Commissioner of State Revenue v Placer Dome Inc.

• Jurisdiction: Australia Federal only
• Court: High Court
• Judge: Kiefel CJ,Bell,Nettle,Gordon JJ,Gageler J.
• Judgment Date: 05 December 2018
• Neutral Citation: [2018] HCA 59
• Docket Number: P6/2018
• Date: 05 December 2018

[2018] HCA 59

HIGH COURT OF AUSTRALIA

Kiefel CJ, Bell, Gageler, Nettle and Gordon JJ

P6/2018

Commissioner of State Revenue

Appellant

and

Placer Dome Inc (Now an Amalgamated Entity Named Barrick Gold Corporation)

Respondent

Representation

N C Hutley SC with B L Jones for the appellant (instructed by State Solicitor's Office (WA))

N J Young QC with A C Willinge for the respondent (instructed by Ernst & Young Law Pty Ltd)

Stamp Act 1921 (WA), Pt IIIBA.

Taxation Administration Act 2003 (WA), ss 34, 37, 40.

State Administrative Tribunal Act 2004 (WA), s 29.

Stamp duties — Land-holding corporations — Acquisition of controlling interest — Whether corporation a “listed land-holder corporation” within meaning of Pt IIIBA of Stamp Act 1921 (WA) — Whether value of land to which corporation entitled 60 per cent or more of value of property to which it was entitled — Valuation methodologies — Whether corporation had legal goodwill — Meaning of legal goodwill — “Added value” approach to goodwill considered — Going concern value and goodwill distinguished.

Words and phrases — “acquisition”, “assessment”, “controlling interest”, “custom”, “discounted cash flow methodology”, “going concern value”, “goodwill”, “listed land-holder corporation”, “net asset value multiple”, “property”, “sources of goodwill”, “stamp duty”, “synergies”, “top down”.

ORDER

• 1. Appeal allowed.

• 2. The Order of the Court of Appeal of the Supreme Court of Western Australia made on 11 September 2017 be set aside and, in its place, it is ordered that the appeal to that Court be dismissed with costs.

• 3. The respondent pay the appellant's costs of this appeal.

1 Kiefel CJ, Bell, Nettle and Gordon JJ. Part IIIBA of the Stamp Act 1921 (WA) was introduced to prevent duty on transfers of land being avoided through schemes that involved the use of corporate structures and share sales. The purpose of the Part is to equalise duty in relation to conveyances of land so that the duty is the same whether the land is conveyed directly or as a result of a transfer of shares 1. The Part ensures that the buyer of an entity will be subject to ad valorem duty if the entity's underlying value is principally derived from land.

2 This appeal concerns one aspect of Pt IIIBA, Div 3b, which deals with “listed land-holder corporations”. A listed land-holder corporation is an entity 2 entitled, at the time of acquisition, to land in Western Australia with an unencumbered value of not less than A$1 million and where 60 per cent or more of the value of all of its property 3 is land (regardless of the location of that land) 4.

3 Placer Dome Inc (“Placer”) was a substantial gold mining enterprise 5 with land and mining tenements around the world, including in Western Australia. In 2005, Barrick Gold Corporation (“Barrick”) was the second largest global gold mining enterprise 6 assessed by market capitalisation and gold reserves, and the

third largest by gold production. Barrick announced a hostile, and ultimately successful, takeover of Placer. The acquisition was the largest transaction of its kind in the gold industry. When Placer and Barrick were amalgamated in May 2006, the amalgamated entity became the world's largest gold mining business.

4 After Barrick acquired a controlling interest in Placer 7, the Commissioner of State Revenue (“the Commissioner”) issued an assessment to Barrick under the Stamp Act which stated, relevantly, that Placer was a “listed land-holder corporation” and ad valorem duty of A$54,852,300 was payable. Barrick objected 8, the Commissioner disallowed the objection, and Barrick applied to the State Administrative Tribunal 9 for a review of the Commissioner's decision to disallow the objection.

5 Whether Placer was a “listed land-holder corporation” caught by Div 3b of Pt IIIBA of the Stamp Act turned on a single issue — did the value of all of Placer's land, regardless of its location, meet or exceed 60 per cent of the value of all of Placer's property, namely 60 per cent of $12.8 billion ($7.68 billion) 10.

