AFFINITY HEALTH LTD v CHIEF COMMISSIONER OF STATE REVENUE (NSW)
Judges:Gzell J
Court:
New South Wales Supreme Court
MEDIA NEUTRAL CITATION:
[2005] NSWSC 663
Gzell J
Introduction
1. A consortium of investment managers incorporated Affinity Health Ltd, the plaintiff, to acquire the private hospital division of Mayne Group Ltd. Amongst other assets, Affinity acquired all the shares in Australian Medical Enterprises Ltd and HCoA Hospitals Holdings (Australia) Pty Ltd. A share and asset sale deed was executed by the parties on 21 October 2003. It provided for completion on 30 November 2003 or such other date as might be agreed by the parties. On completion Affinity was required to pay $283,725,180.00 to Mayne and $108,500,000.00 to an escrow agent to be held in accordance with the terms of an escrow agreement. Completion took place on 1 December 2003.
2. So far as is here material, the Duties Act 1997, s 113 exacted duty on the acquisition of a 50% interest in a landholder that was land rich at the general rate for dutiable transactions rather than at the lower rate applicable to dutiable transactions in respect of marketable securities. A landholder included a private company.
3. Prior to 14 November 2003, the legislation defined a private company as land rich if it had land holdings in New South Wales whose unencumbered value was $1,000,000.00 or more and its land holdings in all places, whether within or outside Australia, comprised 80% or more of the unencumbered value of all its property.
4. The Duties Amendment (Land Rich) Act 2003 amended the land rich definition by increasing the New South Wales land holding threshold to $2,000,000.00 but by reducing the overall land holding threshold to 60%. It contained no transitional provision with respect to existing agreements for the acquisition of interests in land rich companies. It provided that it should be taken to have commenced on the day the Duties Amendment (Land Rich) Bill 2003 was introduced into the Legislative Assembly, namely on 14 November 2003.
5. AME and HCoA were land rich landholders under the new definition. The Chief Commissioner assessed Affinity to duty under the Duties Act 1997, s 113 on its acquisition of the shares in those companies in the amount of $10,301,333.00 plus interest. He having disallowed Affinity's objection to the assessment, Affinity applied to this Court for a review of that decision under the Taxation Administration Act 1996, s 97(1).
Were AME and HCoA land rich before 14 November 2003?
6. The consortium of investment managers took advice as to whether AME and HCoA were land rich before entering into the share and asset sale deed. Various scenarios were analysed by the solicitors. Some scenarios included bed licences and goodwill as part of the land value. The solicitors pointed out, however, that there were good arguments that the bed licences did not form part of a land. That view was the one to which Harper J subsequently came in
Primelife (Glendale Hostel) Pty Ltd & Anor v Commr of State Revenue (Vic) 2004 ATC 4644 at 4656 [55].
7. Neil John Broekhuizen, a director of Affinity and managing partner of one of the investment managers was cross-examined in relation to some of the scenarios that arrived at percentages for land holding as against all property held in excess of 80%. It was put to him that there was the risk that the Chief Commissioner would have regarded AME and HCoA as land rich under the former legislation.
8. The scenarios in question included bed licences and goodwill as part of the land value. Their exclusion from land value and their inclusion in non-land property, as they should have been, meant that Mr Broekhuizen's expectation that the companies were not land rich was correct.
When did the acquisitions occur?
9. The Duties Act 1997, s 112(1) provided that a person acquired an interest in a land rich landholder if the person obtained an interest or the person's interest increased, regardless of
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how it was obtained or increased. Section 111(1) defined an interest in terms of an entitlement to a distribution from the landholder. It was in the following terms:``A person has an interest in a landholder if the person has an entitlement (otherwise than as a creditor or other person to whom the landholder is liable) to a distribution of property from the landholder on a winding up of the landholder or otherwise.''
10. Affinity submitted that it acquired its interest in AME and HCoA when it entered into the share and asset sale deed on 21 October 2003 because it was then that Affinity obtained an equitable interest in the shares sufficient to prevent the companies distributing their assets otherwise than in accordance with the contract.
11. If this argument is correct, the amended legislation did not apply to Affinity because it acquired its interests in AME and HCoA before 14 November 2003 and the former legislation did not apply to Affinity because AME and HCoA were not land rich under the former definition.
