Supreme Court New South Wales Medium Neutral Citation: Visy Kraft Holdings Pty Limited v Chief Commissioner of State Revenue [2017] NSWSC 8 Hearing dates: 7 and 8 March 2016 Decision date: 30 January 2017 Jurisdiction: Equity - Revenue List Before: White J Decision: 1. Order that the defendant's assessment dated 2 September 2013 made pursuant to s 297 of the Duties Act be confirmed; 2. Order that the plaintiff's summons be dismissed; 3. Order that the plaintiff pay the defendant's costs. Catchwords: TAXES AND DUTIES – Mortgage duty – Duties Act 1997 ss 213 and 215 – Application of State Revenue Legislation Further Amendment Act 2009 – Application of changes to mortgage duty provisions, cl 76 of Schedule 1 – Refinancing using a "deferred purchase price loan structure" – Whether 2009 amendments applied - Whether unsecured advance made under an agreement, arrangement or understanding for which mortgage was security (s 213) – Whether mortgage capable of being used to recover an amount contingently payable in connection with an advance by a guarantor (s 215) – Assessment confirmed Legislation Cited: Duties Act 1997 (NSW) State Revenue Legislation Further Amendment Act 2009 Cases Cited: Prime Wheat Association Ltd v Chief Commissioner of State Revenue (1997) 42 NSWLR 505 Bondi Beachside v Chief Commissioner of State Revenue (2014) 85 NSWLR 443 Category: Principal judgment Parties: Visy Kraft Holdings Pty Limited (Plaintiff) Chief Commissioner of State Revenue (Defendant) Representation: Counsel: T Grace (Plaintiff) M Richmond SC with M Sealey (Defendant) Solicitors: Arnold Bloch Leibler (Plaintiff) Crown Solicitors Office (Defendant) File Number(s): 2015/136201 Judgment 1. HIS HONOUR: This is an application for the review of a decision of the Chief Commissioner of State Revenue on 2 September 2013 to assess three instruments called a Deed of Charge, a Share Mortgage and a Mortgage of Lease, all dated 11 July 2008, to ad valorem duty. The instruments in question were submitted for stamping by solicitors then acting for Visy Kraft Holdings Pty Ltd ("VKH" or "Visy Kraft Holdings"). They submitted the instruments for upstamping in respect of total advances of $400 million. A bank cheque of $1,592,416 in payment of the estimated duty was tendered. The instruments had initially been stamped with $5 when they were executed on 11 July 2008. On 8 April 2014 solicitors then acting for VKH submitted that pursuant to s 297 of the Duties Act 1997 (NSW) the stamping of the instruments was taken to be a notice of assessment issued on the date of stamping. Objection was then taken to the assessment. The Chief Commissioner accepted VKH's objection out of time, but the objection was disallowed. 2. The transaction which led to the upstamping of the Deed of Charge and the collateral stamping of the Share Mortgage and Mortgage of Lease was the refinancing on 30 May 2013 of financial accommodation provided to VKH on 11 July 2008 described as a $400 million Commercial Finance Facility associated with the expansion of the Visy Tumut Kraft Pulp and Paper Mill in Tumut, New South Wales. That facility was described as a "deferred purchase price loan note structure". The company secretary of VKH described the refinancing on 30 May 2013 as having replicated the deferred purchase price loan note structure pursuant to which the Deed of Charge, Share Mortgage and Mortgage of Lease, had been stamped with only nominal duty on 17 July 2008. They remained in place. 3. For the reasons which follow the Chief Commissioner's assessment should be confirmed. 4. Chapter 7 of the Duties Act imposed mortgage duty. Mortgage duty was an imposition on instruments that fell within the definition of a mortgage (s 204). A mortgage became liable to duty on the date of its first execution. It became 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 exceeded the amount secured by the mortgage at the time a liability to duty last arose under the Act (s 208(2)). 5. The Chief Commissioner contended that the refinancing effected on 30 May 2013 resulted in the instruments becoming liable for ad valorem duty. Between the execution of the mortgages in July 2008 and the refinancing in 2013 Chapter 7 of the Duties Act was amended by the State Revenue Legislation Further Amendment Act 2009 (NSW). There are issues as to the application of those amendments. Before dealing with the terms of the legislation it is necessary to describe the arrangements, so far as they are in evidence. The Refinancing Arrangements 1. The structure of the refinancing in 2013 is said to have replicated the original financing arrangements in 2008. Visy Kraft Finance Pty Ltd was called the Issuer. By a deed poll dated 30 May 2013 executed by Visy Kraft Finance it covenanted to issue Commercial Notes and to pay principal, interest and fees in respect of each Commercial Note in accordance with clause 5 and clause 6 of that deed poll. It acknowledged that it would be indebted to each Commercial Note holder for the aggregate principal amount of outstanding Commercial Notes held by that Commercial Note holder. Clause 2.3 provided: "Purpose The Issuer may only issue Commercial Notes where it on-lends the proceeds of issue of such Commercial Notes to a Borrower under and in accordance with the Commercial Issuer Loan Agreement." 