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[1985] HCA 73
High Court of Australia
1981-12-21
Dawson JJ, Murphy J
Original judgment source is linked above.
The application of the statutory definition to the two instruments in this case depends on the legal effect, not only of these instruments, but of the transactions between the preference shareholders and Mildura Park. The respondent submits that the security given by the appellant is for the right of the preference shareholders to divest themselves of their shares and to get their money back. But it is not a security for the right of the preference shareholders to get their money back from Mildura Park. There is no suggestion that the instruments are colourable or intended to operate otherwise than according to their terms. The shareholder's right under the articles to have his shares redeemed and to receive payment of the moneys payable on redemption is a right exercisable against Mildura Park. It is to be distinguished from the right of the shareholder to give notice to the appellant on a change in the law relating to the rebatability of dividends and the right of the trustee to give notice to the appellant on the failure of Mildura Park to redeem on the appointed date or on its failure to pay dividends because they are rights to require the appellant to purchase the shares. In the first case the shares are redeemed and the moneys paid on the shares are repaid by Mildura Park to the shareholder. In the second case the shares are not redeemed; they remain in existence and are purchased by the appellant from the shareholder, the purchase price being equal to the amount payable on the redemption of the shares. The security given by the appellant is for the performance of its undertaking to purchase, not for the performance of Mildura Park's obligation to redeem the shares under the articles.
Once this is seen to be the effect of the security given by the appellant, the question remains whether the instruments fall within the statutory definition of "mortgage". The answer to the question must be ascertained by seeking to apply the two main limbs of the general words of the definition in turn to the two instruments. The word "advanced" bears a wide meaning (Armco (Australia) Pty. Ltd. v. Federal Commissioner of Taxation [10] ) and may extend to transactions which are not comprehended by the word "lent". However, there is no basis for saying that the instrument of mortgage given by the appellant was "for the payment of money advanced or lent at the time or previously due or owing, or foreborne to be paid, being payable". The mortgage was given as security for the performance of the appellant's undertaking to purchase, that is, for the discharge of its contingent obligation to pay the purchase price of the shares. And, even if, contrary to the view that we have expressed, it were possible to regard the mortgage as security for the payment of moneys payable by Mildura Park in performance of its obligation to redeem the shares, the mortgage would not answer that part of the definition which we have quoted. By no stretch of legal imagination can money subscribed for the issue of redeemable preference shares be described accurately as money lent or money advanced, even in a case in which there is an obligation, rather than an option, to redeem the shares on or before the date stipulated for redemption. The moneys are paid by the shareholder for the issue of the shares and on the issue of the shares he becomes a member of the company entitled to the rights which attach to the shares.
Nor was the security "for the repayment of money to be thereafter lent, advanced, or paid". No amount was to be lent or advanced at all for the reasons already given. And the only amount to be paid, the purchase price of the shares, was to be paid by the appellant and then only if one of the contingencies should occur. The appellant is correct when it submits that security was given for the payment of an original amount, not for the repayment of an amount previously paid.
The authorities lend no support to this branch of the respondent's case. They give emphasis to the notion that the statutory concept of mortgage, which is based on that found in s. 86 of the Stamp Act 1891 U.K., contemplates the giving of security for (1) the payment of past or present loans and debts; (2) the repayment of future loans and debts; and (3) the repayment of money which may later become due upon an account current. The word "paid" which is introduced into the second category, tends to suggest that the category is wider than the first, but it has been held that it is restricted to a payment which results in a debt: see Wroughton v. Turtle [11] , per Parke B.; cf. Suffield (Lord) v. Commissioners of Inland Revenue [12] .
