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Chief Commissioner of State Revenue (NSW) v Shell Energy Operations No 2 Pty Ltd

Judges:
Kirk JA
Adamson JA
Griffiths AJA

Court:
Supreme Court of New South Wales, Court of Appeal

MEDIA NEUTRAL CITATION: [2023] NSWCA 113

Judgment date: 26 May 2023

Kirk JA

1. This appeal concerns the duty payable upon the acquisition by the respondent of all of the shares in a company said to be a " landholder " for the purposes of Chapter 4 of the Duties Act 1997 (NSW). The amount paid for the acquisition was over $160 million. That company had interests in items which formed part of three hydro-electric power stations in this State. The primary focus of the dispute is whether those interests were interests in land, or alternatively interests in goods, for the purposes of the Act - so that in either event the acquisition of the shares would be dutiable - or whether instead the interests were more properly characterised as innominate sui generis property interests, as found by the primary judge, so as not to be dutiable. The acquisition occurred before the introduction of s 147A of the Duties Act , which now provides that " land " includes anything fixed to the land.

2. The context of the dispute is the privatisation of State-owned electricity generation assets a decade ago. The Electricity Generator Assets (Authorised Transactions) Act 2012 (NSW) ( the EGA Act ) was passed in order to facilitate carrying that policy of privatisation into effect. The Act gave the Treasurer powers to transfer assets owned by the State or by State-owned entities between public sector entities and from public sector entities to the private sector. Three hydroelectric power stations were subject to the privatisation process and are now at the centre of this dispute: at Burrinjuck Dam, on the Murrumbidgee River; at Hume Dam, on the Murray River; and at Keepit Dam, on the Namoi River. Transfers of assets associated with the power stations were made pursuant to the EGA Act. Those transfers had the ultimate effect of vesting certain interests in those assets in a privately owned company, GSP Energy Pty Ltd ( GSP ).

3. The respondent is now called Shell Energy Operations No 2 Pty Ltd, but was at relevant times known as Meridian Energy Australia Pty Ltd. It acquired all the shares in GSP on 29 March 2018. The appellant, the Chief Commissioner of State Revenue ( the Commissioner ), determined that this was a " relevant acquisition " for the purposes of s 149 of the Duties Act and therefore dutiable. The Commissioner was of the view that the effect of the various instruments used to effect privatisation of the power stations was, by vesting land in GSP, to render GSP a " landholder " under Ch 4 of the Act. The Commissioner accordingly issued a Duties Notice of Assessment.

4. The respondent sought a review pursuant to s 97(1)(a) of the Taxation Administration Act 1996 (NSW), contending that the effect of the various instruments was that the items of property which were once fixtures situated at the power stations were, in law, severed from the land. The primary judge, Ward CJ in Eq, determined that application in the respondent ' s favour:
Meridian Energy Australia Pty Ltd v Chief Commissioner of State Revenue [2022] NSWSC 1074 ( PJ ). Her Honour concluded that GSP ' s interests in the assets forming part of the power stations were not interests in land. She further concluded that they were not interests in goods. Rather, they were innominate sui generis property interests. Her Honour further found that GSP ' s leasehold interests in the land upon which the assets were situated were, leaving aside the assets themselves, of no material value.

5. The Commissioner appeals from the decision below on three grounds. The first is that the primary judge erred in characterising GSP ' s interest in the power stations, other than the bare leasehold interests in the land, as in the nature of innominate sui generis property interests. The Commissioner contends that the interests were interests in fixtures and therefore in land. This issue turns upon the construction and effect of two poorly drafted statutory instruments, being vesting orders made under the EGA Act. I consider that the primary judge was correct to conclude that the property interests in the items constituting the three power stations had legally been severed from the land by the effect of the statutory vesting orders. That means Ground 1 must be rejected even though, as explained when dealing with Ground 2, I do not consider that the property interests in the severed items are innominate sui generis property interests.

6. The second ground is put in the alternative and contends in substance that if the interests were not in land then they were interests in goods for the purposes of the relevant statutory provision, and therefore were still required to be taken into account in the assessment of duty. I would uphold this ground.

7. The third ground of appeal is that the primary judge erred in determining the value of the bare leasehold interests. This ground was said to arise regardless of the outcome of Grounds 1 and 2. I would reject this ground. No relevant error is made out in her Honour ' s reasoning or conclusion.

8. In what follows I first set out the legal and factual background to these issues. I then consider the powers of the Treasurer under the EGA Act, about which there was some dispute. I then address the three grounds in turn.

Background

The legal context

9. Chapter 4 of the Duties Act , as it applied in March 2018 when the shares in GSP were acquired, was headed " Acquisition of interests in landholders " . Part 2 of that chapter was headed " Charging of duty on acquisitions of interests in landholders " . Section 148 provided that a liability for duty under that Part arose when a " relevant acquisition " is made. What constituted a " relevant acquisition " was spelt out in s 149. Part of that definition involved acquiring an interest in a " landholder " . There is no dispute that the respondent ' s acquisition of the shares in GSP was a relevant acquisition.

10. Section 155 relevantly provided, in effect, that duty was chargeable at the general rate (as set by s 32) on a relevant acquisition on the amount of the " unencumbered value of all land holdings and goods of the landholder " acquired in that transaction.

11. It is now not in dispute that some duty was payable. The respondent accepted in this Court that the acquisition was dutiable on the basis that GSP had unencumbered land holdings and goods valued at some $3.4 million. The matter in dispute is whether the interests GSP held in the three power stations generally constituted either " land holdings " or " goods " within the meaning of s 155 such that the value of those interests was dutiable. As indicated, the primary judge held that they were neither.

12. The general law relating to fixtures is an important part of the legal context here: as to which, see the useful summaries in
Vopak Terminal Darwin Pty Ltd v Natural Fuels Darwin Pty Ltd (2009) 258 ALR 89 ; [2009] FCA 742 at [50]-[72] per Lindgren J ( Vopak FCA );
SPIC Pacific Hydro Pty Ltd v Chief Commissioner of State Revenue (2021) 113 ATR 24 ; [2021] NSWSC 395 at [72]-[92] per Payne JA. There was no dispute that the things comprising the three power stations were affixed to the land and would, at general law, be fixtures. Something " annexed to the land becomes part of the land " :
Holland v Hodgson (1872) LR 7 CP 328 at 334 . Thus so long as the items constituting the power stations were affixed to the land, and subject to any contrary contractual provision, they were owned by the owner of the land.

13. The general law also recognises that things affixed by a tenant may be reclaimable by the tenant. This category is labelled " tenant ' s fixtures " and encompasses things installed by a tenant for trade, domestic or ornamental purposes: see eg Vopak FCA at [67]. It was not disputed that the items constituting the power stations were affixed for the purposes of trade. The primary judge noted at [16] that, under general law principles, " 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 " ; see further
North Shore Gas Co Ltd v Commissioner of Stamp Duties (NSW) (1940) 63 CLR 52 ( North Shore Gas (No 1) ) at 67-68 per Dixon J;
TEC Desert Pty Ltd v Commissioner of State Revenue (2010) 241 CLR 576 ; [2010] HCA 49 at [25]-[26] . Ownership of a thing affixed to the land may thus move from the tenant to the landlord when the thing is affixed, then back to the tenant if and when they exercise the right to remove those fixtures which are tenant ' s fixtures.

14. There are two further points relating to tenant ' s fixtures that are important here. First, as explained by McLelland CJ in Eq in
Cottee Dairy Products Pty Ltd v Minad Pty Ltd (1997) 8 BPR 15,611 at 15,618 :

[T]he principles relating to the removal of tenant ' s fixtures apply only to articles brought onto the relevant land and affixed by the tenant. They have no application to fixtures already forming part of the land at the commencement of the relevant tenancy. Any right of a tenant to sever and remove fixtures in the latter category must be found, if at all, in contract.

Thus a thing affixed to the land by a previous tenant or licensee cannot be reclaimed by a subsequent tenant as a tenant ' s fixture (subject to any contractual provision to the contrary).

15. Secondly, the principle relating to tenant ' s fixtures relates, as the label suggests, to tenants. The High Court said in TEC Desert at [25] that the law on such " concerns the rights of persons who have limited interests, such as life interests and leases for a term " . It is implicit in the doctrine that it does not, at least in general, encompass licensees who affix things to land - a point on which there is surprisingly little direct authority, although note
Georgeski v Owners Corporation SP49833 (2004) 62 NSWLR 534 ; [2004] NSWSC 1096 at [59]-[72] .

16. In this case there is no dispute that insofar as the items constituting the power stations were legally affixed to the land at the time of the respondent ' s acquisition in March 2018, then the ownership interests of at least some items in the power stations would fall within the notion of " land holdings " in s 155 because the right to exploit and remove the items comprising the powers stations belonged to GSP, as lessee under leases entered in 2014 for each of the power stations.

17. What was and is in dispute is whether the items constituting the power stations had legally been severed from the land by one or other of two vesting orders made under the EGA Act in 2013 and then in 2014. The primary judge accepted the respondent ' s argument that the first of those had the effect of severing the property interest in the power stations from the land, such that they were no longer fixtures, but rather they were innominate sui generis property interests. In her Honour ' s view those interests were then transferred separately to GSP by the 2014 vesting order. Those rights, her Honour held, fell outside the notions of both " land holdings " and " goods " in s 155 and so did not need to be brought to account in considering what duty was payable on the respondent ' s acquisition of the shares in GSP.

