NATIONAL MUTUAL LIFE NOMINEES LIMITED v COMMISSIONER OF STATE TAXATION (WA)
Judges:Wallwork J
Court:
Supreme Court of Western Australia
Wallwork J
The written agreement in question in this case was that IHC Pathology Pty Ltd (IHC) granted a licence to National Mutual Life Nominees Ltd (NML) to use IHC's pathology laboratory and service business, consisting of the plant and equipment and premises owned and leased by IHC, as well as the staff employed therein, on the terms and conditions set out in the written document. NML agreed to pay IHC a monthly licence fee of $108,333.33 on the last day of each month. Additionally to that fee, NML agreed to pay all moneys due to the staff by way of salary and leave entitlements during the period of the licence as well as the payments in connection with the rent of the premises and the leasing of equipment.
The agreement was in essence, a hiring of the whole business as a going concern by NML from IHC. NML was entitled to the gross income from the business during the term of the licence. At the conclusion of the term the business, premises and staff were to be returned to IHC.
An assessment of duty under the Stamp Act was issued on 1 December 1989. It described the instrument as a ``mortgage (indefinite)''.
After an objection to the assessment had been lodged on 14 December 1989, a written advice from the Assistant Commissioner dated 29 December 1989 was to the effect that the document had been assessed under Item 13(1)(b) of the Second Schedule to the Act as ``an agreement to pay moneys for an indefinite period''.
The appellant appealed to this Court from the decision of the Commissioner. The question to be answered pursuant to s 33(4) of the Act is whether the assessment of duty is in error.
On 27 April 1990 a Commissioner's Statement was filed pursuant to the Rules of the Supreme Court, Order 77 Rule 6(1)(d). An Order was made later made by consent that paragraphs 2 to 7 of that statement should stand as an agreed statement of facts. That statement records that stamp duty of $55,250 was assessed pursuant to Item 13(1)(b) of the Second Schedule to the Stamp Act 1921 ``as an agreement to pay moneys for an indefinite period''.
The questions asked in that statement are:
- 1. Was the respondent correct in assessing the licence under Item 13(1)(b) of the Second Schedule to the Act?
- 2. How are the costs of the appeal to be borne and paid?
In written submissions filed on 31 July 1990, the appellant noted that the opening words in the sub-Items 13(1) and 13(2) of the Second Schedule are:
``An instrument referred to in the heading to this item...''
The appellant contended that the licence was not an instrument of security nor was it an instrument of any kind referred to in the heading to Item 13. It submitted that the payment of a licence fee was incidental to the grant of the licence and did not constitute the leading and principal object within the meaning of those words as discussed in the
Limmer Asphalte Paving Company v Inland Revenue Commissioners (1872) LR 7 Exch 211 decision.
The appellant contended that the licence was a deed within Item 8 of the Schedule as it was a written instrument as proof and record of the agreement between the parties. The stamp duty should therefore be $5.
Alternatively, it was said that the licence was not a deed because it had not been executed as
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a deed in accord with s 9 of the Property Law Act 1969 (WA). It was therefore not liable to duty.In the appellant's outline of submissions dated 30 January 1991, it was contended that for a matter to be distinct within s 19(a) of the Act it must be different from the point of view of liability to stamp duty - that a provision which is merely accessory or ancillary to a particular transaction embodied in an instrument (``the leading and principal object'') is not a matter distinct from that transaction. It was submitted that the grant of the licence was the relevant transaction under the agreement and the obligation of the licensee under the agreement to pay the monthly licence fee was merely accessory or ancillary to the grant of the licence. It was contended that the instrument granting the licence was exempt as there was no head of duty relevant. The instrument was not an agreement to convey property, nor a lease nor a deed. It was said that prior to the repeal by the Stamp Act Amendment Act 1979 of the category of ``agreement or any memorandum of an agreement under hand only'', the agreement would have been dutiable under that head.
It was contended that for an instrument creating an obligation to pay money to be a security for the purposes of Item 13, the obligation to pay the money must be the particular transaction (the leading and principal object) giving rise to a liability to duty and not an obligation merely accessory or ancillary to that particular transaction.
The respondent on the other hand contended that the word ``security'' as used in the heading to Item 13 of the Second Schedule is used in a wide and not a limited sense; that it includes an instrument which creates an obligation to make periodic payments even where the instrument is the original and only source of the obligation to make periodic payments. The authorities relied on for that proposition were
Independent Television Authority & Anor v Inland Revenue Commissioners [1961] AC 427 and
Neon Signs (Australia) Ltd v Commissioner of Stamps [1963] WAR 167. It was submitted that the licence agreement in this case was such a document. It was submitted that it could not be said that the grant of the licence was the only object of the agreement and that the principle in the Limmer Asphalte case did not apply. The respondent relied on the decision in
Kenworthy Homes (1971) Pty Ltd v Commissioner of State Taxation (1975) 5 ATR 311.