1. Clause 2.4 provided in substance that the Commercial Notes ranked without preference or priority among themselves and at least equally with all present and future unsubordinated and unsecured obligations of the Issuer. Each note was to bear interest and be redeemable and transferable and otherwise be on the terms and conditions of the deed poll (clause 2.1(d)). The Issuer was required to pay interest on the amounts subscribed. 2. By clause 5.1 the Issuer was required to repay the principal amount of each outstanding Commercial Note, together with accrued interest with respect to such Note by redeeming each Note on the "Termination Date". 3. Two tranches of Commercial Notes were issued. In the case of tranche A the Termination Date was the first anniversary of the date of the "Commercial Syndicated Facility Agreement". In the case of tranche B the Termination Date was the fifth anniversary of the date of that agreement. 4. The obligations of Visy Kraft Finance as Issuer to the financiers was unsecured. 5. Visy Kraft Finance was required to on-lend the proceeds of issue of the Commercial Notes to a "Borrower". The Borrowers were defined in the Commercial Syndicated Facility Agreement. They were Visy Kraft Holdings and VKH Singapore Pte Ltd. 6. The Commercial Syndicated Facility Agreement recited that the "Commercial Financiers" proposed to subscribe for Commercial Notes and expected to subscribe for Commercial Notes in the future. It recited that the Borrowers wished to purchase Commercial Notes issued to the Commercial Financiers from time to time. The agreement set out the terms which would apply if the Commercial Financiers agreed to accept a Borrower's offer to purchase the Commercial Notes. 7. The Commercial Loan Note Deed Poll provided that notes were to be issued with a face value of A$1 or US$1 (clause 2.1(a)). The Commercial Syndicated Facility Agreement provided that the purchase price to be payable by a Borrower for a Commercial Note was either A$1 or US$1, depending upon the denomination of the note. (Definition of "purchase price"). By clause 3 of the Commercial Syndicated Facility Agreement the Borrowers agreed to purchase and the Commercial Financiers agreed to sell each Commercial Note for the purchase price of the Commercial Note on the "Commercial Note Completion Date". That in turn was defined to mean the "Commercial Subscription Date" for the Commercial Note as defined in the Commercial Subscription Deed. That date was the date upon which a Commercial Subscriber subscribed for the Commercial Notes. In other words, on the day the subscribers subscribed for the notes they were committed to sell the notes to the Borrowers. The purchase price for the notes was payable on the "Termination Date" for the relevant tranche, that is, the date on which the Issuer was required to repay the Commercial Notes. 8. Under the Commercial Syndicated Facility Agreement the Borrowers were required to pay interest on the outstanding principal for each Interest Period, which was the same as the "Interest Period" as defined in the Commercial Subscription Deed in respect of the Relevant Commercial Notes for the particular Purchase Consideration Amount. In other words, the Borrowers were required to pay the same interest on the outstanding purchase price for the notes as the Issuer was required to pay on the notes. The purchase price for the notes was also payable at the same time as the notes were liable to be redeemed. 9. Whereas the obligation of Visy Kraft Finance as Issuer to the lenders was unsecured, the obligation of the Borrowers, relevantly Visy Kraft Holdings and VKH Singapore, was secured. Visy Kraft Holdings' obligations were secured by a Deed of Charge, Share Mortgage and Mortgage of Lease entered into on 11 July 2008 in relation to the original commercial finance facility. That is to say, the original securities remained in place to secure the amounts payable for the purchase of the new loan notes. 