Oliver Hume appeal decision

The Victorian Court of Appeal has dismissed the taxpayers Oliver Hume’s appeal and affirmed the Commissioner’s decision to impose landholder duty.

The Victorian Court of Appeal recently handed down its unanimous decision in Oliver Hume Property Funds v Commissioner of State Revenue [2024] VSCA 175. The Court determined that the acquisition of 99.99% of the issued shares in a landholder by investors was based on a widely distributed information memorandum (IM), which constituted substantially one arrangement. The Commissioner’s assessment of landholder duty was subsequently upheld.

Key Takeaways

• The appeal emphasises that capital raising in entities that have land holdings require appropriate duty advice to prevent adverse and unintended duty consequences
• It is equally important that consideration is given to the drafting of the transaction and fund raising documents to prevent the rise of unintended duty outcomes.  
• The decision reinforces that determining whether the ‘associated transaction’ rules apply will depend on the particular facts and circumstances of each case.
• It’s uncertain whether the State Revenue Office (SRO) will continue to apply the administrative practice expressed in DA.057 which provides that the Commissioner would not view a genuine public offer under a product disclosure statement (PDS) as an associated transaction.  In the original decision, the court held that the Commissioner’s concession in the ruling has no force in law. The SRO has yet to comment on the Appeal decision and its impact on their current ruling and administration of these provisions.
• Many other states have similar (but not identical) concepts as “associated transaction”. Thus, this issue must be considered carefully for all States, not just Victoria.
• It remains unclear at this stage whether there will be a further appeal.
• We call upon the Victorian Government to amend the legislation to ensure that genuine public offers under a PDS or an Information Memorandum are not considered associated transactions. The Victorian property industry is being crippled by red tape and taxation. This exemplifies poorly drafted legislation that has unintended consequences that must be fixed.

Case background

For details of the factual background, please refer to our previous article.

Under the landholder duty provisions of the Duties Act 2000(vic), a person makes a relevant acquisition if:

The person acquires an interest in a landholder:

• that is of itself a significant interest in the landholder or
• that amounts to a ‘significant interest’ in the landholder when aggregated with other interests in the landholder acquired by all or any of the following:
  • the person
  • an associated person
  • any other person in an ‘associated transaction’

Landholder duty is payable on a relevant acquisition.  The case concerns what constitutes an ‘associated transaction’.  

Oliver Hume sought leave to appeal against VCAT’s decision, which upheld the Commissioner’s assessments on a question of law. Leave to appeal was sought on the following grounds:

1. VCAT erred in considering that each investor is bounded by the statutory contract constituted by the applicant’s constitution.
2. VCAT erred in considering that the investors and the applicant shared the common objective of having the shareholders as members and as providers of equity.
3. VCAT erred in the interpretation of s 78(1) in that the definition of ‘associated transaction’ was satisfied even though the investors subscribed for their shares independently of one another.
4. VCAT should have found that the share acquisitions were not “associated transactions” because the investors had no connection beyond wanting equity in the applicant. Each investor applied separately and independently for shares under the applicant’s IM.

We have listed Oliver Hume and the Commissioner’s submissions in Appendix A below.

The Court’s Decision

The court asserted that although the arguments put forward by Oliver Hume had merit, the appeal was dismissed due to several interconnecting factors which demonstrated a ‘oneness’ suggesting an associated transaction. The factors included:

• The acquisitions were interconnected because no individual acquisition could go ahead under the terms of the IM unless the required $1.8 million was raised.
• The acquisitions could not be described as independent of each other notwithstanding the fact that each investor may not have met or even communicated with the others.
• The investors bound themselves to the constitution, joining a single land development project with an entrenched management structure.
• The acquisitions occurring on the same day and in the same way to transform the shareholding in the landholder from being 100% owned by Oliver Hume to 99.99% owned by private investors.

The court’s decision was based on the particular facts and circumstances of the case. However, the factors above are not dissimilar to many other capital raising arrangements.

How SW can help

Should you have any questions on what this decision means for you and your business, please reach out to your SW contact. We recommend that duty advice is sought before undertaking any capital raising for property acquisitions.  

Contributors

William Zhang

Blake Trad

Eric Lay