Bondi Beachside Pty Ltd v Chief Commissioner of State Revenue

The Legislation 15Chapter 7 of the Act deals with mortgages. It is due to be abolished from 1 July 2013 by s 203A(1) of the Act. Section 204 provided that the chapter charged duty on instruments that fall within the definition of a mortgage. Duty chargeable under the chapter was called mortgage duty. 16Section 205(a) of the Act provided that an instrument was a mortgage if it was a security by way of mortgage or charge over property wholly or partly in New South Wales at the liability date. 17It is common ground that the Charge was a mortgage. 18Section 208(1) of the Act provided that a mortgage became liable to duty on the date of its first execution. In December 2007, s 210(1)(a) provided that the amount of duty chargeable on a mortgage was determined by the amount secured by it and the amount of duty was $5 if the mortgage secured no amount. 19Section 213(1) of the Act then provided that if the amount of advances secured, or to be secured, by a mortgage was a definite and limited sum the amount secured by the mortgage was that sum. 20It is common ground that since the Charge secured the payment of an unpaid purchase price and not an advance, it was liable to mortgage duty of $5 at first execution. 21From 1 July 2009, s 208(2) of the Act was in the following terms: "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." 22Relevantly for present purposes an advance was defined in s 206(a) as follows: "In this Chapter, advance means the provision or obtaining of funds by way of financial accommodation, by means of: (a) a loan, being a: (i) an advance of money, or (ii) the payment of money for or on account of, or on behalf of, or at the request of, any person, or (iii) a forbearance to require the payment of money owing on any account whatever, or (iv) any transaction (whatever its terms or form) that in substance effects a loan of money."

Forbearance 23The first issue to be determined is whether the Variation Deed effected a forbearance to require payment in terms of s 206(a)(iii) of the Act. 24Beachside and Rebel submit that the courts have drawn a clear distinction between two situations. First, a forbearance to require payment involves a creditor acceding to a request by the debtor that the creditor should forbear from insisting on the mode of performance fixed by the contract, but otherwise leave the terms of the contract intact. 25Secondly, a variation of a contract involves a permanent change in the rights and obligations of the parties and is not a forbearance. 26As the Variation Deed constituted binding contractual variations it did not, it was submitted, constitute a forbearance. 27Beachside and Rebel relied upon Agricultural and Rural Finance Pty Ltd v Gardiner [2008] HCA 57; (2008) 238 CLR 570. In that case participants in an agricultural project were offered financing arrangements in the form of loans and an agreement indemnifying them from liability under the loans if they ceased their participation in the project for specified reasons. 28The indemnity was on condition that the borrower punctually paid amounts due under the related loan agreements. The managed investment scheme failed and many participants ceased to participate in the project for one of the specified reasons. 29The lender sought to recover the loans. On the basis that the borrowers had made late payments of instalments that had been accepted by the lender, it did not enforce a term that accelerated the obligation to pay the whole of the debt if payments were not punctually made. 30The issues were whether there had been punctual payment or a waiver of that condition. It was held that payments had not been punctually made and hence the indemnity agreements had not become enforceable. There had not been in any sense recognised in Australian law effective waiver of the indemnifier's rights under the indemnity agreement, as the indemnifier had made no election between competing rights. There had been no forbearance by the indemnifier from exercising those rights. And there could not have been an abandonment or renunciation of the indemnifier's rights to insist on punctual payment until the indemnity was called on. 31Beachside and Rebel rely upon the following paragraph from the judgment of the plurality at 594 [77]: "What the Borrower identified as a distinct doctrine of forbearance encompassed (perhaps was limited to) the case of a party 'voluntarily acceding to a request by the other that he should forbear from insisting on the mode of performance fixed by the contract'. This was further identified by the Borrower as a unilateral, not consensual, act and as not leading to any permanent change in the rights of the parties; the waiving or forbearing party might, on giving reasonable notice, insist upon performance in accordance with the contract." 32That is the description of a submission by the borrowers. It was not a statement of principle adopted by the court and the plurality described it as an asserted principle which they held at 599 [87] was not supported by Electronic Industries Ltd v David Jones Ltd [1954] HCA 69; (1954) 91 CLR 288. 33In that case, Electronic Industries contracted with David Jones to demonstrate television equipment in its store. David Jones requested and Electronic Industries agreed to a postponement of the demonstrations until another date could be fixed. No agreement was reached. Beachside and Rebel relied upon the following statement at 295: "Thus the situation at the time when performance according to the tenor of the contract was due simply was that the plaintiff, though ready and willing to perform, had refrained from tendering actual performance at the request of the defendant. It had expressed its willingness to agree on a variation of the contract by substituting a new date but no agreement of variation had been made. The original agreement therefore stood but, without any breach of contract on the part of the plaintiff, the date for performance had gone by. Up to this point at all events, the parties had not agreed on a variation of the contract. The plaintiff had simply complied with a request on the part of the defendant to forbear from punctual performance, awaiting meanwhile an answer to the defendant's proposal for a variation of the contract by fixing a new date. The result of such a request followed by forbearance was to dispense the plaintiff from any actual tender of performance on the due date, the parties remaining bound nevertheless within a reasonable time to give and accept performance." 