PRIME WHEAT ASSOCIATION LTD v CHIEF COMMR OF STAMP DUTIES (NSW)

Judges:
Gleeson CJ

Handley JA
Sheppard AJA

Court:
NSW Court of Appeal

Judgment date: Judgment given on 5 November 1997

Gleeson CJ

This appeal raises issues as to the meaning and effect of certain provisions of Division 21 of Part 3 of the Stamp Duties Act 1920, which deals with loan securities.

There are three relevant instruments: a Share Sale Agreement; a Share Mortgage; and a Real Property Mortgage. It is common ground that the first of those three instruments attracted liability for duty as an agreement for the sale of shares. Such duty has been assessed and paid. However, the Chief Commissioner also contends, and Dunford J at first instance held, that the same instrument also attracted liability for duty as a loan security. The amount of such duty was assessed at $435,941. On that basis the second and third instruments were to be stamped as collateral securities, the duty being $5 in each case. Alternatively, the Chief Commissioner contends, and the appellants deny, that if the first instrument is not also a loan security, then the second and third instruments attracted liability to ad valorem duty as loan securities. Dunford J found it unnecessary to decide that, but expressed the view that, if it had been necessary to decide it, the issue should have been resolved in favour of the Commissioner.

The appellants submit that none of the three instruments attracted liability to duty as a loan security. Alternatively, they argue that, if the first instrument is not a loan security, but the second and third instruments are loan securities, they only attract duty in the sum of $5.

The three instruments:

A stamp duty is a tax upon instruments, not upon transactions (
Minister of Stamps v Townend [1909] AC 633 at 639). The characterisation of an instrument for the purpose of the Stamp Duties Act may require an understanding of the transaction from which the instrument emanates. Nevertheless, what is to be determined is the legal nature and effect of the instrument in question. The principal criticism which the appellants make of the reasoning of Dunford J is that he appears to have allowed irrelevant considerations of economic equivalence to affect his reasoning.

Another principle is that duty becomes payable immediately upon the first execution of an instrument and liability is determined at that point (Stamp Duties Act, 1920, ss 5, 38). This, it is submitted, appears to have been overlooked by Dunford J at certain points in his judgment.

It is against that background that it is necessary to consider the transaction, and the three instruments, in question.

As part of a process of privatisation, the Crown in right of the State of New South Wales agreed to sell to the appellants (it is unnecessary to distinguish between them) the Crown's shares in NSW Grain Corporation Holdings limited (NSWGC). The amount payable for the shares was made up of three elements: what was described as the ``purchase price'' of $90 million; what was described as ``additional purchase price'', being the present value, up to


ATC 5017

a maximum of $20 million, of additional annual payments based upon grain tonnages received; and interest on the purchase price and additional purchase price at a specified rate over the period of the financial accommodation given to the purchases (twenty years).

The Share Sale Agreement, which effected the sale of shares, recited:

``B. The Vendor has agreed to sell the Shares to the Purchaser and the Purchaser has agreed to purchase the Shares from the Vendor and the Vendor is to provide financial accommodation to the Purchaser on the terms outlined below.''

The instrument was dated 4 September 1992. The completion date was 30 September 1992. Beneficial ownership of the shares in NSWGC was to pass to the Purchaser on completion. However, payment for the shares was to be made by instalments over twenty years. A deposit of $1 million, which was payable on the date of the agreement, was to be deemed, on completion, to have been received in part payment of the purchase price. The remainder of the consideration payable for the shares (purchase price, additional purchase price and interest) was to be paid in specified instalments over twenty years.

There were a number of conditions precedent to completion. They included the making of a certain proclamation, relevant to privatisation, under the New South Wales Grain Corporation Holdings Act 1992, the furnishing of evidence of certain matters, and the execution and delivery of certain securities, including the Share Mortgage and the Real Property Mortgage, which were to secure the indebtedness resulting from the financial accommodation described above.

The first issue in the appeal concerns the application of the provisions of Division 21 of Part 3 of the Act to that instrument.

The securities called for by the Share Sale Agreement included the Share Mortgage, which obliged the appellants to deposit with the Crown the certificates to title to, and transfers of, the shares in NSWGC, and which granted an equitable mortgage to the Crown to secure payment of the secured moneys. This was an ``all moneys'' security. The term ``secured moneys'' meant all moneys and damages which the appellants were or became liable to pay the Crown on any account whatever, including, but not limited to, the purchase price and the additional purchase price.

The securities called for also included a Real Property Mortgage, which was a mortgage by the appellants of certain real estate owned by them to secure payment of the secured moneys. The expression ``secured moneys'' had the same meaning as in the Share Mortgage.

There is also an issue the appeal concerning the application of the provisions of Division 21 of Part 3 of the Act to those two instruments.

The relevant statutory provisions:

Section 4 and the Second Schedule of the Act impose duty on loan securities.

