Central Pacific Holdings Pty Ltd (First Plaintiff) and Southern Cross Properties Pty Ltd (Second Plaintiff) v State of Victoria (Defendant)
Case Summary - July 2009
Summary: In a recent case before the Supreme Court of Victoria in Central Pacific Holdings Pty Ltd & Anor v State of Victoria [2009] VSC 230, Justice Davies had to decide the meaning of the construction of a contractual term under Contract of Sale of Land which permitted a grant of indemnity to land tax and whether it extended to a Related Body Corporate that was not a purchaser under the Contract of Sale.
The court also looked at the broad statutory question in the State of Victoria (the State) to contract for the sale of land “for any consideration or on any terms and conditions” and whether the contractual promise by the State to indemnify the plaintiff and any Related Body Corporate for land tax liability in respect of the land sold was within power conferred by ss 3,10 and 11 of the Land (Revocation of Reservations) Act 1994.
Background
The first plaintiff (CPH) purchased land (‘the land’) from the State pursuant to a contract of sale dated 15 September 1994 entered into with the then Minister for Finance (‘the Minister’). CPH sought an order that the State specifically perform a special condition in the contract under which it agreed to indemnify CPH and ‘any related body corporate’ of CPH for ‘liability for payment of any land tax assessed on the land by the Commissioner of the State Revenue for the period prior to 15 September 1994’. CPH claimed that the second plaintiff, Southern Cross Properties Pty Ltd (SCP) was related to it when the contract was made and had an extant land tax liability as a lessee of the land for the purposes of the Land Tax Act 1985. In March 2007, SCP paid the Commissioner of State Revenue (‘the Commissioner’) $3,275,000 in settlement of its
pre 15 September 1994 land tax liability.
CPH claimed that the State is and was contractually liable to indemnify SCP for the land tax it paid. The State disputed CPH’s entitlement to relief on several bases. Three questions were raised by the State for determination in its defence:
a) Was SCP a ‘related body corporate’ to CPH as defined in s 9 of the Corporations Law 1994 (Cth) (‘Corporations Law’) on the ‘day of sale’ viz 15 September 1994?
b) Did special condition 2 on its proper construction, oblige the State to indemnify SCP for the land tax it paid?
c) Was it lawful for the State to enter into such a contractual promise?
As to the first question, the court was satisfied on the evidence that SCP was in fact a related body corporate of CPH as at 15 September 1994 and found that as at 22 July 1994, CPH owned all the shares in SCP and thereby became, and remained a wholly owned subsidiary of SCP within the meaning of s 9 of the Corporations Law 1994 (Cth). The court arrived at this conclusion even though CPH was not able to produce the Share Sale Agreement and relied on the affidavit evidence the solicitors responsible for CPH’s acquisition of SCP and its assets which referred to correspondence between the firm and others, confirmation from accountants about available share losses, minutes of meetings, the consent from the Treasurer of Australia to the transfer of shares pursuant to the Foreign Acquisition and Takeovers Act 1975 all of which her Honour said pointed to the Share Sale Agreement being signed on 22 July 1994. The State was not able to advance any evidence that was inconsistent with the documents contained in the affidavit evidence.
In so finding, the court noted that the land was the former Southern Cross Hotel site which the Nauruan Government, using CPH as the purchasing vehicle, acquired the land for redevelopment.
Her Honour noted that before the land could be acquired by CPH, the State had to revoke a permanent reservation that applied to the land and a crown grant registered in favour of the Melbourne City Council (‘the MCC’). The Land (Revocation of Reservation) Act 1994 (‘the Revocation Act’) was enacted in part for that purpose and reverted the land to the State for the purposes of the sale with express authority conferred on the Minister to sell the land “for any consideration, or on any terms and conditions that may be determined by the Minister”.
Whilst the MCC was the owner, it had leased the Land under a long-term lease to SCP and the Revocation Act preserved the continuity of that lease by providing that the lease had effect as a lease between the Minister and SCP, as if it had been assigned to the Minister. CPH had to acquire SCP’s lease to get an unencumbered title to the land in order for the redevelopment to occur. It did this by acquiring all of the shares in SCP as it had substantial tax losses, instead of acquiring the assets of SCP for which it would gain no significant tax benefit.
Special condition 2 of the contract provided:
The [State] indemnifies [CPH] and any Related Body Corporate as defined in section 9 of the Corporations Law against liability for payment of any land tax assessed on the land by the Commissioner of State Revenue for the period prior to the Day of Sale.