34That passage is no authority for the proposition advanced by Beachside and Rebel that one cannot have a contractual forbearance. A forbearance may be non-contractual but that does not mean that it may not be contractual. 35Subsequently David Jones informed Electronic Industries that it did not wish to have any television demonstrations in its store. The High Court said at 297 that both parties remained bound by the contract as there had been no variation of it: "The truth was that the plaintiff expressed its willingness to vary the contract by substituting a new agreed date, and awaited an answer to its proposal, forbearing in the meantime in pursuance of the defendant's request to tender actual performance." 36That does not advance the argument that forbearance must be non-contractual. 37Prime Wheat Association Ltd v Chief Commissioner of Stamp Duties (1997) 42 NSWLR 505 involved a share sale with vendor finance over 20 years. The question was whether the vendor had made a loan within the meaning of the definition of that term in s 83(1) of the Stamp Duties Act 1920 which was in similar terms to the definition of an advance in s 206(a) of the Act. 38It was held that no loan was involved because the granting of time to pay created only a debt and involved no advance of money. The agreement as to the time and amounts in which the purchase price was to be paid involved no exercise of any forbearance. The definition of a loan as any transaction which in substance effected a loan of money did not entitle the court to disregard the legal nature and effect of the instrument in question. 39Prime Wheat does not assist Beachside and Rebel's argument. There was no variation of contractual rights and obligations in that case that would ground a determination whether forbearance was limited to non-contractual indulgences. 40The Chief Commissioner points out that the definition in s 83(1) of the Stamp Duties Act and s 206(a) of the Act extend the meaning of loan so that the Act is concerned with constructive loans as was said in Baystone Investments Pty Ltd v Commissioner of Stamp Duties (1978) 1 NSWLR 441 at 444. 41The Chief Commissioner submits that a forbearance to require the payment of money owing on any account whatever extends the notion of an advance to something that is refrained from being done, in contrast to the positive action of making a loan, and in doing so the parliament used ordinary language. Such an abstaining, it was submitted, could be consensual or non-consensual, contractual or non-contractual. 42So an agreement to vary the date for payment of a liability to a later date could be within s 206(a)(iii) of the Act, it was submitted, and when it was, for mortgage duty purposes, there was a loan. The Chief Commissioner submitted that it was not an actual loan but it was as if the person who forbore actually lent the debtor the money necessary to discharge the liability and charged interest on it. 43It was the extension of time for payment that constituted the forbearance. The Variation Deed was merely the form in which that forbearance was achieved, it was submitted. It was just as effective in extending the date for payment as would a waiver by estoppel or forbearance. It was submitted that there was no reason why s 206(a)(iii) of the Act should be limited to one only of the methods by which a forbearance could be achieved. 44The Chief Commissioner submits that his reasoning is supported by Tozer Kemsley & Millbourn (A/Asia) Pty Ltd v Point (1961) SR (NSW) 751. 45That was a case that dealt with a similar definition in the Money-lenders and Infants Loans Act 1941-1948. When further financial accommodation was refused, a 90 day promissory note for the amount plus interest was issued. This promissory note was not paid as it fell due and a succession of new 90 day promissory notes was taken on similar terms. It was held that each time a promissory note was taken it was a loan within that part of the definition as being the "forbearance to require payment of money owing on any account whatsoever". 46At 764 Walsh J said: "Next, the defendant submits that, when the plaintiff took a promissory note payable 90 days later, and when it subsequently renewed or 'extended' this note, this was a 'loan' within that part of the definition, which includes in that term 'the forbearance to require payment of money owing on any account whatsoever'. This submission also, I consider to be correct. The words quoted do not refer to forbearing to sue, but to forbearing to require payment. If the agreement to do so was made before the due date for payment of the note, this appears to me to make no difference in the application of this part of the definition. There was, none the less, a forbearance to require payment. The contract was that, for the consideration agreed upon, at the time of an extension, including the agreement to sign a new promissory note, the plaintiff would not require the defendant to meet the existing note on its due date." 47That was a forbearance contractually achieved. In that respect it supports the Chief Commissioner's submission. 48Beachside and Rebel point out that the definition in the Money-lending legislation was inclusive whereas it is exhaustive in s 206 of the Act and Tozer has no relevance. 49I reject that submission. Inclusive or not the subject of the decision in Tozer was that portion of the definition of loan under the Money-lending Act that is identical to that portion of the definition of advance in s 206 of the Act. 50Beachside and Rebel say that Tozer is distinguishable from the facts in this case. What was involved in Tozer was the discharge of the outstanding debt obligation and the creation of new obligations in the replacement promissory notes. Here, save for the extension of time, the contractual obligations remain in force. 51While that is so, it does not alter the circumstance that the forbearance in question was achieved contractually. 52I reject the contentions of Beachside and Rebel and hold that the Variation Deed constituted an advance as being a forbearance to require the payment of money owing on any account whatever.

