Pennant Holdings Limited v. Commissioner of State Taxation (W.A.)

Judges:
Malcolm CJ
Seaman J
Nicholson J

Court:
Full Supreme Court of Western Australia

Judgment date: Judgment handed down 14 June 1990.

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Malcolm C.J.

This appeal was heard on 11 May 1990 by a court constituted by myself, Seaman and Nicholson JJ. In my opinion the appeal should be allowed, the order of the learned Judge set aside, the appeal against the Commissioner's disallowance of the appellant's objection allowed, the duty payable on the guarantee reduced to nil and the Commissioner ordered to refund the stamp duty paid by the appellant on the guarantee. I publish my reasons.

Seaman J. is of the same opinion. I publish a note from him to that effect. Nicholson J. is of the same opinion. I publish his reasons.

This is an appeal from an order made by Brinsden J. by which the learned Judge dismissed an appeal by the appellant under sec. 33 of the Stamp Act 1921 [reported at 89 ATC 4899]. The appeal so dismissed was against a decision by the Commissioner of State Taxation disallowing an objection by the appellant to the assessment by the Commissioner of an instrument of guarantee in the sum of $75,000. The guarantee was given by the appellant to National Mutual Royal Bank Ltd. (``the manager'') as manager of a syndicate of lenders (``the banks''). In 1986 Perpetual Trustees W.A. Ltd. as trustee of the Centennial Plaza Trust (``the trustee'') had granted a mortgage (``the mortgage'') over land in New South Wales to the manager to secure moneys advanced by the banks. By a deed of variation of mortgage dated 5 July 1988 (``the variation mortgage'') between the trustee and the manager the land was further mortgaged to secure the repayment of moneys advanced by the banks under a facility deed dated 5 July 1988. The facility deed was entered into between the trustee, the appellant as covenantor, Pennant Properties Ltd. as developer, the manager and the banks. The facility deed provided for the banks to advance up to $95m. on various securities including a guarantee by the appellant. The relevant guarantee was dated 29 June 1988 and secured the due and punctual payment to the banks of the moneys owing as defined in the facility deed, but limited to an amount not exceeding $30m.

It was common ground at first instance and before us that the moneys secured by the guarantee were also secured by other instruments of security, including the mortgage and the variation mortgage which secured the repayment of those moneys wholly on property in New South Wales. The mortgage and the

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variation mortgage were assessed for stamp duty in New South Wales and duty of $299,945 as assessed had been paid.

The guarantee had been executed in Western Australia and was prima facie liable for duty in Western Australia under item 13 in the Second Schedule: see sec. 27 and 83(1) of the Act.

The issue raised by the appeal is whether the appellant was entitled to a reduction in the duty otherwise payable under the Act by the actual amount of duty paid in New South Wales. The learned Judge held that it was not. The notice of appeal contains six grounds of appeal but the issue raised by the appeal is sufficiently encapsulated in ground (2) as follows:

``The Court erred in law in holding that in sec. 84(1) of the Stamp Act the term `instrument of security' means an instrument of security which itself secures property and in not holding that sec. 84(1) can apply to an instrument which secures the payment, repayment or ultimate recovery of money irrespective of whether it secures property.''

The detailed facts are set out in the judgment of Nicholson J. I do not propose to repeat them. The question is one of construction. I agree with Nicholson J. that the construction of sec. 84(1) of the Stamp Act adopted by the learned Judge at first instance was incorrect. I am also in agreement with the reasons stated by Nicholson J. for reaching that conclusion. I only wish to add a few comments of my own.

Section 84(1) is concerned with stating the position in relation to the liability for duty under the Act where the state of affairs is as described, namely:

``Where money to be paid or repaid, or which is ultimately recoverable, under an instrument of security is secured wholly or in part on property out of the State...''

Where that state of affairs exists stamp duty is payable on that instrument of security:

``... as provided under this Part and item 13 of the Second Schedule on the full amount of such money.''

The guarantee was for an amount limited to $30m. Subject to the provisions of sec. 87 it was liable for duty under item 13 of the Second Schedule as a security ``for the payment or repayment of money to be lent advanced or paid...'' where the total amount is limited.

The first question is whether the state of affairs referred to in sec. 84(1) applied. It is clear that the guarantee was an instrument of security under which money was to be paid, repaid or ultimately recoverable. That is made clear by reading sec. 83(1) and 84(1) together. The only issue is whether, upon the proper construction of sec. 84(1), it is necessary for the money to be secured on property by the ``instrument of security'' referred to or whether it is sufficient, if the money is not secured on property by that instrument, but is secured wholly or in part on property out of the State by some other instrument or instruments.

