CITATION: Amalgamated Food and Poultry Pty Limited v Chief Commissioner of State Revenue [2003] NSWADT 203 DIVISION: Revenue Division APPLICANT PARTIES: Amalgamated Food and Poultry Pty Limited RESPONDENT Chief Commissioner of State Revenue FILE NUMBER: 036007 HEARING DATES: 18/08/2003 SUBMISSIONS CLOSED: 08/18/2003 DATE OF DECISION: 08/28/2003 BEFORE: Block J - Judicial Member APPLICATION: Duties Act - no double duty MATTER FOR DECISION: Principal matter Duties Act 1997 LEGISLATION CITED : Stamp Duty Act 1921 (WA) Taxation Administration Act 1996 CASES CITED: Project Blue Sky Inc v Australian Broadcasting Authority (1998) 194 CLR 355 Patman v Fletcher's Fotographics Pty Ltd (1984) IR 471 APPLICANT REPRESENTATION: M Stutsel, solicitor RESPONDENT P Gormly, barrister ORDERS: The objection decision under review is set aside and the Respondent is directed to refund the duty paid under protest together with interest as prescribed by the Taxation Administration Act. 1 The objection decision under review in this matter is the disallowance by the Respondent on 24 December 2002 of an objection by the Applicant dated 20 September 2002. The Applicant had on 17 September 2002 paid duty under protest (amounting to $53954) in respect of assessments dated 16 August 2002. The manner in which the assessments were raised appears from an "agreed statement of facts" (referred to as the "Agreed Statement"), and reading as follows: Agreed statement of facts Overview This matter is in relation to duty on two distinct loans taken out by Australia Fast Foods Pty Ltd (AFF) with the Commonwealth Bank of Australia ("CBA") for $56,000,000 and Coles Myer Ltd ("CML") for $7,000,000 respectively. In each case the main agreement had duty paid on it in Western Australia ("WA") calculated on the total loan amount. The guarantors for both loans were: AFF Services Pty Limited (in its own right and in its capacity as trustee of a number of property trusts), A.F.F. Franchising Pty Limited and A.F.F. Management Pty Limited (in its own right and as trustee of the AFF Management Unit Trust) Both loans had underlying securities in various Australian States. Duty was charged in WA based on the total amounts of each loan. Duty was assessed in New South Wales ("NSW") based only on the proportion of the underlying securities held in NSW. In this application the taxpayer is now seeking a credit for the duty payable in NSW. There are some similarities between the matters however in the interest of clarity each loan is dealt with separately. The first loan – "Credit Facility Agreement" dated 28 May 2002 1. CBA agreed to lend $56 million to AFF pursuant to the Credit Facility Agreement dated 28 May 2002, between CBA, AFF and the guarantors as described above. On 19 June 2002, based on the credit facility amount of $56,000,000, the Credit Facility Agreement was stamped with the WA duty of $223,947.50 pursuant to Stamp Act 1921 (WA) The second loan – " Vendor Loan Agreement" dated 28 May 2002 2. CML agreed to lend $7 million to AFF pursuant to a Vendor Loan Deed (Vendor Loan Agreement) dated 28 May 2002, between CML, AFF and the Guarantors. On 19 June 2002 the Vendor Loan Agreement, based on the loan amount of $7,000,000, was stamped with the WA duty of $27,947.50 pursuant to Stamp Act 1921 (WA). First loan - "Credit Facility Agreement" 3.In addition to the actual Credit Facility Agreement the following securities were executed. Each of these instruments secure the same money, being the advance of $56,000,000 made by CBA under the Credit Facility Agreement: (a) AFP Charge: dated on 30 May 2002. (b) AFF Group Charge dated on 28 May 2002. (c)Financier Mortgage dated 30 May 2002. (d) other instruments of security outside of New South Wales The Credit Facility Agreement plus (a), (b), (c) and (d) constitute a "mortgage package" under the Duties Act 1997. 4.By a letter dated 16 August 2002, the NSW Commissioner served a Duties Notice of Assessment ("Assessment") on AFP for $48,037 duty payable for the "mortgage package" pursuant to s. 217 of Duties Act 1997. Second loan- "Vendor Loan Agreement" 5.In addition to the Vendor Loan Agreement the following securities were executed. Each of those instruments secures the same money, being the advances of $7,000,000 made by CML under the Vendor Loan Agreement. (a) AFP Deed of Charge dated on 30 May 2002. (b) AFF Group Deed of Charge dated on 28 May 2002. (c) Vendor Mortgage dated 30 May 2002. (d) Other instruments of security outside of NSW. The Vendor Loan Agreement plus (a), (b), (c) and (d) constitute a "mortgage package" under s. 217 of the Duties Act 1997. 