Decision Alert: NSW Court of Appeal holds that pipeline assets are an “interest in land” for duty purposes

On 27 February 2025, the New South Wales Court of Appeal handed down its decision in  Conexa Sydney Holdings Pty Ltd v Chief Commissioner of State Revenue [2025] NSWCA 20 dismissing an appeal against the decision of Richmond J in Conexa Sydney Holdings Pty Ltd v Chief Commissioner of State Revenue [2024] NSWSC 628, who had held that a pipeline constituted “goods” for the purposes of assessing landholder duty under the Duties Act 1997 (NSW) (Duties Act).

Although the appeal was dismissed, the reasons of the Court of Appeal (which had empanelled a special bench of 5 judges of appeal) differed from the Primary Judge in that the Court of Appeal held that the interest in the pipeline constituted an interest in land.

The case is important as:

• its discussion of the meaning of “interest in land” is of general importance, especially in respect of the ability of an infrastructure asset, which is subject to a statutory regime which modifies the general law conclusion that the asset does not become owned by the owner of the surrounding land, to nevertheless be an “interest in land”.
• it is a reminder that regard needs to be had to the legislative framework which governs a particular asset class or industry, as statutory rights / powers may change the expected duty and tax outcomes and may be different between statutory regimes. In particular, whether items which would otherwise be fixtures (land interests) are in fact goods / chattels and therefore potentially subject to more favourable duty treatment (e.g. concessions from duty: s 163G for landholders with significant holdings in goods).

The Issues

The dispute before the Court turned on whether the Chief Commissioner of State Revenue was correct in assessing landholder duty on the acquisition of SGSP Rosehill Network Pty Ltd (Rosehill) by reference to the value of a water-carrying pipeline owned and constructed by Rosehill, on the basis that it constituted an interest in land or “goods” for the purposes of s 155 of the Duties Act. It was conceded that Rosehill was a “landholder” for the purpose of s 146 of the Duties Act as it held other interests in land with a value in excess of $2m.

The transaction, which occurred by way of a share sale agreement, was settled on 30 September 2019 and had been assessed by the Chief Commissioner with landholder duty in the order of $3,326,492. The pipeline itself was 19 kilometres in length and buried in its entirety. The vast majority (95.37%) travelled beneath Crown land and the only land owned by Rosehill through which the pipeline traversed, was property used for a water recycling plant.

The taxpayer’s principal argument was that the effect of s 64 of the Water Industry Competition Act 2006 (NSW) (WIC Act) was to statutorily sever the pipeline from the land denying it the character of a fixture or a “good” for duties purposes. Section 64 of the WIC Act provides that:

“64   Ownership of water industry infrastructure

1. Except where another Act expressly provides otherwise, water industry infrastructure is owned by the person that constructs or installs it, or on whose behalf it is constructed or installed, or any person that subsequently acquires title to it, whether or not the land in, on, under or over which it is situated is owned by that person.”

It is important to note the acquisition occurred before the insertion of s 147A into the Duties Act (which expanded the definition of “land” to include anything fixed to the land regardless of whether it would be considered a fixture at law, is owned separately or is notionally severed from the land by any other Act or law).

Primary Judge’s Decision

At first instance, Richmond J found that the pipeline did not constitute an interest in land but did constitute an interest in “goods” for the purposes of s 155 of the Duties Act:

The key features of his Honour’s decision were:

• The effect of s 64 of the WIC Act was to nullify the presumption at common law that chattels affixed to land become fixtures at law, forming part of the land and are thereby owned by the landowner. The ownership of the pipeline was therefore legally severed from the land through which it travelled. As a result, relevant water industry infrastructure retained its character as a chattel (i.e. its status before becoming attached to the land) despite any affixation to land and did not constitute an interest in land.
• His Honour adopted the broad approach to the notion of “goods” for the purposes of the Duties Act taken in Chief Commissioner of State Revenue v Shell Energy Operations No 2 Pty Ltd [2023] NSWCA 113 (Shell). There, it was found that the ordinary understanding of goods at general law, which s 155 encompasses, includes former chattels which are legally severed from the land. Here, Rosehill had argued that pipeline was neither land nor “goods”, but instead an “innominate interest” which fell outside of the charging provisions of the Duties Act.

Critically, in Shell, the Court rejected the characterisation of legally severed power generation assets as an “innominate sui generis property interest” and instead found that, on legal severance, they reacquired their status as chattels and accordingly fell within the concept of “goods” for duties purposes.

Here, Richmond J regarded himself as bound by the decision in Shell (which he did not consider was distinguishable by reference to the different drafting of s 64 of the WIC Act compared to the vesting orders under consideration in Shell) to hold that the effect of s 64 of the WIC Act was that the pipeline did not lose its status as chattels and accordingly was an interest in “goods” for duties purposes.