The learned Judge held that in order for sec. 84(1) to apply it was necessary for the ``instrument of security'' itself to secure the money. In my opinion the learned Judge was in error. With the greatest respect sec. 84(1) defines a statement of affairs with reference to ``money''. The relevant money is defined by reference to two characteristics:

• (a) the money is to be paid, repaid or ultimately recoverable under an instrument of security; and
• (b) such money is secured wholly or in part on property out of the State

In the present case the money was wholly secured on property in New South Wales by virtue of the mortgage and the variation mortgage. Section 84(2) contemplates a reduction of the duty on the instrument of security referred to in sec. 84(1) where the predicted state of affairs exists and -

``... the Commissioner is satisfied that any duty of a like nature to duty payable under subsection (1) has been paid in respect of the instrument, or any other instrument that secures the same money, in another State or Territory...''

In the present case, while no duty had been on the guarantee in New South Wales, stamp duty had been paid in that State on the mortgage and variation of mortgage which were other instruments which secured the same money. Such duty is clearly a ``like duty''. Part IIIE of the Stamp Act is headed ``Mortgages and other securities''. The term mortgage is defined in sec. 81. A guarantee, which is a security under sec. 83(1), and a mortgage as

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defined in sec. 81 are chargeable with the same duty under item 13 of the Second Schedule. The stamp duty paid in New South Wales was a like duty on mortgages and other securities.

In my opinion the expression ``the same money'' in sec. 84(2) is a reference back to the money secured by the ``instrument of security'' which has the characteristics I have mentioned. The money is secured by both the guarantee, on the one hand, and by the mortgage and variation of mortgage on the other, but in each case the money has the characteristic that it is in fact also wholly secured on property outside the State. This in my view reinforces the construction of sec. 84(1) which is focused on the characteristics of the ``money'' rather than the ``instrument of security''. Section 84(1) is not concerned to qualify the instrument of security as one which itself secures relevant money on property.

In the present case, as all of the relevant property is located in New South Wales the duty payable in Western Australia is reduced by the full amount of the duty paid in New South Wales. The result is that the duty payable in Western Australia is nil. This follows whether one applies para. (a) or (b) or sec. 84(2). As to para. (a) the duty payable under sec. 84(1) is $75,000. That duty is to be reduced by the same proportion:

``... as the value of the property situated in that other State or Territory bears to the aggregate value of all property to which the instrument relates.''

It was held by the learned Judge that ``the instrument'' in para. (a) was a reference back to ``the instrument'' first referred to in subsec. (2), which was in turn a reference to the ``instrument of security'' referred to in subsec. (1). It followed that sec. 84(1) was concerned with an instrument of security which was related to property in a way which involved the instrument itself securing the money on property. In my view, on the proper construction of sec. 84(2), the expression ``the instrument'' is a reference back either to ``the instrument, or any other instrument that secures the same money'' as appropriate, as those expressions appear earlier in sec. 84(2).

Where $10,000 to be repaid is secured by a debenture given by company A in Western Australia and the company has, in terms of value, one-third of its property in Western Australia and two-thirds in New South Wales, there is no difficulty. The one instrument secures the repayment on property in both States. Where duty has been paid in New South Wales, the Western Australian duty will be reduced by two-thirds or the actual duty paid in New South Wales, whichever is the less. The position will be the same where there are separate mortgages to secure a single debt of $10,000 and the value of the land in New South Wales is two-thirds of the aggregate value.

Where $10,000 to be repaid is secured by a debenture given by company A in Western Australia and is secured wholly on property in New South Wales, the problem which occurs in the present case will not arise. Full duty is payable on the debenture in Western Australia under sec. 84(1). If duty is paid in New South Wales the reduction under sec. 84(2)(a) will be by a factor of one. The relevant proportion is 1:0 because 100% of the property by value is in New South Wales. The debenture itself creates the security on the property.

In my opinion there is nothing in sec. 84 which suggests that the position should be any different where the ``instrument of security'' referred to in sec. 84(1) does not itself secure the money on property. The words ``to which the instrument relates'' in sec. 84(2)(a) are a reference to either or both of the instruments referred to earlier in that subsection as the case may be, and, of course, equally cover a situation in which there may be a multiplicity of instruments.

The Commissioner's argument, which was accepted by the learned Judge, was that the phrase in sec. 84(1) commencing ``is secured'' qualified the words ``instrument of security'' rather than the word ``money''. This requires words such as ``by that instrument'' to be read into the subsection after the words ``is secured''. If the relevant phrase simply defines a characteristic of the money in the manner to which I have referred, there is no need for any such implication.

For these reasons I am of the opinion that the appeal should be allowed, the order of the learned Judge set aside, the appeal against the Commissioner's disallowance of the appellant's objection allowed, the duty payable on the guarantee reduced to nil and the Commissioner ordered to refund the stamp duty paid by the appellant on the guarantee.

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