissions in reply Meridian addressed
the following issues as to the
attribution of the residual as between the Leases and the Water Agreements.
- Meridian
points to the agreement between the experts that, if the Leases were not
mispriced when they were originally struck on 11
July 2014 and if there were no
substantial changes in market conditions that affect the market value of the
Leases at the valuation
date, then the value of the Leases would be nil (T
97.21-50, T 98.1 and T 99.41-49).
- First,
as to the issue whether the rent struck between WAMC and Green State Power on 11
June 2014 (the Lease commencing 18 June 2014)
was reflective of market rents,
Meridian argues that the starting point is to assess or to consider whether
there is any reason why,
as at 11 July 2014, each Lease did not have a market
value rent (referring to the evidence of Mr Samuel at T 119.27-32).
- It
is noted that, for willing but not anxious parties acting at arms’ length,
the best comparable transaction for working out
market rents is the actual
transaction entered into between the parties (see the Joint Report [41](a);
T 78.37-38 (Mr Samuel); T
89.28-38 (Mr Samuel)). Meridian points out
that this is recognised by Spigelman CJ in MMAL Rentals Pty Ltd v Bruning
(2004) 63 NSWLR 167; [2004] NSWCA 451 at [55] and Wigney J in Federal
Commissioner of Taxation v Miley (2017) 106 ATR 779; [2017] FCA 1396 at
[81].
- It
is noted that Mr Kepler: agrees that the Leases were entered into between
arms’ length, well-resourced parties who were under
no compulsion to act
(T 129.1-11); says that because the transaction was “a privatisation
there is incentive for a larger headline
number” by the government (T
131.3-4); but admits that he could not “point to anything” to
substantiate that speculation
(T 131.4-5).
- Meridian
notes that the vendor under the Privatisation Agreement is Green State Power and
that WAMC (the lessor) is not a party to
the Privatisation Agreement. Meridian
points out that there is no evidence that WAMC was paid a premium for the
granting of the Leases
by Green State Power or that WAMC disregarded its
obligation prudently to manage government land by depressing the rent for land
leased by it. Meridian says further that whether WAMC was directed to depress
the rent payable for the Leases is purely within the
knowledge of the
government.
- Second,
as to whether there has been any relevant change in market rental conditions to
justify an increased rent from 11 June 2014
to 29 March 2018, Meridian notes
that the Leases provide for rent review by CPI (see the Burrinjuck Lease at cl
3.3; the Hume Lease
at cl 3.3; and the Keepit Lease at cl 3.3); and that there
is no evidence that the leased land became more scarce, unique or idiosyncratic
in the period between 2014 to 2018 (see the Joint Report at [41](a)) (pointing
out that this premise is accepted by Mr Kepler at
T 131.19-28).
- It
is noted that Mr Kepler: contends that an increase in the actual lessee’s
business profits (rather than the hypothetical
willing but not anxious lessee)
qualifies as a relevant change to market conditions (see the Joint Report at
[54](a)); admits that
the improvement in volatility and electricity prices are
the only examples Mr Kepler has documented in [185] of his report dated
24 November 2021 (see at T 137.29-32); and admits that neither “short
term fluctuations in the markets impacting the subject
hydroelectricity
assets” nor “long term structural change” was a material
market factor to the valuation of the
Leases (see Mr Kepler’s report dated
24 November 2021 at [183](b)). It is further noted that Mr Samuel explained in
the Joint
Report at [41](b) that the pricing model for the water usage charge in
the Water Agreements and the rent under the Leases illustrates
the relative
ability for the SWC and the WAMC to negotiate a return on its asset based on
GSP’s profit. Moreover, Meridian
says that the SWC did negotiate a return
on its water assets based on the operator’s revenue, referring to: Sch 2
of the Water
Agreement for Keepit Dam dated 18 July 2014; Sch 2 of the
Water Agreement for Burrinjuck Dam dated 18 July 2014; and par 1 of the
Hume Dam
Power Station Amending Agreement 30 June 1998. Meridian points out that WAMC
does not have a rent review mechanism that
increases rent with revenue; and says
that the fact that WAMC did not obtain such a rent review mechanism in 2014
indicates that
the type of asset it leased does not command that type of
return.
- Third,
as to why Mr Kepler’s application of a “composite” or
“adjusted” Pacific Hydro Methodology results
in the erroneous
attribution of residual to a notional “bare land” use right,
Meridian maintains its contention that
there should not be any residual to apply
to the Leases on the proper application of the Pacific Hydro Methodology.
Reference is
made to Mr Samuel’s opinion that market rent is a necessary
input to a valuation of land under the conventional lease valuation
methodology
and the Pacific Hydro Methodology (see the Joint Report at [38](c) and
[39](a)).
- Meridian
says that Mr Kepler appears to accept that: the Pacific Hydro Methodology
requires a valuation of the “hypothetical
market rental for the land
...” (see Mr Kepler’s Report dated 24 November 2021 at [90](a)); the
Pacific Hydro Methodology
is broadly consistent with the conventional lease
methodology outlined in [81] of Mr Kepler’s Report; and the conventional
lease methodology requires an assessment of market rents (see Mr Kepler’s
Report at [81] and [21]). Meridian says that Mr Kepler’s
application of
the Pacific Hydro Methodology is erroneous. It is noted that Mr Kepler says that
the methodology described in SPIC Pacific Hydro at [170] has a
“conceptual mismatch” (Mr Kepler’s Report at [89]); in
that [170](1) of SPIC Pacific Hydro requires a comparison of an
hypothetical lease of buildings, plant and equipment against the actual lease
(which is a lease of the
land with its fixtures). Mr Kepler made an adjustment
to the Pacific Hydro Methodology as set out in Mr Kepler’s Report at
[90],
insofar as Mr Kepler applied what he said to be the “conceptually
consistent comparison” of the hypothetical market
rental for the land, and
the actual rental for the land.