Relevant facts before 2013

18. The three power stations in question in this appeal were constructed over the course of the 20th Century. Construction of the dam at Burrinjuck began in 1907 and was completed in around 1928. Construction of the first power plant at the site began in the 1920s, and a second power station was built in the 1930s. The first power station was destroyed by flood in 1974. Construction of the Hume dam began in the 1920s and was completed in the 1930s. A power station was completed in the 1950s. Work on the Keepit dam began in 1939 and was completed by 1960, at which point the power station also came into service. Numerous works appear to have been done on each of the sites over the course of their existence. There is no clear evidence about the precise nature of such works or on whose behalf they were done.

19. The land on which the three power stations are situated is now owned by the Water Administration Ministerial Corporation ( WAMC ). Prior to 2013 the situation was as follows:

(1) As to Burrinjuck, a lease dated 6 July 1998 ( the 1998 lease ) indicates that the land was owned by WAMC at that time.
(2) As to Hume, there is in evidence a request dated 19 May 2014 made by WAMC under the Real Property Act 1900 (NSW) which seeks that it be recorded as the registered proprietor of the relevant land at the Hume power stations. The registered proprietor at that time was the Water Resources Commission, being a statutory predecessor of WAMC. The request referred to the title having been issued in 2009. This would suggest that WAMC has been the owner since at least 2009, though recorded on the register as the Water Resources Commission, despite that body having become WAMC in 1986 (see cl 10 of Sch 4 to the Water Administration Act 1986 (NSW)).
(3) As to Keepit, the evidence does not disclose ownership prior to 2013, but it was common ground between the parties that some State entity owned the land. By at least the time of the 2014 vesting order it is apparent that the land in question was owned by WAMC, because around the same time a lease was entered for the land recording WAMC as the lessor. Given that fact, given that the land for the other two power stations was owned by WAMC, and given the parties ' acceptance that some State entity owned the land, I infer that it is also likely that at least by the time of the 2013 vesting order (made on 30 July 2013) the land in question was owned by WAMC.

20. The only lease for the power station sites in evidence prior to 2014 is the 1998 lease relating to Burrinjuck. Under that lease, WAMC leased the relevant land to Pacific Power, a State corporation. The lease agreement relevantly provided in Part 12 as follows:

(1) Upon the expiration of the term of this Lease or any subsequent Lease granted pursuant to Clause 4 of this Lease, or any determination of the lease, then the Operator shall be entitled to remove all or any part of its fixtures within eighteen (18) months of the date of the expiration of the Lease.
In the event of the Operator failing to remove its fixtures within eighteen (18) months, then they shall become the property of the Corporation and Clause 6(g) of this Lease shall apply.

(2) In removing any of its fixtures, the Operator shall make good at its expense and to the satisfaction of the Corporation any damage to the site which may be caused by its removal of the said fixtures …

21. This right of removal is limited to any fixtures which Pacific Power, as opposed to any previous lessee, might have installed on the land. There is no evidence before the Court to delineate what fixtures were affixed by Pacific Power and what were affixed by any predecessor lessees.

22. I infer that there was no lease in place at Hume and Keepit power stations when the 2013 vesting order was made (and the parties proceeded on that basis). That is based in part on the fact that no such leases were in evidence where the parties presumptively have made some efforts to find relevant documents. More powerfully, as shall be seen, the 2013 vesting order manifests a significant effort having been made to identify and list important assets and rights associated with the three power stations. It lists a lease for Burrinjuck only. If leases had existed at the other two sites it is very likely that they would have been identified and listed in the vesting order. It is unknown whether there were ever leases in place at Hume and Keepit, but it is quite possible that there was not for significant periods of the operation of those power stations.

23. In 2000 a vesting order was made under the Energy Services Corporations Act 1995 (NSW) which transferred " nominated staff, assets, rights and liability of Pacific Power to Eraring Energy " . Eraring Energy had been incorporated as a statutory corporation on 1 July 2000: PJ [17]. There is no evidence before the Court of the terms of any nomination, but it was not in dispute that after this order Eraring Energy assumed the operation of the three power stations: note PJ [19].

24. It may be inferred that Eraring Energy operated the power stations at all three sites, given that the 2013 vesting order (discussed below) presupposed that that was the case. It did not appear to be disputed that Eraring Energy had the right to remove such items as it had affixed to the land at those two sites. Once again, there was no evidence before the Court delineating precisely which items fell into that category as opposed to items that may have been affixed by predecessor lessees or controllers of the sites.

25. The relevant position as at 2013 can be summarised as follows:

(1) The land on which Burrinjuck and Hume power stations were situated was owned by WAMC and it is likely that that was also the case for Keepit.
(2) The Burrinjuck power station was leased to Eraring Energy. The Hume and Keepit power stations were not the subjects of a lease.
(3) Eraring Energy operated all three powers stations.
(4) For all three power stations Eraring Energy had a right to remove at least those items that it had affixed to the land. But there is no clear evidence of what those fixtures were; it would not necessarily be all items comprising the power stations.

The privatisation process and the respondent ' s acquisition of GSP

26. The EGA Act was enacted in 2012, the long title of which says that it is an Act " to authorise and provide for the transfer of the electricity generator assets of the State " . In particular, the Act facilitated the privatisation of those assets.

27. On 30 July 2013, in furtherance of the government ' s policy of privatisation, the then Treasurer, Mr Mike Baird, made a vesting order which, on its face, was purportedly made under s 13 and Sch 4 of the EGA Act. The order was directed largely at the transfer of certain assets, rights and liabilities from Eraring Energy to a company named Green State Power Pty Ltd ( Green State Power ). Green State Power had been incorporated under the Corporations Act 2001 (Cth) as a state-owned corporation on 4 June 2013. The apparent purpose of Green State Power ' s incorporation was to create an entity in which could be vested various assets before their ultimate privatisation. The order encompassed assets at the three power stations. The text of the vesting order is considered below when addressing Ground 1.

28. On 11 July 2014 leases were executed in respect of each of the three power stations. The lessor on each lease was WAMC and the lessee was Green State Power. The leases were registered on 15 July 2014. They were expressed as commencing on 18 July 2014.

29. On 23 June 2014 the government, Green State Power and GSP entered into a sale agreement relating to the three power stations. Under that agreement GSP agreed to buy defined " Green State Power Assets " from Green State Power. It was agreed that the sale would be effected by way of a vesting order under the EGA Act.

30. On 17 July 2014 Mr Andrew Constance, the then Treasurer, made a vesting order which, like the 2013 vesting order, indicated on its face that it was made under s 13 and Sch 4 of the EGA Act. It vested various assets of Green State Power in GSP, which is referred to as " the Purchaser " in the order. Those assets included the three new leases.

31. In December 2017 the respondent entered into an agreement with the owner of the shares in GSP to acquire all the shares in that company. The acquisition completed on 29 March 2018. It is that acquisition which raises the duty question here.

Power to make the 2013 vesting order

32. The Commissioner ' s position is that the 2013 and 2014 vesting orders should not be construed as transferring to Green State Power or GSP (respectively) the property interests held by WAMC in any fixtures in the land at the three sites. He raises a preliminary point about power to make those orders. In 2013, prior to the vesting orders, WAMC owned the fixtures as the owner of the land at the three sites, save that any fixtures which were tenant ' s fixtures were subject to a right of removal. That remained true in 2014, subject to consideration of the 2013 vesting order. He submitted to this Court that the EGA Act did not authorise vesting orders dealing with the property interests of WAMC. I reject that submission.

33. The two vesting orders in question are expressed on their face as being made under s 13 and Sch 4 of the EGA Act. Section 13 provided at the relevant times that " [t]he Treasurer may make vesting orders under Schedule 4 for the purposes of an authorised transaction " . Clause 2 within Sch 4 provided:

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.

34. An electricity generator was defined in s 3 to mean " a statutory State owned corporation constituted by the Energy Services Corporations Act 1995 as an electricity generator under that Act " . Eraring Energy fell within that category: note the Energy Services Corporations (Eraring Energy) Regulation 2000 (NSW). Thus its assets could be dealt with pursuant to this power, as occurred pursuant to the 2013 vesting order. But WAMC was not an electricity generator.

35. A " transaction entity " was defined in cl 1 of Sch 1 to mean " a transaction SOC or a transaction company " each of which is defined in the same clause to mean, respectively, " a SOC established as a transaction SOC pursuant to this Act " and " a company established as a transaction company pursuant to this Act " (a SOC being a State owned corporation). Green State Power was a transaction company: PJ [25]. There is no suggestion that WAMC fell into either of these categories.

36. The respondent sought to emphasise that cl 2 in Sch 4 authorises the transfer of " assets " , where that term was defined broadly in cl 1 of Sch 1 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 … " . It argued that the reference to " future " property was broad enough to encompass the rights Eraring Energy (and then Green State Power) held to reclaim tenant ' s fixtures in the power stations. Yet the broad definition of " assets " does not alter the fact that cl 2 in Sch 4 authorises the vesting of assets, rights and liabilities of entities which do not include WAMC. The issue here is from whom the assets (etc) may be transferred, not what may be transferred.

37. The respondent also sought to rely on cl 7(2) of Sch 4, which provides that 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 " . This clause, again, does not address the issue of identifying the transferor.

38. Thus, construed by themselves, the provisions in s 13 and cl 2 in Sch 4 did not extend to authorising the transfer of property interests away from WAMC. However, if there was some other power under the Act which authorised that kind of transfer then it would not matter that they were expressed as being made under s 13 and Sch 4: note
Australian Education Union v Department of Education and Children ' s Services (2012) 248 CLR 1 ; [2012] HCA 3 at [34] .

39. The respondent sought to rely on s 7 of the EGA Act, which read:

The Treasurer has and may exercise all such functions as are necessary or convenient for the purposes of an authorised transaction. The functions conferred on the Treasurer by any other provision of this Act do not limit the Treasurer ' s functions under this section.

