EIE OCEAN BV v COMMR OF STAMP DUTIES (QLD)

Members: Macrossan CJ

Pincus JA
Williams J

Tribunal:
Queensland Court of Appeal

Decision date: Judgment given on 17 December 1996

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Pincus JA

This is an appeal under s. 24 of the Stamp Act 1894 (``the Act'' or ``the Stamp Act'') and it concerns a sale of shares in what may be described as a ``land rich'' company. Its most unusual feature is that the only issues are the values to be attributed to certain assets, a subject difficult to deal with by means of the procedure of a case stated; the most expensive asset is a Hyatt Hotel. On 24 September 1988 there was made an agreement to sell all the shares in Riana Investments Pty Ltd (``Riana'') for a price to be calculated; that price was later fixed at $21,258,700. The consequence of the agreement was that EIE Ocean BV (``the taxpayer'') acquired all the issued shares in the capital of Riana, which company was at the time of the transaction ``entitled'' within the meaning of the relevant provisions of the Stamp Act, to assets compendiously known as the Sanctuary Cove Resort (``the Resort''). According to the case stated (para 4(a)), the full unencumbered value of those assets, other than property of the kind described in s. 56FL(4) of the Act was $341M. The agreement was assessed to stamp duty on 18 September 1990 in the sum of $127,552.20 and that assessment was not challenged. Then, in the following year, on 30 May 1991, the Commissioner issued a notice of default assessment under s. 22A(2) of the Act in the sum of $11,046,671. It is the correctness of the latter assessment which is in issue in these proceedings.

It is necessary to explain the effect of and partially to quote the relevant provisions of the Act, but I shall first set out the central point of the dispute; it is whether the value of land to which Riana was entitled at the time its shares were sold was or was not 80% or more of the value of all its property, other than certain property which is excluded under the Act. There is no dispute that the total value of the relevant property was $341M; that was the value of all Riana's property less the excluded property. The Commissioner's assessment must be upheld if it appears that the value of Riana's land was $272,800,000 or more, that sum being 80% of the total of $341M; if the value was less than $272,800,000 then the assessment is not reduced to a lower figure, but eliminated. It is also common ground that there was at the relevant date a substantial difference between the total value of the relevant property, $341M, and the value of the land. The Commissioner says the value of the land was $294,651,864, whereas the taxpayer says it was $79,280,000 less than that figure. The Commissioner's valuation of the land exceeds 80% of the total value; the taxpayer's valuation is much less than 80% of the total. A substantial part of the difference between the two sets of figures is due to the Commissioner having allowed nothing for goodwill, in valuing items of property other than land.

I now proceed to an explanation of the effect, in the present case, of the relevant provisions of the statute.

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ATC 4018

Effect of ``land-rich company'' provisions

As I have mentioned, the valuation in question was what is called a default assessment, made under s. 22A of the Act on 30 May 1991; there had been an earlier such assessment issued on 18 December 1990, but neither side contends that its existence matters. Section 22A gives the Commissioner power to assess duty `` [ where] a person fails to deliver or lodge, as and when he is required to do so by or under this Act, a statement, return or other document on which duty is chargeable under this Act... ''. The failure on the part of the taxpayer on which the Commissioner relied, in issuing the default assessment, related to the requirements of s. 56FH of the Act, which creates an obligation to prepare and lodge a statement in respect of a ``relevant acquisition'' where ``a person acquires a majority interest or a further interest in a corporation to which the prescribed provisions apply''. The point of that requirement is that s. 56FH deems the statement to be an instrument executed on the day on which the relevant acquisition occurs. Section 56FK imposes ad valorem duty on the statement at a rate which, as is common ground, would in the present case justify an assessment in the sum contended for by the Commissioner if the Commissioner's view of the value of the relevant assets is correct. Subject to the question whether the ``prescribed provisions'' applied, it is clear that there was such a failure as is asserted by the Commissioner, although the taxpayer purported to lodge a s. 56FH statement, it did not comply with that section because it did not supply the information specified in the form, use of which the section requires. The question in the case is whether the opinion as to values on which the Commissioner based the default assessment is correct; but it may be incorrect without destroying the Commissioner's right to duty, as long as the value of the land is the figure I have mentioned, $272,800,000, or more.

The central provision, s. 56FH, uses the expressions ``relevant acquisition'' and ``prescribed provisions''. The former is defined by s. 56FM, whose terms it seems unnecessary to explain other than to say that here there was a ``relevant acquisition'' because all the shares in Riana were acquired, whereas s. 56M applies even where only a ``majority interest'', as defined, is acquired. The ``prescribed provisions'' are s. 56FA to s. 56FO; see s. 56F. The question whether these provisions apply depends on the effect, in the circumstances, of s. 56L which makes the ``prescribed provisions'' apply to a corporation which fulfills two descriptions, set out in paras. (a) and (b) of s. 56FL(1). It is common ground that para. (a) is satisfied and the question is fulfilment of (b) which applies where the corporation is ``a landholder within the meaning of subsection (2)''.