6. By a letter dated 16 August 2002, the NSW Commissioner served a Duties Notice of Assessment (Assessment) on AFP for $5,967.00 duty payable for the "mortgage package" pursuant to s. 217 of Duties Act 1997. Procedural matters 7. On 17 September 2002, AFP paid duty of $53,954 to the Commissioner (being the total payable pursuant to the Assessment) under protest. This was made up of the two calculations discussed above being $48,037.00 and $5,967.00 (AFP received a credit of $50 from the total). 8 On 20 September 2002, AFP lodged an objection against the Assessment under s. 86(1) of the Taxation Administration Act 1996 ("Objection"). 9.On 24 December 2002, the Commissioner disallowed the Objection, upholding his earlier Assessment. 10.On 24 February 2003, AFP filed with the Administrative Decisions Tribunal an Application to review the Commissioner's decision. 2 Each of the parties furnished me with comprehensive and helpful submissions, dated 17 June 2003 and 13 August 2003 in the case of the Applicant (and referred to respectively as "A1S" and "A2S"), and dated 6 August 2003 in the case of the Respondent (and referred to as "RS"). During the course of the hearing, and having regard to the possibility of an appeal against this decision, I intimated that it might be desirable for me to attach the submissions as annexures. I have decided on reflection that to do so would be unnecessary and in particular would unnecessarily lengthen this decision. I do however intend where relevant to refer to and to draw on the submissions. 3 This decision relates in its terms to two loan agreements and related securities referred to in the Agreed Statement as "The first loan- "Credit Facility Agreement" dated 28 May 2002" ("Credit Facility Agreement") and "The second loan –Vendor Loan Agreement dated 28 May 2002" ("Vendor Loan Agreement") (and collectively referred to as the "Loan Agreements"). Both Loan Agreements were executed on 28 May 2002 in Western Australia ("WA"). On the same date and also in WA charges were granted and described, in the case of the Credit Facility Agreement as "AFF Group Charge dated on 28 May 2002", and in the case of the Vendor Loan Agreement as "AFF Group Deed of Charge dated on 28 May 2002", and (so I was informed) relating to property in WA and South Australia ("SA"); in respect of each Loan Agreement the relevant charge is referred to as the 28 May charge."(and they are collectively referred to as "the 28 May charges") 4 On 30 May 2002 and in relation to each Loan Agreement further securities (as referred to in the Agreed Statement) were granted securing property in (inter alia) New South Wales (NSW). In respect of each Loan Agreement the securities referable to it were executed on 30 May 2002, and are referred to in each case as the "30 May securities". 5 Reduced to its essential elements (and the issues are narrow in compass) this decision turns on the proper interpretation (in particular) of sections 216, 217 and 218 of the Duties Act 1997 (NSW) (" the Duties Act") in the form in which those sections appeared on 30 May 2002, ("relevant date") and more particularly in order to determine whether the Applicant is entitled to claim that section 218 operates to allow a credit for duty paid in WA. Those sections read as follows: Section 216 of the Duties Act states: Duty is to be assessed in respect of a mortgage over property that is partly within, and partly outside, New South Wales as though the amount secured by it were only such proportion of that amount as, at the date of first execution of the mortgage, the value of the property in New South Wales affected by the mortgage bears to the value of all property in Australia affected by it (other than property situated in a Territory of the partly outside, New South Wales, Section 217 of the Duties Act, which deals with advances secured by several instruments, provides: (1) Several instruments of security (at least one of which is a security affecting property wholly or partly outside New South Wales and at least one of which is a mortgage) that secure or partly secure the same money, and that are first executed within any period of 28 days, are to be treated as a mortgage package. (2) Duty on a mortgage package is to be assessed, in accordance with the foregoing provisions of this Part, as though the several instruments comprised in the package were one mortgage, first executed on the last of their several dates of execution. (3) The mortgage, or one of the mortgages, in the package is to be stamped with the duty payable on the mortgage package and any other mortgage in the mortgage package is to be stamped with duty of $10. Section 218 states: (1) If the same money is secured, or partly secured, by two or more instruments of security, at least one of which is a mortgage, and one of the instruments has been duly stamped under this Act or a corresponding Act (the stamped instrument), the