That the transaction in the present case is not caught by the definition of "mortgage" is demonstrated by the decision in Chow Yoong Hong v. Choong Fah Rubber Manufactory [13] . The issue there was whether a transaction involving the discounting of bills of exchange and cheques gave rise to a breach of the Moneylenders Ordinance 1951 (Malaya) and this turned on the question whether the agreement for discounting was an agreement "for the repayment of money lent". The Judicial Committee held that the business of buying bills at a discount was quite distinct from money lending. Lord Devlin, delivering the opinion of the Judicial Committee, said [14] :
The business of buying bills at a discount, that is, for their value at the date of purchase, is well known and is quite distinct from moneylending. Nowadays the buyer is usually a bank or a discount house, but the fact that he cannot be put into either of those categories does not alter the nature of the transaction, neither does the designation of the discount as interest. There is here no loan of money and no promise of repayment. Their Lordships' conclusion on this point is in accordance with the decision of Branson J. in Olds Discount Co. Ltd. v. John Playfair Ltd. [15] that a purchase of book-debts for a specific sum was not a moneylending transaction. Later his Lordship said [16] : There are many ways of raising cash besides borrowing. One is by selling book-debts and another by selling unmatured bills, in each case for less than their face value. Another might be to buy goods on credit or against a post-dated cheque and immediately sell them in the market for cash. Their Lordships are, of course, aware, as was Branson J., that transactions of this sort can easily be used as a cloak for moneylending. The task of the court in such cases is clear. It must first look at the nature of the transaction which the parties have agreed. If in form it is not a loan, it is not to the point to say that its object was to raise money for one of them or that the parties could have produced the same result more conveniently by borrowing and lending money. 1. [1962] A.C. 209. 2. [1962] A.C., at p. 215. 3. [1938] 3 All E.R. 275. 4. [1962] A.C., at pp. 216-217.
The recent decision of Tadgell J. in Ansett Transport Industries (Operations) Pty. Ltd. v. Comptroller of Stamps [17] does not support the respondent's argument. There the deed of mortgage which was held to fall within s. 137D(1) gave security to the surety for the obligation of the principal debtor to repay to the surety moneys which it was called upon to pay to the principal creditor. The security was therefore given for the repayment of an amount which would be paid by the surety to the principal creditor before repayment to the surety by the principal debtor. Here it is otherwise, for the security is given for the payment of an original amount, the amount which the appellant will be liable to pay by way of purchase price for the shares in the future, if and when the preference shareholder gives notice requiring purchase by the appellant in the event of one of the three contingencies occurring.
For these reasons the instruments are not a "mortgage" within the statutory definition. The question then is whether they are a "debenture" within the meaning of sub-div. (17) and heading XXII of the Third Schedule.
Any discussion of the nature of a debenture must begin with the statement that English judges of great authority have confessed that the term defies accurate definition: British India Steam Navigation Co. v. Commissioners of Inland Revenue [18] ; Lemon v. Austin Friars Investment Trust [19] ; Knightsbridge Estates Trust Ltd. v. Byrne [20] . However, it has been generally agreed that two characteristics of a debenture are, first, that it is issued by a company and, secondly, that it acknowledges or creates a debt: see British India Steam Navigation Co.; Edmonds v. Blaina Furnaces Co. [21] ; Levy v. Abercorris Slate and Slab Co. [22] ; Topham v. Greenside Glazed Fire-Brick Co. [23] ; Broad v. Commissioner of Stamp Duties [24] . The debt may be secured on the assets of the company but security in this sense is not an essential characteristic of a debenture: Blaina Furnaces [25] . In Burns Philp Trustee Co. Ltd. v. Commissioner of Stamp Duties (N.S.W.) [26] Hunt J. stated that, in order to constitute a debenture the debt which is acknowledged or created must be an existing, not a future debt. His Honour's view is supported by authority: Lemon v. Austin Friars Investment Trust; R. v. Findlater [27] . However, the statement needs to be qualified to allow for a document which makes provision for the repayment of a loan to be made thereafter. On the other hand, not every document creating or acknowledging a debt of a company is a debenture. It has been said that commercial men and lawyers would not use the term when referring to negotiable instruments, deeds of covenant and many other documents in which a company agrees to pay a sum of money: Palmer's Company Law (1982), vol. 1, p. 531. And it has never been suggested that a promise in writing by a company to purchase shares at a future date amounts to a debenture in the ordinary sense of that term: cf. Inland Revenue Commissioners v. Henry Ansbacher & Co. [28] . Nor has it ever been suggested that a specific mortgage of land to secure a future obligation to purchase property amounts to a debenture according to its ordinary meaning: Knightsbridge Estates Trust [29] .