Section 56FL(2) imposes two alternative tests and in the present case, it is agreed, the question is whether the test in the former is satisfied:

``A corporation is a landholder for the purposes of the prescribed provisions if at the time of a relevant acquisition -

• (a) it is entitled to land in Queensland or it is entitled to land in Queensland as a co-owner, or both, and the full unencumbered value of the land or land in which it is a co-owner, or both, is not less than $1 000 000, and the full unencumbered value of all land to which the corporation is entitled, whether in Queensland or elsewhere is 80 per cent or more of the full unencumbered value of all property to which it is entitled, other than property directed to be excluded by subsection (4);...''

Here the land in question is that on which the Resort has been constructed and is land wholly in Queensland. The word ``entitled'' in the provision is given an extended meaning by s. 56FL(6), so as to include property of subsidiaries; it is common ground that here Riana was on 24 September 1988 entitled by reason of s. 56FL(6) to all the land I have mentioned. Further, the value of the ``property directed to be excluded by subsection (4)'' is not in dispute, so that the terms of s. 56FL require no discussion.

Facts in case stated

There are questions of principle involved in determining the relevant values, in particular the circumstances in which it is appropriate to treat goodwill associated with the site of a business as part of the land value; there are also factual issues. No facts have been found and the Commissioner's counsel says that under the Stamp Act the only relevant facts are those stated by the Commissioner in the case. A question arises as to whether assertions in or

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ATC 4019

attached to the stated case are to be regarded as facts stated by the Commissioner. It was argued by counsel for the taxpayer that certain allegations in correspondence forming part of the case and emanating from the taxpayer's advisers should be treated as facts stated by the Commissioner, since the Commissioner had not disputed them.

I need not discuss the suitability of a case stated as a way of deciding the correct value of property; it must be evident that the procedure will not ordinarily suit such a dispute, as this case amply illustrates; see
Francis v. Commissioner of Stamp Duties (N.S.W.) (1953) 91 C.L.R. 368 at 400 . Under this procedure the Court has been held to be confined, at least prima facie, to the facts stated in the case:
Merchant Service Guild of Australasia v. Newcastle and Hunter River Steamship Co. Ltd (No. 1) (1913) 16 C.L.R. 572 at 622-624 ,
Mack v. Commissioner of Stamp Duties (N.S.W.) (1920) 28 C.L.R. 373 at 381 ,
The Queen v. Rigby (1956) 100 C.L.R. 146 at 150, 151 . But it is only facts stated which can possibly bind the Court; argument contained in the case does not do so, nor do reasons given, except insofar as they contain ``some further express findings of fact in elaboration of the express statements in the case itself'',
Marshall v. Whittaker's Building Supply Co. (1963) 109 C.L.R. 210 at 217 ; see also
Industrial Equity Ltd v. Commissioner for Corporate Affairs (Vic) (1989) 1 A.C.S.R. 153 at 157-159 . Where there is doubt as to whether part of the content of the case is intended to be an explicit statement of fact, the tendency will be to resolve that doubt against its being intended to bind the Court, to minimise the unfairness which may ensue from the contrary approach: cf. the recommendations of the High Court as to construction of such provisions, in
Commissioner of Stamps (SA) v Telegraph Investment Co Pty Ltd & Anor 96 ATC 4075 at 4080-4081; (1995) 70 A.L.J.R. 155 at 160E .

The allegations in the case stated including the voluminous documents annexed to it (which, the case says, form part of the case) are in a number of categories. First, there are arguments or contentions put forward by one side or the other. An example is annexure ``J'', a letter written by the Commissioner, in which he explained the calculations underlying an assessment foreshadowed by the letter. Then there are numerous assertions of fact, contained in correspondence, by the taxpayer's advisers; many are to be found in a valuation report by Jones Lang Wootton, annexure ``I''; it says, to take an example, that the total nett lettable floor area of what is described as the retail village, being part of the Resort, excluding certain designated areas, is 10,118 sq. metres (p. 26). A third category consists in assertions as to the state of mind of the Commissioner; para. 7 of the case stated alleges that the Commissioner ``formed the opinion that the full unencumbered value of the land as at 24 September 1988 was $294,651,864''. And para. 28 says that, in determining that figure, the Commissioner was satisfied that he should not reduce it by the further amount contended for by the taxpayer, because of various matters which he set out and of which he said he was satisfied.

It is my opinion that none of these three categories of allegation binds the Court. Section 24 nowhere says that anything in the case binds the Court, nor does the section even say that it is to contain any assertions of fact. But the statute has as I have said been construed as entitling the Commissioner to state facts and, subject to some considerations discussed below. making the Commissioner's statements of facts binding on the Court. There is an important difference, for this purpose, between arguments, contentions and statements of opinion, on the one hand, and statements of objective fact on the other. In some circumstances the fact that the Commissioner holds a certain opinion or is satisfied of a particular matter may, prima facie, in itself justify an assessment: but that is not so here. As far as statements of fact in the correspondence from the taxpayer's side are concerned, it is argued that, being incorporated in the case, such statements are binding on the Court just as much as those which are set out in the main body of the case. But that is not the correct view, for the doctrine that statements of fact made by the Commissioner in the case are binding cannot apply to statements of fact made by other persons, unless the Commissioner adopts them as his own. By including the relevant correspondence in the case the Commissioner does not necessarily, and plainly does not in this case, adopt statements of fact contained in them as his own. Looked at in this way, the case stated, although 735 pages in length, contains little by way of statements of fact with respect to the matters truly in contention. I have already referred to one

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ATC 4020

important statement of fact, namely the value of all the relevant property, namely $341M, but that is common ground.

