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CHIEF COMMISSIONER OF STATE REVENUE (NSW) v PACIFIC NATIONAL (ACT) LIMITED

Judges: Hodgson JA
Ipp JA

Basten JA

Court:
New South Wales Court of Appeal

MEDIA NEUTRAL CITATION: [2007] NSACA 325

Judgment date: 16 November 2007

Basten JA

50. Between 1 July 2000 and 31 December 2003 the Respondent made payments in excess of $ 162 million to Rail Infrastructure Corporation ( " RIC " ) pursuant to an access agreement which allowed the Respondent to operate rail services on railway tracks owned by RIC. On 3 September 2004 the Appellant ( " the Commissioner " ) issued an assessment of duties payable on the agreement in an amount of $ 736,614.44, to cover the period referred to above. The question on the appeal was whether the Respondent was liable to pay duty on the access agreement.

51. According to the Commissioner, the access agreement was subject to duty pursuant to Chapter 5 of the Duties Act 1997 (NSW) as a " lease instrument " : s 164. The person liable to pay the duty was the lessee: s 168. Although the access agreement was not a lease in the ordinary sense of that term, the Commissioner asserted that it fell within the extended definition of " lease " in s 164(b) of the Act (as it then was) which read as follows:

" (b) an agreement (such as a licence) by which a right to use land in New South Wales at any time and for any purpose is conferred on or acquired by a person (who is taken, for the purposes of this Chapter, to be a lessee of the land) … . "

52. The Respondent argued that it had no liability, for two primary reasons. The first was that it had no interest in land, but only in what were described in the Transport Administration Act 1988 (NSW) as " rail infrastructure facilities " . It was an agreed fact that those facilities were on land which was mostly land vested in the State Rail Authority, but was in any event not land vested in RIC. Accordingly, the Respondent contended that RIC could not have (and did not purport to) grant any right to use land. Secondly, it contended that, in so far as it did use land, it did so pursuant to the terms of the Transport Administration Act , and not pursuant to the access agreement.

53. The primary judge, Gzell J, upheld each of the arguments put forward by the Respondent and revoked the assessment made by the Commissioner: see
Pacific National (ACT) Ltd v Chief Commissioner of State Revenue 2007 ATC 4459 ; [ 2007 ] NSWSC 332 . In my view his Honour was in error in each respect and the appeal should be upheld.

Right to use land

54. The dutiable instrument was the " Rail Access Agreement " , originally executed on 1 July 1996 by the Respondent (then known as National Rail Corporation Ltd) and a predecessor of RIC, namely Rail Access Corporation (referred to in the agreement as " Rail Access " ). The agreement was renewed on 1 July 1997, with amendments and it was the renewed agreement which was apparently in operation throughout the relevant period. The key operative clause in the agreement was clause 2.4 which provided as follows:

" 2.4 Grant of Access Rights

  • (a) Rail Access grants to National Rail the Access Rights on the terms of this Agreement.
  • (b) The Access Rights granted under clause 2.4(a):
    • (i) are non-exclusive contractual rights;
    • (ii) are for the rights set out in the Train Specification ( Schedule D ), as determined under clause 3.2(f) or agreed under clause 3.3; and

    • ATC 5210

      (iii) are for Train movements under clause 2.4(b)(ii) where those Train movements are running early or late relative to the Train Path.
  • (c) Rail Access will provide the Ancillary Services set out in Schedule L upon payment by National Rail to Rail Access of the relevant charges. "

55. Nothing turned on the right to ancillary services, which may be disregarded. The term " Train Specification " referred to certain technical specifications of trains and their operation, and also to " the timetable maintained by or for Rail Access of all scheduled Train Paths of the Operator on the NSW Rail Network " : see Dictionary of Terms and Interpretation, being Schedule 1 to the access agreement, at p 11. The term " Train Path " was defined to mean " the series of track segments over a particular time interval through which a train can travel and may include stopping points and intervals and fuelling stations and other set down or changeover points " . The term " track " was also defined:

