Fncb Financial Ltd v. Collector of Stamp Revenue

DCSA000008/1976

IN THE DISTRICT COURT OF HONG KONG

HOLDEN AT VICTORIA

APPELLATE JURISDICTION

STAMP APPEAL NO. 8 OF 1976

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Coram: Judge Liu,Q.C. in Court.

Date of Judgment: 13th July, 1977

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JUDGMENT

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1. This is an appeal by way of Case Stated under S.18(1) of the Stamp Ordinance. Both parties are represented by counsel, and I have had the able assistance of counsel in this case to whom I am greatly indebted.

2. The appellant is a finance company which advanced a loan of $100,000.00 to a company by the name of Po Tung Loan and Land Investment Limited, and the advance was evidenced in writing by an agreement entitled "Short Term Loan" which is dated the 11th of November 1976. Pursuant to the agreement, no less than three documents were deposited with the appellant by Messrs. Po Tung Loan and Land Investment Limited (hereinafter referred to as "the borrower"). I will return to the terms and conditions of this "Short Term Loan" agreement in a moment or two.

3. The respondent, the Collector of Stamp Revenue, duly assessed stamp duty for this document under Head 37(1) of the Schedule to the Stamp Ordinance. The appellant had contended that the agreement in question was not a mortgage and should not be assessed as such, but that it was merely an instrument creating no more than a possessory lien over the deposited documents. This is the bone of contention in this appeal. I am told that this is a question of considerable importance and that this appeal is a test case.

4. Let me go back to the "Short Term Loan" agreement. Pursuant to Clause 2, the borrower deposited three documents with the appellant as lender/financier: the Licence Book of a vehicle, the Instrument of Transfer signed in blank by the borrower and the Insurance Policy. Under Clause 2, the appellant was expressly granted a contractual lien over the three documents deposited. By Clause 4 of the same agreement, the borrower duly appointed the appellant as its attorney and conferred on the appellant a power to sell, which power was exercisable on due date either upon demand or upon expiration of the loan period stated in the agreement. Clause 4(a) provides, inter alia, as follows: "(The managing director of the appellant as the borrower's attorney and for and in the borrower's name) to sell the abovementioned vehicle as the managing director shall in his discretion think fit without being liable for loss and generally to do and execute all such other matters, acts and things as may be necessary for the purpose aforesaid as fully and effectually as the undersigned (the borrower) might do." By Clause 4(b) of the same agreement, the appellant was empowered to apply the proceeds of sale towards repayment of any monies due from the borrower to the appellant. The managing director of the appellant was thus granted the power to sell in certain events and to repay any outstanding loan from the proceeds of sale.

5. I will deal with the arguments advanced on behalf of the appellant in the order of my own preference. Firstly, it is put by counsel for the appellant that the instrument creates no more than a lien simpliciter. Counsel for the appellant is conscious of the fact that a lien gives rise to no power of sale, and he seeks to counteract that basic concept by a submission that as the power of sale provided for in Clause 4 of the agreement was not immediately exercisable, in effect no power of sale is or has yet been granted. Secondly, counsel for the appellant argues that even assuming the agreement as having created more than a lien, there is no legal mortgage as it does not effect a transfer of any legal interest, and it is no equitable mortgage as there is no deposit of "title deeds". Thirdly, it is canvassed by counsel for the appellant that a distinction should be drawn between an executory power and an immediate power and that there is in fact no power of sale. This is a point taken independently though incidental to the counsel's earlier contention. Fourthly, counsel for the appellant submits that as the power of sale was not immediately exercisable, there was no charge at all created by this "Short Term Loan" agreement. Lastly, Mr. Allman-Brown rested on the possibility that this document might create a pledge.

6. I do not propose to outline the learned arguments advanced by Mr. Edmonds, certainly not out of discourtesy, as a substantial portion of his submissions will be incorporated in my judgment.

7. It is almost undeniable that a lien simpliciter would yield no right to sell. If at all any authorities need be cited in support of this simple proposition, one may turn to passages at page 217 Bowstead on Agency, 13th Edition as well as 27 Simonds page 163 para. 252. The "Short Term Loan" agreement includes a power for sale, and it enables the appellant to repay out of the proceeds the outstanding indebtedness due and owing for the time being by the borrower. Therefore, it is plain that the first submission of counsel for the appellant cannot succeed.

