New South Wales Supreme Court CITATION : CSR Ltd v Hornsby Shire Council [2004] NSWSC 946 HEARING DATE(S) : 30/09/04 JUDGMENT DATE : 14 October 2004 JUDGMENT OF : Gzell J DECISION : Plaintiff entitled to order that defendant Council pay the withheld amount plus interest. Declarations on defendant's cross claim refused. CATCHWORDS : ADMINISTRATIVE LAW - Prerogative Writs and Orders - Whether defendant Council should be ordered to fulfil a duty under the Supreme Court Act 1970, s 65 - Council acquiring land by compulsory acquisition under the Land Acquisition (Just Terms Compensation) Act 1991 - Valuer-General determining amount of compensation to be offered in an amount inclusive of GST - Plaintiff accepting the amount - Council withholding an amount as GST payable to Commissioner of Taxation - Commissioner ruling no taxable supply involved - Whether a defensive claim of unjust enrichment open to the Council - Whether Council entitled to declaratory relief under the Supreme Court Act 1970, s 75 that plaintiff obliged to issue a tax invoice - Commissioner not a party to the proceedings Land Acquisition (Just Terms Compensation) Act Local Government Act 1993 Supreme Court Act LEGISLATION CITED : New Tax System (Goods and Services Tax) Act 1999 (Cth) Income Tax Assessment Act 1936 (Cth) Real Property Act 1900 Bankruptcy Act 1966 (Cth) Spencer v The Commonwealth (1907) 5 CLR 418 Pebruk Nominees Pty Ltd v Woolworths (Victoria) Pty Ltd 2003 ATC 4932 Henty House Pty Ltd (in voluntary liquidation) v Federal Commissioner of Taxation (1953) 88 CLR 141 CASES CITED : Shaw v Director of Housing & State of Tasmania (No 2) (2001) 10 Tas R 1 Dixon v Chief Commissioner of Stamp Duties (1985) 3 NSWLR 347 Guaranty Trust Co of New York v Hannay & Co [1915] 2 KB 536 Mason and Carter, Restitution Law in Australia, Butterworths, Sydney, 1995 PARTIES : CSR Ltd - Plaintiff Hornsby Shire Council - Defendant FILE NUMBER(S) : SC 4346/04 COUNSEL : Mr Bret Walker SC/ Mr R Beasley - Plaintiff Mr D B McGovern SC/ Mr R Lancaster - Defendant SOLICITORS : Minter Ellison Lawyers Abbott Tout Solicitors IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION GZELL J THURSDAY 14 OCTOBER 2004 4346/04 CSR LTD v HORNSBY SHIRE COUNCIL JUDGMENT 1 The plaintiff, CSR Ltd, was the registered proprietor of land. It was compulsorily acquired by the defendant, Hornsby Shire Council. The Valuer-General determined the amount of compensation for the land at $25,099,500. The Council maintained that the Valuer-General's determination was inclusive of GST and deducted $2,300,000 from its compensation payment as a rounded-up GST component. 2 The land was acquired under the Land Acquisition (Just Terms Compensation) Act 1991. CSR submitted that there was no power under that Act or under any other legislation entitling the Council to withhold any amount from the Valuer-General's determination. It submitted that the Council was under a public duty to pay the compensation so determined and it sought an order that the Council fulfil its duty by paying the balance of the outstanding compensation together with interest at the statutory rate. 3 The Council made it a requirement of its payment of compensation that CSR produce to it a tax invoice. The Council argued that its financial position was adversely affected by CSR's failure to do so. It submitted that CSR would be unjustly enriched if it was paid the full amount of compensation and retained the GST component. The Council submitted that it was entitled to raise unjust enrichment as a defence to CSR's claim and it was entitled, on its cross claim, to relief in the form of declarations as to CSR's obligations with respect to GST. Entitlement to compensation 4 For the purposes of the Land Acquisition (Just Terms Compensation) Act 1991, the Council was an authority of the State in terms of s 4(1). In terms of s 4(2)(a) it was authorised to acquire land by compulsory process since it was so authorised under the Local Government Act 1993, s 186(1). Section 19(1) provided that an authority of the State authorised to acquire land by compulsory process might, with the approval of the Governor, declare, by notice published in the Gazette, that any land described in the notice was acquired by compulsory process. That procedure was followed with respect to CSR's land. 5 The effect of publication of the notice was provided by the Land Acquisition (Just Terms Compensation) Act 1991, s 20(1): on the date of publication the land described in the notice was, by force of the Act, vested in the authority of the State acquiring the land and freed and discharged from all estates, interests, trusts, restrictions, dedications, reservations, easements, rights, charges, rates and contracts in, over or in connection with the land. 6 The Land Acquisition (Just Terms Compensation) Act 1991, s 37 provided that an owner of an interest in land that was divested by an acquisition notice was entitled to be paid compensation in accordance with the Act by the authority of the State that acquired the land. Section 39 required the claimant for compensation to lodge a claim in prescribed form. CSR did so. A copy of the claim was given to the Valuer-General in terms of s 41. 