duty payable under this Act in respect of any other of those instruments that is a mortgage (a collateral mortgage) is to be reduced by an amount calculated in accordance with the following formula: where: A is the amount of the same money secured by the stamped instrument and the collateral security, and B is the amount secured by the stamped instrument, and C is the duty (including duty paid or payable under a corresponding Act) paid on the stamped instrument. (1A) If the same money is secured, or partly secured, by two or more mortgages, at least one of which is a mortgage that is exempt from duty under a corresponding Act because it effects a refinancing (an exempt mortgage) and at least one of which is a mortgage that is chargeable with duty under this Act (a collateral mortgage), the duty chargeable on a collateral mortgage is to be reduced by the amount of duty from which the exempt mortgage is exempt under the corresponding Act. (2) A collateral mortgage is nevertheless chargeable with a minimum duty of $10. (3) In this section, a reference to a stamped instrument includes a reference to a package of securities that has been stamped in accordance with section 217. 6 I commence by dealing with an aspect of a peripheral nature. It was common cause as between the parties that this matter falls to be decided in accordance with the provisions of the Duties Act as at the relevant date (and thus ignoring the amendments enacted later in 2002 and having force as from 1 January 2003) and that the provisions of the Stamp Act 1921 (WA) ("the WA Act") while of interest, are not strictly relevant. In fact aspects of the WA Act (and in particular section 84) were dealt with at some length in the submissions; see in particular clauses 5 and 6 of A2S and attachments A and B to A2S and clauses 4 and 5 of RS and attachment A to RS. As appears from attachment A to RS the Respondent referred to section 84 (1) of the WA Act and asked for " a suitable explanation as to why your client did not avail itself of its provisions… " Attachment B to A2S contains a detailed explanation on behalf of the Applicant which sets out the basis upon which the Applicant contends that section 84 of the WA Act is neither helpful nor relevant and having regard to the fact that the at the date of first execution in WA there was no secured property in NSW. 7 Mr. Stutsel advised me from the bar table that it was first thought that the Loan agreements were first executed on 28 May 2002 and in point of time prior to the 28 May charges and thus prior to there being any secured property. Duty was paid in WA and also SA; however WA did not allow any credit for the duty paid in SA. Subsequently and after these proceedings commenced, instructions were obtained to the effect that the 28 May charges were executed prior to the Loan Agreements; in these circumstances WA transferred the duty paid in WA to the 28 May charges and allowed a credit for the duty paid in SA. The content of this clause 6 is included for the sake of completeness since it does not bear directly on this decision. 8 There are some further aspects which can conveniently be dealt with in brief. As appears from the Agreed Statement each Loan Agreement and the securities referable to it constituted a mortgage package as defined in section 217 of the Duties Act. Nor is there any dispute that in respect of each mortgage package there was indeed a mortgage as defined in section 205. There is moreover no dispute as to the fact that the WA Act is a corresponding Act as defined in the Duties Act. 9 Over a number of years, a number of states and the Territories (but not including WA and Queensland) have become parties to a regime which was referred to as " a joint duties scheme". Clause 3 of RS provides: "Most States are in the process of adopting a joint duties regime. The intention of this regime is that where duty is a payable on securities in several participating states relating to the same transaction, each State will be entitled to collect their share of Duty only based on security held in that State, thus reducing the incidents of double taxation across participating State boundaries. The law and the interpretation of that law, which includes the intention of the statute, are discussed later in these submissions." 