In brief

  • Stamp duty is an important consideration affecting the acquisition of Australian land or other dutiable property.
  • If a developer acquires land from a public authority or other third party and undertakes obligations to that third party under a development agreement in addition to paying the contract purchase price, those additional obligations may be consideration for the sale or transfer.
  • Property developers should seek stamp duty advice before entering into development arrangements under which they will acquire Australian land.

Overview

On 10 December 2014 the High Court found unanimously against Lend Lease Development Pty Ltd (LLD) in the case Commissioner of State Revenue (Vic) v LLD & Ors [2014] HCA 51. The Court held that additional payments made as part of a broad development agreement, which were specified to be in exchange for or contributions towards additional development works, were nevertheless to be construed as part of the dutiable ‘consideration’ for the transfer of land because performance of the obligations to make the additional payments and to transfer the land were inseverably interlocked.

The consideration for a transfer which forms part of a single, integrated and indivisible transaction will include all of the promises and obligations that a purchaser must perform in order to be entitled to the transfer of the relevant dutiable property. The decision means that performance of the land sale and development components under an overarching development agreement must be decoupled if additional payments under the development agreement are to be excluded from dutiable consideration.

Background

LLD entered into Development Agreements with the statutory authority VicUrban by which LLD agreed to acquire and develop land in the Victoria Harbour Precinct in conjunction with VicUrban, as well as to undertake additional development works on and outside the acquired land. This agreement was contained in the Development Agreement entered into in 2001, which was relevantly varied and restated in 2006 and 2008.

The land was to be transferred in stages, by way of separate Land Sale Contracts, in exchange for the Stage Land Payments. The Development Agreement provided that other payments, such as the External Infrastructure Contribution, the Gasworks Site Remediation Contribution and the Public Art Contribution, were to be paid at various points in time, identified by reference to the transfer date of each parcel of land.

Duties Act 2000 (Vic)

Under the Duties Act, land is dutiable property and ad valorem duty is payable on a transfer of dutiable property, which is a dutiable transaction.  Duty is calculated at the rate of 5.5% of the dutiable value of the dutiable transaction. The dutiable value of the dutiable transaction is the greater of the consideration for the dutiable transaction or the unencumbered value of the dutiable property.

Dispute

LLD contended, and paid duty on the basis, that the consideration for each transfer of stage land was the Land Stage Payment agreed in relation to that parcel of land, which was stated as the purchase price under the applicable Land Sale Contract. This was consistent with the terms of the Development Agreement, which obliged the parties to "enter into and settle a Land Sale Contract for the purchase by LLD of each Stage for the Stage Land Payment on or before the Stage Release Date for that Stage".

The Commissioner of State Revenue assessed duty on the basis that the consideration for the transfer of each parcel of land included not just the Land Stage Payment due under the Land Sale Contract, but also  other categories of payment from LLD to VicUrban under the Development Agreement: namely, the External Infrastructure Contribution, the Gasworks Site Remediation Contribution, the Integrated Public Art Contribution, the Grand Plaza Contribution and Grand Plaza Additional Payment, Additional Authority Payments, Additional Land Payments and specified non-monetary contributions (the Disputed Payments).

Litigation

The dispute was the subject of proceedings in the Supreme Court of Victoria, where the Commissioner was successful. On appeal, the Court of Appeal found unanimously in LLD’s favour. Tate JA, who gave the reasons for the Court, found that the Disputed Payments related to ‘separate and distinct’ matters, being exchanges of value under the Development Agreement which were consideration for things other than the transfer of the land. As a result, the Disputed Payments were not consideration for the land transfers, but for other development works.

The Commissioner obtained special leave to appeal to the High Court, and the case was heard by a bench of five Justices of the High Court on 4 and 5 November. Judgment was handed down on 10 December 2014.

Orders of the High Court

By unanimous joint judgment, the High Court found in favour of the Commissioner.

Before commencement of the hearing, the Commissioner conceded that the inclusion of the Grand Plaza Retention Amount in assessments for two land stages was incorrect. The Court ordered that those assessments be remitted to the Commissioner for reassessment by excluding that amount.

Court’s reasoning

The High Court held, applying the test approved by the Court in Commissioner of State Revenue (NSW) v Dick Smith Electronic Holdings Pty Ltd (2005) 221 CLR 496, that consideration for a dutiable transaction is 'the money or value passing which moves the conveyance or transfer'. That test focuses on what is received by the vendor so as to move the transfers to the purchaser as stipulated in the agreement between them.

The 'consideration' for a dutiable transfer includes all that which the transferee has promised the transferor in order to secure the dutiable transfer; it includes all obligations which must be performed in order for the transfer to occur. The Court considered irrelevant earlier judicial authorities which had held that amounts owing by a purchaser of land to the vendor under a building contract between them were not included in consideration for the land transfer, since in those cases it was the vendor who was obliged to carry out the building works, rather than the purchaser as was the case in this matter.

The Court found that the effect of certain provisions of the Development Agreement was that LLD was not entitled to the land transfers unless LLD made the Disputed Payments as required by the Development Agreement. Therefore, the Disputed Payments were part of the consideration for the land transfers, since the land transfers would not have 'moved' without the making of those payments. In the context of this matter where there was a single set of transaction documents under which the rights and obligations of the parties were interlocked, and having regard in particular to applicable default provisions, the Court considered that there was only one bargain between the parties, not two or more bargains. Each transfer was part of a 'single, integrated and indivisible' transaction. 

The High Court rejected the Full Court’s reasoning that the dutiable value of the dutiable property was to be determined by reference to the dutiable property in the (undeveloped) state it was in at the date of transfer. The Full Court had reasoned that to include the Disputed Payments as consideration for the land would be to impose duty on the land transfer as though the value of the Disputed Payments had already been expended in the development (and value enhancement) of the land. The High Court found that such an approach paid insufficient attention to the words of the Duties Act, which simply required an identification of the consideration 'for' the transfer of the relevant land, and considered that the condition of the transferred land was irrelevant. The Full Court had also erred in concluding that the Disputed Payments were consideration for ‘separate and distinct’ matters, other than the dutiable land transfers, which took place under the broader Development Agreement.

In reaching its conclusion, the High Court placed particular emphasis on the default provisions under the Land Sale Contracts and the Development Agreement. The Court noted that a failure to pay a Disputed Payment in effect entitled VicUrban to terminate the Land Sale Contract. It also entitled VicUrban to terminate the Development Agreement in relation to all future stages and in relation to any stage on which development works had not commenced. The Court considered it relevant that VicUrban was obliged to sell forfeited stages and, after recouping its own losses flowing from termination of the Development Agreement, to pay LLD the amount of its outlays in acquiring those stages, including certain of the Disputed Payments and the increase in market value of those stages resulting from LLD’s works.