But as to the matters debated before us, there are in essence only hypotheses and unresolved disputes. For example, the case sets out the way in which the sum of $46,348,136, being the difference between the $341M and the Commissioner's land value, is made up (para. 7). But all that is intended to be qualified by the opening words of the paragraph in which it appears: ``In assessing conveyance duty chargeable on the Form Z the Commissioner formed the opinion that...'' (emphasis added). Very properly, the Commissioner has refrained from ``stating the taxpayer out of court'' by setting out facts which would perhaps put an end to all possibility of dispute and the Commissioner does not contend that statements in the case of his opinion, on disputed matters, establish the facts about which the opinions are held.

The critical questions the Court is asked to answer are whether the Commissioner's assessment is right and if it is not, what the correct assessment is. It seems plain that the second question cannot be answered: the answer to it depends on finding facts. Neither side was able to explain by what process the Court could, using the facts in the case only, determine the correct assessment; it appeared, in the end, to be assumed that the Court would deal with the matter in a preliminary way, and then either send it back to the Commissioner or make an order having the effect that the factual issues would be tried and the assessment fixed by a judge. This procedural issue is further discussed, later in these reasons.

Approaches of parties to valuation

The competing approaches of the parties are as follows. The Commissioner has not attempted directly to value the land. He has begun with the total figure of $341M and taken from it the nett values of certain assets, not being realty, to arrive at land value. All the items in the Commissioner's list of non-realty items, totalling $46,348,136, are agreed and the largest single item is the value of management rights, $12.5M. The taxpayer argues that other sums should be deducted from the starting figure of $341M. The taxpayer does not, however, begin from the $341M and work down, as the Commissioner has; its approach has been to value the land and then to allocate the difference between the land value and the total of $341M to various types of assets. The taxpayer contended that there were intangible assets valued at $79,280,000 which had not been taken into account in the Commissioner's approach.

In further analysing the difference between the parties, it is convenient to start with the land valuation on which the taxpayer relies, done by Jones Lang Wootton. That valuation, at the relevant date, was based on an ``information memorandum prepared by Discovery Bay Developments Pty Ltd relating to proposed income cashflows and expenditure necessary to operate all components of the overall project''. The valuers did not themselves purport to estimate the likely level of cashflows or expenditure, but started from the figures in the memorandum to which I have referred; it is not annexed to the valuation. They made some adjustments to those figures, the precise character of which is not stated.

It may be of some importance to understand how Jones Lang Wootton proceeded; they were said to have used a discounted cash flow method, but it is plain that no such method was consistently used. One thing which is clear, however, is that the figures arrived at depend on projections or assumptions of future returns, and that proposition will be illustrated.

The component described in the Jones Lang Wootton report (p. 69) as ``Country Club, Recreation Club and Golf Courses'' is, the report says, based on income and expense figures provided in the memorandum prepared by Discovery Bay Development; the figures in the memorandum have been adjusted in some way and Jones Lang Wootton say a capitalisation rate of 15% on future cash flows has been adopted. The report says: ``Our valuation figures include an element of goodwill and also include all relevant plant, equipment, fixtures, fittings, etc'' (emphasis added). Reference to the figures which support the valuation of this component, which totals $32M, shows that it assumes a stipulated income - obviously nett, not gross - in each of six years; the total is a little over $23M. To that are added membership joining fees projected for each of the six years, totalling about $9M. Capitalisation of the income flow at 15% gives a capital value of a little over $27M and, discounting the membership joining fees, the present value of those fees is a little under

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ATC 4021

$6M; with an adjustment for completion costs, the total value comes as I have said to $32M. The report says that the valuation figures include an element of goodwill and also chattel values; these are taken into account in the sense that they contribute to the assumed returns on which the whole calculation is based. Whatever is of value in the assets producing these returns is included in the final figure of $32M.

Another component in the Jones Lang Wootton valuation is the Waterfront Tavern and Bar, valued at a million dollars. It is not really clear how this sum is arrived at, but the report explains (p. 75) that there have been adopted income and expense figures contained in the memorandum I have mentioned, as well as initial trading results. The report goes on to say that the tavern and bar ``will also pay occupational rent to the retail village and therefore our valuation represents only the value of plant, equipment, fixtures, fittings and goodwill''.

The Brewery and Beer Garden (p. 72), again, are said to be obliged to pay an occupational rent and, again, the valuation is said to represent only ``plant, equipment, fixtures, fittings and goodwill''. It is also stated that a capitalisation of 25% has been adopted. But this seems not to be reconcilable with the result arrived at; the valuation appears to be simply an approximation of the total expected income, over five years.

I do not propose to analyse the valuation further, other than to say that its largest element is the sum of $68M attributed to the value of the Hyatt Hotel, said to be based on discounting projected cash flows; the accompanying schedule shows clearly that the principal component of the calculation is expected nett profits.