12. The contract for sale of the shares was conditional upon satisfaction or waiver of all conditions precedent. A condition precedent was the approval of the Foreign Investment Review Board to Affinity and Mayne entering into and completing the transactions.
13. That condition was not precedent to the formation of a binding contract. It was precedent to the performance of the binding contract for sale of the shares that arose upon execution of the share and asset sale deed (
Perri v Coolangatta Investments Pty Ltd (1982) 149 CLR 537 at 551-552, 557, 564-565).
14.
FC of T v Sara Lee Household & Body Care (Australia) Pty Ltd 2000 ATC 4378; (1999-2000) 201 CLR 520 concerned the Income Tax Assessment Act 1936 (Cth), s 160U(3) which, for capital gains tax purposes, provided that where an asset was acquired or disposed of under a contract, the time of acquisition or disposal should be taken to have been the time of the making of the contract. It was held, at ATC 4385 [42]; CLR [42], that the words ``under a contract'' directed attention to the source of the obligation that was performed by the transfer of assets that constituted the relevant disposal. In general terms it may be said that the contract for sale of the shares in this case was the source of the obligation that was performed by the transfer of the shares on completion and, in general terms, it may be said that the shares were acquired under the contract for sale.
15. Affinity relied upon a line of authority that an equitable interest in property the subject of a conditional contract for sale arises in that property upon execution of the agreement.
16. There is a conflict in the authorities with respect to this issue. I referred to that conflict in
Armidale Dumaresq Council v M & P (North Coast) Pty Ltd & Anor [2005] NSWSC 628.
17. In
Brown v Heffer (1967) 116 CLR 344 at 351, Windeyer J took the view that while a vendor was not at liberty to enter into any transaction inconsistent with an obligation to perform his contract with the purchaser, the purchaser's rights to have the vendor do nothing to his prejudice were enforceable in equity by injunction, but that did not create an equitable interest in the land. A similar view was expressed by the other members of the Court at 349-350.
18. In
Legione v Hateley (1982-1983) 152 CLR 406 at 446, Mason and Deane JJ, having referred to Brown, said:
``The competing view - one which has much to commend it - is that the purchaser's equitable interest under a contract for sale is commensurate, not with her ability to obtain specific performance in the strict or primary sense, but with her ability to protect her interest under the contract by injunction or otherwise (
Tailby v Official Receiver (1888) 13 App Cas 523 at pp 546-549;
Redman v Permanent Trustee Co of New South Wales Ltd (1916) 22 CLR 84 at p 96;
Hoysted v FC of T (1920) 27 CLR 400 at p 423;
Pakenham Upper Fruit Co Ltd v Crosby (1924) 35 CLR 386 at pp 396-399; Jordan, Chapters on Equity, 6th ed (1945), p 52, n(e)). If this view were to be adopted and applied, the respondent's inability to obtain specific performance in the primary sense would not entail the loss of her equitable interest. She would retain that interest so long as she was entitled to make out a case for relief against forfeiture.''
19. Sir Frederick Jordan had said in Chapters on Equity that an agreement for valuable consideration for the assignment of property operated in equity to transfer the equitable title
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to the property to the promisee under the maxim that equity considered done that which ought to be done and that the principle was effective only in so far as the court of equity would grant specific performance of the agreement. His footnote was as follows:``Specific performance in this sense means not merely specific performance in the primary sense of the enforcing of an executory contract by compelling the execution of an assurance to complete it, but also the protection by injunction or otherwise of rights acquired under a contract which defines the rights of the parties.''
20. That proposition was criticised by Meagher JA in
Chief Commr of Stamp Duties (NSW) v ISPT Pty Ltd 99 ATC 4066 at 4077-4078; (1998) 45 NSWLR 639 at 654-655. His Honour pointed out that it could hardly be accurate, with regard to the transfer of purely equitable property, because if the entire beneficial interest went upon agreement, nothing remained in the vendor's hands even if no purchase money had been paid. That criticism was noted without comment by the High Court in
Tanwar Enterprises Pty Ltd v Cauchi (2003) 217 CLR 315 at 334.
21. Affinity had paid none of the purchase price for the shares in AME and HCoA on execution of the share and asset sale deed.
