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Bondi Beachside Pty Ltd and others v Chief Commissioner of State Revenue [2013] NSWSC 21

Date of judgement 30 January 2013 Proceeding No. 2011/361164
Judge(s) Justice Gzell
Court or Tribunal Supreme Court of New South Wales
Legislation cited Duties Act 1997

State Revenue Legislation Further Amendment Act 2009

Taxation Administration Act 1996
Catchwords TAXES AND DUTIES - Stamp Duties - mortgage duty - charge stamped at $5 on execution as securing no amount - variation deed extending time for payment - whether a forbearance under s 206(a)(iii) of the Duties Act 1997 is an advance - whether charge required to be upstamped under s 208(2) - whether capitalised interest included in amount secured - deferred purchase price scheme – forbearance - capitalised interest
Cases cited Agricultural and Rural Finance Pty Ltd v Gardiner [2008] HCA 57; (2008) 238 CLR 570

Allianz Australia Insurance Ltd v GSF Australia Pty Ltd [2005] HCA 26; (2005) 221 CLR 568

Bank of New South Wales v Brown [1983] HCA 1; (1983) 151 CLR 514

Baystone Investments Pty Ltd v Commissioner of Stamp Duties (1978) 1 NSWLR 441

Electronic Industries Ltd v David Jones Ltd [1954] HCA 69; (1954) 91 CLR 288

Prime Wheat Association Ltd v Chief Commissioner of Stamp Duties (1997) 42 NSWLR 505

Prudential Mutual Assurance Investment and Loan Association v Curzon (1852) 8 Ex 97; 155 ER 1275

Tozer Kemsley & Millbourn (A/Asia) Pty Ltd v Point (1961) SR (NSW) 751

Summary

A fixed and floating charge granted in 2007 as part of a “deferred purchase price” arrangement was initially stamped with mortgage duty of $5 on the basis that it did not secure any “advances” at the time of its execution.

The Chief Commissioner assessed additional duty on 24 Dec 2010 in respect of “advances” plus capitalised interest totalling $102,600,000, following execution of a variation deed.

On 30 January 2013 Justice Gzell found that the Chief Commissioner was correct to assess the Charge to additional mortgage duty, on the basis that the Variation Deed constituted an “advance” under s 206(a)(iii) of the Duties Act. However mortgage duty should only be imposed in respect of amount totalling $92,006,545, which excluded the capitalised interest.

Background

The taxpayers applied for a review of the Chief Commissioner’s decision on 24 December 2010 to assess a fixed and floating charge (“Charge”) to additional mortgage duty (of $410,486) based on a further advance of $102,600,000.

The Charge was granted in 2007 and, upon execution, was stamped with duty of $5 on the basis that it did not secure any “advances” at the time of its execution.

The Charge formed part of a “deferred purchase price” arrangement (“DPP Scheme”). In essence, a DPP scheme is one under which a financial institution may subscribe for and sell loan notes for a price. In this case, the Charge secured payment of that price, but payment could be deferred. As the Charge secured the payment of an unpaid purchase price rather than the repayment of a loan, this arrangement fell outside the provision in s 206 of the Duties Act 1997 (NSW) (“Duties Act”) defining what, for mortgage duty purposes, was an “advance”.

The Charge secured notes issued in 2007 that had a face value of $92,006,545. Interest was capitalised on the value of the notes issued, and as at 1 July 2009, the total amount outstanding which was secured by the Charge was $102,600,000.

Under various Variation Deeds, the taxpayers elected to defer (or extend) the due date for payment of the purchase price on several occasions, including on three occasions after 1 July 2009.

The Chief Commissioner assessed the Charge to additional duty (based on an advance of $102,600,000) on 24 December 2010 (“Assessment”) in respect of those deferrals (or extensions), after 1 July 2009, of the date for payment of the purchase price.

The Assessment was made under s 208(2) of the Duties Act which provided:

“A mortgage becomes liable to additional duty on the making of an advance or further advance if, as a result of that advance or further advance, the amount secured by the mortgage exceeds the amount secured by the mortgage at the time a liability to duty last arose under this Act.”

