Caveats and Stamp Duty by TurksLegal

Caveats and Stamp Duty A PAPER BY PAUL ANDERSON AUGUST 2009

Caveats and Stamp Duty

Summary A recent Supreme Court decision emphasises the need to stamp a mortgage as deďŹ ned before lodging for registration a caveat to secure the mortgagorâ&#x20AC;&#x2122;s obligations.

Who Does This Impact? Any business that secures the obligations of its customers by a charge or mortgage coupled with a caveat.

What Action Should Be Taken? Such businesses should review their procedures to ensure that all relevant documents are stamped.

Contents:

TURKSLEGAL

Facts

Statutory Provisions

Decision

Further Caveat

Mortgages Generally

Conclusion

PAPER

Caveats and Stamp Duty by Paul Anderson

The recent Supreme Court decision of Boral Recycling Pty Limited v Wake handed down on 21 July 2009 has emphasised the need for care in stamping a caveat, or the underlying document it secures.

Facts On or about 3 October 2008, the parties executed a Guarantee and Indemnity. Under clause 9 of that document the defendants (the ‘Guarantor’) agreed to ‘charge all their equitable interest in freehold or leasehold property’. The Guarantor further agreed to deliver to the plaintiff within seven days of demand a properly executed Memorandum of Mortgage. A caveat was registered at LPI NSW to secure the plaintiff’s interest under the Guarantee and Indemnity and the matter came before the Court on an application to extend the caveat. Clause 9 did not expressly authorise the plaintiff to lodge a caveat. There is authority, i.e. the 1994 Court of Appeal decision of Troncone v Aliport Aliport, that such an authority is enough in itself to justify the lodging of a caveat. It followed that if clause 9 was 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 required by them. The Guarantee and Indemnity had not been stamped. The defendants argued that as a result it was unenforceable as was the registered caveat. Further, the problem could not be cured by standing the matter down in the list to enable the plaintiff to stamp the document. The question of enforceability is to be determined at the date the caveat was lodged and as at that date the mortgage or charge was unenforceable and this could not be saved by subsequent stamping.

Statutory Provisions The interest created by clause 9 was clearly a ‘mortgage’ as deﬁned in the Duties Act 1997 and liable for stamp duty as such. Under section 227, stamping of a caveat to secure a mortgage can be handled in one of two ways, namely: •

If the mortgage is not stamped, the caveat can be stamped for the same amount as is chargeable on the mortgage; or

•

If the mortgage is stamped, the caveat can effectively be stamped as a collateral security in the sum of $50.

Section 211 of the Act is in the following terms: 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 question of admissibility into evidence is dealt with separately in Chapter 12 of the Act.

TURKSLEGAL

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Caveats and Stamp Duty by Paul Anderson

In summary, section 304 provides that an instrument liable for duty cannot be tendered in legal proceedings unless: •

Stamped; or

•

An arrangement is made acceptable to the Court, e.g. by undertaking, that the instrument will subsequently be transmitted to the Chief Commissioner for the purpose of payment of stamp duty including any applicable interest or penalty.

Decision McDougall, J held that, although the problem as far as admissibility was concerned could be cured under section 304, that would not cure the problem under section 211. The wording of the section was quite clear. If the mortgage had not been stamped, it was unenforceable as was the caveat. His Honour could ﬁnd little authority on the point with the exception of a 2002 decision of Young, CJ in Eq of Neoform Developments and Interiors Pty Limited v Town and Country Marketing Pty Limited which dealt with the question peripherally. In that case, the Judge considered that an unstamped mortgage was unenforceable. The particular provisions of section 211 applied over the general provisions of section 304 or the latter section ‘gives way in the case of mortgages’. Furthermore, the relevant date for assessing enforceability was the date the caveat was lodged. His Honour concluded that there was no point in adjourning the proceedings to enable the Guarantee and Indemnity to be stamped. The caveat was bad and there was no point in ordering its extension. His Honour added a warning note in the following terms: 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.

Further Caveat At ﬁrst sight, the lapsing of the caveat might appear not to be a disaster. On this view, the caveator in this case could subsequently stamp the Guarantee and Indemnity and then lodge a new caveat at LPI. However, section 74O of the Real Property Act Act, 1900 provides that, if a caveat lapses, then a further caveat ‘in respect of the same estate, interest or right and purporting to be based on the same facts as the ﬁrst caveat’ has no effect without the consent of the registered proprietor or an order of the Court.’ Possibly, the Plaintiff in the subject case should have applied as soon as judgment was delivered for relief under Section 74O.

TURKSLEGAL

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Caveats and Stamp Duty by Paul Anderson

Mortgages Generally It is also necessary to bear in mind that mortgage duty has been abolished in respect of certain instruments as part of a programme to abolish mortgage duty entirely by 1 July 2012. At the present time, mortgage duty has been abolished in respect of: •

A mortgage to secure an advance to an individual for the purpose of owner occupied housing; and

•

A mortgage to secure an advance to an individual for the purpose of investment housing.

‘Investment housing’ means any private dwelling house that is used or intended to be used or sold for investment or business purposes. This appears to leave the following liable for stamp duty until 1 July 2012: •

Mortgages by companies;

•

Mortgages by individuals where the security is not a private dwelling house e.g. a factory or ofﬁce; and

•

Other mortgages which do not come within the strict deﬁnitions of purpose for owner/occupied housing (section 221B) or purpose for investment housing (section 221C).

Conclusion The decision emphasises the need to stamp mortgages as deﬁned before lodging a caveat. Failure to do so can result in loss of the caveat as security. Where signiﬁcant amounts are involved, it can be a clear case of ‘penny wise and pound’ foolish.

TURKSLEGAL

PAPER

Caveats and Stamp Duty by Paul Anderson

For more information, please contact:

Paul Anderson Partner T: 02 8257 5742 paul.anderson@turkslegal.com.au

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