SUPREME COURT OF VICTORIA

LUCIA HEIGHTS PTY LTD v COMPTROLLER OF STAMPS (VIC)

MURRAY J

15 February 1985 -


Murray J    This is an appeal against the decision of the Comptroller of Stamps rejecting the objection lodged by the appeallant against the assessment of ad valorem duty upon a loan agreement dated 15 February 1983, and entered into between the appellant and Euro-Pacific Finance Corp Ltd

   Upon submission of the agreement for the opinion of the respondent, the respondent assessed the duty payable upon an ad valorem basis in accordance with heading XXII of the third schedule of the Stamps Act 1958. The appellant contends that the agreement is a mortgage within the meaning of s 137D(1) of the Act and that pursuant to the provisions of s 137DA(2) the respondent should have assessed the duty payable at $10.

   Section 137DA(2) reads as follows:

   

"Where under an instrument to which this sub- division applies, money to be paid or repaid is secured wholly on property outside Victoria, the duty payable on the instrument is $10 and shall be denoted by an impressed stamp."

   The respondent's contentions are that the agreement is a bond or covenant to secure the repayment of money to be lent and is not a mortgage and that, furthermore, the security given is not "wholly on property outside Victoria".

   It is therefore necessary to consider the terms of the agreement in some detail.

   The agreement is entitled "Loan Agreement" and its preamble recites that the borrower (the appellant) is empowered by its memorandum of association to borrow moneys and that the directors have resolved to request the lender to make certain advances. The preamble goes on to recite that the lender, pursuant to such request and at the request of certain individuals named in the schedule who are referred to as "the guarantors", has agreed to make the loan upon and subject to the terms and conditions of the agreement. The preamble finally recites that the borrower proposes to purchase a home unit site at the corner of Carr and Macquarie Streets, St Lucia, Brisbane in the State of Queensland and sets out certain title details relating to that land. Clause 1 of the agreement reads as follows:

   

"

Facility

 

At the option of the lender, there shall be provided to the borrower a credit line hereunder of cash or bill line facility in terms of cl 9 hereof. The lender shall lend to the borrower and the borrower shall borrow from the lender on the terms and conditions hereinafter set forth an amount not exceeding three hundred thousand dollars ($300,000)("the principal sum"), pursuant to the said credit facility…"

   It is not necessary for present purposes to set out the remainder of cl 1.

   Clause 2 is headed "Condition Precedent" and provides that the lender shall be under no obligation to advance all or any part of the principal sum to the borrower until-

   

 "(a)  the following collateral securities have been completed and delivered to the lender in form and substance satisfactory to the lender and its legal advisors;
 (i)  this formal loan agreement between the lender and the borrower
 (ii)  a registered first bill of mortgage in favour of the lender over freehold property situated at corner Carr and Macquarie Streets St Lucia Brisbane …
 (iii)  guarantees by …(and a number of persons, trusts, and proprietary companies are named)
 "(b)  the lenders legal advisors have completed satisfactory searches and otherwise satisfied the lender that all documentation is in order for the advance;
 "(c)  the borrower provides the lender with a valuation of a registered value for the said land evidencing a value of six hundred thousand dollars ($600,000). The valuation is to be by an accredited valuer addressed to the lender and stating that the valuation is for mortgage lending purposes; and
 "(d)  the borrower provides to the lender or its solicitors copies of all necessary Brisbane City Council and State government approvals and certificates necessary for the construction of home units on the said land."

   The agreement goes on to provide for the manner in which the lender shall make advances and there are extensive provisions relating to repayment and interest on the loan. There are further extensive provisions relating to default and enforcement of the agreement and cl 12, which is headed "Collateral Security", provides that the borrower agrees to procure in favour of the lender a registered mortgage in form and substance satisfactory to the lender and its legal advisors over the freehold property situated at the corner of Carr and Macquarie Streets, St Lucia, Brisbane, and that it will procure the guarantors to enter into guarantees in favour of the lender in forms and substance satisfactory to the lender and its legal advisors, and that it will provide the lender with a valuation of a registered valuer evidencing the value of the property at $600,000 and that it will provide the lender or its solicitors with copies of all necessary approvals and certificates and that it will insure and cause to be insured and to keep insured the property referred to in cl 2. The agreement is executed by seven persons and nine proprietary companies or trusts as guarantors in addition to the borrower and the lender.

   Mr Greenberger, who appeared for the appellant, submitted that the agreement constituted a mortgage within the meaning of s 137D(1). He submitted that in the first place it fell within the terms of para (c) of the definition of mortgage in that it constitutes an "agreement contract or bond containing an undertaking to deposit or accompanied with a deposit of any documents of title for making a mortgage, … or for pledging or charging the same as a security…".

   Alternatively, he submitted that it fell within the expression "a security by way of mortgage or charge … for the repayment of money to be thereafter lent, advanced, or paid" within the meaning of the first part of the definition in the section. He submitted that by necessary implication, the appellant undertook to deposit with the lender documents of title to the land. He submitted in the alternative that the document itself should be construed as a charge upon the land and he referred to United Realisation Co v IRC [1899] 1 QB 361.