40. The definition of " function " in cl 1 of Sch 1 includes " a power, authority or duty " . The term " authorised transaction " was defined in ss 3-5 so as to extend to authorising the transfer of electricity generator assets between public sector agencies or to the private sector. The term " public sector agency " was defined in cl 1 of Sch 1 in a manner that would encompass WAMC, being a statutory authority representing the Crown: Water Management Act 2000 (NSW), s 371. The term " electricity generator assets " was defined in s 3 as " assets, rights and liabilities of an electricity generator " .

41. Even though WAMC was not an electricity generator, such property rights as it had in the power station fixtures on its land were rights in generator assets. WAMC ' s rights in this regard were interlinked with rights of Eraring Energy, as an electricity generator, to use the assets and, potentially, to reclaim ownership of those of them which were tenant ' s fixtures. The nature and existence of WAMC ' s rights had implications for the nature and existence of Eraring ' s property rights (if any). Addressing those property interests in a vesting order can readily be seen as necessary or convenient for the purposes of privatising the generator assets themselves. In particular, a transfer of assets away from WAMC to another public sector agency (as arguably was done in the 2013 vesting order), or from a transaction company to a private company (as arguably was done in the 2014 vesting order), can reasonably be characterised as necessary or convenient for the purposes of effecting an authorised transaction, in the form of the privatisation of the generator assets.

42. Moreover, the ambit of s 7 was widened by cl 2 of Sch 1, which provided:

For the purposes of this Act, any act, matter or thing is done or has effect for the purposes of an authorised transaction if it is done or has effect for the purpose of effecting or facilitating an authorised transaction or is done or has effect for any purpose that is ancillary or incidental to or consequential on an authorised transaction.

43. The type of transfer in question could again readily be regarded as being done for a purpose ancillary or incidental to, or consequential on, the transfer of electricity generator assets, and specifically as ancillary (etc) to the vesting of other assets pursuant to s 13 and cl 2 in Sch 4.

44. There is no reason to seek to confine these broad grants of power in such a way as to avoid these conclusions. In his second reading speech the Treasurer, Mr Baird, said that the Bill " has been drafted to provide flexibility in the transaction structure that will apply to the sale of the State-owned electricity generators " , and " enables the businesses and their assets to be restructured prior to sale, allowing optimisation of the size and quantity for the packages offered to the market " (Hansard, Legislative Assembly, 6 March 2012, pp 8992-8993). Those statements support construing the powers in a broad and flexible manner to enable moving around assets owned, in one manifestation or another, by the State. The Commissioner argued that the powers should be read consistently with " presumptions against an intention to interfere with vested property rights and against the alienation of property without compensation " . Such presumptions have little if any role to play when dealing with transfer of assets between public sector agencies within the one polity.

45. For these reasons it would have been open for the Treasurer to transfer the property interests in the power station fixtures held by WAMC, relying on a combination of ss 7 and 13, Sch 1 cl 2 and Sch 4 cl 2 in the EGA Act. The question, then, is whether either of the 2013 or 2014 vesting orders did so.

Ground 1: whether either vesting order severed the power stations

46. The primary judge said at [136] that " 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) " . However, her Honour went on to hold that the effect of the vesting orders was " a statutory severance of the Power Stations (as fixtures) from the land on which they were situated " : PJ [140].

47. Her Honour ' s core reasoning was as follows:

[141] … 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.

[142] 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.

[143] 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. …

48. The Commissioner submits that these reasons and conclusion were in error.

2013 vesting order

49. The 2013 vesting order is titled " Vesting Order - Eraring Energy Excluded Assets " . The notion of " excluded assets " reflected the fact that a purpose of the order was to separate out from Eraring Energy certain renewable energy generating assets, including the three hydroelectric power stations the subject of this case. The order refers to the existence of an agreement for the sale of shares in Eraring Energy - still containing other assets, including the Eraring power station - to Origin Energy Power Ltd.

50. The operative provision in the 2013 vesting order is cl 3, which reads as follows:

The assets, rights and liabilities of Eraring Energy listed or described in Schedule 1 to this Order, being assets, rights and liabilities of a public sector agency that is an electricity generator, are vested in the public sector agencies as set out in this Order with effect from the Effective Time, subject to the terms and conditions set out in this order.

51. Paragraph 1 of Schedule 1, titled " Real Property " , refers to:

The 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, including:

(a) the benefit and burden of any leasehold interests, licences, easements, covenants, restrictions on use or other affectations attaching to the property; and

(b) any improvements on the properties.

52. Under this paragraph there appears a table, with several headings, one of which is " Part B: Leasehold Property " . Under that heading falls the following item:

Lease ID #	Lessor	Registration No	Title Reference	Expiry Date	Transferee
Agreement for Lease (Burrinjuck Power Station)	Water Administration Ministerial Council (WAMC)	Not registered	Part Lot 1 in DP 597680	30 years from 1 March 2002 (there are 3 options to renew, each for an additional 10 years).	GSP [meaning Green State Power]

53. It was not disputed that the reference to the lease which commenced from 1 March 2002 was to the 1998 lease. This schedule did not list any lease for the Hume or Keepit power stations. As discussed above at [18]-[25], there is no evidence that there were then leases in place for them.

54. The respondent did not argue that this vesting of the 1998 lease at Burrinjuck had the effect of causing a legal severance of the fixtures at that power station. All that this entry did was transfer the benefits and burdens that Eraring Energy held under the lease to Green State Power.

55. The second paragraph in the Schedule is headed " Property, Plant and Equipment " , and reads:

(a) 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 and to the extent owned, benefitting, burdening or used by Eraring Energy in connection with the Excluded Assets Business, including the chattels and other tangible property located in the Sydney office at Level 16, 227 Elizabeth Street Sydney;
(b) Any personal IT products assigned to Renewables Employees including, mobile telephones and iPads; and
(c) The other property listed in Annexure 2, all of which is vested in GSP [ie Green State Power], except for those in respect of which the " Location Description " is stated as Warragamba, in which case the items of property are vested in SCA.

56. The capitalised word " Property " in subparagraph (a) is defined in cl 4.1 to mean " the real property identified in paragraph 1 of Schedule 1 " . No real property in respect of the Hume and Keepit power stations is identified in paragraph 1 of Schedule 1. Accordingly, paragraph 2(a) did not transfer any assets or rights in respect of those two power stations. Neither side raised this point, which was identified by the Court in the course of argument. It appears neither side had drawn this point to the attention of the primary judge. The point is not insignificant. A step in the reasoning of the primary judge, at [141], was 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 " . The only reference to " tangible property " in paragraph 2 of Sch 1 is in subparagraph (a), which does not encompass any assets or rights in two of the three power stations.

57. Paragraph 2(b) is not relevant for current purposes.

58. Paragraph 2(c) was at the heart of the respondent ' s arguments. It relevantly vests the property listed in Annexure 2 in Green State Power. Annexure 2 itemises in considerable detail all sorts of objects and structures present at the sites of the three power stations (amongst other places), from station buildings to phone systems. It was not disputed that this list encompassed all significant items comprising the three power stations.

59. The respondent contended that the careful listing of all these items of property, along with what the respondent described as the absence of legal subtlety, indicated that the order was calculated to vest all of the identified assets in Green State Power absolutely. This vesting was said to cause a legal severance of those items from the land. It was argued that Eraring enjoyed a right to remove fixtures from the land as at the date of the order, and that the effect of the order was, as it were, to accelerate that right, and to vest the fixtures in Green State Power. The respondent referred in this regard to the broad definition of " assets " in cl 1 of Sch 1 of the EGA Act, which extends to " future " interests (see above at [36]).

60. A difficulty with these arguments is that they can be said to elevate the listing of property above the operative clause of the vesting order, namely cl 3. It is that clause which effects the vesting of assets, rights and liabilities " of Eraring Energy " , " being assets, rights and liabilities of a public sector agency that is an electricity generator " . Schedule 1 is simply where the relevant assets, rights and liabilities are " listed or described " (to quote the clause). The schedule does not purport to have effect independently of cl 3. Further, as noted, WAMC was not an electricity generator. Such assets, rights and liabilities as it had in connection with the power stations were not expressed to be the subject of the clause. And senior counsel for the respondent accepted that the effect of the respondent ' s construction - involving a severing - was that there was a taking of WAMC ' s rights.

61. Put simply, a textual argument can be made with some force that the listing of assets in Sch 1 does not rise above the operative clause which effected the vesting. All that was vested were certain assets, rights and liabilities of Eraring Energy. And the types of property rights at issue here - being the landlord ' s interest in the fixtures - belonged at the time to WAMC. The vesting order, it can be said, did not address those rights.

62. That textual argument is reinforced by some contextual matters:

(1) The introductory paragraph of the order - which is something like a long title - states: " An order for the vesting of the assets, rights and liabilities of Eraring Energy identified in this Order in the public sector agencies referred to in this Order " . That paragraph supports the conclusion that the vesting order was addressed to interests of Eraring Energy, and not WAMC.
(2) The next paragraph of the order identifies that it is made " under section 13 and Schedule 4 " of the EGA Act. As addressed above at [32]-[45], other provisions of the Act would have authorised the transfer of property interests owned by WAMC, and the fact that one set of provisions is identified as the source of power does not prevent other provisions being available to support the exercise of power. However, the fact that only s 13 and Sch 4 were referred to can be argued to suggest that the order was only addressing assets held by Eraring Energy.
(3) Schedule 1 is titled " Eraring Energy assets, rights and liabilities vested under this Order " .

63. The respondent sought to counter this conclusion with arguments of text, context and purpose. Some of these arguments have been addressed already.

