SPIC Pacific Hydro Pty Ltd v Chief Commissioner of State Revenue 

 

SPIC Pacific Hydro Pty Ltd v Chief Commissioner of State Revenue

SPIC Pacific Hydro Pty Ltd v Chief Commissioner of State Revenue was a decision of a single judge of the Supreme Court (Payne JA) handed down on 21 April 2021.

2021-05-10

The case involved the acquisition by SPIC on 12 May 2016 of the shares and units in the entities operating the Taralga Wind Farm. The case involved an assessment under the landholder provisions of the NSW Duties Act applicable at the relevant time. These have now been amended although the case remains relevant to some issues under the current NSW provisions as well as the landholder provisions of other States.

Taralga was an operating wind farm with leases of approximately 25 years. Taralga as the tenant had installed wind turbine generators (WTGs) and associated infrastructure such as roads, hardstands, met masts, and control and switching stations. The tenant had a right to remove the plant & equipment at any time and an obligation to remove the WTGs and restore the land at the end of the term under the terms of the leases.

The Court considered 5 issues:

Issue 1

What, if any, of the plant and equipment installed on the leased land is a fixture?

Issue 2

To the extent that any plant and equipment installed on the leased land is a fixture, to what, if any, interest in land did this give rise on the part of the Holdco Land Trust (through its linked entities)?

Issue 3

Having regard to the answers to issues 1 and 2, was the Holdco Land Trust a “landholder” for the purposes of the relevant provisions of the Duties Act?

Issue 4

How are any interests in land on account of fixtures to be valued?

Issue 5

Is the power under s 163G of the Duties Act available and, if so, should it be exercised?

1. Were the plant & equipment a fixture

The Court found that the WTGs and most other installations were fixtures due to the degree of annexation and the expectation that the WTGs and associated equipment would likely remain in place for their effective useful life.

SPIC argued that the WTGs were “strongly affixed to the land” because otherwise they would fall over. Therefore, the affixation was for the better use of the WTGs as chattels. Payne JA concluded:

116: I find that every item was fixed in place on the land for the better enjoyment by the tenant of the land as an integrated wind farm operated on the land. The Wind Farm was purpose-built after an extensive (18-year) wind study of the area establishing its suitability as a wind farm. The location of the WTGs was selected based on this wind assessment. A characteristic of the land was that 80 metres above the land the wind blew at a speed conducive to the operation of a wind farm.

123: I find that the function served by the annexation of the items was the use of the land as a wind farm. The wind turbine generators need to be upright and 80 metres high in order to capture the wind. Hence, the concrete foundations are significant and the turbines are secured to those foundations so that they may stand and function upright safely and efficiently to capture the wind. The function of the annexation of each of the eight met masts (through guy wires and the connection of the masts to the ground by concrete) is to have the masts upright at the same height as the turbines so that wind and weather conditions can be monitored.

The Court’s conclusion is very much one of characterisation where different courts may take different approaches. The answer depends upon whether a court focuses on the use of the land as an integrated wind farm or the use of the WTG as an asset that generates electricity with the use of the land being incidental. The judge may have equally concluded ‘… the function served by the annexation of the items was the use of the WTG to generate electricity.’

The judge considered the right and obligation to remove the plant and equipment at the end of the term was a factor but was not determinative.

120: The rights and obligations in the leases no doubt demonstrate that the parties to the leases have turned their minds to the question of rights of severance, ultimately to ensure that ownership of the plant and equipment to be installed on the property throughout the term of the lease will revert to the tenant upon severance and to the obligations of the tenant to remediate the land at the end of the lease. Those rights and obligations are relevant to, but not determinative of, the purpose of the affixation of the plant and equipment to the land. If those rights and obligations were determinative, there would be no need for the doctrine of tenant’s fixtures. As I have said, I am bound to conclude that the intention of the party making the improvement ultimately to remove it from the land, will not, by any means, be a controlling fact.