It does not appear to me that the Jones Lang Wootton calculations necessarily adopt a consistent method, but one respect in which the various calculations which the valuation includes are consistent, is that each depends on assumptions about future returns. The operations of the resort have been divided up into component parts and attempts made, on bases which might or might not be sound, to estimate what profits will be gained from them in the future. Using the Jones Lang Wootton results, the taxpayer's approach is that the difference between the total of the Jones Lang Wootton valuation, namely $270M, which with certain adjustments gives a land value of about $244M, and the total value of $341M, is nearly $97M, a figure to which certain further adjustments of about $5M are made.

This leaves a gap of $91,780,000, which the taxpayer ascribes to intangibles. As I have already pointed out, it is common ground that $12.5M should be allowed for management rights, which is a component of this intangibles figure. The balance, $79,280,000, is split up by the taxpayer as follows -

Concept and design           $34M

Trade name and trade mark    $25M

Other                        $20.28M
      

In defence of this approach, the taxpayer has made comments about the excellence of the concept and design of the Resort, the considerable sums expended on it and the advantages of the special State legislation applicable to the Resort. The figure for trade names and trade marks is based on assertions as to the costs of certain marketing and promotion activities. Under the heading ``Other'' are included accumulated tax losses and synergistic benefits.

It is, I have suggested, plain enough that the inclusion of all these assertions about the value of intangibles in documents annexed to the case does not require, or justify, their being treated as facts. Whether they are likely to ultimately be established is not a question on which extensive discussion is useful; but some comment on the issues is necessary.

It appears from what I have said above that the Commissioner has allowed nothing for goodwill and it may seem, on the face of it, that that is an extreme position. On the other hand, the taxpayer's approach counts goodwill twice. If there is valuable goodwill, its value consists in attracting business, producing profits; but the Jones Lang Wootton valuation is based on assumptions as to profits likely to be received. With respect to some components of the Jones Lang Wootton valuation, totalling $270M, the text of the valuation concedes that the goodwill is included; but the better view is that it is included in all the components. Turning, then, to the elements which are said to bridge the $79.28M gap referred to above, they plainly include goodwill items. As I have explained, the item ``Trade name and trade mark $25M'' is essentially a summation of marketing and promotion costs.

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ATC 4022

It should further be noted that the largest of the three items listed above is $34M for concept and design. The allowance of $34M is sought to be justified on the basis of what might broadly be described as certain advantages which the businesses conducted at the Resort enjoy, of such a kind as to attract customers. Again, if these advantages, such as the excellence of the Resort design, are worth money, that should produce extra income; but the Jones Lang Wootton valuation is based on expected income and must then take the excellence of the concept and design into account.

Value of Goodwill Included in Land Value?

A question which arises is whether, if the company whose shares are sold owns land on which a business or businesses is or are conducted, goodwill should be treated as part of the land value. Suppose for example the company owns a business conducted on land and with physical assets which are worth $1M, but the business is worth $2M because of its valuable goodwill. On the Commissioner's argument, as I understand it, if the whole of the goodwill is local in the sense that it attaches to the site of the business, then for the purposes of the statute with which we are concerned the value of the land should be taken to be $2M including the $1M goodwill value. The taxpayer on the other hand would say that the Commissioner is not entitled to lump in the goodwill value with the value of the land. It should be added that one of the intangibles relied on by the taxpayer, accumulated tax losses, is plainly not goodwill and it is not suggested that it be treated as part of land value.

The question whether, when a business is conducted on a particular piece of land, the value of the goodwill of the business should be taken to be included in the value of the land on which it is conducted has arisen surprisingly often, in various contexts. It cannot be pretended that there is any simple principle to be derived from the cases, some of which are discussed below. But one point which seems clear is that what is called personal goodwill cannot possibly be included in land value. The authorities discriminate between local or site goodwill and personal goodwill, the former being that part of the goodwill of a business which is not dependent upon the characteristics of the person or persons conducting the business from time to time, and the latter is the rest of the goodwill. In
FC of T v Williamson (1943) 7 ATD 272 at 273; (1943) 67 C.L.R. 561 at 563 , Rich J. said:

`` [ Goodwill] is local to the extent to which the trade connection depends on the place in which the business is carried on, for example, where there is only one hotel in a place the connection may be for all practical purposes entirely local. It is personal to the extent to which it is the personality, ability and good reputation of the trader that attract the trade and not the place where it is carried on.''

(ATC 273; CLR 563)

There seems to be no good reason for holding in the present case that any goodwill other than local goodwill is, for the purposes of valuation, inseverable from the land; that is, if in the present case there is goodwill which can properly be characterised as personal, its value cannot be included in land value. A question may arise whether there can be any personal goodwill where, as in the present case, the land is sold at the relevant date and a new proprietor takes control. The taxpayer would say that at least where the employees and agents running the various businesses on the land in question continue to do so, it is artificial to treat the change of control as entirely destructive of personal goodwill; the Hyatt organisation, for example, presumably continued to run the hotel and any personal goodwill properly seen as related to the hotel would hardly be affected by the change of ownership of the buildings.