10. The chargors under the 11 July 2008 Deed of Charge were Visy Kraft Holdings, Visy Kraft Finance, and two other companies in the group. The chargors charged all of their property to secure the due and punctual payment of the "Secured Moneys". "Secured Moneys" was defined relevantly to mean: "All debts and monetary liabilities of the Transaction Parties to the Beneficiaries under or in relation to any Finance Document (other than, in relation to the Issuer, the Unsecured Finance Documents) …" 1. The "Transaction Parties" included Visy Kraft Finance and Visy Kraft Holdings. A "Beneficiary" had the meaning given to that term in a "Security Trust Deed" that was wide enough to cover new financiers who could become a New Beneficiary of the trust established by that deed. The Issuer was Visy Kraft Finance. The "Unsecured Finance Documents" included each Commercial Note, the Commercial Loan Note Deed Poll, the Commercial Subscription Deed, and the Commercial Issuer Loan Agreement. In other words, Visy Kraft Finance's obligation to pay the moneys payable pursuant to the Commercial Notes to the holder of the notes was not secured by the Deed of Charge. Nor was it secured by the other security documents, being the share mortgage and mortgage of leases. 2. On 11 July 2008 Visy Kraft Finance, Visy Kraft Holdings, Pratt Consolidated Holdings Pty Ltd, two other companies called Visy Pulp and Paper Pty Ltd and Visy Wood Yard Operations Pty Ltd and various other parties, including commercial financiers and a security trustee, CBA Corporate Services (NSW) Pty Ltd, entered into an agreement called a Common Terms Deed. The Common Terms Deed named four companies as guarantors, namely Visy Kraft Holdings, Visy Kraft Finance, Visy Pulp and Paper Pty Ltd and Visy Wood Yard Operations Pty Ltd together with any person who might execute a deed called a Guarantee Assumption Deed, being a form of deed poll whereby a new party might become a guarantor. 3. Clause 7.1 of the Common Terms Deed provided: "The Guarantors jointly and severally and unconditionally and irrevocably guarantee to each Finance Party the payment of the Secured Moneys due to each Finance Party." 1. A Finance Party included each Financier. By clause 7.2 if the Secured Moneys were not paid when due, each Guarantor was required immediately on demand from the Security Trustee to pay to the Security Trustee for the account of the Finance Parties the relevant Secured Moneys. 2. Secured Moneys had the same meaning as given in the Security Trust Deed. That deed was also dated 11 July 2008. It was made between the Security Trustee, being CBA Corporate Services (NSW) Pty Ltd, and Initial Beneficiaries, being a number of banks. The Initial Security Providers were also parties to the deed. These were the four guarantors. The Security Trust Deed defined Secured Moneys as including: "all debts and monetary liabilities of the Transaction Parties to the Beneficiaries under or in relation to any Finance Document (other than, in relation to the Issuer, the Unsecured Finance Documents)." 1. A Finance Document was defined in the Common Terms Deed as including a Commercial Finance Document. This included the suite of documents, including the Common Terms Deed itself, the Commercial Syndicated Facility Agreement, the Commercial Subscription Deed, the Commercial Loan Note Deed Poll and each Commercial Note. 2. As noted above, the Deed of Charge provided for each chargor to charge its property to secure the due and punctual payment of the Secured Moneys that included all debts and monetary liabilities of the Transaction Parties to the Beneficiaries under or in relation to any Finance Document other than, in relation to the Issuer, the Unsecured Finance Documents. 3. The effect of these provisions was that the obligations of the Guarantors of the obligations of the Borrowers to purchase the Commercial Notes was secured by the deed of charge, although the obligation of the Guarantors to secure the obligations of Visy Kraft Finance as Issuer of the Commercial Notes was not so secured. Relevant Provisions of the Duties Act in 2008 1. At all material times Chapter 7 of the Duties Act charged duty on instruments that fell within the definition of a "mortgage" (s 204). There is no issue but that the deed of charge, share mortgage and mortgage of lease were mortgages within the meaning of Chapter 7. The amount of duty that was charged depended upon the "amount secured" by the mortgage (s 210). Prior to amendments made with effect from 30 June 2009, s 213 provided: "213 Secured limited amount (1) If the amount of advances secured or to be secured by a mortgage is a definite and limited sum, the amount secured by the mortgage is, for the purposes of this Chapter, the definite and limited sum, until such time (if any) as a greater amount of advances is secured by the mortgage. (2) If any advance or further advance is made so that the amount of advances secured by the mortgage exceeds, at any time, the definite and limited sum mentioned in subsection (1), the amount on which duty is chargeable is, for the purposes of section 210 (2) or (4) (as appropriate), the amount by which the advances or further advances secured by it exceeds the amount on which duty has been paid under this section. (3) For the purposes of this Chapter, any increase in the definite and limited sum referred to in subsection (1) is taken to be a further advance for the amount of the increase." 