Dwight v Commissioner of Taxation

[1992] FCA 178

Re: GARY EDWIN DOWLING and CATHERINE MAREE DOWLING
Ex parte: RICHARD ANDREW GAGIE
And: STATE BANK OF NEW SOUTH WALES
No. N X487 of 1986
FED No. 178
Bankruptcy

COURT

IN THE FEDERAL COURT OF AUSTRALIA

BANKRUPTCY DISTRICT OF THE STATE OF NEW SOUTH WALES
GENERAL DIVISION
Morling J.(1)

CATCHWORDS

Bankruptcy - bank - overdraft extended to customer - mortgage given as security - preference - mortgage executed outside relation-back period but dated within that period - mortgage stamped inadequately - application to declare mortgage a preference - whether evidence admissible to prove correct date of execution of mortgage

Bankruptcy Act 1966, s. 122(1)

Stamp Duties Act (NSW) 1920, s.29(1)

HEARING

SYDNEY

#DATE 14:4:1992

Counsel for the appellant: G.M. Watson

Instructed by: Adams Leyland

Counsel for the respondent: B.J. Skinner

Instructed by: Carmody Crampton

ORDER

THE COURT ORDERS AS FOLLOWS:

1. Application dismissed.

2. Applicant to pay respondent's costs.

Note: Settlement and entry of orders is dealt with in Rule 124 of the Bankruptcy Rules.

JUDGE1

On 30 January 1987 Richard Andrew Gagie ("the trustee") was appointed trustee of the estates of Gary Edwin Dowling and Catherine Maree Dowling pursuant to a deed of assignment executed by them on that date. The trustee has applied to the Court for an order that a mortgage dated 25 August 1986 in favour of the State Bank of New South Wales ("the bank") be set aside as a preference. The application is brought pursuant to sub-s.122(1) of the Bankruptcy Act ("the Act") 1966 which provides as follows:

"122(1) A conveyance or transfer of property, a charge on property, or a payment made, or an obligation incurred, by a person who is unable to pay his debts as they become due from his own money (in this section referred to as 'the debtor'), in favour of a creditor, having the effect of giving that creditor a preference, priority or advantage over other creditors, being a conveyance, transfer, charge, payment or obligation executed, made or incurred -

(a) within 6 months before the presentation of a petition on which, or by virtue of the presentation of which, the debtor becomes a bankrupt; or

(b) on or after the day on which the petition on which, or by virtue of presentation of which, the debtor becomes a bankrupt is presented and before the day on which the debtor becomes a bankrupt,

is void as against the trustee in the bankruptcy."

1. Pursuant to sub-s 231(2) of the Act, sub-s 122(1) applies in relation to an estate which is the subject of a deed of assignment as though the estate is being administered in bankruptcy.

2. There is no real dispute as to the facts. In 1985 Mr Dowling opened an account with the bank and was given a temporary overdraft facility. On 10 April both Mr and Mrs Dowling applied to the bank for a term loan advance and for overdraft accommodation. This application was approved on 23 April 1986. On 30 April 1986 Mr Dowling executed a mortgage instrument in favour of the bank over property at 103 Main Street, Young. On the day it was executed no date was placed on the mortgage document. On 25 August 1986 it was dated as of that date and stamped by the bank with a 50 cent adhesive stamp. This stamp was appropriate to a $15,000 advance. On 20 November 1986 the mortgage document was lodged with the Stamp Duties Office and further stamp duty paid at the rate applicable to the amount then advanced. The payment of the further duty on 20 November was referred to in argument as "up stamping" and I shall adopt that term in these reasons.

3. The six months relation back period referred to in sub-s 122(1) of the Act commenced on 30 July 1986, i.e. six months prior to the entry into the deed of assignment on 30 January 1987.

4. The property at Young has been sold and upon settlement the bank claimed an entitlement to the balance outstanding to it under the mortgage. That sum has been secured to the satisfaction of the parties pending the outcome of the current proceedings.

5. To succeed in the application the trustee must establish, inter alia, that at the time the mortgage was granted Mr Dowling was unable to pay his debts as they became due from his own money. Mr Skinner, counsel for the bank submitted that the evidence does not establish that this was the case. However, Mr Dowling said in evidence that by August 1986 he was unable to meet his debts, from his own money, as they fell due. I am satisfied this was the case. It is true that Mr Dowling also said that it was not until December 1986 that he became unable to pay his debts as they fell due, but it is plain that he was using the bank's money, not his own, to meet his debts on 25 August 1986.