In my view, the written agreement did not contain or relate to several distinct matters within the reasoning of Mason CJ and Toohey J in
Commissioner of Stamp Duties (NSW) v Pendal Nominees Pty Ltd & Anor 89 ATC 4207; (1988-1989) 167 CLR 1. In that decision it was stated that it is now accepted that the rule in Limmer Asphalte Paving Company v Inland Revenue Commissioners (supra) cannot operate as more than an aid to the construction of the Statute - Mason CJ at ATC pages 4211-4212; CLR page 11; Deane and Dawson JJ at ATC page 4219; CLR page 24.
The question is whether the relevant provision in an instrument is merely accessory or ancillary to a particular transaction or obligation embodied in the instrument - Mason CJ at ATC page 4211; CLR pages 10 and 11.
At ATC page 4212; CLR page 12 the Chief Justice said:
``Each case will depend on its particular facts and, will necessarily involve questions of impression and degree, but in the present case, I consider that the two matters dealt with in cl. 1.4 are distinct, and that it cannot be said that one is accessory to the other. Two separate and different matters are dealt with which would have been individually assessable for stamp duty had they been expressed in separate documents. Neither is merely ancillary to the other... Their combination in cl. 1.4 is thus an instance of the type of composite instrument to which sec. 17(1) is addressed.''
At ATC page 4219; CLR page 24 of the same judgment, Deane and Dawson JJ said:
``Thus, in the present case, the operation and character of the sale deed as an agreement for sale of shares bring it within a particular category of dutiable instrument under the Act. If the provision of cl. 1.4 is properly to be seen as merely accessory or ancillary to that operation and character, it cannot, in our view, properly be seen as constituting a `distinct' matter for the purposes of sec. 17(1).''
Toohey J said at ATC page 4225; CLR page 34:
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``Clause 1.4 constitutes a declaration of trust. There are therefore two distinct matters involved within the meaning of sec. 17: an agreement for sale, and a declaration of trust.''
In the Independent Television Authority decision, Lord Radcliffe at pages 440 and following, discussed the authorities relied on by the respondent, commencing with the Limmer Asphalte decision which concerned an agreement to pay periodical sums in consideration of the supply of asphalt from time to time. He referred to
Jones v Inland Revenue Commissioners [1895] 1 QB 484 which concerned an agreement between a telephone company and a theatre ticket agent for periodical payments for the use of telephone lines and apparatus to be erected and maintained in working order; also to the decision in
National Telephone Company Ltd v Inland Revenue Commissioners [1900] AC 1, where the agreement in question was one for the hire of a private wire and apparatus to be installed and maintained by the telephone company. He noted that in that case, the contention that agreements for periodical payments in executory contracts could not be ``securities'' was expressly put to the Court of Appeal by Mr Asquith QC. He noted that before the House of Lords the appellants' printed case put as its first reason that the instrument was:
``An agreement for the hire and use of a chattel and for services... in connection therewith.''
and so not a ``security'' for the payment of money. Lord Radcliffe observed that no doubt the inclusion of executory contracts in the relevant category for the purposes of the Stamp Act had created some anomalies which remained unresolved. He referred to some of the problems on page 441 of the report. Included in his comments is a reference to a written agreement promising periodical payments in return for supplies (see
County of Durham Electrical Power Distribution Company v Inland Revenue Commissioners [1909] 2 KB 604) or services as being chargeable ad valorem. He concluded his comments on this question by stating that the chargeability of an agreement of the kind then before the Court had twice been affirmed by the Court of Appeal in Jones v Inland Revenue Commissioners (supra) and National Telephone Company Ltd v Inland Revenue Commissioners [1899] 1 QB 250 and once by the House of Lords when the latter case went on appeal. He said:
``... and there is no reason of any compelling force why the principle that was applied to them should now be challenged. Indeed I have not myself been able to see why, if the recording of an enforceable promise for the payment of money under seal, or in a written instrument constitutes a `security' for the payment of that money under the Stamp Act, such a document is any the less a security for that purpose because the promise is contingent or conditional or dependent for its enforceability upon the performance of some parallel engagement by the promisee.''
