CENTRO (CPL) LIMITED v CHIEF COMMISSIONER OF STATE REVENUE (NSW)

Judges:
Gzell J

Court:
Supreme Court of New South Wales

MEDIA NEUTRAL CITATION: [2010] NSWSC 751

Judgment date: 23 July 2010

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Gzell J

The issue

1. The defendant, Chief Commissioner of State Revenue, disregarded the grant of a long-term concurrent lease of land in New South Wales in determining the dutiable value upon which he charged the plaintiff, Centro (CPL) Limited, to duty on its acquisition of the reversionary interest in the land.

2. The sole question in this review is whether the Chief Commissioner was entitled so to do under the Duties Act 1997, s 24 in its present form as follows:

• "24 Interests, agreements and arrangements that reduce the dutiable value
  • (1) In determining the dutiable value of dutiable property under this Part, any interest, agreement or arrangement (other than an encumbrance) granted or made in respect of the dutiable property that has the effect of reducing the dutiable value is to be disregarded, subject to subsection (2).
  • (2) An interest, agreement or arrangement is not to be disregarded if the Chief Commissioner is satisfied that it was not granted or made as a part of an arrangement or scheme with a collateral purpose of reducing the duty otherwise payable on the dutiable transaction.
  • (3) In considering whether or not he or she is satisfied for the purposes of subsection (2), the Chief Commissioner may have regard to:
    • (a) the duration of the interest, agreement or arrangement before the dutiable transaction, and
    • (b) whether the interest, agreement or arrangement has been granted to or made with an associated person, and
    • (c) whether there is any commercial efficacy to the granting of the interest or the making of the agreement or arrangement other than to reduce duty, and
    • (d) any other matters the Chief Commissioner considers relevant."

Background

3. The business of the Centro group of companies involved the investment in and management of properties and property fund management.

4. CPT Manager Limited, a wholly-owned subsidiary of CPL, provided trustee and responsible entity services. Its wholly-owned subsidiary CPT Custodian Pty Limited provided trustee and custodian services.

5. The Bankstown Square Regional Shopping Centre was owned by the Government Superannuation Office of Victoria and GPT Management Limited as Trustee of the General Property Trust as tenants in common in equal shares. The Shopping Centre was subject to a number of commercial leases. It was advertised for sale subject to those leases.

6. On 28 June 2002 Centro Property Syndicate No 8 was established by a trust deed executed by CPL and CPT Manager as trustee.

7. On 9 August 2002, Andrew Thomas Scott, the chief executive officer of Centro, wrote on behalf of CPT Manager providing an expression of interest in purchasing the Shopping Centre on the terms set out in the letter.

8. The letter did not refer to the acquisition of a leasehold interest. Mr Scott said Centro wanted to be on the same terms as other prospective purchasers. The letter contained the following:

"Centro is willing to purchase the Centre for a yield of between 7.75% and 8.00% based on the Centre's sustainable net income and an IRR of 10%. Centro believe that these parameters, together with structuring flexibility, will allow the owners to achieve a sale price in excess of book value, which we are informed is $357 million."

9. Mr Scott said that reference to "structuring flexibility" allowed Centro to introduce the idea of a leasehold structure.

10. There followed a due diligence period for Centro during which it took legal advice about structuring the acquisition of the Shopping Centre by the grant of a long-term concurrent lease with an option to acquire the reversion more than 12 months after acquisition.

11. That advice was clearly based upon the Duties Act, s 24 as it then stood in its original form:

• "24 Arrangements that reduce the dutiable value

  If any arrangement affecting the dutiable value of dutiable property that was entered into within 12 months before a dutiable transaction was brought about by any person with the intention of reducing the dutiable value of the dutiable property, the Chief Commissioner may:

  • (a) cause a valuation of the dutiable property to be made, and
  • (b) direct the valuer to disregard the arrangement for the purposes of the valuation, and
  • (c) assess duty on the basis of the valuation carried out in accordance with the direction."

12. By delaying the acquisition of the reversion for over 12 months, s 24 of the Duties Act was avoided.

13. During this period differing arrangements were considered. One was for CPT Manager to acquire a 125-year concurrent lease with Centro retaining 50% and forming a syndicate to hold the other 50%. Another proposal was to acquire a 300-year concurrent lease and then enlarge the leasehold estate into the fee simple.