" ' Track ' means the rails, ballast sleepers and all items used to fix the rails to the sleepers and to the ground underneath. "

56. The Respondent was at pains to emphasise that RIC did not " own " the " ground underneath " . Rather, that which was vested in it was that identified as " rail infrastructure facilities " which were affixed to the " ground " . Thus, Schedule 6A, clause 2 of the Transport Administration Act relevantly provided at all material times (although the numbering of the sub-clauses varied):

" (2) RIC is the owner of all rail infrastructure facilities installed in or on land, in or on rivers and other waterways and in or on the beds of rivers and waterways by RIC and of all infrastructure facilities vested in or transferred to RIC (whether or not the place on which the facilities are situated is owned by RIC). "

57. The term " rail infrastructure facilities " was defined (either in s 19A or, later, in s 3 of the Transport Administration Act ):

  • " (a) includes railway track, associated track structures, over track structures, cuttings, drainage works, track support earthworks and fences, tunnels, bridges, level crossings, service roads, signalling systems, train control systems, communication systems, overhead power supply systems, power and communication cables, and associated works, buildings, plant, machinery and equipment, but
  • (b) does not include any stations, platforms, rolling stock, rolling stock maintenance facilities, office buildings or housing, freight centres or depots, private sidings or spur lines connected to premises not vested in or owned by or managed or controlled by [ RIC ] . "

58. It may be appreciated that most, if not all, of the matters described as railway infrastructure facilities, would normally constitute fixtures and would therefore fall within both the general law and statutory definitions of " land " : see, eg,
Australian Provincial Assurance Co Ltd v Coroneo (1938) 38 SR (NSW) 700, 712-713 (Jordan CJ, Davidson and Nicholas JJ agreeing), and the Law of Property Act 1925 (UK), s 205. Thus, in the agreement, there is express recognition that the " track " is fixed to the ground underneath and that all " items " used to affix the rails in that manner were part of the " track " . To similar effect, the definition in Schedule 6A, clause 2 expressly recognises that infrastructure facilities are installed both " in " and " on " land. These features give rise to two questions, namely:

  • (a) do they confer on RIC some legal interest in the land to which the facilities are affixed, and
  • (b) even if the answer to (a) is no, are rail infrastructure facilities nevertheless, in part or in whole, " land " owned by RIC?

59. Answers to those questions were sought to be derived from two judgments of the High Court relating to gas mains and pipes, namely
North Shore Gas Co Ltd v Commissioner of Stamp Duties (NSW) (1940) 63 CLR 52 and
Commissioner of Main Roads v North Shore Gas Co Ltd (1967) 120 CLR 118 . In the earlier case, the question was whether gas mains and pipes installed under roads, which were sold as part of the undertaking of a gas company, constituted chattels, so that to the extent they were separately valued as part of the agreement,

ATC 5211

that part was not subject to duty. The Court unanimously held they were not chattels. As explained by Dixon J at p 67:

" Ordinarily when the chattel elements by which a permanent system or apparatus is formed are assembled and embedded in the soil or established as part of a building they lose their independent nature and for the purpose of the law take on the character of land. Thus, if the land in which the mains were laid had belonged to the company for an estate in fee simple or for any less estate or interest and the company had not acted under its special statutory powers, the mains until removed would have formed part of the realty. "

60. However, as his Honour further noted, the pipes and mains were not placed in land owned by the gas company, but in land owned by a third party, namely the road authority; nevertheless, property in the pipes and mains remained in the gas company as did the right to remove them from the land. Dixon J continued at pp 69-70:

" There is therefore no doubt about the purpose, the degree nor the enduring nature of fixation of the pipes or their identification with the soil. So much of the earth as the pipes displaced formed a space in the occupation of the company and that space constitutes land. The company ' s occupation of the space is as of right and is exclusive. "

61. The Court held that the pipes and mains, whilst in situ, were not chattels or tangible moveables and were therefore not exempt from duty. The fact that, by statute, they remained the property of the company, so that ownership did not vest in the owner of the soil, did not mean that they retained their character as chattels. As Rich J explained at p 62:

" The statute prevents many of the consequences which would ensue from such a transition from the category of chattels personal to that of land, but it stops short of preventing the transition itself. "

62. The later North Shore Gas case involved the acquisition of land, including land in which lay pipes owned by the gas company, for the Warringah Expressway; the issue was whether there had been an acquisition of an interest in land held by the gas company. The Court held that there had not and treated remarks in the judgments of Rich and Dixon JJ in the earlier case as both obiter and incorrect. The joint judgment (of Barwick CJ, McTiernan, Kitto and Taylor JJ), in casting doubt on the proposition that the gas company obtained some legal interest in the land in which the pipes lay, asked " why should it be assumed that the exercise of a specific statutory right to lay and maintain pipes, as in the present case, operates to vest in the donee of the power an interest in the land in which the pipes have been laid? " The judgment continued (p 127):

" The conclusion that it does seems to us to result from a lawyer ' s inherent tendency to assimilate such a right to some category known to the common law. It is, of course, a very special right. "

63. Their Honours (at pp 127-128) preferred and adopted the reasoning of Evershed J in
Newcastle-under-Lyme Corporation v Wolstanton Ltd [ 1947 ] Ch 92 where, in relation to a similar statutory right to lay pipes or cables, his Lordship reached the following conclusion (at p 104):

" It follows that, if I am right so far, the interest of the undertakers must be that of licensees without any title, legal or equitable, in the land itself. "

The interests of the gas company were thus assimilated to a different common law category.

64. The objection to the adoption of common law categories is made clear in the judgment of Windeyer J. He too stated (p 131):

" It seems to me futile really to try to classify and describe the respondent ' s rights in respect of mains and pipes under streets and roads according to the traditional categories and terminology of the law of real property. "

The reason for avoiding established categorisation is because the focus is not on the description which may be said to engage, at least by analogy, the category in question, but the consequences which flow from the adoption of a particular category.

65. Windeyer J was in no doubt that the gas company was, absent statutory provision to the contrary, in occupation of the land where the pipes lay, for rating purposes: pp 131-132. He continued:

ATC 5212

" To my mind it is pedantic logic-chopping to suggest that because a pipe is hollow the space of the earth which it occupies when embedded in the soil is not ' land ' .

66. However, he did not accept that because the gas company was in occupation of land it therefore had an interest or estate in land, in the general law sense, even though its right could not be reduced to that of a revocable licence. He continued (p 133):

" However there is here an analogy to an easement as known to the common law; and if it be necessary to [ give ] some name to the right in relation to land which the respondent enjoyed, it was what is nowadays very often called a ' statutory easement ' . "

67. Noting that an Act creating a right need not, and in the present case did not, give the rights any particular name, he noted that " the respondent hopes that by putting some known label on them they will be shown to create an ' estate ' or ' interest ' in ' land ' within the meaning of the Public Works Act " . His Honour concluded (p 134):

" It is thus, I think, fallacious to say that because the privilege of the respondent can be called, or miscalled, an ' easement ' the rights of the gas company are an incorporeal hereditament and therefore an estate or interest in land. "

68. To derive any answer to the present question from the two North Shore Gas Co cases would be to overlook the basic principle for which they stand. 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.

69. Importantly for present purposes, the Transport Administration Act does not confer on RIC any express power to establish or operate rail infrastructure facilities in or on the land of another. Rather, it confers ownership of all such facilities which are installed in or on land by RIC or which are vested in or transferred to RIC, without regard to the ownership of the " place on which the facilities are situated " : Schedule 6A, clause 2(2). To the extent that rail infrastructure facilities are situated on land owned by another party, there will be a statutory reversal of the common law principle which would vest ownership of the facilities affixed to the land in the owner of the land. It may be that RIC thus obtained an interest in that stratum of the solid surface of the earth which itself comprises part of the rail infrastructure facilities and the space above the physical facilities, to the extent necessary to carry out the ordinary operations of a railway business: see
Bernstein of Leigh (Baron) v Skyviews & General Ltd [ 1978 ] QB 479 (Griffiths J);
Bendal Pty Ltd v Mirvac Project Pty Ltd (1991) 23 NSWLR 464 (Bryson J) and
LJP Investments Pty Ltd v Howard Chia Investments Pty Ltd (1989) 24 NSWLR 490 .

