McCaughey v Commissioner of Stamp Duties (NSW) [1914] HCA 45; (1914) 18 CLR 475 (4 September 1914)

McCaughey Appellant; and The Commissioner of Stamp Duties (New South Wales) Respondent.

With all respect to the majority of the learned Judges of the Supreme Court this case seems to me, when stripped of irrelevant matter, to be quite simple, and, indeed, hardly arguable.

The question is whether the deed of 23rd April 1912 was a conveyance or transfer on sale of property within the meaning of the Stamp Duties Act 1898. The term "conveyance" is defined as meaning "any instrument or deed whereby property is vested in any person or transferred or conveyed from one person to another." The test to be applied is, therefore, whether after the execution of the instrument any property became vested in the alleged transferee which was not vested in him before that execution.

The relevant facts lie in a short compass. In 1911 the appellant was a member of two partnerships, one consisting of himself and John McCaughey, and the other of himself, John McCaughey and one Vincent. The partnership assets consisted in both cases of pastoral property, comprising land, stock and the usual accessories, the legal title to the land being vested in the appellant, who in both cases held a predominant interest. By the deeds of partnership he declared himself a trustee for the members of the respective firms of the land, stock and premises.

In the beginning of 1912 the appellant had agreed to buy out the shares of his respective partners as from 31st December 1911. This, of course, entailed a dissolution of the partnerships as from that day. The pecuniary consideration which he was to give, which was very large in both cases, is not material, nor is it material to consider the mode in which it was to be paid. Shortly afterwards the appellant had agreed to sell to third persons for a lump sum the whole of the property which had been partnership assets.

The contracts for purchase or dissolution may be regarded as in the first instance executory, but no conveyance was necessary to give effect to them so far as regards the land of which the appellant was already the sole legal owner. So far as regards the stock and other chattels the possession remained in him as continuing partner. He was, therefore, able to transfer the whole property to his purchasers without the aid of any assurance from his former partners beyond the contracts of sale or dissolution, which are not now in question.

Under these circumstances the deed of 23rd April was executed, which was made between the appellant of the first part, John McCaughey of the second part, and Vincent of the third part. After reciting the previous partnerships, and that the appellant had bought his co-partners' shares, and that it had been agreed that the partnerships should be dissolved, and further that the appellant had agreed to sell the whole of the properties to third persons for £250,000, and that the parties had agreed to enter into the agreement testified by the deed, the deed witnessed that in pursuance of the said agreement and in consideration of the premises (1) the several parties dissolved the two partnerships, which should be deemed to have been dissolved as on and from 31st December 1911; (2) the parties of the second and third parts ratified and confirmed the sale by the appellant to the third parties, and requested him to transfer and assign the station properties, stock, plant and chattels, or so much thereof as might be absolutely vested in him or as to which he might have declared any trust in their favour, to the purchasers in terms of his agreement for sale; (3) the appellant covenanted to pay all partnership debts and costs of sale; and (4) each of the parties mutually released the others from all claims in respect of partnership dealings up to and inclusive of 31st December 1911.

It will be observed that the deed contains no reference to the prices agreed to be paid by the appellant to his partners for their shares in the partnership properties. Whatever the stipulations were as to payment they remained unaltered.

My difficulty has been to discover what part of this deed can be suggested to be a transfer of property. So far as I could apprehend the argument for the respondent, principal reliance is placed upon the release. But, in my opinion, it is impossible to construe a release of debts or claims as a conveyance within the meaning of the Statute. Even if it were possible, the release now in question relates exclusively to matters antecedent to the sales and has no concern with the consideration for the sales.

The legal effect of the request to convey to third persons is at most a direction to a trustee by beneficiaries to convey trust property. It has never been suggested that such a direction is a conveyance to the trustee.

The making of such a formal request was probably unnecessary under the circumstances, but some ingenious person may have suggested that the retiring partners possibly retained some equitable interest in the partnership assets.

In no aspect of the case can any part of the deed be regarded as operating as a conveyance or transfer of property.

The test of whether the deed of 23rd April 1912 is a conveyance within the meaning of the Stamp Duties Act 1898 (for if it is, the sale is not disputed) is in my opinion this: Does it appear from the language of the deed itself, as applied to the circumstances with reference to which it was made, that the parties intended thereby to make the partnership property of all three the separate property thenceforth of Sir Samuel McCaughey?

That is the method pointed out by the cases, as, for instance, Wale v. Commissioners of Inland Revenue[1]; Commissioners of Inland Revenue v. Angus[2]; West London Syndicate v. Inland Revenue Commissioners[3], and Chesterfield Brewery Co. v. Inland Revenue Commissioners[4].

In Wale's Case[5] the question was whether the document was a fresh mortgage or the transfer of an existing mortgage. Kelly C.B. said[6]:—"I asked who possessed that mortgage the day before the instrument in question was executed, and who possessed it just after the execution? ... The particular mode and form in which the change or transfer was carried out, do not affect the question."

