Chief Commissioner of State Revenue v Group and General Finance Pty Limited (Rd)

[2004] NSWADTAP 14

Appeal Panel - Internal

CITATION:	Chief Commissioner of State Revenue v Group and General Finance Pty Limited (RD) [2004] NSWADTAP 14
PARTIES:	APPELLANT Chief Commissioner of State Revenue RESPONDENT Group and General Finance Pty Limited
FILE NUMBER:	039072
HEARING DATES:	17/12/2003
SUBMISSIONS CLOSED:	12/17/2003
DATE OF DECISION:	05/07/2004
DECISION UNDER APPEAL:	Group and General Finance Pty Limited v Chief Commissioner of State Revenue [2003] NSWADT 221
BEFORE:	Hogan A - Deputy President; Verick A - Judicial Member; Bennett C - Non Judicial Member
CATCHWORDS:	statutory interpretation
MATTER FOR DECISION:	Principal matter
FILE NUMBER UNDER APPEAL:	036014
DATE OF DECISION UNDER APPEAL:	09/23/2003
LEGISLATION CITED:	Administrative Decisions Tribunal Act 1997 Duties Act 1997
CASES CITED:
REPRESENTATION:	APPELLANT R Pepper, barrister RESPONDENT D Marks, solicitor
ORDERS:	Appeal dismissed

INTRODUCTION

1 This is an appeal from a decision of this Tribunal at first instance, which was reported as Group and General Finance Pty Limited v Chief Commissioner of State Revenue [2003] NSWADT 221. It is an appeal on a question of law only. For ease of reference in these reasons we refer to the respondent as the taxpayer, and the appellant as the Commissioner.

2 The taxpayer is one of a group of companies engaged in business (“the Alto Group”). In July 1997 the taxpayer entered into a fixed and floating charge over all its assets and undertakings in favour of a finance company (“CFAL”) to secure a total amount of $16,000,000. Duty of $63,941 was paid in New South Wales.

3 On 27 September 2002 the taxpayer, together with 5 other companies belonging to the Alto Group (“the customer”), entered into a Facility Agreement (“the Facility”) with Australia and New Zealand Banking Group Limited (“ANZ”).

4 As part of that Facility, the taxpayer granted a refinancing mortgage debenture over all its assets (“the Debenture”) to ANZ.

5 The Facility also contained guarantees and indemnities (“the Cross Guarantee and Indemnity”) by 15 companies (“the guarantors”). The guarantors comprised the 6 companies comprising the customer, together with 9 other companies in the Alto Group. The overall effect of the Cross Guarantee and Indemnity is that the indebtedness of each of the customers under the Facility is guaranteed by each of the guarantors other than itself.

6 As part of the arrangements for the Facility the taxpayer discharged its liability to CFAL under the earlier mortgage to it.

7 On 30 October 2002 the taxpayer lodged with the Commissioner an application for a partial exemption from duty, on the ground that the facility was a refinancing mortgage within the meaning of S. 220 of the Duties Act 1997.

8 On 14 November 2002 the Commissioner refused the application.

9 On 5 December 2002 the taxpayer lodged an objection, which was disallowed by the Commissioner on 24 February 2003.

10 On 7 April 2003 the taxpayer filed an application in this Tribunal for review of the Commissioner's decision. On 23 September 2003 the Tribunal set aside the decision under review, and held that the taxpayer is entitled to the refinancing exemption that it sought.

LEGISLATION

11 Chapter 7 of the Duties Act 1997 (Ss 204-228) charges duty on mortgages: S. 204. Mortgage duty is calculated, in most cases, according to “the amount of advances secured by the mortgage.” Note to S. 204.

12 Relevantly for this case, by S. 205, an instrument is a mortgage if it is

“(a) a security by way of mortgage or charge over property wholly or partly in New South Wales at the liability date”

13 Again, so far as is relevant for this case, an advance is defined in S. 206.

“In this chapter, "advance" means the provision or obtaining of funds by way of financial accommodation, by means of:

(a)….., or

(b) a bill facility, being one or more agreements, undertakings or arrangements as a consequence of which a bill of exchange or promissory note:

(i) is drawn, accepted, endorsed or made, and

(ii) is held, negotiated or discounted to obtain funds,

whether or not the funds are obtained from the person who draws, accepts, endorses or makes the bill of exchange or promissory note and whether or not the funds are obtained from a person who is a party to any such agreement,
and includes contingent liabilities of the kind referred to in section 215.”