14. This plan had in mind the Conveyancing Act 1919, s 134(1) which provides for the enlargement into a fee simple of a lease of at least 300 years. It provided:

"Where a residue unexpired of not less than two hundred years of a term which, as originally created, was for not less than three hundred years, is subsisting in land, whether being the whole land originally comprised in the term, or part only thereof, without any trust or right of redemption affecting the term in favour of the freeholder, or other person entitled in reversion expectant on the term, and without any rent, or with merely a peppercorn rent or other rent having no money value, incident to the reversion, or having had a rent, not being merely a peppercorn rent or other rent having no money value, or a money value not exceeding four dollars per annum originally so incident, which subsequently has been released, or has become barred by lapse of time, or has in any other way ceased to be payable, then the term may be enlarged into a fee simple in the manner, and subject to the restrictions, in this section provided."

15. In any event, following board approval, Mr Scott wrote on behalf of CPT Manager on 20 September 2002 offering to acquire the Shopping Centre by CPT Manager or its nominee being granted a 300-year concurrent lease upon payment of a premium of $351.75 million at a rental of $1 per annum with CPL granted an option to acquire the reversionary freehold interest for a fee of $0.2 million exercisable within four years with the vendors restrained from selling the underlying freehold interest during that term.

16. The offer lapsed without acceptance and negotiation continued. Mr Scott said that Centro investigated the possibility of having a third party such as a charitable organisation acquire the reversionary freehold interest.

17. On 2 October 2002, GPT Management and the Superannuation Office wrote to Mr Scott requiring, amongst other things, a covenant that conversion of the leasehold interest to freehold would not be triggered for a minimum of 50 years.

18. This requirement was, no doubt, motivated by the Income Tax Assessment Act 1997 (Cth), s 104-115.

19. Section 104-110 of the Income Tax Assessment Act provides that a CGT event F1 happens if a lessor grants, renews, or extends a lease. The lessor makes a capital gain if the capital proceeds from the grant, renewal or extension are more than the expenditure it incurred on the grant, renewal or extension.

20. But s 104-115 of the Income Tax Assessment Act provides that a CGT event F2 happens if the lease is for at least 50 years and at the time of the grant, renewal or extension it was reasonable to expect that it would continue for at least 50 years and the lessor chooses to apply that section instead of s 104-110. In that case the lessor has the advantage that the capital gain is extent to which the capital proceeds from the event are more than the cost base of the lessor's interest in the land.

21. In the letter, GPT Management also required a mechanism by which it had control over the collapsing of the concurrent lease. It was agreed that it should have a put option.

22. Work on the arrangement continued with consideration of the structure for the syndication of a 50% interest.

23. On 11 October 2002, GPT Management and the Superannuation Office informed Mr Scott that GPT Management was prepared to accept a net price of $175 million and a lease structure, but the Superannuation Office was unlikely to support the structure but might be prepared to consider a lower price for its 50% interest of $175 million less the notional cost of the applicable stamp duty to the Superannuation Office interest on the basis that its interest was sold utilising a conventional sales structure and a separate sale contract.

24. On 15 October 2002, Mr Scott made an offer on behalf of CPT Manager to purchase the Superannuation Office's interest outright for $167 million, which was accepted on 21 October 2002.

25. On advice that the Superannuation Office interest should be acquired by a new Centro sub-trust with a holding trust above it, all the units in which should be held by CPT Manager as trustee of the Centro (CPT) Trust and that this double unit trust structure should be replicated for the other 50% interest, a flurry of activity occurred on 25 October 2002.

26. With respect to the leasehold interest, Centro Bankstown Holding Trust No 1 was created with CPT Manager as trustee, the units in which were held by CPT Manager as trustee of Syndicate No 8. The Centro Bankstown Sub Trust No 1 was established with CPT Custodian as trustee, all the units in which were held by CPT Manager as trustee of Holding Trust No 1.

27. To acquire the freehold interest of the Superannuation Office, Centro Bankstown Holding Trust No 2 was established with CPT Manager as trustee, all the units in which were held by CPT Manager as trustee of the Centro (CPT) Trust. Centro Bankstown Sub Trust No 2 was also established with CPT Custodian as trustee, its units being held by CPT Manager as trustee of Holding Trust No 2.

28. On 30 October 2002, the Superannuation Office and CPT Custodian as trustee of Sub Trust No 2 executed an agreement for sale of the Superannuation Office's interest in the Shopping Centre for $167.1 million.

29. On the same day, GPT Management and CPT Custodian as trustee of Sub Trust No 1 entered into an agreement for a 300-year lease at a premium of $175.95 million with a rent of $1 per annum.

