Australian court rules that power stations are not land or fixtures

The New South Wales (NSW) Supreme Court has held that three hydroelectric power stations were not ‘interests in land’ for NSW landholder duty purposes. Accordingly, the acquisition of a company that leased the land on which the power stations were located was not subject to landholder duty.

In 2018, Meridian Energy Australia Pty Ltd (Meridian) acquired 100% of the shares in GSP Energy Pty Ltd (GSP) for approximately AUD 160 million ($108 million). At the time of the acquisition, GSP was the operator of the power stations and lessee of the land on which the power stations were situated. GSP had previously been vested with the power stations, leases, and other related assets of Green State Power Pty Ltd, pursuant to a statutory vesting order in 2014. Green State Power Pty Ltd had originally obtained the same rights, assets and liabilities under a statutory vesting order made in 2013.

The characterisation of the vesting orders and Meridian’s interest in the power stations was critical to the assessment of whether GSP was a landholder under the NSW Duties Act of 1997. Meridian argued that its right to use the power stations derived from its ownership of the power stations pursuant to the vesting orders (rather than from the leases). The NSW Chief Commissioner argued that the power stations were fixtures, being part of the leased land, causing GSP to be a landholder and Meridian’s acquisition to be subject to landholder duty of circa AUD 8 million.

In the case Meridian Energy Australia Pty Ltd v Chief Commissioner of State Revenue [2022] (NSWSC 1074), the Court held that the power stations were innominate sui generis property interest (property in a class of its own). Hence, they were to be held in gross, and therefore they were neither an interest in land nor goods for landholder duty purposes.

The Court focused on the 2013 vesting order and found that, due to the way in which the vesting order was framed, including that the power station dams were not listed under the heading of real property or leaseholder property in a schedule to the vesting order, but instead were listed as a separate “thing” (being a catch-all description of tangible property), there was a statutory severance of the power stations from the land. This unique interest was not an interest in land, and the subsequent 2014 vesting order did not alter the character of this interest. It was further held that the power stations did not become goods simply because the 2013 vesting order caused them to be statutorily severed from the land.

This case serves as a timely reminder that, when seeking to determine the character of an interest for tax and duty purposes, it is always necessary to check the underlying source of the taxpayer’s rights. The complex web of statute that can apply to critical infrastructure and the privatisation of state assets may cause an interest to be created that is so unique, it falls outside of the traditional categories of land, fixtures, or goods.