- However,
Meridian says that Mr Kepler did not apply the methodology he set out in the
Kepler Report at [90]; instead Meridian says
that Mr Kepler applied a composite
methodology in which he separately valued a lease of the Power Stations (see Mr
Kepler’s
Report at [130]), observed an overall residual, then attributed
part of the residual to a lease of the bare land underneath the Power
Stations
(see the Kepler Report at [166], [173] and [179]). Meridian points out that Mr
Kepler admits that SPIC Pacific Hydro does not support the separate
valuation of a PPE element and a bare land element (see at T 121.24-34,
T 123.1-10 and T 125.1-8).
- Meridian
says that Mr Kepler’s actual methodology leads to an erroneous result
because it obtains a result which necessarily attributes increases in
business value, quantified in the residual, to the “bare land”
component of a lease, irrespective
of whether or not: the lease caused that
appreciation in value for the business; a willing but not anxious lessor is able
to extract
an increase in the value of the lessor’s business in the form
of increased rent; and a willing but not anxious lessee would
be prepared to
submit to an increase in rent merely because it has greater capacity to pay.
- Finally,
as to the issue of whether, if there must be some allocation of residual between
the Water Agreements and the Leases, substantially
the whole of the residual
should be allocated to the Water Agreements, Meridian’s position is that
there should not be any
allocation of the residual to a contributory asset.
- Meridian
says that the Water Agreements are an income generating asset, and so are the
primary asset, whereas the Leases are only
contributory to GSP’s business
operations (referring to Mr Samuel’s second report dated 5 July 2021 at
[52]). It is noted
that in Mr Samuel’s opinion the Water Agreements were
recognised as being the “go, no-go” or “fundamental
asset” (see T 102.7-12); and that the Water Agreements are the driver of
profit (see at T 103.3-7). Meridian points to Mr Samuel’s
evidence that it
is only when the business and the land are “inextricably entwined”
or when it is “the land itself
that is the business” that it would
be reasonable to expect that rent increases with profitability (T
107.15-23).
- Meridian
emphasises the following two facts which it says distinguishes this case from
SPIC Pacific Hydro, and which it says point to the Water Agreements as
the key asset. First, that GSP owns all the Power Station Assets located on the
land the subject of the Leases (except for the 66KW skids which are said to be
relatively insignificant) and consequently GSP has
the right to use them by
virtue of its ownership of them and not the Leases; whereas in SPIC Pacific
Hydro all the wind generator assets on the land were owned by the lessor and
the lessee’s right to use them was derived solely from
the right to use
the land conferred by the lease. Second, that SWC has the right under the Water
Agreements to acquire the Power
Station assets at termination for $1. Hence, it
is said that WAMC as lessor does not benefit from having the Power Station
assets
on the land at termination (and it is submitted that this indicates the
primacy given by the parties to the Water Agreements over
the Leases).
- Meridian
says that it follows that the Leases merely confer an ancillary right (being to
keep the things which GSP owns on the land
and then to allow the SWC to acquire
them at termination) which it maintains is a further factor supporting Mr
Samuel’s view
that the Leases are mere contributory assets and that the
primary asset is the Water Agreements.
- Meridian
argues that the water usage charges under Water Agreements were possibly
mispriced when GSP acquired them on 17 July 2014,
by reference to the fact that
on 22 September 1955 the Hume Power Station had a royalty of eight one-thousand
parts of one penny
(0.008d) per kwh, and on 30 June 1998 the royalty rate for
Hume Power Station was amended to 5% of revenue per kwh; and that there
is an
inference that the royalty benchmark set by Hume Power Station, of 0.008 pennies
per kwh until 30 June 1998 and 5% of revenue
thereafter, means its water usage
charge was not a “commercial” royalty rate (as to which see Mr
Holcombe’s first
affidavit affirmed 3 December 2020 at [51]).
Meridian says that the same inference applies to the 5% royalty rate for the
Keepit
Power Station and the 5% first bracket royalty for the Burrinjuck Power
Station.
- However,
Meridian says that in any event it is irrelevant whether the Water Agreements
were mispriced in 2018 because the residual
methodology applied by both experts
to value the Water Agreements does not require the identification of the market
water usage charge
if they were renegotiated. It is said that that is the
purpose of the residual methodology being applied to the Water Agreements,
namely, to allocate the residual to the prime asset.
Summary of
the second issue
- In
summary, Meridian says that the Leases have nil value because the rent paid
under the Leases is comparable to market rent. Meridian
accepts that each Water
Agreement is an intangible asset of GSP and has material value but says (and the
Chief Commissioner does
not cavil with this) that the Water Agreements are not
interests in land and should be excised from the calculation of the dutiable
value if the Acquisition were a relevant acquisition for the purposes of Ch 4 of
the Duties Act .
- Meridian
says that the Pacific Hydro Methodology is inappropriate (for the reasons set
out above) and that, to the extent that there
is a difference between the market
value of GSP’s shares at the time of Acquisition and GSP’s assets
and liabilities
other than the Water Agreements and the Leases (the
“residual”), the whole of the residual should be allocated to the
Water Agreements and not the Leases.
- If
(contrary to its primary submission) the Pacific Hydro Methodology is
applicable, Meridian says that it is logical that any cost
of remediating the
environment arising by reason of occupying the Leases and operating the Power
Stations be allocated wholly to
the Leases and for none of the remediation cost
to be allocated to the Water Agreements (see the Joint Report at [70]).