Section 83(1) contains the following definitions:

```Advance' includes the provision or obtaining of funds by way of financial accommodation.

...

`Debenture' includes debenture stock, bonds, notes and any other document evidencing or acknowledging a debt owed by a corporation in respect of money that is, or may be, deposited with, or lent to, the corporation, whether or not payment of the debt is secured by a charge on property of the corporation, but does not include:

  • ...
  • (e) a document, not being an acknowledgment of indebtedness of a corporation in respect of money that is deposited with or lent to the corporation, that does not create a debt.

...

`Financial accommodation' includes:-

  • (a) funds provided by means of a loan or funds provided or obtained by means of a bill facility; and
  • (b) funds provided under any other obligation except an obligation imposed by a lease or a hiring arrangement within the meaning of section 74D.

`Loan' includes:-

  • (a) an advance of money; and
  • (b) money paid for or on account of or on behalf of or at the request of any person; and

    ATC 5018

  • (c) a forbearance to require payment of money owing on any account whatever; and
  • (d) any transaction (whatever its terms or form) which in substance effects a loan of money.

`Loan security' means:-

  • (a) a mortgage or debenture executed in New South Wales;

...

`Mortgage' includes, without limiting the meaning of the expression in section 3(1) of this Act:

  • (a) a security by way of mortgage or charge given in consideration of the conveyance or transfer of any estate or interest in any real or personal property,
  • ...
  • (d) any agreement, contract or covenant (being an agreement, contract or covenant relating to documents of title or accompanied with the deposit of any documents of title or instruments creating a charge on any property) for making a mortgage or any such other security, transfer or conveyance of any estate or interest in real or personal property whatsoever comprised in such documents, or for pledging or charging any such property as a security;...''

Section 3 provides:

```Mortgage' includes a security by way of mortgage or charge:

  • (a) for the payment of any definite and certain sum of money advanced or lent at the time or previously due or owing, or forborne to be paid, being payable; and
  • (b) for the repayment of money to be thereafter lent, advanced or paid, or which may become due upon an account current together with any sum already advanced or due, or without, as the case may be.''

Section 84 contains the following provisions:

``(2) A loan security for the payment or repayment of money to be lent, advanced, or paid, or which may become due upon an account current either with or without money previously due (not being a mortgage otherwise chargeable with duty as a loan security) is to be stamped, where the total amount secured or to be ultimately recoverable is limited to a definite and certain sum of money (whether or not it is expressed to be so limited), with the same duty as a loan security for that total amount.

...

(3) If the total amount secured or to be ultimately recoverable by or under a loan security is not expressed (whether in the loan security or otherwise to be limited to a definite and certain sum of money, the loan security is to be stamped with duty of $5 and, if an advance, or the total or an advance and one or more additional advances made under or secured by the loan security, exceeds $16,000, additional duty of $4 for every $1,000 or fractional remaining part of $1,000 of the total amounts advanced under or secured by the loan security in excess of $16,000 shall be payable.''

The Share Sale Agreement:

The primary basis upon which Dunford J held that the Share Sale Agreement attracted liability to duty as a loan security was that it was a debenture. In reaching that conclusion Dunford J said that it was necessary to consider whether there was a debt owing by the purchasers of the shares to the vendor in respect of money lent to the purchasers. He answered that question in the informative.

Dunford J observed that, under the Share Sale Agreement, title to the shares was to pass to the purchasers on completion, and the continuing obligations of the purchasers to pay the balance of purchase price, in addition to the additional purchase price, were to be secured by mortgages of the shares in NSWGC and other assets. With the passing of title the purchaser became liable for the whole of the purchase price, and a present debt was established which was payable over a future period; ``debitum in praesenti, solvendum in futuro''.

Referring to
McDonald v Dennys Lascelles Limited (1933) 48 CLR 457,
Gasparin v FC of T 94 ATC 4280 at 4282; (1994) 121 ALR 179 at 182, and
Stern & Anor v McArthur & Anor (1988) 165 CLR 489 at 528, Dunford J said that the transaction in question was substantially in the nature of what is sometimes referred to as a mortgage back transaction, in which the contract is executed, title and the right of possession pass to the purchaser, and the vendor


ATC 5019

has no further obligations to perform under the contract.

In Stern v McArthur the High Court was concerned with an instalment purchase contract under which title did not pass to the purchasers until all the instalments had been paid. For the purpose of considering principles of law relating to relief against forfeiture it was observed, at the page to which Dunford J referred, that the contract ``was essentially an arrangement whereby the appellants undertook to finance the respondents' purchase upon the security of the land''.

