New South Wales Supreme Court CITATION : ALH Group v Chief Commissioner of State Revenue [2010] NSWSC 276 HEARING DATE(S) : 26 March 2010 JUDGMENT DATE : 20 April 2010 JUDGMENT OF : Gzell J DECISION : Chief Commissioner's discretion under the Duties Act 1997, s 50 re-exercised by the Court. The plaintiff held entitled to a refund of the duty on the deed of consent and assignment. CATCHWORDS : TAXES AND DUTIES - Stamp Duties - whether deed of consent and assignment was a novation - whether inaccurate description of the deed should be blue penciled in part - whether deed of termination had no effect or terminated deed of consent and assignment under its blue penciled description - whether plaintiff entitled to a refund of duty on the deed of consent and assignment under the Duties Act 1997, s 50 - whether the Court should re-exercise the Chief Commissioner's discretion when it was vitiated LEGISLATION CITED : Duties Act 1997 Taxation Administration Act 1996 Olsson v Dyson [1969] HCA 3; (1968-1969) 120 CLR 365 CASES CITED : Vickery v Woods [1952] HCA 7; (1951-1952) 85 CLR 336 Orica Ltd v Commissioner of Taxation [2010] FCA 197 Affinity Health Ltd v Chief Commissioner of State Revenue [2005] NSWSC 663 PARTIES : ALH Group Property Holdings Pty Limited (Plaintiff) Chief Commissioner of State Revenue (Defendant) FILE NUMBER(S) : SC 2009/289006 COUNSEL : A Tsekouras (Plaintiff) M Robertson (Defendant) SOLICITORS : JDK Legal (Plaintiff) Crown Solicitor's Office (Defendant) IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION GZELL J TUESDAY 20 APRIL 2010 2009/289006 ALH GROUP PROPERTY HOLDINGS PTY LIMITED v CHIEF COMMISSIONER OF STATE REVENUE JUDGMENT 1 ALH Group Property Holdings Pty Limited executed a Deed of Consent and Assignment with Trust Company Fiduciary Services Limited and Oakland Glen Pty Limited on 27 June 2008. It contained an assignment from Trust Company to ALH of Trust Company's rights and entitlements as purchaser under a contract for sale of land in New South Wales dated 5 November 2003 between Trust Company and Oakland. Duty of $134,105.50 was paid on the deed. 2 ALH submits that the Deed of Consent and Assignment constituted a novation such that it became the purchaser in the place of Trust Company under the contract for sale, referred to in the documents as the Parkway Contract. 3 A Deed of Termination was executed on 24 October 2008 by ALH and Oakland. They agreed to terminate a contract defined as the contract for the sale of land dated 5 November 2003 between Oakland and ALH. 4 ALH submits that that was the contract created by the Deed of Consent and Assignment and it is entitled to a refund of the duty paid on that deed pursuant to the Duties Act 1997, s 50 which was in the following terms: "(1) An agreement for the sale or transfer of dutiable property that is cancelled is not liable to duty under this Chapter if the Chief Commissioner is satisfied: (a) that the agreement was not cancelled to give effect to a subsale, or (b) that the purchaser or the transferee under the agreement is a promoter of a named company proposed to be incorporated and that the company is the purchaser or transferee of the dutiable property under a subsequent agreement, or (c) that the purchaser or transferee under the agreement and the purchaser or transferee under a subsequent agreement relating to the same dutiable property were related persons when the agreement that is cancelled was entered into. (2) If duty has been paid on an agreement that is not liable to duty under this Chapter because of this section, the Chief Commissioner must reassess and refund the duty if an application for a refund is made within: (a) 5 years of the initial assessment, or (b) 12 months after the agreement is cancelled, whichever is the later. (3) In this section, cancelled means rescinded, annulled or otherwise terminated without completion." 5 The Chief Commissioner submits that the Deed of Consent and Assignment may have had the effect of a novation but it was not a novation and the Deed of Termination did not terminate the Deed of Consent and Assignment. 6 Novation is the substitution of one contract for another. In Olsson v Dyson [1969] HCA 3; (1968-1969) 120 CLR 365 at 388 Windeyer J said: "The ultimate distinction, in juristic analysis, between a transfer of a debt by assignment and by novation is simple enough. Novation is the making of a new contract between a creditor and his debtor in consideration of the extinguishment of the obligations of the old contract: if the new contract is to be fully effective to give enforceable rights or obligations to a third person he, the third person, must be a party to the novated contract. The assignment of a debt, on the other hand, is not a transaction between the creditor and the debtor. It is a transaction between the creditor and the assignee to which the assent of the debtor is not needed. The debtor is given notice of it; for notice is necessary to complete an assignment pursuant to the statute or in the case of an equitable assignment to preserve priorities. But the debtor's assent is not required. He is not a party to the transaction." 7 A novation can be express or implied from the circumstances. Whether there is an implied novation ultimately depends on the intention of the parties (Vickery v Woods [1952] HCA 7; (1951-1952) 85 CLR 336 at 345; Orica Ltd v Commissioner of Taxation [2010] FCA 197 at [119]). 