Commr. of Stamp Duties (N.S.W.) v. Baystone Investments Pty. Ltd.

Judges:
Reynolds JA
Hutley JA
Samuels JA

Court:
Supreme Court of New South Wales - Court of Appeal

Judgment date: Judgment handed down 13 July 1978.

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Reynolds, Hutley and Samuels JJ.A.: This is an appeal by the Commissioner of Stamp Duties from a decision of Sheppard J. in favour of the respondent taxpayer that the amount of stamp duty payable on an agreement made between it and Taimoshan Investments Ltd., a Hong Kong corporation, was $11,948 and not $38,745 as contended by the Commissioner. Only one issue was argued on appeal, namely, whether for the purposes of the Stamp Duties Act 1920 the principal was not $3,000,000 but $2,583,000. It is not an issue between the parties that if only the lesser sum were lent, duty at a higher rate would be payable, and the stated case should be answered as contended for by the Commissioner.

The agreement made on 16 February 1977 provided for a loan to the respondent of $3,000,000 to be drawn down as provided. Clause 7 provided:

``Interest shall be calculated on the Principal Amount from the date of the loan and the Company shall be entitled to deduct from the sum or sums standing to the credit of the draw down accounts the interest due for the first year of this loan and any such deduction from the draw down accounts will be a full discharge of the Borrower's liability for such interest provided that to the extent that such interest is not so deducted the same shall be due and owing on the date of the loan.''

In fact, on the very day the agreement was made, the respondent sent a telex as follows:

``Baystone requires draw down Australian dollars 2.583 million being full amount available kindly arrange transmission as per agreement Baystone Investments Pty. Limited per J Leece''

and received the following reply:

``The amount credited to the account is $3 million dollars (Australian currency) the amount deducted for interest under cl. 7 of the agreement is $417,000 (Australian currency) the amount available for draw down is $2.583 million (Australian currency).''

The loan made in this case was a fixed loan as defined in sec. 82A(1). The rate of interest determines the amount of duty: ``Interest in relation to a loan includes any amount (by whatever name called) in excess of the principal of the loan...''. Though interest is defined so as to include amounts which are not interest as between the parties, no payments of this kind have been made unless the appellant's case is correct. ``Principal'' in relation to a loan means the amount actually lent. ``Loan'' includes:

• (a) an advance of money;
• (b) money paid for or on account of or on behalf of or at the request of any person;
• (c) a forbearance to require payment of money owing on any account whatsoever; and
• (d) any transaction (whatever its terms or form) which in substance effects a loan of money.

The appellant's submission is that the amount actually lent is the sum actually received by the respondent in response to its telex on 17 February 1977, not the sum provided in the agreement. The three interest payments on this basis were made, the first on the first anniversary of the loan, the second on the second anniversary, and the third on the repayment of the loan, being the difference between the money actually lent and the sum of $3,000,000 which the borrower promised to repay at the end of the three years. The definition of interest is derived from the Moneylending Act 1941, the definition of principal is transcribed from that Act and the argument for the appellant assumed that the authorities on the construction of these provisions in the Moneylending Act 1941 should be applied without more to the construction of the provisions as they appear in the Stamp Duties Act 1920.

This assumption is by no means necessarily correct. As Lord Reid said in
London Corporation v. Cusack-Smith (1955) A.C. 337 at p. 361:

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``It does not necessarily follow that if Parliament uses the same words in quite a different context they must retain the same meaning.''

A Stamp Duty Act and a Moneylending Act provide very different contexts; one is a taxing, the other a remedial statute. What is actually lent-for the purposes of a memorandum of agreement of a moneylending contract may be a different thing from what is actually lent for the purposes of an agreement for loan submitted for stamping. The correct way to construe the Stamp Duties Act, sec. 82A and 82B, in our opinion, is in the first instance to give the words their plain ordinary meaning without regard to the construction given to the same words in the Moneylending Act 1941. Only if this leads to difficulties should resort be had to authorities on the construction of the words as they appear in the parent provision. Under the general law, where there is an agreement to lend money, the money does not have to be paid to the hands of the borrower for there to be a loan. A loan is made by A to B; if at the direction of B money is paid to C, the amount of the loan is what is paid to C. Where there is an obligation which B owes A and, simultaneously with the making of a loan from A to B, A pays himself with the approval of B there is a loan of the amount he pays himself. If B owed A money on account of damages, and A paid himself by deducting the amount owed to him, it could hardly be suggested that the amount actually lent was the difference. We cannot see any difference in the fact that in this case the obligation which is discharged is one which arises on the very instant the loan is made.