64. The respondent invoked the " bluntness " of the language in paragraph 2(c), saying that the paragraph " expressly vested not Eraring Energy ' s interest in that property but the property itself " . This point has some force, although it should be recalled that ultimately the legal notion of property " does not refer to a thing; it is a description of a legal relationship with a thing " :
Yanner v Eaton (1999) 201 CLR 351 ; [1999] HCA 53 at [17] . That being said it is open to read paragraph 2(c), and the subsequent listing of the assets, as merely vesting in Green State Power such rights as Eraring Energy had with respect to the property.

65. More broadly, there are some contextual and purposive considerations which are significant here. There was no dispute that the vesting order had to be read purposively and as a whole. The purpose of the 2013 vesting order was to prepare certain electricity generation assets for sale by transferring them to a Corporations Act company separate from Eraring Energy. At that stage one possible sale option would have been to sell the shares in that company. I have referred at [44] above to the reference in the Treasurer ' s second reading speech to the flexibility in the structuring of transactions permitted under the EGA Act. The Treasurer noted in the same speech that " [t]ransaction entities may be established to facilitate the sale " . As it turned out, another approach was adopted in 2014 by transferring the assets out of Green State Power to the purchasing company. That subsequent choice does not undercut the purpose of gathering the relevant assets into one company in 2013.

66. The respondent argued that it would be in the interests of any purchaser to have certainty about what rights were being acquired, referring to the " fragility " of rights held under a lease to reclaim ownership of affixed assets. This argument was premised on the assumption that Eraring had a right to remove items constituting the power stations, or at least some of them, as tenant ' s fixtures. Senior counsel for the respondent submitted:

A potential purchaser, when shelling out tens of millions of dollars, when they ask, " well, what am I getting for these tens of millions of dollars? " , one can readily see that they might not be satisfied with the answer, " well, you ' re getting a right to sever and maybe to use, under some leases, the legal character of which is actually a bit debatable in the cases, because there ' s uncertainty in the cases whether it ' s a legal interest only under the lease, or an equitable interest and yes, it might be a bit fragile to defeat, if the ownership of the underlying land is transferred to third parties " . It ' s hardly surprising that it might be thought that a purchaser would not be satisfied with anything less than ownership of the underlying assets.

67. It is an overstatement to label the rights of a tenant to reclaim fixtures as " fragile " when it is a valuable right commonly relied on under leases. Even so, this submission has some force. There is some complexity and uncertainty as to the precise nature of the tenant ' s right to reclaim fixtures: note the discussion by Peter J McMahon, " Legal Nature of a Tenant ' s Interests in its Fixtures "
(2016) 90 ALJ 370 .

68. There is a related point touched upon by the respondent which to my mind is of greater importance. As explained above at [20]-[22], there was a lease in place only at Burrinjuck when the 2013 vesting order was made, being the 1998 lease, with no evidence of any leases having been in place at Hume and Keepit. And as explained above at [14]-[15], first, a tenant ' s right to remove tenant ' s fixtures relates only to fixtures which that tenant has affixed to the land, and, secondly, the right to remove fixtures at general law attaches to tenants . These power stations were built, and no doubt modified and rebuilt, over the course of the 20th Century (see above at [18]). Precisely which State government entity operated the power stations over the course of their existence is not clear but there is at the least a significant possibility, and perhaps likelihood, that those entities have changed from time to time (as illustrated by the change in 2000 from Pacific Power to Eraring Energy). The lack of clarity as to ownership of the land was discussed above.

69. There is thus a real possibility, if not probability, that on general law principles full ownership - not subject to tenant ' s rights of reclamation - of significant parts of the power stations would have fallen to the State entity which was landowner from time to time rather to the State entity which was the operator. It would have required careful legal manoeuvres to prevent that happening if and when any new entity came to operate the power stations. In circumstances where the State owned both the operator and landowner, there is reason to doubt that such careful lawyering occurred. There is certainly no evidence of it.

70. Further, there were no leases in place at Hume and Keepit. Presumptively, therefore, Pacific Power and Eraring Energy were operating under some kind of licence agreement, whether formal or informal, in operating the power stations on land owned by WAMC or some other State entity. The terms of any such agreement were not in evidence. At general law such a licensee would likely lose property rights in things they affixed to the land and they would have no tenant ' s right to reclaim them.

71. There is thus good reason to think that on a strict legal analysis Eraring Energy did not, as at the date of the 2013 vesting order, have rights to reclaim significant parts (and perhaps any) of the items comprising the power stations. That was so at Burrinjuck because of the issue relating to whether items had been affixed by Pacific Power/Eraring or some predecessor entity. The issue was more acute at Hume and Keepit, where Eraring Energy may have had no strict legal rights to reclaim any items in the power stations.

72. Of course, it was possible that the drafter of the 2013 vesting order simply meant to transfer such interests as Eraring Energy had in the power stations to Green State Power. But that seems unlikely given the substantial uncertainty that existed as to quite what those interests were. Such an intention is not consistent with the apparent purpose of gathering into one company the assets in the three power stations as part of preparing those assets for sale. In practical terms a critical feature of any such sale was being very clear about quite what the assets were. The lengthy listing of specific items in the schedule seems intended to achieve that very end.

73. Purposive considerations are especially significant in relation to this instrument, which neither side suggested was well-drafted. It bears the hallmarks of having been drafted inhouse in Treasury or some other department rather than by the Parliamentary Counsel ' s Office. For example, the listing of assets in Annexure 2 includes irrelevant detail, such as the depreciation rate of each asset, and fields such as " Balance Sheets Accounts Profile " and " Profit & Loss Accounts Profile " . The table seems to have been copied from some accounting documentation. The nature of the drafting, combined with the failure even to acknowledge the potential property interests of WAMC, suggests that the legal complexities involved in identifying precisely what property interests Eraring Energy and WAMC had in the power station assets were not in view of the drafters of the vesting order.

74. It is true that not all assets relevant to the power stations were transferred. Notably, the land on which they were situated remained in WAMC ' s ownership. But there was no suggestion that ownership of the land was being transferred. The reference to transferring the 1998 lease over Burrinjuck illustrates that point. In contrast, the drafting of Annexure 2 does suggest that ownership of the power stations assets themselves was being vested in Green State Power.

75. It might also be argued that to treat paragraph 2(c) as transferring full ownership rights in the listed assets to that company is in tension with paragraph 2(a) expressly transferring " the assets, rights and liabilities of Eraring Energy in all fixtures … " at, relevantly, the Burrinjuck power station. There is no inconsistency, although there may be surplusage, in transferring Eraring Energy ' s rights to reclaim tenant ' s fixtures (to the extent it had such rights) along with full ownership of some of the items themselves. Any tension may simply reflect the poor drafting. In any event, paragraph 2(a) has plenty of work still to do as regards any fixtures at Burrinjuck other than the items listed in Annexure 2 and as regards such things at the other identified " Property " .

76. How can an intention to transfer full ownership of the items in question be reconciled with the text of the 2013 vesting order? It is possible, if awkward. It requires understanding the listing of property in Annexure 2, pursuant to paragraph 2(c), as having the effect of transforming such rights as Eraring Energy had in the property (if any) into an allocation of direct ownership in Green State Power. To pick up the respondent ' s language, paragraph 2(c) in combination with the listing of assets did operate bluntly to vest the listed property in Green State Power. So understood, the provision in the schedule to the order can be seen as rising higher than the operative provision of cl 3. It does have the effect of taking property rights from WAMC, which is not the subject of cl 3. That is not the most natural reading. And if WAMC were a private entity, then it is not an interpretation that would be adopted in the absence of clear words. However, WAMC was part of the State in circumstances where the State had adopted a policy (manifest in the EGA Act) of privatising electricity generation assets. That one government entity lost property rights despite not being clearly identified in the divesting order is a factor of limited significance in the face of that policy.

77. The issue of construction is finely balanced, with textual considerations pointing more in one direction and purposive considerations in another. However, textual considerations are of somewhat reduced importance in circumstances where it is evident that the instrument is not well-drafted. In the end, what is most significant is that this is a practical document meant to achieve a practical end: to gather assets for sale in a new company in a clear and certain way, and in that way to seek to achieve the highest possible sale price for the State. That factor tilts the scales in favour of the respondent ' s construction.

78. Thus, although my reasons differ somewhat from those adopted by the primary judge, I agree with her Honour ' s conclusion that the 2013 vesting order transferred full ownership in the listed assets in the three power stations to Green State Power and in that way caused legal severance of the items constituting the power stations from WAMC ' s ownership of the land. Nothing in my reasoning requires that the resulting ownership interests be characterised as innominate sui generis interests.

2014 vesting order

79. The respondent relied on the 2014 vesting order as an alternative basis for arguing that full ownership of the items constituting the power stations was transferred to GSP at least as when that order took effect. At first blush it would seem unnecessary to resolve the issues of construction for this order given my conclusion with respect to the 2013 order. However, the Commissioner argued that even if his arguments were rejected on the 2013 order, any items affixed to the land after that order took effect would become part of the land and subject to duty as such, unless divested in turn by the 2014 vesting order. The respondent contended that this argument should not be permitted as it had not been run before the primary judge and could have been answered by evidence if it had been.

80. In my view the 2014 vesting order should also be construed to have transferred ownership of the listed assets from Green State Power to GSP. That conclusion makes it unnecessary to consider whether the Commissioner should be permitted to mount this argument.