• His Honour found that the unencumbered value of the pipeline should be determined based on its ability to be used as part of Rosehill’s water treatment business as a going concern (following the decision in SPIC Pacific Hydro Pty Ltd v Chief Commissioner of State Revenue [2021] NSWSC 395 which had held that wind farm assets ought to be valued taking into account the going concern carried on by the landholder). Rosehill had submitted that should the pipeline be characterised as “goods”, the relevant interest to be valued was Rosehill’s entitlement to remove and sell the pipes that make up the pipeline. This was said to result in a nil value based on expert evidence that the costs of removing the pipeline exceeded estimated proceeds from the sale of the removed piping.

His Honour found the evidence supporting a “nil” value to be inadmissible on the basis that Rosehill’s expert was not qualified to give expert evidence on the methods for removing the pipes or the secondary market for such assets. Accordingly, Rosehill failed to discharge its onus of proof that the unencumbered value of the pipeline was less than the amount ascertained by reference to its ability to be deployed as a part of a going concern.

Court of Appeal’s Decision

Payne JA (with whom Ward P and McHugh and Stern JJA agreed) delivered the primary reasons of the Court of Appeal. Basten AJA also delivered an important separate judgment, the analysis in which was expressly adopted by Payne JA (at [138]).

Is the interest in the Pipelines an “Interest in Land”

Payne JA summarised the key questions on appeal regarding whether the pipeline was a dutiable landholding as (at [52]):

“The critical question here of whether Rosehill’s ownership of the pipeline is an interest in land for the purposes of the Duties Act involves answering the following questions:

(1) What is an interest in land within the meaning of the Duties Act?

(2) What is the nature of the appellant’s interest in the pipeline recognised or conferred by the WIC Act?

(3) Is the interest identified in answer to question (2) an interest in land within the meaning of the Duties Act?”

Addressing each issue in turn:

Interest in Land under the Duties Act: In respect of the first question, his Honour held that the phrase “interest in land” in the Duties Act was not confined to its common law meaning (i.e. proprietary interests in land) (at [63]). Rather, the definitions of “interest” (defined in the Duties Act as including an “estate”), “estate”, and “land” (defined in the Interpretation Act 1987 (NSW) (Interpretation Act)) must be read into the phase (at [73]-[74]). Relevantly, “estate” and “land” are defined inclusively as:

“Estate includes interest, charge, right, title, claim, demand, lien and encumbrance, whether at law or in equity.

[…]

Land includes messuages, tenements and hereditaments, corporeal and incorporeal, of any tenure or description, and whatever may be the estate or interest therein.”

Land is also defined inclusively in the Duties Act itself to include a “stratum” (being, “a division of space, usually in a horizontal plane”). For example, one level within a building. 

The effect of this is that “interest in land” in the Duties Act is a broad concept, and relevantly includes “tenements” – being “anything holdable of a permanent nature connected with land” – and “hereditaments” which encompasses all interests in real property capable of inheritance.

Payne JA did not say however that any interest in the broadest sense of the word in land (e.g. a personal contractual licence) could be an “interest in land” for the purpose of the Duties Act. There remains the touchstone that the relevant interest be proprietary in nature, subject to express legislative inclusion (e.g. some mining rights) (at [87], [93], [108], and [136]-[137]).

Rosehill’s Interest in the Pipelines: In respect of the second question, his Honour undertook a close analysis of the WIC Act and arrived at a materially different conclusion regarding the operation of that act to the Primary Judge. His Honour’s primary conclusion was that the effect of s 64(1) of the WIC Act was to create “a statutory interest in land” which was unrecorded on title and prevailed over the interest of the registered proprietor of the surrounding Torrens title land (at [96], [101], and [104]-[107]). The core of his Honour’s reasons for this conclusion was:

• (at [70]) the character of the pipeline as part of the land is not affected by the fact that the pipeline is owned by an entity other than the proprietor of the surrounding land. It is possible for a landowner to own one part of land whilst a third party owns a separate stratum of the land (Bursill Enterprises Pty Ltd v Berger Bros Trading Co Pty Ltd (1971) 124 CLR 73; Chief Commissioner of State Revenue v Pacific National (ACT) Limited (2007) 70 NSWLR 544).
• (at [77]-[79]) in Metropolitan Railway Co v Fowler [1893] AC 416 (Metropolitan Railway), the House of Lords held that a tunnel fell within the meaning of hereditament and tenement (at page 427)
  • “A construction in or below the land is as much a part of it as an erection on its surface. A cellar below a public footway is as much a tenement as the dwelling-house to which it is appurtenant; and I can see no reason for holding that, should they be severed in title, the one would not be as much a hereditament as the other. If the tax were redeemed by the owner of the land, at a time when there were no buildings upon it, I think that buildings subsequently constructed, whether above or below the surface, would be enfranchised.
• In Clos Farming Estates P/L (rec and mgr appntd) v Easton [2001] NSWSC 525, Bryson J had aptly described Metropolitan Railway as support for the proposition that “a statutory right to exclusive possession of land including a stratum of land creates a freehold interest in the land”. Accordingly, a statutory right to exclusive possession of a stratum of land may create an interest in that stratum of the land.
• (at [93] and [104]-[107]) the WIC Act conferred “ownership” of the pipeline on Rosehill. As recognised in Union Trustee Co v Federal Commissioner of Land Tax (1915) 20 CLR 526 at 530 “ownership entails a proprietary interest in the subject property”. Accordingly, the right granted by s 64(1) was a proprietary right permitting Rosehill all the necessary incidents of ownership including rights to transfer (including through inheritance), mortgage, and exclusive use and enjoyment.
• Interest in the Pipelines was a “landholding”: The above matters led his Honour to conclude that the “ownership” by Rosehill of the pipelines by reason of s 64(1) of the WIC Act created a proprietary interest in the pipeline and the stratum of land which it occupies. That interest is an “interest in land” as that concept is enlarged in the Duties Act through the specific definitions which includes a “stratum”, “tenements”, and “hereditaments”. That conclusion in turn answered the third question in favour of the Chief Commissioner; that is, the interest held by Rosehill was a landholding under the Duties Act.

Basten AJA took a slightly different path to arrive at the conclusion that Rosehill’s interest in the pipelines was a landholding, with a greater focus on the general law concepts (noting that Payne JA also agreed with Basten AJAs analysis).

The core of Basten AJA’s analysis is:

• (at [173]-[176]) “land” in legal usage is not confined to the physical thing. The use of the term in the Duties Act and the Interpretation Act picks up the legal notions of land. Relevantly, land includes three-dimensional space on, above or under the physical surface of the Earth and, unless otherwise provided by statute, it includes fixtures.
• (at [178]) it was not in contention under general principles that the pipeline is a fixture and that the space it occupies is land. Accordingly, the owner of the space where the pipeline resides has an interest in the land comprising that space and all structures which constitute fixtures therein.
• (at [187]) the effect of s 64(1) of the WIC Act was to reverse the general law presumption that the ownership of infrastructure which constitutes a fixtures passes to the owner of the surrounding land. It did not deny however the character of the pipeline as a fixture. As such (in his Honour’s words):

“the consequence of vesting in the constructor or acquirer rights of ownership in the pipeline (and other infrastructure) which is “in, on, under or over” land owned by another person, is that the three-dimensional space occupied by the pipeline (and other infrastructure) is within the exclusive possession of the appellant. Pursuant to general law principles, a fixed, permanent, immoveable structure will constitute land. A person with exclusive possession will have ownership rights of that land.”

It followed from these conclusions in his Honour’s view that the space occupied by the pipeline (and associated infrastructure) and the pipeline itself, constitutes “land” for the purposes of the Duties Act. This analysis is significant as it does not strictly rely on the WIC Act creating a “statutory interest in land” which was amenable to duty in the context of the Duties Act. Rather, it provides that the WIC Act simply reversed who was taken to be the owner of the pipeline and the general law conclusion that the owner of a fixture has an interest in land was able to operate to create a different conclusion from the ordinary case.

In all cases however, the drafting of the relevant legislation will be key. For example, in Epic Energy (Pilbara Pipeline) Pty Ltd v Commissioner of State Revenue [2011] WASCA 228 the legislation expressly provided that the “[pipelines] do not become part of the land, regardless of whether they are in the nature of a fixture”. In that case, that drafting supported the conclusion that the pipelines retained their character as chattels.

Are the pipelines “goods of a landholder”

Given the Court’s conclusion on the interest in land issue, whether or not the pipelines were dutiable as goods (which was the conclusion of the Primary Judge) was not necessary to decide. Nevertheless, the Court in accordance with established principles ruled on this issue in the alternative should the primary conclusion be overturned on appeal (if there is a further appeal to the High Court).

In substance, Payne JA agreed with the principles espoused by Kirk JA in Shell (discussed in our note here) that:

• the power stations in Shell (and the pipelines here if they were severed by operation of s 64(1) of the WIC Act) were not, as a result of the statutory severance, “innominate sui generis property interests” rather than dutiable “goods”. The Court of Appeal held that there was no reason to read the legislative framework as creating a new species of property right, instead the items resumed their previous legal character as chattels or goods (which the Court treated as relevantly synonymous).
• the definition of “goods” would, in any event, extend to the kind of “innominate sui generis property interests” constituted by the power stations / pipelines, if those assets did constitute “innominate sui generis property interests”. The Court of Appeal held that the word “goods” when used in the Duties Act is of incredibly broad meaning and as such a property interest of this nature would still fall within the concept of “goods” as used in Duties Act.