   In relation to s 137DA Mr Greenberger submitted that subs (2) should be construed in the light of subs (1) which deals with instruments secured both on property in Victoria and on property out of Victoria. Mr Greenberger submitted that it followed that the expression "secured wholly on property outside Victoria" should be interpreted as directed to the whole of the property forming the security being outside Victoria, rather than the security itself being wholly in respect of property outside Victoria.

   After much careful consideration, I have come to the conclusion that the appeal cannot succeed. It appears to me that Mr Kaufman, who appeared for the respondent, was correct in submitting that the agreement did not fall within the definition of a mortgage, either legal or equitable. Mr Kaufman did not submit that an equitable mortgage would not fall within the terms of the definition of mortgage, but he submitted that, properly construed, the agreement did not constitute a mortgage or charge upon the land but was merely a bond or covenant which would in due course result in a legal mortgage being delivered. Mr Kaufman referred to Cory & Son Ltd v IRC [1965] AC 1088 at 1105 where Lord Reid said:

   

"The appellants base their argument on two propositions which the respondents do not dispute. In the first place stamp duty is payable on instruments and not on transactions. And, secondly, the liability of an instrument to stamp duty depends on the circumstances which exist when the instrument is executed."

   Mr Kaufman also referred to Sykes The Law of Securities(2nd ed) 258 where, in discussing equitable mortgages of legal interests, the learned author refers to an express but informal agreement to give a mortgage and an implied agreement to give a mortgage, as constituting circumstances which may give rise to an equitable mortgage. The learned author says:

   

"The first two types of mortgage of a legal estate rest on contract and on the capability of being enforced by judgment for specific performance. They also demand the presence of an executed as distinct from executory consideration. A contract for a loan is not enough."

   The authority for the latter proposition is Rodgers v Challis (1859) 27 Beav 175; 54 ER 68.

   The terms of the present agreement clearly fall within the authority of Rodgers v Challis, supra. The agreement not only requires the lender (subject to other fulfilment of the conditions precedent) to lend the money but it also requires the borrower to borrow the money. But it is nevertheless still a contract and would not be capable of being specifically enforced. The consideration is demonstrably wholly executory. Under these circumstances it does not appear to me that it can be argued that the loan agreement in the present case constitutes an equitable mortgage, or falls within the definition of mortgage in s 137D.

   The fact that the document is not a mortgage however, does not of itself dispose of the question because it is conceded that the document is a bond or covenant. Sub-div 17 and heading XXII of Stamps Act apply to mortgages, bonds, debentures and covenants, and the provisions of s 137DA(2) apply to instruments to which the sub-division applies and not merely to mortgages. The question to be determined, however, is whether if the loan agreement is not a mortgage it is an instrument under which the money to be lent is secured wholly on property outside Victoria. In my opinion the proper analysis of the loan agreement results in the conclusion that it does not give security of its own force over any property. It is an agreement whereby the lender, subject to the fulfilment of conditions precedent, undertakes to lend money. The borrower undertakes to fulfil the conditions precedent, one of which is to procure a registered mortgage. Until that registered mortgage is procured there is no mortgage or charge, legal or equitable, over the land in question. For this reason, in my opinion, the provisions of s 137DA(2) do not apply to the loan agreement and the appeal consequently must fail.

   In the course of argument, there was some discussion of the meaning of s 137DA(2). The problem arises as to whether the expression "is secured wholly on property outside Victoria" means that the only security given by an instrument is on property outside Victoria, or whether it means that the property which forms the security is wholly outside Victoria. It was submitted that, having regard to the terms of subs (1), which deals with cases in which some property is outside Victoria and some property is inside Victoria, subs (2) should be construed as referring to instruments which are secured on property which is wholly outside Victoria. It is not necessary to decide this problem, but I should say that the conclusion which I have tentatively reached is that subs (2) relates to instruments in respect of which the only security is on property outside Victoria. If this view is correct, then it would seem that the loan agreement presently under consideration would not fall within the terms of s 137DA(2) because the security contemplated by the agreement is not only the legal mortgage to be delivered but also guarantees executed by the guarantors who are signatories to the agreement.

   It is not however necessary to decide this point. The obligation to lend money does not arise until a registered first bill of mortgage has been delivered to the lender. Until a registered first bill of mortgage has been delivered there is not interest which could be secured by any equitable mortgage over the land in question. The obligation is to deliver a registered mortgage not to deliver documents which would enable the lender to register a mortgage. There is therefore no implied obligation to deposit any documents of title for the making of a mortgage. The agreement itself does not create any charge over the land to secure the repayment of money to be advanced and cannot be described as a security on property.

   The respondent was therefore correct in assessing the agreement for duty as a bond or covenant within the provisions of s 137F(1).

   The appeal is therefore dismissed with costs.


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