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DUTIES AND TAXES - mortgage duty - whether a charge created by solicitors' costs agreement secured an "advance" within s 206 of the Duties Act - whether a forbearance to require payment was a "constructive" provision or obtaining of funds, and therefore an advance - consideration of Bondi Beachside Pty Ltd v Chief Commissioner of State Revenue - [2015] NSWSC 1923 - NSWSC 2015 case summary — Zoe
DUTIES AND TAXES - mortgage duty - whether a charge created by solicitors' costs agreement secured an "advance" within s 206 of the Duties Act - whether a forbearance to require payment was a "constructive" provision or obtaining of funds, and therefore an advance - consideration of Bondi Beachside Pty Ltd v Chief Commissioner of State Revenue
[2015] NSWSC 1923
Supreme Court of NSW|2015-12-04|Before: White J, Forster J
(2014) 85 NSWLR 443
Bondi Beachside Pty Ltd v Chief Commissioner of State Revenue [2013] NSWSC 21
Source
Original judgment source is linked above.
Catchwords
(2014) 85 NSWLR 443
Bondi Beachside Pty Ltd v Chief Commissioner of State Revenue [2013] NSWSC 21
Judgment (6 paragraphs)
[1]
Judgment
HIS HONOUR: On 7 December 2015 I made the following orders:
1. Order that the moneys paid into Court by the plaintiffs on 11 May 2015 and interest earned thereon be paid out to Benjamin & Khoury Pty Ltd ("Benjamin & Khoury").
2. Note the agreement between Benjamin & Khoury and the representatives of the estate of the late Ronald William Washington that Benjamin & Khoury Pty Ltd will pay 14.184 per cent of the funds paid out of Court to the representatives of the late Mr Washington's estate.
3. Order that as soon as reasonably practicable after receipt of the funds to be paid to it pursuant to order 1 Benjamin & Khoury pay 14.184 per cent of such funds to Carolyn McEwan Washington and Elizabeth Carolyn Washington in their capacity as representatives of the estate of the late Mr Washington or as they may in writing direct.
4. Order that the amended notice of motion filed by Benjamin & Khoury on 30 June 2015 and the amended notice of motion filed by Carolyn McEwan Washington and Elizabeth Carolyn Washington on 11 November 2015 be otherwise dismissed save as to costs.
5. Order that the notice of motion filed by Lisa June Mahoney and Dennis Anthony Mahoney on 5 June 2015 and the notice of motion filed by Frederick George Rix on 17 June 2015 be dismissed.
6. Order that Mr and Mrs Mahoney and Mr Rix pay the costs of Benjamin & Khoury of the applications.
These are my reasons for those orders.
The plaintiffs, Messrs Di Donato and Brown, were appointed trustees for sale of a property in Gardeners Road, Rosebery by orders made by Forster J on 25 August 2009 after his Honour's decision in Rix v Mahony [2009] NSWSC 675. Forster J held that Mr Frederick Rix was beneficially entitled to a one-quarter share of the property.
On 11 May 2015 the plaintiffs paid $272,856.02 into Court. This sum represented part of moneys received by the plaintiffs from an insurance claim in respect of a building on the property, and from the proceeds of its sale. Mr Frederick Rix is entitled to this sum, subject to the claims of others.
There are four claimants to the moneys paid into Court. Mr Rix seeks payment out to himself.
Mr and Mrs Mahony were defendants to the proceedings brought by Mr Rix in 2009 in which he was successful. They were also parties to other proceedings commenced by Mr Rix referred to below in which Mr Rix was unsuccessful. Costs orders were made against Mr Rix in the other proceedings. Mr and Mrs Mahony have obtained judgments in respect of those costs. The judgments total $275,387.56, not including interest. They served garnishee notices on the plaintiffs on 7 September 2011 and on 30 and 31 March 2015. They seek orders for the payment out of the moneys paid into Court to them pursuant to those garnishee notices.
Benjamin & Khoury carries on the practice of solicitors. Benjamin & Khoury claims a charge over the moneys paid into Court pursuant to a costs agreement with Mr Rix executed 4 November 2010 or a deed of charge executed by him on 3 December 2010. The charge secures costs, disbursements and interest payable by him to Benjamin & Khoury. As at 9 September 2015 the amount owed to Benjamin & Khoury by Mr Rix inclusive of interest was $394,439.92. This does not include fees owed by Mr Rix to counsel.