22. Nonetheless, the broader approach to the concept of specific performance was adopted by the High Court in
KLDE Pty Ltd (in liq) v Commr of Stamp Duties (Qld) 84 ATC 4793 at 4798; (1984) 155 CLR 288 at 297,
Stern v McArthur (1988) 165 CLR 489 at 522 and in
Chan v Cresdon Pty Ltd (1989) 168 CLR 242 at 253.
23. Thus it has been held that the holder of an option to purchase land has, prior to its exercise, a sufficient equitable interest to support a caveat (
Laybutt v Amoco Australia Pty Ltd (1974) 132 CLR 57 at 75,
Re Henderson's Caveat [1998] 1 Qd R 632,
Forder v Cemcorp Pty Ltd (2001) 51 NSWLR 486,
Buildev Developments Pty Ltd v PicSales Pty Ltd [2003] 11 BPR 21,445).
24. And in
Baden Pacific Ltd v Portreeve Pty Ltd (1988) 7 ACLC 194 at 199; (1988) 14 ACLR 677 at 681, Cohen J concluded that upon the execution of an agreement for the purchase of shares in a company, subject to a condition that the sale be approved in general meeting, the purchaser acquired an equitable interest in the shares.
25. But the critical question is not whether Affinity acquired an equitable interest in the shares in AME and HCoA upon execution of the share and asset sale deed, but when, in terms of the Duties Act 1997, s 111(1), Affinity acquired an entitlement to a distribution of property from the companies on a winding up or otherwise.
26. The authorities to which I have referred which speak in terms of an equitable interest arising upon execution of a conditional contract for sale are based upon the premise that equity intervenes because it would be unconscionable to allow the other party to act inconsistently with its obligations under the contract for sale. Equity acts in personam against the vendor to prevent unconscionable conduct. It goes no further. In particular, Affinity gained no entitlement to any distribution to which Mayne might be entitled on a winding up of AME and HCoA.
27. It was submitted that the Duties Act 1997, s 111(1) did not require a winding up at any particular time and there was no reason to prefer the date of completion to the date of contract because of the wording of the section.
28. The Duties Act 1997, s 120(2) specified the first step in the calculation of the entitlement of a person to participate in a distribution of the property of a landholder, whether on a winding up or otherwise. It required a calculation to be made based on a distribution carried out in accordance with the constitution of the landholder and with any law relevant to the distribution as in force at the time of the distribution, and the entitlement of the interested person was to be evaluated accordingly.
29. The Corporations Act 2001 (Cth), s 501 provided that, subject to the provisions of the Act as to preferential payments, the property of a company was, on its winding up, to be applied in satisfaction of its liabilities equally and, subject to that application, unless the company's constitution otherwise provided, was to be distributed among the members according to their rights and interests in the company. The Constitutions of AME and HCoA did not provide otherwise.
30. Thus, in order to have an entitlement to a distribution of the property of AME and HCoA
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on a winding up, Affinity had to be a member and it could not be a member unless and until the transfers of the shares were registered (Corporations Act 2001 (Cth), s 231(b)).31. In my view, therefore, Affinity did not acquire any entitlement in terms of the Duties Act 1997, s 111(1) until its name was entered on the register of members of AME and HCoA.
32. It was submitted on behalf of Affinity that there was no necessity to determine a moment in time when the entitlement arose. It was submitted that Affinity's entitlement arose over the period from execution of the share and asset sale deed to completion.
33. But the legislation required a determination of a single point in time when the acquisition of the interest occurred. The Duties Act 1997, s 115(2)(b) required a person who had made a relevant acquisition to state in the acquisition statement in relation to each interest acquired, the date on which it was acquired. Section 116 provided that a default did not occur if duty was paid within three months after the liability to pay the duty arose. Section 113 provided that the liability arose when a relevant acquisition was made. Section 118(1) required the calculation of the unencumbered value of all land holdings of the landholder in New South Wales ``calculated at the date of acquisition of the interest acquired.''
34. In my view, one must determine a single date of acquisition of an interest and that date, in terms of the Duties Act 1997, s 111(1), is when the person has an entitlement to a distribution of property on a winding up or otherwise of the landholder. That occurs only when the person is entered on the register of members of the landholder.
Retrospectivity
35. In
Phillips v Eyre (1870) LR 6 QB 1 at 23, Willes J spoke against retrospective laws. He said:
``Retrospective laws are, no doubt, prima facie of questionable policy, and contrary to the general principle that legislation by which the conduct of mankind is to be regulated ought, when introduced for the first time, to deal with future acts, and ought not to change the character of past transactions carried on upon the faith of the then existing law.''
