Introduction
Lend Lease has won a landmark case in the Victorian Supreme Court of Appeal in relation to duty imposed on the acquisition of seven parcels of land in the Docklands precinct. The decision sets an important precedent on the meaning of 'consideration for' a dutiable transaction under section 20 of the Duties Act 2000 (Vic) (Duties Act).
Background and decision
Lend Lease and VicUrban entered into a development agreement in 2001 that provided for the development of part of the Docklands precinct in Melbourne. Annexed to the development agreement were separate land sale contracts for seven parcels of land. The contracts each stipulated a set purchase price referred to as a 'Staged Land Payment'. The undeveloped land was transferred from VicUrban to Lend Lease in stages between October 2006 and June 2010.
Pursuant to the terms of the development agreement, VicUrban was required to provide infrastructure in the Docklands precinct and Lend Lease was required to make a contribution to the cost of that infrastructure (including for external infrastructure, site remediation, public art and the development of a plaza). The infrastructure was largely on land that was not owned or purchased by Lend Lease. Lend Lease and VicUrban also agreed to share in the proceeds of sale from Lend Lease's development of the land, with the development agreement requiring Lend Lease to make payments to VicUrban in this regard. The contribution to the cost of the infrastructure and the profit share payments by Lend Lease were collectively referred to as 'contribution payments'. Many of the contribution payments were required before the land was transferred to Lend Lease, but some payments were made after.
The Victorian Commissioner of State Revenue
(Commissioner) assessed duty on the transfer of
each parcel of land to Lend Lease based on the 'consideration
for' the transfer, which was said to comprise of the Staged
Land Payment plus the contribution payments relating to each parcel
of land. Lend Lease objected to the assessments on the basis that
the consideration for the transfer was only the Staged Land
Payment. The objection was disallowed by the Commissioner, with
Lend Lease then appealing to the Supreme Court.
The Supreme Court decision by Pagone J upheld the
Commissioner's assessments on the basis that all of the
contribution payments made by Lend Lease were 'part of the
consideration for the land acquired' and thus assessable to
duty. Lend Lease appealed this decision to the Victorian Supreme
Court of Appeal.
The Supreme Court of Appeal handed down its decision on Thursday 15 August 2013 (Lend Lease Development Pty Ltd v Commissioner of State Revenue [2013] VSCA 207). In a unanimous decision, the Court upheld Lend Lease's appeal, finding that the consideration 'for' the transfer of the seven parcels of land was only the Staged Land Payment (and did not include the contribution payments). The contribution payments were held to be for matters that were separate and distinct from the transfers of land. The reasons for the decision included:
- In the original decision of the Supreme Court, Justice Pagone had erred when he 'shifted his focus from the nature of the dutiable property transferred to the land as developed'.
- It is essential to focus on the dutiable property and the consideration for the transfer where it takes place within a composite arrangement. In this case, the focus should have been on each land sale contract, not on the development agreement and annexures as a whole.
- An interdependence of mutual promises is not sufficient to determine whether a payment was made 'for' a dutiable transaction. The fact that the transaction had a single, integrated and indivisible character does not preclude the transaction from containing or relating to several distinct matters only one of which may attract duty. This was a fundamental principle in Bambro (No 2) Pty Ltd v Commissioner of Stamp Duties (1963) 63 SR (NSW) 522 which was applied and followed in this case.
- The ongoing nature of the relationship between Lend Lease and VicUrban, which was similar to a joint venture arrangement, allowed this case to be distinguished from the High Court case of Chief Commissioner of State Revenue v Dick Smith Electronics Holdings Pty Ltd (2005) 221 CLR 496 (in which there was a one-off purchase of shares).
- The infrastructure works by VicUrban enhanced the value of the land transferred to Lend Lease, but this does not provide the requisite nexus between those works and the transfers.
- It would be 'wholly misguided' to apply a test of causation (i.e. a 'but for' test) as the criterion for determining whether the contribution payments were part of the consideration for the transfer of the land (for example, it is not sufficient to argue that, 'but for' the contribution payments, the transfer of the land would not have proceeded).
- It was not enough to rhetorically ask, 'why else would Lend Lease have agreed to contribute to these works if not to secure transfer of the land?' This invites an inquiry into motivation, which departs from the statutory question at hand.
- The development agreement required many of the contribution payments to be made before the transfer of the land to Lend Lease. It was held that the timing of the contribution payments (and the works) was not decisive and was of little significance in this case.
- The benefit of the works was to be realisable upon subsequent sale of the developed land by Lend Lease to third parties, and that benefit was factored into the profit-sharing arrangement between the parties, rather than forming part of what Lend Lease paid for when it acquired the land from VicUrban.
- The works benefited the whole Docklands area, and it could not be said that the contribution payments benefited a particular parcel of land to the same extent.
Implications
The Victorian Treasurer Michael O'Brien has stated that the Government is determining whether there is further avenue for legally testing the propositions in this case and whether legislative changes are required.
If you are contemplating a transaction, development or other arrangement that involves payments separate from the agreed consideration for land, or have entered into such an arrangement, you should consider whether this case can be relied upon when determining the consideration for the transfer of land for stamp duty purposes.
The principles to come out of this case also have broader application than just to development agreements, as the application of section 20 of the Duties Act is central to all dutiable transactions.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