Mr Ronald William Washington, a barrister, had been retained by Benjamin & Khoury to act for Mr Rix in proceedings before Bergin CJ in Eq that were heard on 19 and 20 September 2011. Mr Washington claimed a fruits of litigation lien to secure payment of his unpaid professional fees of $53,816 rendered between 16 December 2010 and 3 November 2011.
Mr Washington died on 15 September 2015 shortly before the present applications were listed for hearing. As a result of his untimely death the hearing of the applications was adjourned to 4 December 2015. The executors named in his will have been appointed to represent his estate in the proceedings. An agreement has been reached between his representatives and Benjamin & Khoury that if Benjamin & Khoury succeeds in enforcing its charge in respect of the funds in Court then the funds should be paid out to Benjamin & Khoury and to Mr Washington's estate in the proportions of 85.816 per cent and 14.184 per cent respectively. His representatives do not seek any greater relief. The claim to a fruits of litigation lien would only arise if Benjamin & Khoury is not entitled to enforce its charge, either at all, or in priority to the claims of Mr and Mrs Mahony.
Mr Rix opposed the claims of Mr and Mrs Mahony, Benjamin & Khoury and the representatives of Mr Washington's estate on grounds that sought to re-agitate issues that have been decided in earlier proceedings. For the reasons which follow, I did not accept that Mr Rix is entitled to payment of any of the moneys paid into court. The substantial issue was between Mr and Mrs Mahony, who sought to attach the funds paid into Court pursuant to their service of the garnishee notices, and Benjamin & Khoury which relied upon its earlier charge. Before turning to the question of priorities as between Mr and Mrs Mahony and Benjamin & Khoury, I will deal with the background facts. These are drawn from earlier judgments of the Court. The parties accepted that regard could be had to those facts.
[2]
Background
Mr Rix and his wife had been the registered proprietors of the Gardeners Road property as joint tenants. In 1983 they transferred an interest in that land to their daughter, Mrs Mahony, and her husband, Mr Mahony, such that Mr and Mrs Rix held a four-fifths share for themselves as joint tenants, and Mr and Mrs Mahony held a one-fifth share (Rix v Mahony [2009] NSWSC 675 per Forster J at [22]).
In March 1993 the parties executed a transfer of the property by Mr and Mrs Rix as to their four-fifths share and Mr and Mrs Mahony as to their one-fifth share. The transfer was made to Mrs Mahony as to a three-quarter share and to Mr Mahony as to a one-quarter share. Forster J found that Mr Mahony held his one-quarter share beneficially, but Mrs Mahony held her legal interest as to a one-quarter share of the property for Mr Rix, and as to a one-quarter share for herself absolutely. His Honour made no finding as to the manner in which Mrs Mahony held the remaining one-quarter share. Forster J appointed the plaintiffs as trustees for sale.
At the hearing before Forster J, Mr Rix was represented by Mr Waugh of counsel. Forster J ordered that the Mahonys pay Mr Rix's costs.
Mrs Rix died in 2010 having made a will leaving her estate to her son and Mrs Mahony (Rix v Mahony [2011] NSWSC 1308 per Bergin CJ in Eq at [9]).
In about early November 2010 Mr Rix retained Benjamin & Khoury to act for him. A costs agreement was signed by Mr Rix on 4 November 2010. It recorded that Benjamin & Khoury had been instructed to investigate the merits of preventing the proposed sale by the trustees, to investigate the merits of the judgment of Forster J of 24 July 2009, including an allegation that Mr Rix was denied adequate time to prepare his case, to investigate and advise Mr Rix on any entitlement to obtain an additional interest in the property, to provide advice in relation to a decision made by Young JA on 13 May 2010 (apparently a decision to refuse a stay of the orders of Forster J), and to advise on the merits of any application for family provision orders or any other proceedings in respect of his wife's estate.