- The
Chief Commissioner, on the other hand, contends that the Leases ought to be
valued at $144.85 million, using the Pacific Hydro
Methodology; that Meridian
has failed to discharge its burden of proving that the Chief
Commissioner’s assessment was incorrect;
that the criticisms by Mr Samuel
should be rejected; and that Mr Kepler’s opinion of the value of the
Leases should be accepted.
Based on Mr Kepler’s valuation, the Chief
Commissioner says that that the total value of GSP’s landholdings was
$144.85
million (comprising $13.85 million for the Lease of the unimproved land
and $131 million for the right to use the Power Stations);
and that GSP
also owned goods (being portable plant and equipment) worth $500,000 (see the
Joint Report at [19]).
Determination of the second issue
- In
relation to the issues raised as to the value to be ascribed to the Leases and
the Water Agreements, I have concluded as follows.
- First,
as to Mr Dyson’s report, I accept that Mr Dyson was not qualified to
express an opinion on the legal effect of cl 13.5
(and that cl 13.5, however it
be read, is no more than an acknowledgement by the parties as to the ownership
of the Power Station
Assets and does not have the legal effect contended for by
Mr Dyson). More problematic, in my view, is that Mr Dyson accepted that
the
profit rental approach requires the ability to identify relevant comparables
(not possible here) and was not appropriate where
there was a business on the
land that was inextricably linked to the lease (as is here the case). Therefore,
with no disrespect to
Mr Dyson, I cannot place weight on his opinion that the
Leases were at nil value.
- That
brings me to the areas of disagreement as between Mr Samuel and
Mr Kepler.
- As
to the first of those issues, I consider that this is not a case where it is
appropriate to apply the Pacific Hydro Methodology because of the
conclusions I have drawn as to the nature of the interest held by Meridian in
the Power Stations; and I
consider, by reference to his Honour’s reasons,
that Payne JA was not purporting to lay down some inflexible rule as to
valuation
of such assets in SPIC Pacific Hydro.
- As
to the position of the skids, however, the position is different in that they
were installed after the 2014 Vesting Order and they
have the features of
something that would ordinarily be seen as a tenant’s fixture (see my
remarks (with which Bathurst CJ,
and Beazley P (as Her Excellency then was)
agreed) in Power Rental Op Co Australia, LLC v Forge Group Power Pty Ltd (in
liq) (2017) 93 NSWLR 765; [2017] NSWCA 8 at [102] and [151]). In those
circumstances I consider that the Pacific Hydro Methodology would here be
appropriate to apply.
- As
to the second of those issues, I consider that, while application of the Pacific
Hydro Methodology would require account to be
taken of removal and/or
remediation costs likely to be incurred on termination of the relevant Leases,
the difficulty here is that
there is insufficient evidence on which to form a
conclusion that those costs are likely to be incurred or as to the likely
quantum
of those costs in any of the three scenarios. The provision made in
Meridian’s accounts is of little assistance in those circumstances.
- As
to the third of those issues, it is relevant to note that there is broad
agreement between them as to the appropriate valuation
methodology (where it is
not possible to place a market value on an asset) is the residual valuation
approach; and both were candid
as to the difficulties of applying that approach
where there are two assets the market value of which cannot be readily
ascertained
(as I accept is here the case). Both appear to accept that in those
circumstances there is an evaluative judgment to be carried out.
To my mind, the
rationale for Mr Samuel’s opinion that the residual should be allocated
wholly (or at least substantially)
to the Water Agreements has logical force. I
understand the position of Mr Kepler to be that it is not reasonable to ascribe
none
of the residual to the Leases in circumstances where the unique position of
the land on which the Power Stations are located is a
contributor to the profits
of the business. However, ultimately I am persuaded that the fundamental driver
(the go, no-go asset)
is the Water Agreement, without which the Lease could have
no value.
- I
set out in the section dealing with the fifth issue the outcome that follows
from the above conclusions.
Issue 3 – Whether the Power
Stations were goods
- On
the conclusions that I have reached above, the third issue does not strictly
arise but I deal with it for completeness.
Meridian’s
submissions as to the third issue
- Meridian
says that, even if GSP were a landholder, the Power Stations were not goods
within the meaning of s 155 of the Duties Act because they are sui
generis interests in property vested in GSP by statute and, alternatively,
form part of a continuous system of electricity reticulation connected
to a mass
electricity distribution network. Therefore, it is said that the value of the
Power Stations should be excluded in working
out the dutiable value of the
acquisition.
- Meridian
notes that the expression “goods” is left undefined in the Duties
Act save that s 163K(1) expressly excludes a number of categories of things
from falling within the category of “goods”. Section 163K is not
expressed to be prescriptive but appears to be intended to exclude a number of
things that would otherwise be goods (such
as goods that are stock-in-trade)
from being caught by the expression. Section 163K relevantly states
that:
(1) In this Chapter—
goods does not include the following—
(a) goods that are stock-in-trade,
(b) materials held for use in manufacture,
(c) goods under manufacture,
(d) goods held or used in connection with land used
for primary production,
(e) livestock,
(f) a registered motor vehicle,
(g) a ship or vessel.
(2) For the purposes of this Chapter, goods are goods of
a landholder if the landholder has any interest in the goods, other
than an
interest as mortgagee, chargee or other secured creditor.
- It
is noted that the meaning of the word “goods” has been said to be of
very general and quite indefinite import which
depends upon the context in which
it is found (reference being made to The Noordam (No 2) [1920] AC 904 at
908-909 per Lord Sumner).
