Groongal Pastoral Co Ltd (In Liq) v Falkiner [1924] HCA 54; (1924) 35 CLR 157 (15 December 1924)

HIGH COURT OF AUSTRALIA

Groongal Pastoral Company Limited (In Liquidation) Plaintiff, Appellant; and Falkiner Defendant, Respondent.

H C of A

On appeal from the Supreme Court of New South Wales.

15 December 1924

Isaacs A.C.J., Gavan Duffy and Starke JJ.

Leverrier K.C. and Weston, for the appellant.

Flannery K.C. (with him Hammond and Stuckey), for the respondent.

Leverrier K.C., in reply.

The Court delivered the following written judgment:—

Dec. 15

Isaacs A.C.J.,

Gavan Duffy and Starke JJ.

On 29th March 1912 the respondent executed in favour of the appellant a mortgage, under the Real Property Act 1900, to secure the repayment of £120,000 and interest at 4 per cent per annum. The mortgage was duly registered, and on 1st September 1921 was duly discharged under the provisions of the Act. The Company over a series of years paid, to the Federal Government and to the Government of the State of New South Wales, income tax upon income including the interest it received from the respondent. By an action at common law it seeks to recover from him the total amount of the tax so paid. The appellant's case rests on the second clause of the mortgage. It will be desirable to quote that clause together with the preceding clause. They run as follows:—"Firstly: That I will pay to the Groongal Pastoral Co. Limited hereinafter called the mortgagee in Sydney the above sum of one hundred and twenty thousand pounds by ten equal instalments of twelve thousand pounds each payable on the first day of September in each and every year free from exchange and all other deductions the first of such instalments to be payable on the first day of September one thousand nine hundred and twelve. Secondly: That I will pay to it in Sydney interest on the said sum of one hundred and twenty thousand pounds or such part thereof as shall for the time being remain unpaid at the rate of four pounds by the £100 in the year as follows: namely by equal half-yearly payments free from exchange income tax and all other deductions on the first day of the months of March and September in each and every year until the said principal sum of one hundred and twenty thousand pounds shall be fully paid and satisfied the first of such payments computed from the first day of September last was made on the first day of March instant."

The case came in the first instance before Gordon J., who held that though, as a matter of construction, the second clause bound the respondent to repay the moneys claimed, yet the appellant was not entitled to recover the amount of tax paid to the State because of the invalidity of the provision relied on (sec. 63 of the Land and Income Tax Assessment Act of 1895 and Harris v. Sydney Glass and Tile Co.[1]. His Honor, however, held that Federal tax could be recovered within the limits of secs. 53 and 54 of Act No. 34 of 1915. A defence that the statutory discharge of the mortgage was a discharge of the respondent's personal obligation was determined by his Honor against the respondent. Both parties appealed to the Full Court, which by a majority held that the statutory receipt had the effect of discharging also the personal obligations of the respondent, and therefore determined the whole action in his favour, without dealing with the other points.

The crucial words in the second clause of the mortgage are "free from exchange income tax and all other deductions." Do those words mean that, when payment of interest is made, it shall be so made that the Company shall receive in cash at its Sydney office the full 4 per cent interest, undiminished by any deduction whatever; or do they mean that, if it does receive the full 4 per cent interest in cash, there shall be a further sum paid corresponding to whatever income tax the Company may pay or have to pay to Commonwealth and State in respect of the full 4 per cent? Our duty is to construe the words actually used. It is not the intention of either party we have to ascertain: it is the expressed common intention of both parties. The dominant intention of the covenant as expressed is that the mortgagee shall receive 4 per cent interest undiminished by any cost of exchange, or income tax, or by any other sum burdening that interest. The mortgagor, having so undertaken, was bound to indemnify the mortgagee and, if necessary, by reimbursement, in respect of any diminution so as to leave a clear 4 per cent in the hands of the mortgagee.

That renders other defences necessary to be considered. One stands prominently forward, namely, the effect of the discharge of 1st September 1921. The appellant contends that the only effect of that discharge is to liberate the land as a security, leaving the personal obligations untouched. The respondent contends that its effect is to put an end to all personal liability as well as to free the land.