The costs agreement included a clause M that provided as follows:
"You agree by entering into this agreement to charge all your interests, either legal or equitable, in real property including, but not limited to, [sic] the 25% equitable interest you hold in the Property pursuant to the orders of Foster J, and to consent to a charge over your corporal interests if the occasion so arises for all unpaid legal costs, expenses, disbursements, fees and interest. You consent to B&K lodging a caveat against title to such real property and/or enter into a charge against your corporal interests until all said costs are paid."
The agreement also included an authority in the following terms:
"J1. You authorise B & K to receive directly into B & K's trust account any judgment or settlement money, or money received from any source in furtherance of your work, and to pay B & K's costs, disbursements and expenses, in accordance with the provisions of clause 88(3)(a)(i) of the Legal Profession Regulation 2005, with priority to B&K before any proceeds are paid to you.
J2. You agree to assign with priority proceeds from your share in the Property once sold, which will be paid into B & K's Trust account and applied to cover your past and future legal professional costs, expenses, fees, disbursements and Counsel's fees etc., with absolute priority."
Clause F provided:
"If B & K's costs are not paid within 30 days of B & K's Bill of Costs being given to you (whether interim or final) B & K may charge you interest on any unpaid amount from the date of issue of the Bill of Costs on a monthly basis with such interest being capitalised to the outstanding balance at the end of each month at or under the maximum rate prescribed by Regulation 110A of the Legal Professional Regulation 2005."
Benjamin & Khoury provided estimates of its fees, depending upon the length of hearing. Mr Rix acknowledged that if he lost his proceeding it was likely that he would lose everything, including all of his interest in the property.
Benjamin & Khoury retained Mr Washington to act for Mr Rix. Mr Washington reached the view that Mr Rix had no prospect of successfully appealing the decision of Forster J. He considered the prospects of a family provision claim against his wife's estate. It does not appear that any such proceeding was brought, no doubt for good reason. In the proceeding heard by Bergin CJ in Eq over two days in September 2011 Mr Rix claimed that he was entitled to a 50 per cent beneficial interest in the property on the basis that Mrs Mahony held her legal title on trust for both him and his former wife as to a 50 per cent share of the property as joint tenants, and that he was entitled to Mrs Rix's 25 per cent beneficial interest by survivorship. Bergin CJ in Eq held that on the assumption that Mrs Rix was also entitled to a 25 per cent beneficial interest in the property, her interest was held as tenant in common, and not as a joint tenant with Mr Rix, and hence he was not entitled to her beneficial interest by survivorship. Her Honour ordered that Mr Rix pay Mr and Mrs Mahony's costs.
Mr Rix appealed from the orders of Bergin CJ in Eq. He represented himself on the appeal. He sought to adduce additional evidence on the appeal. Campbell JA said that the evidence in question was extensive and related to factual events over quite some years (Rix v Mahony [2012] NSWCA 241 at [3]). The application was refused. His appeal was dismissed (Rix v Mahony (No. 2) [2012] NSWCA 332; (2012) 16 BPR 31,315). Orders for costs were made against him in favour of Mr and Mrs Mahony. An application for special leave to appeal to the High Court from the orders of the Court of Appeal was dismissed (Rix v Mahony [2013] HCASL 47).
In 2013 Mr Rix commenced proceedings against Mr and Mrs Mahony, their solicitor, Mr Wells, and the trustees. He alleged, amongst other things, that the appointment of the plaintiffs as trustees was improper because of an alleged close relationship between one of the trustees and Mr Wells. He alleged a breach of duty on the part of the trustees and a conspiracy to lower the price of the property when it was listed for sale. Most of his claims were summarily dismissed by Ball J (Rix v Wells [2013] NSWSC 672). Ball J permitted Mr Rix to replead a claim that the trustees had failed to take adequate steps to protect and preserve the property following its having been damaged by a fire. His Honour directed Mr Rix to file an amended statement of claim by a particular time and to file and serve all of the evidence on which he relied in support of that allegation.
On 30 October 2013 Darke J struck out the further amended statement of claim that Mr Rix had filed purportedly pursuant to the leave given by Ball J (Rix v Wells (No. 2) [2013] NSWSC 1608). His Honour declined summarily to dismiss the proceeding. His Honour did not give leave to Mr Rix to again replead, as he took the view that merely giving such leave, perhaps coupled with another direction for the filing and service of evidence, would only be likely to produce yet another defective pleading with no cogent evidence in support of it (at [44]). He said that if Mr Rix wished to advance such a claim as Ball J had allowed to be pleaded, he would need to obtain the leave of the Court to file a pleading supported by a draft pleading and, if possible, some evidence which supported any case that might be repleaded (at [47]).