The question then is whether s. 5(1) of the Companies Act so enlarges the meaning of "debenture" as to comprehend either the trust deed or the instrument of mortgage. When s. 137N speaks of the meaning assigned to words and expressions in the Companies Act it must be taken to refer to the defined meaning assigned by that Act, rather than to the meaning that words and expressions bear in the various contexts in which they are found in that Act. So, in relation to the word "debenture", s. 137N operates to import the definition contained in s. 5(1), shorn of the qualification that the defined meaning is subject to any contrary intention in the Companies Act, and makes that defined meaning subject to any contrary intention that may appear in the Act (that is, the Stamps Act).
The critical element in the definition is "any other securities of a corporation whether constituting a charge on the assets of the corporation or not". The word "security" is susceptible of more than one meaning. It may mean a debt or claim, the payment of which is in some way secured, either by a right to resort to some fund or property for payment or by a guarantee (Singer v. Williams [30] ); or it may mean an instrument which creates or acknowledges an obligation to pay a sum of money, even though it is the original source of the obligation and the obligation is executory: Independent Television Authority and Associated Rediffusion Ltd. v. Inland Revenue Commissioners [31] ; Ansbacher [32] . Kitto J. described the first of these meanings as the primary meaning: Y.Z. Finance Co. Pty. Ltd. v. Cummings [33] . In Independent Television Authority and Ansbacher it was held that "security" bore the second of these two meanings in the First Schedule to the Stamp Act 1891 U.K., although in Ansbacher [34] it was considered that an agreement for the sale and purchase of shares in a company did not fall within the words "Mortgage, Bond, Debenture, Covenant" in the First Schedule to the 1891 Act. That Act did not attempt to define "debenture" in terms of "security". For this reason, apart from any other reason, neither case is of much assistance here where the problem is to ascertain what is meant by the critical words which we have quoted in the context of an inclusive definition of the term "debenture".
The Full Court of the Supreme Court thought that assistance was to be derived from the earlier decision of the House of Lords in Knightsbridge Estates Trust. There Lord Romer asserted [35] that "the word "debenture" as ordinarily employed in legal and commercial circles did not in the year 1908 include an ordinary mortgage of land". Nonetheless in that case, in common with the other members of the House of Lords, he held that an ordinary mortgage of land to secure the repayment of money lent and interest was a "debenture" within s. 74 of the Companies Act 1929 U.K. (the successor to s. 103 of the Companies (Consolidation) Act 1908 U.K.) because it fell within the expression "any other securities of a company" contained in s. 380 of the 1929 Act. That section contained a definition of "debenture" which was the same as that contained in s. 5(1) of the Companies Act 1961 Vict., except that it did not include the word "notes" and referred to a "company" instead of a "corporation". Although suspecting that the result may not have been intended by Parliament [36] , their Lordships could see no basis for saying that the context required that "debenture" be given a more limited meaning.
There is an element of divergence in their Lordships' reasoning. Viscount Maugham considered that the effect of the wide terms of the definition was to comprehend "any securities granted on loan by a company" [37] . He did not say that the effect of the definition was to embrace any document issued by a company which in some way secured the payment of money. Consequently, when he concluded that there was nothing in the context of s. 74 which required that "debenture" bear a meaning different from that assigned by s. 380, he proceeded only on the footing that "any other securities of a company" included securities granted on loan by a company. On the other hand, Lord Romer thought that the words "any other securities" "mean what they say, and include all other securities of any kind whatsoever" [38] . However, he did not disclose what he meant by the term "securities", though it may be said that, in view of the concluding words of the definition, he was not using the term "securities" in the sense of security over the assets of a company. The problem is compounded by the circumstance that Lord Atkin and Lord Wright agreed with the speeches of Viscount Maugham and Lord Romer, while Lord Porter contented himself with "My Lords, I concur" [38] .