The case for the appellant depends upon drawing a distinction between ``actually lent'' and ``lent''. In many contexts there is no distinction. In
Re Coote: Cavers and Evans v. Kaye (1940) 1 Ch. 549, where, in a will, the estate of a grandchild of a testator who was tenant in tail and had died in March 1918 (though his father did not die until 1938) was held to be entitled to heirlooms ``to be held and enjoyed by the person who shall be for the time being actually entitled'' to a certain mansion, even though both his uncle and his father were in succession prior tenants in tail. At p. 559 Morton J. said:

``... for my part I find great difficulty in giving any different meaning to `actually entitled' than that which I give to the word `entitled'.''

The distinction brought about by the use of the word ``actually'' is important where the word qualified can refer to a constructive situation. In
The King v. Inhabitants of St. Nicholas, Rochester, 3 L.J.M.C. 45 at p. 48, Denman C.J., dealing with the words ``actually occupied'', said:

``It (referring to a new statute) refers to doubts which have existed on the intention of the legislature in the use of the word `occupation' and enacts that no person shall acquire a settlement unless the house shall be actually occupied; constructive occupation will not do, but actual occupation is necessary.''

In
Gladstone v. Padwick, L.R. 6 Ex. 203 at p. 211, a case concerning seizure of goods in execution by the Sheriff, Bramwell B. said:

``The present statute constitutes actual seizure of the goods for delivery of the writ to the sheriff as that which is to bind the goods as against purchasers bona fide and for valuable consideration; but as no such fiction as constructive seizure was resorted to before the Act, the word `actual' is of no peculiar force and actual seizure means no more than seizure.''

In
Belvoir Finance Ltd. v. Cole, (1969) 1 W.L.R. 1877, a case concerning the statutory requirement that there should be actual payment of a percentage of the purchase price in order that the hire purchase agreement should be valid, Donaldson J. held that there was no actual payment where the price was inflated and portion of the deposit was provided by fictitious discounts.

In this statute the distinction aimed at by provision that the principal means the amount actually lent is that constructive or fictitious lending should be excluded in the computation of what is lent.

The definition of loan for the purpose of the relevant sections extends its meaning so the Act is itself concerned with constructive loans. We have difficulty in conceiving of a constructive loan different from those enumerated in the definition itself. It would seem to us, therefore, if ``actual'' has any

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meaning it is directed to exclude fictitious loans. It is probable that it has no more effect than the ``actual'' discussed by Bramwell B. above, a fictitious loan would just not be a loan.

There is a meaning to ``actually'' by which it would have real force. It could be construed so as to exclude any advance of money where the whole of the amount of the advance did not pass directly to the borrower whether in the form of cash or credit upon which he alone could draw; in other words, if it were taken to exclude any application by the lender of the proceeds of the loan even where directed by the borrower. So commercially unrealistic an interpretation was not suggested by counsel for the appellant, and is indeed eliminated by the cases upon which the appellant relied. Where the legislature wanted to exclude any application of money due it used stronger words than ``actually paid'', e.g. Truck Act 1831,
Penman v. The Fife Coal Co. Ltd. (1936) A.C. 45, especially at p. 53.

In this case there is nothing to suggest that there was any fictional element in the agreement for loan. The appellant's argument comes down to the simple proposition that, as a matter of law, an agreement under which interest payable in advance may be paid to the lender by appropriation from the money lent implies that the sum actually lent is the amount remaining after this appropriation. We find this submission without merit. The lender notified the borrower that the full sum of $3,000,000 had been credited by it to an account, and that there had been deducted from this the sum due for interest under cl. 7 of the agreement. There is no submission that this did not happen. As a matter of fact, the making of the loan preceded the payment of the interest due. Only if it were dictated by binding authority would we be prepared to hold that on the evidence in this case there was anything but an actual loan of $3,000,000. In fact, no authority could dictate a finding as to what is ``actually'' lent. This must always be a question of fact, not a question of law, because there must be independent evidence to show a document or a transaction is not what it purports to be. It is almost impossible to conceive a fictitious situation being established where the only material before the court is an agreement and action taken by the parties entirely consistent with its promises. What is involved in a challenge to an agreement for a loan which takes the form of setting up what, according to its terms, is to be lent is not ``actually'' lent, is the establishment of facts inconsistent with what was required or permitted to be done by the parties under the agreement.

However, the appellant contended that there were such authorities, namely, decisions of the English Court of Appeal, on the construction of the English moneylending legislation, which have been recognised as correct and followed by this Court.

The authorities relied upon were
B. S. Lyle Ltd. v. Chappell (1932) 1 K.B. 691;
Dunn Trust Limited v. Feetham (1936) 1 K.B. 22, and
Kirby v. Associated Securities Ltd., 64 S.R. 233.

In the B. S. Lyle case the borrower, being indebted to a firm of moneylenders and being in arrears in his payments to them, borrowed a further sum upon terms that they allocated portion of that sum in settlement of his former indebtedness. Swift J. held that the transaction could not be supported even though the appellants handed to the borrower a cheque for £200, the amount to be allocated in discharge of past indebtedness, which he endorsed and handed back to them.