CPH claimed specific performance of the contractual term by the State in favour of SCP.
CPH did not exercise its contractual right under clause 4.4 of the contract to nominate SCP as a substitute or as an additional purchaser.
Her Honour analysed the proper construction of special condition 2 (at pages 9-12 of her judgment). After reviewing the authorities when construing contracts where ambiguous language was used, her Honour determined the meaning of text in a contract may take on a different understanding when considered in the context of the contract as a whole and its commercial purposes. Her Honour relied on the approach to construction of the terms in a contract in the well-known decision of Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165, where the High Court stated: ‘the meaning of the terms of a contractual document is to be determined by what a reasonable person would have understood them to mean’. Her Honour indicated that ‘normally requires consideration not only of the text, but also of the surrounding circumstances known to the parties, and the purposes and object of the transaction’.
Having regard to the above, her Honour determined the task at hand was to ascertain what the parties had intended the special condition to mean. Her Honour determined that was an objective enquiry, in the sense of what a reasonable person would understand the clause to mean. Her Honour found that special condition 2 was susceptible of more than one meaning and said on one view, ‘the State undertook to indemnify CPH and any body corporate related to CPH which had a land tax liability in relation to the land’. On the other view, her Honour indicated the indemnification of ‘CPH and any related body corporate’ is also reasonably capable of being understood as a cross-reference to the named purchaser, that is CPH and any related body corporate that CPH nominated as purchaser of the land pursuant to general condition 4.4 which, by special condition 4.5, would be treated as the owner of the land from the date of the contract, for the purposes of obligation or liabilities arising under any act, including land tax as ‘owner’.
The question her Honour had to ultimately decide is which meaning should attach to the words. Her Honour found in favour of the latter interpretation, in that a reasonable person would not have understood the phrase ‘CPH and any related body corporate’ to mean other than as a reference to CPH and such body corporate as nominated by CPH pursuant to clause 4.4 of the general conditions.
Her Honour found that this construction accorded with the objective framework of the contract and read as a whole, the contract was for the sale of land on terms that would give the purchaser rights of ownership from the date of entry into the contract, albeit that the title would not pass until the settlement date, being the 31 March 1996. Her Honour said consistent with that purpose, the terms of the contract made the purchaser liable as owner under any act as/and from the date of contract. Furthermore, her Honour found that consistent with that purpose, the contract made express provision in special condition 1 for the purchaser to assume liability for land tax as/and from the date of contract. Special condition 1 had the effect of bringing forward the point in time when the purchaser would be ‘the owner’ of the Land for the purposes of the land tax. Her Honour found that the corollary is that the burden of past liabilities would be borne by the State, the vendor of the Land, by way of the grant of indemnity.
Having so decided, her Honour concluded that CPH was not entitled to the relief sought by way of specific performance of the obligation, nor was she required to consider the question further under ss 13 and 14 of the Revocation Act which provided that no compensation is payable by the Crown in respect of anything done under/or arising out of the Revocation Act since she had found that the State was not liable under special condition 2 to indemnify SCP.
In relation to the third question, whether it was lawful for the State to grant the indemnity on the terms contained in special condition 2, the State argued that special condition 2 was void as it was not within the power of the Minister to contract and the State could not be sued for failure to give effect to it. The basis for this defence was that the power of sale contained in s 11(2) of the Revocation Act which authorised the Minister to sell the land ‘for any consideration or any other terms and conditions that may be determined by the Minister’ was not a conferral of authority to contract the promise contained in special condition 2 and, absent of such legislative authority, special condition 2 was unlawful. The State argued that the Minister required specific legislative power to contract special condition 2 as the indemnity effectively exempted SCP from its obligation to pay land tax. The State relied on the decision of Mandie J in the Port of Portland Pty Ltd v State of Victoria [2007] VSC 488 (Unreported, 30 November 2007 – on Appeal to the Court of Appeal, judgment is reserved).
Her Honour found that s 11(2) of the Revocation Act gave the Minister the requisite authority to contract special condition 2. Her Honour also found that the authority was contained in the wide language of s 11(2) which permitted on its terms the sale ‘for any consideration or on any terms and conditions that may be determined by the Minister’.
The Honourable Justice Davies ordered that the proceeding be dismissed with costs. The plaintiffs have appealed to the Court of Appeal.
The case has particular importance to Government contract because even where the language under a contract is ambiguous, the court can have regard to the factual matrix to give meaning to the words and the meaning of text in a contract may take on a different understanding when considered in the context of the contract as a whole and its commercial purpose.
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