8 In the Deed of Consent and Assignment Trust Company is referred to as TCFS and ALH is referred to as ALHPH. The recitals to the deed were as follows: "A TCFS entered into a contract on 5 November 2003 ( Parkway Contract ) to purchase part of the land and building known as Parkway Hotel, 5 Frenchs Forest Road, Frenchs Forest, NSW 2006, contained in Certificate of Title Folio Identifier X/405206 ( Parkway Property ) from Oakland following redevelopment and subdivision. B The redevelopment and subdivision of the Parkway Property anticipated by the Parkway Contract has not occurred. C Oakland, has agreed to consent to TCFS assigning its rights and obligations under the Parkway Contract to ALHPH on the terms of this Deed." 9 The provision upon which the Chief Commissioner relies as an agreement for sale or transfer of an interest in land in New South Wales was cl 3.1 which was in the following terms: " 3. Assignment and Consent 3.1 Assignment Subject to satisfaction of the conditions precedent in clause 2, with effect from the Date of Assignment, TCFS assigns to ALHPH all of TCFS's rights and entitlements under and in relation to the Parkway Contract in consideration of ALHPH paying: (a) TCFS $638,661.10 by way of reimbursement of the deposit paid by TCFS to Oakland under the Parkway Contract; and (b) TCFS $2,063,389 being the balance of the consideration, on the date of this Deed (receipt of which is acknowledged)." 10 ALH points to the following provisions as establishing a novation: " 4. ALHPH's Covenants 4.1 Covenants with Oakland ALHPH covenants with Oakland that: (a) it has read and is aware of and specifically acknowledges the provisions of the Parkway Contract; and (b) as from the Date of Assignment, ALHPH shall perform and observe all obligations of the Purchaser under the Parkway Contract. 4.2 Covenant with TCFS ALHPH covenants with TCFS that ALHPH shall on and from the Date of Assignment perform and observe all the obligations of TCFS as purchaser under the Parkway Contract whether before or after the Date of Assignment. 5. Indemnity by ALHPH ALHPH shall indemnify TCFS on demand in respect of all liability, including all actions, proceedings, judgments, damages, losses, expenses and costs which may be incurred by, brought, made or recovered against TCFS consequent on or arising directly or indirectly out of any default or delay by ALHPH in the performance of the Purchaser's obligations contained or implied under the Parkway Contract. 6. Releases Oakland and ALHPH release and discharge TCFS from: (a) all claims, actions, demands and proceedings which Oakland or ALHPH may have or claim to have or but for this release might have had against TTCFS arising out of or in connection with the Parkway Property and the Parkway Contract; and (b) all liability of TCFS arising out of the Parkway Property and the Parkway Contract, with effect from the Date of Assignment." 11 The intention of the parties to the Deed of Consent and Assignment is clear enough. Trust Company was to drop out and ALH was to be substituted for it. The benefits under the Parkway Contract were assigned to ALH by cl 3.1. Its burdens were assumed by ALH under cl 4.2 with the consent of Oakland under cl 4.1 and cl 6. 12 With its burdens and benefits removed from Trust Company the Parkway Contract had no content and was extinguished. 13 A new contract was constituted by ALH undertaking obligations in terms identical to those of the Parkway Contract under cl 4, its benefits having being assigned to it under cl 3.1. Oakland's consent to this assignment was not necessary but was given anyway under cl 3.3. 14 The material terms of the assignment deed in Orica are set out at [48]. Like the present case there was no express extinguishment of the Distribution Agreement. The assignment deed took the form that the new party, C, should be bound by and comply with the provisions of the Distribution Agreement binding on the old party, B, and should enjoy all the rights and benefits of B under it. The other party to the Distribution Agreement, A, released B from all its obligations and liabilities under the Distribution Agreement and all actions, claims or proceedings that it might have against B or in respect of the Distribution Agreement. 15 At [124] Sundberg J took the view that the parties had agreed that future events were to be governed by a contract between A and C in the same terms, mutatis mutandis, as those in the old contract between A and B. 16 There was a complication in Orica that does not exist in the instant circumstances. The novation was to take effect for the future, leaving accrued rights and obligations intact. 17 It was submitted on behalf of the Chief Commissioner that the Deed of Consent and Assignment did not take the form of a novation although it achieved the same effect. I reject that submission. As in Orica, so here, while there is no express extinguishment of the Parkway Contract it is nonetheless extinguished as all its benefits and burdens have been extinguished. 18 Novation occurs when the benefit and burden of an existing contract, in whole or in part, are replaced by the benefit and burden of a new contract. Here the Deed of Consent and Assignment replaced Trust Company's benefits and burdens under the Parkway Contract with benefits and burdens in identical terms between Oakland and ALH. 19 In my view, the Deed of Consent and Assignment is a novation containing a contract for sale of the land between Oakland and ALH on identical terms to those contained in the Parkway Contract. 20 The Deed of Termination was made between Oakland and ALH. It identifies Oakland and ALH as parties to a contract for sale of the land dated 5 November 2003. Clause 1.1 included the following definition: " Contract means the contract for the sale of land dated 5 November 2003 between Oakland Glen and ALHPH in respect of part of the Land." 21 There was another contract with respect to the adjoining land. Hence the reference to part of the Land. 22 There is no such contract. The Parkway Contract dated 5 September 2003 was between Trust Company and Oakland. The new contract for sale of the land came into existence by novation when the Deed of Consent and Assignment was executed on 27 June 2008. 