36. Dixon CJ put it thus in
Maxwell v Murphy (1957) 96 CLR 261 at 267:
``The general rule of the common law is that a statute changing the law ought not, unless the intention appears with reasonable certainty, to be understood as applying to facts or events that have already occurred in such a way as to confer or impose or otherwise affect rights or liabilities which the law has defined by reference to the past events but, given rights and liabilities fixed by reference to past facts, matters or events, the law appointing or regulating the manner in which they are to be enforced or their enjoyment is to be secured by judicial remedy is not within the application of such a presumption.''
37. Reference may also be made to
Fisher v Hebburn Ltd (1960) 105 CLR 188 at 194,
Yew Bon Tew v Kenderaan Bas Mara [1983] AC 553 at 558, and
Wilson v First County Trust Ltd (No 2) [2004] 1 AC 816 at [193]-[196].
38. Examples of the application of the principle to particular statutes may be found in Gilmore v Shuter (1679) Jo 108 (84 ER 1170),
In re Athlumney, Ex parte Wilson [1898] 2 QB 547 and
Ku-ring-gai Municipal Council v Attorney-General for the State of New South Wales (1957) 99 CLR 251.
39. The Interpretation Act 1987, s 30(1) contains similar provisions with respect to amendments to legislation. The amendment of an Act does not affect the previous operation of the Act or anything duly suffered, done or commenced under the Act, and does not affect any right, privilege, obligation or liability acquired, accrued or incurred under the Act.
40. In my view, however, the Duties Amendment (Land Rich) Act 2003 operated retrospectively only to a limited extent, and the intention that it should, appears with reasonable certainty from the Act.
41. Duty was imposed under the Duties Act 1997 before the amendments when a relevant acquisition was made. That position was not altered by the amendments. The replacement s 113 was in identical terms. Affinity had not made a relevant acquisition prior to the amendments. Its relevant acquisition occurred when it was entered on the register of members of AME and HCoA. That relevant acquisition occurred after 14 November 2003. In this respect, the Duties Amendment (Land Rich) Act 2003 operated prospectively.
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42. The limited extent to which the Duties Amendment (Land Rich) Act 2003 operated retrospectively, was limited to relevant acquisitions made between 14 November 2003 and 27 November 2003 when the Duties Amendment (Land Rich) Bill 2003 received royal assent. Nothing turns on that circumstance in this case.
The discretion
43. Both before and after the amendments, there was a general power in the Chief Commissioner to exempt an acquisition from the operation of the land rich provisions. The Duties Act 1997, s 119(2) was, after the amendments, in the following terms:
``An acquisition by a person of an interest in a landholder is an exempt acquisition if the Chief Commissioner, being satisfied that the application of this Part to the acquisition in the particular case would not be just and reasonable, so determines.''
44. Affinity sought the Chief Commissioner's exercise of discretion under this provision. He refused to do so.
The nature of the review
45. In
Avon Downs Pty Ltd v FC of T (1949) 9 ATD 5 at 10; (1949) 78 CLR 353 at 360, Dixon J analysed the circumstances in which a Court could review a decision of the Commissioner of Taxation:
``But it is for the Commissioner, not for me, to be satisfied of the state of the voting power at the end of the year of income. His decision, it is true, is not unexaminable. If he does not address himself to the question which the sub-section formulates, if his conclusion is affected by some mistake of law, if he takes some extraneous reason into consideration or excludes from consider- ation some factor which should affect his determination, on any of these grounds his conclusion is liable to review....''
46. The Chief Commissioner submits that this approach should be adopted in the instant circumstances.
47. Dixon J was concerned with the Income Tax Assessment Act 1936-1944 (Cth). Section 187 gave a taxpayer the option to refer an adverse decision on a notice of objection to a Board of Review, for review, or to treat the objection as an appeal and forward it either to the High Court or to the Supreme Court of a State. There was a difference in the nature of the review or appeal. Under s 193(1), a Board of Review, subject to exceptions, had all the powers and functions of the Commissioner of Taxation in making assessments, determin- ations and decisions under the Act and its decisions upon review were deemed to be the assessments, determinations or decisions of the Commissioner of Taxation. On the other hand, s 200(1) provided that the Court hearing the appeal might make such order as it thought fit and might by such order confirm, reduce, increase or vary the assessment.