10 It is convenient at this juncture to note that I agree with RS (and indeed there is no dispute as to this aspect on the part of the Applicant) that it is proper in construing legislation to have regard to the legislative intent and for this purpose to consider extrinsic material; I refer in this context to Project Blue Sky Inc v Australian Broadcasting Authority (1998) 194 CLR 355 at 384 where McHugh, Gummow, Kirby and Hayne JJ held, …the duty of a court is to give the words of a statutory provision the meaning that the legislature is taken to have intended them to have. Ordinarily, that meaning (the legal meaning) will correspond with the grammatical meaning of the provision. But not always. The context of the words, the consequences of a literal or grammatical construction, the purpose of the statute or the canons of construction may require the words of a legislative provision to be read in a way that does not correspond with a literal or grammatical meaning." 11 It is in this context that I should consider the second reading speech which is an attachment to RS. I refer in particular to the passages quoted in clauses 26 and 27 of RS (and indeed they appear to be the only relevant passages) as follows: 26 In the second Reading Speech of the Duties Bill 12 November 1997 which is attached hereto, at page 1612 paragraph 1 it was stated: "The primary purpose of the (Duties) Bill is to replace the current Stamp Duties Act with simple, clear and equitable legislation drafted in contemporary language and modern style. The proposed Act will enhance the prospect of uniformity across jurisdictions, with particular emphasis being given to removing double duty on cross-border transactions. Many of the proposals in the exposure draft were developed in consultation with Victoria, Tasmania, South Australia and the Australian Capital Territory." 27 Further @ page 1613 at paragraphs 1 and 2 the Speech goes on to state "Under the current and proposed legislation, mortgages over property located both in and out of New South Wales are assessed to duty on the New South Wales portion…The bill effectively apportions full duty between the Australian States,..." 12 I will revert to the second reading speech later in these reasons. Clause 27 of RS should be amplified to include the remainder of the sentence which ends with "New South Wales portion" by adding "including that proportion referable to property in the Territories or outside Australia" It should also be amplified to include the immediately preceding sentence "However in some circumstances New South Wales duty can be reduced by artificially including property located in the Territories which do not impose mortgage duty, or outside Australia" And the immediately succeeding sentence reads "Although genuine commercial transactions can be structured to minimise the impact of this provision it would be effective to prevent deliberate avoidance" I think then that it is desirable to emphasise that the speech indicated a clear desire to obviate avoidance. 13 Reduced to its essence the Respondent contends that where Sections 216 and 217 of the Duties Act apply there is no room for the application of section 218. (Section references which do not contain a reference to an act should be construed as if a reference to the Duties Act were included). Clauses 19 to 22 of RS provide: 19."Foregoing" is defined in the Collins English Dictionary 3rd Ed, 1991 as "going before, preceding" This term is not defined in the Duties Act and it is appropriate to use the normal usage in the absence of ambiguity or difference from the mischief the Act / section was attempting to correct. 20.Section 217(3) of the Duties Act states that one of the mortgages is stamped with the duty payable and the remaining mortgages in the package are stamped with $10.00. This is not in issue. I refer you to paragraph 34 of the Applicant's submissions. 21.It is the Respondent's submission that that is the end of the matter. As envisaged by the objects and intention of the Duties Act, the duty payable for these packages is an apportionment based on the security held in NSW. It is at this point that the Applicant misconceives the Act and incorrectly submits that s.218 on collateral mortgages should then apply It states that the mortgage package, rather than be treated as one security as clearly stated in s.218(3) should be treated as separate securities for the purpose of this section. 22.The Respondent submits that s.218 of the Duties Act only deals with collateral mortgages first executed outside a 28 day period and is not relevant to the matter before the Tribunal. This interpretation can be found not only in the literal meaning of the words of that section but also relying on the Interpretation Act 1987 (NSW) and the Second Reading speech. 14 The Applicant's contentions can usefully be extracted from A1S and in particular clauses 49 to 62 reading as follows: Provisions not mutually exclusive 49.Section 218 of the Act applies to reduce the duty payable on a mortgage where there is another instrument of security stamped under a corresponding Act, including where each of those instruments of security is part of a mortgage package. 