There is no doubt, in the present case, that the transaction in question was one under which the vendor of the shares provided financial accommodation to the purchasers, or that the instalment in question made provision for such financial accommodation. It does not follow, however, the form of financial accommodation agreed between the parties was by way of loan. To describe the transaction as being substantially one which involved a mortgage back to the vendor does not provide an answer to the critical questions in the case, and, as was submitted on behalf of the appellants, carries a risk of resolving the issue by reference to considerations of economic equivalence rather than by reference to an accurate characterisation of the instrument under consideration.

The definition of debenture was altered following the decisions in
Burns Philip Trustee Co Ltd v Commr for Stamp Duties (NSW) 83 ATC 4477 and
Handevel Pty Ltd v Comptroller of Stamps (Vic) 85 ATC 4706; (1985) 157 CLR 177. It is, in certain respects, both wider and narrower than the previous definition. It is reasonable to infer that the new definition was intended to pick up the reference, at ATC p 4716; CLR p 196 of the judgment in Handevel, to a document which makes provision for the repayment of a loan to be made thereafter. Nevertheless, the relationship between the reference in the definition to money that may be lent to a corporation and the language of the exclusionary provision in paragraph (e) is unclear, and the existence of the conditions precedent to completion in the present case gives rise to a problem that was not addressed by Dunford J. However, I find it unnecessary to resolve that problem because I am unable to accept the primary basis of his Honour's reasoning on this issue.

Dunford J, as was noted earlier, identified as the main issue the question whether there was, or was to be, a debt owing by the purchasers of the shares in NSWGC to the vendor in respect of money ``that is, or may be,... lent'' to the purchasers. That, subject to the fulfilment of the conditions precedent, there was to be a debt is clear. That the debt was to be part of an arrangement for financial accommodation is also clear. But where is the loan?

Not all forms of financial accommodation are loans. (See, for example,
Chow Yoong Hong v Choong Fah Rubber Manufactory [1962] AC 209). The fact that the transaction in question could (subject, perhaps, to constraints of which we are unaware) have been set up in a form involving a loan of money from the vendor to the purchasers is beside the point. The parties, (including, be it noted, the Crown), chose to give their arrangements a certain form, and that form did not involve a loan of money.

Dunford J held that each of paragraphs (a), (c) and (d) of the definition of ``loan'' applied to the present case. In my view none of them fits the case.

Here there was no advance of money. There was, as required by the language of the definition of advance, financial accommodation, but that is not sufficient. An agreement for sale which allows credit to a purchaser does not, on that account alone, involve an advance of money. (
Rabone v Deane (1915) 20 CLR 636 at 640). Dunford J said that what was involved was an advance ``because the transfer of title without waiting for the actual receipt of the full purchase price constituted a form of `financial accommodation'.'' However, it did not constitute a form of financial accommodation that involved an advance of money; what was involved was a granting of time to pay. Ultimately, there was a debt, but no loan.

There was here no forbearance to require payment of money owing. The meaning of forbearance in a context such as the present was explained in
Tozer Kemsley & Millbourn (Australasia) Pty Ltd v Point (1961) 78 WN (NSW) 250 at 258. There was from the outset (leaving to one side the matter of the conditions precedent) an agreement between the parties as to time and amounts in which the purchase price was to be paid. The vendor did not exercise any forbearance. The vendor simply


ATC 5020

observed the mutually binding contractual obligations.

Paragraph (d) of the definition of loan does not have a meaning which renders everything else in the definition superfluous. The definition had its origin in money lending legislation. There is ample authority to establish that the paragraph does not entitle a court to disregard the legal nature and effect of the instrument in question, or to treat all forms of financial accommodation as loans. (See Pannam, The Law of Money Lenders in Australia and New Zealand, pp 30-31, Hill, Stamp Duties, 1996 pp 1844-1855). A sale on terms giving the purchaser time to pay is not a disguised loan. The essence of a loan is an obligation of repayment. Here what was involved on the part of the purchasers was payment, not repayment (cf Handevel Pty Ltd v Comptroller of Stamps (Vic), above, 85 ATC at 4714; 157 CLR at 193-194).

The Share Sale Agreement was not a debenture. However, Dunford J held it was also a mortgage, and it is necessary to address that issue.

The basis upon which the Chief Commissioner contended, and Dunford J accepted, that the agreement was a mortgage was that it fell within paragraph (d) of the definition of mortgage in s 83(1) being ``an agreement... accompanied with the deposit of (some) documents of title... for making a mortgage''. This, it was said, was because the various securities contemplated by the agreement were to be executed and delivered as a condition precedent to completion.

Dunford J correctly accepted that the agreement did not fall within the definition of mortgage in s 3, because it did not itself constitute a security by way of mortgage or charge. However, he said that because of what is provided about the execution and delivery of securities it satisfied the definition in s 83(1) in the manner outlined above.

The principle that the question is to be considered as at the date of execution of the instrument is of importance here, especially having regard to the conditions precedent to completion.

I cannot accept that this instrument was, at the relevant time, ``accompanied with the deposit of... documents of title''. It was not.