14 Section 220 of the Duties Act 1997 gives relief from taxation in certain circumstances, when a loan is refinanced. It provides, so far as is relevant to these proceedings:

“220 Refinancing of loans

(1) In this section:

“refinancing mortgage" means a mortgage that:

(a) secures the amount of the balance outstanding under an earlier mortgage that is discharged or to be discharged as part of the arrangements for the new mortgage, and

(b) is created to secure an advance to the same borrower as under the earlier mortgage, and

(c) is over the same or substantially the same property or part of the property as the earlier mortgage.

(2) For the purposes of subsection (1), mortgages are created to secure an advance to the same borrower if, either directly by the mortgages themselves or indirectly through one or more collateral arrangements, the same person obtains the advances secured by them.

(3) A refinancing mortgage is taken to have been stamped with ad valorem duty as a mortgage in respect of the maximum amount payable under or secured by the previous mortgage (being an amount in relation to which mortgage duty has been paid or in relation to which an exemption from duty has been obtained), except as provided by subsection (5).

(4), (5), (6), not relevant.

(8) Duty at the rate of $4 per $1,000 or remaining part of $1,000 is payable on the amount by which the advance made under a refinancing mortgage (not being a mortgage on which, by virtue of subsection (6) (b), no duty is chargeable) exceeds:

(a) the maximum amount secured by the earlier mortgage, or

(b) the proportion of that amount referred to in subsection (5), in the case of a refinancing to which subsection (4) applies.

(8A) If a borrower is a related body corporate of a borrower under an earlier mortgage, the first mentioned borrower is taken to be the same borrower or the same person for the purposes of subsection (1) or (2).

(9), (10), (11) not relevant.

15 It should be noted that subs (8A) does not in terms apply to the subject transaction. It did not come into effect until 1 Mar 2003. Counsel for the appellant submitted that its insertion is consistent with and supports the interpretation of the section for which she contends. This case, however, does not turn upon any question of related corporations, nor is there any ambiguity in the legislation. The question is one of correctly categorising the document.

GROUNDS OF APPEAL.

16 In the Notice of Appeal the errors of law in the Tribunal’s decision are alleged to be:

“1 The Tribunal erred in failing to find that the respondent as a Customer under the Facility Agreement was not liable to repay the Total Outstanding Facility;

2 The Tribunal erred in failing to find that the total advance under the Facility Agreement to the respondent was $60,230,000 and not merely $16 million;

3 The Tribunal erred in failing to find that the borrower under the Facility Agreement was not the respondent only but constituted the respondent, together with the Alto companies listed in the Facility Agreement;

4 The Tribunal erred in finding that the respondent was the “same borrower" for the purpose of s.220(2) of the Duties Act 1997;

5 The Tribunal erred in finding that the respondent was "the same person [who] obtains the advances secured by them," for the purpose of s.220(2) of the Duties Act 1997;

6 The Tribunal erred in its construction of s.220(2) of the Duties Act 1997”

17 With respect to the second of those grounds, it should be noted that the taxpayer does not contend that s. 215 does not operate to make duty payable by reference to the total facility amount of $60,230,000. Duty has in fact been paid in accordance with s.215. All that is in issue in these proceedings is whether the respondent is entitled to relief in respect of the $63,941 that had been paid on the earlier mortgage.

18 That question really resolves itself into whether the facility was created to secure an advance to the same borrower as the earlier mortgage.

DOCUMENTATION

19 The Facility Agreement is a long and complex document, but, in the light of the number of parties involved and of the transactions that it evidenced or effected, we agree with the comments of the learned Tribunal member that the document was not unduly long, and that this is not really a complex case. The appeal was conducted on the basis that the chronology and the detailed description of the document as set out in the Tribunal's reasons were accurate, and we do not see the need to repeat all the details in these reasons.