Upstamping 53As amended, s 208(2) of the Act required a comparison between the amount secured by the mortgage upon the making of an advance or further advance with the amount secured by the mortgage at the time a liability to duty last arose. 54The amendments to s 208(2) of the Act applied to the advance constituted by the Variation Deed. This is because Sch 1, cl 76 of the Act, introduced by the State Revenue Legislation Further Amendment Act 2009, provided that the amendments to chapter 7 effected by that Act extended to the assessment of duty in respect of a mortgage first executed before 1 July 2009 if an advance or further advance was made on or after 1 July 2009 that was secured by the mortgage. 55Beachside and Rebel argue that s 208(2) as amended by the State Revenue Legislation Further Amendment Act 2009 was not enlivened because the "amount secured by the mortgage" did not change. The "result" of the "advance" was not to increase the amount so secured. 56Beachside and Rebel say that the Variation Deed did three things. It ended the capitalisation of interest by the sweeping of bank accounts to reduce the amount owed, which reductions were deemed to be redemptions of the notes. There was to be an amortisation of the amounts owed under the notes with interest payable in cash. The third thing the Variation Deed did was to extend the termination date. None of these matters, it was submitted, increased the amount secured. It was, on execution, $92,006,545 and it was that amount or less when the Variation Deed was executed. 57That argument might lead to the result that the Chief Commissioner might assess mortgage duty on execution of the security documents on $92,006,545. But the Act, Sch 1, cl 76(5) provides that the amendments introduced by the State Revenue Legislation Further Amendment Act 2009 do not affect the assessment of duty in respect of a liability date occurring before 1 July 2009. 58The Chief Commissioner says that the matters relied upon by Beachside and Rebel are irrelevant. The proper analysis is that the amount secured by the charge ceased to be no amount and became $92,006,545 plus capitalised interest making the total amount $102,600,000. 59I agree with this submission. Because 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. But when the Variation Deed was executed, there was an advance by forbearance and the amount secured then became the amount of any advances made for which the Charge was security. 60Beachside and Rebel take issue with the Chief Commissioner's statement that the words "as a result of" in s 208(2), while requiring a causal connection, do not require that connection to be the direct or only connection. The Chief Commissioner referred to Allianz Australia Insurance Ltd v GSF Australia Pty Ltd [2005] HCA 26; (2005) 221 CLR 568 at 580-581 [37] where McHugh J said: "Although the expression 'a result of...[the] defect' requires a causal connection between the defect and the injury, that connection does not have to be a 'direct' connection or the only connection. The section speaks of the injury being 'a' result of, not 'the' result of, the defect. Mason P thought that, because the injury must be 'a result of' and not 'the result of' the defect, the injury need not be the 'direct' or 'effective' or 'efficient' result of the defect. The use of the indefinite article 'a' instead of the definite article 'the' suggests that the defect in the vehicle does not have to be the sole or even the predominant cause of the injury." 61There is a danger in applying the construction of a term in one context to that in another. In this case it is unnecessary to determine the question because as a direct result of the advance in this case, the amount secured by the mortgage exceeds the amount secured by it on execution. 62Beachside and Rebel object to the Chief Commissioner's inclusion of the capitalised interest in the amount secured by the Charge. I agree with that objection. 63In Bank of New South Wales v Brown [1983] HCA 1; (1983) 151 CLR 514, the bank charged interest on the daily balance of an account with six monthly rests. At the expiration of each six monthly period the accrued interest was debited to the account. At each six monthly rest, interest was charged not only on the previous principal sum but also on accrued interest debited to the account. 64Section 112 of the Bankruptcy Act 1966 (Cth) provided that where a creditor had proved a debt that was for, or included, interest, the interest for the purposes of a dividend would be allowed at a rate not exceeding 8 per cent. It was held that, for the purposes of s 112, accrued interest as so debited to the account should be treated as interest. 65Gibbs CJ said this was so because the interest was not converted into capital and the rights of third parties had to be determined on the footing that the interest retained its character. 66Mason and Wilson JJ said the section should be read as referring to an amount whose original character was interest, even if it subsequently became capitalised by arrangements between the parties. 67Brennan and Dawson JJ said the character of a debt for interest was not altered when it was capitalised. 