1. Section 214 provided: "214 'All moneys' mortgage (1) If the amount of advances secured by a mortgage is not a definite and limited sum, the amount secured by the mortgage is, for the purposes of this Chapter, the amount of advances actually secured by it. (2) If any advance or further advance is made so that the amount of advances for the time being secured by the mortgage subsequently exceeds the amount of the advances for which the mortgage has been duly stamped under this Act, the amount on which duty is chargeable is, for the purposes of section 210 (2) or (4) (as appropriate), the amount by which the advances or further advances secured by it exceeds the amount on which duty has been paid under this section." 1. An "advance" was relevantly defined, for present purposes, as follows: "206 What is an advance? In this Chapter, advance means the provision or obtaining of funds by way of financial accommodation, by means of: (a) a loan, being: (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, ... … and includes contingent liabilities of the kind referred to in section 215." 1. Section 215 provided: "215 Contingent liabilities (1) A mortgage that is used or is capable of being used (whether directly or through a chain of relationships) to recover the whole or any part of an amount contingently payable in connection with an advance: (a) by a guarantor or indemnifying party under a guarantee or indemnity, or (b) by another party under another instrument of a different kind, is liable to duty as if the amount of the contingent liability under the guarantee, indemnity or other instrument (or, where there is more than one guarantee, indemnity or other instrument, the greatest contingent liability) were a separate advance made under the agreement, understanding or arrangement for which the mortgage is security. (2) In the case of a mortgage that is part of a chain of relationships referred to in subsection (1), a reference in that subsection to a contingent liability is a reference to a contingent liability limited to the amount of any advance by any party in the chain, and does not include a reference to any other kind of contingent liability. (3) This section does not apply if the Chief Commissioner is satisfied that there is no connection between the mortgage and any advance by any party to the arrangements. (4) Nothing in this section requires duty to be paid more than once in respect of an advance." 1. The Chief Commissioner did not assess the deed of charge, share mortgage and mortgage of lease as executed in 2008 as being liable to ad valorem duty on the basis that they secured an advance within the meaning of s 206. Subject to a qualification concerning s 215, the Chief Commissioner accepted that the debt payable by the Borrowers for the purchase of the loan notes was not an advance within the meaning of s 206, and in particular, did not fall within s 206(a). As I understood it, it was common ground that the deferral of the payment of the purchase price for the loan notes was not a loan being any of the matters falling within para (a) of s 206. In particular, no issue was raised that the deferral of the payment of the purchase price for the loan notes was a transaction, or part of a transaction, that in substance effected a loan of money within the meaning of s 206(a)(iv). I shall proceed accordingly. But in so doing I express no opinion on the correctness of that position. 2009 Amendments 1. The State Revenue Legislation Further Amendment Act 2009 amended ss 208 and 213 of the Duties Act. The relevant amendments took effect on 1 July 2009. Prior to the amendments s 208(2) had provided: "208 When does a liability arise? … (2) A mortgage becomes liable to additional duty on the making of an advance or further advance by which the amount secured by the mortgage exceeds the amount secured by it at the time a liability to duty last arose in respect of it under this or a corresponding Act, unless section 219 applies." 1. The new subsection 208(2) provided: "(2) 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. Note. Section 219 exempts some further advances from duty." 1. Section 213 was amended to provide as follows: "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). (2) A reference in this Chapter to an advance secured by or made under a mortgage includes a reference to any advance made under an agreement, understanding or arrangement for which the mortgage is security (whether or not the advance is recoverable under the mortgage). (3) To avoid doubt, an advance made under an agreement, understanding or arrangement includes any advance made as a consequence of a variation to that agreement, understanding or arrangement." 