Further costs orders were made against Mr Rix in favour of Mr and Mrs Mahony in the course of those applications. As previously noted, Mr and Mrs Mahony have obtained judgments for costs against Mr Rix which total $275,387.56.
It appears from the statement prepared by the plaintiffs that they received $550,000 as the proceeds of their insurance claim and $721,127.69 from the proceeds of sale of the property after adjustment for council and water rates and deduction of estate agent's commission and costs on sale, and security fencing. $644,682.09 was applied to discharge a mortgage to Citigroup Pty Ltd. The burden of that payment was borne from the shares of Mr and Mrs Mahony. After withholding $71,450 by way of provision against future expenses and after deduction of a sum of $1,650 for costs the subject of an order made on 13 February 2015, $272,856.02 was paid into Court on account of Mr Rix's interest under the trust for sale.
[3]
Claim by Mr Rix
Mr Rix provided written submission in advance of the hearing of the notices of motion. He sought to reventilate issues that had already been decided against him. His submissions were unsupported by any admissible evidence.
Mr Rix submitted that a settlement offer apparently made by him in the proceedings before Forster J ought to have been accepted by Mrs Mahony and her husband, and apparently blamed their solicitor, Mr Wells, for its not having been accepted. He submitted that very important evidence had been withheld in the proceedings before Forster J that if revealed would have led to a different outcome. He complained that Young AJ had wrongly refused an application to restrain the trustees from exercising their power of sale. He said that if he had known of certain evidence, the nature of which he did not specify, he would not have incurred costs in the proceedings before Bergin CJ in Eq. He complained that the trustees negligently allowed the property to fall into a ruinous state after certain fires. He complained about the exercise by the trustees of their duties. He contended that all of the solicitors involved in the matter had wrongly complicated proceedings so as to increase costs. He complained about damage to his reputation as a result of certain criminal proceedings against him. He complained that Bergin CJ in Eq ought to have disqualified herself from hearing the proceeding in 2011 and Benjamin & Khoury should have challenged her Honour's hearing of the case.
The matters raised by Mr Rix are irrelevant to the decision to be made as to the disposition of the moneys paid into Court. There having been no appeal from the decisions of Forster J, Ball J and Darke J, the appeal from the judgment of Bergin CJ in Eq having been dismissed, and there having been no appeal from the decisions of the Court of Appeal, the issues determined in those proceedings cannot be challenged collaterally in this case. Mr Rix cannot dispute the judgments for costs obtained against him by Mr and Mrs Mahony. There is no doubt as to the validity of the garnishee notices issued in respect of his property. There is no reason to doubt that the equitable debt owed to him by the trustees that was the subject of the payment into Court is a debt that could be the subject of a garnishee notice under s 117 of the Civil Procedure Act 2005 (NSW).
Mr Rix did not challenge the validity of the charge in the costs agreement that he signed, and there would be no ground on which to challenge its validity. It is clear that he gave an informed consent to Benjamin & Khoury's taking the charge. On 14 September 2015 Mr Rix signed a letter addressed to me which he provided to Mr Dieb Khoury in which he consented to the claim of Benjamin & Khoury and acknowledged that he owed Benjamin & Khoury $394,439.92 and said he wished the moneys in court to be paid to Benjamin & Khoury.
At the hearing Mr Rix withdrew that consent. So far as I could understand his reason it was that when he gave his consent he had assumed he would be able to bring proceedings against Mr Washington, which he considers he can no longer do following Mr Washington's death. Mr Rix did not articulate his complaint about Mr Washington's conduct. Whatever it might be, it does not affect the validity of the charge given to Benjamin & Khoury.
For these reasons Mr Rix's notice of motion was dismissed.