20 We also agree with the comments of the learned Tribunal member (at para 21 of his reasons), that there were obvious advantages in placing all the transactions in the one “umbrella” document, and disadvantages if they had been documented separately. There was also no suggestion by the Commissioner that the transaction or any part of it was entered into to avoid or reduce any duty otherwise payable under the Act.

21 The Parties to the Facility Agreement are expressed to be ANZ and the persons listed in Schedule 1, which sets out the six Alto Group Companies. The guarantors are listed in Schedule 2, which sets out the six companies comprising the Customer, together with nine other companies.

22 Definitions are set out in Clause 1.1 of the Facility Agreement. Those that are important for this case are:

“ Customer” means, in relation to each Facility or all of the Facilities, the person named as the customer in schedule 3 for that Facility (and any additional person agreed in writing by the customer and ANZ from time to time). In this agreement, a reference to "Customer" must be read subject to clause 1.4.

“Facility Outstanding” means, for a Facility, the principal amount (without converting the currency in which it is owed) actually or contingently owing by the customer to ANZ under that Facility, and includes:

(a) for Bill facilities, the aggregate face value of all outstanding Bills:

((b), (c) not relevant),

together with interest (including accrued but unpaid interest), Costs, all accrued but unpaid fees, and all other amounts outstanding under this agreement or any other Transaction Document in relation to that Facility.

“Guarantee and Indemnity” means the Guarantee and Indemnity given by or under this agreement by each Guarantor in favour of ANZ (see clauses 10 to 15 inclusive).

“Guarantor” means, if applicable, each person described as such in schedule 2 and, if there is more than 1 Guarantor, a reference to "Guarantor" includes a reference to each of those persons individually and to any 2 or more of them together.

“Total Facility Outstanding” means, at any time, the aggregate of the Facility Outstanding under all the Facilities at that time.

23 With respect to the definition of “Customer”, Clause 1.4 of the Facility Agreement reads:

“1.4 Joint and several obligations

If there is more than 1 customer or guarantor under this agreement (for the purposes of this clause, each “a person”):

(a) a liability of (or an obligation on) those persons under this agreement is joint and several: and

(b) (subject to paragraph (c)) a reference to “Customer” or a reference to “Guarantor” includes a reference to each of those persons individually and to any 2 or more of them together: and

(c) where a person is granted the use of a facility, a reference to “Customer” is to that person only. (Emphasis added)

24 The Facilities granted to the Customer are set out in Schedule 3. The opening words of Schedule 3 provide:

“Unless otherwise stated, each Facility detailed below is only available to the Customer or Customers specified for that Facility."

25 In Schedule 3, four of the Alto group comprising the Customer received one Facility each. One other received eight facilities. The taxpayer received two facilities. They were described as "Variable Rate Commercial Bill Acceptance and Discount" ("Bill Facility") and an Interest Rate Swap in an amount of $1 million. It is common ground that the Interest Rate Swap is not relevant to those proceedings.

26 The terms and conditions in respect of the two facilities granted to the applicant, as set out in Schedule 3, recited the name of the taxpayer, the description of the Bill Facility, and the Facility limit of AUD$16,000000. The details of purpose, period, termination date and pricing are not here relevant.

27 Clauses 10 to 15 set out the terms and conditions of the Guarantee and Indemnity given by the guarantors listed in schedule 2. They are in terms usual in Bank documents of this type, and need not be set out in detail. Each guarantor guaranteed payment to ANZ of the Total Facility Outstanding on time, and the timely performance by each Customer of its obligations. Each also indemnified ANZ against any loss arising from non-performance by any Customer of its obligations.

DECISION

There was no suggestion during argument that paragraphs (a) and (c) of the definition of a refinancing mortgage in S. 220(1) did not apply to this transaction. It secured the balance outstanding under the earlier mortgage to CFAL, which was discharged as part of the arrangements, and it was over the same property as that earlier mortgage. The essence of the Commissioner's contention is that paragraph (b) is not satisfied, because the mortgage was not created to secure an advance to the same borrower. Ground 6 of the Grounds of Appeal merely summarises the effect of this submission, while grounds 1, 2 and 3 merely relate to steps in the argument. Ground 4 should refer to a finding that the respondent was the “same borrower” for the purposes of S. 220(1)(b) of the Act. Ground 5 sets out exactly the Commissioner’s real complaint.