In holding that the Share Sale Agreement was ``an agreement... for making a mortgage'', Dunford J made no reference to
Lucia Heights Pty Ltd v Comptroller of Stamps (Vic) (1985) 16 ATR 326, which held that an agreement which is not specifically enforceable, and which does not create an equitable mortgage, does not fall within the relevant part of the definition.

The instrument did not satisfy either aspect of the language of paragraph (d) relied upon by Dunford J.

The Share Sale Agreement was not a mortgage within the meaning of the relevant statutory provisions.

For those reasons the appellants are correct in contending that the Share Sale Agreement did not attract liability to duty as a loan security.

The Share Mortgage and the Real Property Mortgage:

Dunford J reasoned as follows. Each of these instruments fell within the definition of ``mortgage'' in s 3. They were therefore both loan securities. Because they were ``all moneys'' securities they fell within s 84(3). However, for the reasons earlier given there had been, on completion of the Share Sale Agreement, an advance by way of financial accommodation in the sum of $89 million. Therefore, if the Share Sale Agreement had not itself attracted liability for loan security duty, the Share Mortgage would have attracted liability for duty in the sum of $335,941 and the (collateral) Real Property Mortgage would have attracted liability in the sum of $5.

This reasoning is, at a number of points, influenced by his Honour's view that what was involved here was a loan or an advance of money by the vendor to the purchasers, and an obligation of repayment; a view with which, as has been indicated, I am unable to agree. Furthermore, the reasoning does not appear to take account of the fact that the two Mortgages were executed and delivered prior to completion of the Share Sale Agreement, and that liability to duty is to be assessed at date of execution.

There was here no money advanced or lent, or forborne, and no obligation of repayment of money to be lent, advanced or paid. Dunford J's decision that the Mortgages fell within the definition in s 3 depended upon his view of the substance of the transaction, and cannot survive the rejection of that view.


ATC 5021

The Chief Commissioner, without filing a Notice of Contention, has also placed reliance on paragraph (a) of the definition of mortgage in s 83(1).

This argument was only put very briefly. In the respondent's written submissions it was left as a one-line assertion. The reason for this emerged when the Court sought amplification of the argument. As the argument for the respondent was put, unless the case involved an advance or advances, success on this point would only give rise to liability for duty in the sum of $5. However, if the case involved an advance, then the respondent would rely primarily on the earlier argument.

Counsel for the respondent contended that the Share Mortgage fell within paragraph (a). (He did not explain why, if that be correct, the Real Property Mortgage did not also fall within the paragraph). I will return to that contention below. He then accepted that, if that be so, the amount of duty was to be determined by reference to s 84(3). (He disclaimed independent reliance on s 4 and the Second Schedule). Since the instrument was an all- moneys mortgage, liability to ad valorem duty depended upon there being an advance or additional advances. (He accepted that the instrument, when executed, attracted only $5 duty, but said it should have been upstamped on completion of the share sale transaction). For the reasons earlier given, I do not consider that this transaction involved any advance.

Nor do I accept the first step in the argument, which was that the Share Mortgage fell within paragraph (a) of the definition of ``mortgage'' in s 83.

In the Share Sale Agreement, the consideration for the transfer of title to the NSWGC shares was said to be the purchase price, and additional purchase price. That gave rise to an indebtedness to the Crown, which was the subject of the financial accommodation earlier described. In the Share Mortgage, the consideration for the security was said to be the financial accommodation provided by the vendor to the purchasers. The security was not expressed to be given in consideration of the transfer of the shares. The consideration for the transfer of the shares was the price to be paid for them. The security was given in consideration for the financial accommodation extended by the vendor.

We are here concerned with a tax upon an instrument, and it is the legal effect and character of the instrument which is to be examined. The transfer of the NSWGC shares was part of the transaction in the course of which the Share Mortgage was executed. Without it, the mortgage would have been neither necessary nor effective. In a commercial sense, it may be said that the quid pro quo of the transfer on shares was not merely the agreement to pay for them but also the agreement to secure the debt by a mortgage over the shares as well as a mortgage over other property. However, cases decided in the context of s 66 of the Act, concerning the adequacy of consideration for the purpose of assessing duty or conveyances do not seem to me to require that, in the present context, a court should look for a consideration beyond that expressed in the instrument or instruments in question (cf
Archibald Howie Pty Ltd v Commissioner of Stamp Duties (NSW) (1948) 77 CLR 143,
Davis Investments Pty Ltd v Commissioner of Stamp Duties (NSW) (1958) 100 CLR 392).

It is therefore unnecessary to address the further question, which would otherwise have arisen, of the relationship between paragraph (a) of the definition of ``mortgage'' in s 83 and the definition of ``mortgage'' in s 3 (into which, for reasons already given, the present case does not fall).


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