50.Any assertion that sections 217 and 218 are mutually exclusive is contrary to a plain reading of the Act. 51.No provision of Chapter 7 expressly precludes the application of both sections 217 and 218 in determining the duty payable under the Act. Differing function of provisions 52.Section 217 provides a mechanism for the assessment of the duty payable under the Act in Respondent of several instruments of security which collectively affect property within and outside New South Wales. Section 217(2) directs that duty on a mortgage package is to be assessed, in accordance with the foregoing provisions of Chapter 7. 53.Section 218 reduces the duty otherwise payable under the Act where duty has previously been paid on another instrument of security. The very wording of section 218, in referring to "the duty payable under this Act" which is to be reduced, necessitates a determination of the amount of duty otherwise payable on the relevant mortgage in the absence of section 218. That amount must be assessed in accordance with the foregoing provisions of Part 2 of Chapter 7 of the Act. This assessment procedure is specifically contemplated by the words of subsection 217(2): "Duty on a mortgage package is to be assessed, in accordance with the foregoing provisions of this Part…". 54.Nothing in the wording of section 218 precludes the "stamped instrument" from being an instrument which is part of the same mortgage package as the "collateral mortgage". 55.Subsection 218(3) expressly provides that the stamped instrument may be a package of securities that has been stamped in accordance with section 217. This wording does not preclude the stamped instrument from being an instrument in a mortgage package that has not been stamped under the Act, if the instrument itself has been stamped. 56.Section 217(2) provides: "Duty on a mortgage package is to be assessed, in accordance with the foregoing provisions of this Part, as though the several instruments comprised in the package were one mortgage". Section 217 does not treat those several instruments as a single mortgage for other purposes. 57.Section 218 is not a "foregoing provision" of Part 2 of Chapter 7 of the Act. Accordingly section 217 does not require the several instruments to be treated as one mortgage for the purpose of considering the application of section 218. 58.Further, the assessment of duty as though the several instruments in a mortgage package were one mortgage is necessary to determine "the duty payable under this Act in Respondent if any other of those instruments that is a mortgage". This is a pre-condition to considering the application of section 218, since it is this amount determined that is reduced under section 218. 59 Thus not only is section 217 not inconsistent with the application of section 218, it is necessary to the proper application of section 218 in the context of a mortgage package. 60.Hill J in his leading commentary on the operation of the Act, "Duties Legislation" (Lawbook Co, 2001), discusses the interaction between the sections in the manner submitted above (at paragraph [14.0850]): "Where there is a "mortgage package" to which s 217 applies and duty is paid in the State under s 216 and outside the State by reference to the property situated outside the State under a corresponding law, it seems that there should first be calculated the duty in the State under s 216. There should then be given the credit for the duty payable outside the State under a comparable law: s 218…" 61.There is nothing in Part 2 of Chapter 7, or elsewhere in the Act, requiring that, in determining the duty payable on a mortgage that is part of a mortgage package, one cease reading the Act at section 217 and apply its provisions to the calculation at that point, to the exclusion of section 218. 62.This approach is consistent with comments by Priestley JA in Patman v Fletcher's Fotographics Pty Ltd (1984) IR 471 in relation to the Annual Holidays Act 1944, where he stated (at 474-475) that: "I see no reason why the Act should not be read in the ordinary way in which a document is read, that is from the beginning onwards. In the ordinary course of reading, s4, although of course it must be read with both what precedes it and follows it, must be read after s3 and further, in the ordinary course it seems to me that it must be read in the light of s3. It is preposterous, in the literal sense, to read s4, make assumptions concerning its purpose based on its language, without reference to what has preceded it and then to read s3 in the light of the purpose thus discerned in s4. A much sounder way of reaching what the draftsman's purpose was is to read his Act in the sequence in which he wrote it." 15 At the risk of labouring the point the Respondent places considerable reliance on the fact that the word "foregoing" appears in section 217. (In addition the Respondent contends that the fact that section 218 (3) provides that a reference to a stamped instrument refers to a package of securities stamped in accordance with section 217, indicates a legislative intent that section 218 should not apply where section 217 does) The Respondent contends then that sections 217 and 218 are exclusive in their operation and that where section 217 operates in relation to a mortgage package, the operation of section 218 is excluded. 