1. Clause 41 of Schedule 1 to the State Revenue Legislation Further Amendment Act 2009 introduced clause 76 of Schedule 1 to the Duties Act. Clause 76 of Schedule 1 to the Duties Act 1997 provides: "76 Application of changes to mortgage duty provisions (1) The amendments made to Chapter 7 by the State Revenue Legislation Further Amendment Act 2009 apply to the assessment of duty in respect of the following: (a) a mortgage first executed on or after 1 July 2009 or that first becomes liable to duty as a mortgage on or after 1 July 2009, (b) an instrument of security that first affects property in New South Wales on or after 1 July 2009 (whether or not the instrument of security was first executed before that date). (2) The amendments made to Chapter 7 by the State Revenue Legislation Further Amendment Act 2009 extend to the assessment of duty in respect of a mortgage first executed before 1 July 2009 or that first became liable to duty as a mortgage before 1 July 2009 if an advance or further advance is made on or after 1 July 2009 that is secured by the mortgage. (3) Any increase in the amount of advances recoverable under a mortgage first executed before 1 July 2009 is taken to be a further advance for the amount of the increase. (4) A mortgage with a liability date occurring on or after 1 July 2009 may be assessed as part of the same mortgage package as other mortgages or instruments of security, in accordance with the amendments to Chapter 7, even if one or more of the other mortgages or instruments of security were first executed before 1 July 2009. (5) The amendments do not affect the assessment of duty in respect of a liability date occurring before 1 July 2009." The 2009 Amendments Apply 1. The Chief Commissioner contends that clause 76(2) applies to an advance or further advance made on or after 1 July 2009 that is secured by a mortgage within the extended meaning of s 213(1) being an advance made under an agreement, understanding or arrangement for which the mortgage is security. The Chief Commissioner submits that in determining whether an advance or further advance was made on or after 1 July 2009 that was secured by a mortgage within the meaning of clause 76(2), regard is to be had not to the ordinary meaning of "advance", but to the statutory definition of an advance, including the amendment made to s 213(2) that provided that a reference in Chapter 7 to an advance secured by a mortgage included a reference to an advance made under an agreement, understanding or arrangement for which the mortgage was security. The Chief Commissioner submitted that although the advance made by the lenders to the Issuer of the loan notes was not secured by the deed of charge and other mortgages, that advance was part of an arrangement for which the mortgage was security. 2. The amended s 213 defined the "amount secured" by a mortgage for the purposes of Chapter 7 of the Duties Act. Clause 76(2) to Schedule 1 of the Duties Act is not in Chapter 7. Hence, the plaintiff submitted that in clause 76(2) the reference to a mortgage executed before 1 July 2009 becoming liable to duty if an advance or further advance were made after 1 July 2009 that was secured by the mortgage was to be construed without reference to the extended meaning in s 213(1) that an advance made under an agreement, understanding or arrangement for which the mortgage was security is to be taken to be an amount secured by it. 3. But clause 76(1) and (2) refer to how the amendments made to Chapter 7 by the 2009 amending Act were to apply. I do not accept the plaintiff's submission that clause 76(2) cannot be read as providing that the amendments made to Chapter 7 extend to the assessment of duty in respect of a mortgage first executed before 1 July 2009 if an advance is made on or after that date that is secured by the mortgage within the meaning of Chapter 7. That is what s 76(2) was directed to. Clause 76 was not included in Chapter 7. But its references to a "mortgage" and to an "advance" use those expressions in the same sense as they are used in Chapter 7. They are both defined expressions in Chapter 7. Clause 76(1) and (2) is directed to the circumstances in which the amendments made to Chapter 7 will apply, and in so doing use the concepts defined in Chapter 7 as amended. 4. The plaintiff accepted that in determining what was a "mortgage" for the purpose of clause 76(2) and what was an "advance" for the purposes of that clause, regard must be had to the statutory definitions of those terms in Chapter 7. But the plaintiff submitted that the definitions to be imported into Clause 76(2) were of those terms as defined in Chapter 7 before the amendments. 