NSW Supreme Court decides acquisition of water carrying pipeline via a share purchase is subject to landholder duty

In Conexa Sydney Holdings P/L v Chief Commissioner of State Revenue [2024] NSWSC 628¹  (Decision), Richmond J affirmed a decision by the Chief Commissioner of State Revenue (Chief Commissioner) to impose landholder duty on, inter alia, the underlying unencumbered value of a water carrying pipeline (Pipeline) and freehold land acquired by Conexa Sydney Holdings Pty Ltd (Conexa) pursuant to its broader acquisition of 100% of the shares in SGSP Rosehill Network Pty Ltd (Rosehill).

Despite finding that the Pipeline did not constitute a ‘land holding’², Richmond J found that the Pipeline nonetheless constituted a ‘good’ of Rosehill, a landowner, and its acquisition therefore attracted landholder duty³ of $3,326,497, plus interest on tax.  The taxpayer was also ordered to pay costs on the ordinary basis of the Chief Commissioner, as agreed/assessed.

Background Facts 

The following background facts were relevant to the Decision:

• The Pipeline is buried in the ground for its entire 19 kilometre length, and it was constructed by Rosehill to facilitate the supply of recycled water to south-west Sydney through a permanent means of water carriage. 
• Other relevant characteristics of the Pipeline include:
  • Its construction either involved laying it in an open trench, over which displaced soil was placed, or the use of discretional boring through abandoned gas mains pipes;
  • Where road surfaces or footpaths were disturbed in its laying, they were restored and returned to their original use once the Pipeline was installed;
  • Approximately 95.37 per cent of the Pipeline travels under Crown land, with the remainder travelling underneath privately-owned land. The only land owned by Rosehill that the Pipeline traverses is a plot of land on which a connected recycled plant has been constructed (Fairfield Property); 
  • It is governed by the Water Industry Competition Act 2006 (NSW) (WIC Act)
• In September 2019, Conexa acquired 100% of the shares in two subsidiaries of Jemena Ltd, including Rosehill, which was a ‘private landholder’ as defined by section 146 of the Duties Act. The final purchase consideration was $70.4 million, of which a valuation report prepared by KPMG (KPMG Report) attributed $60.8 million to the market value of Rosehill’s share capital. The KPMG Report allocated that amount as follows:
  • Fairfield Property - $4.1m;
  • Pipeline - $46.4m; and
  • Other Plant & Equipment - $10.3m,
• In March 2022, the Chief Commissioner issued a Duties Notice of Assessment assessing Conexa as liable for landholder duty in the sum of $3.3m, which was approximately $2m higher than that submitted to the Chief Commissioner by Conexa’s representatives at first instance, and explainable by the omission of the value of the Pipeline from that submission. The Chief Commissioner disallowed a subsequent landholder duty objection by Conexa. 

Statutory Background 

Relevantly, Chapter 4 of the Duties Act imposes landholder duty on the acquisition of certain interests in ‘landholders, with such duty chargeable on the ‘unencumbered value of all land holdings and goods of the landholder in NSW’. The prescribed definition of ‘landholder’ references entities with land holdings in NSW with an unencumbered value of at least $2m⁴. 

The term ‘land holding’ is defined by section 147 as, subject to certain qualifications, ‘an interest in land other than the estate or interest of a mortgagee, charge or other secured creditor’, whereas the term ‘goods’ is not defined by the Duties Act, but subject to a few prescribed exclusions. 

The acquisition that was the subject of the dispute preceded the introduction of section 147A, which adopts a ‘fixed to the land’ model. 

Issues

It was not in dispute that Rosehill was a ‘landholder’. The issues in dispute between the parties were:

1. Whether the Pipeline constituted an interest in land for the purposes of section 155 of the Duties Act;
2. Whether the Pipeline constituted an interest in goods for the purposes of that section; and
3. The unencumbered value of the Pipeline at the time of acquisition.

Decision

Richmond J found in favour of the Chief Commissioner in relation to the first issue, observing:

• The term ‘land holding’ is defined in s 147 to mean an ‘interest’ in land (subject to various exclusions not presently relevant). ‘Interest’ is capable of many meanings, and the precise meaning depends on the context in which it is used. When the term is used (as here) in the context of the phrase ‘interest in land’, it is regarded as referring to a proprietary right in the land and not a mere personal right.
• The proper construction of section 64 of the WIC Act is that it has the effect of causing the thing or things comprising of the water industry infrastructure to retain their character as chattels despite their affixation to the land in, on, under or over which they are situated.
• The true character of the Pipeline is that it remained a chattel despite its installation in land, a conclusion supported by the reasoning of Kirk JA in the decision in Chief Commissioner of State Revenue v Shell Energy Operations No 2 Pty Ltd (2023) 116 ATR 337; [2023] NSWCA 113 (Shell No 1).

In respect of the second issue, Richmond J also considered himself bound by the reasoning of Kirk JA in Shell No 1 to find that the Pipeline constituted ‘goods’, affirming:

• There is nothing in Chapters 2 or 4 of the Duties Act to support a confined approach in the construction of the term ‘goods’. Specifically, the term was included in Chapter 4 to extend what was dutiable to include a significant category of property behind land holdings;
• Notwithstanding that assets in the nature of the Pipeline are not, like parcels of land, “truly immovable”, the authority for the proposition regarding ‘moveability’ (viz. Commissioner of Main Roads v North Shore Gas Co Ltd [1967] HCA 41) was decided in a context distinguishable from Chapter 4 of the Duties Act; and
• Given the legislature sought to encompass both one end of the spectrum (land) and the other (goods), it would be inappropriate to exclude from liability interests of a kind that exist between either end. 

Finally, turning to the third issue, Richmond J again sided with the Chief Commissioner, determining that the unencumbered value of the Pipeline under sections 155 and 162 of the Duties Act should be ascertained based on its ability to be deployed in the business of Rosehill as a going concern.

Implications

Conexa was unable to access the landholder duty concession available under section 163G of the Duties Act as less than 90% of the total unencumbered value of all land holdings and goods in NSW of Rosehill were comprised of the latter. This was due to some of the Pipeline being situated under the Fairfield Property and therefore being regarded as land to such extent. 

Richmond J did not go into any detail regarding section 163G. 

Although the Decision ostensibly illustrates the importance of distinguishing between land holdings and goods, the 2020 incorporation of section 147A into the Duties Act, which expands the relevant meaning of ‘land’, is likely to curtail the Decision’s impact. 

FOR MORE INFORMATION

For further information regarding landholder duty issues please contact Mira Brewster or Sam Mohammad.

[1] Conexa Sydney Holdings Pty Ltd v Chief Commissioner of State Revenue - NSW Caselaw
[2] Duties Act 1997 (NSW) (Duties Act), section 147A
[3] Duties Act, section 155
[4] Duties Act, section 146