23 Does the Deed of Termination refer to one or other of these contracts or to neither of them? 24 It is clear that the parties did not intend that the contract the subject of the Deed of Termination was the original Parkway Contract of 5 September 2003 between Oakland and Trust Company. Clause 3 of the Deed of Termination was in the following terms: "As between Oakland Glen and ALHPH, ALHPH will be entitled to the refund of the duty paid on the Contract in accordance with section 50 of the Duties Act 1997 (NSW)." 25 When the Parkway Contract was executed, Oakland and Trust Company were members of the same group. Section 281(1) of the Duties Act provides that duty is not chargeable on a corporate reconstruction transaction approved by the Chief Commissioner in accordance with guidelines approved by the Treasurer. Section 281(2)(a) defines a corporate reconstruction transaction to include a transfer, or agreement for sale or transfer, of dutiable property between corporations that are members of the same group. 26 The Chief Commissioner granted an exemption from duty on the Parkway Contract in accordance with those provisions. There would, therefore, be no occasion for any refund of duty under s 50 of the Duties Act if the Deed of Termination applied to that contract. 27 The alternatives are that I accept the submission on behalf of ALH and blue pencil "dated 5 November 2003" from the definition of Contract in cl 1.1 of the Deed of Termination or I conclude that the Deed of Termination was ineffective and had no force or effect as it related to a non-existent contract. 28 By analogy with the principles with respect to rectification, the parties to the Deed of Termination clearly had the common intention to terminate the obligations and benefits that ALH had with respect to the land. There is a disconformity between that intention and the definition in the Deed of Termination. 29 The parties had a common intention that those obligations and benefits should cease to enable ALH to enter into a contract for sale with Oakland not only of the land in the Parkway Contract but also the adjoining land. 30 That contract for sale of both lots of land was conditional upon the execution of the Deed of Termination. The parties clearly intended that the ALH burdens and benefits with respect to one portion of the land should be terminated in order that the contract for sale of both lots take place. That common intention continued to the time when the Deed of Termination was executed. 31 In my view, I should regard the Deed of Termination as rectified by the deletion of the words and numerals "dated 5 November 2003" from the definition of Contract in cl 1.1. 32 The Deed of Consent and Assignment and the Deed of Termination occurred in the context of other transactions with respect to the adjoining land. But, in my view, those transactions do not affect the conclusions to which I have come. 33 In Affinity Health Ltd v Chief Commissioner of State Revenue [2005] NSWSC 663 I concluded that the court had power to review the Chief Commissioner's exercise of discretion under s 101(1)(b) of the Taxation Administration Act 1996. It provides, amongst other things, that the court dealing with an application for review by a taxpayer under s 97(1) may make an assessment or other decision in place of the assessment or other decision to which the application relates. 34 In disallowing the notice of objection of ALH the Chief Commissioner ruled that there would be no refund of the duty paid on the Deed of Consent and Assignment because it was not the agreement to which the Deed of Termination applied. It was said: "I agree that the Deed affected a novation of the agreement for sale dated 5 November 2003 whereby the interest of the purchaser under the agreement was assigned to ALH Group Property Holdings Pty Ltd. This conclusion is considered to be supported by the parties to the Deed of Termination, being the original vendor and the substituted purchaser. I am of the view, however, that the Deed of Termination only affected termination of the agreement for sale dated 5 November 2003 and that this is the only agreement to which section 50 of the Duties Act would apply. Accordingly, I consider that no entitlement to a refund exists under the provision in respect to the Deed." 35 I have found that the Deed of Consent and Assignment contained a contract for sale of the land between Oakland and ALH and that was the contract that was terminated. 36 On that basis the reasons for disallowance of the refund were wrong and the exercise of discretion by the Chief Commissioner in refusing a refund under s 50 of the Duties Act was vitiated and it is for the court to consider afresh the exercise of that discretion. 37 There is no suggestion that the Deed of Consent and Assignment was cancelled to give effect to a subsale. 38 Since the Deed of Consent and Assignment contained a contract for sale or transfer of dutiable property and it was cancelled by the Deed of Termination, the Chief Commissioner should have been satisfied that the Deed of Consent and Assignment was not liable to duty and he should have reassessed and refunded the duty under s 50 of the Duties Act. 39 The court exercises the Commissioner's discretion and holds that ALH is entitled to a refund of the duty paid on the Deed of Consent and Assignment. 40 I will hear the parties on the appropriate terms of the orders. I will also hear the parties on costs. I direct the parties to bring in short minutes of order reflecting these reasons. ********************* DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.