5. The relevant question under clause 76(2) is whether the extended definition of what is an amount secured by a mortgage in the amended s 213(1) applies in determining whether an advance or further advance made on or after 1 July 2009 is secured by the mortgage. In my view the literal terms of clause 76(2), that provide that the amendments made to Chapter 7 (including the amendments to s 213) apply to an advance or further advance made on or after 1 July 2009 that is secured by the mortgage, mean that s 213 as amended does apply to any advance or further advance made on or after 1 July 2009 that by reason of s 213 is to be taken to be an amount secured by the mortgage. The fact that clause 76(2) is not included in Chapter 7 is not to the point. Clause 76 states when the amended Chapter 7 is to apply and, in describing those circumstances, uses the concepts in the amended Chapter 7. 6. The plaintiff submitted that in clause 76(2) the words "advance or further advance … that is secured by the mortgage" takes its "established legal meaning", this being said to be that the mortgages did not secure the repayment of any "advances" as that expression has been interpreted by the Court of Appeal in Prime Wheat Association Ltd v Chief Commissioner of State Revenue (1997) 42 NSWLR 505 and Bondi Beachside v Chief Commissioner of State Revenue (2014) 85 NSWLR 443. I do not think that either of those decisions establishes any "established meaning" to the notion of an "advance" in the circumstances of the present case. In Prime Wheat Association Ltd v Chief Commissioner of State Revenue it was held that a sale of shares on terms that payment for the shares would be deferred by payment of instalments over many years was not a loan or an advance of money. The differences between that case and the present are manifest. Prime Wheat Association Ltd v Chief Commissioner of State Revenue did not decide that in circumstances such as the present case the use of a "deferred purchase loan note structure" would not in substance be a transaction that effected a loan of money. The issues in Bondi Beachside v Chief Commissioner of State Revenue were also different. I do not accept that there was any judicially established "legal meaning" to the expression "advance or further advance … that is secured by the mortgage" in clause 76(2) when applied to the type of transaction of which the present case is an example, that provides a guide to the construction of that expression in clause 76(2). 7. The Explanatory Note to the State Revenue Legislation Further Amendment Act 2009 stated in relation to clause 41 of Schedule 1 that inserted clause 76 into Schedule 1 to the Duties Act that "the amendments will apply to the assessment of mortgage duty for which a liability arises on or after 1 July 2009". The Chief Commissioner submitted that the Explanatory Note indicated that the amendments to Chapter 7, including the introduction of the new s 213, would apply to unlimited securities whether executed before or after 1 July 2009. I do not think this is clear. On the taxpayer's argument the amendments would have some work to do and the very question in this case is whether a liability for mortgage duty did arise on or after 1 July 2009. That question is not answered by reference to the Explanatory Note. 8. Nonetheless, for the reasons I have given, I accept that it is the post-1 July 2009 amended provisions of Chapter 7 that apply to determining the application of s 213. Section 213 1. It is clear from s 213(2) that an advance made under an agreement, understanding or arrangement for which the mortgage is security may be an "amount secured" by the mortgage, even though the advance itself is not "recoverable under" the mortgage. An advance directly secured by a mortgage will be recoverable under it. But s 213 can apply, notwithstanding that the advances made by the lenders to the Issuer were not themselves secured by the mortgages. 2. The plaintiff submitted that the only advances made were not secured by the deed of charge or the other mortgages. It submitted that it is the "advances" for which the mortgage must be security and not the "agreement, understanding or arrangement". If s 213(1) were construed without the context provided by s 213(2) there would be much to be said for that contention. But s 213(2) extends the meaning that would otherwise be given to the expression "the amount of any advances made under an agreement, understanding or arrangement for which the mortgage is security." Subsection 213(2) extends that meaning to a case where an advance is made under an agreement, understanding or arrangement for which the mortgage is security, even though the advance in question is not "recoverable under" the mortgage. If the advance itself was secured by the mortgage, then it would be recoverable under the mortgage. That is to say, in default of repayment of the advance, the mortgagee would be entitled to exercise its security to recover the advance for which the mortgage is