Lord Cohen in his reasons for judgment in the same decision said that he thought the ratio decidendi of the Court of Appeal in the National Telephone Company case was correct and that it governed the issue the House was then considering. He also noted that the appellant's argument that the agreement was not a ``security'' within the relevant part of the Stamp Act 1891 was concluded against the appellant so far as the Court of Appeal was concerned, by the decisions in Jones v Inland Revenue Commissioners (supra), National Telephone Company v Inland Revenue Commissioners (supra), County of Durham Electrical Power Distribution Company v Inland Revenue Commissioners (supra) and British Italian Corporation Ltd v Inland Revenue Commissioners (cited - Sergeant on Stamp Duties, 3rd Edition, pages 337, 338). He said that the decision in the National Telephone Company case had been affirmed by the House of Lords. He referred to the reasoning of AL Smith LJ in the Court of Appeal [1899] 1 QB at pages 257, 258 that the words:
``Or instrument of any kind whatsoever being the only or principal or primary security... for any sum or sums of money at stated periods...''
covered a contract in writing such as the one in question, for the payment of a sum of money at stated periods. Smith LJ had said that he thought that the word ``security'' as used in the Act, clearly includes an instrument by which
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the obligation to pay is originally created as opposed to something auxiliary to an antecedent obligation.Lord Cohen said that he found Smith LJ's reasoning (in which Rigby LJ and Collins LJ concurred) satisfactory and that even if the Court was not bound to hold that the decision in the House of Lords in the National Telephone case approved the ratio decidendi of the Court of Appeal in that case, he would still reject the argument of the appellants.
Lord Keith of Avonholm said at page 451 that:
``In view of the course of authority going back nearly one hundred years and culminating in the decision of this House in National Telephone Company Limited v Inland Revenue Commissioners, it is impossible in my opinion to say that the agreement is not a security and the only security for the payments mentioned therein within the meaning of the Statute... I am satisfied that the fact of an agreement being for services, as this one is, is not per se a reason for excluding it from being a security, and that this agreement is indistinguishable in character from the agreements held, in the line of authority to which I have referred, to be securities.''
In Neon Signs (Australia) Limited v Commissioner of Stamps (supra), at page 168, Virtue J referred to the decisions in Jones v Inland Revenue Commissioners (supra) and the Independent Television Authority decision and said:
``These authorities make it clear that the term `security' as used in the particular part of the schedule, is used in a wide and not a limited sense; and that it includes an instrument which creates a liability to make periodic payments as well as a document which is merely collateral to a previously existing obligation. It clearly follows that the agreement for the hiring of a chattel which confers upon the hirer the obligation to make periodic payments of hire to the owner, is a security for the payment of money within the `bond, covenant' heading in the schedule and, unless otherwise exempted by the Statute, chargeable with duty accordingly.''
At page 169 his Honour said:
``I accordingly conclude that the `bond, covenant' heading should be interpreted in accordance with its counterpart in the Imperial Act and attract the subject hiring agreement within its scope.''
Concerning the other contention of the respondent that the licence agreement assessed for duty did not fall outside Item 13(1)(b) of the Second Schedule because it could not be said that the grant of the licence was the only object of the agreement and therefore the principle in the Limmer decision did not apply, in Kenworthy Homes (1971) Pty Ltd v Commissioner of State Taxation (supra) at page 313, Virtue SPJ said:
``Regarding the other ground of appeal, viz that the leading and principal object of the contract was the building of a house and that in accordance with the principles laid down in Limmer Asphalte Paving Co Ltd v Inland Revenue Commrs (1872) LR 7 at Ex 212 it should be stamped as an agreement or memorandum under bond only, in my view the building of a house is not the only object of the contract and the principle does not apply. I conclude therefore that the question in the case stated should be answered that the contract should be stamped $22 as being both an instrument of any kind whatsoever, being the only or principal or primary security for any sum or sums of money at stated periods, and also as a bond, covenant or instrument within the item in that behalf in the second schedule.''
In this case the appellant said that for an instrument creating an obligation to pay money to be a security for the purposes of Item 13, the obligation to pay the money must be the particular transaction (the leading and principal object) giving rise to a liability to duty, and not an obligation merely accessory or ancillary to that particular transaction.
It was submitted that to the extent that in the Neon decision, the hiring agreement was held to be dutiable as a security, that decision was wrong and should be overruled. It was pointed out that there was no reference made in the reasons for judgment to s 19(a) or to the leading and principal object principles. It was further contended that to the extent that in the Kenworthy Homes decision, duty was held assessable under the bond head on the agreement to pay under the building contract
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(as distinct from the mortgage head of the charging provision) that decision was wrong and should be overruled.In his argument counsel for the appellant traced the history of the interpretation of the word ``security'' up to and including the decision in the Independent Television Authority case. Counsel submitted that the true question had been overlooked in the authorities. He asked:
``If the standing practice is to charge sixpence for an agreement under hand on a service agreement and the practice is to charge for an agreement for services under the bond category - if the focal point is the obligation to pay, there is that anomaly - what about the other categories - the conveyance, the lease and so on.''