30. Also on 30 October 2002, GPT Management granted CPL a call option to purchase GPT Management's reversionary freehold interest for $50,000 and CPL granted GPT Management a put option to require CPL to purchase the reversionary interest for $50,000. The call option was exercisable in the period beginning one day and one year after the commencement date of the concurrent lease and terminated one month later. The put option was exercisable in a period commencing one year seven months and one day after the commencement date of the lease.

31. Also on 30 October 2002 CPL, CPT Custodian as trustee of Sub Trust No 1 and GPT Management executed a deed of warranty and indemnity in which CPL and CPT Custodian as such trustee warranted that they had no present intention to allow the lease and the freehold to come into the same ownership legally or beneficially, or to terminate the lease within 50 years. A deed of guarantee and indemnity was executed by CPT Manager as responsible entity for CPT Trust guaranteeing performance by CPT Custodian as trustee of Sub Trust No 1.

32. An umbrella agreement was also executed on 30 October 2002 by Superannuation Office, GPT Management, CPT Custodian as trustee of Sub Trust No 1 and CPT Custodian as trustee of Sub Trust No 2 warranting that they would carry on the Shopping Centre.

33. Thus the documentation provided for CPT Custodian as trustee of Sub Trust No 1 to obtain a 300-year concurrent lease of GPT Management's 50% interest in the Shopping Centre, for CPL to obtain an option to acquire from GPT Management its reversionary interest in the land through a call option and GPT Management granted a put option in the event that the call option was not exercised and it wished to rid itself of all interest in the Shopping Centre.

34. The advantage to CPT Custodian as trustee of Sub Trust No 1 was that it acquired an interest in the Shopping Centre, tantamount to ownership, at a greatly reduced stamp duty impost. Lease duty is 0.35% under the Duties Act s 170(1) whereas conveyance duty on a dutiable value in excess of $1 million is $40,490 plus 5.5% on the excess under s 32(1).

35. The agreement of the long-term lease was lodged with the Chief Commissioner and stamped at $615,825 on the lease premium of $175.95 million on 19 November 2002. On 21 November 2002 the lease was granted and stamped on 25 November 2002 with $2 in accordance with the Duties Act, s 171(1) as the agreement for lease had been stamped. Presumably it was then registered.

36. The transfer of the Superannuation Office's 50% interest in the Shopping Centre to CPT Custodian as trustee of Sub Trust No 2 was subsequently executed, stamped and registered.

37. On 20 January 2003 a prospectus issued offering the public units in Syndicate No 8. By July 2003 it was oversubscribed.

38. CPL did not exercise the call option. On 21 July 2004, GPT Management exercised the put option and on 22 July 2004, CPL and GPT Management executed a contract for sale and purchase of GPT Management's reversionary freehold interest in 50% of the Shopping Centre and a transfer was executed on 25 August 2004.

39. On 3 November 2004, CPL lodged the contract for sale with the Chief Commissioner for stamping and paid $765 on the basis that the dutiable value of the property was $50,000. On 25 May 2007, the Chief Commissioner issued a notice of assessment of $9,665,492 ad valorem duty plus $3,424,641.02 interest.

40. CPL's objection, lodged on 27 July 2007, was disallowed on 18 July 2008 and the matter proceeded to this Court under the Taxation Administration Act 1996, s 97(1).

Witness criticisms

41. Romano George Nenna was the chief financial officer of CPL with responsibilities across the group. He said Centro identified a property for consideration for investment and assessed it according to its investment criteria. If suitable, an offer was made for the property and if successful, the property was acquired. The whole or part of the property was then offered for investment to managed funds listed or unlisted, wholesale funds or unlisted syndicate funds. An entity within Centro would manage the funds deriving management fees for the service.

42. Mr Nenna said that in assessing investment opportunities Centro had regard to a number of criteria including whether the property could be acquired and financed at a price that provided a sufficiently attractive investment proposition to investors. The lower the property's acquisition price, the higher the yield and the more attractive the investment was for an investor.

43. He investigated whether the acquisition of a leasehold interest in the Shopping Centre would meet Centro's commercial objectives and would not be in breach of anti-avoidance provisions in the Duties Act.

44. Graham Ernest Terry was the chief operating officer of Centro. He was responsible for overseeing development work at all Centro's retail properties and he was responsible for all operations at those properties. He was involved in the acquisition of the Shopping Centre. He performed a first stage analysis of the property and recommended to Mr Scott that Centro proceed to the next stage. That analysis was carried out by Mr Scott and Mr Nenna.