The case of Hutton v. Lippert[7] states and exemplifies the principle which should govern this appeal. There a deed was made which for money consideration enabled another to "deal with it" (the property) "as he thinks fit." The Judicial Committee held it was a sale. Sir Robert P. Collier says[8]:—"The effect of the transaction was to give Ekstein every right which a vendor could legally claim, and to confer upon the defendant every right which a purchaser could legally demand. Does it make any difference that the parties have called this transaction by the name of a guarantee?"

In the present case all that is necessary is the grant of the shares, not the payment for them; and if the effect of the deed is either expressly or by implication to enable Sir Samuel McCaughey to do with the partnership property all that an express grantee could do, and this in consideration of the recited purchase of the shares, it seems to me the partnership property is thereby irrevocably converted into Sir Samuel's several property, and the deed must be regarded as in substance a transfer.

Cullen C.J. and Harvey J. thought it was such a transfer. Ferguson J. was of the contrary opinion. The grounds of his opinion are contained in these words, which relate to the partnership between Samuel and John: "According to my view, Sir Samuel, instead of taking the contemplated transfer to himself, and then transferring to the sub-purchasers, obtained by the deed in question John McCaughey's concurrence in the transfer to the sub-purchasers. The deed is not the completion of the original transaction; it is the fulfilment of a condition necessary for carrying out a substituted transaction."

That has been made the central idea upon which the appellant's argument before us has turned. It really involves much more than the construction of this deed: it involves the cardinal notion of what is meant by a share in a partnership as distinguished from joint ownership of the property belonging to the partnership. It assumes that the property sold by Sir Samuel McCaughey to Vincent and Robinson was identical with the property sold to him by his co-partners, and it treats Vincent and Robinson as "sub-purchasers." The observation that the transaction is a "substituted transaction" is consequential. But, with the greatest deference to Ferguson J., there is a fallacy in the position. The property sold by Sir Samuel to his purchasers was the concrete land as land, and the stock and chattels as such. What he bought from his co-partners was not realty, and was not so many head of cattle or so much plant. The nature of a share in a partnership as stated in Lindley on Partnership, 7th ed., at p. 377, is, in substance, quoted by Pollock on Partnership, 8th ed., at p. 74, in these words: "The share of a partner in the partnership property at any given time may be defined as the proportion of the then existing partnership assets to which he would be entitled if the whole were realized and converted into money, and after all the then existing debts and liabilities of the firm had been discharged."

It is a fundamental principle in partnership law that in equity land held for partnership purposes is regarded as personal property, being affected with an eventual trust for sale: Waterer v. Waterer[9]. The reasons are clearly stated by Bowen L.J. in Att.-Gen. v. Hubbuck[10]. That may be altered by an agreement to the contrary: In re Wilson; Wilson v. Holloway[11]. This rule is now Statute law (Partnership Act 1892 N.S.W., sec. 22).

It is evident, therefore, that John could not have properly transferred in specie an equitable interest in exactly one-fifth of the land (see In re Ritson[12]); indeed, if he were behind in his firm contributions he might not be entitled to one-fifth of the partnership property as such. And it is equally evident that consenting to Samuel selling the land, &c., direct to Vincent and Robinson and getting in return £250,000, which represented the partnership property in a changed form, could not be a substitution for transferring to Samuel a fifth share in—say, for brevity sake—the £250,000 itself.

Consenting to the one—namely, the entire disposal of the substratum of the partnership—is not in all circumstances a surrender of a partnership interest in the proceeds. Whatever be the nature of the deed the only reason given for its not being a transfer does not hold. Still, it must be shown that it is in substance a transfer of the partnership interests, in other words a change of those interests into Samuel's own separate property.

After examining the deed closely and gathering its intention and substance from its language read in the light of the surrounding circumstances, I have arrived at the conclusion that it does amount substantially to such a transfer, and that the majority of the Supreme Court were right.

In the first place, it is made exclusively between the partners. It recites that the partnership business was that of "sheep and cattle breeders and graziers," a weighty circumstance being that it did not include carrying on other graziers. I say so, because the contract of sale between Samuel and his purchasers contains a provision to carry them on (clause 3). Then the deed recites that Samuel had purchased the shares of John and Vincent. This is certainly a most significant recital, because it is clearly the basis of some of the succeeding provisions. The shares were in fact purchased on 15th January 1912 and 4th March 1912. The deed recites an agreement to dissolve the partnership as from an antecedent date, 31st December 1911, which was in fact the period fixed by the prior agreements. The antecedent arrangements respectively made by the prior agreements for payment for the shares are of great importance to both sides, and will be more conveniently referred to later.