security. When subss 213(1) and (2) are read together, there is no requirement that the mortgage be security for the advance, as distinct from the agreement, understanding or arrangement under which the advance was made. 3. The subscription for the loan notes was part of an arrangement that involved the execution of all of the documentation to give effect to the refinancing, including the agreement of the Borrowers to purchase the loan notes and to pay the deferred purchase price for the notes, which obligation was secured by the mortgages. The Borrowers' obligation was part of the same agreement, understanding or arrangement as that under which the advances were made by the lenders to the issuer of the notes. The mortgage was security for the Borrowers' obligation. I accept the submission of the Chief Commissioner that at the core of the refinancing arrangement was the deliberate avoidance of a direct security over the advances made for the loan notes in favour of an indirect security over an inextricably linked deferred purchase obligation under the Commercial Syndicated Facility Agreement and that the mortgages were security for the arrangement. When s 213(1) is read in the context of s 213(2) I accept the Chief Commissioner's submission that it need not be the "advances" for which the mortgage is security, but it is sufficient that the mortgage is security for the agreement, understanding or arrangement, pursuant to which the advances were made. 4. The plaintiff submitted that in any event s 213 did not apply because the mortgages did not secure the entire refinancing arrangement. Thus the deed of charge secured the due and punctual payment of the "Secured Moneys" it did not secure the due and punctual performance of all of the parties' obligations under the refinancing arrangements. The obligations of the Issuer under the Unsecured Finance Documents were expressly excluded from the definition of Secured Moneys which were secured by the deed of charge (and the share mortgage and the mortgage of lease). Not all obligations assumed by the Visy Kraft parties under the suite of documents were secured. 5. However, the substance of the relevant arrangement was the refinancing of debt by the making of an unsecured loan to the Issuer of loan notes that were then assigned by the lenders to the "Borrowers" on terms that the Borrowers pay the purchase price of the notes on the same terms as the original borrower (that is the Issuer) with security being provided for the Borrower's obligation. In substance, the true Borrowers were the parties so designated. The mortgages did secure the substance of the refinancing which was the substance of the arrangements. 6. In my view this was sufficient to attract the operation of s 213. 7. For these reasons I consider that the Chief Commissioner's assessment should be confirmed. Alternative Basis for Liability: Duties Act s 215 1. Prior to the 2009 amendments s 215 was in the terms set out at para [28] above. Following the 2009 amendments s 215 provided: "215 Contingent liabilities (1) A mortgage that is used or is capable of being used (whether directly or through a chain of relationships) to recover the whole or any part of an amount contingently payable in connection with an advance: (a) by a guarantor or indemnifying party under a guarantee or indemnity, or (b) by another party under another instrument of a different kind, is liable to duty as if the amount of the contingent liability under the guarantee, indemnity or other instrument (or, where there is more than one guarantee, indemnity or other instrument, the greatest contingent liability) were a separate advance made under the agreement, understanding or arrangement for which the mortgage is security. (2) In the case of a mortgage that is part of a chain of relationships referred to in subsection (1), a reference in that subsection to a contingent liability is a reference to a contingent liability limited to the amount of any advance by any party in the chain, and does not include a reference to any other kind of contingent liability. (3) This section does not apply if the Chief Commissioner is satisfied that there is no connection between the mortgage and any advance by any party to the arrangements. (4) Nothing in this section requires duty to be paid more than once in respect of an advance." 