45. Mr Nenna was assured by Mr Terry that a long-term lease would make no difference to Centro's day to day operations. Centro would be able to sublet the property and tenants would accept a sublease on that basis.

46. Mr Nenna concluded that the acquisition of a long-term lease would be the most cost effective way of acquiring the Shopping Centre and would not be inferior to an acquisition of the freehold. Centro would not be restricted, commercially, in its management and dealings with the property. And it would be attractive to syndicate investors.

47. Mr Nenna discussed his conclusions with Mr Scott and Mr Terry and he checked the acquisition of a long-term lease as against the freehold with one or more of Centro's syndicate fund managers.

48. It was submitted that because Mr Nenna had said that he was intent on minimising acquisition costs including stamp duty, it was disingenuous of him to say that there was never an intention of saving stamp duty through reducing the dutiable value of the freehold property.

49. The context in which Mr Nenna made this statement in cross-examination was that he was asked whether he recalled the terms of the specific anti-avoidance provision that he wanted to ensure was not breached. He said it was important not to contravene those provisions by entering into the lease merely for the purpose of thereafter acquiring the reversionary interest. They might as well not enter into the lease if they were to do that and the purpose of a lease would have been other than exploiting it in its own right. Counsel then put to him: "So you are suggesting that you had no intention, are you, of reducing any dutiable value", to which he responded: "That is absolutely correct."

50. That is consistent with what Mr Nenna had said in his affidavit. With respect to GPT Management's requirement that there be a deed of warranty and indemnity including the covenant not to merge the freehold reversionary interest for 50 years he, Mr Scott and Mr Terry had agreed that this was reasonable and since Centro did not want to acquire the reversionary interest it would be no trouble to comply.

51. And, again, with respect to GPT Management's requirement of a put option, both Centro and GPT Management agreed that the counter party should not be CPT Custodian as trustee of Sub Trust No 1 because neither CPT Custodian nor GPT Management wanted to effect a merger with the freehold reversionary interest. From GPT Management's perspective a merger of the interests would result in it having to pay additional tax. GPT Management would not grant a leasehold if there was a possibility of a merger which would affect its tax position. From CPT Custodian's perspective it only wanted to acquire the leasehold under its commercial objectives. It was important to it to get the cost reduction benefits of a leasehold. If it acquired the freehold interest in the land it would need to pay additional stamp duty and its acquisition costs would increase. Mr Nenna said, accordingly, it was agreed that the counterparty to the put option would be CPL.

52. That evidence, that was not challenged in cross-examination, had nothing to do with an intention on Mr Nenna's part to reduce the dutiable value of the freehold property.

53. Mr Scott had said in his affidavit that at one stage Centro had investigated the possibility of having a third party acquire the reversionary freehold interest from GPT Management. He said he was aware that an entity known as Trust Company of Australia held investments on behalf of charitable organisations and he accordingly investigated the possibility of the reversionary freehold interest being gifted to a charitable organisation. He made some telephone enquiries but said that because of the complex nature of the transaction and the time pressure involved in attempting to complete the transaction as soon as possible, those investigations were not successful.

54. He was cross-examined on this issue but maintained that while of negligible value a charity might be interested because in a very long time it might get something of material value out of it.

55. It was submitted that this was fanciful evidence and a number of reasons were posited against a charity taking up the reversionary interest of GPT Management. Those issues were not, however, put to Mr Scott in cross-examination. Further, I do not see how they affect the choice of CPL as the party to the put and call options. I accept Mr Scott's evidence that there was an urgency about the matter and no time to continue investigation of charitable organisations.

56. Mr Nenna had recounted his being questioned by one board member as to whether there were any disadvantages or business risks in acquiring a lease rather than the freehold and whether there was a risk that Centro might have to pay more stamp duty. In cross-examination he said that he expressed his opinion to the board in answer to those questions. It was submitted that this cross-examination amounted to an admission by Mr Nenna of misgivings at board level. I do not interpret his evidence in that way. Board questioning of management is a regular feature of board meetings and, without more, does not indicate misgivings at board level.

57. In a board submission of 5 September 2002, reference was made to stamp duty advice from the solicitors that a lease structure with a reversionary interest that could be merged at a later date was acceptable to the solicitors. In cross-examination Mr Scott described this portion of the submission as effectively trying to "walk the board", who were going to make the decision at a later date, through whether or not a leasehold and freehold interest were the same. It was submitted that these matters revealed discomfort of the board with the structuring. Again, I do not read the evidence in that way. To take a board through an issue does not indicate discomfort at board level.