In the light of the difficulties already mentioned, which cannot be resolved by reference to the speeches, we consider that the authority of Knightsbridge Estates Trust is restricted to what it actually decided, namely that the definition of debenture in s. 380 comprehended a specific mortgage of land by a company to secure a loan. So confined, the decision has no persuasive influence in determining whether s. 5(1) of the Companies Act catches the two instruments in the present case.
The concluding words of the definition in s. 5(1), "whether constituting a charge on the assets of the corporation or not", conformably with the express reference to "notes", which in Australia are unsecured, recognize what was pointed out in Blaina Furnaces [39] , namely that the giving of security over an interest in property is not an essential characteristic of a debenture. For this reason alone it is difficult to accept that "any other securities of a corporation" refers only to securities in what has been called the primary sense of that term. However, it does not follow that the definition refers to securities in its widest and secondary sense. This is because the reference to "any other securities of a corporation" is used to supplement the categories of "debenture stock, bonds, notes" in the context of what is a debenture. In this context and regardless of its content in other respects, the word "securities" should not be seen as enlarging the scope of the definition of debenture in s. 5(1) of the Companies Act to include documents by which a company agrees to purchase property at a future date. Such documents are of a quite different character to the issued debenture stock, bonds and notes of a corporation. They are not documents which acknowledge or create or secure an existing debt. They do not make provision for the repayment of a loan to be made in the future. According to judicial decision and traditional understanding, they have always stood outside the denotation of "debenture".
Moreover, an examination of the provisions of the Act demonstrates that the term "debenture", when used in sub-div. (17) and heading XXII, was not intended to comprehend documents of this kind. Apart from s. 137N it would be tolerably clear that the provisions of sub-div. (17) were not intended to apply to a promise to buy something in the future. So much at least appears from s. 137F when that provision is examined closely. It is a critical provision because its purpose is to prescribe comprehensively how duty is to be charged in cases where moneys are to be paid in the future pursuant to a security (a) where the total amount secured or ultimately recoverable is limited (s. 137F(1)) and (b) where the amount secured is unlimited (s. 137F(2)). In speaking of "[a] security for the payment or repayment of money to be lent, advanced, or paid", the opening words of s. 137F(1) produce some difficulty, but, consistently with the definition of "mortgage", they must be read as "[a] security for the payment of money advanced or lent or the repayment of money to be lent, advanced or paid". They refer, first, to a security for an existing debt or a debt created contemporaneously with the security and, secondly, to a debt which will arise after the creation of a security by reason of the subsequent loan, advance or payment of money. So understood, the section makes no prescription at all for the manner in which duty is to be paid in the case of a promise to buy something in the future, the price payable not being limited. Accordingly, the section proceeds on the footing that a security, which within the context of sub-div. (17) includes a debenture, does not include an instrument which creates or acknowledges a contingent future debt arising from a contingent obligation to purchase.
The contrast between the restricted definition of "mortgage" and the limited application of sub-div. (17) to bonds and covenants on the one hand and the wide meaning of "debenture" for which the respondent contends becomes a matter of some significance. It is not apparent why a document which would not be liable to duty as a mortgage, bond or covenant when given by an individual should be dutiable as a debenture when issued by a company. The absence of any such reason is an additional ground for thinking that in sub-div. (17) the word bears a more restricted meaning.
For the foregoing reasons we would allow the appeal, set aside the orders made by the Full Court and restore the judgment of the primary judge.
Handevel Pty Ltd
Comptroller of Stamps
High Court of Australia Gibbs C.J. Mason, Wilson, Deane and Dawson JJ. Handevel Pty Ltd v Comptroller of Stamps (Vic) [1985] HCA 73