121: I am not satisfied that, no matter how firmly relevant plant and equipment is affixed to the land and regardless of the objective purpose of the affixation, a requirement for remediation at the conclusion of commercial and industrial undertakings means that plant and equipment affixed to land is therefore not a fixture.

In coming to this conclusion the judge distinguished a series of Victorian cases: Commissioner of State Revenue v Uniqema Pty Ltd [2004] VSCA 82; Vopak Terminals Australia Pty Ltd v Commissioner of State Revenue (2004) 12 VR 351 and AWF Prop Co 2 Pty Ltd v Ararat Rural City Council [2020] VSC 853. AWF Prop Co 2 involved another wind farm where the court considered the tenant’s rights and obligations to remove the wind turbines at the end of the lease led to the conclusion that the plant and equipment had not become a fixture.

However, the Victorian cases may be influenced by the existence of section 154A of the Property Law Act 1958 (Vic). Uniqema and Vopak determined that the effect of that section is that tenant’s installations retain their character as a chattel, and do not become a fixture. The SPIC Pacific Hydro case therefore has limited application to Victorian matters.

2. Taralga’s interest in the fixtures

The Court found that the WTGs and associated plant and equipment were tenant’s fixtures. The roads and below ground structures (wiring, hardstands) had become landlord’s fixtures as there was no intention of removing these.

Nevertheless, legal title to the fixtures vested in the landlord, not Taralga until Taralga exercised its rights to sever and remove the asset at the end of the lease.

This is consistent with the High Court decision in TEC Desert Pty Ltd v Commissioner of State Revenue (2010) 241 CLR 576.

Payne JA quoted the High Court decision in Tec Desert:

78: The Court in TEC Desert (HCA) quoted C Harpum, S Bridge and M Dixon, Megarry & Wade The Law of Real Property (7th ed, 2008, Sweet & Maxwell) at p 1072 [23-010] to this effect:

“Prima facie, all fixtures attached by the tenant are ‘landlord’s fixtures’, i.e. must be left for the landlord at the end of the lease. But important exceptions to this rule have arisen, and fixtures which can be removed under these exceptions are known as ‘tenant’s fixtures’. This expression must not be allowed to obscure the fact that the legal title to the fixture is in the landlord until the tenant chooses to exercise his power and sever it. The tenant may do so only during the tenancy or (except in cases of forfeiture or surrender) within such reasonable time thereafter as may properly be attributed to his lawful possession qua tenant.” (Footnotes omitted.)

The Commissioner submitted that a tenant has a separate equitable interest in the tenant’s fixtures as well as a legal interest created by the lease. Payne JA rejected that there was any separate equitable interest, the tenant’s only interest in land was its rights under the lease.

3. Was Taralga a landholder? & 4. How is Taralga’s interest to be valued?

These issues were intertwined, but effectively revolved around how the interest as tenant under the lease was to be valued.

The Court accepted the approach of one of the valuers (Mr Thomas) involving the following steps:

  1. Having regard to the unencumbered value of the plant and equipment as at the date of the Acquisition, Mr Thomas estimated what it would cost to rent that plant and equipment each year. By comparing this to the much lower actual rental paid under the leases each year, he determined the per annum value of the right to use the plant and equipment during the term of the leases

  2. Mr Thomas then calculated this value to the tenant over the unexpired term of the leases at the time of the Acquisition, discounted to “present” value as at the date of the Acquisition

  3. He then deducted from this the expected costs to the tenant to remediate the site, again discounted to present value as at the date of the Acquisition.

On the facts of the matter, the Court rejected the discount rate adopted by SPIC’s valuer and adopted a valuation closer to the Commissioner’s assessment. Nevertheless, the approach taken to valuing the lease, including the right of use of the plant and equipment during the term of the lease, was correct.

As the value of the leasehold interest was above $2m, Taralga was a landholder.

5. Is the power under s163G of the Duties Act available?

In light of the conclusions above, the plant and equipment were not ‘goods’ and therefore sec 163G was not applicable.

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