High Court decision in Placer Dome Inc sheds light on the valuation of goodwill for legal purposes

Key issues:

• On 5 December 2018, the High Court of Australia delivered its decision in Commissioner of State Revenue v Placer Dome Inc (now an amalgamated entity named Barrick Gold Corporation) [2018] HCA 59 in favour of the Appellant (the Commissioner). 
• The High Court upheld an assessment by the Commissioner of State Revenue that Placer Dome Inc (Placer) was a “listed land-holder corporation” and that Barrick Gold Corporation was liable to pay ad valorem duty in respect of its acquisition of Placer.
• The decision provides valuable insight into how land and goodwill should be valued under the current landholder duty provisions, particularly for mining companies.

On 5 December 2018, the High Court of Australia delivered the highly anticipated decision in Commissioner of State Revenue v Placer Dome Inc (now an amalgamated entity named Barrick Gold Corporation) [2018] HCA 59 in favour of the Appellant (the Commissioner of State Revenue). The High Court upheld an assessment by the Commissioner of State Revenue that Placer Dome Inc was a “listed land-holder corporation” within the meaning of Division 3B of Pt IIIBA of the Stamp Act 1921 (WA) (Stamp Act), and that Barrick Gold Corporation (Barrick) was liable to pay ad valorem duty in respect of its acquisition of Placer.

Broadly, the Western Australian duty rules (as they were in 2006)  provided that a corporation was a land-holder in Western Australia if:

1. the unencumbered value of land that it was entitled to was not less than $1 million; and
2. the value of all its land, wherever located, was 60% or more of the value of all the property it was entitled to.

Whilst the decision concerns the old land rich provisions in the Stamp Act, it provides valuable insight into how land and goodwill should be valued under the current landholder duty provisions, particularly for mining companies.

Facts

In 2006, Barrick acquired a controlling interest in Placer, which had significant gold mining interests around the world. 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 $54,825,300 was payable. After an objection to the assessment had been disallowed, Barrick applied to the State Administrative Tribunal. 

The main issue for consideration by the Tribunal was whether the property of Placer, prior to its acquisition by Barrick, included legal goodwill with a value of $6.506 billion. If so, then the value of Placer’s land was less than 60 percent. The Tribunal dismissed Barrick’s review application on the basis that Placer’s assets did not include any material legal goodwill. Barrick then appealed to the Court of Appeal, who allowed the 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 and that Placer had substantial legal goodwill. By grant of special leave, the Commissioner appealed to the High Court.

Decision

The High Court made the following key findings on the nature, source and value of goodwill for legal purposes:

• Goodwill for legal purposes is property because “it is the legal right or privilege to conduct a business in substantially the same manner and by substantially the same means that attracted custom to it”, being a “right or privilege that is inseparable from the conduct of the business”¹
• Goodwill for legal purposes extends to those sources which generate or add value (or earnings) to the business by attracting custom, whether that be from the use of identifiable assets, locations, people, efficiencies, systems, processes or techniques of the business, or from some other identifiable source. Those sources of goodwill for legal purposes have a unified purpose and result - to generate or add value (or earnings) to the business by attracting custom²
• Goodwill for legal purposes is different from, and is not to be confused with, the “going value” or the going concern value of a business. Goodwill represents a pre-existing relationship arising from a continuous course of business - to which the “attractive force which brings in custom” is central. Without an established business, there is no goodwill because there is no custom. A collection of assets has no custom³. 

Moving forward

Based on the above key findings, Placer was found to have "no material property comprising legal goodwill" and Barrick failed to 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% threshold. As a result, the appeal was allowed with costs. 

We note the recent comments from the Office of State Revenue stating the wider implications of the decision are being examined and the Commissioner will contact taxpayers who have matters affected by the decision. 

This decision may have an impact on acquisitions where value has been or is proposed to be partially attributed to goodwill or other non-land assets (such as mining information).  

If you are considering acquiring shares or units in a landholder or have acquired shares and attributed a value to goodwill or any other non-land assets , you should consider the impact of this case. For more information or discussion, please contact HopgoodGanim Lawyers’ Resources and Energy or Taxation teams.

^{1. Federal Commissioner of Taxation v Murry (1998) 193 CLR 605 at 615 [23].}

^{2. Commissioner of State Revenue v Placer Dome Inc [2018] HCA 59 at 29 [91].}

^{3. Federal Commissioner of Taxation v Murry (1998) 193 CLR 605 at 627 [60].}