48. The deliberate contrast in the powers of the Court on the one hand and the Board of Review on the other, led Dixon J to his conclusion that a Court's powers of review were limited. The question is whether this Court's powers of review are likewise limited.
49. In
Tsai Mei-Lan Lee v Commr of State Revenue (NSW) 99 ATC 4042, Sperling J considered the forerunner of the Duties Act 1997, s 119(2). At that time, the Taxation Administration Act 1996, s 96(1) provided that a taxpayer might appeal to the Supreme Court if dissatisfied with the Chief Commissioner's determination of the taxpayer's objection. The Supreme Court Rules 1970, Pt 51A, which applied to such an appeal, did not specify the nature of the appeal. At 4047-4048, Sperling J noted these provisions and that there was a body of law as to the nature of appeals from an administrative decision where there was no express statement in the relevant legislation as to the nature of the appeal. His Honour cited the passage from Avon Downs as well as other decisions relating to appeals from taxation decisions.
50. At the time of the decision in Lee, the Stamp Duties Act 1920, s 124A was in the following terms:
``(1) An appeal to the Supreme Court under this Part is by way of rehearing of the original objection to the Chief Commissioner and is limited to the grounds of the original objection.
(2) On giving its decision, the Court may determine the amount of any duty payable as a result of the decision (including any fine).
(3) This Act applies to the Court's assessment of duty or decision with respect to the refunding of duty in the same way as it applies to the assessment of duty, or
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calculation of the amount of duty to be refunded, by the Chief Commissioner.''
51. On appeal from Sperling J, the Court of Appeal in
Chief Commr of State Revenue (NSW) v Tsai Mei-Lan Lee 2000 ATC 4600 held that Sperling J should have relied upon the Stamp Duties Act 1920, s 124A(1) and exercised the Chief Commissioner's discretion afresh.
52. The Stamp Duties Act 1920 has, of course, been repealed. The present arrangements for appeals are contained in the Taxation Administration Act 1996. A taxpayer dissatisfied with a decision of the Chief Commissioner on a notice of objection may either apply to the Administrative Decisions Tribunal for review of the decision under s 96(1), or may apply to the Supreme Court for a review of the decision under s 97(1). The powers of the Court or Tribunal on review are contained in s 101(1):
``The court or tribunal dealing with the application for review may do any one or more of the following:
- (a) confirm or revoke the assessment or other decision to which the application relates,
- (b) make an assessment or other decision in place of the assessment or other decision to which the application relates,
- (c) make an order for payment to the Chief Commissioner of any amount of tax that is assessed as being payable but has not been paid,
- (d) remit the matter to the Chief Commissioner for determination in accordance with its finding or decision,
- (e) make any further order as to costs or otherwise as it thinks fit.''
53. The Taxation Administration Act 1996, s 97(4) provides that a review by the Supreme Court is taken to be an appeal for the purposes of the Supreme Court Act 1970 and the regulations and rules made under that Act, except as otherwise provided by that Act or those regulations or rules.
54. I have already pointed out that the Supreme Court Rules 1970, Pt 51A do not prescribe the nature of the review by the Court. Nor is the matter taken further by the Supreme Court Act 1970, s 75A which applies to an appeal to this Court. Section 75A(5) provides that where the decision or other matter under appeal has been given after a hearing, the appeal shall be by way of rehearing. I doubt that that provision was intended to apply to a decision by the Chief Commissioner on a notice of objection. In any event, s 75A(4) provides that the section has affect subject to any Act, and the Taxation Administration Act 1996, s 101 defines the powers of the Court and Tribunal in relation to a review.
55. Unlike the Stamp Duties Act 1920, s 124A, the Taxation Administration Act 1996, s 101 does not say that the review is by way of rehearing. But it does say that the Court or Tribunal may replace the Chief Commissioner's assessment or decision by its own assessment or decision and that makes the Court's powers very different from the limited powers of the Court to which Dixon J gave consideration in Avon Downs.
