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

Members:
Hodgson JA
Ipp JA
Basten JA

Tribunal:
New South Wales Court of Appeal

MEDIA NEUTRAL CITATION: [2007] NSACA 325

Decision date: 16 November 2007

Hodgson JA

1. On 12 April 2007, Gzell J gave his decision in proceedings brought by the respondent (Pacific National) against the appellant (Commissioner) in which Pacific National sought an order setting aside a Duties Notice of Assessment dated 3 September 2004, and other orders. The primary judge ordered that the assessment be revoked, and that the Commissioner to pay Pacific National ' s costs.

2. The Commissioner appeals from those orders.

Duties Act 1997

3. The question at issue is whether an agreement to which Pacific National has been a party (the Access Agreement) is chargeable with duty as a lease instrument under the Duties Act 1997 (NSW). The relevant provisions of that Act are ss 164(1), 164A, 165 and 166(1) and (2). Those provisions are as follows:

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" 164 Imposition of duty

  • (1) This Chapter charges duty on a lease instrument , being an instrument that evidences or effects a lease (as defined in section 164A).

  • …

164A What is a " lease " ?

For the purposes of this Chapter, lease means:

  • (a) a lease of land in New South Wales or an agreement for a lease of land in New South Wales, or
  • (b) an agreement (such as a licence) by which a right to use land in New South Wales at any time and for any purpose is conferred on or acquired by a person (who is taken, for the purposes of this Chapter, to be a lessee of the land), or
  • (c) a franchise arrangement that is held in respect of a place or area located in New South Wales and that is first executed before 1 July 2001.

165 How duty is charged on a lease instrument

Duty is chargeable on a lease instrument:

  • (a) at the rate prescribed under this Chapter, on the cost of the lease, as determined in accordance with this Chapter, except as provided by paragraph (b), or
  • (b) in the case of a lease for which there is no consideration in money or money ' s worth, at the rate prescribed under this Chapter on the unencumbered value of the lease.

166 What is the " cost " of a lease?

  • (1) The cost of a lease (other than a franchise arrangement) is the aggregate of the following:
    • (a) the rent payable during the term of the lease or in advance of the lease and any amount paid or payable for the right to use land under the lease,
    • (b) any premium payable for a lease of premises in a retirement village within the meaning of section 5 of the Retirement Villages Act 1999 ,
    • (c) any rates and taxes paid or payable on behalf of the lessor in connection with the lease,
    • (d) the value of improvements and additions to the leased premises made or undertaken to be made by or on behalf of, or at the expense of, the lessee under an agreement or covenant by the lessee (other than fit-out costs), to the extent provided by section 175,
    • (e) any royalties payable under the lease, including royalties for the right to enter onto and remove something from the land.
  • (2) Rent includes any payment under the lease expressed to be rent but does not include any premium paid or payable expressed to be rent. "

4. " Land " is defined in the dictionary of the Act to include a stratum. " Land " is further defined in s 21 of the Interpretation Act 1987 (NSW) to include " messuages, tenements and hereditaments, corporeal and incorporeal, of any tenure or description, and whatever may be the estate or interest therein " .

Rail legislation and access regime

5. The Access Agreement must be read against the background of legislation passed with a view to promoting the conduct of rail freight operations on a commercial basis.

6. The starting point is an amendment of the Transport Administration Act 1988 (NSW) (TA Act) by the Transport Administration Amendment (Rail Corporatisation and Re-Structuring) Act 1996 (NSW) (1996 Act). This amendment established the Rail Access Corporation (RAC) as a State-owned corporation in s 19C of the TA Act and provided for the establishment of a NSW Rail Access Regime in s 19B (Sch 1-19). Section 19A, introduced into the TA Act by the 1996 Act, contained definitions of " NSW rail network " and " rail infrastructure facilities " , and s 19E(2) set out the principal functions of the RAC:

" NSW rail network means the railway lines vested in or owned by Rail Access Corporation (including passing loops and turnouts from those lines and loops and associated rail infrastructure facilities that are so vested or owned).

rail infrastructure facilities:

  • (a) includes railway track, associated track structures, over track structures, cuttings, drainage works, track support earthworks and fences, tunnels, bridges, level crossings, service roads, signalling systems, train control systems, communication systems, overhead power supply systems, power and communication cables, and associated works, buildings, plant, machinery and equipment, and (subject to section 19B(2)),

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    (b) does not include any stations, platforms, rolling stock maintenance facilities, office buildings or housing, freight centres or depots, private sidings and spur lines connected to premises not vested in or owned by Rail Access Corporation.

19E Functions of RAC

  • (1) …
  • (2) The principal functions of Rail Access Corporation are:
    • (a) to hold, manage and establish rail infrastructure facilities on behalf of the State; and
    • (b) to provide persons with access as rail operators to the NSW rail network.