1. The Chief Commissioner submitted that both under s 215 as it stood before the 2009 amendments and as it stood after those amendments, on the refinancing, the deed of charge and the ancillary mortgages were liable to ad valorem duty. He submitted that if the 2009 amendments were not applicable, then the deed of charge and the mortgage of shares and mortgage of lease were liable to ad valorem duty on the basis that they were each a mortgage that was capable of being used to recover the whole of any part of an amount contingently payable by a guarantor in connection with an advance and was liable to duty as if the amount of the contingent liability under the guarantee were a separate advance secured by the mortgage. That is to say, the Chief Commissioner contended that the secured obligation of the Guarantors under their guarantee of the Borrowers' obligation to pay the deferred purchase price for the notes was an obligation incurred in connection with the advances made by the lenders to the Issuer of the notes. That was to apply s 215 in the form in which it stood before the 2009 amendments. 2. The plaintiff submitted that because the terms of the securities expressly excluded the advances made to the Issuer of the loan notes, it could not be said that the mortgages were capable of being used to recover an amount contingently payable by a guarantor, which contingent liability was secured. It submitted that such contingent liability that was secured by the mortgage could not be said to be a contingent liability "in connection with an advance" when the terms of the security documents expressly excluded the advances from the scope of the security. The plaintiff submitted that the non-repayment of the advance under the Unsecured Finance Documents would not trigger any liability for the guarantor secured by the charge or mortgage. Hence there was no relevant connection between the advance and the amount that would become contingently payable. The guarantor's liability would arise if the Borrowers failed to pay the purchase price for the acquisition of the loan notes. 3. It does not follow that there was no relevant connection between the amount contingently payable by a guarantor and the making of the advance. The fact that the advance by the lenders to the Issuer was not the subject of the guarantee does not mean that the guarantors' contingent liability did not arise in connection with the advance, given the connection between the making of the advance to the Issuer of the loan notes and the Borrowers' inseparable obligation to purchase the loan notes from the lenders on deferred payment terms. 4. The connection between the obligation of the Issuer of the notes that acknowledged the debt arising from the advances made by the lenders and the deferred purchase price payable by the Borrowers to the lenders is manifest. Under the guarantee each guarantor is contingently liable for, inter alia, the obligation of each Borrower under the Commercial Syndicated Facility Agreement. Hence, the obligation of the plaintiff, Visy Kraft Holdings, is not only a principal obligation as a Borrower, but an obligation as a guarantor of the obligations of VKH Singapore Pte Ltd. Further, the mortgage instruments secure the obligations of each guarantor. I accept the Chief Commissioner's submission that by s 215(1) the contingent liability under the guarantee is deemed to be a separate advance secured by the mortgage. Accordingly, under at least s 215 as it stood before the 2009 amendments, ad valorem duty was payable on the securities. 5. For the previous reasons, I accept the Chief Commissioner's submission that the amendments to s 215(1) effected by the State Revenue Legislation Further Amendment Act 2009 applied to the 2013 refinancing. Following the amending Act, s 215 relevantly provided that a mortgage was liable to ad valorem duty if it were capable of being used to recover an amount contingently payable in connection with an advance by a guarantor as if the amount of the contingent liability were a separate advance made under the agreement, understanding or arrangement for which the mortgage was security. 6. If, as I consider to be the case, the amending legislation is the relevant legislation, then it is even clearer that the contingent liability under the guarantee is to be treated as a separate advance made under the agreement, understanding or arrangement for which the mortgage is security. 7. At one point the plaintiff said that it would seek leave to rely on an argument that if s 215 applied, which it denied, then the mortgage did not become liable to additional duty under s 208(2) because, as a result of that advance, the amount secured by the mortgage did not exceed the amount secured by the mortgage at the time a liability to duty last arose under the Act. That application was not pressed. 8. For these reasons, I consider that on both grounds the Chief Commissioner was correct in his decision that the instruments were liable to ad valorem mortgage duty. 9. For these reasons, I make the following orders: 1. Order that the defendant's assessment dated 2 September 2013 made pursuant to s 297 of the Duties Act be confirmed; 2. Order that the plaintiff's summons be dismissed; 3. Order that the plaintiff pay the defendant's costs. ********** 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 2017