The High Court of Australia has held in Commissioner of State Revenue v Lend Lease Development Pty Ltd [2014] HCA 51 that the consideration “for” a transfer of land under a complex development agreement included payments attributed to other obligations in the agreement. In reversing the Victorian Court of Appeal’s decision, the High Court has brought certainty to a heavily contested area of stamp duty law.

The High Court’s decision will have a significant impact on the current documentary procedure for complex sale and development arrangements. Vendors and property developers must now be aware that, in the event of complex agreements with multiple interrelated obligations, duty may be payable by reference to payments which the parties did not contemplate as moving the transfer of land.

The Development Agreement

In 2001, Lend Lease Development Pty Ltd and the other respondents (Lend Lease) entered into a Development Agreement with the Victorian Urban Development Authority (VicUrban) for the transfer and development of land in Docklands, Melbourne. The Development Agreement identified several “Stages” at which VicUrban was required to transfer land to Lend Lease by entering into separate land sale contracts.

The dispute arose because the Development Agreement required Lend Lease to make a variety of payments to VicUrban over four different time periods (both before and after Lend Lease took title in each Stage) by reference to the following payment components:

  • a “Stage Land Payment”, which Lend Lease contended was the only component subject to duty;
  • revenue or profit sharing payments to VicUrban on a subsequent sale of the land by Lend Lease; and
  • other components, which included a contribution for infrastructure works in the Docklands area, a contribution for urban art and a contribution for remediation of a gasworks site. The majority of these works were not physically situated on the land being transferred.

The Victorian Commissioner of State Revenue (Commissioner) assessed duty on the transfers of land not only by reference to the Stage Land Payments, but also the other amounts payable by Lend Lease under the Development Agreement. This was based on section 20(1)(a) of the Duties Act 2000 (Vic) (“Duties Act”) which assessed duty on “the consideration … for the dutiable transaction”.

The lower court decisions

The Victorian Supreme Court dismissed Lend Lease’s appeal from the Commissioner’s assessments at first instance. Pagone J held that the transfers of land occurred as part of a commercial, integrated project between Lend Lease and VicUrban. The additional amounts payable under the Development Agreement were “all part of, or ancillary to, the land acquired”, and therefore the total amount payable under the Development Agreement was the amount which “moved” the transfer.

Lend Lease successfully appealed to the Victorian Court of Appeal. The Court of Appeal criticised Pagone J for looking to the future development of the land, rather than having regard to the undeveloped nature of the land at the time each parcel was transferred.

Although acknowledging that the Development Agreement was a “single, integrated and indivisible” transaction, the Court of Appeal drew a distinction between the consideration which moved the entire, broader arrangement and the specific consideration which moved the transfer of the land. The Court of Appeal further held that the payments by Lend Lease to VicUrban after transfer of title did not constitute any part of the consideration which moved the transfer.

The Court of Appeal took pains to distinguish the present case from Chief Commissioner of State Revenue v Dick Smith Electronics Holdings Pty Ltd [2005] HCA 3 (Dick Smith), in which the High Court held that the question of consideration was to be assessed from the perspective of what was received by the vendors under the arrangement. The Court of Appeal held that the complex arrangements between Lend Lease and VicUrban, as parties in an ongoing relationship, were substantially different from the much simpler transaction the High Court was concerned with in Dick Smith.

The decision in the High Court

The High Court began by clarifying that the only question before it was whether the rights and obligations created by the Development Agreement can be divided between those relating to the transfers of land and those relating to other subjects. In particular, it was not apposite to look to any general principle derived from stamp duty cases concerning the previous doctrine of duty on “instruments”, as opposed to duty on “transactions” which was the scheme of the Duties Act.

The High Court then disapproved of the Court of Appeal’s focus on the undeveloped nature of the land at the time of transfer. The High Court held that the state or condition of the land at time of transfer did not assist in deciding what was the consideration which moved the transfer.

The Court applied the principle in Dick Smith that the consideration should be assessed from the perspective of what was received by the vendor as stipulated in the agreement. The Court found that each aspect of Lend Lease’s promised performance was necessary in moving the transfer of land. This finding extended to all of the payments in dispute, including the revenue or profit sharing payments, as it was only the promise of paying the total sum which led VicUrban to agree to transfer the land to Lend Lease.

In coming to this conclusion, the High Court had regard to the default provisions in the Development Agreement. These provisions provided that if Lend Lease materially defaulted on any term of the Development Agreement, Lend Lease forfeited the land to VicUrban, and VicUrban was then bound to resell the land to a third party. Further, upon such a resale, an allowance had to be made to Lend Lease in respect of the increase in the market value of forfeited land brought about by the works which Lend Lease did outside that land. These default clauses reinforced that each aspect of Lend Lease’s promised performance was necessary in moving the transfer of land.

It should be noted that one aspect of the Court of Appeal’s decision, that a “Grand Plaza Retention Amount” did not form part of the consideration for the transfer of land, was conceded by the Commissioner and was not argued on appeal. The Court of Appeal held that this was no more than an accounting obligation to maintain a fund, which would only be payable to VicUrban in the event that the Development Agreement was terminated.