The Commissioner contends that local goodwill is treated as attaching to the land and its value is simply part of land value. There are compulsory acquisition cases which support this approach. In
Minister for Home and Territories v. Lazarus (1919) 26 C.L.R. 159 , a compensation statute provided that the resumed owner was entitled to the value of land plus improvements. Lazarus had a hotel building on the acquired land and was entitled on resumption to the unimproved value of the land on a certain date and to the value of the improvements at the (later) acquisition date. The question which was asked of the High Court was at what date the value of the business and goodwill should be assessed, and that depended on the construction of the statute; but some remarks were made about the relationship between the goodwill and the land. Barton J. (at 163) said that ``the loss of a goodwill must be practically identical with the loss of a business where the goodwill is the subject of

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ATC 4023

compensation...''. Counsel had argued that goodwill was included in the improved value, but Barton J. held (at 164) that it attached to the unimproved value. In the principal judgment it was said (at 166) that the value of a hotel ``does not include the value of the business and goodwill'', but then:

``If the goodwill of a business is personal only, it adds nothing to the value of the land. If it is attributable wholly or partly to the land, it pro tanto enhances its value, and that value is recoverable, not as goodwill eo nomine but as part of the value of the land.''

Isaacs and Rich JJ. agreed with Barton J. that the value of local goodwill was to be added to the unimproved value of the land.

Although the views expressed in Lazarus are not said to depend upon any special rule applicable to compulsory acquisition cases, it appears that the treatment of goodwill in such cases depends on the ``value to the owner'' principle. In
Commonwealth v. Reeve (1949) 78 C.L.R. 410 , the question was the entitlement to compensation of tenants of premises who conducted a coffee lounge in them. The Commonwealth compulsorily acquired the building and the tenants were awarded a sum which took into account the profits which were being earned from the coffee lounge, the assessment including an allowance for goodwill. Latham C.J. pointed out at p. 418 that what was in issue was the value to the owner. Dixon J. remarked (at 424):

``Early cases in the law of compensation establish that where premises were compulsorily acquired upon which the owner conducted a business, the consequent destruction or impairment of the goodwill of the business must be taken into account... where the goodwill was localized in the land taken the consequent destruction of the goodwill must be taken into account in assessing the value or purchase price of the interest acquired...''

Dixon J. followed the views expressed in Lazarus which I have just discussed. There are other authorities in this line, but it seems to me clear enough that for the purposes of assessing value on compulsory acquisition any local goodwill is included in land value.

I turn now to revenue cases. In
The Rosehill Racecourse Company v. The Commissioner of Stamp Duties (N.S.W.) (1905) 3 C.L.R. 393 , there was a conveyance of the freehold of a racecourse; the goodwill was dealt with by a separate agreement. The Commissioner argued that the conveyance of the land necessarily conveyed the goodwill also and that therefore its value should be included when assessing stamp duty on the conveyance of the freehold; that contention had been accepted in the Supreme Court of New South Wales.

Barton J., following English authority, held that the assessment could not stand on the ground that the goodwill being separable had been separated by the parties (402). O'Connor J. said (at 408):

``There are cases in which it would be clear that the goodwill could not be separated from the land or premises. In a case of that sort the conveyance of the land must carry with it the goodwill. But there are other cases in which it is equally clear that the goodwill is separable from the land having an independent existence apart from the land, and is capable of being carried away from the land by the vendor.''

O'Connor J. took the view that in the circumstances the goodwill was personal; the reason for this was that the critical element in the goodwill was a right described as ``personal'' - i.e. attaching to the owner of the racecourse and not the land. A recent income tax case, in which a similar problem was considered, is
FC of T v Krakos Investments Pty Ltd 96 ATC 4063 ; it seems enough to say that there a view resembling that of Barton J. in the Rosehill case was adopted.

An issue like that in the Rosehill case was considered in
Tooth and Co. Ltd v. The Commissioner of Stamp Duties (1909) 9 S.R.N.S.W. 652 . That concerned the sale of leasehold hotel premises and the question, as in the Rosehill case, was whether the transfer of the lease carried the goodwill with it. It was held by a majority that the major part of the goodwill was local and inseparable from the premises and that it passed with the transfer of the lease: see the judgments of Pring and Sly JJ.

Problems of this kind have been dealt with in some income tax cases. In Federal Commissioner of Taxation v Williamson (above) the question was whether the purchaser of a chemist business was entitled to a deduction of a certain sum paid for goodwill. Rich J. cited the two stamp duty cases I have mentioned for these propositions:

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ATC 4024

``To the extent to which the goodwill is local it is attached to and cannot be severed from the land on which the business is carried on... To the extent to which it is personal it is only accidentally associated with the land, and may be severed from it and dealt with separately....''

The judge held that the payment for goodwill was a ``premium in respect of land'' and the judge held that this description was satisfied because there was a payment of a ``special premium for goodwill which is nevertheless still regarded as attached to land''. In
Box v FC of T (1952) 10 ATD 71 ; (1952) 86 C.L.R. 387 , the question related to the sale of a bakery business. It was held in effect that the goodwill sold was not local goodwill but personal goodwill and therefore a conclusion opposite to that reached in Williamson's case ensued. Similar issues arising in other contexts were dealt with in
Brown v. Potter [ 1965] Qd.R. 268 and in
Duncan v. Ridd (1976) 2 N.S.W.L.R. 105 .