The deed then proceeds "in pursuance of the said agreement and in consideration of the premises"—which includes the purchase by Samuel of the other partners' shares—to declare the dissolution of the partnership of "McCaughey & Co." And then the retiring partners in the one partnership ratify and confirm the sale by Samuel to Vincent and Robinson of the whole of their partnership property, and request and authorize him to transfer and assign Dunlop and Nocoleche Station properties and the stock and chattels thereon. That sale was one by which Samuel had contracted for himself and not for the partnership. It was made on his own behalf, binding, not the other partners, but "himself and his executors and administrators," to financially assist the purchasers.

Such a term (clause 3) was quite outside the ambit of the partnership deed; and, in truth, it was admitted in argument that that agreement was always regarded as his own separate bargain. A ratification and confirmation of the sale could not in law in the circumstances be such as to make the other partners parties to it (Keighley, Maxsted & Co. v. Durant[13]); but read with the recited purchase of the shares, it was obviously for the purpose of admitting that Samuel had the right when it was made of selling it on his own behalf, and receiving the purchase money for himself absolutely.

In other words, it is an acknowledgment that the property sold and its proceeds, the purchase money, are up to that moment partnership property, the previous agreements being merely executory, but are now and henceforth to be several and not partnership property. I regard this clause as perhaps the most definitely suggestive clause in this respect.

The clause of authority, request and direction to transfer is both complemental to the preceding provisions and to allay any possible questions on the part of the purchasers. It reads to me as a distinct abandonment of any rights on the part of the retiring partners.

As to the other partnership, the parties also declare "in consideration of the premises" it is dissolved as from the date, and again the individual sale by Samuel is ratified and confirmed, and its due carrying out authorized and directed. To my mind the methodical care with which the ratification and direction are duplicated, so as to apply expressly and directly to each partnership in turn, is a mark of the intention, not merely to give personal authority and direction for the carrying out of the combined sale by Sir Samuel, but to regard, as to each separate partnership, the whole rights as passed to him, and to wind up the whole of the inter-relations of the parties to the deed so far as they were not already provided for.

It was evident to the parties that if Sir Samuel were by the deed invested with the shares of the other partners—if he as against them henceforth was entitled to retain all the property and profits—he must immediately indemnify them against the debts and liabilities which run with the shares; and not otherwise. Accordingly we find an unqualified and instantly operating covenant by Samuel to pay all such debts and liabilities, down to and including the sale of the properties.

Then come mutual releases. These releases do not, in my opinion, include the purchase money for the shares, and do not come to a later period than 31st December 1911. But, nevertheless, they give rise to two observations. First, they are the indication of a complete settlement between the parties so far as they thought it necessary. There was no necessity, and it would have been highly inaccurate for the following reasons, to have included in the releases the purchase money for the shares.

As to John, the agreement of 15th January 1912 provided that none of it was to be paid to him, but was to be set off against his debt to Samuel, and as to Vincent the agreement of 4th March 1912 provided similarly.

Those proceeds were thus already merged in existing individual indebtedness, and were in effect paid.

No further deeds or documents have been executed or considered necessary between the parties. True, as stated in Lindley on Partnership, 8th ed., p. 520, a mere dissolution with release of claims is not a sale. The transaction is not a "sale" because the retiring partner gets no consideration; he gets on the suggested facts only what is due to him, and if he thereupon surrenders his interest in the assets it is not upon sale. But the learned author does not say it is not a transfer, and that is all that is in issue here.

Here, there was admittedly a sale, and the only question is whether this deed, among other things, carried out the sale. If it did not, then, as there is no division of assets, Sir Samuel McCaughey must yet get an assignment in order to protect the £250,000. But that, in the face of the deed itself, and fairly and reasonably construed, would be an absurdity.

Appeal allowed. Order appealed from discharged. Order varied as follows:—Question 1 answered in the negative. Question 2 answered "The duty payable is one pound." Question 3 answered "Costs of special case to be paid by respondent." Respondent to pay costs of this appeal.

Solicitor, for the respondent, J. V. Tillett, Crown Solicitor for New South Wales.

[1] 4 Ex. D., 270.

[2] 23 Q.B.D., 579.

[3] (1898) 2 Q.B., 507.

[4] (1899) 2 Q.B., 7.

[5] 4 Ex. D., 270.

[6] 4 Ex. D., 270, at pp. 276, 277.

[7] 8 App. Cas., 309.

[8] 8 App. Cas., 309, at p. 313.

[9] L.R. 15 Eq., 402.

[10] 13 Q.B.D., 275, at p. 289.

[11] (1893) 2 Ch., 340, at p. 343.

[12] (1898) 1 Ch., 667, at p. 669.

[13] (1901) A.C., 240.

High Court of Australia

McCaughey v Commissioner of Stamp Duties (NSW) [1914] HCA 45; (1914) 18 CLR 475 (4 September 1914)

HIGH COURT OF AUSTRALIA