8. The documents deposited are fairly conceded by Mr. Edmonds as not being documents of title, but Mr. Edmonds has drawn my attention to the definition of "Mortgage" in the Stamp Ordinance. He refers in particular to the wordings "instruments constituting or being evidence of the title to any property whatsoever" in paragraph (d) and submits that those words are to be construed disjunctively by virtue of the word "or" and that "evidence of the title to any property whatsoever" does not fall into the category of documents of title. It is common ground that a Licence Book is no document of title, and the authorities cited by Mr. Allman-Brown have not been doubted. Vide Benjamin's Sale of Goods paras. 75 and 496, and Goode on Hire Purchase 2nd Edition p.595. Mr. Allman-Brown also relies heavily on the Warning on the back of a document which has been made by consent part of the Case Stated and marked "Bl". Mr. Edmonds does not challenge this proposition but mounts an attack from a different direction. He submits that the wording of para. (d) in the definition of "Mortgage" in section 3 of the Stamp Ordinance, "being evidence of the title to any property whatsoever", calls for a document of a nature much less than that of a document of title, and counsel for the Collector derives support from Pearson v. Rose & Young Ltd. (1) and an observation of Denning L.J., as he then was, in Central Newbury Car Auctions, Ltd. v. United Finance, Ltd. (2). These authorities do point staunchly to the fact that a log book, registration book or licence book of a vehicle is evidence of title. Mr. Allman-Brown's answer is that para. (d) should be construed narrowly and that apart from this being part of a statute similar to tax legislation, the opening words in the definition of "Mortgage" command a strict construction on the basis of ejusdem generis. "Evidence of title" should be given, so runs Mr. Allman-Brown's argument, a very restricted meaning and should be confined to documents tantamount or at least akin to a document of title. I do not find favour with arguments of counsel for the appellant. To accept his arguments would, in my view, do violence to the language in para. (d) of the definition of "Mortgage" in section 3 of the Stamp Ordinance. Furthermore, an equitable mortgage is created by an instrument or act "which, being founded on valuable consideration, shows the intention of the parties to create a security, or in other words, evidences a contract to do so". See p.12 Fisher & Lightwood's Law of Mortgage, 8th Edition. With this definition, para.(d) loses much of its significance.

9. I need say very little on the 3rd, 4th and the last submissions of Mr. Allman-Brown. As I have said before, the agreement plainly confers a power of sale, and the power, though exercisable upon the occurrence of certain events, is nevertheless a power of sale created forthwith to secure the repayment of a loan advanced by the appellant to the borrower. Para. (d) in the definition of "Mortgage" in section 3 of the Stamp Ordinance includes "any instruments creating a charge on any property whatsoever". Obviously, a charge is created, but I will come back to it later in my judgment. Lastly, the last straw of the appellant in this case, viz. the possibility of a pledge, must, in my view, also fail. There does not seem to be any pledge created by the document. There is no bailment of the three documents. There is a lien expressly stipulated for by Clause 2 of the "Short Term Loan" agreement, but there is no pledge. Whether or not in fact there is a pledge is quite irrelevant. The crux of the matter seems to be whether there is or whether there is also an equitable mortgage.

10. In my view, this is certainly not a lien simpliciter as Clause 4 also confers a power of sale. Clause 4(b) in particular empowers the appellant to pay the borrower's outstanding indebtedness from the sale proceeds. This document creates an equitable mortgage. It is submitted by Mr. Edmonds, with whose submission I concur, that according to the definition of an equitable mortgage set out at page 12 of Fisher & Lightwood's Law of Mortgage 8th Edition, this is doubtlessly an equitable mortgage. Counsel for the respondent has never contended that this is the sole legal relationship created by the document. It is common principle, and I do not propose to cite any authority for it, that an instrument should be stamped for its leading and principal object and that stamp duty cannot be avoided merely by including additional matter in the same instrument. This agreement creates an equitable mortgage independently of para. (d) in the definition of "Mortgage" in section 3 of the Stamp Ordinance. I also find favour with the submission that the licence book alone or accompanied by the other two documents is evidence of title. Counsel has referred me to Pearson's case as well as the case of Central Newbury Ltd. The licence book fits, in my view, fairly and squarely within the meaning of para. (d) in the definition of "Mortgage" in section 3 of the Stamp Ordinance. Furthermore, I was referred to the definition of an equitable charge at page 321 in Vol. 1 of Jowitt's Legal Dictionary 2nd Edition and at p.13 Fisher & Lightwood's Law of Mortgage, 8th Edition. Suffice it for me to say that the deposit of the licence book, instrument of transfer in blank and insurance policy as evidence of title creates an equitable mortgage of the vehicle as well as a charge. It is not uncommon that transaction not by nature a mortgage can, by the force of legislation, be included as a mortgage. An example of this can be found in the reference in para. 261 at p. 143 Vol. 24 Simonds in which a lien is said to have been included as a mortgage in the Law of Property Act 1925. There is no novelty therefore that documents or transactions not wholly in the nature of a mortgage could by legislation be deemed to be a mortgage, but that has really no relevance in this present appeal.

11. I hold firstly that document marked "A", the "Short Term Loan" agreement, is not a document creating only a lien simpliciter. I further hold that it is a document which creates an equitable mortgage and/or charge independent of para.(d) of the definition "Mortgage" in section 3 of the Stamp Ordinance. Lastly, I hold that this document creates for the purpose of para.(d) of the definition of "Mortgage" in section 3 of the Stamp Ordinance an equitable mortgage and/or a charge. It remains for me to answer the questions posed for my consideration in this appeal. I answer question (a) in the affirmative. Question (b) does not call for an answer. In the circumstances, the appeal do stand dismissed with costs on the Upper Scale with certificate for counsel.

Representation:

Mr. Allman-Brown instructed by Wilkinson & Grist for Appellant.

Mr. Edmonds, counsel for the Respondent.

(1) (1951) 1 K.B. 275 at p.289.

(2) (1956) 3 A.E.R. 905 at p.912 G.