70. Whether that is the correct conclusion may depend upon the relationship between RIC and the owner of the underlying land, which is said (usually but not universally) to be the State Rail Authority of New South Wales ( " the SRA " ). Beyond that fact, little is known about the relationship. For example, Schedule 6A, clause 2 of the Transport Administration Act envisages that rail infrastructure facilities will be installed by RIC or vested in or transferred to RIC. Each of these concepts implies a contractual arrangement or a conveyance the terms of which are not defined by the statute. It would be unfortunate if this case sought to identify such terms, in the absence of relevant evidence, in such a way as might affect the relationship between RIC and the SRA. Nor is it necessary to do so, as may appear from the terms of the Duties Act relevant in the present circumstances. What the Transport Administration Act does provide is a right in RIC, in accordance with its objectives and functions, to " hold, manage, maintain and establish rail infrastructure facilities on behalf of the State " : s 19E(2). The nature of the relationship between RIC and the land owner is to some extent governed by the terms of Schedule 6A and perhaps by regulations made pursuant to clause 15 of the Schedule 6A: however, the parties placed no emphasis on these matters. It may be noted that Schedule 6A now contains a clause 13A pursuant to which RIC is empowered to " acquire " rail infrastructure facilities and to do so pursuant to

ATC 5213

the Land Acquisition (Just Terms Compensation) Act 1991 (NSW). Whether the express provision that " a reference in that Act to land includes a reference to rail infrastructure facilities and any interest in such facilities " (sub-cl 3(a)), and the provision that the clause applies " in respect of rail infrastructure facilities severed from the land by operation of this Act or any other law " (sub-cl (8)), imply that rail infrastructure facilities would not otherwise constitute " land " for those purposes was not addressed and may be put to one side.

71. There are also possible indications in Schedule 6A that RIC, as the owner of rail infrastructure facilities is the holder of an interest in land. Thus, clause 3 permits an " infrastructure owner " (defined in clause 1 to mean an owner of rail infrastructure facilities) to enter and occupy, amongst other areas, " land adjacent to railway land " . Subclause 3(6) provides:

" (6) In this clause:

land adjacent to railway land means land that is adjacent to or adjoins land owned or occupied by a rail authority, or land in or on which rail infrastructure facilities are or a railway building is situated in which an infrastructure owner or a building owner has an interest by way of easements or stratum parcel. "

72. The reason why these questions may be avoided is that the liability to pay duty on the agreement does not depend on the lessee having any estate or interest in the land, but arises if the agreement confers or gives rise to a " right to use land " . It was the unanimous view of the High Court in
Commissioner of Main Roads v North Shore Gas Co Ltd that the gas company had the right to use the land by laying pipes in it. The joint judgment accepted the description of the company as having an interest of a " licensee " ; Windeyer J referred to the company ' s " right of occupation " . There can be no doubt that RIC, having ownership of rail infrastructure facilities, including tracks, and their supports, has a right of occupation of land not merely for the purpose of occupying the land by holding and maintaining the facilities, but also to the extent necessary to allow for their use by rolling stock.

73. Definitions of ' land ' often encompass both the physical nature of land and the legal concept of rights in the physical resource. Thus, as noted by Professor Butt in Land Law (4th ed, Lawbook Co, 2001) p 8:

" The Oxford English Dictionary gives the primary meaning of ' land ' as ' the solid portion of the earth ' s surface, as opposed to sea, water ' . This may accord with the term ' s everyday meaning, but it is not an adequate definition for legal purposes. In law, ' land ' is not restricted to the earth ' s surface, but extends below and above the surface. Nor is it confined to solids, but can encompass such things as gases and liquids.