[4]
Claim by representatives of Mr Washington's estate
Mr Washington contended that he was entitled to a so-called "fruits of the litigation" lien. Such a lien arises where a fund or the proceeds of judgment are recovered for a client as a result of the lawyer's efforts. (I assume, without deciding, because the question was not argued, that the lien is now available to lawyers who act in the litigation, whether as solicitors or barristers.) In this case the proceedings in which Mr Washington acted did not produce any "fruits" for Mr Rix. Bergin CJ in Eq declared that Mr Rix was entitled to 25 per cent of the gross proceeds of sale of the property (subject to proper deductions). But this was not a different result from that necessarily implicit in Forster J's orders. There being no relevant "fruits" of the litigation in which Mr Washington appeared for Mr Rix, he is not entitled to a particular lien for his costs on that basis (Jackson v Richards [2005] NSWSC 630; (2005) 12 BPR 23,091).
However, Mr Washington had reached agreement with Benjamin & Khoury for the division of the moneys paid into Court if Benjamin & Khoury succeeded on its claim. That agreement does not depend upon the representatives of Mr Washington's estate being able to show that he was entitled to a particular lien in his own right. Their right to a portion of the moneys paid into Court depends upon Benjamin & Khoury's entitlement to those moneys pursuant to the charge in its costs agreement.
[5]
Enforceability of Benjamin & Khoury's charge
It was common ground between Benjamin & Khoury and Mr and Mrs Mahony that if Benjamin & Khoury were entitled to enforce its charge as at 11 May 2015, being the date the plaintiffs paid money into Court, it would be entitled to payment in priority to Mr and Mrs Mahony.
Mr Oakes SC who appeared for Mr and Mrs Mahony submitted that the charge was unenforceable, or was enforceable only to $16,000, because it was unstamped or insufficiently stamped. He submitted that the critical time for determining whether the charge was enforceable was when the trustees paid money into Court and he submitted that at that time the charge was not enforceable or was not enforceable for more than $16,000. He submitted that later upstamping would not affect the question of priorities.
No question of upstamping arises. Benjamin & Khoury arranged for a copy of the costs agreement to be stamped on 1 October 2015. It was stamped by the Office of State Revenue in the sum of $10. But the costs agreement had previously been stamped. It was stamped for $5 in conjunction with the stamping of a caveat that was lodged by Benjamin & Khoury in respect of the property prior to 5 May 2011. The stamp of the Office of State Revenue records "Asst details: PR $16,000 on Mortgage".
The question is whether that stamping was sufficient.
Section 211 of the Duties Act 1997 (NSW) provides:
"211 Consequences of non-payment of duty
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."
The expression "amount secured" is itself defined. Section 213 provides:
"213 Amount secured by mortgage
(1) For the purposes of this Chapter, the amount secured by a mortgage is the amount of any advances made under an agreement, understanding or arrangement for which the mortgage is security (even if the amount of advances made exceeds the amount of advances recoverable under the mortgage).
(2) A reference in this Chapter to an advance secured by or made under a mortgage includes a reference to any advance made under an agreement, understanding or arrangement for which the mortgage is security (whether or not the advance is recoverable under the mortgage).
(3) To avoid doubt, an advance made under an agreement, understanding or arrangement includes any advance made as a consequence of a variation to that agreement, understanding or arrangement."
An "advance" is defined in s 206 as follows:
"206 What is an advance?
In this Chapter, advance means the provision or obtaining of funds by way of financial accommodation, by means of:
(a) a loan, being:
(i) an advance of money, or
(ii) the payment of money for or on account of, or on behalf of, or at the request of, any person, or
(iii) a forbearance to require the payment of money owing on any account whatever, or
(iv) any transaction (whatever its terms or form) that in substance effects a loan of money, or
(b) a bill facility, being one or more agreements, understandings or arrangements as a consequence of which a bill of exchange or promissory note:
(i) is drawn, accepted, endorsed or made, and
(ii) is held, negotiated or discounted to obtain funds,
whether or not the funds are obtained from the person who draws, accepts, endorses or makes the bill of exchange or promissory note and whether or not the funds are obtained from a person who is a party to any such agreement,
and includes contingent liabilities of the kind referred to in section 215."
No reliance is placed on s 215.
Section 208 relevantly provides:
"208 When does a liability arise?
(1) A mortgage becomes liable to duty on the date of its first execution.