81. Clause 3 of the order is in materially the same terms as cl 3 of the 2013 vesting order, this time vesting the assets, rights and liabilities of Green State Power as listed in Schedule 1 in entities identified in the schedule (relevantly including GSP). In paragraph 1 of the schedule, headed " Real Property " , the three 2014 leases over the power stations were listed as being transferred to GSP. Paragraph 2 was in somewhat different terms to the equivalent paragraph in the 2013 order:

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 (Real Property) of this Schedule 1, 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 …

82. As with Annexure 2 to the 2013 vesting order, these annexures itemise in great detail structures and equipment at the three power stations. I note in passing that the fact the drafter was of the view that the items constituting the three power stations were owned by Green State Power is consistent with the conclusion I have reached above. In any event, my conclusion that the 2013 vesting order had severed those items and transferred ownership to Green State Power means that the core question that arose with respect to that earlier order - whether severance and transfer could occur given that the actual owner, WAMC, was not named in cl 3 - does not arise here with respect to items addressed in the 2013 vesting order. Those items had been owned by Green State Power since the 2013 vesting order took effect and cl 3 and Schedule 1 of the 2014 vesting order operated to transfer ownership of them to GSP.

83. As for any further items that had been affixed since the 2013 vesting order took effect, no such items were actually identified by either party so it is possible this point is entirely theoretical. In any event, ownership of any such new items would have passed to WAMC when they were affixed. For much the same reasons as given above in relation to the 2013 vesting order, the 2014 vesting order should be understood to have severed those and transferred ownership to GSP. Again, the text of cl 3 does not tend to support that construction as, again, it refers only to the assets, right and liabilities of Green State Power, not WAMC. The textual differences in the wording of paragraph 2, as compared to the 2013 vesting order, do not make a material difference. And similar purposive considerations arise in construing this order, namely that its purpose was to vest ownership of the assets in the purchasing company in a clear, direct and efficacious manner. Those considerations are determinative. Various further arguments were made by the respondent in favour of this conclusion which need not be addressed.

84. Thus, if there were any further items affixed within the power stations in the period between the two vesting orders, those items would also have become the property of GSP pursuant to the 2014 vesting order.

Ground 2: Were the items in the power stations " goods " ?

85. Ground 2 was raised by the Commissioner in the alternative to Ground 1. Although not stated in terms, the thrust of this ground was that if the items constituting the power stations had legally been severed they were then " goods " for the purposes of s 155 of the Duties Act . That section provides that duty relevantly is chargeable on the " unencumbered value of all land holdings and goods of the landholder " .

86. Before addressing this argument, it should be noted that another argument would appear to be open that even if the vesting orders did vest all the assets listed in the relevant annexures in Green State Power and then in GSP, nonetheless those interests remained " land holdings " for the purposes of the Duties Act . For example, it could have been argued that even if they were not fixtures in the eyes of the general law, nonetheless the physical affixation of the power stations to the land meant that GSP ' s interests in the power stations were interests in land for the purposes of the Act. That argument was not run. The Commissioner seemed to accept that if the vesting orders operated to vest the power stations in Green State Power and then in GSP then the power stations no longer constituted land holdings for the purposes of the Duties Act. The Commissioner did submit that " even if GSP owns all rights to the Power Stations, they remain properly characterised as an interest in land " . But that sentence was part of the submissions on Ground 1 relating to the construction and effect of the vesting orders.

87. The primary ' s judge ' s critical reasoning dismissing the Commissioner ' s argument as to " goods " was as follows:

[296] 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. 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.

88. The issues raised arise at the intersection of three sources of law: the vesting orders (as supported by the EGA Act), the general law as to property, and the Duties Act . The ultimate question is whether the items constituting the power stations were " goods " , as addressed by s 155 of the Act, after the legal severance effected by the vesting orders. However, it is useful to begin by addressing the general law context.

Fixtures, chattels and goods

89. The primary judge referred to Lord Sumner ' s observation in
The Noordam (No 2) [1920] AC 904 , at 908-909 , that " the word [ie ' goods ' ] is of very general and quite indefinite import and primarily derives its meaning from the context in which it is used " . That point was reiterated by Gleeson JA in
Smith ' s Snackfood Co Ltd v Chief Commissioner of State Revenue (NSW) (2013) 97 ATR 904 ; [2013] NSWCA 470 at [131] .

90. Even so, it is useful to refer to how the ordinary meaning of " goods " has been understood. The issue has been considered in cases from time to time where, for example, the word is used in statutory provisions but not defined. The usages have been broad, and largely synonymous with the notion of " chattels " . In
Browning v Australia and New Zealand Banking Group Ltd [2014] QCA 43 , at [6] , McMurdo P referred approvingly to a Macquarie Dictionary definition of " goods " as " possessions, especially moveable effects or personal chattels " . Ninety years before, in
Stephenson v Thompson [1924] 2 KB 240 at 249 , Atkin LJ said:

I think there can be very little doubt that the word " goods " is one of the widest terms that can be used to describe personal property. In connection with the word " chattels " - goods and chattels - I think it is admitted that it covers in substance the whole of personal property, and, as far as I know, nobody has been able to draw a real distinction between goods and chattels; they are over and over again stated as synonymous.

91. The word " chattels " is often used in contrast with " fixtures " (it is not necessary here to discuss further distinctions as to, for example, chattels personal and real). As Jordan CJ said in
Australian Provincial Assurance v Coroneo (1938) 38 SR (NSW) 700 at 712 , " [a] fixture is a thing once a chattel which has become in law land through having been fixed to land " . Conversely, if and when a fixture is removed it becomes a chattel again. If " a house is pulled down, the person who severs the materials from the building converts them from land into chattels " : Stuart Bridge, Elizabeth Cooke and Martin Dixon, Megarry & Wade: The Law of Real Property (Sweet & Maxwell, 9th edn), [22-005]. The point is illustrated by Dixon J ' s explanation of tenant ' s fixtures in North Shore Gas (No 1) (at 68, emphasis added):

removable tenants ' fixtures may during the term be detached and become chattels belonging to the tenant, yet the better opinion appears to be that unless and until the tenant exercises his right of removal they form part of the realty … and for this reason, subject to the exercise of the tenant ' s right to convert them again into chattels , pass with the land.

92. That physical removal of a fixture returns it to being characterised as a chattel (ie good) supports the notion that legal severance of a fixture has the same effect. Lord Chelmsford said in
Bain v Brand [1876] 1 App Cas 762 at 772 :

When he brings any chattel to be used in his trade and annexes it to the ground it becomes a part of the freehold, but with a power as between himself and his landlord of bringing it back to the state of a chattel again by severing it from the soil.

93. Similarly, Ormiston JA discussed in
Vopak Terminals Australia Pty Ltd v Commissioner of State Revenue (2004) 12 VR 351 ; [2004] VSCA 10 ( Vopak VSCA ) the possibility of taking legal steps to sever fixtures so as to " convert them again to chattels " : at [46], also [49]; note generally Samantha Hepburn and Steve Jaynes, " The nature and scope of rights of removal "
(2013) 2 Property Law Review 123 .

94. So much is also consistent with the law relating to how something becomes a fixture. Whether or not something is a fixture turns in particular on the degree to which the thing is affixed to the land, and " whether it has been fixed with the intention that it shall remain in position permanently or for an indefinite or substantial period … or whether it has been fixed with the intent that it shall remain in position only for some temporary purpose " : Coroneo at 712; see further TEC Desert at [24]. Thus a chattel might be physically affixed to the land but not be regarded as a fixture because there is not the requisite intention. In such a case the thing does not become part of the land for legal purposes. The same result can come about by statutory provision: see Vopak VSCA at [38]-[42]. Such a thing would in general retain its legal character as a chattel: ibid at [42].

95. Goods affixed to land physically but not legally could be the subject of a separate sale. Such a sale would be a sale of goods. It is not necessary to address the position of unsevered fixtures - cf TEC Desert at [52].

96. Here, it is important to note that the relevant assets listed in Annexure 2 of the 2013 vesting order were not " power stations " (and the same is true for the 2014 vesting order). Rather, what was listed were hundreds of distinct items employed in the power stations. For example, for Burrinjuck it lists over 170 assets, of which over 130 fall into the asset class " Hydro & Wind Stations " . This includes items such as " unit 3 braking system " , three entries for " unit 3 circuit breaker " , three entries for " unit 3 generator " , two entries for " unit 3 turbine governor " , and three entries for " unit 3 turbine " .

97. Each of the items constituting the power stations had had the legal character of goods prior to being incorporated into the power stations and thus affixed to - and becoming part of - the land. On general law principles if the legal affixation was ended by way of severance then they would return to being characterised as goods. Such a severance was effected by the 2013 vesting order. That order did not change the physical character of the items. If the power stations were broken up for sale then the items in question would, on general law principles, once again be goods.

98. The primary judge did say at [296] that she had " great difficulty in seeing the Power Stations as being ' goods ' under any ordinary meaning attributed to tangible personal property " . That difficulty is undercut when it is understood that it was the items constituting the power stations that were transferred. If the suggestion is that very large, practically immovable things cannot be " goods " , then that is inconsistent with the fact that such things can be goods if they do not satisfy the tests for being fixtures. For example, in
Attorney-General (Cth) v R T Co Pty Ltd (No 2) (1957) 97 CLR 146 ; [1957] HCA 29 Fullager J held that a printing press weighing 45 tons was not a fixture.

Innominate sui generis property interests and the North Shore Gas cases

99. The primary judge, however, treated the severance effected by the 2013 vesting order as producing a different result. Her Honour stated at [141] that " the Power Stations were conveyed, in gross, to Green State Power under the 2013 Vesting Order as an innominate sui generis property interest " . At [142] she indicated that when conveyed to GSP in 2014, nothing in the 2014 vesting order " caused the Power Stations to change their character, or in effect ' undid ' the statutory severance of the Power Stations from the land " , and thus the interests retained their character as an innominate sui generis property interest. Earlier, her Honour had referred to the respondent ' s submissions on the issue as follows (at [86], see similarly [279]):

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 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 " .