In its common law meaning, ' land ' is an area [ sic ] of three-dimensional space, its position identified by natural or imaginary points located by reference to the earth ' s surface. This three-dimensional space may include the earth ' s surface, or it may be wholly above it or wholly below it. It may have physical contents or it may be a void, for any three-dimensional quantum of the space - even airspace - can be ' land ' . "

74. The same concept is to be found in K. Gray and S. Gray, Elements of Land Law (4th ed, OUP, 2005) at [ 1.40 ] :

" As a matter of strict definition ' land ' may include a cubic quantum of airspace which is separate from the physical solum. From this there follows the initially improbable notion that an individual can literally own an estate in thin air - a proposition which neatly gives the lie to any assumption that land is necessarily a tangible resource. A three-dimensional quantum of airspace can exist as an ' independent unit of real property ' . Such airspace can be conveyed in fee simple; it can be leased; it can be subdivided; it can even be subjected to land taxes. "

Indeed, the one thing which probably cannot constitute " land " for any practical legal purpose is a two-dimensional plane forming the earth ' s surface. It is only a cubic dimension which can be utilised. A boundary may have two dimensions, but not land.

75. Land may in some contexts include the seabed:
Goldsworthy Mining Ltd v Federal Commissioner of Taxation 73 ATC 4010 ; (1973) 128 CLR 199 . As noted by the High Court in
Risk v Northern Territory of Australia (2002) 210 CLR 392

ATC 5214

(Gleeson CJ, Gaudron, Kirby and Hayne JJ), a case involving a claim under the Aboriginal Land Rights (Northern Territory) Act 1976 (Cth), the claim, if granted, would encompass parts of the seabed. The joint judgment noted at [ 31 ] :

" It would follow that, if granted, the claimants ' interest in the seabed would, on its face, appear to permit them to control access to the superjacent waters. "

Their Honours continued at [ 32 ] :

" … [ I ] t may be observed that there is nothing in the Land Rights Act which appears to limit the rights of the holder of an estate in fee simple in land granted under the Act to rights over only the solid substance of the earth ' s crust, as distinct from those parts of the superjacent fluid (be it liquid or gas) which can ordinarily be used by an owner. "

76. In the present case, it may be accepted that there has been, pursuant to statutory authority, a division of ownership between parts of the land and objects which would normally constitute parts of the land, such as fixtures and structures which become part and parcel of the land. How that separation has been effected is a matter which was not addressed in the evidence. For example, a tunnel may include an open space and a space filled with construction materials, such as a wall or ceiling or floor. No attempt was made to explain where the boundaries of such a tunnel lay. Rather, it appears to have been the Respondent ' s case that so much of the particular structure as lay within the ownership of the SRA might be land, whereas that part which lay within the ownership of RIC was not. However, it is trite to say that land may be divided both vertically and horizontally. There is no reason why a structure cannot be separated from the land above, below or beside it. In the general meaning of " land " the identity of the owner is rarely if ever a relevant criterion for determining whether or not the thing owned is land or not.

77. The Duties Act itself is not helpful in this respect. Although it contains, in its Dictionary, a reference to land, it merely notes that " land includes a stratum " . " Land " is also defined in s 21 of the Interpretation Act 1987 (NSW), again inclusively, by reference to " messuages, tenements and hereditaments, corporeal and incorporeal, of any tenure or description, and whatever may be the estate or interest therein " . This language does not take the matter any further: but see Butt, at [ 1601 ] .