Of these cases I think that which is most directly helpful to the Commissioner's contention is Tooth & Co. , which seems unequivocally (although by a majority) to be based on the view that the conveyance of a leasehold hotel necessarily carries with it that part of the goodwill which is ``local and inseparable from the premises''. It would seem not a far step to conclude that, for the purposes of the provisions with which we are concerned here, the value of the land must be taken to include the value of the local goodwill as opposed to personal goodwill.

The difference between the parties' contentions about this point may perhaps be illustrated by considering the hotel, part of the property in issue. If the taxpayer's contention is right then the value of the land on which the hotel stands, including the improvements, does not include that part which is attributable to goodwill, either local or personal. If the Commissioner is wholly right, then the value is simply the market value of the functioning hotel, including any amounts which might properly be attributable to either local or personal goodwill; as to personal goodwill, the Commissioner's contention must be rejected, as I have said.

The attraction of the Commissioner's contention, so far as it relates to local goodwill, is that it accords with commercial usage of language. Suppose the hotel were sold and temporarily closed down and all those persons who worked in or in relation to it dismissed. Personal goodwill would thus be destroyed, but there could still be substantial local goodwill, no doubt tending to diminish while the hotel stood closed; see on this point Lazarus (above) at p. 166, where the effect of destruction of a hotel by fire is considered. In that situation, there being no functioning business to be sold, I think the value of the hotel considered as realty would ordinarily be taken to include local goodwill.

The point may be further illustrated by assuming that a hotel is erected in some remote place, but one to which over time patrons have become increasingly inclined to resort. If local goodwill is to be excluded when valuing the hotel, as realty, that can only be done on the artificial basis that the public has not developed an inclination to visit it, that it stands alone and deserted. Then consider the sale of the freehold of a hotel which is being run by a lessee under a long lease. Its value would depend essentially upon the rentals being received and likely to be received in the future; but if local goodwill is not to be included in the value, then one would have to exclude from the rental, in making the necessary calculation, that part of it which is attributed to local goodwill.

The conclusion at which I arrive, then, is that the Commissioner's contention about local goodwill is correct and that this is to be regarded as an asset inseparably connected with the land, for present purposes.

The task of discriminating between the value of local goodwill, to be regarded as part of the value of the land, and that of personal goodwill, is not necessarily an easy one. But the principle or concept is clear enough; local goodwill can be exploited, i.e. taken advantage of, only at the site in question, whereas non-local or personal goodwill can be exploited elsewhere. As is said by Hill J. in Krakos (above) at 4069:

``... While there may be difficulties in law in dealing with a trade name independently of the business to which it is related... modern experience makes it clear that names may be turned into account by means other than assigning or leasing a business... No one could doubt the enormous value which accrues to brand names (such as Coca Cola ) or business names (such as McDonalds ).''

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ATC 4025

The case discloses that the Commissioner has taken advice from the firm of Ernst & Young about some of the issues; much of that advice is based on the content of accounting standards or draft standards which reflect a no doubt appropriately cautious approach, to including among the assets of a company estimates of the value of goodwill. Much of what is there stated cannot be of assistance in performing the task with which the Court is faced, namely dissecting out from the sum of $341M an estimate of the value of intangibles other than management rights (already conceded by the Commissioner) and local goodwill. For example, it is said at page 5 of Ernst & Young's analysis that in accordance with Exposure Draft 49, ``accounting for identifiable intangible assets'', ``... it is necessary to establish that it is probable that the future benefits or service potential embodied in the identifiable intangible asset will eventuate and it possesses a cost or other value that can be measured reliably''. The Court's position is that if it is satisfied that (for example) the name Sanctuary Cove had at the relevant date potential application to other projects than the Resort with which we are concerned, it must attach a value to that factor. Difficulty in assessing the proper amount there would undoubtedly be, and it could hardly be said that the value of such a factor could be ``measured reliably''. But the statute requires the Court to determine whether the Commissioner's assessment is correct and if it is not, what is the correct assessment; that can only be done by determining to what extent the figure of $341M properly represents value other than realty value. A dissection must be performed, whether or not it can be done strictly in accordance with accounting standards or draft standards. Further, our attention was drawn to the list of trademarks and trademark applications at pp. 678 and 679 of the record, as well as the copyright referred to at p. 679. The question whether non-realty value can be attributed to any of such items is not necessarily determined by simply asking whether there is a history of applying such intangibles to other sites than the Resort: see p. 20 of the Ernst & Young report. The question is rather whether a buyer and seller, in fixing the price, would in practice have been likely to attach value, and if so how much value, to the prospect of application of trade names and the like off site.

The procedure which I favour, as appears below, would permit the calling of evidence before a single judge. Such evidence may merely consist of having witnesses or deponents swear to matters presently contained in the case, or could include further, different evidence. Partly for this reason, it seems to me not useful to discuss the issues further, except to make two points. One is that the letter from Price Waterhouse at p. 555 of the record assumes that trade names and trade marks may properly be equated in value to amounts spent on promotion. The fallacy of that is obvious; apart from any other consideration, it ignores the fact that such promotional activity would in substantial part have added to local goodwill. A second point is that Ernst & Young (p. 22) thought the information available about accumulated losses and other relevant circumstances was insufficient to enable a proper value to be placed on tax losses; that is plainly correct.

