Boral Recycling v Wake

Duties Act 1997 LEGISLATION CITED : Real Property Act 1900 Stamp Duties Act 1920

CASES CITED : McKensey v Hewitt [2004] NSWSC 636 Neoform Developments and Interiors Pty Limited v Town and Country Marketing Pty Limited [2002] NSWSC 344

Boral Recycling Pty Limited (Plaintiff) PARTIES : Stephen James Wake (First Defendant) Lorraine Wake (Second Defendant)

COUNSEL : E Oliveri (Solicitor) (Plaintiff) D Clarke (Solicitor) (Defendants)

SOLICITORS : Oliveri Lawyers (Plaintiff) Clamenz Corporate Lawyers (Defendants)

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION

3727/09 BORAL RECYCLING PTY LIMITED v STEPHEN JAMES WAKE JUDGMENT 1 HIS HONOUR: This is an application to extend the operation of a caveat lodged against the title of two parcels of land registered in the name of the defendants. The caveatable interest is said to arise from a personal guarantee and indemnity agreement made between the plaintiff and the defendants on about 3 or 9 October 2008. Clause 9 of that document, so far as it is legible, reads as follows: "9. The Guarantor hereby agrees to charge all their equitable interest in freehold or leasehold property. The Guarantor agrees to deliver to the Supplier within (7) days of demand, a properly executed Memorandum of Mortgage..."

2 "The Guarantor" was, of course, the defendants and the "Supplier" the plaintiff. 3 The remaining provisions of clause 9 deal with mechanical matters and severance and I have omitted them as irrelevant to the question for me to decide. It is important to note, however, that clause 9 did not expressly authorise the plaintiff to lodge a caveat against any real estate owned by the defendants. 4 It follows that if clause 9 is to sustain the caveat, it must be on the basis that it operates, at least in equity, as a present mortgage or charge of real estate owned by the defendants at the time the agreement was made and as an agreement to mortgage or charge real estate thereafter acquired by them. 5 The point at issue today is a narrow one. The guarantee and indemnity has not been stamped. In those circumstances, Mr Clarke, the solicitor for the defendants, submitted, it is unenforceable. Thus, he submitted, it is incapable of sustaining the caveat (more accurately the caveatable interest claimed). 6 Mr Oliveri, the solicitor for the plaintiff, submitted that I should stand the proceedings down to enable his client to stamp the document. He submitted that this would overcome the problem. In reply, Mr Clarke submitted that the question of enforceability is to be determined at the date the caveat was lodged and that as at that date the mortgage or charge was unenforceable and this would not be saved by a subsequent stamping. 7 Section 211 of the Duties Act, 1997 reads as follows:

A mortgage on which duty is required by this Chapter to be paid is unenforceable to the extent of any amount secured by the mortgage on which duty has not been paid. 8 For the purposes of s 211 (and the rest of Chapter 7 of the Duties Act) a mortgage is defined by s 205: 205 What is a mortgage?

For the purposes of this Chapter, an instrument is a "mortgage" if it is:

(a) a security by way of mortgage or charge over property wholly or partly in New South Wales at the liability date, or (c) a security by way of a transfer or conveyance of any property in New South Wales that is held in trust to be sold or otherwise converted into money, redeemable before such a sale or conversion either by express stipulation or otherwise, except where the transfer or conveyance is made for the benefit of creditors who accept the transfer or conveyance in full satisfaction of debts owed to them, or

(d) an instrument that, on the deposit of documents of title to property in New South Wales or instruments creating a charge on property in New South Wales, becomes a mortgage or evidences the terms of a mortgage.

9 The question of admissibility into evidence is dealt with separately in Chapter 12 (which deals with miscellaneous matters). Section 304 reads as follows: 304 Receipt of instruments in evidence

(1) An instrument that effects a dutiable transaction or is chargeable with duty under this Act is not available for use in law or equity for any purpose and may not be presented in evidence in a court or tribunal exercising civil jurisdiction unless:

(b) it is stamped by the Chief Commissioner or in a manner approved by the Chief Commissioner.