- Meridian
points out that the expression “goods, wares, and merchandise”, as
it appeared in the proviso in the Second Schedule
to the Stamp Duties Act
1920-1933 (NSW), was considered in North Shore Gas Company Limited v
Commissioner of Stamp Duties (NSW) (1940) 63 CLR 52; [1940] HCA 7 (North
Shore Gas (No 1)), which concerned the mains and service pipes of the North
Shore Gas Company which had been laid in the ground. Dixon J, as his Honour
then
was, there considered that the expression “goods, wares, and
merchandise” should be taken to include all tangible
movables (at 67). His
Honour described the pipes as “part of a continuous system of gas
reticulation which runs under the earth
and is attached to plant and buildings
fixed to the soil” (at 67) and that they are “interconnected and
radiate from
a plant consisting of fixtures” (at 70). For those reasons,
his Honour found that the mains and service pipes were analogous
to fixtures and
not chattels personal (at 70) despite the company’s statute having the
effect of preventing the consequences
which would ordinarily ensue from affixing
things to the land (at 68).
- Meridian
submits that the Power Stations or part of the Power Stations are not goods for
the following reasons.
- First,
it is noted that the Power Stations were granted to Green State Power as
“assets, rights and liabilities of Eraring Energy”
and then granted
to GSP as “assets, rights and liabilities of Green State Power”.
Reliance is again placed on the explanation
by Windeyer J in North Shore Gas
(No 2) at 133, that where Parliament confers innominate statutory rights,
“there is no need for lawyers to insist on finding an old
name for them,
when they are in fact sui generis”. Meridian says that the 2014
Vesting Order grants innominate statutory rights, which in the present case is
constituted by
immovable physical generator assets affixed to the land but
statutorily severed and held in gross; and says that it would therefore
be
erroneous to attempt to assimilate the Power Station assets to either category
of goods or land.
- Further,
it is said that the connection from the generator through the electricity
cabling to the distribution network constitutes
a continuous system of
electricity reticulation attached to plant and buildings fixed to the soil,
analogously to the position in
North Shore Gas (No 1) per Dixon J, as his
Honour then was, at 67. It is noted that in each Power Station a powerhouse
houses the turbines and generators
whose components are in turn connected
through a series of tubes to the dam structure (Mr Wilkins’ second
affidavit affirmed
18 June 2021 at [39]). The generators are in turn connected
through a series of continuous cabling to the switchyard and into the
electricity distribution network (Mr Wilkins’ second affidavit at
[84]).
- Meridian
says that it also follows that, as in North Shore Gas (No 1), the
quasi-fixture quality of the Power Stations or parts thereof do not meet the
description of goods as a tangible movable. Thus,
Meridian contends that the
Power Stations do not constitute “goods” within the meaning of the
Duties Act .
Chief Commissioner’s submissions as to
the third issue
- As
to Meridian’s third contention (i.e., that, even if GSP were found to be a
land holder within the meaning of the Duties Act (that is, GSP has an
interest in land worth at least $2 million), the Power Stations were not goods
within the meaning of s 155(1) of the Duties Act and are not to be taken
into account in applying s 155(1) of the Duties Act (see
Meridian’s Amended Appeal Statement at [29] and [30]), the Chief
Commissioner notes that the particulars for this contention
were set out in a
letter dated 3 February 2021, as follows:
1. Paragraph 29 pleads in the alternative that:
(a) if contrary to the primary contentions advanced at
paragraphs 23 to 26, GSP is a landholder for the purpose of s 155(1) of
the Duties Act 1997 (NSW) (the Act) because its interests in the
Leases and Freehold Land have a value equal to or greater than $2 million,
(b) the Power Station Assets nonetheless do not meet the
description of goods for the purpose of section 155(1) of the Act because
either:
(i) the relevant Vesting Order vests the Power Station Assets
in GSP as sui generis property rights pursuant to the terms of the
Vesting Order
and their enabling legislation and for that reason are not goods within
the definition in s 163K(1) of the Act; or
(ii) alternatively, the Power Station Assets which are affixed
to land or structures on land are not tangible movable property
and therefore
not goods within the definition in s 163K(1) of the Act (North Shore
Gas Company Ltd v Commissioner of Stamp Duties (NSW) [1940] HCA 7; (1940) 63 CLR 52).
2. To the extent that the Power Station Assets do not satisfy
the definition of goods, their unencumbered value is not to be taken into
account in applying section 155(1) of the Act.
- The
Chief Commissioner notes that Meridian’s third contention arises only in
circumstances where: the Court has found that the
effect of the Vesting Order
was to sever the Power Stations from the leased land; the Power Stations were
not otherwise held by GSP
as an interest in land; and GSP’s landholdings
had a value of at least $2 million. In those circumstances, the question raised
by Meridian’s third contention is whether the Power Stations are goods for
the purposes of s 155 of the Duties Act .
- The
Chief Commissioner says that the contention that the Power Stations are not
goods but some other sui generis property right or, alternatively, not
tangible movable property (referring to Meridian’s submissions at
[99]-[106]) should
be rejected for the following reasons.
- First,
by reference to the analysis of the Vesting Orders summarised above in respect
of the first issue, the Chief Commissioner says
that Meridian has not
established that the Power Stations are sui generis interests in property
vested in GSP by statute; maintaining his position that the effect of the
Vesting Orders was not to sever the
Power Stations from the land. It is
contended that the Power Stations are properly characterised as fixtures and, as
such, are an
interest in the leased land; and that they are not goods (the Chief
Commissioner here repeating Meridian’s submission that
the Power Stations
are “so connected with their respective dams which is in turn embedded
into the land that they became part
and parcel of the land” (referring to
Meridian’s submissions at [62])). I have rejected this submission under
issue 1
above.