  • …

    "

7. Although the RAC was to hold, manage and establish rail infrastructure facilities, the land on which these facilities were situated was not necessarily to be owned by it; and in fact the facilities have been mainly located on land owned by the State Rail Authority (SRA), and called SRA land by the TA Act.

8. Schedule 6A to the TA Act, introduced into that Act by the 1996 Act, included the following clauses 2 and 5:

" 2 Ownership of rail infrastructure facilities

  • (1) RAC is the owner of all rail infrastructure facilities installed in or on land, in or on rivers and other waterways and in or on the beds of rivers and waterways by RAC and of all rail infrastructure facilities vested in or transferred to RAC (whether or not the place on which the facilities are situated is owned by RAC).
  • (2) RAC may, subject to this Act, inspect, operate, repair, replace, maintain, remove, extend, expand, alter, connect, disconnect, improve or do any other thing that is necessary or appropriate to any of its rail infrastructure facilities that are situated on SRA land or on or in a SRA building to ensure that, in the opinion of RAC, the rail infrastructure facilities are established, held and managed in an efficient, safe and reliable manner.
  • (3) RAC may, subject to this Act, the NSW Rail Access Regime and the State Owned Corporations Act 1989 , sell or otherwise deal with rail infrastructure facilities that it owns.

  • …

5 Party to access agreement with RAC authorised to enter SRA land

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

9. The NSW Rail Access Regime was established on 19 August 1996 pursuant to s 19B of the TA Act. It defined " Corporation " to mean the RAC, and it contains definitions of " NSW Rail Network " and " Rail Infrastructure Facilities " not materially different from definitions in s 19A of the TA Act. It defined " Access " to mean " access to the NSW Rail Network and the use of the Rail Infrastructure Facilities listed in Schedule 1, Table 1 for Rail Operations " . Clause 3.1 of this agreement provided as follows:

" 3.1 The Corporation shall, subject to the Regime:

  • (a) permit Access to the NSW Rail Network, and the use of the Rail Infrastructure Facilities listed in Schedule 1, Table 1;

  • ATC 5204

    (b) limit Access to the Rail Infrastructure Facilities listed in Schedule 1, Table 1 for the purpose of Rail Operations; and
  • (c) ensure that it uses the Rail Infrastructure Facilities in Schedule 1, Tables 2 and 3 in a manner that facilitates access to the NSW Rail Network for the purpose of Rail Operations. "

10. Schedule 1 contained the following tables:

" TABLE 1: FACILITIES AVAILABLE FOR ACCESS UNDER THE REGIME

Railway track

TABLE2: FACILITIES UTILISED BY THE CORPORATION TO FACILITATE AND CONTROL ACCESS TO THE FACILITIES IN TABLE 1

Rail Infrastructure Facilities (excluding railway track)

TABLE 3: FACILITIES USED AS " OVERHEADS " IN ACCESS

Other facilities owned, leased etc by the Corporation (excluding Rail Infrastructure Facilities). "

11. Clauses 5.1 and 5.5 provided as follows:

  • " 5.1 Except as required by law, the Corporation must only permit Access through an Agreement.

  • …

  • 5.5 An Agreement must not confer exclusive permanent or temporary rights of occupancy of facilities listed in Schedule 1, Table 1 in favour of any person, including by way of sale, lease or assignment. "

12. Subsequent amendments to legislation have had the effect of substituting Rail Infrastructure Corporation (RIC), the result of the amalgamation of RAC and Rail Services Autority, for RAC, but have not otherwise relevantly affected the above provisions.

Access Agreement

13. On 1 July 1996, RAC entered into the Access Agreement with Pacific National (then called National Rail Corporation Limited (NRC)). Its recitals were:

14. The Access Agreement contained a dictionary which:

15. Clause 2.4 of the Access Agreement provided:

  • " (a) [ RAC ] grants to [ NRC ] the Access Rights on the terms of this Agreement.
  • (b) The Access Rights granted under clause 2.4(a):
    • (i.) are non-exclusive contractual rights;
    • (ii.) are for the rights set out in the Train Specification (Schedule D), as determined under clause 3.2(f) or agreed under clause 3.3; and
    • (iii.) are for Train movements under clause 2.4(b)(ii) where those Train movements are running early or late relative to the Train Path.
  • (c) Rail Access will provide the Ancillary Services set out in Schedule L upon payment by [ NRC ] to Rail Access of the relevant charges. "

Schedule D defined the route, stopping points and entry and exit of NRC ' s trains, and provided for timetables.