28 The taxpayer contends simply that it was the same borrower. The taxpayer was undoubtedly the borrower under the earlier mortgage. In counsel’s submission, in terms of S. 220(2), it was the taxpayer which, directly by the Facility granted to it, obtained the advances secured both by the earlier mortgage and by the Facility.

29 The Commissioner contends that the same person did not obtain the advance secured by the Facility, because the advances made by the Facility were secured, not only by the taxpayer, but also by the other companies in the Alto Group. It is true that the advances were so secured. Whether that fact has the consequence contended for is another matter.

30 Counsel for the Commissioner points out that, by the terms of the Facility, the taxpayer in fact secured advances of $60,230,000, the Total Outstanding Facility, even though it only received an advance of $16,000,000. She submits that the fact that the Total Outstanding Facility is secured by way of guarantee is irrelevant, because a guarantee is a form of security. It is also true that, in certain events, the taxpayer could be under an obligation to pay $60,230,000 to ANZ, because of the cross guarantees. Again, the consequences of that fact for the purposes of S. 220(1)(b) remain to be determined.

31 In her written Outline of Argument counsel submitted,

“Therefore, it cannot be said that the Facility was created to secure an advance to the "same borrower" because neither directly nor indirectly does the same person, ie the respondent, obtain the advances, viz, the $60,230,000, which it secured by way of the guarantee it gives under the Facility."

32 The fallacy in this argument is that of the undistributed middle term. “The Facility” is treated as if it were coterminous with “the mortgage”. In fact the Facility is a complex document, which evidences and effects a relatively large number of transactions. One of them is the mortgage given by the taxpayer. Another is the advance made to the taxpayer, which is secured by that mortgage. Others are a series of advances made to other companies. Yet others are a series of cross-guarantees given by an even larger number of companies.

33 Section 220 gives relief in respect of mortgages, if they are refinancing mortgages. The Facility contained a mortgage. That it contained also other transactions, in respect of which duty has been paid, does not alter that fact. The question is whether the mortgage into which the taxpayer entered was a refinancing mortgage. In the circumstances of this case, that depends entirely upon the question whether it was created to secure an advance to the same borrower as had obtained an advance under an earlier mortgage on which duty had been paid.

34 Section 220 (2) sets out the test for deciding whether a mortgage is created to secure an advance to the “same borrower” as obtained an advance under an earlier mortgage. That test fixes upon the person who obtains the advance secured by the mortgage claimed to be the refinancing mortgage.

35 It does not fix upon advances that may have been made to other companies by the same document. It is not expressed to be affected by the fact that the mortgage given by the taxpayer may also secure performance by the taxpayer of its obligations under guarantees that it may have given in the same document in respect of those other advances.

36 Nor does the section fix upon the totality of the amount that the taxpayer may have to pay in certain contingencies. That may be, as it is in this case, quite different from the advance that is made to the borrower which is giving the mortgage. It is the identity of the person who obtains the advance that matters.

37 In this case, the advance, within the meaning of S. 206, was the bill facility for $16,000,000 given to the taxpayer in schedule 3. It is quite clear that it was not the Total Facility Outstanding, both from the definition of “Customer”, read subject to clause 1.4(c), and from the opening words of Schedule 3. For the same reasons it is also clear that that particular advance, which is the one that matters, was made to the taxpayer alone, and not to all the companies comprised in the definition of “Customer”.

38 The same person therefore, that is, the taxpayer, obtained the advance secured by the taxpayer’s mortgage, as had obtained the advance secured by the previous mortgage to CFAL. The mortgage was therefore a refinancing mortgage within the meaning of S. 220, and the taxpayer is entitled to relief under that section.

39 We dismiss the appeal.

40 In her submissions counsel for the Commissioner sought an order for costs if the Commissioner succeeded in the appeal. An award of costs in this matter is subject to S. 88 of the Administrative Decisions Tribunal Act 1997. There were no special circumstances identified by either counsel that would justify an award of costs, no matter which party succeeded. We make no order for costs.