It was submitted that there was a very serious question which had been glossed over by the English decisions.
Counsel submitted that the security concept identified in the old bond and the old mortgage heads, can simply be a document creating an original obligation to pay which is executory and which need not be under seal. But he contended that to state that proposition says absolutely nothing about what are distinct matters for stamp duty purposes.
Counsel submitted that the two judgments in the Western Australian Court which were given by Mr Justice Virtue, appeared to adopt the English position. However, it was submitted that they should not be followed because of the identification by the High Court in the Pendal decision of the significance of s 19(a).
It was submitted that it is simply wrong to take any agreement under which there is an obligation to pay money and say:
``That constitutes security for the purposes of the bond or the mortgage head.''
It was submitted that that effectively was what had been done in the two earlier cases in Western Australia. It was submitted that in the Neon decision (supra), s 19(a) had not been referred to and there had been no reference to the leading or principal object provision. It was submitted that in that decision, the application of s 19(a) or the leading and principal object provision, had not been considered. The question had not been asked:
``What is a distinct matter for the purposes of this agreement?''
It was submitted that in these cases there is an obligation to determine what was the principal transaction and what is accessory to that transaction.
With respect to the Kenworthy decision (supra), it was submitted that his Honour had erred in that decision. It was submitted that the security was not assessable under the bond category, but was assessable under the mortgage category which was still in force at that time. It was submitted that his Honour was in error in accepting that the security was assessable under the bond category and that he had been in error following the English authorities.
It was submitted that even though the bond and mortgage heads had been apparently merged in Item 13 on 1 January 1980 by the Stamp Amendment Act of 1979, the question still remained:
``Does it cover a simple agreement for the provision of services or for the hire of a chattel?''
Counsel referred to the wording of the heading and the words ``mortgagor'' or ``obligor'' in the margin, and said that ``obligor'' is a strange term to use in relation to a person who is simply paying rent under a licence agreement, or rent under a hiring agreement. It is also a strange term to use in relation to a person who is hiring services or hiring an employee.
It was submitted that in order to follow the decision in Pendal, one must start looking for a distinct matter. In trying to identify the distinct matter, the leading and principal object principle must be applied as a subservient aid in the interpretation of the instrument.
It is apparent from the decisions referred to in the Independent Television Authority decision (supra), and also from that reasoning in that decision, that there is nothing in the instrument in question in this matter, which would differentiate it from the instruments discussed in those decisions, insofar as the liability to pay stamp duty is concerned.
It is the instrument as a whole which must be examined. This written contract is an instrument by which the obligation to pay is originally created.
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In my view the authorities have decided that an instrument of the nature of the one in this case, is an ``instrument of security of any other kind whatsoever'' within the meaning of the words in the heading to Item 13.
It was submitted by the appellant that the reasoning of the Justices of the High Court in Pendal Nominees (supra) has indicated that this Court should not necessarily follow the earlier decisions referred to above. However, in my opinion, the reasoning in Pendal Nominees does not directly lead to the conclusion that the earlier English authorities should not be followed.
It was submitted that Item 13 only levies duty in this case if the distinct matter for the purpose of levying duty is the obligation to make payment; that that obligation is not a distinct matter in its own right; it is an ancillary obligation.
In my view, to come to that conclusion would require this Court to depart from the reasoning in the English authorities to which I have referred. I think it is too late now for a single Judge of this Court to depart from the reasoning in those earlier decisions. To do so would depart from the spirit of the reasoning of Brennan and Deane JJ in
Babaniaris v Lutony Fashions Pty Ltd (1987) 163 CLR 1 at pages 29 and 30 and the reasoning of the five Justices of the High Court in
John v FC of T 89 ATC 4101 at pages 4112 and following; (1988-1989) 166 CLR 417 at pages 438 and following - see also the remarks of Glass JA in
Minister for Environmental Planning v San Sebastian Pty Ltd & Ors [1983] 2 NSWLR 268, at page 315, where his Honour said:
``As the President has observed in Swane v Marsh (Court of Appeal, 18th October, 1978, unreported) the precedent system concedes no liberty to judges at first instance to decline to follow the judgment of an appeal court because they think that some matter has been overlooked...''
It has been suggested that there is no decided case which binds a single Judge of this Court in this matter. There are however, a number of decisions of Courts of the highest authority which in my view have decided against the proposition raised by the appellant in this case.
In this case, the questions should be answered as follows:
1. The respondent was correct in assessing the licence under Item 13(1)(b) of the Second Schedule to the Act.
2. The appellant is to pay the costs of the appeal to be taxed.
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