Decision

Justice Gzell ultimately found that the Chief Commissioner was correct to assess the Charge to additional mortgage duty, however mortgage duty should only be imposed in respect of an amount of advances totalling $92,006,545 (and not $102,600,000 as originally assessed).

In reaching this decision, the relevant issues for the Court to determine were:

  1. Whether the Variation Deed, by deferring (or extending), the due date for payment of the purchase price, amounted to a “forbearance to require the payment of money owing on any account whatever”, and hence an “advance”, within the meaning of that term in s 206(a)(iii) of the Duties Act.

  2. Did the “amount secured” by the Charge exceed the “amount secured” by it at the time a liability to duty last arose under the Act as a result of the making of that advance, within s 208(2) of the Duties Act?

  3. Was the amount secured by the Charge, for mortgage duty purposes, the face value of the notes ($92,006,545), or the total amount outstanding ($102,600,000)?

  4. Was that advance “made under an agreement, understanding or arrangement” for which the Charge was security within s 213(1) of the Duties Act?

In respect of each issue, Justice Gzell found as follows:

Forbearance (Issue 1)

  1. 1.Although a forbearance may be non-contractual, it may also be contractual (ie contrary to the taxpayers’ submission, Justice Gzell found that a variation of a contract which involves a permanent change in the rights and obligations of the parties may constitute a “forbearance”). Justice Gzell relied on the decision in Tozer Kemsley & Millbourn (A/Asia) Pty Ltd v Point (1961) SR (NSW) 751 as authority for the proposition that a forbearance could be achieved contractually.

    In this case, the Variation Deed was merely the form in which the forbearance (being the extension of time for payment) was achieved, and hence the Variation Deed constituted an “advance” under s 206(a)(iii) of the Duties Act.

Amount secured (Issues 2 and 3)

  1. As the Charge secured payment of an unpaid purchase price rather than repayment of a loan, there was no “amount secured” upon execution of the Charge. However, when the Variation Deed was executed, it was as a direct result of the advance (being the forbearance) that the amount secured then became the amount of advances made for which the Charge was security.

    Justice Gzell also rejected the taxpayers’ submission that the phrase “amount secured”, used twice in s 208(2), must be used consistently each time. He found that the context of s 208(2) required a comparison between the “amount secured” by the Charge on two occasions:

    1. first, when an advance was made on 28 August 2009 when the amount secured was $92,006,545; and

    2. second, when a liability to duty last arose – which was upon execution of the Charge when the liability to duty was $5 based on the amount secured being nil.

  2. The amount secured by the Charge for mortgage duty purposes was the face value of the notes ($92,006,545), and should not have included the further amounts which constituted capitalised interest. In this regard, Justice Gzell relied on the case of Bank of New South Wales v Brown [1983] HCA 1 for the proposition that the character of a debt for interest was not altered when it was capitalised. He found that the obligation of the taxpayers remained to pay $92,006,545 plus interest, and that the capitalised interest did not become an advance once the date for payment was extended.

Agreement, understanding or arrangement (Issue 4)

  1. Justice Gzell found that the Variation Deed was made under “an agreement, understanding or arrangement” for which the Charge was security for the purposes of s 213(1) of the Act. Based on the terms of the security documents, the Charge was security for obligations owed by the taxpayers, which included those obligations arising from the forbearance to require the payment of money owing.

    Justice Gzell accepted the Chief Commissioner’s submission that it is highly unlikely that the secured parties would accept a position of having security over the principal under the notes but acquire no security over any money owed to them in circumstances where the terms of payment had been the subject of a variation made after the original financing had been put in place.

Orders

Accordingly, Justice Gzell ordered:

  1. the Assessment be set aside and the matter be remitted to the Chief Commissioner for determination of mortgage duty in respect of the Charge on an amount of $92,006,540; and

  2. the parties were to address the Court on the issue of costs.

Link to decision

Bondi Beachside Pty Ltd v Chief Commissioner of State Revenue [2013] NSWSC 21

Last updated: 18 May 2016