It is necessary to consider further the procedural question touched on above.

Commissioner of Stamps (S.A.) v. Telegraph Investments Company Pty Limited

This case, reported in 96 ATC 4075; 184 C.L.R. 453, is the only High Court decision in which the problem of determining unresolved factual disputes, under stamp duty legislation similar to that in force in Queensland, has been dealt with. It is necessary to attempt to determine the effect of the case, so far as this appeal is concerned. The issue was the duty chargeable on a certain deed which had been assessed by the Commissioner, although the taxpayer had not requested any assessment. The significance of that, both sets of reasons given in the High Court agreed, was that s. 24(4) of the South Australian Stamp Duties Act 1923 allowed the taxpayer to require the Commissioner ``to state and sign a case setting forth the question upon which his opinion was required and the assessment made by him'' (emphasis added). The taxpayer's argument was that if there was no request for an opinion, there was no power to state a case. The language quoted is in substance the same as that in s. 24(1) of our Stamp Act. As here, the Commissioner had made an assessment without having been asked to do so, and the majority in the Telegraph Investment case held that the consequence was that the appeal provision of the South Australian Act had no application; so

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ATC 4026

the procedure on appeal to the Supreme Court was not prescribed by the Stamp Act and the Court was entitled to take evidence on disputed questions of fact. The minority view was somewhat similar, except that McHugh and Gummow JJ characterised the use of the stated case procedure as being, in the circumstances, an irregularity. On the face of it the High Court decision might seem to apply in the present case; in this, as in the Telegraph Investment case, the assessment was not the result of any request for the Commissioner's opinion and in this, as in the High Court case, the statute contemplated a statement of the case, setting forth the questions upon which the Commissioner's opinion was required. The Telegraph Investment case supports the view that if there is no such requirement then the procedure laid down by s. 24 does not apply.

But the Queensland Act was amended shortly prior to the date of the agreement which is in issue here, by Act No. 34 of 1988, s. 19; that deleted s. 22(1) of the Act, which provided in effect that the Commissioner might be required by any person to express his opinion with reference to any executed instrument, whether it was charged with duty, and if so, with what amount of duty. The amendment removed the only provision in the Act enabling people to require the Commissioner to express such an opinion; but no consequential amendment was made to s. 24, which continued, and still continues, to assume the existence of such a power. It was argued for the Commissioner, in the present case, in effect, that ``was required'' - in s. 24(1) means ``was required by the Act'' and reference was made to s. 22(4); but in its context ``was required'', having regard to the history of the legislation, must be a reference to a requirement made by the taxpayer.

In the Telegraph Investment case, the reasoning the High Court used led to the conclusion that the procedure prescribed by s. 24 of the South Australian Act did not apply, because the taxpayers had not availed themselves of the power to require the Commissioner to state his opinion. A similar line of reasoning in the present case would leave s. 24 of our Act, read quite literally, with no operation whatever; if our s. 24 is confined to instances in which the Commissioner has been required to state his opinion under the Act, it will have no possible application, for there is no power so to require him.

It appears to me to follow that, in contrast to the section under consideration in the Telegraph Investment case, here s. 24 should be held to apply to any and all of the Commissioner's assessments and the reference in the section to the case ``setting forth the question or questions upon which [ the Commissioner's] opinion was required'' must be treated as surplusage. This approach has its difficulties, one of which is that, so truncated, all that s. 24(1) obliges the Commissioner to do is to state and sign a case setting forth his assessment; but it appears to me that the construction adopted in the Telegraph Investment case should not be applied to our Act.

This is not to say that the High Court decision is irrelevant to the present case. The majority judgment is authority for the view that one should attempt to avoid a construction of s. 24 which would ``preclude the taxpayer from placing disputed matters before the court'' or ``deny taxpayers access to the court for the proper determination of their rights''. In the judgment of McHugh and Gummow JJ, doubt is cast upon the correctness of the view stated, in particular, in Mack v. Commissioner of Stamp Duties (N.S.W.) (above), that the facts stated in the case are to be taken as the ultimate facts and the Court cannot draw inferences (482, 484). Further, McHugh and Gummow JJ emphasise that ``unmistakable and unambiguous language'' is necessary to establish an incontestable tax, being one under which the taxpayer ``is denied the right to resist an assessment by proving in the courts that the criteria of liability have not been satisfied'' (466, 484). Having regard to these expressions of view, it is not easy to see how the doctrine, nowhere to be found expressed in s. 24, that the taxpayer may neither contest nor seek to supplement what the Commissioner states as facts, can survive; so far from there being in the section an employment of ``unmistakable and unambiguous language'' to achieve that result, the section says nothing whatever on the subject of setting out facts, let alone the possibility of contesting what is set out. Further, the majority judgment, insofar as it requires the adoption of a construction which would not ``preclude the taxpayer from placing disputed matters before the Court,'' points in the same direction.