56. The Chief Commissioner submitted that while it was open to the Tribunal to make an assessment or decision in the place of those of the Chief Commissioner, I should construe the Taxation Administration Act 1996, s 101(1)(b) as limited to the powers of the Tribunal and as inapplicable to the powers of the Court. It was submitted that the Tribunal was established as a body competent to engage in merit review. It is not bound by the rules of evidence and may inquire into any matter in such manner as it thinks fit, subject to the rules of natural justice (Administrative Decisions Tribunal Act 1997, s 73). It is required to deal with matters according to considerations of efficacy, effectiveness, accessability and fairness (Administrative Decisions Tribunal Act 1997, s 3). Since it is required to decide the correct and preferable decision (Administrative Decisions Tribunal Act 1997, s 63), the Tribunal stands in the shoes of the administrative decision maker.
57. But against those considerations, is the clear language of the Taxation Administration Act 1996, s 101(1). It provides that the Court or the Tribunal may do any one or more the specified actions. And that clear language is not to be cut down, in my view, by any of the considerations of the functions and purpose of the Tribunal.
58. In my view, the Court is empowered by the Taxation Administration Act 1996, s 101(1) to take any of the specified actions stated therein and is not limited to a review of the Chief Commissioner's exercise of discretion in terms of the principles stated by Dixon J in
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House v R (1936) 55 CLR 499 at 504-505. I propose to consider afresh the exercise of discretion under the Duties Act 1997, s 119(2).
The exercise of discretion
59. Lee was a case in which the effect of the land rich provisions was to require duty to be paid in an amount in excess of that which would have been payable if the underlying land had been transferred. Priestly JA developed three propositions with respect to the forerunner of the Duties Act 1997, s 119(2) which was then s 99F(3):
``(1) Division 30 was inserted in Pt III of the Act in 1987 to deal with a very particular kind of transaction; namely, one in which shares in a land- owning company were sold and the sale attracted less duty or tax than would have been the case if the land held by the company had been sold, the sale of the shares effecting much the same results so far as the human parties involved were concerned in substance as if the land itself had been sold. The basic idea of the Division was to ensure that transactions by way of sale of shares which had the substantive effect of transferring the ownership of land or an interest in land would bear the rate of duty that the sale of the land or the interest in land itself would have attracted.
(2) Within s 99F itself, the grant of the discretion to the Chief Commissioner in subsection (3) recognised that the widely drawn provisions of Division 30 will bring within their operation transactions which the basic purpose of the Division was not aimed at. The existence of the discretion showed that the legislature (or the legislation) intended that there would be some cases which would not attract the whole duty which would be payable if the discretion were not there and were not exercised.
(3) From this it seems to follow that the discretion ought to be exercised in such a way as to prevent any assessment of the amount of duty payable by the operation of Division 30 being greater than the amount that would have been payable if the land or the interest in the land had been transferred directly rather than indirectly by the share transaction.''
60. It was submitted on behalf of the Chief Commissioner that this was not such a case and the discretion ought not to be exercise in favour of Affinity for that reason.
61. On the other hand, it was submitted on behalf of Affinity that the discretion was expressed in general terms and should not be read down. I do not regard Priestly JA as having done so. His Honour was dealing with the obvious case for the exercise of the discretion. He did not have in mind the prospect of amending legislation with a retrospective commencement date and its effect upon transactions binding upon purchasers to make relevant acquisitions of interests in land rich landholders.
62. It was submitted that Affinity was caught by the amendments. It had no prior warning that the amendments might catch its transaction. It was bound by the contract for sale of the shares and could do nothing about it when the Duties Amendment (Land Rich) Bill 2003 was introduced to the Legislative Assembly.
63. The only forewarning of the amendments to the legislation was the Treasurer's budget speech of 24 June 2003 and the budget statement. In his speech, Mr Egan said that the budget contained new tax measures which would raise an estimated $32 million in the coming year and included:
``$30 million from amendments to the Duties Act to overcome stamp duty avoidance practices by some unit trusts and corporations.''
The budget statement contained the following:
``Transfer Duty - Base Protection
A growing number of transactions and mechanisms involving companies and unlisted unit trusts are being used to avoid paying stamp duty on the acquisition of interests in land. Estimated revenue forgone is at least $24 million annually.
The Treasury is developing more comprehensive measures to protect the revenue base. Relevant parties in the property industry are being consulted to ensure that provisions will not unnecessarily impede business activity.''
Neither Affinity nor the consortium investment managers were consulted.