78. There is no doubt that RIC has a statutory right to occupy land in or on which are rail infrastructure facilities which it owns. Its principal objective " is to ensure that the part of the NSW rail network vested in or owned by Rail Infrastructure Corporation enables safe and reliable passenger and freight services to be provided in an efficient, effective and financially responsible manner " : Transport Administration Act , s 19D(1). To that end, it is required to " promote and facilitate access to the part of the NSW rail network vested in " it: s 19D(2)(a). It does that by entering into access agreements which permit others to operate rolling stock on the NSW rail network. As the owner of the facilities which constitute the NSW rail network, it has statutory power to control access and to confer rights of access on operators such as the Respondent. The access agreement the subject of the present proceedings confers on the Respondent a right to use the tracks which constitute part of the NSW rail network for the purpose of operating rolling stock. Subject to the second question addressed below, as to the precise role of the access agreement in this respect, the Respondent has a right to use so much of the land as is constituted by the upper surface of the tracks and the superjacent air space to such height as is reasonably necessary for the operation of rolling stock. It matters not for that purpose whether the right should properly be understood to extend to the land on which the tracks rest or whether RIC itself has an interest in the land constituted by the space occupied by the tracks. It is sufficient that the Respondent has a contractual licence to use the overlying space. That right constitutes a right to use land for the purposes of s 164(b) of the Duties Act .

79. It is, of course, true that read literally, s 164 (and now s 164A) of the Duties Act may cover a multitude of instruments which evidence or effect a right to use land. However, in a practical sense, the kind of instrument captured may not be as wide as would appear. Thus, a ticket to enter a parking station might appear to be a " lease instrument " but it would not be chargeable, because of the exemption in

ATC 5215

s 179 of the Duties Act . A contract of employment might also provide a licence by which a right to use land is acquired, but the owner of the land (the employer) makes the payment and thus the licensee (employee) would not be subject to any cost which would be chargeable: see s 166. In any event, the argument by way of absurd examples has nothing to say about the particular exception contended for by the Respondent, based upon a division of ownership of things which might usually constitute realty in the form of structures and land. Thus, the parking station operator may equally be the owner, lessee or a licensee of the parking station.

Effect of instrument

80. The second basis upon which the Respondent sought to escape liability was that any right to use land which it might acquire for the purpose of its rail operations, was not conferred by the access agreement, but by the Transport Administration Act itself. That flowed, so it was said, from Schedule 6A, clause 5 of the Transport Administration Act , which read as follows:

" 5 Party to access agreement with owner authorised to enter railway land, railway buildings or rail infrastructure facilities

  • (1) A person who is a party to an access agreement is authorised to have access to the rail infrastructure facilities to which the access agreement relates, even if the facilities are situated in or on railway land, or to a railway building or rail infrastructure facility that is not vested in, owned by or managed or controlled by the person, if access is exercised in accordance with and as permitted by the access agreement.
  • (2) A person to whom this clause applies does not require a certificate of authority under this Schedule to enter the railway land or railway building or rail infrastructure facility concerned.
  • (3) In this clause, access agreement means an agreement, entered into by the owner pursuant to the current NSW rail access undertaking, that permits a person to operate rolling stock on the NSW rail network. "

81. Clause 5, however, confers no right on the Respondent: any right which the Respondent acquires, of a kind defined by clause 5, depends upon it entering into an access agreement with RIC. It must pay for the right which it thus acquires and agree with RIC as to the terms of the acquisition. In that respect, the right is no different in kind to the right acquired by the purchaser of any other right, power or privilege in relation to a thing or a structure. The scope of the right is defined in part by law; the power to exercise it is conferred by agreement with the owner or any person having power to confer it. Thus, the purchaser of land acquires rights in relation to the land which are defined and limited both by principles of the general law and by statute.

82. Further, the Duties Act expressly encompasses not only an agreement by which a right to use land is conferred on a person, but also an agreement by which a person acquires such a right. If there is doubt as to whether the access agreement can be described as conferring a right to use the rail tracks (and I do not think there is) it would be sufficient that the Respondent acquires the right to use the tracks by entering into the access agreement. Either is sufficient to satisfy the terms of s 164(b).

Conclusion

83. 83 It follows, in my view, that the conclusion of the trial judge to the contrary was in error. The appeal should be allowed and the orders made in the Equity Division set aside. The summons issued by the Respondent seeking orders and declarations based on the invalidity of the assessment, should be dismissed with costs. The Respondent should be ordered to pay the Appellant ' s costs in this Court.


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