The view that one should read into s. 24, as necessarily implicit, that any facts the Commissioner decides to state are, whether in

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ATC 4027

fact correct or not, made incontestable by that section, cannot be reconciled with the principles of construction adopted in the Telegraph Investment case. Were it necessary to decide the point, there would be much to be said for the conclusion that Queensland decisions on s. 24 inconsistent with the approach taken in the Telegraph Investment case should be treated as wrong.

I have noted that a majority of the Full Court in
O'Sullivan & Ors v Commissioner of Stamp Duties (Qld) 83 ATC 4684 ; [ 1984] 1 Qd.R. 212 , even before the Telegraph Investment case, took a view which would allow this Court to determine facts in a s. 24 appeal:

``The argument is that the form of appeal allowed... does not admit of determination of disputed facts or values. It seems to me that the answer to the latter problem is that the procedure should not be allowed to govern the substantive right of appeal and a stated case may be used for determination of facts which may be necessary for the Full Court to enable it to decide the relevant issues.''

per Matthews J. at ATC 4687; Qd.R 215, and see per Kelly J. at ATC 4689; Qd.R 218.

Although this expression of view was obiter, the Telegraph Investment case supports its correctness. But Mr Gotterson Q.C., who led for the taxpayer, argued that a provision of the Supreme Court of Queensland Act 1991 expressly permits the remission of this case to the Trial Division for the determination of facts. Section 68(3) of that Act provides:

``If a proceeding is pending before the Court of Appeal, the Court of Appeal may, on application by a party or of its own motion, order that the whole or a part of the proceedings be remitted to the Trial Division for determination (by trial or otherwise) of the proceeding or of any question of fact or law arising in the proceeding.''

The submission was not accepted by Mr Dorney Q.C., who led for the Commissioner; he contended that on its proper construction the section does not apply to appeals of the present kind. The reason for this implicit limitation did not, with respect, clearly emerge; on its face the section is perfectly general and applies to any proceeding of whatever kind pending before the Court of Appeal. If s. 68(3) is to be held not to permit the whole or part of this proceeding to be remitted to the Trial Division for the determination of questions arising in the proceeding, that can only be because insofar as the questions are factual, they are not ones ``arising in the proceeding''. That is, the contention might be advanced that s. 68(3) does not apply because the Court is implicitly prohibited by s. 24 from determining any factual question - so no such questions arise. The argument faces a number of difficulties. The first is that just alluded to, that there is Supreme Court authority in favour of the view that in matters of this kind the Court can determine facts. A second is that s. 24 expressly requires this Court to determine what is the correct assessment, if of opinion that the Commissioner is wrong, and it can only carry out that duty, in the present case, by determining factual questions. The third and most potent is that so narrow a view would be inconsistent with the approach required by the Telegraph Investment case, namely to adopt a construction of the relevant provisions which would not prevent a taxpayer from obtaining a proper determination of its rights.

An alternative argument put forward by Mr Dorney was that the discretion given by s. 68(3) of the Supreme Court of Queensland Act 1991 should not be exercised so as to remit the whole or any part of a matter to the Trial Division because the preferable course, he said, is to remit the case to the Commissioner. I put aside as not requiring decision the question whether there is any power to do so; s. 24 does not expressly permit that course, nor did Mr Dorney refer us to any other statutory provision conferring the requisite power. Assuming that the matter may, under s. 24, be sent back to the Commissioner for reconsideration of his assessment, one must consider the position which is likely to arise if the Commissioner adheres to his assessment. It is likely that resolution of the dispute between the parties will then be beset by the very same difficulties referred to above: unless the Commissioner purports to state facts which lead inexorably to a view that his assessment is correct, there will remain factual disputes, unresolved. Another possibility is that if the matter is remitted to the Commissioner he will waive the assessment or amend it; but if the Commissioner has power to take these courses, he may take them whether or not the matter is remitted to him.

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ATC 4028

Conclusions

It appears improbable that the Commissioner has reached a right conclusion as to the value of the land, for he has treated all goodwill as attached to the land; further, it perhaps seems unlikely that it will turn out that the accumulated tax losses are worth nothing. However, accurate conclusions cannot be reached on these issues for the reasons that the case stated includes no facts, with respect to the contested questions, but merely assertions and arguments. As I have explained, I reject the submission on behalf of the taxpayer that one should take all assertions of fact in the documents in the case, made on its behalf and not specifically rebutted by the Commissioner, as having been stated by the Commissioner.

One of the questions asked, (a)(i), raises no contentious issue; I would answer that question but otherwise remit the matter to the Trial Division for determination by trial; as the case is one in which the Court may reasonably require independent advice, I would make a special order to facilitate that.

The orders I propose are:

• 1. Question (a)(i) is answered: Yes.
• 2. The appeal is otherwise remitted to the Trial Division for determination by trial.
• 3. Such directions may be given in the Trial Division as are necessary for the proper and expeditious determination of the appeal, including but not limited to an order that an expert be appointed to advise the Court on any issue or issues arising, on such terms as to costs and otherwise as the Court thinks fit.
• 4. Costs of the proceedings in this Court to be costs in the cause as determined in the further proceedings in the Trial Division.