7 The Land Acquisition (Just Terms Compensation) Act 1991, s 47 required the Valuer-General to determine the amount of compensation to be offered. Section 42(1) required the authority of the State within 30 days after publication of the acquisition notice to give the former owners of the land written notice of the compulsory acquisition, their entitlement to compensation and the amount of compensation offered as determined by the Valuer-General. The Minister responsible for the authority of the State was entitled to extend the period of 30 days under s 42(4). He did so in this case. The Council did not comply with the extended time and, pursuant to s 42(8), the Valuer-General gave CSR written notice of the amount of compensation to be offered. The notice contained the following: "DETERMINATION OF COMPENSATION: Twenty Five Million Ninety Nine Thousand Five Hundred Dollars ($25, 099,500). The above determination comprises: Market Value ……………………….. Section 55(a) $25,000,000 Special Value ……………………….. Section 55(b) N/A Severance……………………………. Section 55(c) N/A Disturbance …………………………. Section 55(d) $99,500 Solatium……………………………… Section 55(e) N/A Increase in the value of other land… Section 55(f) N/A Decrease in the value of other land... Section 55(f) N/A Any liability for the GST is a factor in the market for property and is therefore embedded in the lands Market Value as defined in Sec 56 of the Land Acquisition (Just Terms Compensation) Act 1991, and also in allowances for certain other costs, consequently this determination is GST inclusive." 8 The Council sought to tender a valuation report on the land prepared for the Valuer-General. Objection was taken on the ground of relevance. In my view, the report should not be received. The critical issue is the determination by the Valuer-General and not any advice that he might have received preparatory to making that determination. I reject annexures "A", "C" and "D" to the affidavit of Lesley Ruth Finn. 9 CSR commenced proceeding in this Court against the Council seeking, amongst other things, an order that the Council give it a notice in terms of the Land Acquisition (Just Terms Compensation) Act 1991, s 42. By consent, the Court ordered the Council to give CSR a written notice of compensation entitlement and offer of compensation in accordance with the amount determined by the Valuer-General as required by s 42 of the Act within a specified time. The Council served a notice within that time. It stated that the Valuer-General had determined the amount of compensation to be offered for the interest in the acquired land at $25,099,500 inclusive of GST. In the schedule describing the land acquired, the Council appended a note: "Tax Invoice to be produced in an amount of $2,509,950.00 prior to payment of compensation." If a tax invoice were to issue, it would be in the amount of the compensation and not in the figure proposed by the Council. 10 The Land Acquisition (Just Terms Compensation) 1991, s 44(1) provided that a person entitled to compensation might accept the amount of compensation offered by the authority of the State in the compensation notice. Section 44(2) provided that payment of the compensation was to be made within 28 days of the receipt by the authority of the State of a claim for compensation, deed of release and indemnity, duly completed, and any relevant documents of title. CSR accepted the offer of compensation, provided a duly executed deed of release and, subsequently, the certificate of title. 11 The Council did not pay within 28 days of the compensation notice. When the Council did pay CSR an amount including interest at the statutory rate, it withheld the $2,300,000. 