The Real Property Act 1900 is an Act the purpose of which is to simplify and facilitate dealings with land, including its mortgage to secure repayment of debts. But, except so far as may be inconsistent with its provisions (see sec. 2 (4)), it does not interfere with the ordinary operation of contractual or other personal relations, or the effect of instruments at law or equity. In Barry v. Heider[2], as a result of the decisions cited, Isaacs J. said:—"They have long, and in every State, been regarded as in the main conveyancing enactments, and as giving greater certainty to titles of registered proprietors, but not in any way destroying the fundamental doctrines by which Courts of equity have enforced, as against registered proprietors, conscientious obligations entered into by them"[3]. "The Land Transfer Act does not touch the form of contracts. A proprietor may contract as he pleases, and his obligation to fulfil the contract will depend on ordinary principles and rules of law and equity, except as expressly or by necessary implication modified by the Act"[4].

In order to carry out its purposes the Act provides, in the Schedule, forms of instruments to be followed. But by sec. 103 (2) it enables those forms to be used with "such alterations as the character of the parties or the circumstances of the case may render necessary." Registration is necessary to give statutory effect to an instrument, and by sec. 36, sub-sec. 4, every instrument when registered and stamped with the seal of the Registrar-General "shall have the effect of a deed duly executed by the parties signing the same." In the Ninth Schedule are forms of mortgage and of discharge. As mentioned, however, those forms may be accommodated to meet the actual requirements of the case, and so contain the actual bargain of the parties. When completely registered and stamped they are by force of law deeds with all the effect that law gives to a deed. The mortgage itself (sec. 57) is a security only. The personal obligation itself is independent of the security, but it is contained in and constituted by the statutory deed by which also it is secured. A discharge of the land may be effected by an endorsement on the mortgage under sec. 65, and that may be, according to its tenor and as sec. 65 says, a discharge (1) of the whole land from the whole or part of the principal sum secured or (2) of any part of the land from the whole of the principal sum. Reading that with sec. 103 (2), the discharge may be moulded to the agreement of the parties. Then, says sec. 65, upon entry of the discharge the land is, to the extent of the discharge, no longer subject to the encumbrance.

The particular form of the discharge in this case is: "Received from Ralph Sadlier Falkiner, this first day of September 1921, the sum of one hundred and twenty thousand pounds, being in full satisfaction and discharge of the within obligation.—The common seal of Groongal Pastoral Company Limited (in Liquidation) was hereto affixed by Sir Henry Yule Braddon and Wilfrid Cecil Metcalfe in the presence of Fred. I. W. Harrison, secretary.—(Sgd.) Hy. Y. Braddon—Wilfrid Cecil Metcalfe—(Seal of Company)." The discharge is in the most ample terms, apt to express a full and complete discharge of all personal "obligation." The Company executed the discharge under its common seal, and by the twelfth written admission the discharge was handed with the certificate of title issued in respect of the mortgaged property to the defendant's solicitors. They procured its registration. Had the discharge released all the land except an insignificant part, the full personal liability would clearly have continued. But if so, it shows that the personal liability for the debt and the burden on the land are not coincident. The extinguishment of the remaining unsubstantial security could not make all the difference between the existence and the non-existence of the personal liability for the debt. The discharge is an instrument duly registered and bears the stamp of the Registrar-General's seal, and, therefore, in law, has the effect of a deed, and, without expressing any opinion as to whether it is in fact a deed duly executed and delivered, it operates by its terms to discharge the respondent from his personal obligation, as well as to release his land from the encumbrance. A discharge differently worded would not necessarily have that effect.

The appeal therefore should be dismissed.

Appeal dismissed with costs.

Solicitors for the appellant, Metcalfe & Dangar.

Solicitors for the respondent, Norton Smith & Co.

[1] [1904] HCA 47; (1904) 2 C.L.R. 227.

[2] [1914] HCA 79; (1914) 19 C.L.R. 197.

[3] (1914) 19 C.L.R., at p. 213.

[4] (1914) 19 C.L.R., at p. 216.