- Moreover,
and even if the Vesting Orders did create a sui generis property interest
in GSP in the Power Stations, the Chief Commissioner repeats his submission that
those orders only apply to assets
that were part of the leased land up to the
date of the first Vesting Order; and that those assets which were installed
after the
date of the first Vesting Order in July 2000 remain as fixtures,
forming part of the leased land. (I accept this submission only
in relation to
assets installed after the 2014 Vesting Order; i.e., the skids.)
- Insofar
as Meridian relies on North Shore Gas (No 1) in support of the submission
that the Power Stations are not goods by reason of forming “part of a
continuous system of electricity
reticulation connected to a mass electricity
distribution network” (see Meridian’s submissions at [98] and
[104]-[106]),
the Chief Commissioner notes that in that case the High Court was
called upon to consider whether certain gas mains and service pipes
which were
embedded in the ground were “goods, wares, and merchandise” and
therefore liable to nominal duty under the
Stamp Duties Act
1920-1933 (NSW). It is noted that, in finding that the mains and service
pipes were fixtures and not chattels personal, Dixon J (McTiernan
J agreeing)
said at 70:
The right to remove the pipes arises from a particular statutory power. Unless
it is exercised the pipes must remain in situ as part of a widespread
system or apparatus which can be transferred only as an entirety. It is
interconnected and radiates from
a plant consisting of fixtures. Every physical
characteristic, therefore, tends to place the mains and service pipes in the
same
category as the soil from which, without disintegration or disconnection,
they are inseparable. Two legal qualities belong to the
pipes which ordinarily
do not belong to part of the soil, viz., the existence of independent ownership
in another person and removability.
But these qualities arise from statutory
provisions, and removability at all events is a well-known characteristic of
tenants’
fixtures, which until removal are considered part of the realty.
I do not think that these statutory legal qualities are enough to
put the buried
apparatus out of the classification to which otherwise it would belong.
The mains and service pipes are fixtures, and in my opinion are not chattels
personal.
- The
Chief Commissioner says that his Honour’s comment applies with equal force
to the facts of the present case. It is said
that the component parts of the
Power Stations form part of a going concern, were transacted together and
operate as an integral
whole to produce electricity; and that, likewise, the
Vesting Orders do not put the Power Stations “out of the classification
[as fixtures] to which otherwise it would belong”. The Chief Commissioner
says that North Shore Gas (No 1) is an authority for the proposition that
a power network embedded into the ground is properly classified as a collective
of fixtures,
not goods; and that this is consistent with the Chief
Commissioner’s primary position that the Power Stations are fixtures.
If
that is the case, then it is said that Meridian’s third contention does
not arise.
- Alternatively,
if it is held (as the Chief Commissioner submits) that the Power Stations are
not a sui generis property interest and it is held (contrary to the Chief
Commissioner’s submissions) that they are not fixtures, then it is
said
that the Power Stations must, necessarily and in the context of s 155 of the
Duties Act , be goods.
- The
Chief Commissioner (as does Meridian) refers to The Noordam, where it was
said that the word “goods” was of very general “and quite
indefinite import” and primarily
derived its meaning from the context in
which it was used.
- Reference
is also made to Smith’s Snackfood Co Ltd v Chief Commissioner of State
Revenue (NSW) (2013) 97 ATR 904; [2013] NSWCA 470 at [131], where Gleeson JA
(Beazley P, as Her Excellency then was, agreeing) applied The Noordam in
support of a finding that “goods” in the Duties Act included
coins and banknotes, noting that the definition of “goods” depended
entirely on the context in which it was used.
The Chief Commissioner also refers
to Browning v Australia and New Zealand Banking Group Ltd [2014] QCA 43,
where McMurdo P said at [6] that the ordinary meaning of “goods” is
“possessions, especially moveable effects
or personal
chattels”.
- The
Chief Commissioner says that, in the present case, the relevant context is s 155
of the Duties Act which stipulates how duty is charged on relevant
acquisitions (private landholders), in the following terms:
How duty is charged on relevant acquisitions--private landholders
(1) If an acquisition statement that discloses a relevant
acquisition in a private landholder does not disclose any other acquisitions
during the statement period, duty is chargeable, at the general rate, on the
amount calculated by multiplying the unencumbered value
of all land holdings and
goods of the landholder in New South Wales (calculated at the date of
acquisition of the interest acquired)
by the proportion of that value
represented by the interest acquired in the relevant acquisition.
- It
is said that the purpose of s 155 is to provide the methodology by which duty is
to be calculated on a relevant acquisition in a private landholder; that the
section
presupposes a relevant acquisition and calls for the identification of
“the unencumbered value of all land holdings and goods
of the
landholder”; and that the purpose of the section appears to be to
determine the value of all assets of the landholder
that may be classified as
land or otherwise be in a tangible form (goods).
- In
those circumstances, the Chief Commissioner submits that the term
“goods” is of sufficient breadth to capture the Power
Stations, if
they are not otherwise classified as land. It is said that Power Stations are
comprised of many items which would individually
be classified as goods; and
that the only reason to remove them from that classification is if the Power
Stations are classified
as land. The Chief Commissioner argues that, if they do
not fall within that classification, then it is consistent with the text
of s
155 and the ordinary meaning of “goods” that the Power Stations be
classified as goods.
- The
Chief Commissioner thus says that Meridian’s third contention should be
dismissed; that it does not arise because the Power
Stations are part of the
leased land; but that if it be held that the Power Stations are not part of the
leased land, and are not
otherwise an interest in land, then the Power Stations
ought to be classified as goods under the Duties
Act.