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64. The papers written by the solicitors on the possible application of the land rich provisions to the proposed acquisition of the issued capital of AME and HCoA of 3 October 2003 and 9 October 2003 stated:
``9 Change of Law
9.1 As previously advised, Western Australia has introduced legislation to change the way in which land-rich duty is calculated. In particular, the 80% threshold is proposed to be reduced to 60%. This would make both HCoA and AME land-rich in Western Australia. It is not certain when these changes will be implemented, although rumours suggest 1 January 2004.
9.2 Also, the New South Wales government has announced changes will be made to the NSW land-rich provisions. The nature of these changes is not known, but is rumoured to involve removal all-together of the 80% threshold. If these changes are implemented prior to completion then land-rich duty will be payable in New South Wales.''
65. Both Mr Broekhuizen and Adrian Gordon MacKenzie, the negotiator on behalf of another of the consortium investment managers, said they noted that, unlike the position in Western Australia, the amendments to the New South Wales legislation were only rumoured and they considered that if any changes were effected, it was unlikely that they would be done in time to affect their transaction.
66. On 5 November 2003, the State Chamber of Commerce (NSW), amongst other organisations, issued a media release in which they referred to the proposed change of the threshold in New South Wales from 80% to 60% and an article appeared in the Australian Financial Review on 7 November 2003, speaking of this proposed reduction. By that time, however, Affinity had executed the share and asset sale deed and was bound by its terms.
67. Had FIRB approval been received as contemplated by 31 October 2003 and completion had been advanced to that date, Affinity would not have been bound by the new provisions introduced by the Duties Amendment (Land Rich) Act 2003. FIRB approval was not received until 30 November 2003 and completion took place immediately thereafter.
68. It was submitted on behalf of the Chief Commissioner that Affinity could have taken steps to obtain FIRB approval at an earlier date. But the only evidence on this topic from Mr Broekhuizen, which I accept, was that any attempt to do so was likely to be counterproductive.
69. In my view, there was nothing that should have alerted Affinity to the prospect that the threshold for a land rich landholder in New South Wales would be reduced from 80% to 60% before it bound itself to the contract for sale of the shares in AME and HCoA. It was entitled to enter into the share and asset sale deed in the expectation that land rich duty would not be payable by it since the 80% threshold would not be exceeded. That the Duties Amendment (Land Rich) Act 2003 applied to render Affinity liable to land rich duty upon the reduction of threshold in circumstances where there was nothing that Affinity could do to avoid its obligations under the agreement for sale of the shares meant, in my view, that the application of the land rich provisions to its acquisition would not be just and reasonable.
70. It was submitted on behalf of the Chief Commissioner that to exercise the discretion under the Duties Act 1997, s 119(2) in favour of Affinity, would be acting contrary to the clear intention of Parliament and would be over- riding the plain purpose and primary object of the amendments. This intention, it was submitted, was to be gleaned from the unusual provision for the commencement of the Duties Amendment (Land Rich) Act 2003 as the day on which the Duties Amendment (Land Rich) Bill 2003 was introduced to the Legislative Assembly together with the absence of a transitional provision exempting current transactions binding a party to a future relevant acquisition of an interest in a land rich landholder from the operation of the amended provisions. It was submitted that the intention was to subject all existing arrangements that had not reached the stage of a relevant acquisition, to land rich duty.
71. In my view, no such intention can be gleaned from those circumstances. True it is that the Duties Amendment (Land Rich) Act 2003 was to have effect retrospective to the date the Duties Amendment (Land Rich) Bill 2003 was introduced to the Legislative Assembly. But the new provisions repeated the general discretion to exempt transactions from its operation in s 119(2). Any transitional provisions would have been superfluous and
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any injustice or unreasonableness flowing from the retrospective commencement date, could be remedied under that general discretion.Conclusion
72. In my view, the Chief Commissioner should have exercised his discretion under the Duties Act 1997, s 119(2) and determined that Affinity's acquisition of the shares in AME and HCoA were exempt acquisitions. In terms of the Taxation Administration Act 1996, s 101(1)(b), I propose to make that decision in place of the Chief Commissioner's decision not to exercise the discretion in favour of Affinity.
73. I will hear the parties on the appropriate terms of orders and I will hear the parties on costs. I direct the parties to bring in short minutes of orders reflecting these reasons.
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