STAMP DUTY IMPLICATIONS IN AN ‘OPEN’ OR ‘ALL MONIES’ MORTGAGE
| Date | 01 December 1993 |
| Published date | 01 December 1993 |
| Author | RAVI CHANDRAN |
| Citation | (1993) 5 SAcLJ 102 |
Banks and Finance Companies commonly agree to loan or advance monies without a pre-set limit by creating an ‘open’ or ‘all monies’ mortgage in their favour. The aim of this article is to examine the amount of stamp duty payable on such a mortgage1.
In order to have a more complete understanding it is first necessary to examine the law prior to 1980.
Article 46 of the First Schedule to the then Stamp Duties Act2 provided that ad valorem stamp duty was payable on any mortgage being the only or principal or primary security, at a rate of $4.00 for the first $1,000.00 repayable and at the rate of $5.00 for every further sum of $1,000.00 or any part thereof, repayable.
In addition, Section 28(1) of the Stamp Duties Act provided that where the security was limited3, stamp duty was payable to the extent of the limit4.
Thus in the case of a term loan for example, if the mortgage instrument stated that the property was mortgaged to the extent of $200,002.00, i.e the security was limited to that amount, then stamp duty was payable on that whole amount.
On the other hand, Section 28(2) of the then Stamp Duties Act stated that where the security was unlimited, the security was available only to the extent that ad valorem stamp duty impressed thereon was sufficient to cover
and that any advance or loan made in excess of the amount so covered, would be treated as a new and separate instrument.
This effectively meant that when an advance or loan was made in such excess, the mortgage had to be upstamped5 as the loan or advance was treated as a new and separate instrument. Section 6(b) of the then Stamp Duties Act6 also led to a similar result.
Thus, in the case of a term loan for example, if the mortgage was an ‘open’ or ‘all monies’ one and had not stated, the extent to which the mortgaged property was security for, i.e the security was unlimited7, then the security was available only to the extent that stamp duty impressed thereon was sufficient to cover. Thus if initially a facility of $100,001.00 was granted and the mortgage was duly stamped for that amount, but subsequently a further facility of $100,001.00 was granted, the second facility would be treated as a new and separate instrument and mortgage would thus have to be upstamped8.
It will be noted from the illustrations above that irrespective of whether the security was initially stated to be limited or unlimited, in either case the mortgaged property was ultimately security for $200,002.00 and in either case the amount of stamp duty ultimately payable was similar.
If not for Section 28 and Section 6(b) it would always have been possible to circumvent the Act and pay a lesser duty simply by stating the security to be an unlimited one, thereby having to stamp the mortgage instrument only once, at the time when the first facility was granted and to the extent of the first facility.
It would thus appear that real purpose why a further facility was treated as a new and separate instrument under the Act was to prevent the possibility of the Act being circumvented and Section 28 sought to achieve this by in effect imposing,in all cases where the security was ultimately for the same amount, a similar amount of stamp duty, whether or not the security was initially stated to be limited or unlimited.
Though under an ‘open’ or ‘all monies’ mortgage where the security was unlimited, each time a further facility was granted, that further facility was treated as a new and separate instrument and the mortgage had therefore to be upstamped, the failure to so upstamp did not affect the mortgagee’s existing security which was covered by stamp duty. The following cases illustrate the point:
(a) In re Waterhouse’s Policy9, a debtor assigned his insurance policy worth $500.00 to the Bank to secure an overdraft. The assignment was stamped to cover $500.00, but the overdraft when the policy matured exceeded $500.00. The total amount payable by the insurance company, including bonus, when the policy matured was $963.00. The bank put in a claim for $500.00 but the insurance company refused to pay anything contending that the overdraft was insufficiently stamped as the total indebtedness exceeded $500.00. Farwell J deciding that the Bank was entitled to the $500.00 held that10,
“where the total amount is unlimited, as for instance in this case where the Bank permits one of its clients to overdraw his account and there is no fixed limit placed upon the amount allowed in overdraft,.…,there is no necessity to stamp the security for any amount greater that the amount for which the Bank relies upon it as security for the loan. By that I mean that if a Bank chooses to take security for an overdraft and stamps that security with a stamp which is only sufficient to cover a limited sum,then, as the result of Sub-S.2 the Bank is precluded from claiming either in a Court of law or elsewhere that the security which it has is a security for any greater sum than that which the stamp on it covers”.
(b) Similarly in the Australian case of Home v Walsh11, a company had given a debenture by way of a floating charge to secure advances to it. Upon default being made on the debenture, receivers and managers were appointed by the debenture holder. Subsequently a petition for winding up was presented and liquidators were appointed.
The debenture in question was initially stamped to cover a security of $25,000.00. However, the amount ultimately advanced exceeded $25,000.00. Nonetheless, the amount outstanding when the question of admissibility of the debenture was raised was only $15,892.00. The liquidators disputed the debenture holder’s claim to this amount on the ground that the debenture was insufficiently stamped. Anderson J held that the debenture was not insufficiently stamped and that it was not necessary for the debenture holder to have upstamped the debenture
when advances exceeding $25,000.00 were made if the debenture holder did not intend to rely on the debenture to an extent greater than $25,000.00.
Thus, if the mortgagee did not intend to rely on the security to an extent greater than the amount covered by the existing stamp duty, which would have been the case if the value of the security had fallen12 or if monies had been repaid13, then it would appear from the cases cited above that the mortgage did not have to be upstamped each time a further facility was granted14.
However it is important to note that, while the failure to upstamp did not affect the mortgagee’s existing security, it nonetheless had various other implications 15.
Thus, the law as it stood prior to 1980 was clear. Where the security was limited, stamp duty was payable to the extent of the limit. Where the security was unlimited,as would likely be the case under an ‘open’ or ‘all monies’ mortgage, each time a further facility was granted, the...
To continue reading
Request your trial