68In the case before me, the principal was $92,006,545, the face value of the notes. Any further amounts owing by Beachside and Rebel were by way of interest, which was initially capitalised but was payable in cash after the Variation Deed. 69The Chief Commissioner accepts that where a mortgage secures a principal sum and the mortgage provides that security extends to interest payable whether or not paid, the amount secured is only the principal sum and does not extend to the interest (Prudential Mutual Assurance Investment and Loan Association v Curzon (1852) 8 Ex 97 at 105, 107; 155 ER 1275 at 1278, 1279). The mere debiting of sums of unpaid interest does not have the effect of converting interest into capital (Brown at 523, 532-533, 545-546 and 555). 70The Chief Commissioner submits that where, as here, by agreement, an obligation to pay interest is converted into an obligation to pay an additional advance, then the amount secured will include that additional advance. 71I cavil with that position. What was agreed between the parties was that interest be capitalised. That did not involve an additional advance. The obligation remained one to pay $92,006,545 plus interest. 72The Chief Commissioner says that the broad language of s 206(a)(iii) in speaking of the "forbearance to require the payment of money owing on any account whatever" removed the distinction between principal and interest. I do not agree. Capitalised interest was not an advance for mortgage duty purposes. 73The Chief Commissioner acknowledges this but says that the capitalised interest became an advance once the date for payment was deferred, or extended. The original character of the capitalised interest became irrelevant for mortgage duty purposes once the forbearance occurred. 74In my view that is not a correct analysis of the effect of the legislation. If capitalised interest is not an advance for the purposes of s 208(2) of the Act, that provision must operate upon an advance by forbearance with respect to $92,006,545. 75In my judgment, s 208(2) of the Act requires a comparison to be made between the amount secured upon the making of an advance by forbearance and the amount secured when a liability to duty last arose. In this case that comparison is between $92,006,545 and nil. 76There was an obligation to upstamp the Charge upon the execution of the Variation Deed if all other requirements of the legislation with respect to upstamping were met.

Agreement, Understanding or Arrangement 77Section 213(1) of the Act after 1 July 2009 defined the amount secured by a mortgage. It was in the following terms: "213 Amount secured by mortgage (1) For the purposes of this Chapter, the amount secured by a mortgage is the amount of any advances made under an agreement, understanding or arrangement for which the mortgage is security (even if the amount of advances made exceeds the amount of advances recoverable under the mortgage)." 78Beachside and Rebel submitted that any advance by way of forbearance was made under the Variation Deed and it was not an arrangement for which the Charge was security under s 213(1) of the Act because nothing resulting from the forbearance was within the definition of "Secured Money" in the relevant security documents. 79Beachside and Rebel concede that the Variation Deed could be described as coming within the term "Senior Debt Finance Document" and thereby becoming a "Secured Transaction Document" for the purposes of the definition of "Secured Money" under the security documents. But they say that anything that is the subject of forbearance does not come within any paragraph of that definition. The principal under the notes was already within the definition of "Secured Money" before the Variation Deed was executed. 80The definition of "Secured Money" under the security documents was an all moneys definition. For example, the Security trust and intercreditor deed contained the following definition: "Secured Money means: (a) all money and amounts (in any currency) that an Obligor (other than the Issuer) is or may become liable at any time (presently, prospectively or contingently, whether alone or not and in any capacity) to pay to a Beneficiary on any account in any way whatever (whether alone or not and in any capacity) under or in connection with a Secured Transaction Document; and (b) all obligations and liabilities of any Obligor (other than the Issuer) (whether present, prospective or contingent and whether owed alone or not and in any capacity) to a Beneficiary under or in connection with a Secured Transaction Document. It includes any such money and amounts described in paragraph (a): (c) in the nature of outstanding purchase moneys, principal, interest, fees, costs, charges, expenses, duties, indemnities, Guarantee obligations or damages; (d) whether arising or contemplated before or after the date of this document, or before or as a result of the assignment (with or without an Obligor's consent) of any debt, liability or Secured Transaction Document; and (e) which a person would be liable to pay but for an Insolvency Event in respect of that person. It includes any such obligations and liabilities described in paragraph (b): (f) whether arising or contemplated before or after the date of this document, or before or as a result of the assignment (with or without an Obligor's consent) of any debt, liability or Secured Transaction Document; (g) whether liquidated or sounding in damages only; (h) whether relating to the payment of money or the performance or omission of any act; (i) whether accruing as a result of a Default; and (j) which a person would be liable for but for an Insolvency Event in respect of that person." 