In a decision handed down on Thur 8.3.2012, the High Court unanimously allowed the taxpayer’s appeal against the decision of the NSW Court of Appeal. The High Court held a Deed of Consent and Assignment was a novation of a contract of sale, which caused the taxpayer to become the purchaser under a new contract, and was not an assignment of rights under the contract to the taxpayer as a new purchaser. As that Deed was later terminated, the High Court held s 50(2) of the Duties Act 1997 (NSW) applied, and accordingly, the NSW Chief Commissioner of State Revenue was liable to refund the duty paid by the taxpayer.
On 5 November 2003, a vendor and purchaser entered into a contract of sale for a hotel (“the 2003 contract”). On 27 June 2008, the vendor, purchaser and taxpayer entered into a Deed of Consent and Assignment (“the Deed”) under which: the purchaser agreed to assign its rights under the 2003 contract to the taxpayer; the vendor consented to the assignment; the taxpayer promised the vendor it would perform the purchaser’s obligations under the 2003 contract; and the vendor released and discharged the purchaser from all liabilities under the 2003 contract.
On 24 October 2008, it is understood the vendor and taxpayer entered into a Deed of Termination which was said to have rescinded the Deed and the 2003 contract. On the same day, the vendor and taxpayer entered into a new contract for the sale of the hotel and paid duty on that transfer.
However, it is understood that on 22 November 2008, the Commissioner assessed duty on the Deed (which the taxpayer paid). At first instance, the NSW Supreme Court set aside the Commissioner’s assessment. The Commissioner then appealed. The NSW Court of Appeal allowed the appeal and held the Deed was not a novation of a contract of sale under which the contract had rescinded, but rather the Deed was an assignment of the benefit of the 2003 contract to the taxpayer, so therefore the taxpayer was not entitled to refund of duty paid on the Deed.
The High Court said the “enquiry in determining whether there has been a novation is whether it has been agreed that a new contract is to be substituted for the old and the obligations of the parties under the old agreement are to be discharged”. The High Court held the Deed when “properly construed, contained the elements necessary for the discharge of the 2003 contract and the substitution of a new contract”. As that agreement was cancelled by the Deed of Termination, the High Court held s 50(2) of the Duties Act applied and that the Commissioner was liable to refund the duty paid.
(ALH Group Property Holdings Pty Ltd v Chief Comr of State Revenue [2012] HCA 6, High Court, French CJ, Hayne, Crennan, Kiefel and Bell JJ, 8 March 2012.)
[LTN 46, 8/3]