58. John Hutchinson was a partner at Freehills. During that period he did not negotiate leases of a term of 300 years. Michael James Neilson was general counsel and company secretary of GPT Management. He said that apart from the transaction with respect to the Shopping Centre he had never negotiated a 125-year lease arrangement or a 300-year lease arrangement. Freehills, in a memorandum dated 9 October 2002 said that the LPI did not have any information available on the Conveyancing Act, s 134.

59. I do not see the relevance of this evidence. Uniqueness does not justify the assessment against CPL. CPT Custodian as trustee of Sub Trust No 1 paid far less duty than it would, had it acquired GPT Management's 50% freehold interest. Mr Slater QC who with Dr Robertson appeared for CPL openly stated that the arrangement was a duty avoidance one but that did not mean that the assessment against CPL should stand.

60. Mr Nenna recommended that the call option not be exercised. He said the main reason was that it was unnecessary to pursue the reversion. But he did say that the issue of appearances did come into it. Again, I fail to see the relevance of Mr Nenna's intentions. There is no suggestion that the arrangement was a sham and Mr Nenna's intentions as to appearance do not justify the Chief Commissioner ignoring the acquisition of the 300-year concurrent lease by CPT Custodian as trustee of Sub Trust No 1.

Legislative history

61. The original version of the Duties Act, s 24 is set out at par 11 above.

62. The State Revenue Law Amendment Bill No 1 2002 was amended on 13 November 2002 to introduce an amended version of s 24 of the Duties Act spurred on by media discussion of duty avoidance arrangements including the arrangement by which Centro was to acquire the Shopping Centre. When passed, s 24 was given retrospective effect to 13 November 2002. It provided as follows:

• "24 Arrangements that reduce dutiable value

  An arrangement affecting the dutiable value of dutiable property that is subject to a dutiable transaction is to be disregarded in determining the dutiable value of the dutiable property if:

  • (a) the dutiable transaction is between associated persons, or
  • (b) the Chief Commissioner is satisfied that a significant purpose of any party to the arrangement was the reduction of the dutiable value of the dutiable property."

63. There was no longer a restriction on the operation of the provision to those arrangements into which parties entered within 12 months of a dutiable transaction.

64. The present version of the Duties Act, s 24, set out at par 2 above, took effect from 1 January 2004 and applied when GPT Management exercised the put option on 21 July 2004. The explanatory note that accompanied the State Revenue Law Further Amendment Bill 2003 stated that the replaced s 24 clarified that arrangements made for a collateral purpose of reducing the amount of duty otherwise payable are to be disregarded.

Reliance on the Trust Company decision

65. The Chief Commissioner relied upon the decision of the Court of Appeal in
Trust Company Ltd v Chief Commissioner of State Revenue [2007] NSWCA 255; (2007) 70 ATR 505. The case has some similarities to the present one. It was decided under the second version of the Duties Act, s 24 set out at par 62 above.

66. Giles JA summarised the facts at 509 [17]:

• "(a) the church owned 4 parcels of land at Homebush Bay;
• (b) each of the parcels was leased under one or more short-term leases, in the case of one of the parcels over part only of the parcel;
• (c) 'Heads of Agreement' were entered into by which it was proposed that the church sell the parcels to the trust, subject to the short-term leases, for $66,000,000;
• (d) instead of sale in that manner:
  • (i) the church leased the parcels to the trust under 99-year leases concurrent with the short-term leases at a total rental, payable (and paid) immediately, of $65,120,125, which leases were registered; and
  • (ii) the church then contracted to sell the parcels to the trust, subject to the 99-year leases and the short-term leases, for $1,850,000;
• (e) transfers of the parcels were executed and registered."

67. Giles JA dissented. As Mason P explained at 508-509 [12]:

"Giles JA would accept this submission. He has concluded that s 24 did not extend to a transaction whose purpose was that the dutiable value of the dutiable property be less than the dutiable value of other property which would have been dutiable property the subject of the dutiable transaction but for the arrangement…."

68. Mason P at 508 [8] held that the Duties Act, s 24 contained no requirement of contemporaneity and could therefore be forward-looking. But it had to affect the dutiable value of the dutiable property. His Honour expressed the view at [9] that the entry into 99-year leases affected the dutiable value of the reversionary interests later contracted to be sold and it was open to the Chief Commissioner to have the requisite satisfaction under s 24(b).