6. The trustee must of course establish that the mortgage was entered into within the six months relation back period. He sought to establish the date of execution of the mortgage by the tender of the mortgage document, i.e. 25 August 1986, a date within the relation back period. Counsel for the bank submitted, however, that it was open to his client to adduce evidence as to the actual date upon which the mortgage was executed, notwithstanding the different date appearing on the face of the document. He relied upon Re Douglas; ex parte Starkey (1987) 75 ALR 97.

7. In Douglas Pincus J rejected a submission that extrinsic evidence was inadmissible to show that a bill of sale was executed on a certain date rather than on the date which it bore. He observed, at p 100, that in Dillon v Gange (1941) 64 CLR 253 the High Court assumed that the date shown on an agreement may be contradicted: see especially per Williams J at 264. I agree that the date shown on an agreement may be contradicted by extrinsic evidence.

8. In the present case, the evidence as to the date upon which the mortgage instrument was executed plainly contradicts the date on the instrument itself. It is not disputed that the evidence, if admissible, establishes beyond any doubt that the date of execution was 30 April 1986. But Mr Watson, counsel for the trustee, submitted that this evidence is inadmissible. He argued that the 50 cent duty stamp affixed to the instrument and cancelled was insufficient if the document was indeed signed on 30 April, since an additional amount of duty was payable by way of fine for late stamping.

9. In support of his submission, Mr Watson referred to sub-s 29(1) of the Stamp Duties Act 1920 which provides, relevantly, that no instrument executed in New South Wales shall be given in evidence "or admitted to be good, useful or available in law or equity for any purpose whatsoever" unless it is duly stamped in accordance with the law in force at the time when it was first executed.

10. The mortgage instrument was tendered in the trustee's case without objection. It purports to be sufficiently stamped but it would appear that a small fine was payable on the document when it was first stamped, but that it was not paid. Mr Watson submitted that, accordingly, the document was not duly stamped and that secondary evidence was not admissible to prove its contents. He relied upon Ash Street Properties Pty Limited v Pollnow (1987) 9 NSWLR 80. In that case the tender of an unstamped document was rejected but the trial judge accepted secondary evidence of the existence and contents of the document to prove what was alleged to be the common intention of the parties. It was held on appeal that the trial judge erred in allowing secondary evidence of the document to be given.

11. The facts of the present case are quite different from the facts in Ash Street Properties. In this case the mortgage document was put into evidence in the applicant's case. Nothing that is said in Ash Street Properties is authority for the proposition that evidence may not be given to contradict the date of a document which is already in evidence, if it is insufficiently stamped. I see no reason why evidence as to the actual date of execution of the mortgage is inadmissible. That evidence shows that the mortgage was executed prior to the commencement of the relation back period, hence it is not caught by s.122 of the Bankruptcy Act.

12. If it were impermissible for a party against whom an insufficiently stamped document is tendered to call evidence to establish its correct date of execution, it is difficult to see why it would be permissible for the party to call evidence to establish its correct meaning when, for example, it contains an ambiguity. This would be an extraordinary result.

13. Had I been of the opinion that the failure to fully stamp the mortgage document in August 1986 prevented the bank from calling evidence to establish when it was executed, I would have afforded the bank the opportunity of paying the small fine involved to the Stamp Commissioner. Upon payment of the fine, no question as to the efficacy of the document would have arisen: see Shepherd v Felt and Textiles of Australia Ltd (1931) 45 CLR 359 at 383. In that event, any objection to the evidence would have disappeared.

14. Mr Watson accepted that Shepherd establishes that when a document is stamped it is as efficacious from the date of execution as if it had never fallen within the operation of s.29 of the Stamp Duties Act. Nevertheless, he submitted that the retrospective validity of the mortgage was only as to the extent of $15,000 which was the amount of the bank's advance as at 25 August 1986 when it was first stamped. He contended that if the mortgage had been granted on 20 November 1986 when it was up stamped it would have amounted to a preference as at that date. However, once it is established, as it is, that the mortgage was entered into and took effect prior to the commencement of the relation back period it is not caught by s 122 and is wholly outside the reach of that section.

15. Mr Skinner, counsel for the bank, submitted that the application could not succeed in any event because the deed of assignment was in respect of the joint affairs and liabilities of both Mr and Mrs Dowling and there was no evidence establishing that the mortgage had the effect of giving the bank a preference, priority or advantage over creditors of both debtors. In view of my finding that the mortgage took effect prior to the commencement of the relation back period, I do not need to consider this submission.

16. For the above reasons the application is dismissed with costs.