16. Subsequent amendments have not relevantly affected these provisions.

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Agreed facts

17. The parties agreed on the following facts stated in par. [ 11 ] of the primary judge ' s judgment:

" 11 The parties agreed that at all relevant times the NSW rail network was owned by or vested in RIC, that the NSW rail network was attached to, rested upon or was supported by the surface of the land and at all material times the owner of the fee simple in that supporting land was not RIC. With respect to this last concession, the Chief Commissioner reserved the right to argue that the effect of the Transport Administration Act 1988, Sch 6A, cl 2 was to vest an interest in a stratum of the supporting land in RIC. "

Decision of primary judge

18. In deciding against the Commissioner, the primary judge relied particularly on
Commissioner of Main Roads v. North Shore Gas Co. Limited (1967) 120 CLR 118 , in which the High Court held that the Gas Company ' s rights in pipes which it was entitled to maintain in other persons ' land were neither land nor an interest in land. The primary judge held that the vesting of rail infrastructure facilities in RIC did not pass to RIC any interest in land. His reasons concluded as follows:

  • " 21 In my view, the effect of the Transport Administration Act 1988, Sch 6A, cl 2(2) was to vest ownership of all rail infrastructure facilities in RIC, whether or not RIC owned the land to which or in which they were affixed or embedded as items other than land or an interest in land. Clause 5(1) empowered RIC to grant access to those facilities under an access agreement, even if they were situated in land owned by another rail authority, or to grant access to a person, a party to an access agreement, to a facility not owned, managed or controlled by that person. I therefore reject the argument of the Chief Commissioner that RIC held an interest in the land to which or in which rail infrastructure facilities were attached or embedded and a right to use that land was given to Pacific National under the access agreement.
  • 22 Land can be divided horizontally or vertically into strata. The Chief Commissioner ' s alternative argument was based on the notion that RIC gained a stratum in the ambient land in the space in which the rail infrastructure facilities were affixed or embedded and in the space through which Pacific National ' s rolling stock passed as it journeyed along the rail tracks.
  • 23 I reject that submission. In North Shore Gas it was not only contended that the mains and pipes constituted an interest in land, it was also argued that the space occupied by them constituted an interest land (sic). Both arguments were rejected. I see no reason to depart from that view in this case.
  • 24 It follows that I take the view that the vesting of the rail infrastructure facilities in RIC carried with it no interest in land and RIC had no legal right to grant a right to use land for the purposes of the definition of the term " lease " in the Duties Act 1997, s 164A(b).
  • 25 The Chief Commissioner submitted that the access agreement in conjunction with the Transport Administration Act 1988, Sch 6A, cl 5(1) must have given a right to pass over the ambient land in order to enjoy the use of the rail infrastructure facilities and that was a right to use land for the purposes of the Duties Act 1997, s 164A(b). For Pacific National it was submitted that this right was granted by cl 5(1) alone.
  • 26 This submission was based on the proposition that the word " by " that appears in the Duties Act 1997, s 164A(b) is one of wide import and should not be interpreted as " solely by. " The Chief Commissioner cited
    Fagan v Crimes Compensation Tribunal (1982) 150 CLR 666 , a decision that nervous shock occasioned by learning of the death of the appellant ' s mother was a compensable injury because it occurred by or as a result of the criminal act and
    Wardley Australia Ltd v Western Australia (1992) 175 CLR 514 , a decision on the interpretation of the Trade Practices Act 1974 (Cth), s 82(1) that a person who suffers loss or damage by conduct of another person that was done in contravention of portions of the Act might recover the amount of the loss or damage.

  • ATC 5206

    27 In my view, the Duties Act 1997, s 164A(b) looks to the legal source of the right to use land. If the right arises under an agreement, the instrument constitutes a lease. If the right arises otherwise, any instrument relating to the right is not a lease. In this case the access agreement provided no more than the right to use RIC ' s railway network that included rail infrastructure facilities. For the reasons set out above the vesting of the NSW railway network in RIC did not create in it any interest in land. The legal source of Pacific National ' s right to use land in New South Wales is to be found elsewhere than in the access agreement.
  • 28 In my view, the grant of access in the Transport Administration Act 1988, Sch 6A, cl 5(1) was the legal source of a right to use land in New South Wales. That denies the access agreement as the source of that right. "

Submissions

19. Mr. Slater QC for the Commissioner submitted that there were three bases on which the Access Agreement was an agreement by which a right to use land was conferred on or acquired by Pacific National:

20. Mr. Gageler SC for Pacific National submitted:

  • " (1) By severing the ownership of the rail infrastructure facilities from ownership of the land on which they were situated, the legislation treated such things as track support earthworks in the same way as such things as signalling systems, that is, as things other than land, of the same nature as the pipes considered in the later Gas Company case. If the Court were of the view that some of the rail infrastructure facilities were land, such as tunnels or track support earthworks, there would need to be apportionment between what part of the consideration was rent in respect of the use of land and what part was in respect of the use of things other than land.
  • (2) & (3) The Access Agreement only gives a right to use train tracks to a specified extent, and a right to use other rail infrastructure facilities as necessary or incidental to that specified use of the train tracks. In so far as Pacific National had any right to use land occupied by rail infrastructure facilities, or land which supported them or through which trains passed, that was only because the legislation gave that right. That is, any right to use land in that sense was a right given by statute, not by the Access Agreement; so that there was not by the Access Agreement any right to use land granted to or acquired by Pacific National. "