69. His Honour explained at 508 [10] that the leases were entered into as part of a scheme designed to reduce the duty payable in relation to the anticipated contracts for sale of the reversions. The reversions intended to be sold would not exist without the particular leases. The intended contracts for sale would involve the sale of those particular reversions. The President went on to say at [11]:

"The agreements for lease and the contemporaneous offer deeds also set up the structure whereby the over-riding purpose of transferring the land to the respondent at the previously negotiated sale price would be achieved in an advantageous manner as regards its tax implications."

70. At 509 [13] Mason P took the view that the words "arrangement" and "affecting" were broad in their scope and the general intent of the Duties Act, s 24 was patent. In those circumstances his Honour did not see why s 24 called to be read as restrictively as proposed by the appellant and found by Giles JA. His Honour said:

"I readily accept that s 24 requires one to remain focussed upon the dutiable transaction itself (here the contracts to sell the reversions dependent on the 99-year leases). But it does not follow, in my respectful view, that the arrangement that purposefully created the reversion for the revenue-reducing purpose and as part of a scheme that was designed to include the particular contracts is incapable of being described as 'affecting' the value of that reversion. It does so quite directly in that: (a) without the leases there are no reversions; and (b) the term and terms of the leases affect and reduce the value of the reversion that comes to be sold."

71. Santow JA at 530 [109] said that assuming the dutiable transaction to be the agreements for sale constituted by the four contracts, it could not be disputed that looking at the prior steps, in particular entry into and subsequent registration of the 99-year concurrent leases, a significant purpose of the appellant was to bring about a situation whereby the dutiable value of the dutiable property the result of the concurrent leases was less than it would otherwise have been, with consequent reduction in the duty payable overall.

72. At 530 [110] his Honour adopted a proposition to the same or similar effect to that of Mason P referred to above:

"For reasons elaborated below, I consider that those prior steps constituted 'an arrangement affecting the dutiable value of dutiable property that is subject to a dutiable transaction' within the opening words of s 24 of the Duties Act 1997 (NSW) recognising the wide import of the word 'affecting'. I consider that the Chief Commissioner was entitled to be satisfied that a significant purpose of the appellant as party to the arrangement 'was the reduction of the dutiable value of the dutiable property'. I conclude that this entitled the Chief Commissioner, by application of s 24 of the Duties Act 1997 (NSW), to disregard those earlier steps consisting of the entry into and registration of concurrent leases when determining the dutiable value of the dutiable property."

73. In his elaboration of his reasons, Santow JA concluded at 531[114] that the Duties Act, s 24(b) as it then stood was satisfied where a party causes existing property to be transmogrified into new property of lesser dutiable value, although this is by an arrangement entered into before the relevant dutiable transaction. At [115] his Honour considered that s 24 encompassed a reduction in dutiable value of dutiable property brought about by its transmogrification into dutiable property of lesser dutiable value. At [116] his Honour observed that the argument to the contrary would construe s 24(b) so that it was only satisfied where precisely the same dutiable property suffered the reduction in its dutiable value. The argument would proceed on the basis that reduction of the dutiable value of the dutiable property necessarily presupposed a non-reduced dutiable value of that self same property, not the substitution of other albeit related property of reduced dutiable value. At 532 [117] his Honour said that this would render the legislation incapable of dealing with the very mischief to which it was directed.

74. At 532 [119]-[120] Santow JA adverted to the original heads of agreement involving the sale of the valuable reversion expectant on the shorter-term existing leases. His Honour said that by instead entering into and registering the 99-year concurrent leases, there came into being an arrangement affecting the dutiable value of the dutiable property. That arrangement affected the dutiable value of dutiable property by transmogrifying it into dutiable property of lesser dutiable value than pre-existed. It could be taken that a significant purpose of the purchaser was the reduction of the dutiable value of the dutiable property. His Honour concluded at [121]:

"Accordingly, even accepting that new property was brought into being as the appellant contends constituting distinct property from that which pre-existed before the concurrent leases, both conditions of s 24 were in my judgment satisfied, so enabling the Chief Commissioner to disregard the concurrent leases and charge duty accordingly."

75. There are clear differences between the situation in Trust Company and that before me. There the prospective purchaser became the lessee and acquired the reversionary estate created upon entry into the long-term concurrent leases and that gave the lessee access to the valuable short-term leases. The prospective purchaser ended up with the same reversionary interests expectant on the short-term leases that it would have acquired by purchase under the heads of agreement. It obtained access to the short-term leases because the first reversionary estate created by those short-term leases ceased to exist when the later concurrent leases issued and the new reversionary estate created by the concurrent leases subsumed the first reversionary estate.