12 The Supreme Court Act 1970, s 65 provided that the Court might order any person to fulfil any duty in the fulfilment of which the person seeking the order was personally interested. In my view the Council had a duty under the Land Acquisition (Just Terms Compensation) Act 1991, s 44(2) to pay CSR compensation in the amount determined by the Valuer-General. That amount was $25,099,500. That was the only amount determined by the Valuer-General whether inclusive or exclusive of GST. The Statute required the Council to pay that amount. CSR has made out a prima facie case for the relief it sought. Unjust Enrichment 13 It was submitted on behalf of the Council that CSR would be unjustly enriched if it received the entire compensation and was not obliged to pay GST on it. 14 Restitution for unjust enrichment involves an order that a monetary benefit obtained by the defendant be restored to the plaintiff with interest (Mason and Carter, Restitution Law in Australia, Butterworths, Sydney, 1995 at [202]). Here there is no question of restoring to the Council any GST component because if there was a liability on the part of CSR to pay GST, it was an obligation to pay the Commissioner of Taxation on behalf of the Commonwealth and the Council had no interest in seeing the Commonwealth paid. Secondly, the notion that an enrichment be unjust requires that it not be one conferred pursuant to an effective transaction or valid legal obligation (Mason and Carter at [104]). In this case the payment of $25,099,500 was a statutory obligation under the Land Acquisition (Just Terms Compensation) Act 1991, s 44(2) and could not be unjust. In my view, these elementary propositions are sufficient to exclude a defensive claim based on unjust enrichment. 15 In view of this finding, it is unnecessary for me to determine whether there was a separate GST component in the determination of market value. In my view there was not. As the Valuer General said, the market place has adjusted to the imposition of GST and imbedded it in the market value of land. The test of the price that a willing purchaser would have had to pay to a vendor not unwilling, but not anxious to sell in Spencer v The Commonwealth (1907) 5 CLR 418 was been enshrined in the Land Acquisition (Just Terms Compensation) Act 1991, s 56(1). If the vendor must pay GST on the consideration for sale, that impost will be included in the price the purchaser would have pay. Thus the market value of the land was $25,000,000 and not $22,700,000 plus GST. 16 In Pebruk Nominees Pty Ltd v Woolworths (Victoria) Pty Ltd 2003 ATC 4932 at 4935, Blow J in contrasting the Australian GST system with comparable systems overseas said that the Australian GST was in the same category as British VAT and New Zealand GST. In effect, it provided that the price paid by a consumer comprised two components – the value of a taxable supply, and the GST on that taxable supply. I regard that passage as but a description of the structure of the impost and not authority for the proposition that market value is less than the GST inclusive price paid for a supply in the open market. If his Honour did intend to state that conclusion then, with respect, I disagree. If the market commands a payment of $550 to purchase a video recorder at $500 plus $50 GST, I am of the view that the market value of the video recorder is $550. Entitlement to a tax invoice 17 The Council complained that if it did not receive a tax invoice from CSR, it could not claim an input tax credit. 18 A New Tax System (Goods and Services Tax) Act 1999 (Cth), s 11-20 provided that the maker of a creditable acquisition was entitled to an input tax credit. Section 11-25 provided that the amount of the input tax credit was equal to the GST payable on the supply of the thing acquired. Section 11-5 provided that a creditable acquisition was made if anything was acquired solely or partly for a creditable purpose, the supply of the thing was a taxable supply, there was an obligation to provide consideration for the supply and the acquirer was registered or required to be registered. 19 A New Tax System (Goods and Services Tax) Act 1999 (Cth), s 29-70(2) provided that the supplier of a taxable supply must, within 28 day after the recipient of the supply requested it, give to the recipient a tax invoice for the supply unless it was a recipient created tax invoice. It was submitted that CSR was under an obligation by reason of this provision to provide the Council with a tax invoice. 