16 The explanatory note in relation to the Duties Act is not of any assistance in this regard. However the second reading speech previously referred to does contain passages which are relevant. It was clearly the intention of the legislature that duty should be paid on multi-jurisdictional mortgages on a proportional basis; the legislature sought also to eliminate abuses arising from the inclusion of property in the Territories (neither of which at the relevant time exacted mortgage duty) or property outside Australia altogether. Miss Gormly asked me to infer that the legislative intent should be limited in its application to the participating states and Territories. Although the second reading speech does contain a reference in passing to the fact that there has been some co-operation I can see no basis on which I could or should draw any such inference. 17 A decision of this nature must unfortunately have inequitable consequences for one of the parties. If a credit is granted in NSW then the Respondent is prejudiced in that he receives little or no duty (other than nominal duty) even though on a proportional basis he should receive ad valorem duty because there were at the relevant date significant assets in NSW. On the other hand to disallow a credit requires the Applicant to pay double duty in relation to the property situate in NSW. That this is so arises of course from the fact that WA is not a party to the joint scheme. 18 I do not agree that the word "forgoing" contained in section 217 operates or was intended to operate in the limiting way for which the Respondent contends. Section 217 is an apportionment provision which draws for its efficacy on the "foregoing provisions" and in particular, no doubt, the provisions of section 216. At the relevant time a precise formula approach appeared in section 218. (The amendments made later in 2002 moved the formula from section 218 to section 216). 19 The fallacy in the Respondent' s approach arises in particular in my view from one important factor. The Respondent contends that if there is a mortgage package within section 217, section 218 cannot apply. Section 217 provides that a mortgage package embraces securities entered into within a 28 day period. On this basis section 218 is available to confer a credit for a collateral mortgage entered into after 28 days but not one which is entered into within 28 days. So arbitrary and unreasonable a distinction cannot have been intended. It is perhaps relevant to note that the later amendments in 2002 eliminated the period requirement altogether. That section 218 applies even where section 217 applies is supported by the passage from Hill quoted in A1S, and with which I respectfully agree. 20 The Respondent's reference to section 218 (3) is in my view flawed for two reasons. In the first place section 218 (3) is in its terms expressed to be an inclusive provision. In addition section 218 (1) provides that the credit must be allowed (in the circumstances there set out) in relation to a collateral mortgage; subsection (3) by contrast provides merely that the concept of a stamped instrument includes a package stamped in accordance with section 217. Leaving aside the differences in relevant wording between the two subsections it is my view that subsection (3) is indicative of the contrary proposition and that is that section 218 does apply where stamping in terms of section 217 has taken place. 21 I do not think that it is necessary for me to refer in specific terms to the fact that the Applicant received a $50 credit. I might however note that the third paragraph of the Agreed Statement might with more accuracy have referred in the last line to the duty paid in WA or in the alternative to a credit against the duty payable in NSW. 22 As I have indicated there is in my view no basis on which section 218 should be excluded in its operation where there is a mortgage package within section 217. In the circumstances the objection decision must be set aside and the Respondent is directed to refund the duty paid under protest together with interest computed in accordance with the provisions of the Taxation Administration Act 1996. 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.