81The principal under the notes was within paragraph (c) of the definition and was already within the definition of "Secured Money" before the Variation Deed was executed. 82The only new monetary obligation that arose when an extension of time to pay under the Variation Deed was granted was additional interest. It was submitted that the variation to the termination date effected by the Variation Deed could not be described as giving rise to any new monetary obligation for which duty could be charged. 83The Charge was security for obligations owed by Beachside and Rebel. They included those obligations arising from the forbearance to require the payment of money owing. That forbearance constituted an advance within the meaning of s 206(a)(iii) of the Act. 84As the Chief Commissioner points out, it is highly unlikely that the secured parties would accept the 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. 85An analysis of the definitions in the security documents establishes that the Charge did provide security in respect of the advance constituted by the deferral. 86Clause 2.1 of the Charge created a charge as security for payment of the "Secured Money" and for performance or other satisfaction of the "Secured Obligations". The terms "Secured Money" and "Secured Obligations" were not defined in the Charge, but cl 1.1 provided that terms defined in the Security trust and intercreditor deed had the same meanings when used in the Charge unless otherwise defined in the Charge. 87The "Secured Money" definition in the Security trust and intercreditor deed is set out above. The term "Secured Obligations" was defined in cl 1.2 of the Security trust and inter-creditor deed to mean the obligations described in paragraph (b) of the definition of "Secured Money." 88All obligations and liabilities under or in connection with the Secured Transaction Documents were thus secured by the Charge. 89The term "Secured Transaction Document" was defined in the Security trust and intercreditor deed to mean each "Finance Document" other than certain exclusions irrelevant for present purposes. The term "Finance Document" was defined to include a "Senior Debt Finance Document", and that term was defined to include the "Senior Note Facility Deed" and any document entered into or for the purpose of amending or novating that document. 90The "Senior Note Facility Deed" provided for its variation in cl 36.12 and the Variation Deed provided that it varied the "Senior Note Facility Deed". The obligation under the Variation Deed was thus secured by the Charge. 91Thus 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.

The Amount Secured 92Beachside and Rebel say that the phrase "the amount secured by the mortgage" where it appears twice in s 208(2) of the Act has the same meaning, and in this case is $92,006,545. 93They cite authorities for the proposition that the conventional approach to statutory interpretation requires that a word or phrase used twice in the same passage is assumed to be used consistently. 94In my view the context requires that the second reference to the "amount secured by the mortgage" in s 208(2) of the Act is, in this case, nil. 95What s 208(2) of the Act requires is a comparison between the amount secured by the Charge on two occasions. First, when an advance or further advance was made. That was on 28 August 2009 when the amount secured was $92,006,540. Secondly, when a liability to duty last arose. That was upon execution of the Charge when the liability to duty was $5. The amount then secured was nil. 96The Chief Commissioner was correct in his assessment that the Charge required upstamping. He was incorrect in including capitalised interest in the amount secured.

Court Orders (1)The Chief Commissioner's decision of 22 September 2011 disallowing the plaintiffs' objection dated 22 February 2011 against the assessment of mortgage duty under the Duties Act 1997 made by the Chief Commissioner on 24 December 2010 (Assessment) in relation to the documents described in Part 1 of the Schedule to the summons filed on 11 November 2011 is set aside. (2)The Assessment is revoked. (3)The matter is remitted to the Chief Commissioner for determination of mortgage duty on an amount of $92,006,540. (4)I will hear the parties on costs and upon the terms of any other orders that should be made. (5)I direct the parties to bring in short minutes of order reflecting these reasons. (6)The exhibits and subpoenaed material are to be returned forthwith.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 30 January 2013