100. Both parties referred to the two North Shore Gas decisions of the High Court; the Commissioner was enthusiastic about the second of these, and the respondent more keen on the first. Both cases related to gas mains and service pipes in northern Sydney, used to supply gas to consumers, which had been laid by a private utility company pursuant to statutory rights. The statutory provisions in question gave the utility a (conditional) right to place infrastructure in and on land owned by others for the purposes of the gas system, which infrastructure it owned and was entitled to remove.

101. North Shore Gas (No 1) concerned the consequences of another utility company having acquired the assets of the first, including ownership of the gas mains and service pipes. A particular monetary value had been placed on those assets based on the depreciated cost price of having installed them (see at 55). The question was whether those items fell within a statutory category of " goods, wares or merchandise " which were exempt from ad valorem stamp duty on the sale of property. That phrase, of long provenance, was understood by at least Starke and Dixon JJ to mean tangible movable property (see at 63 and 67 respectively). The High Court held that the mains and pipes did not fall within that category and thus were not exempt from ad valorem stamp duty.

102. Some parts of the reasoning of members of the Court lend support to an argument that things can have a legal character somewhere in between being an ordinary fixture and being a chattel. For example, Rich J said at 62:

The problem arises from the provisions of the company ' s Private Act, which authorizes it to place the pipes in the soil of the roadways and other places, to remove them, to control them and to retain the ownership and in effect the possession of them. … Does this result in their continuing to belong to the legal category of personal chattels in which they fell before they were placed in the ground? On the whole I think that we should hold that they lost that character. They were dealt with in a fashion which, apart from specific legislative provision, would give them the same legal character as the soil in which they were placed for the purpose of the classification of things into chattels personal and realty. 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. We should, in my opinion, say that the mains and services are no longer chattels personal, and therefore are not goods, wares, or merchandise.

103. Some reasoning of Dixon J was to similar effect (at 70):

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.

104. However, parts of the Court ' s reasoning can also be seen to turn more directly on the core question of whether the gas mains and pipes constituted " goods, wares or merchandise " within the meaning of the duties legislation. Thus Starke J said at 65 (see also Evatt J at 72):

But it is plain that the mains and pipes form part of the gas works and undertaking of the North Shore Co. and have never been separated or detached from them. They form part of an integral whole. Long and learned arguments were addressed to the question whether these mains and pipes were or were not fixtures and whether the gas company would or would not be ratable in respect of the occupation of land by means of its mains and pipes and so forth. But the widest meaning of the words " goods, wares, and merchandise " cannot and does not include mains and pipes attached to and unsevered from the works and undertaking of a public utility or franchise created by statute such as belongs to the appellant the North Shore Gas Co. Ltd.

105. In my respectful view there is force in the following observation made in the joint judgment of Barwick CJ, McTiernan, Kitto and Taylor JJ in North Shore Gas (No 2) at 126-127 (note also Windeyer J at 129-130 and 131):

We doubt whether it was strictly necessary for the purposes of that case to decide, not only that mains and service pipes were not " goods, wares and merchandise " , but also that they, or the space which they occupied, constituted an interest in land and we also doubt the correctness of this final conclusion.

106. What was at issue in North Shore Gas (No 1) was whether the gas mains and pipes could be characterised as " goods, wares and merchandise " for the purposes of the duties legislation then under consideration, taking account of the degree to which they were connected into an integrated system embedded in land. The High Court held that they could not be so characterised. As Evatt J indicated at 72, in practical terms the real value of the mains and pipes was linked to " the privilege of having such ' mains and services ' in a particular situs , the owner of the soil being prevented from interfering with such privileges " . His Honour expressed the view that " the pipes themselves might still be regarded as personal chattels " .

107. That latter point was echoed in North Shore Gas (No 2) . In that case the owner of the same gas infrastructure made a claim for compensation against the Commissioner of Main Roads relating to the loss of use of some of the infrastructure as a consequence of the resumption of land to build a major road. The issue turned on whether the company held " land " or an " estate or interest " in land for the purposes of the resumption statute. The High Court held that the company did not have such an interest. Windeyer J explained that the question was " not what description should be given to the mains and pipes in the ground, but what was the character or nature of the right of the respondent to place them there and have them remain there " (at 130). The key value which the company was claiming was not for the pipes themselves, but for the loss of the right to use those pipes to supply customers. This point is critical to understanding the case. Although that point was not expressed quite so clearly in the joint judgment, it was still manifest by the fact that the joint judgment said (at 128) that:

it may be that the mains and pipes themselves, which, of course, were the property of the respondent, had some residual value as chattels and that since the respondent was deprived of them by the exercise of the constructing authority ' s powers, it may be entitled to claim compensation therefor …

108. Windeyer J, too, recognised that the company might be able to claim some compensation for the loss of the pipes themselves (at 134-135). In his Honour ' s reasoning - as referred to by the primary judge here at [86] and [279] - he said (at 133-134, citations omitted):

The gas company has however no true easement; for there is no true dominant tenement unless it be said to be the gas works. However there is here an analogy to an easement as known to the common law; and if it be necessary to given some name to the right in relation to land which the respondent enjoyed, it was what is nowadays very often called a " statutory easement " … Scrutton L.J. said in Taff Vale Railway Co. v. Cardiff Railway Co. , " it is clear that Parliament can confer certain rights not previously known to the law, and can call them by what names it pleases, however previously inappropriate " . But it need not give them any name. If it does not, there is no need for lawyers to insist on finding an old name for them, when they are in fact sui generis. I respectfully accept and need not repeat what Lord Evershed said in
Newcastle-under-Lyme Corporation v. Wolstanton, Ltd. (1947) Ch 92 . The North Shore Gas Act of 1875 gave no name to the rights it created.

109. His Honour ' s reference to sui generis property rights was not as to the rights in the gas pipes and mains themselves. It was to the statutory rights, somewhat analogous to an easement, to place the pipes on others ' land and have them remain there. The same point is implicit in the following reasoning in the joint judgment (at 127, citation omitted):

Whatever is fixed to the freehold is said to become part of it and is subjected to the same rights of property as the land itself. The presumption is said to be rebuttable and, it seems to us, it must be so when a statute empowers someone other than the owner of land to affix to or embed things in the soil and yet retain ownership of the things so affixed or embedded. In such circumstances 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 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.

110. In this context, in my view, the primary judge erred in equating the analysis in North Shore Gas (No 2) with the situation here. The property interest relevantly being discussed there was the statutory right broadly analogous to an easement. It was not the property interest in the gas mains and pipes themselves, which might have had " some residual value as chattels " . Here, there is no statutory right at issue. What is at issue here is ownership of physical things, being the items constituting the power stations. If anything, North Shore Gas (No 2) supports the conclusion that those items are chattels, just as the gas pipes and mains - which were affixed but with ownership remaining in the utility company - were seen as chattels there.

111. To the extent that some parts of the reasoning in North Shore Gas (No 1) might be seen to lend some support to the position of the respondent here they have been overtaken by the subsequent decision of the High Court. But in any event that approach would not suffice for the purposes of the respondent here, for reasons explained below at [125].

112. It is quite right, of course, that statutory questions should not necessarily be resolved by seeking to impose general law notions. But that also does not deny that statutes may operate by reference to such notions. Statutes commonly do so.

113. Here, the 2013 vesting order did not create any new species of statutory rights or property, in contrast to the legislation authorising the laying of the gas pipes. Rather, it transferred ownership of the identified items from (relevantly) WAMC to Green State Power. In so doing it had the effect of legally severing those items from the land. That severance did mean there were new legal rights, being the rights of ownership of Green State Power in those items. The same was true, mutatis mutandis, of the 2014 vesting order. Nothing in either vesting order addressed the nature of the rights of ownership. Nothing in either created innominate sui generis property interests. Rather, the nature of those rights was left to the general law. For the reasons explained above, at general law the effect of the legal severance was that the items resumed their previous legal character, as chattels or goods.

" Goods " as referred to in s 155

114. The issue then becomes whether this conclusion based on the general law is altered by consideration of the Duties Act . For the reasons explained below, it is not. As noted, the ultimate question is whether items constituting the powers stations could, after having legally been severed by the vesting orders, be characterised as " goods " for the purposes of s 155 of the Duties Act .

115. The meaning of the word " goods " in Ch 4 of the Act is addressed by s 163K:

163K Goods of a landholder

(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.

116. Subsection (1) does not define " goods " but merely carves out certain things from what it encompasses. The fact that the notion itself was not defined suggests that its ordinary meaning, as recognised in the case law, is applicable. Subsection (2) extends the reach of the notion to clarify what type of interest in goods will suffice for the purposes of the Chapter. Subsection (1) reflects the terms of s 11(1)(j) of the Act, which section provides that goods may be " dutiable property " in some circumstances for the purposes of Ch 2 of the Act, and defines that notion to exclude the same seven categories as identified in s 163K.

117. It is then necessary to consider the nature and purpose of Ch 4, to ascertain how that might affect interpretation of the notion. The chapter is concerned with the imposition of duty on the acquisition of interests in landholding entities. The present Ch 4 was introduced by the State Revenue Legislation Further Amendment Act 2009 (NSW). The previous regime, under the then Ch 4A of the Duties Act , levied duty on the acquisition of " land rich landholders " . Duty was calculated under this regime without reference to the interests of landholders in " goods " , but rather only with reference to the value of their land holdings: see s 163K(1) of the old Ch 4A.

