What constitutes the "consideration for" a transfer of "dutiable property" under stamp duties legislation? The High Court is set to consider this issue again when it hears the appeal by the Victorian Commissioner of State Revenue against the Victorian Court of Appeal decision in Lend Lease Development Pty Ltd v Commissioner of State Revenue  VSCA 207.
The High Court's decision will be a landmark one with far-reaching implications for the property and infrastructure industries in particular, but could also affect other industries who use documents similar to a development agreement.
The questions for the High Court
In the appeal starting on November 4 2014, the High Court will in essence revisit its decision in Chief Commissioner of State Revenue v Dick Smith Electronics Holdings Pty Ltd  HCA 3.
It will be asked to determine whether:
- the consideration provided for under a contract for sale of land is the consideration for the transfer of "dutiable property"; or
- the consideration could include payments made by the purchaser under another document for other things such as improvements to be made by the vendor to the land before the purchaser takes a transfer of the land.
The development agreement in the Lend Lease case
Lend Lease and its fellow appellants (collectively referred to as LLD) entered into a development agreement with the Victorian Urban Development Authority in 2001 to improve certain parcels of land in the Victorian Harbour Precinct. The development agreement outlined the terms upon which development of the Precinct was to be completed and also provided for the sale of the land to LLD in various stages.
In particular, the development agreement required LLD to enter into a Land Sale Contract for each stage of the project, if certain criteria had been satisfied. LLD was also required to make a number of payments in relation to each stage of the project under the development agreement and this included the payment to VicUrban of a percentage of LLD's gross realisation from its development of each parcel of land.
In due course, seven parcels of land were transferred to LLD by VicUrban. An amount was specified under each of the seven contracts, as being consideration for the sale of the parcels of land. Other payments were separately payable by LLD to VicUrban under the development agreement.
The Victorian Commissioner of State Revenue assessed duty in each case on the amount paid for the relevant land under the contracts but also assessed duty on other additional amounts payable by LLD under the development agreement. These additional amounts included infrastructure contributions, gasworks remediation contributions, integrated public art contributions, Grand Plaza amounts, land and authority payments, non-monetary contributions and Goods and Services Tax. Although there were some minor variations regarding which additional amounts applied to which of the seven parcels of land, all of these additional amounts were included in one or more of the seven assessments that were raised by the Commissioner.
LLD appealed to the Victorian Supreme Court against assessments issued by the Commissioner which included, in the "dutiable value", as defined in the section 20 of the Duties Act 2000 (Vic), under each Contract, the cash consideration and the additional amounts which were to be paid under the development agreement.
The Supreme Court decision
In Lend Lease Development Pty Ltd and Others v Commissioner of State Revenue  VSC 108 Justice Pagone dismissed LLD's appeal. He held that the Commissioner was right in assessing duty on both the consideration payable by LLD under the contracts and the additional amounts payable under the development agreement because:
- the transfers of land had occurred as part of the overarching agreement between LLD and VicUrban and the development agreement was the commercial deal struck between LLD and VicUrban to facilitate the development of the land;
- LLD's contribution to infrastructure, remediation of the gasworks site and public art were required to be paid before title was transferred and therefore these payments were required as a condition of the transfer of land and were what "moved" the transfers of land. In other words, but for these additional payments, VicUrban would not have transferred the land to LLD;
- although the additional payments by Lend Lease could be conceived as distinct from the land itself, he did not think that payments for this "other subject matter" was separate, as it was in Bambro (No 2) Pty Ltd v Commissioner of Stamp Duties (NSW) (1963) 63 SR (NSW) 52; and
- the additional payments were, "all part of, or ancillary to, the land acquired," and that the consideration under the contract and all payments under the development agreement were for the land and had "moved" the transfer of that land.
Appeal allowed: the additional amounts not part of the dutiable value
In a unanimous decision, the Victorian Court of Appeal held that Justice Pagone had erred by including the additional amounts paid by LLD under the development agreement in the dutiable value of the land that was transferred to LLD (Lend Lease Development Pty Ltd v Commissioner of State Revenue  VSCA 207).
It rejected Justice Pagone's analysis, noting he had wrongly shifted his focus from the statutory question he was obliged to ask. Instead of examining the nature of the dutiable property transferred, he had erroneously looked to the land as developed.
The Court of Appeal criticised Justice Pagone for focusing too much on the development agreement rather than on the parties' obligations under each Contract, to the point that he had seemingly treated the development agreement as the document which effected the dutiable transaction. It noted that "the approach adopted by the judge is clearly at odds with the principle derived from Bambro that the existence, at the time of the transfer, of obligations to be discharged in the future that will change or transform the condition of the dutiable property ought not affect how one determines the consideration for the transfer of the land. It also flouts the principle that the focus must be on that which is to be transferred or vested or accrued by force of the conveyance".
There needed to be more than a mere connection between the additional payments made by LLD and the transfer of land for those additional payments to be included in the dutiable value of the land. Justice Pagone had incorrectly applied what was essentially a "but for" test in determining the dutiable value of the land in this composite transaction. The Court noted that this would lead to the conclusion in every case that the dutiable value of the relevant dutiable property would include all payments under the composite arrangement. In other words, in every case one would be able to conclude that "but for" the additional payments under the development agreement being paid, or agreed to be paid by the purchaser, the vendor would not have transferred the land to the purchaser under the relevant contract of sale.
It considered that, rather than applying essentially what was a "but for" test, the correct test, in a composite arrangement, was to look at each strand of the entire arrangement and to then determine the consideration that had moved the whole composite arrangement and the consideration that had moved the transfer of the dutiable property. Only the consideration that had moved the transfer of the dutiable property should have been used to determine the dutiable value.
The fact that the development agreement required certain payments to be made before the transfer of the land to LLD was of little significance in determining whether those payments were for the land.
The Dick Smith case could be distinguished because in that case the relationship between the parties was one-off, whereas in this matter there was an ongoing relationship between VicUrban and LLD.