(2) A mortgage becomes liable to additional duty on the making of an advance or further advance if, as a result of that advance or further advance, the amount secured by the mortgage exceeds the amount secured by the mortgage at the time a liability to duty last arose under this Act.
Note. Section 219 exempts some further advances from duty.
…"
It is not disputed that the charge contained in the costs agreement was a "mortgage" for the purposes of Ch 7 of the Duties Act (s 205). The amount of duty to be charged is provided for in s 210. The amount of duty chargeable on a mortgage is calculated by reference to the "amount secured" by it at the liability date (s 210(1)). The amount of duty is provided for in s 210(2). That subsection provides:
"210 How is mortgage duty charged?
…
(2) The amount of duty is:
(a) $5.00, if no amount is secured by the mortgage or the amount secured by the mortgage is not more than $16,000, or
(b) if the amount secured by the mortgage is more than $16,000 - $5.00, plus a further $4.00 for every $1,000, or part, by which the amount secured exceeds $16,000."
To be liable for ad valorem duty the charge contained in the costs agreement must have been security for an advance or advances "made under an agreement, understanding or arrangement for which the mortgage is security" (s 213(1)). Unless the charge secures an "advance" (or "advances") within the meaning of s 206 the charge was not liable for ad valorem duty.
The costs agreement did not provide for the making of a loan in any form. A loan involves a payment and obligation of repayment (Prime Wheat Association Limited v Chief Commissioner of Stamp Duties (1997) 42 NSWLR 505 at 512). There was no advance of money to Mr Rix. There was no payment of money for him, or on his account, or on his behalf, or at his request. The costs agreement was not a bill facility. Hence, none of the provisions in s 206(a)(i), (ii), (iv) or (b) is engaged.
Mr Oakes submitted that the charge in the costs agreement was security for the provision or obtaining of funds by way of financial accommodation by means of a loan, being, a forbearance to require the payment of money owing, and hence fell within the definition of advance under s 206(a)(iii).
Benjamin & Khoury rendered accounts at the end of each month from 31 January 2011 to 30 September 2011. They charged interest in accordance with the costs agreement on the unpaid amounts of costs and disbursements. The costs agreement did not expressly require that Mr Rix pay costs and disbursements within 30 days of the bill being rendered. The costs agreement contained no express provision as to when costs should be paid after the provision of a bill, but provided that interest would be payable if costs were not paid within 30 days of the bill being provided. Mr Oakes submitted that it was to be implied that a bill of costs was payable within 30 days. The bills rendered by Benjamin & Khoury stated that the amounts for which the bills were rendered were then due and payable (not that they were payable after 30 days). Section 326 of the Legal Profession Act 2004 (NSW) relevantly provided that a costs agreement could be enforced in the same way as any other contract, subject to the specific provisions in Div 5 and Div 11 of Pt 3.2. The regulation of a solicitor's ability to recover costs by suit, and the provisions for assessment of costs, did not affect the question when, as a matter of contract, Mr Rix became liable to pay the bills rendered. I accept that Mr Rix became liable, as a matter of contract, to pay costs and disbursements properly rendered or incurred within 30 days of the rendering of the bill of costs. Hence, the interest that Benjamin & Khoury was entitled to charge under clause F of the costs agreement was interest on debts that had become due and payable. As Mr Oakes submitted, the words in s 206(a)(iii) "forbearance to require the payment of money owing on any account whatsoever" do not require a forbearance to sue, but a forbearance to require payment (Tozer Kemsley & Millbourn (Australasia) Pty Ltd v Point (1961) SR (NSW) 751 at 764; Prime Wheat Association Limited v Chief Commissioner of Stamp Duties at 512). Mr Oakes submitted that by forbearing to require payment of the bills of costs that it had rendered, Benjamin & Khoury made successive advances within the meaning of s 206(a)(iii) to Mr Rix that were secured by the charge and which attracted a liability to ad valorem duty.