76. Here, the prospective purchaser became the lessee but it did not acquire the reversionary interests. They were acquired by CPL and under a covenant against merger thereby denying it access to the valuable short-term leases for at least 50 years. What CPL acquired was of negligible value.

77. CPT Custodian as trustee of Sub Trust No 1 became the lessee under the long-term concurrent lease and obtained access to the valuable short-term leases. But CPT Custodian has not been assessed. The reversionary interest holder without access to the short-term leases has been assessed instead.

78. Mr Hamilton SC who with Mr Young appeared for the Chief Commissioner submitted that these considerations made no difference and the same result as in Trust Company should arise under the Duties Act, s 24 in its present form: The rationale in Trust Company applies.

79. It was submitted that replacing one legal entity in Trust Company with two legal entities in this case should not thwart the operation of the Duties Act, s 24. Reliance was placed on what I had said in Trust Company at first instance,
Trust Company of Australia Ltd v Chief Commissioner of State Revenue [2006] NSWSC 792; (2006) 66 NSWLR 551 at 564 [67]:

"The anti-avoidance purpose of the Duties Act, s 24, is clear on its face and needs no inference of intended operation with respect to any particular arrangement for its proper construction."

80. All that was required, it was submitted, was to put aside the interposed lease transaction and ask what the position would otherwise have been on the dutiable transaction. Since CPL acquired the reversion its dutiable value would otherwise have been $175 million.

81. But the position is not so simple. CPL was not intended to acquire the reversion expectant upon the short-term leases and did not acquire the reversion expectant upon the short-term leases. It was intended to acquire and did acquire the worthless reversion expectant upon the 300-year concurrent lease.

Determination

82. The Duties Act, s 24 in the form considered in Trust Company was concerned with arrangements affecting the dutiable value of dutiable property. In its present form, s 24 is concerned with interests, agreements or arrangements that have the effect of reducing the dutiable value.

83. It was submitted that little turns on this change because in the former Duties Act, s 24(b) the additional requirement was that the Chief Commissioner be satisfied that a significant purpose of any party to the arrangement was the reduction of the dutiable value of the dutiable property. The only change in emphasis, it was submitted, was that the former provision centred on the purpose of any party to the arrangement, whereas the provision in its current form looks to the interest, agreement or arrangement as having the effect of reducing the dutiable value.

84. There is no suggestion in the extrinsic materials to the State Revenue Law Further Amendment Bill 2003 by which the present Duties Act, s 24 was introduced of any significant change from the former provision. The explanatory note that accompanied the bill stated:

"The substituted section clarifies that arrangements made for a collateral purpose of reducing the amount of duty otherwise payable are to be disregarded."

85. That is a reference to s 24(2) and there is nothing in the note that suggests a change to s 24(1). I accept those submissions.

86. The Chief Commissioner submits that the duty otherwise payable by CPL was that which would have been payable by CPL in the absence of the interposed 300-year concurrent lease.

87. But if that result is to follow the reasoning in Trust Company the reversionary interest put to CPL must have been transmogrified by entry into the 300-year lease from a prospective acquisition of dutiable property of a greater dutiable value in terms of the reasoning of Santow JA. Or, in terms of the approach of Mason P, the entry into the 300-year concurrent lease must have affected the dutiable value of the dutiable property that later became the subject of the dutiable transactions.

88. In Trust Company Mason P was able to say that this was so because the entry into the 99-year leases affected the dutiable value of the reversionary interests that would otherwise have been transferred to Trust Company. There was no other dutiable property the dutiable value of which was reduced by entry into the concurrent leases.

89. But in this case the residuary estate put to CPL was not transmogrified from other dutiable property it was to acquire. Nor was there any other dutiable property that CPL was to acquire, the dutiable value of which was reduced by CPT Custodian's entry into the 300-year concurrent lease. There was no pre-existing arrangement, as there was in Trust Company, that CPL would purchase the reversion expectant on the short-term leases that was transmogrified into its acquisition of the reversion expectant upon the 300-year concurrent lease.

90. A reduction in value calls for a comparison between what CPL acquired and what it otherwise would have acquired but for the impugned interest, agreement or arrangement. In this case it was never intended that CPL should acquire anything other than the reversion expectant upon the 300-year concurrent lease.