Determination of the third issue
- I
accept that, as recognised in The Noordam, the word “goods”
is of very general “and quite indefinite import” and primarily
derives its meaning from
the context in which it is used (here, s 163K of the
Duties Act ) and that it may be accepted that the intent of the
legislature was to levy tax on “the unencumbered value of all land
holdings
and goods of the landholder” requiring a determination of the
value of all assets of the landholder that may be classified
as land or
otherwise be in a tangible form. However, I have great difficulty in seeing the
Power Stations as being “goods”
under any ordinary meaning
attributed to tangible personal property. The fact that the Power Stations
(formerly fixtures or items
“part and parcel of the land” if that
classification be correct) have been statutorily severed from the land (and
exist
as an innominate sui generis property interest) does not transmute
them into goods simply because it might be thought that this should be treated
as part of the
assets on which an impost for landholder duty should be
made.
- In
the circumstances were it to have arisen I would have concluded that the Power
Stations or Power Station assets in the ownership
of Meridian are not goods.
Issue 4 – Exercise of the s 163G
“discretion”
Meridian’s submissions as to the fourth issue
- Meridian
says that, in the event that the Acquisition is found to be a relevant
acquisition (about which there is no dispute –
it is) and it is found that
the Power Stations were goods and the value of GSP’s goods at the time of
the Acquisition is not
less than 90% of the total unencumbered value of all land
holdings and goods, then the power in s 163G of the Duties Act should be
exercised and the value of goods should be disregarded in determining the duty
chargeable to Meridian. Given my conclusion
above, this issue does not arise
but, again, for completeness I deal briefly with it.
- It
is noted that, in the case of a power which may be exercised by the Chief
Commissioner, the Court must itself consider the correct
application of the
Duties Act to the materials before the Court, including how any power
conferred by those provisions should be exercised (reference being made
to
Chief Commissioner of State Revenue v Centro (CPL) Ltd (2011) 81 NSWLR
462; [2011] NSWCA 325 at [168] per Sackville AJA (with whom Giles and Macfarlan
JJA agreed); Winston Smith v Chief Commissioner of State Revenue [2019]
NSWCA 75 at [2] per Meagher JA (with whom Payne JA and Sackville AJA
agreed)).
- Meridian
says that, on its proper construction, s 163G of the Duties Act should be
construed as prescribing a mandatory rule whereby, if the unencumbered value of
all goods in New South Wales of a landholder
comprises not less than 90% of the
total unencumbered value of all land holdings and goods in New South Wales of
the landholder,
the Chief Commissioner must disregard the value of the goods in
determining the duty chargeable under Ch 4.
- It
is noted that when a statute uses the expression “may” there is a
question whether the particular context of words
and circumstance make it not
only an empowering word but indicate circumstances in which the power is to be
exercised, so that in
those events the “may” becomes a
“must” (Finance Facilities Pty Ltd v Federal Commissioner of
Taxation [1971] HCA 12; (1971) 127 CLR 106 at 134-135 per Windeyer J).
- Meridian
says that the textual indicator that s 163G of the Duties Act is
mandatory is that s 163G prescribes a singular criterion for when the power
is enlivened, which is when the unencumbered value of all goods comprises not
less than 90% of the total unencumbered value of all land holdings and goods;
and that it does not require the Chief Commissioner
to make any evaluative
judgment. Meridian says that the mandatory nature of s 163G is also confirmed by
its legislative history.
- Meridian
notes that s 163G was introduced by the State Revenue Legislation Further
Amendment Act 2009 (NSW), which introduced wholesale amendments to the
charging of duty on the acquisition of entities holding interests in land by
repealing
former Ch 4A and substituting in its place Ch 4; and that s 163G is
the policy equivalent of former s 163B(1)(b) which provided that
for the
purposes of former Ch 4A an entity is “land rich” if it had land
holdings in New South Wales with an unencumbered
value of $2 million or more and
its land holdings in all places comprise 60% or more of the unencumbered value
of all its property.
Thus, it is noted that s 163G substitutes a former 60% rule
with the current 90% rule.
- Further,
Meridian notes that s 163G is also the Ch 4 analogue of s 26 found in Ch 2 of
the Duties Act and Meridian says that the legislative history of s 26
also confirms the mandatory nature of current ss 26 and 163G .
- Prior
to 30 June 2013, s 26 provided:
The Chief Commissioner, if satisfied that it would not be just and reasonable in
the circumstances to charge duty on the dutiable
value of all the dutiable
property in a dutiable transaction involving goods and other property, may
disregard the value of the goods,
or any of them, in determining the dutiable
value of the property involved.
- It
is noted that in this form it was substantially similar to s 43A(2) of the
Stamp Duties Act 1920 (NSW) which provided that certain conveyances or
agreements were chargeable with ad valorem duty “except in so far
as the Chief Commissioner is satisfied that it would not be just and reasonable
in the circumstances”;
and that the statutory language in s 43A(2) and
former s 26 called for an evaluative judgment in the exercise of the discretion
conferred on the Chief Commissioner.
- Meridian
points out that the uncertainty as to the scope of s 26 of the Duties Act
gave rise to Revenue Ruling DUT 004, which expressed the Chief
Commissioner’s view that the discretion fell to be exercised
where goods
comprised 90% or more of the value of the property the subject of the dutiable
transaction (see McDonald’s Australia Ltd v Chief Commissioner of State
Revenue (2005) 58 ATR 260; [2005] NSWSC 6 (McDonald’s
Australia) at [91] per Gzell J); and that the prescriptive application of
Revenue Ruling DUT 004 led to criticism by Gzell J in McDonald’s
Australia at [91] and [94].