However s 206(a) does not simply provide that an advance includes a forbearance to require the payment of money owing on any account whatever. Rather, an advance is the provision or obtaining of funds by way of financial accommodation, where such a provision is by means of a loan "being" one of the matters specified in s 206(a), including a forbearance to require the payment of money owing on any account whatever, or by means of a bill facility as specified in s 206(b). There must be a provision or obtaining of funds. The provision or obtaining of funds must be by way of financial accommodation and that must be by means of a loan which is one of the four specified kinds in s 206(a) or by means of a bill facility as described in s 206(b). So much appears from the text of s 206.
In Bondi Beachside Pty Ltd v Chief Commissioner of State Revenue [2014] NSWCA 6; (2014) 85 NSWLR 443 Ward JA, with whom Bathurst CJ and Tobias AJA agreed, held that s 206 requires that:
"… there be an identifiable 'provision' or 'obtaining' of fundsin the sense that the effect of the transaction is that there has been a provision or obtaining of funds, although this might not in all cases involve an actual receipt of funds by the chargor. If the forbearance in no real or effective sense involves a relevant person obtaining or being provided with funds, as is the case here, then in my view s 206(a)(iii) has no application." (at [71])
Ward JA said that for s 206 to be engaged there must be an actual or a constructive provision or obtaining of funds. Here, there was no actual provision or obtaining of funds. Was there a constructive provision or obtaining of funds? That depends upon what is meant by a constructive provision or obtaining of funds.
In Bondi Beachside Pty Ltd v Chief Commissioner of State Revenue notes were issued by an issuer and subscribed for by a bank and were to be redeemed on 3 April 2009 (at [6]). The proceeds of the note were provided by the issuer to the "Bondi Entities" by way of loan (at [7]). The Bondi Entities agreed to purchase the notes from the bank for a purchase price equivalent to the face value of the notes. The Bondi Entities were entitled to defer payment of the purchase price on paying interest and the purchase date was deferred to 3 April 2009 (at [8]-[10]). The Bondi Entities granted a charge over their property to secure payment of the deferred purchase price to the bank (at [11]). The time for payment of the purchase price was extended beyond 3 April 2009. The extensions were effected by a number of deeds, three of which were entered into after 1 July 2009 when amendments to the Duties Act came into effect. The terms of the deeds of variation are not set out in the Court of Appeal's judgment, but it appears from the reasons of the primary judge, Gzell J, that, as one would expect, additional interest was payable for the extension of time to pay the deferred purchase price (Bondi Beachside Pty Ltd v Chief Commissioner of State Revenue [2013] NSWSC 21; (2013) 87 ATR 722 at [56], [68] and [82]).
It was not disputed that the agreement to leave unpaid purchase money outstanding was a form of financial accommodation and that the bank had forborne from requiring payment (at [35]), although as Ward JA pointed out at [34], there had already been a forbearance by the bank from requiring payment and on one view the deeds of variation merely removed the ability of the bank to sue for the amount that had then fallen due until the new varied dates.
Ward JA held that not only was there no actual provision of funds to, or obtaining of funds by, the Bondi Entities, but there was no constructive provision or obtaining of funds. Her Honour considered that a constructive provision of funds must nevertheless result in a provision of funds in a real or effective sense. Her Honour said:
"76 In the present case, the effect of the deeds of variation was not that the Bondi entities actually received any new funds. The proposition that the Bondi entities retained, or had the continued use of, funds that they would otherwise have been required to pay to the Bank (and hence in that sense 'obtained' funds by reasons of the extension of time for payment) requires the assumption to be made that the Bondi entities had such funds available to them at the relevant time. The Bondi entities were not the recipient of funds from the Bank in the first place (although they had received loan funds from the Issuer following the issue of the Notes). It may be that, had the deed(s) of variation not been executed, the Bondi entities would have been required to borrow funds for payment of the purchase price of the Notes from another source. If so, they would not in any effective sense have had the continued use of any such funds at all. Retention of funds for a longer period does not, in the ordinary sense of the words, involve the 'provision' or 'obtaining' of any new funds (even though it may well constitute financial accommodation).
…
78 The Bondi entities submit that in the present case the contractual variations that took place did not involve any transaction of the character of one where the Bank had in effect constructively advanced money to them when the payment date arrived and payment was not made. They submit that all that relevantly occurred was that the termination date as defined in the senior note facility deed was amended and hence they were granted further time to pay the purchase price for the Notes. I agree.