In the Court of Appeal Scrutton L.J. said:

``... I see no objection to the procedure of wiping off the whole loan by treating it as a new loan on altered terms when the fact that this is being done is shown on the face of the second memorandum.''

He then referred to decisions under the Bills of Sale Act which established that money applied to discharge an old loan was money lent under the new loan.

Greer L.J. said at p. 704:

``If the money to be borrowed was intended to be used for the extinction of the debt agreed by the parties at £200 it seems to me unnecessary that the parties should go through the idle form of passing the cheque backwards and forwards.''

At p. 706 he said:

``It appears to have been held in a case at Leeds by Charles J. that unless money

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was actually handed over by the lender to the borrower, it could not be said that any note or memorandum was signed before the money was lent. In my judgment this is taking too strict a view of the meaning of sec. 6. I think money is lent within the meaning of that section if it is applied by the lender to the purposes of the borrower in any way which the borrower authorises.''

It may be that the words ``in any way which the borrower authorises'' go too far in that they would apply where the borrower handed the money back to the lender as a pure gift and not in the satisfaction of any obligation but, except to this extent, the statement cannot be challenged.

This case establishes that money is actually lent when it is applied to satisfy pre-existing obligations of the borrower to the lender. It excludes a possible meaning of ``actually'' lent, namely, paid without deduction of any kind. We are unable to see why this decision does not entirely support the contention of the respondent - the fact that the interest which was due, namely, interest for the first year, was deducted from the sum of $3,000,000, did not mean that there had not been an actual lending of $3,000,000.

In Dunn Trust v. Feetham (supra) the borrower from a moneylender had been made bankrupt and the moneylender had suffered loss in the bankruptcy. In order to obtain a second loan the moneylender extracted a promise to pay the sum of £50 out of the loan of £100 to compensate for the loss suffered in his bankruptcy.

The Court of Appeal held that the transaction could not stand. Greer L.J. held that this £50 was interest for the purpose of the Moneylenders Act, being an amount in excess of the principal paid to the moneylender in consideration of the loan, but held that the loan was for £100. Slessor L.J. considered that it was a loan of only £50 and Roche L.J. held that the payment of £50 was part of the consideration of the loan. The payment of £50 was not to discharge any enforceable pre-existing obligation of the borrower. The decision casts no doubt on the previous decision. As Roche L.J. pointed out, the distinction between B.S. Lyle Ltd. v. Chappell and Dunn Trusts Ltd. v. Feetham was quite clear. These decisions were discussed by Sugerman J. (as he then was) in
Kirby v. Associated Securities Ltd., 64 S.R. (N.S.W.) 233 at p. 249 et seq. His Honour said at p. 251, summarising his understanding of the cases:

``If the lender cancels the first loan and advances the difference if any between the loans, he is entitled to say he has advanced the amount of the second loan.''

In our opinion, B.S. Lyle v. Chappell does not support the case for the appellant and it contradicts its fundamental premise. Dunn Trust Ltd. v. Feetham has nothing to do with the question whether the application of part of the money lent to the satisfaction of a simultaneous or virtually simultaneous obligation means that the sum expressed to be lent is not the sum actually lent, and the sum actually lent is the sum expressed to be lent, less the sum applied. These authorities do not compel a finding that the sum lent was $3,000,000, assuming the issue was one of law.

The respondent supported the decision of Sheppard J. by an independent line of argument.

It was not in issue that this was a fixed loan as defined. Section 82B(3)(a) provides:

``The applicable rate of interest in relation to a fixed loan is:

• (a) Where the terms of the loan provide that the whole of the interest on the loan is to be paid at a rate of simple interest that is constant throughout the term of the loan - that rate expressed in terms of a rate per centum per annum;...''

Counsel for the respondent submitted that where there was a fixed loan the sum actually lent could not differ from the amount as expressed in the agreement. He pointed out that sec. 82B(3)(a) makes no provision for the loan to which it applies being different from the amount agreed to be lent.

Further, the only departure from the terms of the loan as expressed in the agreement of the parties is the conversion of the rate of interest as expressed into a rate per annum. For example, if the agreement provided for interest at a rate per month, it has to be converted into a rate per annum. Interest

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means interest as defined, and if sums which have to be included as interest, which are not so described in the agreement, are due, it is unlikely that there will be a fixed loan. If the paragraph is given effect to literally, the rate of interest is always specified in the agreement. This being a fixed loan, there is no basis for a finding that the rate of interest is different from that specified. In our opinion this argument is correct.

The appeal fails and is dismissed with costs.

ORDER:

Appeal dismissed with costs.