- Subsequently,
the present form of s 26 was introduced by the Duties Amendment (Abolition of
State Taxes) Act 2006 (NSW) which enacted a new s 26A(1) as
follows:
If a dutiable transaction involves goods and other dutiable property, the Chief
Commissioner may disregard the value of the goods
in the transaction if
satisfied that the dutiable value of the other property does not exceed 10% of
the dutiable value of all the
dutiable property in the transaction.
- Section
26 was amended and s 26A was repealed by the State Revenue and Other
Legislation Amendment (Budget Measures) Act 2013 (NSW). From 1 July 2013, s
26 provided:
If a dutiable transaction involves goods and other dutiable property, the Chief
Commissioner may disregard the value of the goods
in the transaction if the
dutiable value of the other property does not exceed 10% of the dutiable value
of all the dutiable property
in the transaction.
- Meridian
says that the modern form of the dispensation in the current s 26 and s 163G of
the Duties Act evidences a deliberate departure from the evaluative
“just and reasonable” judgments and the adoption of a discrete
percentage
based criterion for the dispensation of duty.
- Accordingly,
Meridian says that s 163G should be construed as a mandatory rule requiring the
Chief Commissioner to disregard the value of goods in determining the duty
chargeable under Chapter 4 if the unencumbered value of all goods in New South
Wales of a landholder comprises not less than 90%
of the total unencumbered
value of all land holdings and goods in New South Wales.
- However,
Meridian says that, if s 163G is discretionary, then the discretion should be
exercised consistent with the policy of Ch 4 (citing Challenger Listed
Investments Ltd v Commissioner of State Revenue (2010) 80 ATR 630; [2010]
VSC 464 at [27]- [29] per Pagone J). Meridian says that even if s 163G is
not construed as a mandatory direction to the Chief Commissioner, the policy
purpose of s 163G is still to avoid charging duty on relevant acquisitions of
entities whose value is substantially attributable to goods instead of
interests
in land.
- Meridian
argues in this regard that the value of GSP is substantially attributable to its
capacity to sell electricity; and that,
to generate electricity, GSP uses the
water fuel granted to it by the Water Agreements to power the Power Stations
which were vested
in it by the Vesting Orders. It is said that the Leases grant
GSP access to the Power Stations but are otherwise not profit leases
which GSP
could assign for gain. Given the separate vesting of the Power Stations, the
Water Agreements and the Leases, it is said
that the Leases are not commercially
valuable independent of GSP’s business as a going concern. Meridian says
that substantially
the whole of the value of GSP’s business is therefore
attributable to the business it conducts using its tangible and intangible
assets rather than attributable to its interests in land.
- Meridian
says that landholder duty charged by Ch 4 is an alternative to transfer duty
charged by Ch 2 of the Duties Act (referring to the note under s 145
of the Duties Act , as confirming this). Meridian says that, just as
s 26 has the effect of excising from the duty base ad valorem duty
on goods if the dutiable transaction of property other than goods does not
exceed 10% of the dutiable value of the dutiable
property in the transaction
(i.e., that goods making up at least 90% of the value of the transaction), s
163G should be construed with the same policy of disregarding the
landholder’s goods where the value of those goods is not less
than 90% of
the value of landholder’s land holdings and goods. It is submitted that
the s 163G discretion should be exercised in a manner that gives an harmonious
operation to the Duties Act as a whole.
- Meridian
points out that Mr Kepler’s lease valuation methodology reveals that the
value of GSP’s interest in the lease
of the bare land ($13.85 million to
$28.85 million subject to up to $30 million of remediation costs) is only a
small proportion
of GSP’s total assets ($172.2 million) (see the Joint
Report at [19]). Meridian says that the fraction that GSP’s leasehold
interest bears to GSP’s total assets is even more stark if the Pacific
Hydro Methodology is applicable only by reason of GSP’s
recently installed
66kV switching skids at the Hume Power Station ($2.9 million to $172.2 million)
(see the Joint Report at [18]).
- Thus,
Meridian says that it if is found that GSP was a landholder at the time of the
Acquisition then the value of GSP’s goods
at $131.4 million constituted of
$131 million of buildings, property plant and equipment fixed to the land (see
Mr Kepler’s
Report dated 24 November 2021 at [92]-[93]) plus $0.5 million
of portable plant and equipment (Kepler Report at [93]) should be excised
from
the calculation of dutiable value.
- Accordingly,
from the Chief Commissioner’s assessment of dutiable value at $145,350,000
in the Further Amended Assessment, Meridian
says that there should be deducted a
further $131,400,000 to arrive at a dutiable value of $13,950,000 to reflect the
removal of
the value of GSP’s goods from the Chief Commissioner’s
calculation of dutiable value.
Chief Commissioner’s
submissions as to the fourth issue
- As
to Meridian’s contention that, in the event that the Power Stations are
found to be goods, the discretion conferred by s 163G of the Duties Act
should be exercised so that the value of the Power Stations is disregarded in
determining the amount of duty payable (see Meridian’s
submissions at
[107]-[128]), the Chief Commissioner says that, for Meridian to make this
contention good, it must establish that:
the Power Stations are (contrary to its
earlier submission) goods; the value of the Power Stations, at the time of the
Acquisition,
was not less than 90% of the total unencumbered value of
GSP’s land holdings and goods; and s 163G of the Duties Act ought
to apply such that the value of the Power Stations should be disregarded in
determining the duty chargeable.