6 Section 76ATI(2)(b) of the Stamp Act required a comparison to be drawn, at the date of acquisition, between the value of all the land to which Placer was entitled and the value of all the property to which Placer was entitled, other than certain excluded property. The statutory purpose for which the values were to be determined was to ascertain whether Placer's underlying value was principally in its land or non-land assets.

7 In undertaking that statutory valuation exercise, the parties did not agree on the valuation methodology to be used or whether the value of all of Placer's land met or exceeded the 60 per cent threshold. A key question was whether Barrick was correct to contend that the property of Placer, prior to its acquisition by Barrick, included goodwill with a value of $6.506 billion. If it did, then the value of Placer's land was less than the 60 per cent threshold.

8 The Commissioner contended that a “top down” valuation method should be adopted. A “top down” approach is a shorthand description of a valuation methodology which starts with the value of the total property, before subtracting the value of assets which are not land, in order to produce a residual value which is then attributed to land 11. Adopting that methodology, the Commissioner contended that immediately before Placer's acquisition by Barrick, Placer had no material property comprising goodwill with the inevitable result that the value of Placer's land exceeded the 60 per cent threshold.

9 Barrick disagreed. It contended that Placer's land should be valued directly, using a discounted cash flow (“DCF”) methodology, and that the resulting valuation of Placer's land was less than the 60 per cent threshold. Barrick further contended that even if a “top down” approach were adopted, the result would be no different because, immediately before the acquisition, Placer owned property being goodwill with a value of more than $6 billion.

10 The Tribunal dismissed Barrick's review application. The Tribunal concluded that, for the purposes of the Stamp Act, the value of Placer's land should be determined by adopting the “top down” method 12; that the value of Placer's land was the residual of calculating the value of all of Placer's property less the value of its non-land assets 13; and, further, that Placer's assets did not include any material legal goodwill 14.

11 Barrick appealed to the Court of Appeal of the Supreme Court of Western Australia. The Court of Appeal allowed Barrick's appeal on the basis that the Tribunal had failed to distinguish between the value of Placer's land and the value of its business as a going concern. The Court of Appeal held that Placer's land should be valued using the Spencer15 valuation principles; that the “top down” method was unsuitable because Placer's non-land assets, including

goodwill, could not be valued with any accuracy; and, further and in any event, that Placer had a substantial amount of legal goodwill 16.

12 For the reasons that follow, the Commissioner's appeal should be allowed. A “top down” method was appropriate. At the date of acquisition by Barrick, Placer had no material property comprising legal goodwill. Placer was a land rich company. For the purposes of the statutory valuation exercise, Barrick did not establish that the value of all of Placer's land, as a percentage of the value of all of Placer's property, did not meet or exceed the 60 per cent threshold. Moreover, Barrick's contention that goodwill for legal purposes was or should be treated as synonymous with what it described as the “added value” concept of goodwill or “going concern value” should be rejected.

Statutory framework

13 In assessing value, the starting point is the particular statutory scheme. That scheme provides the legal context in which the valuation exercise is to be undertaken and that context determines the relevant principles of valuation to be applied 17.

14 Where a person acquires a controlling interest in a listed land-holder corporation, the corporation is obliged under the Stamp Act to lodge a dutiable statement with the Commissioner in respect of that acquisition 18. A dutiable statement is chargeable with duty at a specified rate 19 — here, on the basis of the

unencumbered value of the land and chattels in Western Australia to which the relevant corporation was entitled at the time of the acquisition 20.

15 The statutory valuation exercise requires a comparison to be drawn, at the date of acquisition, between the value of all the land to which the corporation is entitled and the value of all the property to which the corporation is entitled, other than certain excluded property 21.

16 A number of aspects of that statutory valuation exercise should be noted. The statutory context, and the purpose for which the values are to be determined, is directed to ascertaining whether an entity's underlying value is principally in its land or non-land assets. The valuation must take into account, and be consistent with, the relevant statutory definition of “land”. That definition includes mining tenements, and also includes any interest or estate in land, or anything fixed to the land “including anything that is, or purports to be, the subject of ownership separate from the ownership of the land” 22.

17 Next, in determining the value of all land and all property to which a corporation is entitled 23, the “ordinary principles of valuation” are to be applied 24. There was no dispute that the “ordinary valuation principles” were those stated in Spencer: the value is the price which a hypothetical willing but not anxious seller could reasonably expect to obtain and a hypothetical willing but not anxious buyer could reasonably expect to pay after proper negotiations between them...