(2) A court or tribunal may admit in evidence an instrument that effects a dutiable transaction, or is chargeable with duty in accordance with the provisions of this Act, and that does not comply with subsection (1):

(a) if the instrument is after its admission transmitted to the Chief Commissioner in accordance with arrangements approved by the court or tribunal, or

(b) if (where the person who produces the instrument is not the person liable to pay the duty) the name and address of the person so liable is forwarded, together with the instrument, to the Chief Commissioner in accordance with arrangements approved by the court or tribunal.

(3) A court or tribunal may admit in evidence an unexecuted copy of an instrument that effects a dutiable transaction, or is chargeable with duty in accordance with the provisions of this Act, if the court or tribunal is satisfied that: (a) the instrument of which it is a copy is duly stamped, or is stamped in a manner approved by the Chief Commissioner, or

10 Clearly, so far as admissibility is concerned, the problem could be cured under s 304. But would that cure the problem under s 211? In my view, it would not. I shall explain why. 11 If clause 9 is to create a caveatable interest it must be (as Mr Oliveri acknowledged in the course of argument) because it operates, at least in equity, as a mortgage or charge. If, and to the extent that, it so operates, then it is a mortgage as defined by s 205 of the Duties Act. It does not fall within any of the exemptions from stamping set out in Parts 3A and 4 of Chapter 7 of the Duties Act. Thus, prima facie (and Mr Oliveri did not submit to the contrary), it was required to be stamped in accordance with the provisions of Part 2 of Chapter 7. 12 Not having been stamped, the consequences prescribed by s 211 must follow. A mortgage that is required to be stamped is enforceable only to the extent of the amount secured by it on which duty has been paid. In this case, no duty having been paid, the relevant amount, for the purposes of s 211(1) is zero. 13 There appears to be some lack of authority on the point. Indeed, Mr Oliveri submitted that he had been involved in many such matters and that the point had never been raised. That may, perhaps, reflect the fact that no one has yet sought to take it. In any event, the matter was considered (although obiter) by Young CJ in Eq in Neoform Developments and Interiors Pty Limited v Town and Country Marketing Pty Limited [2002] NSWSC 344. There were a number of points taken in that case, including one as to s 211 of the Duties Act. His Honour noted at [29] that the point had not been fully argued before him. But, in circumstances where the mortgage with which his Honour was concerned had not been stamped with mortgage duty (which is also the case in the matter with which I am concerned today), his Honour concluded that the mortgage was not enforceable. Specifically, his Honour said at [31], not only was the mortgage unenforceable but the particular provisions of s 211 applied over the general provisions of s 304. The latter section, his Honour said, "gives way in the case of mortgages". 14 Further, as his Honour pointed out at [32], the relevant date for assessing enforceability was the date the caveat was lodged. The mortgage not having then been stamped, his Honour said that it would seem "that in any event the caveat could not be supported". 15 In my respectful opinion, that is the approach to be taken to the section. The starting point is, as I have pointed out, that if the provisions of clause 9 are to create a caveatable interest it must be because they operate as a mortgage or charge. Therefore, s 205 of the Duties Act attracts the obligation to stamp. A failure to stamp attracts the operation of s 211. There is no point in standing the matter down to enable the mortgage to be stamped because that would operate to make it enforceable from the date of stamping. Even if this were incorrect (and under the Stamp Duties Act, 1920, it appears that late stamping may have validated an instrument ab initio - see McKensey v Hewitt [2004] NSWSC 636 at [11]) the question is to be assessed today in respect of the particular caveat lodged. 16 In circumstances where the matter was brought on urgently at the plaintiff's request, I do not see the interests of justice as requiring that the proceedings be adjourned, presumably with an order extending the operation of the caveat, so that the plaintiff can attend to its obligations under the Duties Act. Plaintiffs who wish to avail themselves of the caveat provisions of the Real Property Act, 1900, through mechanisms such as clause 9 of the agreement presently under consideration, should attend to their legal obligations expeditiously, and well in advance of any hearing to vindicate their rights. 17 In the circumstances, I hold that the provisions of clause 9, insofar as they constitute a mortgage or charge, are unenforceable. Being unenforceable (and there being no other source of any caveatable interest) it follows that the caveat is bad and that there is no point in ordering its extension. It follows in turn that the proceedings must be dismissed with costs and I so order.

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