- The
Chief Commissioner’s primary position is that the Power Stations are not
goods; rather that they are fixtures forming part
of the leased land (again
citing Meridian’s submission that the Power Stations “are so
connected with their respective
dams which is in turn embedded into the land
that they became part and parcel of the land” – see Meridian’s
submissions
at [62]). On that basis it is said that s 163G has no application to
the facts of this case.
- If,
contrary to the Chief Commissioner’s primary submission, it is held that
the Power Stations are goods, then the Chief Commissioner
notes that Meridian
must establish that the value of the Power Stations at the time of the
Acquisition was not less than 90% of the
total unencumbered value of GSP’s
land holdings and goods. It is said that the determination of that question will
depend on
the expert evidence and the impact, if any, on the obligation to
remediate. It is noted that there are various possible scenarios
in which the
value of GSP’s goods will be less than 90% of GSP’s total land
holdings and goods even if Meridian establishes
that the Power Stations are
goods.
- The
Chief Commissioner posits, by way of example, the scenario that it be found
that: the total unencumbered value of GSP’s
land holdings and goods was
$145.35 million; Mr Kepler correctly valued the Lease of the unimproved leased
land at $13.85 million;
the skid is an interest in land, because it was
installed by GSP after the 2014 Vesting Order, and is valued at $2.9 million;
the
portable plant and equipment is valued at $0.5 million; and the Power
Stations are goods (contrary to the Chief Commissioner’s
primary
submission) and valued at $128.1 million (being $131 million less $2.9 million
for the skid).
- The
Chief Commissioner says that, in that scenario, the value of GSP’s goods
at the time of the Acquisition was less than 90%
of the total unencumbered value
of GSP’s land holdings and goods (i.e., $128,600,000/$145,350,000 or
88.48%); and, therefore,
the discretion in da199793 /s163g.html" class="autolink_findacts">s 163G of the Duties Act is
not enlivened.
- The
Chief Commissioner accepts that if it be found that the value of GSP’s
goods at the time of the Acquisition was 90% or more
of GSP’s total land
holdings and goods, then the discretion under s 163G is enlivened; and agrees
that, in this case, the Court ought to disregard the value of the goods in
determining the duty chargeable
under Ch 4. In those circumstances, the Chief
Commissioner says that it is not necessary to decide whether the discretion
should
be construed as mandatory.
Determination of the fourth
issue
- Given
the position of the Chief Commissioner that (in the event that s 163G of the
Duties Act is enlivened, the discretion should be exercised) it is not
necessary to entertain the debate as to whether “may” means
“must”; and it is not appropriate that I here enter into debate on
that issue (it should be determined after proper consideration
in a case in
which it is determinative). As it is, on the conclusions reached above, s 163G
is not enlivened, so the question whether the discretion is or should be
exercised does not arise.
Issue 5 – Dutiable value of the
Acquisition
- Meridian
says that the dutiable value of the Acquisition is nil because the methodology
in SPIC Pacific Hydro is inapplicable to valuing GSP’s Leases, the
value of GSP’s leasehold interest is nil and the Acquisition is not a
relevant
acquisition.
- If
the Acquisition is a relevant acquisition because the methodology in SPIC
Pacific Hydro is applicable and s 163G of the Duties Act applies,
then Meridian says that the dutiable value of the acquisition should be $2.9
million as set out in Mr Samuel’s calculations
at [18] of the Joint
Report.
- If
the Acquisition is a relevant acquisition because the methodology in SPIC
Pacific Hydro is applicable and s 163G does not apply, then Meridian says
that the dutiable value of the acquisition is $99.3 million as the net of
$131 million (being
the PPE leases) plus $0.5 million (being the portable
plant and equipment), plus negative $2.2 million (being the bare land Leases)
plus negative $30 million (being the remediation costs) set out in the second
column of Mr Samuel’s calculations at [19] of
the Joint Report.
- Meridian
says that the Further Amended Assessment is also excessive because the Chief
Commissioner has undervalued the Water Agreements
by at least $13.85 million
when their actual value is $27.7 million (if the Pacific Hydro Methodology does
not apply) or at least
$29.9 million and up to $59.9 million (if the
Pacific Hydro Methodology applies) as valued by Mr Samuel (see the Joint
Report at
[17] and [19]).
- Meridian
thus contends that the Further Amended Assessment should be set aside in whole
or, in the alternative, set aside in part
and an assessment issue for a lesser
amount of duty on the basis that the dutiable value of the acquisition exclude
the value of
GSP’s interest in goods or, in the further alternative, on
the basis that no amount of the residual is allocated to the value
of
GSP’s Leases. Meridian wishes to be heard on costs in any event.
- The
Chief Commissioner submits that the summons filed on 31 July 2020 be dismissed;
and that the Court should, pursuant to s 101(1)(a) of the Taxation
Administration Act confirm the assessment issued to
Meridian.
Determination of the fifth issue
- Having
regard to the conclusions reached above, and the calculations set out in the
aide memoire (set out above), the Further Amended
Assessment should be set aside
in whole. I find that the dutiable value of the Acquisition is nil on the basis
that the Power Stations
were not landholdings in the relevant sense, nor is the
Pacific Hydro Methodology applicable in valuing GSP’s Leases (although
it
does apply to the skids), and that therefore the Acquisition was not a relevant
acquisition within the meaning of the Duties
Act .
Costs
- Both
parties sought to be heard on costs, so I will make directions for that to
occur.
Orders
- On
the basis of the foregoing, I make the following orders:
(1) Set aside the defendant’s Further Amended Assessment, dated
25 August 2021, in whole.
(2) The parties are to file and serve submissions on the question of costs
within 14 days of the publication of these reasons (including
whether, and if so
why, an oral hearing on costs is sought or that issue can be dealt with on the
papers).
**********
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