20 Initially, CSR proposed to adopt the margin scheme in ascertaining any liability for GST. A New Tax System (Goods and Services Tax) Act 1999 (Cth), s 75-5(1)(a) provided that if a taxable supply of real property was made by selling a freehold interest in land, the margin scheme might be chosen to work out the amount of GST on the supply. CSR obtained a private ruling from the Australian Tax Office that it made a taxable supply when its land was acquired by the Council and it could choose to apply the margin scheme to that supply. 21 Subsequently, CSR adopted the position that the acquisition of its land was not a taxable supply and it obtained a further private ruling from the ATO that it did not make a supply of real property to the Council and hence there was no taxable supply. If there was no taxable supply, there was no obligation on CSR to give a tax invoice to the Council under s 29-70(2). 22 The Council submitted that I should reject the opinion expressed in the private ruling and conclude that there was a taxable supply. Reference was made to Henty House Pty Ltd (in voluntary liquidation) v Federal Commissioner of Taxation (1953) 88 CLR 141 in which it was held that a compulsory acquisition of property was a disposal for the purpose of a provision of the Income Tax Assessment Act 1936 (Cth) that provided an allowable deduction with respect to the depreciated value of any depreciable property that was disposed of, lost or destroyed. In that collocation, seeking to encompass all situations of loss of depreciable property, a broad meaning attributed to a disposal is understandable. 23 On the other hand, in Shaw v Director of Housing & State of Tasmania (No 2) (2001) 10 Tas R 1, Underwood J concluded that the obligation of a judgment debtor to pay the judgment sum, extinguished by the act of payment, did not constitute a supply because it did not depend upon any action on the part of the judgment creditor. 24 A not dissimilar view had been adopted with respect to instruments of transfer for stamp duty purposes. Thus in Dixon v Chief Commissioner of Stamp Duties (1985) 3 NSWLR 347 it was held that an application by a trustee in bankruptcy pursuant to the Real Property Act 1900, s 90 for registration as the proprietor of land, the legal estate in which had vested in him by virtue of the Bankruptcy Act 1966 (Cth), s 58, was not chargeable to duty as a conveyance because it was the Statute that vested the property in the trustee. 25 It was submitted that I should determine the question because the financial interests of the Council were involved and it would resolve an issue between the parties. For the reasons expressed below, I decline to do so. Should declaratory relief be granted? 26 The Supreme Court Act 1970, s 75 provided that no proceedings should be open to objection on the ground that a merely declaratory judgment or order was sought thereby and the Court might make binding declarations of right whether any consequential relief was or could be claimed or not. It has been held that it is not necessary that the claim to a declaration be based upon a cause of action (Guaranty Trust Co of New York v Hannay & Co [1915] 2 KB 536). 27 In my view, whether as a matter of discretion or as a limitation upon the power, a declaration should not be granted if it does not resolve an issue between the parties. The question whether a declaration should be made that CSR was obliged to provide a tax invoice to the Council raises an issue between the Council and the Commissioner of Taxation. The Council's complaint is that the Commissioner was wrong in the private ruling he issued to CSR. The Commissioner is not a party to the proceedings. 28 In my view, it is inappropriate to determine the issue in the absence of the Commissioner. He ruled, in effect, that CSR was not obliged to issue a tax invoice. CSR is entitled to act upon that ruling. In those circumstances, the Court should not entertain an application to declare to the contrary in the absence of the Commissioner. 29 I refuse to make the declaration that CSR is obliged to issue a tax invoice to the Council. 30 The Council sought further declarations with respect to the operation of the margin scheme. Since CSR no longer places reliance upon that scheme, the declarations sought have no utility and, in any event, ought not be made in the absence of the Commissioner of Taxation. 31 There will be judgment for CSR in an amount including interest to be calculated by the parties. The Council's cross claim will be dismissed. I will hear the parties on costs. I direct the parties to bring in short minutes of orders reflecting these reasons. ********** Last Modified: 10/18/2004 DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. 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