79 There is no basis to conclude, where the original transaction did not involve the provision of funds by way of an advance or loan that was secured by the Charge, that the extension of the date for payment (not repayment) of the purchase price gave the Bondi entities an advance in the sense of the continued use of funds equivalent to that purchase price. There was no obtaining of funds even if there was a financial benefit …"
In the same way in the present case, the fact that Mr Rix retained whatever funds he might have had and did not borrow from other sources (if that had been possible) in order to pay the costs and disbursements that had become payable did not involve the provision or obtaining of any new funds, even though Benjamin & Khoury forbore from suing or otherwise requiring payment of the debt. This was a form of financial accommodation, but not a provision or obtaining of funds. Benjamin & Khoury did not make a "constructive advance" of funds to Mr Rix on which interest was charged so that he could pay his debt for costs.
Earlier in her reasons (at [32]) Ward JA had referred to an argument advanced by the appellants that included a partial quotation from Pannam, The Law of Money Lenders in Australia and New Zealand (1965) Law Book Company at 21-22, which on one reading might suggest that in the author's view the extended definition of "loan" in the then moneylenders' legislation (that included a forbearance to require payment of money owing on any account whatsoever) brought transactions within the scope of the legislation where interest was charged in respect of a forbearance to require payment of a debt that was owing; it being as if the person who forbore lent the debtor the sum necessary to pay the debt and charged interest on the loan.
Four things can be said about this. First, the moneylenders' legislation did not include the opening words of s 206 that an advance means the provision or obtaining of funds. Secondly, Ward JA neither expressly endorsed nor rejected this part of the appellants' submission. But her Honour did not regard the fact that the bank charged interest on the deferment of the payment of the purchase price as sufficient to give rise to a constructive provision of funds. Thirdly, the charging of interest should not be determinative of the question where there is a "constructive" loan, by forbearance in requiring payment of a debt. A loan can be made with or without interest. Fourthly, when the whole of the relevant text in Mr Pannam's work is considered, it is arguable that he was of the view that it was only where there was a forbearance to require payment of a promissory note, a loan or a bill, that there was a fresh loan by way of forbearance.
For these reasons the costs agreement was properly stamped in the sum of $5 and the charge contained in the costs agreement is not unenforceable by reason of s 211 of the Duties Act. No other ground of unenforceability has been raised.
A deed of charge was entered into between Benjamin & Khoury and Mr Rix on 3 December 2010. That instrument was apparently only located by Mr Khoury very shortly before the hearing on 4 December 2015. The deed of charge was not stamped, but an undertaking was given by Mr Khoury to stamp the instrument within seven days, and it was admitted into evidence pursuant to s 304 of the Duties Act. The deed of charge in substance incorporated the charge contained in the costs agreement by reference. No different issue arises under the deed of charge. Even if there had been no costs agreement, the deed of charge would not be unenforceable under s 211 because it did not secure the amount of an advance within the meaning of s 206.
Mr and Mrs Mahony referred to observations I made in Bellissimo v JCL Investments Pty Ltd [2009] NSWSC 1260 at [19]. That was an ex tempore judgment given in the course of the duty list on an application for extension of a caveat. I held that the clause on which the solicitors relied upon to support the caveat did not go beyond a negative covenant that the client would not be permitted to deal with land without the plaintiff's consent and this did not amount to an interest in land to support a caveat. I went on to say (at [20]) that on the assumption that the instrument relied upon did create a charge and that the costs agreement did not contain provisions which would amount to an advance within s 206, nonetheless the effect of s 211 was that whilst any duty remained unpaid on the instrument, it was unenforceable (at [20]). This was a mistake. I did not refer to s 213 which defines and confines the meaning to be given to the words "amount secured" in s 211.
For these reasons I made orders on 7 December 2015 for the payment of the funds in court to Benjamin & Khoury.
[6]
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Decision last updated: 18 December 2015
Parties
Applicant/Plaintiff:
DUTIES AND TAXES - mortgage duty - whether a charge created by solicitors' costs agreement secured an "advance" within s 206 of the Duties Act - whether a forbearance to require payment was a "constructive" provision or obtaining of funds, and therefore an advance - consideration of Bondi Beachside Pty Ltd