118. In the second reading speech for the bill these changes were explained by Parliamentary Secretary John Aquilina as follows (Hansard, Legislative Assembly, 17 June 2009, p 16248):

The bill implements the decision announced in the mini-budget on 11 November 2008 to replace the land rich provisions of the Duties Act with a landholder model. From 1 July 2009, under the new landholder model, transfer duty will be payable when a 50 per cent or more interest is acquired in an unlisted company or unit trust that owns land in New South Wales with a value of $2 million or more. …

To provide consistency with the tax treatment of direct transactions, landholder duty will apply to the acquisition of land and goods.

119. In the relevant explanatory note for the bill, the following was said in respect of the inclusion of goods in s 155:

Duty on the acquisition of an interest in a landholder will be charged by reference to the value of the goods of the landholder, as well as the value of its land holdings. The inclusion of goods makes the arrangements for charging of duty more consistent with Chapter 2 of the Act, which imposes duty on a transfer of land or goods (or both).

120. Nothing in this context suggests that a confined approach should be taken to the notion of " goods " as employed in Ch 4. Nor, incidentally, is there anything in Ch 2 which supports such an approach. In Ch 4 the notion was introduced to extend what was dutiable to include, in relevant transactions, not only land holdings but a significant category of property beyond that. There is no reason this should not encompass at least " goods " as that notion has been understood at general law, subject to the express exclusions in s 163K. The items constituting the power stations are thus dutiable pursuant to s 155 of the Act.

121. The respondent sought to exclude the power stations from the ambit of the word " goods " in s 155 of the Duties Act by reference to the views expressed in North Shore Gas (No 1) that the phrase " goods, wares, or merchandise " in the Stamp Duty Act 1920 (NSW) referred to tangible movable property. It submitted the notion of " goods " in s 155 in the Duties Act should be construed in the same way, such as to exclude the power stations because they are not movable.

122. I do not accept that the power stations are immovable when it is recalled that what is actually in question are the hundreds of items listed in Annexure 2 to the 2013 vesting order. It may well be very difficult to move some of those items, but they are not, like parcels of land, truly immovable.

123. In any case, I also do not accept that the notion of goods should be confined in the manner suggested by the respondent. The context in which the word " goods " was used in the legislation considered in North Shore Gas (No 1) is different from the use of the word in Ch 4 of the Duties Act . The former concerned an exemption from dutiable transactions and the word " goods " was used in the specific context of an agreement for the sale of goods, merchandise or wares. In that context the word took much of its colour from the words which follow it, being " merchandise " and " wares " . As Baron Parke explained of an ancestor to the exemption, in a judgment quoted by Rich J in North Shore Gas (No 1) at 61, " the exemption was intended to protect bona-fide mercantile transactions of the sale and purchase of goods " :
Knight v Barber (1846) 16 M & W 66 at 70; 153 ER 1101 at 1103 .

124. Section 155, on the other hand, does not concern an exemption from duty nor is it concerned with protecting bona fide mercantile transactions. Its purpose is to determine how duty is charged on the acquisition of an interest in a landholder. Further, in light of the exclusion of stock-in-trade from the meaning of " goods " by reason of s 163K, the High Court ' s consideration in North Shore Gas (No 1) of the phrase " goods, merchandise, and wares " , which in a large part encompasses stock-in-trade, becomes even less relevant.

125. More broadly, the outcome urged by the respondent is an odd one. The items in question once were goods but became part of the land when affixed as part of the power stations. If the power stations were disassembled and the items sold then they would indisputably be goods. The object of s 155 is to tax both land and goods. The respondent urges, and the primary judge held, that when the items were legally severed from the land the items fell into a distinct category of being neither land nor goods. As explained above, parts of the judgments in North Shore Gas (No 1) appear to recognise some intermediate category between the ordinary understanding of fixtures/land and goods. Let it be assumed that that understanding should be accepted despite North Shore Gas (No 2) and, further, that ownership of the severed items should be understood to be innominate sui generis property interests (contrary to my conclusion above). Where the legislature sought to encompass both one end of the spectrum and the other, it is difficult to see why something in between the two ends of the spectrum should evade being liable to duty. For that reason, the word " goods " in ss 163K and 155 should be construed as extending to any such interests of the kind at issue here.

126. In summary, the items constituting the power stations, having been legally severed from the land, were " goods " for the purposes of Ch 4 of the Duties Act . They fall within that notion because the ordinary understanding of that notion at general law - which the statutory usage in s 155 encompasses - includes former chattels which have been legally severed from the land. The 2013 vesting order effected such a severance. The 2014 vesting order had the same effect as regards any newly affixed items. Nothing in those orders had the effect of changing the legal character of the items such as to become innominate sui generis property interests. But even if they had done so, such a property interest would still fall within the reach of the concept of goods as employed in Ch 4 of the Duties Act .

127. Ground 2 should thus be upheld.

Ground 3: The valuation of the leases as unimproved land

128. The final ground of appeal concerns the value to be ascribed to the leasehold interests in the unimproved land alone - that is, excluding such leasehold interests as existed in the power station assets - for the purpose of determining the duty payable by the respondent. On appeal, the parties did not dispute the application of a " residual value methodology " . That approach involves subtracting from GSP ' s overall valuation the value of all the company ' s assets other than the asset being valued, being the leasehold interests in the unimproved land (which I will refer to as the " bare land leases " ).

129. The difficulty was that there was also uncertainty about the value of another class of assets, being the water agreements into which GSP entered with the State Water Corporation ( SWC ) for use of the water, the flow of which is used to generate electricity in the power stations. Thus there were two types of asset to which the residual value had to be attributed. The Commissioner ' s expert, Mr Grant Kepler, and the respondent ' s expert, Mr Tony Samuel, agreed that goodwill was not a relevant asset for the GSP business. They also agreed that the residual value to be allocated to the two asset classes was $27.7 million. Mr Kepler allocated half of the residual value ($13.85 million) to each of the asset classes. Mr Samuel allocated all the residual value to the water agreements and none to the bare land leases.

130. The notion of valuing the leases requires further explanation. The experts explained in their joint report 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.

131. Thus the value to be attributed to the leases from the perspective of the respondent (as lessee) was dependent upon the following, assessed as at the date of valuation. If the leases represented a better deal for the lessee compared to what it would have obtained renegotiating them on market at that date, then the leases were something of value and an asset. If they represented a worse deal when so compared, they were a liability. If the amounts payable and terms applicable under the leases simply represented what would have been obtained on market as at the valuation date then the value of the leases was neutral (ie nil value). Her Honour concluded that there were no comparable properties for the purposes of valuation, such that whether or not the amounts payable under the leases represented market value could not be determined in that way: PJ [266]. This conclusion is not challenged.

132. It will be recalled that the leases over the three power station sites commenced operation on 18 July 2014. Each lease was for a term of 30 years with three options to renew for 10 year periods at a time. The valuation date is 29 March 2018, being the date when the respondent completed its acquisition of the shares in GSP. There was thus about a four year period between entering the leases and the valuation date. Electricity prices had gone up in that period. As a result the revenue and profits earned from the power stations had also risen significantly. In turn, the value of GSP as a whole had gone up since the respondent had acquired it, which explains in significant part the large " residual value " of $27.7 million. The key debate between the experts was to what degree, if any, that increase in value should be attributed in part to the bare land leases. Put another way, in light of the beneficial change in the electricity market, would WAMC as lessor have been able to extract significantly higher rents if the leases had been renegotiated on market around the valuation date?

133. Mr Samuel indicated that his conclusion that value should not be attributed to the leases depended upon two key assumptions: first, that the leases entered in 2014 represented market value, that is, they had not been mispriced at that time; secondly, that there were no changes in the subsequent four years that would have resulted in an increase in the market price for rent beyond the CPI increase that was built into the leases. The second assumption led to debate about whether it was only the water agreements which were the relevant asset " drivers " of the increase in value of the business in that period, or whether some of that increase should be attributed to the leases (and could have been extracted by WAMC as lessor if the leases had been renegotiated).

134. The primary judge accepted the approach of Mr Samuel. The dispositive reasoning of her Honour was as follows (at [271]):

there is broad agreement between [the two experts] 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.

135. The Commissioner contends that her Honour erred in not allocating half of the residual value to the bare land leases. The parties agree that the standard of appellate review in the present case is equivalent to a House v The King standard. As Mason J observed, " the valuation of property by a court has many of the characteristics of a discretionary judgment " :
Commissioner of Taxation (Cth) v St Helens Farm (ACT) Pty Ltd (1981) 146 CLR 336 at 381; [1981] HCA 4 . The Commissioner says the primary judge fell into the relevant kind of error in three ways, which I will consider below in turn:

(1) Her Honour erred by valuing the water agreements and the bare land leases by asking which was the " driver " of value. Presumably this was said to be an instance of House v The King error by acting upon a wrong principle or taking into account an irrelevant consideration.
(2) In any event, there was evidence that the bare land leases were drivers of value. This was said to be a mistake of fact.
(3) The two assumptions on which Mr Samuel ' s view was premised were not made out. Again, this was a claimed mistake of fact.

Whether permissible to consider what was the " driver " of value

136. The Commissioner contends that there is " no connection " between whether or not the terms of the contract are more or less favourable than would have been obtained at market and whether or not the leases were a " driver " of value. However, that ignores the context in which the issue arose, as outlined above, in which the value of the business had gone up and consideration was being given to the extent, if any, to which that could be attributed to the two residuary asset classes.

137. The criticism also ignores the evidence of both experts. The following exchange occurred between the primary judge and Mr Samuel at the end of his cross-examination on the topic:

HER HONOUR: Before we move to remediation costs, can I ask you this, Mr Samuel: Let ' s assume for what ever reason a valuer is in the position where it is just not possible to attribute a market value to the lease of the land, and it ' s not possible to attribute a value to the water agreement. As I understand it, the proposition that is being put is that in those circumstances, one would just - as a valuer - one would just say, well then, the residual should be apportioned equally?