Decision

21. In the Gas Company case, the majority judgment of Barwick CJ, McTiernan, Kitto and Taylor JJ stated at 125 that the only question in the case was " whether the mains and pipes, or the space occupied by them, constituted an interest in land " . Their Honours held (at 127-8) to the effect that the exercise of a statutory right to lay and maintain pipes in another ' s land does not vest in the donee of the power an interest in land in which the pipes are laid; and accordingly when that land was acquired by a public authority, the donee of the power was not entitled to any compensation for any land or interest in land of which it had been deprived.

22. In that case, the High Court distinguished an earlier High Court decision in
North Shore Gas Co. Limited v. Commissioner of Stamp Duties (1940) 63 CLR 52 , which had held that in similar circumstances, the pipes were not " goods, wares or merchandise " . It was held to the effect that, since the pipes had been dealt with in a fashion that would, apart from specific legislative provisions, give them the same legal character as the soil in which they were placed, they did not continue to belong to the legal category of personal chattels.

23. 

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In that case, Dixon J (at 70) stated that: " So much of the earth as the pipes displace formed a space in the occupation of the company and that space constitutes land " and that " The company ' s occupation of the space is as of right and is exclusive " . The majority judgment in the later Gas Company case (at 126-7) doubted that the spaced occupied by the pipes constituted an interest in land.

24. In my opinion the later Gas Company case established that the gas company ' s right in relation to its pipes did not constitute an interest in land; but it did not establish that the space occupied by the pipes was not land. The concurring judgment of Windeyer J (especially at 131-34) makes it clear that this space is land; and the gas company lost the case because it did not have what could properly be called " an interest " in that land.

25. The question in the present case is not whether by the Access Agreement an interest in land was conferred on or acquired by Pacific National, but whether a right to use land was so conferred or acquired. In my opinion, there is no doubt that the combined effect of the Access Agreement and the legislation was that rights to use land were conferred on or acquired by Pacific National.

26. Dealing with the first basis identified by Mr. Slater, in my opinion there are some classes of rail infrastructure facilities that have the character of land and are not deprived of that character by their treatment by the legislation.

27. In my opinion, cuttings, drainage works, track support earthworks, tunnels and service roads are either themselves configurations of land, or else are so much integrated into land as not to be distinguishable from land; and the statutory vesting of ownership of these items in an owner who is not owner of the land on which they are situated does not make them other than land.

28. On the other hand, railway tracks, signalling systems, train control systems, communications systems, overhead power systems, and power and communications cables, are such that the statutory vesting of ownership of these items in an owner who is not the owner of the land could ensure that they are not themselves land.

29. In my opinion, the similar treatment of these two categories by the legislation does not have the effect of making both land or both not land; and in my opinion, the first category is land and (on the basis of the later Gas Company case) the second category is not.

30. As regards the second and third bases identified by Mr. Slater, in my opinion a right to use rail infrastructure facilities in situ carries with it a right to use the space which they occupy, which is land. Mr. Gageler submitted that such a conclusion would be absurd, because it would mean that a right to use a computer would be a right to use land. However, in my opinion, if a right is effectively granted to use a computer fixed at a particular location, that would be a right to use the land occupied by that computer. The right to use the rail infrastructure facilities also in my opinion carries with it the right to use the land supporting these railway infrastructure facilities, especially that supporting the railway tracks, and also the right to use the air space over the railway tracks through which the trains pass.

31. The question then is, are the rights I have identified rights to use land conferred on or acquired by Pacific National " by " the Access Agreement, or are they not so because they arose by operation of cl.5 of Schedule 6A of the TA Act?

32. It is commonplace that powers to grant rights to use land are given by statute. The right to deal with much land in the State is given by the Real Property Act, and other statutes give public authorities the right to deal with land and authorise other persons to use land. The fact that a power to grant such rights is given by statute does not mean that the rights are not conferred on or acquired by the other persons " by " instruments exercising the power.

33. I do not think there should be any different conclusion in this case. The legislation authorised RAC (now RIC) to grant rights which effectively carried with them the right to use land. Accordingly, the Access Agreement was an agreement by which a right to use land was conferred on or acquired by Pacific National within the meaning of s 164A(b) of the Duties Act.

Conclusion

34. For those reasons, in my opinion the following orders should be made:

 

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