91. That distinguishes this case from Trust Company and renders the Duties Act, s 24(1) inapplicable to CPL. The dutiable property that it acquired, the reversion expectant upon the 300-year concurrent lease, was not subject to any interest, agreement or arrangement that had the effect of reducing its dutiable value. It was always intended to acquire dutiable property that maintained its dutiable value.

92. The dutiable property in the Duties Act, s 24(1) is limited to that the subject of assessment. This is so because duty is charged on an agreement for sale or transfer of dutiable property under the s 8(1)(b)(i). Dutiable property is defined to include land in New South Wales under s 11(1)(a) and an interest in any dutiable property referred to in the preceding paragraphs of the section under s 11(1)(l). The interest in the reversionary estate of the Shopping Centre expectant upon the 300-year concurrent lease was thus dutiable property. And it was that dutiable property that the Chief Commissioner assessed to duty.

93. The Duties Act, s 9(1) provides that the duty charged on a dutiable transaction, including an agreement for sale or transfer of dutiable property, is to be charged as if it were a transfer of the dutiable property. The property agreed to be sold or transferred is taken to be the property transferred. And the purchaser or transferee is taken to be the transferee of the dutiable property. Section 13 provides that the duty is payable by the transferee unless some other provision requires otherwise. Section 21(1) defines the dutiable value of dutiable property the subject of a dutiable transaction as the greater of the consideration for the dutiable transaction and the unencumbered value of the dutiable property. The unencumbered value is the value of the property determined without regard to any encumbrance to which the property is subject under s 23(1).

94. It is in that context that the Duties Act, s 24(1) requires any interest, agreement or arrangement in respect of the dutiable property that has the effect of reducing its dutiable value to be disregarded.

95. Since it is the agreement for transfer to CPL of the reversion expectant on the 300-year concurrent lease that is the dutiable property in question, any interest, agreement or arrangement to be disregarded must be made in respect of that dutiable property and not in respect of some other dutiable property such as the 300-year concurrent lease acquired by CPT Custodian as trustee of Sub Trust No 1.

96. There was no concurrent or antecedent interest, agreement or arrangement that affected any other dutiable property that CPL was to acquire that could be said to be in respect of the agreement for transfer of the reversion of the Shopping Centre expectant on the 300-year concurrent lease, giving "in respect of" a broad connotation.

97. That a comparison must be made between the dutiable value of the dutiable property actually acquired and that which would have been acquired but for the interest, agreement or arrangement to be ignored may be derived from the Duties Act, s 24(2) with respect to which s 24(1) is to be interpreted.

98. Section 24(1) of the Duties Act is the operative provision. Section 24(2) is an exception. In excepting interests, agreements or arrangements that are not part of an arrangement or scheme with a collateral purpose of reducing the duty otherwise payable on the dutiable transaction it presupposes that such arrangements or schemes with the collateral purpose are caught by s 24(1).

99. Since the collateral purpose is the reduction of duty otherwise payable, a comparison is required between the duty payable and that which would otherwise be payable on the dutiable transaction. In other words, there must be some affectation upon a proposed dutiable transaction that reduces the duty payable.

100. Since there was no arrangement or scheme with the purpose of reducing the duty otherwise payable by CPL on its agreement to acquire the reversion expectant upon the 300-year concurrent lease of the Shopping Centre, there is a further reason why the Duties Act s 24(1) does not apply to CPL's acquisition of dutiable property.

Orders

101. The Chief Commissioner's assessment cannot stand. It is unnecessary for me to consider the further arguments put on CPL's behalf that the Chief Commissioner should have been satisfied in terms of the Duties Act, s 24(2) that any interest, agreement or arrangement was not granted or made as part of an arrangement or scheme with a collateral purpose of reducing the duty otherwise payable on the dutiable transaction.

102. Under the Taxation Administration Act, s 101(1)(a) I will make an order revoking the assessment. I am told it is common ground that the duty should be reassessed in the amount of $765. If that is so I will make an assessment in that amount under s 101(1)(b). Otherwise I will, under s 101(1)(d), remit the matter to the Chief Commissioner for determination in accordance with my decision. Under s 104 the Chief Commissioner must refund any over-paid duty together with interest under s 105 unless an offset against another liability is to be made under s 19. I will, if necessary, make orders under s 101(1)(e) in relation to these matters. And I will make an order that the Chief Commissioner pay CPL's costs.

103. I direct the parties to bring in short minutes of order reflecting my decision.