WITNESS SAMUEL: No, I wouldn ' t - I wouldn ' t do that.

HER HONOUR: No, that ' s what I want to test with you.

WITNESS SAMUEL: Oh, I see.

HER HONOUR: As I understand it, you wouldn ' t accept that it is appropriate valuation practice in those circumstances just to say well, I can ' t determine A and B, therefore I ' ll just attribute equally. As I am understanding the tenor of your answers to the other questions, you would look at what you considered to be the fundamental driver -

WITNESS SAMUEL: That ' s correct.

HER HONOUR: - of value.

WITNESS SAMUEL: Yes.

HER HONOUR: - of the overall business, say -

WITNESS SAMUEL: Yes.

HER HONOUR: - and then you would, in some way, apportion it -

WITNESS SAMUEL: Yes.

HER HONOUR: - more heavily towards that, but it still would be, would it, somewhat of an evaluative judgement?

WITNESS SAMUEL: 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 judgement 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.

HER HONOUR: Yes.

WITNESS SAMUEL: 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.

138. Counsel for the Commissioner then sought Mr Kepler ' s comment on Mr Samuel ' s evidence. Mr Kepler explained:

Your Honour, 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.

139. The following exchange then occurred:

HER HONOUR: If you had come to the view that the - I think Mr Samuel ' s description was the No-Go asset was the water agreement, that the driver, in effect, was the water agreement then would your logic mean that you would apportion a greater value to the water agreement than to the lease of the land in those circumstances?

WITNESS KEPLER: If I could find cause to consider that one of these assets was fundamentally more important than the others, yes, it would lead me down that path. I just don ' t see how that can be the case -

HER HONOUR: I see.

WITNESS KEPLER: - given the importance of the sites.

140. Both experts thus agreed that the attribution was a matter of judgement. Further, Mr Kepler accepted that whether an asset was a " go/no-go " asset, or was the " driver " of value could be relevant to the valuation process, in circumstances where valuation by reference to market rent was not possible. He merely took issue with the characterisation of the water agreements as assets of this kind when, in his view, the " importance of the sites " meant that the leases themselves were also important assets.

141. Given the evidence of both witnesses it cannot be said that the primary judge erred in principle by asking which asset class was the " driver " of value. And to do so appears rational given that the increase in value of the business as a whole had been in response, at least in part, to the increase in electricity prices, revenue and profits since the time of acquisition.

The claimed error in considering only the water agreements to be the driver of value

142. The Commissioner then contended that the primary judge erred in finding that the water agreements were the fundamental driver of value - and therefore erred in allocating all of the residual value to the water agreements - when there was evidence that the land was also a driver of value. The Commissioner said:

The Power Stations could not function without the use of the land on which they were situated. 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, such that the Leased Land contributed value. Further, the Water Agreements and Leases were interdependent with each other. Without one contract, the Power Stations could not function, that that the other contract had no value. In addition, the Water Agreement could be terminated by State Water 90 days after the Leases terminated.

143. Mr Samuel had accepted that the location of the leased areas in proximity to the three dams was no coincidence, and was " [p]resumably because it ' s more efficient " , and that in those circumstances, the site of the land was " a contributor to the value " . However, he distinguished this from being a " driver " of value:

I think the water agreement is the driver of value. Sorry, at the risk of stating the obvious, a hydroelectric plant can ' t operate without water. It is the fundamental core asset that enables you to build a power plant in the first place.

144. Earlier he had stated that " [t]he land is a replaceable asset, whereas the water is not " .

145. The Commissioner attacked this view below and on appeal on two bases in particular: that proximity of the land was essential to efficient power generation, and that in any event given that the power stations had been placed on the land the lessor was in a position to extract value from GSP (a point Mr Samuel characterised as the lessor saying " I ' ve got you over a barrel now because you don ' t want to move your equipment, so I can charge you more " ).

146. As to the former, Mr Kepler said in his report that " whilst it is possible for the hydroelectricity turbines and generators to be placed at the location other than adjacent to the dam wall, the operation will not be as efficient due to turbulence and friction of the water flows " . This statement by a valuer sounds entirely plausible to those of us who have done high school physics. However, there was no evidence before the Court from an appropriately qualified person as to how significant it was for the power stations to be very close to the dam. There is reason to think it is a matter of degree. So much is supported by a footnote to the quoted statement in which Mr Kepler noted that " [b]y way of example, the original Burrinjuck turbine and generators were some 800 metres downstream of the dam wall " . Even apart from the lack of expert assistance on the topic, this note of itself undercuts the claim that it is critical that the particular leased areas be used because of their close proximity to the dams.

147. As to both bases, Mr Samuel accepted that he could point to no evidence that the land was substitutable, but said that " I have no reason to think that situation didn ' t exist in 2014. As long as the lease was not mispriced in 2014, that circumstance hasn ' t changed " . In other words, the operator of the power stations was equally " over the barrel " when the 2014 leases were negotiated. Mr Samuel also thought it significant that the leases only provided for rent to increase by CPI, whereas the water agreements had a price mechanism linked to revenue generated by the power stations. He took this as some evidence that the parties involved in 2014 (Green State Power, WAMC and SWC) themselves considered that water was a driver of value for the power stations in a way that the leases were not. Mr Kepler took a different view about the significance of the different pricing mechanisms, in effect saying that the very fact that the rents had not increased in line with revenue indicated that the leases had been a good deal for the power station business, such that they were now positive assets.

148. This debate illustrates that these were contestable issues of evaluation and judgement. Indeed, as referred to above at [137]-[140], both experts expressly accepted as much. It may appear odd that, despite the evidence establishing and the experts agreeing that the bare land leases contributed some value, none of the residual value was allocated to them. Yet it is to be remembered that Mr Kepler accepted that if he " could find cause to consider that one of these assets was fundamentally more important than the others " , then he would accept Mr Samuel ' s approach. The Commissioner did not put to this Court that some particular proportion below 50% of the residual value should have been attributed to the bare land leases.

149. Determining whether the evidence established that one of the assets was " fundamentally more important than the others " was a question of fact and degree. The evidence may well have established that the bare lease agreements contributed to value but it did not foreclose the finding that water agreements were " fundamentally more important " . That was Mr Samuel ' s evidence, and it was open for the primary judge to accept it. It cannot be said that the primary judge " mistook " the facts in the House v The King sense in determining this question of fact and degree.

Whether erroneous to accept Mr Samuel ' s views given his assumptions

150. The final alleged error was that the primary judge erred in basing her finding on Mr Samuel ' s view when that view was itself premised on the two assumptions noted above, namely, first, that the leases entered in 2014 represented market value and they had been not mispriced at the time; secondly, that there were no changes in the four year period that would have resulted in an increase in the market price for rent beyond the CPI increase that was built in to the leases. Mr Samuel accepted that whether those assumptions were made out was a matter for the Court to determine.

151. As to the first assumption, Mr Kepler gave evidence that it was a common practice when engaging in privatisation for governments to charge a higher price upfront in return for a lower rental payment into the future, because governments undertaking privatisations are " interested in headline values " . But he also accepted that there was no reason to think that WAMC was not acting at arm ' s length when the leases were negotiated in 2014. Mr Samuel accepted that he did not know if the lease had been mispriced, but added that " I have no reason to believe there wasn ' t an arm ' s length agreement " . Mr Kepler ' s evidence as to what occurred in respect of the transaction in the present case was never more than speculative. In that context, and given that it was open to find that the leases were negotiated at arm ' s length, it was open to find that the first assumption was made out.

152. As for the second assumption, that hinged on the debate about what were the drivers of value, as addressed above.

153. Moreover, even if it were accepted that the two assumptions were open to some question - such that there was some reason to think that the leases had acquired some value in the four years since they had been signed - that still left open the question of how much of the residual value should then be attributed to the leases. Mr Kepler ' s approach involved effectively saying it was not possible to give any particular value so the residual value should be allocated equally to both asset classes. But there was no necessity to adopt that view. As senior counsel for the Commissioner acknowledged, " [t]here is clearly not a lot of science to sharing them equally between the two items " . Mr Samuel kept returning in his evidence to the points that the bare land leases were replaceable assets, that they were not the drivers of value, and that, in contrast, it was the water agreements which were the fundamental assets.

154. In the context of the making of an evaluative determination of the kind in question here I am not persuaded that there was any House v The King type error in the primary judge ' s conclusion accepting Mr Samuel ' s analysis. It was open to her Honour to find that in substance the residual value should be attributed only to the water supply agreements.

Conclusion

155. I would allow the appeal in respect of Ground 2 but not Grounds 1 and 3. The parties indicated at the appeal that they sought to be heard as to the appropriate final orders, including as to costs. In part that request related to the potential operation of s 163G of the Duties Act , under which the Commissioner has a discretion to disregard the value of the goods if they constitute at least 90% of the value of the relevant assets. The Commissioner indicated that if the threshold is reached then he will exercise the discretion to disregard the value of the goods. It is to be hoped that the parties will be able to agree, in whole or in part, as to what consequences should flow from this judgment with respect to the decision of the Court below and, in turn, the original decision of the Commissioner. The orders of the Court should therefore be as follows:

(1) Allow the appeal on Ground 2 only.
(2) Any proposed consent orders should be filed within 21 days of these orders.
(3) To the extent that the parties are not agreed on orders to resolve the appeal they may file and serve:
- (a) submissions of no more than 4 pages relating to what final orders the Court should make, together with any relevant supporting materials, within 21 days of these orders; and
- (b) submissions in reply of no more than 2 pages within 28 days of these orders.
- (4) Subject to any further order, final orders will be made on the papers and without a further oral hearing.

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